Q1 2020 Earnings Call
Welcome to the Mastercard's Q1, 2020 earnings conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
Please be advised that todays conference is being recorded.
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I'd now like the hand, the conference over to your presenter today Executive Vice President of Investor Relations Warren Kneeshaw. Please go ahead Sir.
Thank you James Good morning, everyone and thank you for joining us for first quarter 2020 earnings call.
You and your families and co workers are also.
With me today are actually Bonga, our Chief Executive Officer, Michael Me back, our President and such a mirror, our Chief Financial Officer. Following comments from Andre Michel If not then operator, we'll announce your opportunity you get into human to human session. There's only been them. If you will open for questions.
The length of our prepared comments today, we plan to allow for an additional 15 minutes for questions if necessary.
You can access our earnings release supplemental performance data and the flight deck that accompany this call the Investor Relations section of our website Mastercard Dot com. Additionally, the release was furnished with the FCC earlier. This morning, our comments today regarding our financial results will be on a non-GAAP currency neutral basis, unless otherwise noted.
With the release and the slide deck 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 statement.
Termination of at the factors that could affect future performance are summarized in 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.
Ill now turn the call over into our Chief Executive Officer, I'm, sorry about that.
Your water and good morning, everybody.
Our first quarter started off strong I'm kind of continuing to boot often thought in terms of problem that we had 2019.
But as you all know as the pandemic develop and branded impacted our first quarter performance for the strength services related revenue shows that the strategy there both fuel over the last decade, diversify our revenue streams and paying off.
Now this vyvanse and created a truly extraordinary in China is we need to invest together I'd like everyone else good thing to do up on.
Well the execution of our grow diversified strategy with Ben on the solid foundation of our technology data right and a wonderful people.
We're not from the fortunate position or being able to support our bonds and partners throughout the fiscal period and you will hear me and Michael I'm function talk more about them.
Hello. This is a health crisis and therefore, the public health has been isn't the most important policy response in the near term. It is the critical first step to getting the world economies back on track.
As we've all been greeting coordinated efforts such as the sustained implementation of social do something under scaling of our healthcare capacity to address increasing need are having a positive in effect.
The company with a minimum longer terms will be dependent on the implementation of successful testing processes and the development of effective prophylactic benefiting and vaccines, we are contributing fraud investment and that kind of drilling consolidated together with the good Foundation and Wellcome Trust.
In the meantime fiscal stimulus packages are being introduced across many markets.
And this would be a critical effort to provide relief during the downturn for individual and small businesses and the other particularly hard here.
We're also seeing very strong funds, a monetary policy across a number of countries, which would be particularly supportive of the recovery takes hold.
Ultimately the shape of the recovery will be determined by the effectiveness of beef policy initiatives in the meantime jumping on.
Joining forces with onboard us.
Coalition Partners and foundation.
I think displaced woke up across the United States.
Separately, we are providing that fully resources to support the unique means a small businesses, where the commencement of $250 million in technology product and insight assets.
For the dropping from book.
So now that we should go for a moment tell you.
Looking at this underground we spent some time together the team on developing a framework that really helps the entire company pink about the progression from forecasting phases.
Containment stabilization normalization and growth.
England mitigation initiatives like covenant protections and social dispensing and work from home autos are implemented by public authorities in an effort to bend that govern contains the growth in new Goldman cases.
From our perspective from a payment volume perspective.
Got it derives by rapid contraction in spending levels.
Photos and stabilization.
When these mitigation initiatives biologic complete.
Pending stabilizes it out in new lower level due to mobility limitations with a focus on buying necessities and of course aided by Ebola.
We believe we have currently in the stabilization fans in most markets.
The next phase as normalization.
Gradually relax mitigation practices on the environment become say FFO for the citizenry enabled by the broader than availability of testing and pacing and improved therapeutics, even before the rollout of an effective vaccine.
This phase we think can be characterized by gradual Bob to recovery in spending to peak over to levels. We anticipate spending will begin to the bottom during that phase.
Thats a fairly evenly you would expect some sectors, particularly when the pent up demand like home improvement proposing on healthcare or domestic an intra regional travel novel idea.
Like mass entertainment the long haul.
Probably take longer to the club.
It's possible that we will see signs of normalization in some sectors and geographies throughout the rest of this year.
The final phase of growth, we're spending levels guys, we've turned higher than peak over to levels. We believe a variety of animal vaccine and proven that appendix will bring the stage to fruition.
So containment stabilization normalization of growth is the Facebook using.
It's not necessarily lenient as it seem in Japan, Singapore in some.
It's impossible to say our longest favorable loss, but we think the fact that makes sense. We are running this business.
On the Lexington across the company you will hear US talk about progress in these terms as we move forward.
I'll bring you over the back to our business.
And it's clear that authentic flipping impact and you've seen those but our business drivers are located in more than just ERP trends the secular shift from cash and check to electronic farms. The payment is important and we expect it accelerates coming out of this crisis.
We have a pause grow a balanced portfolio across credit debit prepared and commercial payments.
Focused on strengthening share in debit and prepaid which tend to be more resilient in times like this.
We've also diversified our business in terms of our customer base and geographies as Kevin said it without presence around the globe not services line.
Significant portion of which are not linked to transaction levels.
They help us to further diversify our revenue stream and they have very much in demand.
All this on a foundation of its strong balance sheet and liquidity, which allows us to execute on our strategy to capture new payment flows.
And those new capabilities for the long term organic we of course, but also importantly inorganically.
The near term will no doubt look different than we expected it to be just three months ago from have very well positioned to make the most of the significant opportunities that we see coming our way.
So not to be turned to warfare doing to address the situation today.
Normally I would like every other time, we're focusing on things that we can't control.
Inside our company.
But also externally with our customer governments on society at large.
Stock with the most important issue the health and wellbeing of our employees.
Our offices remain open wherever they had been allowed to do some.
But the vast majority of our employees of local promote.
Many people are dealing with new circumstances, and unexpected challenges and we are helping our employees in every which way that we can be providing them the additional benefits.
Take time off of those need to care for themselves or their loved ones.
As shown on employees that Dave we would be no government 19 related mill.
Our next broken systems remain fully operational based on the resilient gold infrastructure that we have both.
And then regularly tested we're helping our customers mitigate risk of vote mid engaging with them in scenario planning the leveraging tool financial institutions and others to help them fortify that continually plan as they navigate the downturn to ensure that they can come out strong on the other side.
And then also reaching our beyond our CFO will also support governments much of the it won't go into them in the past with an increased focus on that specific needs in light of today's pandemic crisis.
We are uniquely positioned to help them provide emergency payments to both people and businesses 12 month by rail solutions.
