Mastercard Incorporated

Good morning. My name is Brandi, and I will be your conference operator today. At this time, I would like to welcome everyone to the MasterCard second quarter 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. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to Warren Nishaw, Head of Investor Relations. Mr. Nishaw, you may begin.

Thank you, Brandi. Good morning, everyone, and thank you for joining us for our second 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 accompany 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 non-GAAP currency neutral basis, unless otherwise noted. As a reminder, starting this quarter, we have updated our non-GAAP methodology to exclude the impact of gains or losses on our equity investments. We are excluding these items as we believe this will facilitate a better understanding of our operating performance and provide a meaningful comparison of our results between periods. For the three and six months just ended, net gains of $143 million and $148 million have been excluded. Prior year periods were not restated as the impact of the change was de minimis. Non-GAAP measures also exclude the impact of special items, which represent litigation judgments and settlements and certain one-time items. In addition, we present growth rates adjusted for the impact of foreign currency. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP-reported amounts. 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 could 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, Rajiv Anga.

Thanks, Warren, and good morning, everybody. So our strong performance continued this quarter, revenues up 15%, EPS is up 17% versus the year ago on a non-GAAP currency neutral basis as Warren just said. These results reflect the continued execution of our strategy as we invest for long-term growth. On the macroeconomic environment, consumer sentiment and spending remains relatively strong with some moderation versus 2018 as expected. We are continuing to monitor ongoing trade negotiations and other economic and geopolitical factors, which are showing signs of weighing on business sentiment in particular. In the U.S., we are seeing continued growth, low unemployment, healthy consumer confidence. Retail sales grew 3.2% versus a year ago, ex-auto, ex-gas, according to our spending pulse estimates. And that reflects some moderation from Q1 and from last year. In Europe, the outlook is mostly unchanged as we continue to see modest growth. UK retail spending remains healthy, although it has slowed somewhat from Q1 according to our spending pulse estimates. And of course, the uncertainty around Brexit remains. In Asia Pacific, trade tensions continue to weigh on business sentiment, particularly in China. We are, however, seeing improved consumer confidence and more accommodative monetary policies in several markets there. And the outlook in Latin America continues to be mixed as growth in markets like Brazil, Colombia, and Chile are partially offset by weakness in Argentina and Mexico. Meanwhile, we continue to drive healthy double-digit volume and transaction growth for MasterCard across most of our markets by successfully executing against our strategy. And I'm going to give you a few examples of how we are growing our core business, diversifying our customer base, and building new areas for our business. So starting with growing our core, we continue to make good progress driving growth across our credit, debit, prepaid, and commercial products, and expanding acceptance across both physical and digital channels. We expanded a number of important issuer relationships in the credit space, including National Commercial Bank, the largest bank in Saudi Arabia, where we secured full exclusivity across their credit, debit, prepaid, and commercial business, along with flipping their credit portfolio. We also signed a new consumer and small business co-brand partnership in the US with Houzz, a rapidly growing online home remodeling marketplace. And we won a 10-year exclusive co-brand credit deal with Despega, a leading online travel agency in Latin America, in five new markets across the region. As with many of our other co-brands, Despega will integrate our loyalty program into their offering to deepen their customer engagement. In Germany, we have renewed our credit relationship with DZ Bank, the second largest retail banking group in the country, and they represent hundreds of cooperative banks across the country, and they will continue to issue MasterCard cards to their customers. Turning to debit, we signed an agreement in the UK with Nationwide who selected us as their business debit card provider due to our experience in the small business space and our demonstrated expertise of working with FinTech. Now, Nationwide plans to launch a new business banking proposition to over 5 million small businesses in the UK early next year. In Colombia, we won an exclusive debit partnership with Scotiabank and secured long-term debit agreements with Bancolombia and Davivienda, the two largest debit issuers in the country. And in Germany, we extended our long-standing partnership with the German savings bank group Sparkation. Collectively, these debit renewals will leverage a series of MasterCard services to help drive contactless adoption, advance digital security, and accelerate the migration of Maestro to debit MasterCard. In terms of the secure remote commerce initiative, we are making good progress. In June, AMVCO launched the new SRC payment icon and technical specs. We are currently testing SRC in market with issuers and merchants. We're actively working on Masterpass upgrades to SRC with