Mastercard Incorporated

Good morning. My name is Tasha, and I'll be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Q1 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At that time, in order to ask a question, you can press star and the number one on your telephone keypad. To withdraw your question, press the pound key. Thank you. I'd now like to turn the call over to your host, Warren Neesha, Head of Investor Relations. Please go ahead.

Thank you, Tasha. Good morning, everyone, and thank you for joining us for our first quarter 2019 earnings call. With me today are Ajay Banga, our President and Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer. Following comments from Ajay and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data, and the slide deck that accompanied this call in the investor relations section of our website, MasterCard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a currency-neutral basis and exclude special items unless otherwise noted. But the release and the slide deck include reconciliations of non-GAAP measures to their GAAP equivalents. Please note that the growth rates we provide for switch volume, switch transactions, and cross-border volume have been adjusted to normalize for the effects of differing switching days between periods. These adjustments have been made in current and prior quarters. This information is being provided so that you can better understand the underlying growth rates of these operating metrics. Our comments on the call today will be on the basis of these adjusted growth rates. We do not normalize GDP growth rates. Finally, as set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward-looking statements regarding MasterCard's future performance. Actual performance can differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I'll now turn the call over to our President and Chief Executive Officer, Ajay Banga.

Thank you, Warren, and good morning, everybody. We're off to a solid start this year, revenues up 13%, EPS up 24% versus the year ago, as Warren said, on a currency-neutral basis and excluding special items. I think these results reflect our strong operational focus and our continued growth across each of our regions. And at the same time, we are continuing to invest in the business for the long term, as you've probably noticed with some of our recent product and acquisition-related announcements. Let me start with the macroeconomic environment as usual. You may recall that last quarter we said that we expected solid overall growth to continue in 2019 with some moderation, and our view has not changed from that. That said, we are still monitoring a number of items such as ongoing trade negotiations and other economic and political factors that could affect growth over the medium to longer term. U.S. economic growth remains strong. Low unemployment, healthy consumer confidence, retail sales grew 3.5% versus a year ago, ex-auto, ex-gas, according to our spending pulse estimates. And that reflects some moderation as expected, as well as some impact from the shift in the timing of Easter this year. Now in Europe, we continue to see moderate growth, consumer confidence growing, remains mixed with declines in places like the UK, Ireland, and the Netherlands. But despite the uncertainty surrounding Brexit, UK retail spending remains healthy, again, according to what we see in spending pulse. Asia-Pacific has been impacted by trade policy uncertainty. We continue to monitor the strength of the Chinese economy. But having said that, we're seeing modest GDP growth in the region overall, and that's kind of underpinned by favorable monetary policies and generally stable labor market conditions. In Latin America, the outlook is mixed. There's positive signs in Brazil and Chile, and they're tempered by some weakness in Mexico. Similarly, in the Middle East and Africa region, we're seeing healthy growth in countries such as Egypt, but some softness in the oil-producing market. Meanwhile, our business continues to drive healthy double-digit volume and transaction growth across most of our markets by successfully executing against our strategy. What I'm going to do is give you a few examples of how we are growing our core products, diversifying our customer base, and building new areas for our business. Let me start with growing our core products, where I believe we continue to make good progress in providing people with simple and safe ways to pay with credit, debit, prepaid, and commercial products. And it's not a card. The physical card is just one form factor, as you've heard me say in the past. We are equally focused on seamlessly delivering our products digitally. Earlier this month, Apple announced the Apple Card with MasterCard and Goldman Sachs. And available this summer, this is a credit product. It's designed for the iPhone that leverages MasterCard's tokenization technology, our fraud tools, and our chargeback APIs. Customers can immediately access the digital version of the card in their Apple wallet. They can also get a physical companion card. With attractive rewards and extensive security features, the user experience is frictionless. In addition, we look forward to collaborating further with Goldman's consumer business, Marcus, to bring new products and services to market over time. Also pleased to be the payment center for T-Mobile's new mobile-first checking account, T-Mobile Money, which consumers can open and manage online or with an app on their smartphones, and they can withdraw funds using a MasterCard debit card. Coming to markets outside of the U.S., I think we continue to make significant progress. We are pleased to announce the expansion of our partnership with Santander in Brazil to expand our share of the credit, debit, and commercial portfolios of the fast-growing customer. We also extended our long-term agreement with Rogers Bank, which is a key strategic partner for us in Canada, further expanding the services we provide on their card portfolios. And we are advancing our efforts to increase market share in Europe with BNP Paribas in France clipping more than 4 million credit cards in a long-term deal that will be accompanied by a full suite of services, including spending controls and alerts, as well as identity check mobile security features. In addition, we have some great examples of customers with closed-loop systems who continue to see value in open-loop MasterCard cards because of broader acceptance and digital capabilities. One of these, an example, is CredSystem in Brazil, which is converting 7 million private-level cards to MasterCard contactless co-branded cards to open up international acceptance to their cardholders. Now, on the commercial side, we're pleased to be Citibank's exclusive network for its cross-border B2B virtual card program in China. And the initial focus there is on enabling Chinese online travel agencies to make payments to hotels, hotel aggregators, and airlines outside of China. That same way, to help our