So the thing facilitating specific cold winter related social disbursement program around the world, reaching millions of some of the harvested people, including in the United States. The direct expert prepaid program, our account to account sales, which enable about 90% of payroll and support.
Almost all state benefit payments in the UK on now also being leveraged will support payments dispensed workers and financial assistance to businesses in that market.
And it involved it looked like this and markets as diverse as Israel and Chile.
So there is an ongoing on.
Well good always thinking about what more we can do so before we move on let me to say, we will get to that.
Tremendous confidence and the ability of mankind defined innovative solutions in the face of difficult circumstances.
And then confidence windows and it will.
We expect a fundamental growth trends that have driven the company within the done in force.
We have a resilient business model.
Benefit from diversification that benefits from our ability to optimize existing products and solutions and benefits by the fact that they can introduce new value prop all of which contribute to our ability to grow over the longer term.
That I'm going to turn this going over to Michael who as you know has all the operating teams reporting to him.
Very fortunate working side by side with me as the have navigated through this anytime together so Michael.
Thank you Jay Likewise, yes. These are clearly difficult time, which is why we're leaning in leaning in the past them out to be the best partner, we can possibly be especially now as we work through the containment and stabilization stabilization payment together and to pass on normalization and ultimately growth we're staying close.
And connected and anticipating the needs of banks merchants governments impacts as well at the end consumers.
Executing on our strategic priorities driving a secular shift electronic payments building, new revenue streams, and capturing new payments hills, diversifying our customer base and geographic reach all these have been critical part of our strategy and they will continue to the key and aimed at driving our success coming out of this crisis.
All of this spot remaining agile im how we manage expenses to ensure long term growth.
Let me take each of these three in towns give you an idea on how we're doing this.
The second shift.
Alan Trillions of dollars on payments still being made by cash and check. Despite all that has has clearly an opportunity to drive new transactions top products online and install you've seen a dramatic increase in E Commerce and this time of normal ability and we expect some of these behaviors to persist going forward.
When you look at I'll switch volumes in April card not present accounts over 50% of volume, which is up from 40% last year.
So I will drive to offer our customers expanded digital capabilities online and in App is increasingly important and doubling down on these efforts.
For example.
By leveraging our payment gateway services merchants are able to take some digital payment securely and easily.
And our simplify commerce platform makes it easy for small and medium sized businesses to set E commerce options up within just a few days, which of course met as more now than ever.
Underlying these digital transactions tokenization capabilities, which enable safe and secure pensions across every digital channel and bring benefits like improved approval rates again really matters today.
We have new commitments with SC into us and large E commerce retailers, such as JD Dot com from China to Tokenized Dick Hobbs on file.
Now installed.
Segments is the fastest easiest and safest and as of late as announced by the W. HLC Healthiest lane to pay and as a key driver in the conversion of cash to electronic payments, especially now with consumers looking for quickly to get in and out of stores without exchanging cash touching terminals or anything else you've seen over 14.
Sent growth in contact with transactions worldwide in the first quarter.
Our recent consumer insight indicate that havent been created today.
And last beyond the current situation more than half of new tap us, saying that we'll continue to use contact that sponsors endemic his own level.
We are helping to enable this by increasing contact us limits around the globe and then our conversations with banks, we see a renewed commitment to accelerate the issuance of new content Clinton costs.
Moving onto the growth.
We continue to win in Portland credit debit people and commercial deals around the globe. Let me give you just a few recent example, including expanded partnership with Spank in Russia.
An expanded global commercial agreement with WEX, including new products and services results extended our long term relationship with encore in tear in Brazil in the consumer and commercial credits space.
And off to pay has agreed to make mastercard's preferred commercial prepaid.
Processing partner.
In the us down we'll be moving its commercial card business over to us, including 20 and purchasing cost as well as a new virtual card program.
I'm really pleased to announce that with one credit and debit programs with live Oak Bank, a significant provider of small business loans into us again very important in these times.
I'd like to come back to the debit trend that algae mentioned, we've increased our consumer debit shagun over the over time and our lead on our lead us in a number of markets such as Brazil.
India and several markets in Continental Europe.
We believe that this along with our global leadership and prepaid will serve us really well in the current environment and of course beyond.
Further we have products like digital debit.
Enable issuance to often to their customers credentials and can be used online even when the current cards don't have these capabilities. We have several examples this quarter, most notably the cost of banks in Germany are looking exclusively with Mastercard to enable more than 20 million customers with access to digital debit cards.
Let's just focus to our diversification strategy.
Now we continue to make good progress in expanding our customer base, particularly with syntax. Let me move early and we've developed a leadership position. Some examples of recent wins include a new prepaid cope and program as credit Sesame into us and expanded relationship with and 26, otherwise known as an index on something across 18.
It's around the globe.
Now onto diversifying geographies as you all know.
We have been looking forward to switching domestic transactions in China.
We're really pleased to have received preliminary approval for our license applications, which will allow us to set up our JV with our local partners in U.S cc.
We expect this process will play out over the next year.
This takes up to build pillar of our strategy as you know with medical inside an effort to invest through a combination of organic and inorganic means to build new revenue streams.
Not only accelerated our girls, but also diversifying our revenue, which is particularly valuable in these times.
And we'll continue to be important over the long run.
First up services also slide the holding up well despite the downtown as a significant portion are not linked transaction levels.
So let me bring to life for example, our customers are using our differentiated insights and analytics to help them assessed react and plan during the current prices.
We have implemented our unique test and learn capabilities acquired through.
ABT acquisition, a few years ago to address industry specific needs. Here's an example, this could be engagements like working with grocers on inventory levels and promotions and real time and many more use cases.
We're also working to address fraud, which is even more important as more transactions are moving online.
The capabilities that we have acquired through companies like new data criterion circuit and most recent de risk recon.
Help us brings significant value to the ecosystem and we'll continue to position us well as behavior is unlikely to shift in a post covance 19.
With risk recon, we have providing cyberbond or inability assessment of small businesses and healthcare organizations in ethnical helps issues and merchants prevent fraud default.
And it helps to reduce costs and the operational pardon Charlesbank resolution.
This breadth of our cyber intelligence services allows us to assist even beyond payments has been doing by creating a digital I meant to be framework.
And finally here a couple updates on our progress in new payment flows and real time payments in particular.
Our real time payments implementations are progressing as planned including in the Philippines, Saudi Arabia and in the Nordics Btwenty seven.
I do want to point out and I'll counter account sales, particularly in the resilience in times like these giving the breadth of use cases in addressing the recurring nature of these payments.
In the UK alone, we processed more than 2 billion real time transactions annually, which are growing at double digits. However, our account to account rails and as you know we're involved in the accounts accountemps and many more companies countries around the world.
Now as you would expect the social distancing measures have pushing more day to day activities like person person payments in home delivery services to digital platforms, which in turn use monthly comps and becoming continued to see very strong volume growth.
