V | Q4 2021

Operator: Welcome to Visa's Fiscal Fourth Quarter and Full Year 2021 Earnings Conference Call. All participants are in a listen-only mode until the question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host from Investor Relations, Ms. Jennifer Como and Mr. Mike Miltec. MS. Como, you may begin.

Jennifer Como: Thanks, Michelle. Good afternoon, everyone. And welcome to Visa's fiscal fourth quarter and full year 2021 earnings call. Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer and Vasant Prabhu, Visa's Vice Chairman and Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at www.investor.visa.com. A replay will be archived on our site for 90 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent reports on Form 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website. For non-GAAP financial information disclosed in this call. The related GAAP measures and reconciliation are available in today's earnings release. And with that, let me turn the call over to Al.

Al Kelly: Jennifer, thank you very much. And good afternoon, everyone. And thanks for joining us today. In the fourth quarter and throughout Fiscal 2021, Visa's delivered strong results against the backdrop of economic uncertainty and the lingering impacts of the COVID pandemic. In doing so, we demonstrated the resiliency of our business and validated our growth strategy as we continue to drive the rapid growth of digital payments and enable innovation in money movement globally. A quick summary of Q4 results. Fourth-quarter payments volume was a 121% of 2019 up about 0.8 points from Q3 and up 17% year-over-year despite the backdrop of a global pandemic this quarter. We also set a record with total global payments volume of $2.8 trillion. Cross-border volume, excluding intra -Europe, was 86% of 2019, 4 points better than Q3 and up 46% year-over-year and process transactions were a 124% of 2019 up 4 points from Q3 and up 21% year-over-year. Our net revenues grew 29% year-over-year, and non-GAAP EPS was a $1.62 up 44%. And talking too many of you over the last few months, I know you're wondering what the head for Visa and the payments ecosystem as we emerge from the pandemic. So rather than doing my usual report card on the quarter, I'm going to speak more broadly today about the four key reasons why we believe that these as even better positioned for growth than before the pandemic

Vasant Prabhu: Thank you, Al. Good afternoon everyone. Fiscal year 2021 was certainly a year of two very different halves. In the first half, net revenues declined 4%, and non-GAAP EPS was down 2% as we lapped a pre -COVID first half of 2020. In the second half, the recovery was well underway, and we were lapping some of the worst 2020 COVID impacts. As a result, net revenue grew 28%, and non-GAAP EPS was up 43%. Fiscal's fourth quarter results were better than we expected with net revenues up 29% driven by strong U.S. domestic trends. Robust value-added services, growth, and higher cross-border volumes from a faster than anticipated recovery in travel. Had we recognized service revenues on current quarter's payment volumes, net revenue growth would have been approximately 22%. GAAP EPS grew 70%, including equity in Investment gains and a one-time non-cash tax expense last year. Non-GAAP EPS rose 44% helped by a lower tax rate. Exchange rate shift increased both net revenue and EPS growth by approximately 0.5 a point. In constant dollar, global payments volume was up 17% led by continued strength in debit, as well as improving credit spending. Compared to the fourth quarter of 2019, global payments volume was 21% higher, 0.8% point acceleration from Q3, with debit slowing 1point, and credit improving by 3 points versus Q3. Excluding China, total payments volume growth was 18% or 26% higher than 2019, and a 1 point acceleration from the third quarter. China domestic volumes continue to be impacted by dual-branded [inaudible 00

Mike Milotich: Thank you Vasant. We're ready to take questions, Michelle.

Operator: Thank you. [Operator Instructions] Lisa Ellis from MoffettNathanson, you may go ahead.

Lisa Ellis: Good afternoon. Thanks for taking my question. Al, I wanted to follow up on number 2 on your list that was related to Visa's network of networks. You highlighted open banking as one area that you view as a positive for Visa because it enables new flows and value-added services. It's often perceived, so actually that open banking as a negative for Visa because it can shift volume away from debit. Can you just elaborate on this point and how Visa benefits from open banking? Thank you.

