Mastercard Incorporated

At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Warren Nisha, Head of Investor Relations. Please go ahead.

Thank you, Jeremiah. Good morning, everyone, and thank you for joining us for our first quarter 2022 earnings call. With me today are Michael Meebok, our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer. Following comments from Michael 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 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. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP-reported amounts. Finally, 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 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 Chief Executive Officer, Michael Meebach.

Thank you, Warren. Good morning, everyone. Russia's invasion of Ukraine marked a somber start to 2022, as war returned to Europe for the first time in decades. Given these extraordinary circumstances, we decided to suspend our business operations in Russia. We did not take this decision lightly given that Mastercard has operated in Russia for more than 25 years. We are now focused on the orderly suspension of business operations in Russia and supporting the well-being of our employees and their families across the whole region. Even in the context of this challenging geopolitical environment, we're off to a strong start in 2022. We delivered robust revenue and earnings growth with further improvement in our underlying operating metrics, notably in cross-border travel. Quarter one adjusted net revenues were up 27% and adjusted operating income up 40% versus a year ago on a non-GAAP currency-intro basis. On the macroeconomic front, consumer spending remains strong, particularly as economies across the globe continue to reopen and pandemic-related restrictions are lifted. Labor markets are firm, with low unemployment rates and rising wages. Weighing against this healthy backdrop are a number of factors that they're monitoring, including inflationary pressures, supply chain constraints, geopolitical uncertainties, and COVID infection rates. They're monitoring these developments, including the fiscal, monetary, public health care, and other policy responses. Let's look at this from a geographic standpoint. U.S. retail spending remains healthy, aided in part by the buildup of excess savings during the pandemic. According to our quarter one spending pulse report, which is based on all payment types, including cash and check, U.S. retail sales, ex-auto, ex-gas, were up 4.7% versus a year ago. In Europe, spending trends are positive, although the invasion of Ukraine has introduced risks to economic growth looking ahead. Growth in Latin America continues to moderate following a strong rebound in 2021. Asia has generally lacked the recovery of other regions. We're seeing several countries relaxing COVID-related restrictions, while others are facing stronger measures. Asia continues to have significant upside potential. Looking at MasterCard spending trends, we continue to see strong growth. Domestic switched volumes saw strength across a broad range of sectors, including retail, utilities, and professional spend. We also saw strong growth in travel and entertainment, including spending with airlines, travel agencies, lodging, and restaurants. In terms of cross-border, where the growth was particularly strong, the recovery continued this quarter, led by travel. Cross-border travel reached 2019 levels as of March for the first time since the pandemic began. Geographically, the cross-border recovery has been broad-based, with improvement across all regions. Cross-border card not present X-travel continues to be strong. Our strategy is designed to enable and capitalize on these trends, and we execute against our three key strategic priorities. One, expanding in payments. Two, extending our services. And three, embracing new networks. Here's an update on how we're progressing against each of those. First. We're expanding in payments by continuing to grow card payments and leaning into innovation and new payment technologies to capture other prioritized payment flows. We're driving growth in card payments through new consumer, small business, co-brand, and fintech wins. On the consumer and small business fronts, I'm excited to announce an enhanced partnership with Wells Fargo, which includes several new elements. Volkswagen will now issue MasterCard, small business credit cards, and for the first time in almost a decade, consumer proprietary and co-brand credit products. We're also excited to announce that we have deepened our relationship with our longstanding partner, Capital One. In addition to renewing our existing business, we will also be their issuing network for a larger number of new originations across both their consumer and small business products. Further on the small business front, we are expanding our small business portfolio with First National Bank of Omaha. We're also partnering with the bank and Verizon to launch a new Verizon Business MasterCard targeting Verizon small business customers. In total, these partnerships will help us continue growing our U.S. small business market share. Outside the U.S., we're driving commercial card growth through new partnerships with leading B2B tech companies like Clara, We will be flipping Cara's business portfolio in Mexico to MasterCard and are working with them to launch new programs in five additional markets across Latin America. Turning to co-brands, we've made substantial progress to ensure we are well-positioned to capitalize on the return of travel. We have renewed and expanded our exclusive partnership with American Airlines, one of the largest co-brand programs in the United States. American will continue to leverage our capabilities, including Session M, and will participate in our Start Pass program to identify new tech partners who can help drive innovation across the airline. And in the UK, we have launched two new Barclaycard Avios cards with Barclays and International Airline Group loyalty. Outside of travel, we've expanded our relationships with leading retailers, including a new co-brand program with Victoria's Secret and a renewal of our Ulta Beauty co-brand offering, both in partnership with Red Financial. We're also continuing to advance our leadership in the digital and fintech space through new product launches and new partnerships. We're partnering with BCA Digital, the digital banking arm of the largest private bank in Indonesia, to launch a digital-first MasterCard debit product catering to millennials. In Latin America, we signed a regional partnership with global payment processing platform Galileo. The partnership establishes MasterCard as Galileo's preferred partner across several markets in Latin America, and they will work to integrate and distribute several of our products and services to help their fintech customers. In addition to driving new wins, we are leveraging our services capabilities to execute against many of the large portfolio migrations that are in flight. In Europe, our consulting teams are engaging with our partners at Santander, Netwest, and Deutsche Bank to ensure a smooth and timely transition and to identify opportunities to optimize those portfolios. Santander is the bulk of the way through a 9 million card migration