Even with the slowdown in some aspects of the economy like ride sharing strong growth versus.
Also seen strong growth across our cross border assets, including transfer costs as momentum and both and pizza Pete flows and in beaches Seasonals assessment use cases, including as of late in the first Abu Dhabi Bank, which has gone live as cross border accountant counter remittances.
And all of US Wideopen banking front, we continue to rollout a set of comprehensive solutions and services that we believe look for all players in the ecosystem further to our efforts in Europe that we launched last year and very excited that we'll be expanding our longstanding relationship with Tesco to work with them on open banking, which is particularly notable given.
The UK is a leading market in this space.
We see the ability to facilitate the exchange of real time information, while protecting data privacy as a significant opportunity for us and as the landscape evolves and open banking makes its way around the world.
With all of this as a backdrop, we are actively managing our expenses as the situation developed we quickly advanced a framework for prioritizing our spending with a focus on how to best support our customers and drive the long term interest of the company.
We look at each expense line and made adjustments based on factors such as market readiness and customer demands.
At the same time, we preserved our ability to invest strategically important areas such as digital services geographic expansion and the enormous opportunities we see in real time payments and each are critical to our long term growth.
The flexibility in our model enables us to adapt quickly and adjusted circumstances warrant we won't continue to manage this closely how much detail on expense management and our financial overall, I mean, I'll turn the call over to assumption.
Thanks, Michael as Adrienne Michael mentioned this truly is an unprecedented time for us all before I get into the numbers I would like to take a moment to acknowledge the resiliency of the team direct Mastercard, we've maintained our focus and supporting our business, our customers and partners and each other during this challenging period.
In light of the current circumstances I will focus most of my comments today on the trends that we have seen recently, but I will start by walking you through our Q1 results.
So turning to page three you're a few highlights on a currency neutral basis, and excluding special items and the impact of gains and losses on the company's equity investments.
Net revenue grew 5% with acquisitions contributing approximately one ppt to this growth.
Total operating expenses increased 8%, which includes a six BBD increase related to acquisitions.
Operating income grew by 2% and net income was up 3% both of which included Threepd reduction due to acquisitions.
EPS grew 6% year over year to $1.83 cents, which includes five cents of dilution related to our recent acquisitions offset by 4% contribution from share repurchases.
During the quarter, we repurchased about $1.4 billion, what the stock.
So, let's turn to page for where you can see the operational metrics for the first quarter each of which was impacted by the pandemic starting in February and March.
Worldwide gross dollar volume or GDV growth was 8% on a local currency basis and was favorably impacted by an additional processing day due to the leap year. This partially offset the declines due to the pandemic.
US GDV grew 6% down approximately three ppt from last quarter with credit and debit growth up 7% and 5% respectively.
Outside of the use volume growth was 9% down fiveb from last quarter.
Cross border volume growth was approximately 15% through January driven by double digit growth in most regions, but began to decline a decline progressively through February and March as travel restrictions were put in place globally. This resulted in overall cross border volume decreasing by 1% for the quarter on a local currency.
Yes, I will get into more detail on the trends, we're seeing in a moment.
Turning to page five switch transaction growth was approximately 20% through February reflecting the strong recent trend supported in part by the ongoing adoption of contact US. We then saw declines in March as stay at home practices were implemented which resulted in growth of 13% globally for the quarter.
In addition card growth was 5% globally, there are 2.6 billion Mastercard and maestro branded cost issue.
Now, let's turn to page six or highlights on a fuel the revenue line items again described on a currency neutral basis, unless otherwise noted.
The 5% net revenue increase was primarily driven by transaction on volume growth as well as strong growth in our services offerings, partially offset by a decrease in cross border volume and higher rebates and incentives as previously mentioned acquisitions contributed approximately one ppt to this growth.
Looking quickly at the individual revenue line items domestic assessments grew 8% in line with the 8% growth and worldwide GDV.
Cross border volume fees decreased 2%, one cross border volume decreased 1%. The one ppt difference is mainly driven by mix.
Transaction processing fees grew 16% while switched transactions grew 13%. The threepd difference is primarily driven by the strength and services, partially offset by mix.
Other revenues were up 28%, including a six bpd contribution from acquisitions. The remaining growth was primarily driven by our cyber and intelligence and data and services solutions, which held up well this quarter.
Finally, rebates and incentives increased 26%, reflecting recent deal activity as anticipated.
If you look at rebates and incentives as a percentage of gross revenues you will see that increased sequentially to 35%. This quarter will reflect reflecting recent deal activity and the impact of the amortization of fixed incentives over a smaller gross revenue base.
Moving onto page seven you can see that on a currency neutral non-GAAP basis total operating expenses increased 8%.
This includes a six BBGI increase related to acquisitions, partially offset by a threegpp benefit related to the differential in hedging gains and losses versus a year ago period.
The remaining Fiveb view of growth related to our continued investment in strategic initiatives, such as digital enablement safety and security geographic expansion and new payment flows.
Now turning to BG and given the circumstances I thought it would be worthwhile to update you on where we stand from a capital allocation standpoint.
As you may recall on capital allocation priorities are to maintain the strong balance sheet invest for the long term growth of our business return excess capital to our shareholders and migrate our capital structure towards a more normalized mix of debt and equity overtime.
And these priorities have not changed.
Despite the impact of over 19 through the strength of our business model and prudent expense discipline, we have generated strong operating cash flows in Q1.
This strong operating cash flow the temporary suspension, our share repurchase program and the $4 billion of debt that we raised in the first quarter will further strengthen our liquidity position at the end of the first quarter.
We had $10.7 billion and cash cash equivalents and investments, we believe that maintaining a strong liquidity position is the prudent thing to do given the current economic environment. It gives us tremendous flexibility do not only meet our obligations, but will also capitalize on new organic and inorganic opportunities that may present.
So in this environment.
We have deals in the pipeline that we are examining actively as you would expect at a time like this.
Lastly, as it relates to the share buyback program, we will reevaluate the as macroeconomic visibility improves and we'll opportunistically execute on the program as we have historically done.
So turning to page nine let's discuss what we've seen through March and the first three weeks, albeit from from an operating metrics standpoint.
We are providing additional detail here to help you better understand the recent trends essentially what you see is that through March we were in the containment fees with cross border volumes and domestic spending declining as travel restrictions were implemented followed by social distancing measures being put in place across various jurisdictions.
The rate of decline have recently stabilized as these restrictions have taken hold indicating early signs of stabilization phase.
It is important to point out that social distancing measures have been implemented at different times and two different degrees around the globe and even within countries. So not every location is in the same fees.
Also lesion closed followed by much of the developed within months and the balance in the last few weeks.