Al Kelly: Thank you, Lisa. Look, I think -- first of all open banking as you know is in its early stages. We believe by jumping into the middle of it, that we can help the ecosystem determine what is the best routing for different transactions. There are certainly are transactions that will lend themselves to A to A kind of approach which we know is one of the things that people will think about as a threat. But there are an awful lot of transactions, many transactions where people appreciate the protections that are provided by a network like dispute resolution, fraud security, and the like. When money is moved instantaneously that's nice at one level. But if once it's moved, it's awfully hard to get it back and it's much more about other elements than just speed. We also think by getting involved with Tink we are right at -- and have the opportunity to really learn as we go and we think that there is an opportunity to potentially provide value-added services even on transactions that might route over a different network. So I would say, Lisa, the bottom line is you could see some transactions that are incremental, that might move off these or off of our normal rail, but what the way we look at it as by leaning in, we're going to learn more about it and we're going to be able to influence what's happening and will also be able to make sure that we can provide other capabilities and value-added services to the various transactions.

Operator: Thank you.

Al Kelly: Thank you.

Operator: David Koning from Baird, you may go ahead, sir.

David Koning: Oh, yeah. Hey, thanks, guys. One thing I noticed was the last 6 years. I looked at the fiscal years and every year, U.S. volumes grew the same or faster than rest of world volumes. Maybe discuss a little bit. I know COVID the last year generated some of that, but as we look over the next 5 or even 10 years, A, does that reverse, and B, as part of the U.S. growth, just all the new fintechs stuff that's happened in the US, just creating a lift that is allowing kind of that outpacing?

Al Kelly: Well, I think David; it's a combination of things. It's certainly is the explosion of some of the neobanks and fintechs. Although you're saying those really developed all the way around the world, I would also say though that our Visa Direct platform is much more mature in the U.S. than it is in other markets besides somewhat alluded to that point in his remarks, and that has certainly helped spark some of the growth as well. I also think that the U.S. had -- prior to the pandemic at least been more advanced in e-commerce capabilities. And was much adjusted even more quickly than other markets might have. As we saw a rapid move towards cash digitization as COVID set upon us in March of 2020. All that said, we are setting out to invest around the globe and we want our business to grow in all markets and territories in which we do work. We are more than happy to have the U.S. continue to grow, but I think as I look at the future of the business over the next 5 to 10 years, I expect still healthy growth in the U.S., but I do expect our volumes to continue to grow in a nice way around the world. I mean, you saw this prior quarter as good as the growth was in the U.S. in the quarter, both Latin America and CEMEA had very, very strong quarters. And International growth was really held back by Asia-Pacific, which is really been hit very, very hard by lockdowns and restrictions as a result of the pandemic.

Vasant Prabhu: One other thing I might add as you look ahead, I mean, all the things Al said that even international is a little held back right now is because Asia, which is almost 20% of our payments volume is only growing at the levels -- low-single-digit levels, because they are largely still not open. The one thing to think about as we look ahead, as we said earlier, that Al said on his comments, contactless payments are already 70% penetrated outside the U.S. So that's still a growth engine in the U.S. that is just beginning to take off and given the size of the U.S., that will be a meaningful contributor to transactions growth. And we also know that Tap to Pay digitizes cash and allows us to capture a much larger share of transactions at the point-of-sale.

David Koning: Thanks, guys. Great.

Operator: Thank you. James Faucette from Morgan Stanley. You may go ahead, sir.

James Faucette: Thank you very much. I want to go back to one of the comments that you made as it relates to Buy Now, Pay Later in the growth of that, and how you see that as a growth avenue for Visa. Can you talk a little bit? I think I conceptually get the idea of expanding acceptance and the advantages that this can provide there, but if you provide a little bit more color of like how you think that evolves and what those transactions will look like in a way that will benefit Visa? Thank you very much.

