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spk02: Welcome to Visa's fiscal fourth quarter and full year 2022 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 call over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin. Thanks, Holly.
spk03: Good afternoon, everyone, and welcome to Visa's fiscal fourth quarter and full year 2022 earnings call. Joining us today are Al Kelly, Visa's chairman and chief executive officer, and Vasant Prabhu, Visa's vice chair 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 30 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 the result of many factors. Additional information concerning those factors is available in our most recent reports on Forms 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.
spk04: Jennifer, thank you, and good afternoon, everybody, and thank you for joining us. Visa's performance in 2022 was very strong, even with the uncertainty created by inflation, the war in Ukraine, COVID, the timing of cross-border travel recovery, and a potential recession. On a full year basis, credentials increased 9% year over year and are up 13%, excluding Russia. We crossed 4.8 billion tokens, surpassing the number of card credentials and almost doubling from last year. Merchant locations, including locations from Payment facilitators grew 11%. Global tap-to-pay penetration grew 10%, 10 points to 54% of face-to-face transactions, excluding Russia. And this was helped by 20 additional countries crossing over the 50% penetration mark. Excluding the U.S. and Russia, global tap-to-pay penetration was 71%. Visa's network processed 70% more tap-to-ride transactions on global transit systems at FY22, surpassing 1 billion transactions for the first time ever. In FY22, we signed over 400 commercial partnerships with fintechs globally, from early-stage companies to growing and mature players. Visa Direct had 5.9 billion transactions, excluding Russia, across 60-plus use cases and over 2,000 programs, helped by more than 500 enablers. Over half of our clients utilized five or more evaluated services in 2022, and a third used 10 or more. All of this helped to drive fiscal full-year net revenues up 22% year-over-year and non-GAAP EPS of $7.50 up 27%. Now let me transition to our fourth quarter performance and key highlights, and then make a few comments about 2023. Fourth quarter, net revenues grew 19% year over year and non-GAAP EPS was $1.93 of 19%. Total Q4 payments volume was up 10% year over year or 135% versus three years ago, down one point from Q3. Excluding Russia and China, payments volume was up 16% or 145% of 2019. U.S. Q4 payments volume was up 12% year-over-year, or 145% of 2019, down one point. International volume was up 9% year-over-year, or 126% of 2019, down one point versus Q3. Excluding Russia and China, international volume was up 20%, or 146% of 2019, flat to Q3. Q4 cross-border volumes, excluding inter-Europe, were up 49% year-over-year and 130% versus three years ago, up seven points from Q3. Excluding Russia, cross-border year-over-year growth was higher by about five points. Travel-related cross-border volumes rose 12 points from 104% of 2019 in Q3 to 116% in Q4 as travel continued to recover. Process transactions were up 12% year-over-year, or 140% versus 2019, and we processed 553 million transactions a day during the quarter. Now I'll provide an update on the drivers that propelled this growth in consumer payments, new flows, and value-added services. Our consumer payment strategy has three components to it, growing credentials, increasing acceptance, and deepening engagement. Total consumer payments revenue for the fourth quarter and the year were both up more than 20% in constant dollars. On the credential side, we signed several significant deals with financial institution clients, co-brands, and fintechs in the fourth quarter. Starting with financial institution clients in our Asia Pacific region, we signed with China Construction Bank, Bank of Communications, and Shanghai Pudong Development Bank, leading banks in China. Throughout fiscal year 2022, we have renewed with eight of our top China issuers. In our Samir region, we signed with National Bank of Kuwait, the largest bank in Kuwait, and ADIB, the largest Islamic issuer in the UAE. In Latin America, we renewed and expanded our partnership relationship with the second largest bank in Colombia, Banco de Vivienda, including