So looking at at this a little bit more closely let's start with switch volumes, where you can see the impacts of the social distancing measures on overall spending starting progressively in March.
The impact of varied by category with spending on essentials, such as groceries pharmaceuticals, and utilities holding up pretty well spending items that are either discretionary or require mobility down significantly. This includes categories, such as travel restaurants clothing recreation and gas.
We have also seen people depart healthcare services other than those related to go over 19.
Not surprisingly the way in which people have been making purchases the shifted specifically as Michael mentioned earlier card not present spend now accounts for over 50% of switch volume in April up from about 40% in 2019 as ecommerce spend excluding travel has actually grown.
We have also seen merchants accelerate their omni channel distribution efforts, most notably in restaurants and department stores to accommodate the shift.
In total switched volumes have level and our down approximately 25% versus year ago in recent weeks, indicating early signs of the stabilization phase that RG alluded to.
The tote week of April numbers have actually improved across all regions, but absent.
In part due to the early impact our fiscal stimulus, but it's still early days.
We are seeing the stabilization continue over the last several days as well.
Looking forward as local distancing measure the relaxed we expect that some of the sectors that have been hardest it will begin to show signs of normalization.
Early signals will include spending on gas as people are going to work and spending on before needs such as health and personal care.
We expect some sectors, particularly whether this pent up demand such as clothing home improvement and domestic and intra regional travel to normalize earlier other areas will take longer to respond for instance, if for instance, long haul traveled spending and mass entertainment.
Trends and switched transactions are similar to what we're seeing in switched volumes as they are impacted by the same factors of the most part we are seeing an increase in the use of contacting us and card present transactions supported in part by the increased spending limits that we have facility in and around the world. We think this trend will continue.
Turning now to Beach, then I would like to provide aluminum little more color on the cross border trends, we have seen recently.
Into if you look at degree line cross border volume appears to be leveling off down approximately 50% year over year again, indicating the early signs of stabilization fees, however to get a better understanding of these numbers. The best way to think about cross border is to split it between card present and card not present.
Each accounted for about a half of our cross border spend last year.
Not surprisingly if you look at the Orange line card presence Bren dropped significantly as the travel restrictions and social distancing measures were implemented and as since bottomed at a minimum minimal level.
So there's very little room left to see further deterioration.
On the other than card not present, which of the yellow line on the chart.
Has been more resilient down approximately 25% in April. However, you should know that this includes significant declines and online travel related spend.
So looking at Green line, if you exclude online travel you can see card not present spend is actually up approximately 20% in April demonstrating the resiliency of this aspect for cross border.
So in summary, the normalization of cross border spend is dependent on the relaxation of travel restrictions and returning to the growth fees is dependent on an improvement in consumer confidence that it into unrelated to the availability of effective therapeutics and ultimately vaccine.
Turning now to page 11, and our outlook going forward.
Net revenues given current uncertainties, we will not be providing a forward view for either the second quarter or the youre at this time.
We do intend however to provide periodic updates to our operating metrics throughout the quarter to help you understand the trends we're seeing.
Consistent consistent with this approach. We're also withdrawing our 2019 to 2021 performance objectives at this time and will reconsider these as we have better visibility.
I do however, what to make a few additional comments to help you with your modeling.
With respect to cross border into regional travel has been more significantly impacted intra regional travel in Europe. As a result, and increased percentage of cross border volume is made up of intra Europe transactions, which are lower yielding into regional transactions.
Second.
While some portion of our services revenue are linked to transaction levels a significant portion of the revenue we generate from services is not.
This helps our service lines diversify our company's revenues something we expect to continue to benefit from over the longer doll.
Overall, we have been strong demand for our data analytics and cyber solutions.
In the second quarter, we expect services growth will continue to outperform our core products you should however, expect the growth rates to come down sequentially in the second quarter, but remain positive overall.
These declines are due to the dependence of some of our cyber and intelligence services on switched transactions, which we expect to be lower sequentially and the impact of social distancing measures on our ability to execute projects at customer sites.
And will impact both the transaction processing and the other revenue lines.
We would expect services related revenues to accelerate as which transactions begin to normalize and mobility restrictions are relax.
Separately, we expect rebates and incentives as a percentage of gross revenues to continue to increase sequentially, reflecting deal equity activity and amortization often fixed incentives over a smaller growth revenue base.
So now turning to operating expenses as Michael mentioned, we are managing expenses carefully to ensure we can invest strategic and strategically important initiatives. We have ramped up our efforts in this area and now expect operating expenses on a currency neutral basis, excluding acquisitions to decline at a low single digit rate.
In Q2 versus a year ago.
Other items to keep in mind foreign exchange is expected to be a one ppt headwind to revenue for the quarter NDR Foreign exchange will be a tailwind to operating expenses to a similar expect.
Acquisitions will contribute about one ppt to revenue and six to eight BBD two operating expenses for both the second quarter and New York, assuming the transaction with net closes in the third quarter.
In the other income and expense line, we will now be Eddie quarterly expense run rate of approximately $100 million, given our recent debt issuance and compelling interest rates.
This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.
With respect to tax you should assume what tax rate of approximately 17% to 18% for the youre, assuming the geographic mix of the business does not change significantly.
Ultimately as Roger said, we will get through this we are seeing early signs of stabilization and the impacts of fiscal stimulus. We are very strong position to navigate through this fear of uncertainty and emerge well position to address the significant opportunities that lie ahead, and with that I'll turn the going back over to warrant. Thanks Sachin James.
We're now ready for the question answer session.
At this time, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad and we'll pause for a moment, while we compile the Q and a roster.
And our first question comes from the line of Craig Maurer with Autonomous go ahead. Please your line is open.
Yes, thanks for taking the questions and especially for the additional detail for everyone's well.
So wanted to focus on two things.
One if you could talk about the exit rate at April 21st.
Saw nice.
Improvement how much do you think is related to recent stimulus efforts and how sustainable do you think that is or dependent on on continued stimulus efforts and second when we think about cross border.
I was hoping you could help us understand how much of that.
The card not present, non teeny cross border spend is related to be to be versus consumer activity. Thanks.
Craig Science, but first bucked the part of our fiscal stimulus, while it's tough to exactly figured out what impact that Fred remember Thats only started gore relatively recently and remember that's a fair amount of money in the United fit but outside of the analysis, which is.
Got to vehicles, 65% of on revenue of 60% comes from outside of the units on the trends when function was speaking we're that fifth per vehicle for April and the continuing trend for the first few days of the next week.
Global data across every region.
So I don't rule, but I could give your plan on some but I don't think youre going to zero, but it's only the fiscal stimulus passporting through.
Yes, Greg it's such an old I'll just quickly add to that back to what audio is just saying right. So even beyond the week ending April 21, we've seen the same trends continue for the next few days coming into this we.