and we expect it to be complete by early next year, while Netwest commenced the issuance of MasterCard at the end of last year and plans to migrate their entire 16 million card portfolio by the middle of 2023. Deutsche Bank's 10 million consumer and commercial credit and debit cards will be reissued as MasterCard-branded cards with a credit migration starting quarter four of this year and a debit migration commencing early next year. Similarly, our team in the U.S. is supporting key migrations, including Gap Inc., Merit Bank, and First Interstate Bank. All the migrations are on track, with Gap Inc. scheduled to be completed this summer. We're also expanding in payments by leaning into payments innovation in areas like installments and cryptocurrencies. Here are a few examples. Our OpenLeap MasterCard installments program has been very well received and is progressing according to plan. Remember, MasterCard installment is built into our network, making Buy Now, Pay Later available to millions of consumers and merchants worldwide. We continue to add a wide array of new lender and fintech partners, including Amount, Deserve, I2C, Lithic, and Sutton Bank. In this quarter, we announced several merchant partners who are excited to support MasterCard installments, including Bass Pro Shops and Cabela's, HR & Block, Sexton's Avenue, and Walgreens. US customers will begin offering MasterCard installments to consumers this quarter, and international expansion is planned for later this year. and we continue to build solutions to support the crypto economy with a principled approach focused on three key areas. First, helping consumers easily and safely purchase cryptocurrencies and NFTs. In addition, we are enabling consumers to spend their crypto holdings on card and cashing out their crypto wallets via MasterCard sends. Second, providing identity, cyber, and consulting services for market participants, including engaging with central banks as they design and develop central bank digital currencies. Third, preparing our core network to directly support digital currencies. Making substantial progress in each of these areas, this quarter, the Gemini MasterCard, which offers crypto rewards, went live across the U.S., We also partner with Nexo to launch a new crypto card in Europe, one that uses consumers' digital assets as collateral to back their credit line. We established several other international crypto card partnerships, including Banks in Europe and Abra in Mexico and Bello in Latin America. On the crypto services front, MercadoLibre will be leveraging CycloTrace's AI and cyber capabilities to bring security and trust to their digital wallets in Brazil. Now turning to our second strategic priority, services. As I've noted before, our services support and differentiate our core products and have played a critical role in enabling many of the wins I mentioned. We also continue to extend our services across multiple growth vectors through new payment platform capabilities, new verticals, and new use cases. Here are a few examples. First, earlier this month we completed our acquisition of Dynamic Yield. Now that the transaction is closed, we will combine Dynamic Yield's personalization platform and decision engine with our SessionM loyalty platform and our test and learn experimentation software. The result will be a truly differentiated consumer engagement and loyalty hub for our customers. Second, we announced that we're expanding our consulting services into three new practices dedicated to open banking and open data, crypto and digital currencies, and ESG. We've seen increased customer demand and a growing portfolio of successful engagements in these areas. For example, we're supporting Handelsbanken and Intesa São Paulo, design programs that advance their ESG priorities. We're helping WIREX explore innovations in crypto. And finally, we're expanding the breadth of our customer base and deploying our capabilities to solve for a wider range of use cases. For example, we deployed our test and learn capabilities to help tailored brands optimize retail operations and improve marketing efficiency for their leading menswear brands. And we deployed our ethical capabilities with Santander in Spain to help streamline dispute resolutions and improve the customer experience. Beyond expanding in payments and expanding in services, our third key priority area is embracing new networks. Our current focus is on two areas, open banking and digital identity. Our open banking and multi-rail strategies are converging, enabling us to leverage our unique set of assets to address new flows in verticals, like rent payments. For rent payments, the risk of ACH returns due to insufficient funds is a significant pain point for both renters and landlords. To address this challenge, we're launching a new suite of smart payment decisioning tools. These solutions use Finicity's open banking capabilities to recommend the optimal payment day and payment rail for each transaction based on cost, speed, and risk. The Built Payment Alliance, a collection of more than 2 million rental homes, will be one of the first FinTech partners to launch these capabilities. We plan to expand these solutions across a broad range of bill payment verticals. In addition, we continue to extend our open banking reach with Sinicity and AIA by penetrating new verticals and establishing new partnerships. We continue to enhance our capabilities of the mortgage vertical and are now expanding into the auto lending vertical. We're leading the way in terms of provisioning permission-based income, employment, and asset verification information and we partner with Stripe, who will be using our open banking capabilities for a variety of use cases. We're also extending our open banking reach through data access agreements with partners like Fiserv, which will enable direct API connectivity to thousands of SIs in the United States. In the digital identity space, Ecarta continues its strong performance in 4.1, securing deals with financial services companies, including Moneyline and several leading buy-now-pay-later providers. In addition, we recently joined forces with Microsoft on a collaboration to improve digital transaction approval rates and reduce fraud. The solution enables issuers to optimize authorization decisions using network and merchant-specific authentication data. Combined, open banking and digital identity extend our value before and after the payment transaction and into new digital transactions. These are attractive and growing opportunities and we are uniquely positioned to be successful in both. In summary, our business fundamentals remain strong and we delivered robust revenue and earnings growth again this quarter. We also reflect our disciplined approach to expense management. We're executing against our strategic priorities, notably expanding our share with key issuers. In addition, we've worked hard to expand our travel-oriented portfolios, which positions us well to capitalize on the strong recovery in cross-border travel. And last but not least, we want to reflect on what is most important, the safety and well-being of our employees and the families who have been impacted by the war, our thoughts are with them, and the people of Ukraine. Sachin, over to you.