Credit, Debit, Commercial, and Visa Direct. Another key renewal in Latin America this quarter was with Doc. One of the reasons, a few full-stock enablers providing bin sponsorship, issuer processing, acquiring as a service, and program management via a single connection. Already servicing more than 100 fintechs in Brazil, Doc will expand across new markets, including Mexico, Colombia, Peru, Argentina, the Dominican Republic, and Ecuador. In Europe, we renewed and expanded our relationship with UBS. the largest issuer in Switzerland. We've made excellent progress in Germany with our share growing significantly since 2018, adding more than 12 million debit credentials in the market. Visa Debit is now offered by three of the most significant banks in the market, ING, DKB, and Comdirect. And we're also pleased to announce that Santander Germany will begin issuance in 2023, making Visa the single scheme of choice for Santander in that country across debit and credit. Altogether across the European continent, our quarterly active credentials were up 18% year over year. In the co-brand space, we continue to expand our position in several countries with two recent wins and an extension. First in India with the Samsung co-brand card targeting existing and prospective Samsung users. Second in the US, Visa and Kohl's with Capital One as the issuer recently entered into an agreement to launch a Kohl's co-branded Visa credit card. And also in the U.S., we're excited to share that Visa signed a multi-year co-brand agreement extension with Disney for cards issued by JPMorgan Chase. Now moving to fintech and wallet clients. In Egypt, mobile network operator Etisalat Egypt, with more than 28 million customers, has signed a deal for virtual and physical card issuance. The first digital bank in Iraq, Visa Iraq Islamic Bank, seeking to digitize payments and drive a cashless society through Visa credit debited prepaid card issuance across their 400,000 customers. And large cryptocurrency exchange FTX with over 5 million registered users have signed on to expand issuance of Visa credentials beyond the U.S. to over 40 countries, bringing our total number of issuing partnerships with crypto platforms to more than 70. Finally, GoHenry Group is a U.S., U.K., and Europe-based fintech that provides prepaid cards and a financial education app for children aged six to 18 to over 2 million members. They will be expanding their UK visa issuance to continental Europe and the US. On the acceptance front, we signed an agreement with Flyware, a global payments enabler and software company that supports the higher education industry to grow card acceptance in mainland China, Hong Kong, and Korea. In Mexico, we renewed our relationship with CLIP, an important payment facilitator, which will aid in the expansion of acceptance to micro, small, and medium merchants. In Mexico, we have more than doubled acceptance since 2019 to nearly 3 million merchant locations. Our efforts across Latin America to grow acceptance and wind processing share have paid off. Outside of Brazil, we have expanded our processing penetration by more than 20 points since 2019. with the migrations of domestic transactions in Argentina, Chile, Ecuador, Colombia, and most recently, Uruguay. Customer engagement is very important, and tap-to-pay is one of the best ways to pay in the face-to-face environment. In Q4, the U.S. reached 28% penetration and saw more than 1 billion tapped monthly transactions for the first time ever in July, surpassing the U.K. as the largest country for tap-to-pay transactions. And this is nearly double the number of transactions from last year and more than five times the number of transactions from two years ago. Now moving on to new flows, which grew fourth quarter and full year revenue over 20% in constant dollars. Our B2B business had nearly $1.5 trillion in payments volume for the full year, growing 30% in constant dollars. In the fourth quarter, B2B payments volume was almost $400 billion, growing 21% year-over-year in constant dollars. Within B2B, our strategy is focused on card-based payments, cross-border payments, and accounts receivable and accounts payable payments, and we've made progress across all three this quarter. Visa has signed a long-term agreement with European payments as a service provider, Modular, to issue Visa virtual cards to support B2B travel clients issuing out of Europe. Also in