Actually if you look around the globe and you start to see in various countries, where there is a slight relaxation taking place in terms of social dispensing.
Sales, which were put in place as well as cross border restrictions, which are put in place we're starting to see a little bit of that stabilization. In fact come through for example in markets like Italy, Germany, Poland, Australia, Australia, we're seeing this come through and to the point really being that as people start to get out and feel are getting back to.
I wouldn't call it that normal ways, but getting back to being able to move around we're starting to see that that level of spent cultural as well.
Second question around cross border, Here's what I'd tell you that cross border card not present, excluding travel that lift you are seeing which is taking place in the third week of April that a few factors, which are contributing to this and you just kind of just kind of keep that in mind. One is timing of Easter globally is having an impact but would equal.
Really if not more important what you're starting to see is.
The omni channel.
Pre prevalence coming through at various margins across the globe. So with the price was hitting more and more merchants are coming to realize the importance of going into online channels and as they are going to online channels that enabled themselves and you're starting see the impact of that come through other categories, where youre seeing some level of.
Spend going through is in areas like clothing in general retail I would tell you and subscription services in the marketplace activity, you're seeing so youre seeing that come through in all of those metrics there.
Thats going to the color I'd like to share with you as it relates to how we are seeing those cross border trend.
Card not present trends kind of layout.
Thank you so much.
Yes.
Our next question comes from the line of Bryan Keane with Deutsche Bank Go ahead. Please your line is open.
Hi, guys good morning.
I guess im a little bit surprised or is it more variability in the rebates and incentives line with the lower volumes why isn't there I know, there's the contracts are structured and the accounting, but I just want to make sure I understand why there isn't a little bit of a more of an impact on a reduction in the rebates and incentives as volumes decreased and then secondly, just on.
Cross border in itself in a lot of concern about the higher yields there and how it impacts margins. Maybe you can just give us some thoughts on that as well. Thanks, so much in Stacy.
Sure.
So Brian on rebates and incentives.
Youre, well aware about hollering bits and instruct incentives are constructed right. So there's a variable component that is a fixed component and the variable component which is there.
Uhhuh stack and both based on levels up volumes, which headwinds for the system.
The fixed incentives are fix that we in fixed and so to the extent you wouldn't see variability is going to be on that variable component. The fixed fees is going to be there. The reality is in the first quartile you can see from our volumes, we were still growing volumes in the first quarter and youre going to see the impact of that come through the other aspect you got to keep in mind at the back.
What I would call new and renewal deals we had mentioned to you and on prior earnings call that new quote about the various deals which are kind of entered into using the impact of that comes when the rebates incentives mine as well so really that's what you should.
Keep in mind as to what what we're seeing there.
Obviously, the variable component will change dependent on where volumes ultimately trend out for the rest of the year. The fixed will be what it is the second question would you buy is around cross border. I mean, we've tried to provide us with transparency has began as it relates to what we're seeing in terms of volume trends I think the team to keep in mind and cross border is.
There are three different kinds of categories across borders as what you would think about in the nature of intra Europe cross border, where which is generally lower yielding vendors. The inter regional cross border I would break that up into two buckets. The two buckets are the long haul into regional stuff and then that the shortfall interdigital stuff.
I bring that up only because even as you think about how we move from stabilization normalization you should think about the fact that you would expect intra Europe and shortfall into regional to some back sooner rather than long haul and Thats just kind of bite by definition. So for example, if youre if youre in the.
Oral venue can do ground transport between one but when the other country that would happen more naturally as motor restrictions at lax and you have to get on planes to going to.
For the various locations. So that we should think about it from a yield standpoint, intra Europe low yielding into regional high yielding size international starts to come back you've got a factor that into the mix.
In terms of higher modeling.
One little comfort of our margin I know you asked about cross border margins are driven by our company has various aspects towards margin mix and one of those which has and will suffer from if you remember a few years ago run services were.
Smaller percentage of our revenue that margin contribution was also lower and the average margin for our company that is not the case.
On services business.
All the different lines and it.
Together, when you kind of the higher governance, seven broken them, they're very profitable for us as they should be because Q allows us to leverage the fixed cost of imports into building those businesses or larger volume. So I think.
As a company we feel relatively good about graveyard margins.
What about some of the the revenue diversification and of course cross border down today that will be to some extent as such incent onto long ago, intra and inter regional kind of stuff picks up.
Obvious so we're going to keep they won't become to keep growing our business I mean, one.
Yes, thanks, so much.
Our next question comes from line of tension Wang from.
Thank you Morgan go ahead. Please your line is open.
Thanks, a lot really really thoughtful presentation, just a follow up to Brian's question the within incentive line.
With deal can we assume that deal activity that side of it could there be a pause there here as people sort through the depend dynamic or could actually accelerate as we see some of your clients embraced contact lists and some of your other products have been.
Somewhat related on the M&A front it sounds like your appetite is.
Up have your priorities change because of the pandemic revaluation chains, such that you might have more deals in the opportunity set that went there before.
Thanks.
Thanks agent, so on rebates and incentives ill.
The point really is we're running our business as we would run our business you know what up our imperative is to grow market share we're constantly interacting with our customer we're going to do deals within a renewal deals were going into new deals. That's just part of course, and so what you're going to see come through as that activity and.
The best I've gotten the nature of visibility on pipeline and things, which are going on which is a pretty active pipeline to be completely honest with you. We factor all of that in terms of how we shared with you our thing that thoughts are aware rebates and incentives will lay out.
On the eminent but engine and high.
Let me what appeared this rate there are couple things, which we were looking at even before the pandemic.
Those conversations are continuing and developing the good thing.
Others that will come up I am short of that go along I don't roll that you should view us as jumping in just the current valuations may go down I think what's more interesting Joe is the willingness of the other parties to be able to feel that they may be in a better home with a company like cause that gives them access to destroy.
In addition capabilities geography.
I am capital and liquidity award create for better conversation.
I view the valuation common does interesting but of all you're doing jump in the valuations are down is that really the kind of acquired a water be or the ought to be required of the right time for that reason I think and find us trying to find the right balanced and get the deals done for what value that bring to us.
In keeping our powder dry and to be portfolio at the time like us.
And tension Michael had the areas of focus haven't really changed so is staying true to the strategy data analytics Ceiba new payment flows open banking those are still top of mind for us as we engage in a manner that I've just described.
All right terrific. Thanks, so much.
Your next question comes on line of Lisa Ellis with Moffat Nathanson go ahead. Please your line is open.
Sure. Good morning, guys. Congrats Blake just got everyone as well.
Can you.
And maybe that's in part from Michael talk a little bit about.
This is related to cross border and cross border travel.
Sure in dialogue with government your major issuing partners your major co brand partners et cetera.