partners like Tickets.com, Expedia Group, Saks Fifth Avenue, and Norwegian Cruise Line, and we expect to launch in the United States in the next few months. And then we have developed the MasterCard Digital Wellness Program, which will provide merchants with access to a host of technologies and resources, including a standards-compliant click-to-pay checkout, but most importantly, added security through tokenization and AI technology along with cybersecurity resources to combat online attacks. We're working with payment processors and platforms such as WorldPay, Square, Ardian, Stripe, and of course our own MasterCard payment gateway services to make these unique features through the MasterCard digital wellness program available to merchants. So let me turn now to the second pillar of our strategy, where we are continuing to diversify our business by expanding across new geographies and customers. An example in India, where as you know, we're building partnerships with local retailers and issuers to help drive growth and further develop the payment ecosystem. We're pleased to have launched an exclusive credit co-brand program with Slipkart, the largest online retailer in India. In addition, Paytm Payments Bank has signed a new issuance agreement with MasterCard. We've also established a new acquiring relationship with them to drive open-loop acceptance with them in that market in India. Paytm will also be using our SEND capability to enable credit card bill payments. We're leveraging our assets to design unique solutions for specific verticals, such as the growing gig economy. We were selected as the network for the Lyft Direct MasterCard debit card, which provides Lyft drivers with instant access to their earnings. Collaborating with Evolve Bank and Trust and Branch, who will issue MasterCard prepaid cards and will utilize MasterCard Send to help their corporate customers provide interest fee pay advances to their early workers. And in Mexico, we've partnered with Uber and BBVA to provide a new MasterCard debit card for Uber drivers. Working in the fintech space, I believe we just continue to lead there. We've established a series of successful partnerships with fintechs around the world who value the services we provide as well as our solution selling approach. This quarter, we signed a deal with Rails Bank to bring new consumer and commercial debit card programs to market in the UK. And in Brazil, we are working with digital bank Banqui and Via Varejo to offer a new digital prepaid card targeting their approximately 60 million customers. So now on to the third pillar of our strategy, focused on building new areas for our business. We have developed and acquired, as you know, a broad set of capabilities, which together with our existing card rails allow us to differentiate our offerings, address new payment flows, and most importantly, operate as a one-stop shop for our customers. And let me give you a few examples. First, we recently announced a partnership with P27 Nordic Payments Platform, owned by six of the largest banks in the Nordics, to provide a leading-edge real-time and batch multi-currency payment platform across the region. This new platform leverages our VocaLink assets, will replace the existing payments infrastructure and provide instant and secure payments across the region. And I believe this partnership represents another milestone in our strategy to offer customer choice in the form of real-time, account-to-account payments infrastructure, applications, and services, and builds on a series of wins across Latin America, Asia Pacific, and the Middle East that I've highlighted to you over the last few quarters. Second, we continue to build additional depth and scale in our cross-border capabilities, which already allow us to disperse payments across bank accounts, mobile wallets, and cards all through a single API. For example, we just completed the acquisition of TransFast, which will not only enable us to service a greater number of markets and endpoints for our customers, TransFast, by the way, allows us to reach over 90% of the world's population, but also provides a suite of leading compliance, ethics, messaging, and licensing capabilities to address many of the cross-border pain points that exist today. We're executing our cross-border strategy through a new partnership agreement with Interac in Canada, which leverages our MasterCard send push payment capabilities to allow Canadians to send money internationally across Interact's e-transfer platform. The National Bank of Canada will be the first issuer to launch this new international remittance solution. We're developing new capabilities to penetrate the bill payment space and completing the acquisition of transactors to accelerate our go-to-market strategy for the MasterCard bill pay exchange. Transactics offers a unique combination of technical assets, distribution partnerships, and customer relationships, which when combined with our current bill pay exchange capabilities, will allow consumers to view, manage, and pay bills across multiple payment methods and channels, whether via real-time account-to-account payments or card rails, on your mobile banking app, or through a biller's website. And finally, in B2B, we announced a partnership to integrate our MasterCard track with the Open Text Supplier Portal to help buyers and suppliers in the automotive industry streamline and digitize financial supply chain processes to increase the speed, compliance, and security associated with business information, payments, and financing. With that, let me turn the call over to Sachin for an update on our financial results and operational metrics. Sachin?