Europe, Visa won the credit card portfolio, Credit de Noir, encompassing Societe Generale, in addition to renewing consumer credit and debit portfolios in both industries. We also recently reached a new fleet product partnership agreement with Eden Red, which is making their Eden Red Essentials product available to commercial and public sector organizations with vehicles in the United States. In cross-border flows, we signed an agreement with Visa B2B Connect with TD Bank, our first bank in Canada. We also signed banks for the first time in Switzerland and Korea. And recently, our Samir region signed five banks across Kazakhstan, Qatar, and Azerbaijan. In the accounts receivable and payable space, MineralTree, a U.S. automated invoice-to-payment solution provider for the middle market and enterprise businesses, recently enhanced their relationship with Visa to support cards for their payables customers. For other new foes, Visa Direct grew transactions 36% this year, excluding Russia, reaching 5.9 billion transactions. In the fourth quarter, Visa Direct had 1.7 billion transactions and grew 42%, up seven points from Q3. In addition to growing the existing Visa Direct business, our strategy for growth includes one, scaling new use cases with a particular focus on cross border, two, expanding existing use cases to new geographies, and three, accelerating through enablers. In terms of scaling new use cases, I'm pleased that eBay, one of the largest third-party marketplaces in the world, has enabled faster payouts for its sellers via Visa Direct in the U.S. We recently signed a deal in the U.S. with GoPuff, a consumer goods and food delivery service with millions of customers across hundreds of U.S. cities to provide their delivery partners the ability to cash out their earnings balance in real time. In terms of bringing existing use cases to new geographies, in addition to some of the issuing deals I mentioned earlier, we have also signed Visa Direct deals with China Construction Bank and TESOLAC Egypt. Other new geographies also include Norway. Norwegian mobile payment application, VIPS, will offer users access to Visa Direct for all domestic payments. This will improve the card-based experience for VIPS, roughly 4.3 million users covering over 80% of Norway's population. On the enabler strategy, Square has expanded their instant transfers to Canada, offering their businesses a way to have faster merchant settlement opportunities. U.S. Money Movement Automation Platform, Astra, is using Visa Direct to let developers add real-time transfer functionality to their applications so millions of its end users can fund cards, wallets, and demand deposit accounts with their eligible debit cards. Visa Direct has extensive reach, including more than 3 billion cards and over 2 billion accounts. Recently, Visa Direct has signed with Singapore-based payments infrastructure platform, TUNES, With a network of mobile wallets across 44 countries and territories, our partnership will add a send-to-wallet capability with Visa Direct through Tunes' B2B payment platform and provide access to 78 already integrated digital wallet providers representing over 1.5 billion digital wallets globally. So with this partnership, we'll expand our total reach to nearly 7 billion endpoints covering cards, accounts, and wallets. As part of new flows aligned with our global network of network strategy, we're focused on building the infrastructure that enables our clients to deliver cross-border products and services for their customers. One of our newest capabilities in this space, Currency Cloud, signed 35 new partnerships this quarter, including PaySend, a global end-to-end payment platform with over 7 million customers and 17,000 SMEs. PaySend intends to expand capabilities of its PaySend business platform for clients to collect and hold up to 34 currencies and seamlessly convert funds back to the required currency at competitive FX rates. Now moving to value-added services, which had 6 billion in revenue for 2022, up 20% in constant dollars. So the fourth quarter revenues were up 1.7 billion and grew 20% in constant dollars as well. Our strategy here is also threefold. One, to deepen client penetration of existing products. Two, to build new products and launch new solutions. And three, to extend geographically. On the first, deepen client penetration of existing products, let's explore two of our largest