What is the path to long term recovery and cross border travel look like like so in your view, what what conditions have to be in place.
Under which you think you'll see both governments be willing to reopen orders and then also people be willing to get back on planes and start traveling.
Yes.
Hi, Liza, Nigeria, guys wants to kind of get a little only up in this locked up things so.
So.
She is the thing or do not can you.
Crux of a crystal ball issue Thats, a little bit took to get into but let me give you some pasta picked up over time.
The first one is I actually believe that you'll see that seem to something in China. As you will begin with China I think is in more of a normalization phase.
Heavier not it fits in Europe, but more than a stabilization phase, although even that if possible for us beginning to open up a jury hearing some governor peak you may see a change in that over the next 2345 weeks I, just don't get no hard to predict that well.
Since the IPO fit China being more in the normalization phase thunderstorms.
The long journey from China through that phase and start but.
Begun but fair local travel has become trains have got bookings planes vocally abroad bookings restaurants, and bars are open in Shanghai, and Beijing, Guangdong and places Mohan is still challenged.
So moving a little bit from China experience here at night and brought Australia, New Zealand beginning to think of opening up so I think we'll get some more data from countries that are a little ahead of the curve than the rest of us talking about cross border travel.
China is beginning to talk about cargoes of cross border being opened them, which is to your question about the government feel comfortable about what kind of connections with certain countries. They can reopen forget talk more reopening traffic, obviously to Hong Kong in Taiwan, and Singapore. We're also at a point of time that we're thinking about Japan, which has since.
The minimal challenge, but Japan seems to be improving over so I think we're going fine is cross border travel in quarter at all or within Europe, which are open first before you get situation or longer haul going that is the issue of playing having been government for quite awhile.
Crews on planes, having to be reactivated that'll also take its own time to come true Airlines are obviously watching that very carefully and they're very keen to get back on stream, but they need to see some bookings in northern domestic in the United States that Theyll say actually paired more people through their security for.
Over the last failed to then behind for the previous couple of weeks now Thats at a very low level compared to the peak that we saw prior to the crisis, but that's all indicators of how does forget back into shape I don't know by general view in life and that.
We will probably end up with a reliable therapeutic somewhere over the summer whether it's available in large enough countries across the entire was particularly for those who are disadvantage I don't yet know, but the work that we've seen with again foundation work and with a bunch of others seems to point in that direction.
Spec via availability with therapeutic will be some kind of an inflection point them because.
The effective that Florida real vaccine that you actually get people are confident about getting onto long road planes and can you get countries confident or letting people in from another country at that point of time without testing different quarantining them embarrass entry point I don't know I don't think so and sort of mean that probably is filled sometime next.
Yes.
This is a better color refund the vaccine earlier, which I don't have good scientific reason to believe.
So big kind of running the company through.
No stabilization normalization on growth phase and preparing ourselves to have are expensive.
View of the medium and long term very focused through the lens of I think thats, what you'll see us doing we're pretty confident or what we are trying to do we hope we are confident about our deal flow. We're confident about our competitive advantages to keep growing share and working villain debit and working with Fintech. Some real time payments an open bank.
And we're doing with services and digital analytics and cyber security cyber faith in were paid up too.
But I don't know debtor in cross border combined.
Okay, Yes.
Fair adoption on.
Related point, just for my follow up that the non key any cross border.
Commerce.
I think it's a little bit black box at least that can you comment generally speaking what the composition of that is like meaning does it move.
And grow in a similar ways to domestic E commerce like non TNT E Commerce.
Or are there are aspects of it that are that are similar or different like certain regions or certain.
One media have you been retail heavy.
Is there anything unique or comments that you can get about that thank you sure securities.
I'll take that question look I mean, I think first you should you should recognize that's not an insignificant portion of what the cross border component is so it's actually.
It will pretty meaningful portion.
On the Gardner President component and we're trying to fair given your percent.
Regarding the really [laughter] Tri party.
[laughter] earnings.
No the mass on the little wide.
[laughter], let me give you a little bit of color, what what that comprises off right. I mean, there's a whole bunch of stuff as you would imagine that which relates to everything from.
Subscription services still gaming to it'll purchases in clothing appliances. This all the stuff, which kind of since in that category. So to your point about whether it's more akin to what you would see in card not present in the domestic environment. It's actually some very similar categories would sit in there.
The one point I want to make sure that.
I kind of bring out is we are starting to see a lot of the smaller merchants who were previously not present in the online environment activate themselves to get ready to participate and are actually participating the online environment youre starting to see that come through.
During our daily life right now right is a people who never provided food and grocery delivery online.
Getting online in the last year now five between the United Lou.
And that's a big change from.
Before the current that's true for cross border.
Wonderful thanks, guys.
Glad everyone is helping us.
And.
Okay.
Our next question comes from the line of Darrin Peller with Wolfe Research go ahead. Please your line is open.
Hey, Thanks, guys glad were good okay.
No look it's I think more than second quarter, which or even a recent trends, which a lot of investors are looking through it seems clear there has been there's going to be impacts from this that have a more pronounced impact longer term structurally and so can you just talk through with US. If we think of that benefit the beneficial opportunities from coming out of this which may include contact list.
More accelerated or use of real time payments versus the potential for things like cross border to be maybe structurally changed what are your thoughts of sort of netting it all out if you just liftoff, what you're seeing accelerated now could structurally be something that could actually help the payments industry and you guys more pronounced near term that enough to offset some of them.
Pencil challenges of folks have been up traveled as much.
As you can imagine Michael those kind of the awarding of attention to that that's a future. So areas might go ahead.
Thanks.
Hey, Darren so.
When we look at what what is changing in terms of let's say consumer behaviors or business is little early as you were saying, it's a little earlier too.
I have to vote on when and how travel is coming back, but that we're engaging with them out and trying to understand commissioning research all of that but there's a few things that are.
Pretty obvious pretty clear in the coming through now numbers already at least on a relative faces in the first is is this push to ecommerce and digital so here.
People are getting used to let's say virtual entertainment E sports.
People are getting used to.
Consuming by delivery service why they might have gone outside the four so there is some behavior patterns moving towards digital and we believe that we'll continue to persist anything that we do that's related to our digital capabilities being the cyber space beaten our underlying digital solutions should benefit from that we look at that adds.
Continues tailwind.
Even for the displacement of cash is not only displacing existing electronic payments as a net increase at leading Spain, and we expect versus cash now talking about cash one other thing that I expect coming out of this is that the attitude towards cash will be more negative than what it was before they even in the most holdout countries now I gave you did.
Example, in the German Corporative mines earlier, you start to see a shift to online in E. Commerce away from cash that you could use cash and that as to your question Darren.