Al Kelly: I think in the short-term, James, we're seeing many, many of these players use us and use our credentials, whether they're virtual cards or debit or credit card to actually pay off the various installments. And so we're getting instead of one transaction, we're getting four transactions. And certainly that's very good for us. The point I was making is that in many ways, BNPL is a closed loop capability; somewhat it came to what Wallets were 3 years ago. And close looks just end up hitting a wall. They don't end up -- they end up hitting a wall where it's hard to scale, it's hard to bring the level of depth of choice that you can add to your customers. And so what I think is going to happen is that BNPL players will become issuers who will issue Visa credentials that we'll have the, their value proposition for installments embedded within the product itself. So that they can therefore scale very, very quickly by immediately having access to the 100 million merchants that I referenced in my remarks. And so that's what I believe based on history is going to happen and that's what I'm referring to when I say BNPL 2.0.

James Faucette: That's great, Kelly. Thanks, Al.

Operator: Thank you. Sanjay Sakhrani from KBW, you may go ahead, sir.

Sanjay Sakhrani: Thanks. So the reopening of the U.S. border should be a pretty big catalyst for you guys. I'm just curious if you guys are seeing anything in terms of bookings that's giving you any perspectives on the trajectory that you outlined. And maybe what's assumed inside your expectations. Thanks.

Vasant Prabhu: The U.S. border, the inbound to the U.S. maybe referred to the fact that international revenues have not grown as much as international volumes. Lots of the reason is the inbound travel has been quite strong into the CEMEA region and Latin America, which have been quite open. And it has improved quite a bit in Europe. And because of the U.S. being largely restricted for inbound travel other than for U.S. citizens inbound to the U.S. is still -- it's better than Asia, but it is -- I'd say weaker than any of the other regions, Ex - Asia. So that's a clear upside there. It is a higher-yielding corridor, and so clearly there will be benefited there as the travel from Canada, travels from Europe is permitted. In general, I mean, it's hard to predict the mix. It is incorporated in our views of how cross-border is going to improve. Cross-border travel, for it to go from what we said to the levels we are assuming at the end of fiscal year '22. You would have to assume improvement inbounds to the U.S. and that's all part of the equation.

Mike Milotich: Next question.

Operator: Thank you. Harshita Rawat from Bernstein. You may go ahead.

Harshita Rawat: Hi, good afternoon. Thanks for taking my question. And I wanted to follow up on your comments and enabling disruptors as they could try for Visa. As we're seeing this rise of two-sided networks around the world, digital wallets, buy now pay later constraints, super apps. And you talked about them becoming newest issuers of Visa credentials or something that you're already seeing. Do you think they also pose risk if they use account-to-account payments that open banking at the funding mix in terms of cost longer term? Thanks.

Al Kelly: Again, my view on all of these new players has always been that we assume they can be additive to the ecosystem, and we assume that we can be helpful to them. And so we lean into all of these new players very, very early. It's one of the reasons why we had the position we have right now in crypto where we have partnerships with over 60 players because we leaned in right from the beginning. And all of them have the capability and many of them are already issuing these credentials. I think some of these players will help continue to digitize payments and take money away from cash. I think that it's extremely likely that some transactions will be A to A, but there's A to A transactions today, a lot of regular bill pay is for all types of purposes A to A. So I'm not really sure. It's that that new bigger deal, but that said, we think that we're in a far better position to buy leaning in and working with these players. And if we don't actually have the transaction on our net. Network or we're out of the processing of the transaction overall, there's still the possibility of providing other capabilities from our tool box of solutions in value-added services to bring to the party. So how it's all going to play out, we'll have to see, but I'm optimistic that the position that we're taking, which is to lean into all of this is going to put us in the best place to be successful.

Vasant Prabhu: Our approach on network of networks strategy is fundamentally to go to people with solutions that can meet all their money movement means. And we've told you about how we do it with a variety of players. Whether it's cross-border remittance providers, we allow them to do account-to-account, account-to-card, and card-to-account, any which way they can. We make it easy for them with one connection to get them money wherever it needs to go. In effect, we get your money from point A to point B. The entire journey may not be on our rails, maybe part of the journey are on some other rails, but we can get it there and we provide all the things you expect from Visa, which is the trust our brand brings the reliability, the flexibility, the security, the dispute resolution, and all those capabilities. So fundamentally, it's all about solution providing -- about providing solutions, and not just about rails.

Harshita Rawat: Thanks.

