Mastercard Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to MasterCard Incorporated's third quarter 2019 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your speaker today, Warren Nishaw, Head of Investor Relations. Please go ahead.

Thank you, Melissa, and good morning, everyone. Thank you for joining us for our third 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 non-GAAP currency neutral basis unless otherwise noted. As a reminder, in Q2, we updated our non-GAAP methodology to exclude the impact of gains or losses on our equity investments. We're 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. Our 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'd 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 the earnings release in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to Ajay Banga.

Thanks, Warren, and good morning, everybody. So we draw strong results this quarter. Revenue up 16%, EPS up 23% versus a year ago on a non-GAAP currency neutral basis. Growth was broad-based and reflects our focus on execution, robust business drivers across the board, and ongoing investment in our business for the long term. On the macroeconomic environment, our view is kind of unchanged. That is that consumer spending remains relatively strong, with some moderation versus 2018. We obviously like everyone else monitoring ongoing trade negotiations and other economic and geopolitical factors, which are showing signs of weighing on business sentiment in particular. And the US economic growth remains stable with low unemployment and solid consumer confidence. Retail sales were pretty consistent with the prior quarter growing at 3.8% versus a year ago, ex-auto, ex-gas, according to our spending pulse estimates. In Europe, we see modest growth overall. Third quarter total retail spending in the UK was solid, according to our spending pulse estimates, while uncertainty around the potential impact of Brexit obviously remains. It's a daily drama being played out on television. In Asia Pacific, we are monitoring the impact of the U.S.-China trade negotiations, which are negatively affecting business sentiment in the region. We are, however, seeing accommodative monetary policies in several markets there to support growth. In Latin America, the outlook is mixed with countries like Brazil and Colombia showing some positive signs of weakness in Argentina and Mexico. That's the backdrop, and against that, we're driving healthy double-digit volume and transaction growth for MasterCard across most of our markets, with momentum in our co-product areas, in services, and in new payment flows. So let's dive into some recent business highlights. First, co-products. We're driving growth in our co-products with new and renewed customer relationships across credit, debit, prepaid, and commercial. I'm pleased to announce that we have extended our global agreement with Citi for an additional five years through 2029. With this, we will remain Citi's exclusive global partner in Citi branded consumer credit, debit, and small business. We're also continuing to build upon our strong partnership with Citi's treasury and trade solutions group, where we are working together to expand the breadth of services provided to city's corporate clients, including through the use of MasterCard's Payments Gateway. Together, I think these position us to partner even more closely over the next decade on digital initiatives, on driving consumer credit and debit growth on B2B, and the development of new payment solutions and joint marketing efforts to continue growing our businesses together. We've also extended our global deal with HSBC for its premier credit portfolio focused on the high net worth segment. And that builds on our existing partnership, which includes products like the HSBC Rewards Card that we launched in the UK and the multi-currency debit card launched in Hong Kong last month. HSBC is another great example of a customer that leverages several MasterCard services like Advisors, MasterCard Labs, and loyalty to bring value to its customers and drive growth across its account base. With Bank of America, we have renewed and expanded many of our business lines across consumer and small business credit and debit in the United States, including brand exclusivity on the forward issuance of small business credit and the small business travel card. We will work together towards continued growth in our debit and commercial business, in particular with MasterCard as the primary network on new commercial business outside of the United States. Additionally, Bank of America has committed to being our next MasterCard track B2B hub customer, bringing enhanced account payable capabilities to its clients in the United States. H&R Block has renewed its agreement to offer MasterCard prepaid cards, and additionally, we'll be piloting our APT test and learn capabilities and new data fraud tools. On the U.S. co-brand front, this quarter, we won a flip of the BMW Consumer Credit Co-brand portfolio, and we're making further progress in Europe. extending our debit agreement with Intesa Sao Paulo in Italy, which is committed to converting more than 6 million Maestro cards to MasterCard debit. We've also expanded our relationship with UniCredit to become its preferred pan-European partner. In other markets, we are building on our momentum with issuers, merchants, and diverse partners like telcos. You can see that in Latin America, where we've executed a regional deal with Scotiabank, and will be converting debit cards in several Caribbean markets to MasterCard. In India, where we won an exclusive consumer credit co-brand with Indigo Airlines, the country's largest airline, and in Africa, where Airtel will exclusively use MasterCard's network for its prepaid virtual cards and QR capabilities for mobile wallets across 11 markets there. Now, specifically related to our core commercial business, We've expanded our relationship with Brex. You know