value-added services businesses, DPS, Debit Processing Services, and CyberSource. DPS, our issuer processing business, hit a major milestone, exceeding $2 trillion in annual authorization volume in FY22. DPS is also renewed with nearly 30 clients representing over $600 billion in annual DPS processed authorization volume. Cybersource remains a compelling gateway solution for merchants and most recently signed McDonald's, Little Caesars, and JetBlue. We also continue to expand Cybersource relationships with acquirers, first with the Bank of New Zealand, New Zealand's largest acquirer. Together with Japanese-acquired SMCC, Cybersource continues to provide payment processing solutions for more than 100,000 terminals in both card-present and card-not-present environments. SMCC is also leveraging Cybersource's capabilities for value-added services, such as fraud management. Most recently, Cybersource is powering SMCC's expansion of the EMV transit acceptance and supporting commercial and pilot launches with 24 different transit operators across Japan. Deutsche Bank will offer CyberSource's decision manager to its merchants so that they can receive a risk value for each e-commerce transaction using rules and AI to help prevent online retail fraud. On the second strategy, build new products and launch great new solutions, our recently acquired capability, Tink, is a real example. Tink recently signed Audion to offer a white label pay by bank open banking solution on a single platform. Audion will utilize Tink's payment initiation technology so businesses can enable account to account payments. Audion's open banking integration will launch first in the UK with plans to expand to multiple markets during 2023. Last quarter, I mentioned our newly developed risk as a service capabilities. powered by our network-level data, AI capabilities, and our risk experts. Recently, Navy Federal in the U.S. and several banks in Samia signed engagements for the service, which aims to deliver enhanced fraud prevention and management. Our third strategy is to extend geographically, in many cases through tailored solutions. Since our acquisition of Visa Europe, we have made significant effort to bring value-added services to our clients. Across Europe, clients enrolling onto Visa Advanced Authentication and Visa Risk Management products tripled between October 2019 and September 2022. And these clients span across 14 different European countries. In Samia, Visa Risk Manager launched a network agnostic pilot with Emirates NBD, a leading issuer in the UAE. As part of Visa's network strategy, network agnostic VRM will allow clients to manage card payment risk across their entire portfolios. We recently brought our Buy Now, Pay Later solution to Canada and have continued to make progress, adding some of Canada's largest merchants, including Simons and Canada Computers. And RBC and Visa have entered into an agreement to launch the Visa installment solution on eligible RBC consumer credit cards. In conclusion, our 2022 performance was very strong and demonstrated that our strategies for each of our growth levers are delivering. We see new flows as a way to drive additional volumes and transactions and value-added services as a way to drive additional yield on existing volumes and transactions. Prasad's going to go into a lot more detail, but let me make four points about 2023. One, in the year ahead, I see significant opportunity for the business across all three of our growth growth areas, consumer payments, new flows, and value-added services. Two, we faced some headwinds, in particular lapping Visa and a challenging FX environment. Three, we did not factor a steep economic downturn or recession into our numbers. To the extent one occurs, it will have some impact. Four, we will continue to manage our business for the medium and long term and will invest in initiatives that are compelling and will provide future growth. That said, We recognize that some economies around the world could face increased pressure, so we will be monitoring things very closely. We will, as we have in past periods, be flexible and prudent in the management of our expenses. As a leadership team, we've demonstrated Visa's ability to manage through many different environments, and I remain confident that our strategy will continue to position Visa at the center of money movement for years to come. With that, over to Vasad.
