Visa Inc. (NYSE:V) today announced financial results for the Company’s fiscal third quarter 2016, ended June 30, 2016. GAAP net income for the quarter, inclusive of special items related to the acquisition of Visa Europe, was $412 million, a decrease of 76% over the prior year’s results, or $0.17 per share, a decrease of 75% nominally over the prior year’s results, primarily due to the impact of the Visa Europe-related special items noted below.
The Company did not include Visa Europe’s financial results from June 21, 2016 through June 30, 2016, nor the dilutive impact of the outstanding shares of series B and C convertible participating preferred stock in the calculation of basic or diluted earnings per share as the effects were immaterial. The Company’s unaudited consolidated balance sheets and statements of cash flow reflect preliminary balances related to the acquisition of Visa Europe as of June 30, 2016, pending final valuation. All references to earnings per share assume fully-diluted class A share count, excluding the preferred stock, unless otherwise noted.
During the fiscal third quarter of 2016, the Company recorded the following special items which are non-recurring and have no impact on operating performance:
- $1.9 billion Visa Europe Framework Agreement loss in operating expense related to the effective settlement of the Framework Agreement between Visa Inc. and Visa Europe upon consummation of the transaction;
- $152 million in operating expense for acquisition-related costs including $60 million of transaction expenses recorded in professional fees and $92 million of U.K. stamp duty recorded in general and administrative expenses;
- $145 million gain in other non-operating (expense) income related to euro-denominated bank balances associated with the upfront cash consideration for the acquisition of Visa Europe; and
- $42 million loss in other non-operating (expense) income related to currency forward contracts entered into to mitigate a portion of the foreign currency exchange rate risk associated with the upfront cash consideration for the acquisition of Visa Europe.
Excluding these special items, adjusted net income for the quarter was $1.6 billion, a decrease of 10% over the prior year’s adjusted results. Adjusted earnings per share was $0.69, a decrease of 7% nominally or 4% in constant dollars over the prior year’s adjusted results. The prior year’s adjusted results were positively impacted by a $280 million tax benefit.
Net operating revenue in the fiscal third quarter of 2016 was $3.6 billion, an increase of 3% nominally or 6% on a constant dollar basis over the prior year, driven by continued growth in processed transactions and nominal payments volume. Currency rate shifts versus the prior year negatively impacted reported net operating revenue growth by approximately 3 percentage points.
“We continue to be pleased with our performance as we delivered consistent and predictable results. While little has changed in the global economic environment, and cross-border commerce continues to be challenged by a strong U.S. dollar, domestic consumer spend across the globe remains strong and resilient,” said Charlie Scharf, Chief Executive Officer of Visa Inc. “Furthermore, we are delighted to have closed our purchase of Visa Europe and remain confident that operating as a unified global business will quickly bring meaningful value to our clients and the economies in Europe.“
“Reflective of our continued confidence in the business and our desire to offset dilution from the preferred stock issuance, we have repurchased $5.5 billion in common stock year-to-date and our board has increased our buyback authorization by $5.0 billion to $7.3 billion. This also delivers on our ongoing commitment to return excess cash to shareholders,” added Scharf.
“Looking ahead, we expect next quarter results to improve modestly, similar to first-half of the year results. As we look toward fiscal full-year 2017, our underlying business is strong, and with the lapping effect of several items, based on what we know today and assuming similar consumer spending patterns, we feel good about our ability to produce stronger revenue and earnings growth,” continued Scharf.
Fiscal Third Quarter 2016 Financial Highlights:
Payments volume growth, on a constant dollar basis, for the three months ended March 31, 2016 on which fiscal third quarter service revenue is recognized, was 12% over the prior year at $1.3 trillion.
Payments volume growth, on a constant dollar basis, for the three months ended June 30, 2016, was 10% over the prior year at $1.3 trillion.
Cross-border volume growth, on a constant dollar basis, was 5% for the three months ended June 30, 2016.
Total processed transactions, which represent transactions processed by VisaNet, for the three months ended June 30, 2016, were 19.8 billion, a 10% increase over the prior year.
Fiscal third quarter 2016 service revenues were $1.6 billion, an increase of 6% over the prior year, and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues rose 10% over the prior year to $1.5 billion. International transaction revenues grew 4% over the prior year to $1.1 billion. Other revenues were $209 million, an increase of 5% over the prior year. Client incentives, which are a contra revenue item, were $839 million and represent 18.8% of gross revenues.
GAAP operating expenses were $3.2 billion, a 155% increase over the prior year, in the fiscal third quarter, including special items which are non-recurring. Adjusted operating expenses, which excludes special items, were $1.2 billion, a 7% decline over the prior year, primarily due to decreases in personnel and marketing expenses.
Cash, cash equivalents, and available-for-sale investment securities were $12.4 billion at June 30, 2016.
The weighted-average number of diluted shares of class A common stock outstanding was 2.4 billion for the quarter ended June 30, 2016.
The Company’s adjusted quarterly net income and earnings per share are non-GAAP financial measures that are reconciled to their most directly comparable U.S. GAAP financial measures in the accompanying financial tables.
On June 21, 2016, the Company acquired 100% of the share capital of Visa Europe. The acquisition positions Visa to create additional value through increased scale, efficiencies realized by the integration of both businesses, and benefits related to Visa Europe's transition from an association to a for-profit enterprise. At the closing of the transaction, the Company:
- Paid up-front cash consideration of €12.2 billion ($13.9 billion);
- Issued preferred stock of the Company convertible upon certain conditions into 78.7 million shares of class A common stock equivalent to a value of approximately €5.3 billion ($6.1 billion) at the closing stock price of $77.33 on June 21, 2016; and
- Agreed to pay an additional €1.0 billion, plus 4% compound annual interest, on the third anniversary of the closing.
During the three months ended June 30, 2016, the Company repurchased 21.7 million shares of class A common stock, at an average price of $77.53 per share, using $1.7 billion of cash on hand. Fiscal year to date through June 30, 2016, the Company repurchased a total of 71.6 million shares of class A common stock, at an average price of $76.09 per share, using $5.5 billion of cash on hand.
The board of directors has authorized a new $5.0 billion class A common stock share repurchase program. The Company currently has $7.3 billion of funds, authorized by the board of directors, available for share repurchase.
On July 19, 2016, the board of directors declared a quarterly cash dividend of $0.14 per share of class A common stock (determined in the case of class B and C common stock and series B and C convertible participating preferred stock on an as-converted basis) payable on September 6, 2016, to all holders of record of the Company’s common and preferred stock as of August 19, 2016.
Financial Outlook for Fiscal Full-Year 2016:
Visa Inc. updates its financial outlook for the following metrics for fiscal full-year 2016 to include Visa Europe. In addition, Visa Inc. provides the impact from Visa Europe on net revenue growth and earnings per share for the fiscal fourth quarter 2016: