Q4 2022 Mastercard Inc Earnings Call
Good morning, My name is Andre and I will be your conference operator today at this time I would like to welcome everyone to the Mastercard, Inc, Q4, and full year 2022 conference call.
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Mr. <unk> Shah head of Investor Relations you May begin your conference.
Thank you Andre and good morning, everyone and thank you for joining us for our fourth quarter 2022 earnings call with me today are Michael <unk>, Our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer.
All in comments from Michael and Sachin will open up the call for the Q&A session.
You can access our earnings release supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website Mastercard Dot com.
The release was furnished with the SEC earlier this morning.
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, as set forth in more detail in our earnings release I would like to remind everyone that today's call includes forward looking statements regarding mastercard's future performance actual performance could differ materially from these forward looking statements information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings.
A replay of this call will be posted on our website for 30 days with that I'll now turn the call over to our Chief Executive Officer.
Thank you Lauren good morning, everyone, let's get right into it so starting with the big picture concern.
Spending has remained resilient and we are very well positioned to capitalize on the growth opportunities ahead.
Without the year with strong financial results and several notable wins quarter fall net revenues were up 17% and adjusted operating income up 19% both versus a year ago.
I'll wait on a non-GAAP currency neutral basis, excluding special items.
The macroeconomic and geopolitical environment remains uncertain, we are keeping a close eye on a variety of positive and negative factors.
Broadly resilient labor market with low unemployment and rising wages, coupled with elevated consumer savings levels are key drivers of consumer spending.
We're also tracking efforts by the central banks to curb inflation, along with moderating energy prices and the reopening of China, So still lots of moving pieces.
From an overall consumer spending standpoint, we expect the consumer to be relatively resilient spending patterns have largely normalized relative to the effects of the pandemic with the notable exception of China.
In terms of switched volumes domestic volumes in the fourth quarter remained steady relative to 2019 levels with some slight moderation in the U S related to lower gas prices recently.
Cross border travel continued to recover in quarter, four with inbound travel either flat or up in every region sequentially relative to 2019 levels.
The first three weeks of January inbound cross border travel to all regions now above 2019 levels.
You will continue to monitor the economic environment closely.
Should your outlook change and prepared to move quickly to adjust our spending levels as we have done in the past.
In the meantime, we continue to focus on the things we can control.
The stops with our three strategic priorities expanding in payments, extending our services and embracing new networks and here are some examples of how they're progressing against each of these.
Starting with payments, we won substantial new business this quarter.
<unk> products differentiated services in partnership approach enabled us to secure a major portfolio slips extend relationships and launched new programs with banks and co brand partners and transit systems around the world.
I'm very excited about our expanded partnership with citizens to become their exclusive payments provider across all product portfolios in the United States, We will shift the debit portfolio to Mastercard, we will maintain exclusivity.
And commercial.
Selected Mastercard based on our digital assets open banking capabilities and safety and security tools.
We have also extended and enhanced our long term partnership with Citi.
Identifies mastercard the city's exclusive global partner with Citi branded consumer credit debit and small business costs.
We look forward to continuing to partner to deliver digital initiatives, new technologies and innovative payment solutions together.
We extended our long standing relationship with bank of America across their consumer and small business debit and credit lines of business are great partners.
Especially proud to continue as the lead brand all newly issued small business cards.
And I hope this momentum with Chase continued this quarter as well.
Building upon our recent co brand commercial and pay by Bank partnership announcements. We are excited to announce that we have renewed the chase freedom flex portfolio.
Turning to the U K, we recently extended our credit deal with Natwest group consumer and commercial.
The bundling with Belden. These stumbled transportation to convert over 17 million closed loop cards master cards, and that 24000, new acceptance locations across the city.
Part of the Q N V Finance bank and trend you all a large e-commerce marketplace in Turkey over 13 million customers to launch a new Master card co brand credit product.
Now an important driver of our success in call payments is our ability to deliver innovation and thought leadership, we are designing and deploying innovation solutions at scale.
As a result are the clear partner of choice for our customers. Three recent examples include our book in installments, <unk> and click to pay.
Starting off with installments, so far launched painful becoming the first bank in the U S to launch within the Master card installments program.
So find value in the broad acceptance strong consumer protections and commission based open banking capabilities that all make master card installments unique.
We've got a strong pipeline to Mastercard installments and plan to add several additional programs across multiple regions throughout the year.
Turning to <unk>, we surpassed 2 billion token ice transactions per month and for the year, we are up 38% card be enabling digital transactions and over 110 countries.
So organizations helps keeps the ecosystem safe secure across a wide range of use cases. One example that I think is particularly cool is the work we are doing within comp payments.
They are working with common you factored in fintech to integrate payments using our <unk> platform and biometric authentication capabilities.
About the simplicity brings to paying for gas tolls charging all entertainment right from your call.
This is a great example of Mastercard working with partners to drive the convergence of the Internet of things five G and addressing consumer demand for cool digital experiences.
It also highlights how we're expanding the reach and the value of our acceptance network through new channels to support new use cases. This is just the beginning much Vermont come in this space.