spk01: Thank you, Al. Good afternoon, everyone. Our fiscal fourth quarter results reflect sustained strength in domestic spending and continued recovery in cross-border travel. Net revenues were up 19% and GAAP EPS was up 13%. Non-GAAP EPS was up 19%. The strong dollar was a stiff headwind, dragging down reported net revenue growth by four points and non-GAAP EPS growth also by four points. This continuation of operations in Russia reduced net revenue growth by about five points. A few key highlights. In constant dollars, global payments volume was up 10% year-over-year and 35% about 2019. Excluding China and adjusted for Russia, global payments volume was up 16% year-over-year and 45% higher than 2019. US payments volume was up 12% year-over-year and 45% about 2019. In constant dollars, international payments volume, excluding China and Russia, was up 20% year-over-year and 46% about 2019. The cross-border travel recovery continues. However, the pace of recovery has moderated as most borders are now open, except China. Indexed to 2019, cross-border travel volume, excluding transactions within Europe, rose 12 points in the fourth quarter versus a 22-point gain in the third quarter. Our three growth engines, consumer payments, new flows, and value-added services, all grew revenues in excess of 20% in constant dollars. In fiscal year 22, we bought back $11.6 billion of stock at an average price of $205.97. Contributions to the litigation escrow account, which have the same effect as a stock buyback, added another $850 million. We also paid out 3.2 billion in dividends. At the end of September, we had 5.1 billion remaining in our buyback authorization. In October, our board authorized a new $12 billion stock buyback program and increased our dividend by 20%. Now onto the details. In the U.S., credit grew 17% year-over-year to 36% over 2019, helped by travel and entertainment spending. U.S. debit grew 7%. Relative to 2019, debit was up 54%, sustaining significantly above the pre-COVID trend line, even as credit has recovered. U.S. card present spend grew 11% year over year and was 27% about 2019. Card not present volume, excluding travel, grew 10% year over year and was 68% higher than 2019. E-commerce spending remained well above the pre-COVID trend line, even as card presence spend continued to recover. On the international front, Latin America was up 33% year-over-year and 109% higher than 2019. Our Semiya region, excluding Russia, grew 32% year-over-year and was 105% higher than 2019. Growth in both regions was fueled by client wins cash digitization, and acceptance expansion. Europe was up 12% year-over-year and 34% higher than 2019, impacted by a portfolio conversion underway in the UK. Ex-UK, Europe volumes grew 30% year-over-year and were 67% about 2019, reflecting share gains in multiple markets. Asia Pacific, excluding China, continues to recover up 26% year-over-year and 32% about 2019. Global process transactions were up 12% year-over-year and 40% over 2019 levels. Constant dollar cross-border volumes, excluding transactions within Europe, but including Russia and prior periods, were up 49% year-over-year and 30% over 2019. Excluding Russia, year-over-year growth was higher, by approximately five points. Cross-border card-not-present volume growth excluding travel and excluding intra-Europe grew 12% year-over-year and was 60% about 2019. Cross-border travel-related spend excluding intra-Europe grew 101% year-over-year and is now 16% about 2019. The cross-border travel index to 2019 went from 112 in June to 115 in July to 118 in September. While the recovery continues, the rate of improvement from month to month has slowed as borders ex-China are now open. Travel in and out of Asia recovered sharply in the quarter, up 16 points, from the high 15s to the mid-70s index to 2019. There is more recovery to come in Asia, especially when China starts to lift restrictions. Summer travel in and out of Europe was also very strong, with the travel index to 2019 in the 130s up 13 points from the third quarter. European travel appears to have benefited most from the strong dollar. Travel outbound from the US to all geographies continued to pick up steam, rising to the mid-130s index to 2019, up 10 points from the third quarter. However, the inbound travel recovery was sluggish. still indexing in the low 90s and up only four points. The strong dollar and delays in visa issuance from some countries appear to be impacting travel into the U.S. Travel into Latin America and the Caribbean remained very strong and stable, indexing around 150 to 2019 levels. Finally, travel in and out of Samia indexed in the mid-120s relative to 2019 up 10 points in the quarter. Moving now to a quick review of fourth quarter financial results. Service revenues grew 11% versus the 12% growth in Q3 constant dollar payments volume. Exchange rate dragged more than offset growth from utilization of card benefits. Data processing revenues grew 10% versus the 12% process transaction growth. The primary reason is that our data processing revenues are impacted by Russia. However, our transactions growth is not. Adjusted for Russia, data processing revenues were up 15%. International