Clearly contact glass is going to be the way and that will help benefit from that hum that trend the numbers on stone as sounding the last quarter, 30% to 40% increase that's really quite significant significant the first rounds of consumer research tell us that people do want to spend less cash.
Our spending less cash actually right now.
Just on a study in the United States with 60% of people said exactly that so.
Anti cash more contact list is going to be something and will benefit from looking a little closer into our ecosystem.
Currently our customers. So this these underlying trends will also changed some of the this.
That our current exposure.
From our services portfolio into the worlds of data analytics, it's a more complex world is going to be more change everything I, just talked about might evolve and 10 different ways going forward understanding that and using our data points and data analytics will matter more so we'll expect more demand.
And then cyber and intelligence.
This world I would have more online a more would have more digital economy is only going to drive what we do not space. The question in a world of more digital on who is actually transacting. The question of digital I'd is a significant opportunity. We had an early start of that and be sees that to be some.
Thing that is going to get a lot of our attention going forward.
Andy talked about the government a role in getting through new crisis stimulus packages and so forth.
We expect as a result of that is that.
Interest that we saw from governments over the last couple of years to look at payments as critical national infrastructure is going to only increase because if the economy is more digital you'll see more governments, taking an active role a multi rail position will give us the seat at the table in the already have that dialogue going and we'll see that coming strongly on that so.
On the top line that I think are obvious more granular consumer behaviors with staying close we're running a bunch of research right now to get the latest on that and the only thing going on there is that if you.
Time like this and it's clear that those who are suffering much worse than others, everybody. So those are suffering much worse or those who has less to start of.
Getting the economy somehow working better for inclusion when we come out of this I think we're becoming even more important issue with governments and win pinkos around the world. It's on a coincidence that it's the midst of August that we've announced our commitment to go from 500 million toured Richard reached to a billion over the victorias.
50 million small business within that and 25 billion women entrepreneurs is what you're going to try and reach as a company to facilitate.
Their ability to participate in a better way in the economy as it come out of course, that's the reason why this is a really good time double down on thinking of that we're shortly we can do it.
Because we have demonstrated the 500 million, we think we can do even more.
Hey, Darren one last point.
One last point in our field, particularly passionate about and Thats the b to B space. So we've been talking about BTD has a significant opportunity for a number of years now. So when you think about the impact on a global supply chains and so forth.
We expect is that the drive towards Digitization of supply chains, and creating more flexibility is going to only increase so we believe that's going to be some tailwind in accelerating.
Our participation and beat inflows as well.
All right Thats really helpful guys. Thank you.
Your next question comes from the line of Jason Kupferberg with Bank of America Go ahead. Please your line is open.
Hey, good morning, guys good to hear from you.
Let me talk a little bit about.
Change rates in network fees fixing that already announced plan.
That some of the interchange rate updates in the U.S., we're going to be delayed until July if not mistaken is that still the plan or should we assume that changes in either interchange or network fees for that matter or perhaps off the table. This year just to.
Merchants and experiencing even more pressure amid the quite a bit environment.
Just to be clear exchange rate changes were not just right increasing to change that we're talking about category. The merchants would have different changes to their into trying just to be too. So the reason that both having gone through because they were linked up with a whole bunch of technology releases and right now the real challenge for any merchant any bank host.
And to navigate that we introduced with most of that people working article or from our home over people struggling to meet the new business model and they don't need new technology changes in the midst of those so what we decided who was to postpone all that I have no idea when we'll do it again not fixed it depends a little bit on how the environment gold and.
Thats helpful mandatory.
And then I guess just wanted to get your quick thoughts what's what's your got in terms of the shape of the U.S. recovery.
My gut products should not be expanding these electronics.
Yes.
Okay.
Yes, you will need.
Not sure Chris So.
Leading towards ice cream.
Newest recovery back to what I was telling these are little bit.
I think it all interconnect I actually believe that.
This is just again when I believe that the next.
Couple of quarters, you will begin to see the United States as tapes open up come a little bit out of the stabilization fit into the normalization phase I do believe that particular note enormously I believe that Americans actually quite resilient and their ability to sort of want to go back to.
Being who they are which is essentially social beings would like being with each other will lead to a certain kind of behavior pattern, we need to do it carefully because the probability both some of it if you believe those and will the funds the probability post summer of this having some kind of a records hopefully at a lower level.
A victory better prepared and we'd have to therapeutics and our hospitals would be in better shape and our reaction bonds would be in better shape I think that would probably be what happens we'll see some first thing common goal and I think them.
By the time the yen comes around and people have been so that fans, you'll probably see more confidence.
By the end the news on the vaccine firmed and good afternoon better improvement in the early part of next year going into the middle and latter part of mix that.
It's incumbent I don't think windows in the short term I think this is a medium term thing to plan for I believe that's higher should build your business and manage our liquidity and think about your employees and clients and share were at this point and Thats. How we are running our company in both four phases.
We're all talking that language, so that our budgeting.
<unk> expense thinking Michael to drive on prioritizing, what we do and what we don't do is unbelievable and I think thats part of what we're trying to focus on and stay focused with the four phase thinking it has suffered the same way otherwise into a global company in China that are different strengths will be United States.
You don't want very confusing to understand the underlying trends, but now we don't contribute we call them in one stage and often a different fans will see probable.
Thank you they say.
Thank you.
Our next question comes from the line of Ramsey El Chanate from Barclays. Go ahead. Please your line is open.
Hi, guys and thanks for taking my question I wanted to ask too.
A question on China, and your news that you're sort of.
Things are progressing there and turn the ability to get into the domestic market, putting aside cobot impact looking to sort of mr., maybe what you're more normalized.
How crystallize R&D kind of partnerships and infrastructure that you need.
Okay generate revenue in that market have you kind of 10 closer to paper in terms of your and can you comment on your kind of strategy, even tactics that we might need to kind of deployed it began generating revenue in the market.
Well first we've only got a great business in China.
That's generating revenue today, even though the crop.
Absolutely, yes from US okay, so weve begun otherwise.
But it has been outperforming on new card growth and new concepts share we're doing programs with a bunch of people, we've even done something with the Shanghai Metro, which is a little more oriented there. The first on the deal actually in China. The Metro. It's the most third largest somewhere system by the way my passenger traffic volumes and Thats, we've built up over the last few.
There is not going in the third quarter Visio tens of millions of international travelers to Shanghai, which I hope that will be well be able to bear a fan engagement QR codes using their mastercard in his Shanghai Metro App.
That's the kind of what were doing not just bancassurance, but actually enabling a lot of the activity that enables us to be embedded in the payments ecosystem in China the domestic what.
We are deep in the process of this year, both getting be license application in principle approval or the cost of a year, we broke through all kinds of things, including National security evaluations off for technology and the infrastructure of the ground that work is progressing a base we are.