customers provide greater transparency and certainty in cross-border payments, as you know, we have announced an agreement to acquire Transfast, a global cross-border, account-to-account money transfer network. We look forward to complementing and enhancing our solutions with their network reach. with their strong compliance capabilities, flexible technology, and some very robust foreign exchange tools. By the way, we currently work with TransFast in support of our P2P and B2B capabilities through MasterCard SEND. And while on MasterCard SEND, just to give you a quick update, we continue to see healthy growth and we are continuing to develop a number of different use cases. Cent currently powers seven of the major mobile P2P programs in the United States, and we are working to grow our customer base. On the cross-border front, a number of our issuers are leveraging Cent to provide faster and more cost-effective and transparent cross-border payments to their customers. Bank of Montreal is the latest to announce Cent. that it will implement CENT for its Canadian business and commercial banking clients. And the initial focus there is on bank account transfers and there are additional plans for payments to mobile wallets and cards internationally. So now from growing the core, turning to the second pillar of our strategy with the work we are doing on diversifying our customer base and strengthening our footprint in some of these new geographies, we are building relationships with merchants, processors, digital players, and a number of other partners to help drive their businesses forward. So I'm going to highlight a few specific examples on the co-branding area, including our renewal with Target in the U.S., a new program with Japan Airlines, and with Falabella, which is the largest retailer in Chile. We also entered into an agreement with Mercado Libre, the largest e-commerce marketplace in Latin America, to make their platforms safer and more convenient with tokenization, seamless authentication tools, and contactless prepaid card programs across Brazil, Argentina, and Mexico. While doing all this, we're trying to find ways all the time to look for methods to improve our local presence, particularly in areas where there is low electronic payment penetration. That's why our partnerships with and the investments in Network International, which is a pre-eminent local processor in the Middle East and Africa region, and also Jumia, an e-commerce platform spanning 14 countries in Africa, we think these will accelerate our efforts to deliver a sustained shift from cash and checks to electronic payments in these markets. Mastercard will be Network International's preferred partner for processing, acceptance, and value added services to the safety and security and data analytics and our relationship with Jumia will include co-brand card issuance for consumers as well as commercial payments on their platform and also the use of our payments gateway. And finally the third pillar of our strategy is building new areas of our business and we do this in a way that leverages the core and differentiates our offerings in particular with services and new payment flows. So, a few examples for you. Safety and security products remain a key area of focus. We recently announced the acquisition of Ethica, a global e-commerce fraud and dispute management network. What this does is to enable the sharing of intelligence between merchants and issuers in over 40 countries. Whenever a fraudulent or disputed transaction is identified, Near real-time information is sent to the merchant so they can stop delivery and refund the cardholder and avoid the chargeback process. And as a result, both merchants and issuers benefit from reduced costs. With more than 5,000 merchants, including top e-commerce brands such as Google and Walmart, and over 4,000 issuers already participating, we look forward to continuing to scale Ethica's network. We're also looking for ways to help our partners improve their customers' user experiences. That's why we acquired WISE, a platform that connects merchants with multiple lenders, opens up a wide range of financing options, including installments, to consumers online and in-store, and complements MasterCard's existing card and ACH-based solutions. vices merchant customers like home depot microsoft samsung for them multiple lenders help to increase customer financing approval rates decrease cart abandonment and ultimately therefore increase sales at the same time they benefit lenders by providing access to new customers through these channels and just to be clear we are not changing our model and taking credit risk we are merely the platform provider here connecting retailers and multiple lenders. Now with respect to our processing services, we believe that Citibank will be using our payments gateway to support digital commerce enablement for their existing institutional clients. Our gateway's connection to numerous acquirers and digital wallets will provide a single consolidated payments view for these large merchants who have a relationship with Citibank and make it simpler for them to accept payments on a global scale. And moving on to the work we are doing to capture new payment flows beyond traditional card rails, we have this quarter reached a number of significant milestones in expanding our real-time account-to-account capabilities with our Vocalink assets. First, you must have heard recently that we have been chosen to enhance the Instapay real-time retail payment system in the Philippines. Now, this includes operating the infrastructure for and providing anti-money laundering tools to an institution called BACnet, which is the national clearing switch in the Philippines. We will do this through a regional payments hub in Asia Pacific using leading-edge ISO 222 messaging, which streamlines communications and provides enhanced transaction data. Second, We are licensing our real-time payment software to the Saudi Arabian Monetary Authority, SAMA, to upgrade their system, providing similar capabilities to what we already have in place in the United States, Thailand and Singapore. These wins... built upon the announcement we made late last year about our partnership in Peru to modernize and operate the Peruvian electronic payments infrastructure, and we remain involved in a number of similar RFPs around the globe. So as you can see, we're making real progress in expanding our geographic footprint for real-time payments in Asia, in the Middle East, and Latin America, while adding value to governments and central banks to help their citizens and their economies. Before I turn the call over to Sachin, I'd like to thank Martina, who's not on this call, who's probably on a beach somewhere, for both her years of dedication to Mastercard's growth, but also for ensuring they were left in good hands upon her retirement with a very well-prepared and chosen successor. And now it's my pleasure to introduce Sachin Mehra, our Chief Financial Officer. Sachin.