transaction revenues were up 52% versus the 49% increase in constant dollar cross-border volumes, excluding intra-Europe. Revenue growth was helped by high currency volatility and pricing actions more than offsetting the impact of the strong dollar. Other revenues grew 13%, led by travel-related programs and pricing actions. Client incentives were 26.9% of gross revenues, in line with expectations. Revenue growth was robust across our three growth engines, each growing more than 20% on a constant dollar basis. Consumer payments growth was led by the recovery in cross-border volumes, high currency volatility, and continued strong domestic volumes and transactions. New flows growth was driven by carded B2B recovery. Commercial card volumes grew 21% year-over-year and are up 43% versus 2019. And excluding Russia, Visa direct transactions grew 42%. Value-added services growth was driven by higher volume, increased client penetration, and select pricing actions. Currency Cloud and Tink added about half a point to revenue growth. Gap operating expenses grew 20%. Non-gap operating expenses grew 18%. The inclusion of Currency Cloud and Tink added about three points. Exchange rates were about a four and a half point benefit. We stepped up investment in our business in the second half of the year as the recovery trajectory accelerated. Personal costs were also higher due to annual salary increases granted a quarter earlier than our normal cycle and higher incentive compensation accruals. We recorded losses from our equity investments of $122 million, excluding investment losses, non-GAAP non-operating expense was $99 million, benefiting from higher interest income due to rising rates. GAAP EPS was $1.86, non-GAAP EPS was $1.93, up 19% over last year, inclusive of a four-point drag from the strong dollar. For the full year, net revenues increased 22%, and non-GAAP EPS of $7.50 was up 27%, with exchange rates reducing reported revenue and non-GAAP EPS growth by over two points each. We are now in fiscal year 2023, and through the first three weeks of October, business trends have remained strong and stable. On a year-over-year basis, U.S. payments volume was up 11%, with debit up 9% and credit up 14%. U.S. spend growth versus 2019 was up 47%, with debit up 57% and credit up 39%. These trends are consistent with the fourth quarter and its performance in major markets around the world. Process transactions grew 12% year-over-year, up 40% versus 2019. Constant dollar cross-border volume, excluding transactions within Europe, grew 42% year-over-year and was 33% over 2019. Card not present non-travel growth was 61% about 2019. Travel-related cross-border volumes were 18% about 2019. Moving now to our perspectives for the coming year. Forecasting four quarters ahead has been difficult through the COVID years. While COVID impact is now largely behind us, as you all know, we are in a very uncertain macroeconomic and geopolitical environment. As we've said before, we are not economic forecasters. Clearly, there's a high risk of a global recession, but we do not have a specific point of view on if, when, or the kind of recession we might have. For internal planning purposes, we are assuming no recession. Of course, we will stay very vigilant, closely monitoring our trend day by day. We will stay very flexible. We will have contingency plans in place should we have an economic or geopolitical shock that impacts our business. And we will be prepared to act fast should we need to. So that is the context for our planning assumptions, which I will walk through now. Starting with revenue drivers, payments volumes and process transactions indexed to 2019 have been very stable in the US and globally for the past three quarters. In other words, we believe the recovery from COVID is behind us when it comes to domestic spending. We're assuming this stability sustains through fiscal year 23 with normal year-over-year growth rates in the low double digits for both business drivers. On payments volumes, Russia will impact growth rates in the first half. Russia will not impact reported process transactions growth. Cross-border e-commerce trends have also been stable, especially when you adjust for Russia and crypto-related volatility. We're assuming cross-border e-commerce growth rates sustained in the mid-teens, excluding Russia and crypto, and in the low double digits, with Russia and crypto impact included. Cross-border travel, excluding intra-Europe, has continued to recover, but at a slower pace, up six points from 112 to 118, indexed to 2019, between June and September. For planning purposes, we are assuming that this recent month-to-month pace of recovery sustains through fiscal year 2023. As was the case last year, there will be periods of deceleration and acceleration. Hopefully, China starts easing restrictions as we enter calendar year 2023. Two variables will have a significant impact on our reported revenue growth in fiscal year 2023, Russia and the dollar. which has strengthened to extraordinary levels through fiscal year 22. Since we discontinued operations in late March, Russia will reduce first half fiscal year 23 revenue growth by over four points, with four