Operator: Thank you. Darrin Peller from Wolfe Research. You may go ahead.

Darrin Peller: Hey. Thanks, guys. It's kind of a two - sided question, but first is on the medium to long term. When we look at debit being stronger, understanding obviously an acceleration on e-com and just the other structural positives you've seen with cross-border 94% of '19, even with travel, it only 65 services strong. I just be curious if you can touch on what you see structurally sustainable about these higher than probably what you'd expect pre -pandemic trends, standing versus not. And then when you think about your '22 qualitative look, what would you say were the areas you would try to build in the most conservatism into the outlook in terms of macro assumptions?

Vasant Prabhu: I think the first question. First. So in terms of the structural changes that have happened -- that are sustainable, the cash digitization engine is clearly extremely healthy. And that is a big driver of debit, because debit is the first gateway to digital payments that consumers use. And we've seen that debit has sustained its growth almost globally. Even as we have seen, card present come back and reopening happen and similar statements go where there's been quite a bit resilience to debit strength helped by Visa Direct too. So all indications are that the cash digitization engine, especially in emerging markets, is really taken off because habits are being formed and people have gotten used to using digital forms of payment. So we think there's quite bit resilience there and as evidence of that, even as things have started to normalize. The shift to e-commerce too has been remarkably resilient. We've seen -- if you see the charts we send out with our press release, you can see card-present has a pretty decent recovery in the past few quarters. And if you look at how well e-commerce has held up. Card-not-present has held up. Again, there's been quite a bit of resilience there. Many new categories, people have gotten used to doing using e-commerce. And the biggest thing is cross-border e-commerce. Cross-border e-commerce has been extremely resilient. If you look at it, it's indexing in the 140s. We saw a spike last quarter because of crypto currencies, but its back into the 140s as it was in the second quarter, which is very hefty growth compared to its prior growth rate. And it has held up even as cross-border travel is coming back. And even as card presence spending is coming back. So those 2 structural changes have shown quite a bit of resilience. Once you look past those our value-added services have held up extremely well through the pandemic. If you look at the average growth in our value-added services over the past 6 to 8 quarters when we had the pandemic, it's been in the high teens. And our new flows businesses have been extremely high growth too. We're expecting high teen’s next tier. So those two new growth engines have shown quite a bit of resilience all the way through the pandemic. And that clearly lays a great foundation for the future as they become a larger and larger part of our business. If they're growing faster than our core consumer payments business. So that's a structurally higher growth rate because they are larger part of our mix.

Operator: Bryan Keane from Deutsche Bank, you may go ahead, sir.

Bryan Keane: Hi. Good afternoon. Al, some of your peers have decided to buy the ACH rails and Visa has decided not to take that strategy and rely more on Visa Direct. So I was just hoping you could give us your latest thoughts on not needing to own the ACH rails and how it stacks up versus competitively versus what you guys have on Visa Direct.

Al Kelly: Well, whether it's -- Bryan, whether it's ACH or RTP rails, they're -- is available to us as they are to anybody else. And we don't believe that we have to operate them in order to be successful in our network of networks strategies. We think there's other places to spend our time and our money and core to what our view is, is that we want to be the traffic cop and facilitator and enabler so that we -- a sender can provide us the funds and tell us where the destination is around the world and through Visa Direct or B2B Connect, and utilizing for the first or last mile at ACH network or an RTP network gives us a great capability to reach what we believe is an unprecedented level of endpoints around the world that we think very, very much a differentiator. And Visa Direct beyond its reach because we're using our Visa net platform, offers incredible operating scale. It allows us to leverage our value-added services that operate on VisaNet. So and we've had great success in commercializing the capabilities through the various use cases that I referred to in my remarks. So we think the place to invest is in the capabilities to move funds seamlessly with great transparency and good economics, and continuing to invest there is where we take the smart thing to do.

Vasant Prabhu: I might just try to; perhaps clear up what maybe a misconception in the question you asked. Most ACH rails are owned by bank consortiums, the central banks around the world. You might be referring to -- if I think it's the competitor you're referring to they -- that's the RTP rails you're talking about and they don't own the rail. The RTP rails are typically always owned by bank consortiums, essential banks. They are in the business of building the rails and then handing them over. And then in some cases, operating the rail, which by the way as I said opens to everybody to use a regulated rate. So the competitive you're referring to does not own RTP rails to the best of my knowledge anywhere. They have, in some cases, the opportunity to operate them in return for building them. In some cases, they just build them and move on and they're not proprietary rails. They're open to everybody including us. And we looked at it hard and we concluded that the business of building these rails is not an attractive business. And the business of using these rails and the business of adding value-added capability as intelligence through these rails is a good business, and that's the business that we choose to be in.

Bryan Keane: Got it. Thanks for the clarification.

Operator: Thank you. Trevor Williams from Jefferies, you may go ahead, sir.

Trevor Williams: Hey, good afternoon. Thanks for taking the question. I wanted to ask on yields in data processing. I know there are a few moving pieces in there, but was a little surprised this quarter to see those ticked down by a few percent from the September quarter, despite the improvement in cross-border. So I think it'd be helpful just to get a sense of what the main variables or there I think from Vasant’s comments, it sounds like there was just some country mix, but as we look to 4Q and 22. Just with the expectation that travel keeps working back towards the 2019 levels, like you guys have embedded just I mean, how much can that yield line benefit next year? And if there's any pricing that we should be thinking about rolling on next year with that, thanks.

Vasant Prabhu: I'm not sure there was any yield impact. If you just look at first of all, on the data processing line, both volumes and revenues are -- there's no lag, right? So the revenue should move in line with volumes in the quarter. And it did this quarter. I believe it was 20% and 21% or something volumes in net revenues. So they moved in line. So there really wasn't really any change in yield. Now, clearly, the cross-border business is, relatively speaking, still recovering and below where it was, and therefore, the yields have been impacted by the mix shifting away from cross-border, and the mix improving is clearly helping the yields. But from one quarter to another, the yields were relatively stable. There was nothing unusual going on there. I'm sure after the call, if there's any confusion, Mike and Jennifer could clear it up. But my short answer would be the yields are just fine and there was nothing unusual there.

Trevor Williams: Okay. Thanks.

Operator: Thank you Tien-Tsin Huang from JPMorgan. You may go ahead, sir.

Tien Tsin Huang: Thank you so much. [Indiscernible] getting late, I just want to ask as you put your internal budget and investments together for fiscal '22, aside from cross-border recovering, what products or initiatives [Indiscernible] side are you most excited about this year? I know you lead with the 4 points about bigger picture growth been thinking about just near-term products and initiatives that we should be focused on.

Al Kelly: I'll go with that, Vasant respond as well, Tien - Tsin. Look, I think you know each of the last 3 or 4 quarters, we've seen the recovery take more shape and I think there's --I'm in -- I feel very good about the way the business is advancing right now. I think consumer payments is positioned to stay strong, but in response to the question, a few questions ago, I think e-commerce is going to sustain. I think Tap to Pay is going to sustain. We're starting to see some of the benefits of our acceptance footprint in places like Latin America grow and we're starting to see more of a shift to PV and away from cash throughout that region. So consumer payments is still bread and butter for our Company and growing credentials, growing acceptance points, and continuing to work with our issuing partners on engagement and getting the most out of their existing customer base remain a very, very high priority for us. And I think we've gotten really good traction on our two other revenue streams in new flows and value-added services. And I'm -- we've got a new flows value Visa Direct. We've talked a bunch about and feel very good about that. And I think as the world starts to see people return to the office and travel start to return, I think that's going to help the B2B space. And I think a lot of what I commented on in terms of wins and advances and value-added services in Fiscal '21 will continue into Fiscal '22. So I think in short I like the fact that we've got a more diverse business model and more leverage to pull. Of course, we want to continue to plant flags and geographies where the business is still are payments and money movements a little bit more, more nascent. But all-in-all, I'm quite bullish on how the business looks as we enter Fiscal '22. Vasant, you want to add to anything?