Not at that we're not getting back on that that's our medium and long term future a bit keeping on running with that but nothing new I can tell you on that because that's like it will take a sign that will take time to work its way through its going to Uri and Michael probably has some motorized.
Yes.
And ramzi the the conversations as our existing Tata on cross border, obviously extending into domestic partnerships and most importantly, one thing that we're using this time for lobby due to technology development with our partners of and you see is driving up the acceptance. The currently our team is out and the market very actively ensuring that our acceptance footprint.
Good as it can be once we get approval from the PD, you'll see to go lives so thats really to focus.
That's super helpful. I, Didnt know you could actually be in their selling except inside so thats good to know.
Thanks for the backlog, that's what's been going on Thats exactly what they are focused on because run both must have got acceptance in China.
Used to be principally driven by the cross border demand for it which meant it was by the nature of the Beast in certain markets certain kinds of verticals or video and getting it out that into and it should be so that it can become a real payment system domestically as well.
That makes a lot of sense. Thanks.
Our next question comes from the line of Hershey to robot with Bernstein Go ahead. Please your line is open.
Hi, Thank you very much for taking my question can you seem to men sorry.
So Mike.
Exposure today.
Let's just call it.
And now can you just kind of a Q. He is based on the research et cetera.
Hey, I, what does a different scenarios that could be looking at it down to phosphate shop.
We love the tools and becoming a little bit. Thank you.
When you get two kinds of one so here we had one point of view that says coppertone Riddick alone time to bounce back and actually depot, we've begun to travel an uplift of basis.
Intro region and in those Carlo those are floating to earlier and the other point of view as the actually win business to start interact again part of your Enbrel supply chain Party rebid business connectivity, you will need to have a degree of corporate travel requirements and.
Prior in prior analytics don't so felt right now because fine ondecks never want to shut down also along even 911 was a few days of impact to travel of this time and then it came back even the financial recession, but we went through in Orient or nine Didnt have this kind of a shutdown I mean.
Oil demand in the world in the financial recession went down in the single digits, it's down 30% right now so we're talking a very different scenarios I am growth to give you.
And then sort of an analytic view from prior times prior time, frankly, corporate travel came back very quickly and both of the travel came by a little slower I don't know what will happen. This time not sure yet.
Okay.
Our next question comes from the line of Sanjay Sakhrani from KBW go ahead. Please your line is open.
Thank you and nice to hear that you guys are doing well.
I guess I have one question a follow up quick clarification.
When we think about the goal of cost containment efforts, where exactly are you guys. Im just trying to think about how we should think about the progression of cost saving opportunities if things get worse or things get better and then I'll just after the second question upfront.
Our second now.
In terms of the relationship winners that are affecting rebate.
Is there a revenue contribution that comes into this here is that more spread out over multiple years. Thank you.
Yes, and yes, okay.
Hi, John start of the second question first and then we'll get onto the expense. We so on your question around the relationships, which were either renewing and or building new relationships with look you've got to think about in the context of things, which are existing customers you probably will start to see the revenues, we already seeing the revenue that come through in to the extent that extent expanded deals you will see the.
Revenue was that come through on a sooner basis than you would see in the nature of new relationships, where youre flipping portfolios all youre, starting a global program or something of that saw so I think it's a little bit of a mixed bag. So you'll see that kind of comfortable I don't see the trend on that by the way being any different than.
What we've done historically, when we signed deals in the past whether the new deals on renewals.
That battle is pretty much what we're expecting to going forward basis.
As it relates to operating expenses, let me just give you a little line of sight as to what's going on from an operating expense standpoint, I know Michael shed a little bit more about the various areas. We're focused on both specifically as it relates to the numbers.
You can see based on my comments earlier that in second quarter, we are.
We are sharing our thoughts around how we are looking to take a decline our operating expenses.
And and the low single digits range and Thats, a ramp up from where we were obviously in the first quarter I would tell you lowered build the way you should think about expenses. The following we have flexibility in our expense base, we're going to do the smart thing within into the prudent thing what we don't want to do as jeopardize the long term growth prospects of this company, we will remain nimble.
Depending how the economic environment is playing out and we'll exercise that prudence from an expense standpoint across the various line items as our appropriate as part of that process.
Yes, and then Sanjay.
That was a pretty comprehensive answer, but just one thing I want to say called it out earlier the two guiding factors.
Not only the long term growth in the strategic investments also market readiness and customer demand. So we would not be going out right now with something that the market is not ready because everybody's busy addressing covert 19, and what they should do about it. So there's a couple of initiatives like that that we are deferring basically ADVATE keeping.
I'm proud of tied to bring them back to market as and when needed and customer demands. The other thing right now we see huge demand for.
Investments and improving further improving what can be done on five until we can continue to double down there, but I can imagine like promotions and the travel space is just not what is a sensible thing to do right. Now. So that's kind of how we think about akasa demand market readiness and and keeping the strong the long term stuff in mind and again.
Maybe to categories earlier.
Alright, I see refresh the end of allotted time, so RJ any final comments.
Thank you all fair questions and I'm going to wrap up with a few closing thoughts I know, we kept to a little longer than usual, but that don't mistaking that covered 19 is triggered a tough environment for new can see but we are.
Beginning to get to the early signs of stabilization. We believe our diversified business model will allow us to successfully navigate this and capitalize on opportunities as the from two normalization and ultimately back to growth.
We are carefully managing our expenses.
Well, we will continue to invest in the area that differentiate our company and enable us to deliver on our grow diversify and build strategy.
You should see us doing things like in services for the data analytics and cyber and intelligence that we think drive real value for our customers to diversify revenue base enable us to win market share audit digital solutions like gateway and digital Devon products that enable ecommerce.
On an account to account capabilities, including most importantly, our real time payments rails that help us to address new payment flows and some ideas in areas that you do not investing for wise like open banking and digital identity on an hour Crystal ball, if you could see that non so some of your questions of our vendors.
Goal, but I do think we'll see certain trends will stand on.
The one will be more digital and the secular shift to electronic payments will accelerate.
There will be a deeper focus on cyber security and data analytics.
Cross border activity will come back but in phases over time.
And importantly governments will increasingly be open to partnering with the private sector in areas, where we bring drove value real time payments and cyber security and identity services are examples of that really opened view of partnership.
We are heavily invested in these we're focused on these as Michael said, a little while Bakken function and I did before that we have no doubt we won't be wrote prepared to capitalize on these opportunities as they come our way. So thank you for your continued support of the company before the ROE. Thank you and joining us.
Hey, I'm looking forward to actually begin to see people and shake hands and get somebody on once in awhile once they get both thank you very much. Thanks, Sarah Thank you bye bye.
Concludes todays conference call you may now disconnect.
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