points in the first quarter and as much as five points in the second quarter. But as you might recall, we recorded two quarters worth of service fees in fiscal year 22. Russia will obviously have no impact in the second half. Russia will reduce full-year net revenue growth by five points. We face very stiff exchange rate headwinds as we enter fiscal year 23. Based on where the dollar is today and the forward curve, exchange rates will reduce reported net revenue growth in fiscal year 23 by around four points. Since the dollar strengthened through fiscal year 22, the impact is greater in the first quarter at around five points, around 4.5 points in the second quarter and moderates through the year. When you pull all this together, our planning assumptions get us to mid-teens constant dollar net revenue growth on a run rate basis, i.e., adjusted for Russia. With a two-point Russia impact and a four-point exchange rate headwind, reported nominal dollar fiscal year 2023 net revenue growth would be in the high single digits. Client incentives are expected to be in the 26.5% to 27.5% range as a percent of gross revenues. With a four-point Russia drag and a stiffer exchange rate headwind, first half reported nominal dollar net revenue growth is expected to be lower than the second half. Lowest growth in the second quarter, which has the largest Russia impact, and stepping up in the third and fourth quarters with no Russia drag and hopefully a moderating exchange rate headwind. Moving on to operating expenses. We are managing expense growth in line with our revenue growth expectations, rigorously prioritizing investment plans. As you know, this is a long cycle business. Investments we make today will have revenue growth two to three years out. It is important for us to continue to fund key growth initiatives across consumer payments, new flows, and value-added services. As Al said, there are extraordinary growth opportunities and need to ensure we are investing to realize their potential. Our current plans are for low double-digit non-GAAP operating expense growth in constant dollars, high single digits in nominal dollars, Tink and Currency Cloud, which closed during fiscal year 22, at about one point to expense growth, offset by the discontinuation of Russia operations and exchange rate changes, which are expected to be about a 1.5 point benefit each. Non-GAAP operating expense growth will be higher in the first half for two reasons. First, Tink and Currency Cloud at two points to expense growth in the first half. Also in the first half, We lapped a lower expense base last year since we stepped up investment spending through the year as the cross-border recovery accelerated. As such, non-GAAP expense growth in nominal dollars is expected to be in the low double digits in the first half and at the high end of mid-single digits in the second half. Highest in the first quarter, which is also impacted by the FIFA World Cup and moderating through the year. Should there be a recession or a geopolitical shock that impacts our business, slowing revenue growth below our planning assumptions, we will, of course, adjust our spending plans by reprioritizing investments, scaling back or delaying programs, and pulling back as appropriate in personnel expenses, marketing spend, travel, and other controllable categories. In a business like ours, this always requires a careful balance between short- and long-term considerations. As interest rates have risen, non-operating expense will benefit from higher interest income from our cash balances. We currently expect non-operating expense to be in the $200-$250 million range for fiscal year 23. We will provide quarterly updates through the year. Our tax rate is expected to remain in the 19 to 19.5 percent range in FY23. Honing in on the first quarter, Based on everything I just walked through, we expect reported nominal dollar net revenue growth in the high single-digit range, with client incentives on par with the fourth quarter of fiscal year 22. Nominal dollar non-GAAP operating expense growth is expected to be in the low teens. The tax rate could be lower than the 19 to 19.5% range in the first quarter, depending on the resolution of some items. Second quarter net revenue growth is expected to be lower than the first quarter because of the Russia impact, which is higher. Second quarter operating expense growth is also expected to moderate to the low end of double digits. In summary, we will assume stable conditions through fiscal year 23, but are prepared to act fast should circumstances change. Regardless of near-term uncertainties, we remain as certain as we've ever been about our extraordinary long-term growth opportunities. There is still plenty of cash to digitize into core consumer payments. We are accelerating volume growth by vastly expanding the use cases we can serve through our new flows business while enhancing the yield on transactions in our network by layering on value-added services. With that, I'll turn this back to Jennifer.
spk03: Thanks, Basant. And with that, we're ready to take questions, Holly.
spk01: Thank you.
spk03: If you would like to ask
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