Vasant Prabhu: Sure and then just to sort of give you a sense of where all the investment money is going. I mean, the broad team is we have substantially expanded the services we offer. The use cases we serve. And so what that means is we are investing significantly to continue to make our network more flexible. Add more functionality. Every day, our network is getting more flexible and adds more capability. We are substantially more services now to sell to our clients. And there are many new types of issuers and new types of acceptance points. So significantly increasing the number of sort of the boots on the ground closest to our clients. So there's a big investment in the ground closest to clients to make our clients easily incorporate these services into their business, and also to bring in all these new types of fintechs if you want to call them, the innovators into our ecosystem. The third dimension also is broadening of our brand. You've seen our new brand positioning. If you have watched the Olympics, you couldn't have missed it. It reflects where the future of Visa is. It's not just about consumer payments. So there's clearly an investment in making sure that that message gets across. So broadly speaking, it's enabling new U.S. cases, new geographies, new clients, and repositioning the whole brand for essentially the leader in money movement.

Tien Tsin Huang: Thank you both for the update.

Operator: Timothy Chiodo from Credit Suisse, you may go ahead.

Timothy Chiodo: Thanks a lot for taking the question. I'll make this a little bit more of an industry question, but out alludes to something you mentioned earlier in terms of consumer protections, charge-backs to speed processes associated with card-based transactions. Maybe you could just talk a little bit broadly about in terms of, of course, there are many account to account and bank-based payment methods that are out there globally. Generally speaking, what types of protections do they have, if any? And then the follow-up to that is how Visa can potentially work with some of those account-to-account and our bank-based payment methods to help add some of this in terms of the scheme, the process, the protections, security etc.

Al Kelly: Well, the protections are very important. People tend to be on the biggest consumer protections that we think about are obviously fraud, making sure that consumers are not liable for fraud and charge-back protection that if you order a red large shirt and you get a blue medium one, that the ecosystem will stand behind you and either get you a replacement or get your money back. To the best of my knowledge, Tim, I don't think that the A2A options offer any of those kinds of protections to consumers today that I'm aware of. And I think we'll have to see as A2A advances and as we get deeper into open banking, particularly starting in Europe, which is really ground zero for open banking. And obviously one of the reasons why we're excited about owning Tink. We'll have to see whether we think that there's a way for us to step into try to help provide some of those protections for A or it could well be that A2A just has a different profile for our profile of protections or lack thereof for those transactions versus transactions on the run on network like Visa.

Timothy Chiodo: Excellent. I really appreciate that context. Thank you so much Al.

Mike Milotich: We have time for one last question Michelle

Operator: Thank you. Ashwin, Shirvaikar from Citi. You may go ahead, sir.

Ashwin Shirvaikar: Thank you. So I mean, less than I think it was in your comments you mentioned sustained higher growth post-COVID and unpack this along the lines of U.S. versus non-U.S. in some of the debit versus credit parts. So that was quite helpful, my question is what the margin structure looks like as the revenue structures. First normalized and then possibly steps up beyond what was historically.

Vasant Prabhu: Looking at the average operating margins for the Company, as we've said before, our general view is that our goal is to grow volumes and revenues based on the opportunities available which we -- which as we've discussed are significant. And then we invest what it takes to do that. Margins are an outcome and not an objective. Our business does tend to have a high fixed cost structure, the marginal transaction comes a low marginal costs. Value-added services businesses have good margins. New flows businesses have good margins. Yields and margins are different. The new flows businesses can have different yields than our core payments business. But given that it leverages, the infrastructure and it's very much a scale business does come with very good margin. So you saw what happened to margins this year. We had a nice improvement from the drop we had in the COVID era. So net-net, I mean, we don't see anything vastly different from a margin perspective in the future, it will still be driven by the same factors. As I said, it's an outcome, not an objective.

Ashwin Shirvaikar: Understood. Thank you.

Mike Milotich: Well, thank you, everyone for joining us today. If you have additional questions, feel free to reach out to myself for Jennifer and we're happy to help you. And thanks again and have a great evening.

Operator: Thank you. This concludes today's conference. You may disconnect at this time.