them as an innovator in the corporate space. Now we will be their preferred network in the US. We also inked a 10-year deal with Emirates Islamic Bank to be its exclusive commercial credit network across the UAE. And to our efforts to partner with local switches to increase the transactions that we switch, we are the first international network to receive central bank approval and have begun domestic switching of MasterCard branded debit cards in Indonesia through an agreement with the largest domestic switch, Arta Jasa. Now coming to digital initiatives, Click2Pay, which is the name for the EMV secure remote commerce standard, is now live in the U.S., aiming at enabling a faster, more secure checkout experience across web and mobile sites, mobile apps, and connected devices. Rakuten, Movember, Cinemark are the first merchants to launch together with distribution partners such as RDN, FIS, Global Payments, and Stripe. We're planning for a broader market launch in the first half of 2020 with Click2Pay, Mastercard's merchant partners will benefit from automatic access to NuDetect, a Mastercard artificial intelligence and machine learning solution that provides an added layer of security when consumers check out using MasterCard on click-to-pay. On the fintech front, we've strengthened existing partnerships and winning new deals around the globe by leveraging our technology and relationships in new ways to support these customers who have very specific needs. And a couple of examples include an expanded global partnership with Revolut, which has been a MasterCard issue for several years in Europe and will first launch its cards in the U.S., with MasterCard by the end of the year, followed by other markets across Asia Pacific and Latin America. Monzo has selected MasterCard to be its exclusive debit partner for its US launch, and SoFi has also chosen MasterCard for its credit and debit programs. Additionally, we expanded our Accelerate program to the US, providing local fintechs with support through all stages of growth, with easy access to a range of programs including our digital first solutions, our API and developer programs, and our startup engagement platform, StartPath. In our new payment flows, and as you know, we've developed and acquired a broad set of capabilities, which together with our card rails, allow us to differentiate our offerings and address new payment flows and operate as a one-stop shop for our customers, providing choice across multiple rails. In this quarter, We announced our intent to acquire the clearing and instant payment services and e-billing solutions of the next corporate services businesses in the Nordics as we capitalize on the large global real-time payments opportunity. Real-time payments provide a smarter and faster alternative to traditional ACH, cash, and checks. They bring efficiency, much richer data, and a much better user experience. We believe NETS will complement and strengthen our existing capabilities across all three layers of our strategy, which, as you recall from Invest Today, will offer infrastructure applications for end users and value-added services on our come-to-account payment rails. Now, this builds upon prior real-time payment wins, including in the Philippines, Peru, Saudi Arabia, and our partnership with P27, to deliver real-time and batch payments in the Nordics. We've talked about these in prior earnings calls and on Investor Day. In the meantime, we are progressing our B2B initiatives. I already mentioned Bank of America signing up for the B2B hub in the US. First Hawaiian Bank has also agreed to be a customer. And as we discussed at our Investor Day, we are addressing business payments more comprehensively, both account payable and account receivables. with MasterCard Track Business Payment Service. To solve for the complexities involved with B2B payments, this service will help companies find businesses that they need to pay, operate within a known set of standards and rules, provide full and rich remittance data, and offer a single connection with access to multiple payment types and rails. We showed you one of the use cases that runs on real-time payment rails payment on delivery. This is the one where drivers who are delivering goods to a physical store can be paid electronically real-time by buyers who can manage all of their invoices and payments more efficiently. And we're pleased to announce that PNC is the first bank to pilot this capability with its customers in the U.S. As a multi-rail network, we're also able to offer services to our customers based on account-to-account flows. So, for example, we already have customers in the U.K. benefiting from data insights we're able to provide with our broad view through Vocalink. This helps them with anti-money laundering compliance and identification and prevention of other financial crimes. Continuing with the idea of expanding these services outside of the U.K., the Clearinghouse has just announced that it will launch our first financial crime solution for AML compliance in the U.S. And as previously announced, we will be launching these services in the Philippines as well as part of our real-time payment infrastructure there. Before I close, I wanted to mention the announcement we made about acquiring SessionM, a U.S.-based technology company that provides end-to-end loyalty solutions for merchants. We expect this acquisition to strengthen our ability to provide a complete platform-based loyalty solution Starting from data management to campaign execution and program measurement to our merchant customers, doing all this while delivering a seamless digital experience for the consumers of those merchant customers. Session M has a growing base of leading customers that includes McDonald's, PepsiCo, and Lowe's. Among others, we expect to close this acquisition this year. With that, let me turn the call over to Sachin for an update on our financial results and operational metrics. Sachin?