And I would like to pay we partnered with adient to launch click to pay on their global payments platform recognizing the value that it brings to guest checkout millions of online shoppers.
Enjoying his more than 20 other payment service providers around the world, bringing click to pay to thousands of merchants globally.
Now, let's focus on innovation and partnership is also a critical part of our strategy to penetrate the prioritized set of new flows that would be outlined at our 2021 Investor day.
We continue to make solid progress some of examples I've been driving growth in each area first.
Disbursements and remittances Mastercard send in our cross border services capabilities are solving for an expanding set of use cases across multiple geographies. For example, we partnered with social marketplace platform Pashm, often even ourselves seller payouts and for cross border payments, we've teamed up with pace and to broaden our global reach.
The ability to send international payments across car brands.
Second the deploying digital capabilities to displace cash and check based commercial payments at the point of sale huge opportunity in France, We signed an agreement with <unk> to develop their corporate carnival and in South Korea.
L band and Samsung pods launch, new debit and credit co brand offerings for small businesses.
The third floor is between accounts payable payments a virtual card capabilities provided effective digital solutions to address the working capital process efficiency and data challenges that are prevalent and it should be.
We are the global leader in virtual card, we're seeing rapid growth in this space.
Bolstering our position through new partnerships and capabilities. For example, we announced plans to partner with Sabre and confirm our pay and to accelerate the use of virtual comps with each of <unk> travel payments. We also signed an agreement with Fintech partner extend to offer virtual mobile corporate cards in the U S and Canada.
And finally on the consumer Bill payment front, we are focused on deploying market specific solutions to meet unique needs of consumers and businesses. For example in Norway. We are powering the ethos Turo service, which is used by the vast majority of citizens to pay their bills in 2022, we hit a milestone it's over 200 million digitally envoy.
This was sent using two crop.
As you can see we're making significant progress expanding and payments and we are excited about the opportunity in front of us.
Now turning to the second of our three strategic parties.
Mrs Services provide differentiation and diversification from us to cut our strategy is to leverage our services to drive growth in the call and to expand into new segments and use cases.
We're making steady progress on both and have significant opportunity for future growth.
Our services continued to drive growth in the core evidenced by our wins and extensions with citizens City net west and others as I mentioned earlier. One example of a service that enhances the value of payments as consumer clarity.
Service providers cardholders with merchant details and digital receipts to reduce disputes no chargeback costs and improve the consumer experience.
We recently partnered with pieces with offer consumer clarity to over 25 million cardholders in the U S and the U K.
In 2022, we signed up over 50 financial institutions and merchant partners for consumer clarity, including large issues like Ito in Brazil.
We're also expanding our services to new segments, and new use cases, including governments retailers digital partners and financial institutions. This.
This quarter will be part of its research and consulting firms, including <unk> and Sema in Germany.
The furthest the Barbados Ministry of Tourism and international transport to provide governments with detailed insights into tourism and retail spending trends.
We engage with retailers like those who are leveraging our test and learn capabilities to conduct analytics on their core business.
We partner with large fintech like Monzo and the U K to advise on product development strategies.
And we are deploying our personalization solutions.
Across a range of retail and financial institutions, Inc.
<unk> Argentina heightened.
<unk> suite to enhance and scale that personalization.
Yes.
I'm very encouraged by the continued momentum in our services growth strategy and the differentiation and diversification that these capabilities bring.
I'll now move onto our third strategic priority, which is embracing new networks.
<unk> open banking digital identity this quarter I'd like to highlight an example of how our open banking capabilities have come together with our other strategic priorities to offer a new solution.
As I mentioned earlier and quota for JP, Morgan payments, and Mastercard announcement and innovative pay by bank solution.
<unk> utilizes the master kind of open banking platform to modernize existing ACTH payments and allow customers to pay bills from their bank account in a frictionless manner.
Pedro Bank office choice and provides a simple and secure experience some pillows and merchants as well as consumers by enhancing listing ECH transactions. This deal is a manifestation of our multi rail strategy expands our addressable market by our open banking capabilities.
And it deepens our relationship with J P. Morgan Chase, we're actively working with them to take the solution to market. This year.
We also continued to make progress with open banking in Europe Ostracod is connected to more than 3000 banks and financial institutions across 18 markets.
Empower their open banking efforts this quarter the partnership secured trust bank in the U K, we will leverage our open banking capabilities to provide safe and convenient ways for their customers to repay retail loans directly from their bank account.
In summary, we delivered another strong quarter of revenue and earnings growth aided by a resilient consumer and a continued recovery in cross border travel and payments, we won substantial new business this quarter excluding citizens.
We're expanding our differentiated services in embracing new networks, including leveraging our open banking capabilities to power solutions, but J P. Morgan's pay by bank.
With all that we're well positioned for the opportunities ahead and will manage the business with agility should the macroeconomic outlook change.
Sachin over to you.
Thanks, Michael.
Turning now to page three which shows our financial performance for the quarter on a currency neutral basis, excluding special items and the impact of gains and losses on our equity investments.
Net revenue was up 17% supported by a resilient consumer spending and the continued recovery of cross border travel relative to 2019 levels acquisitions contributed one ppt to this growth.
Operating expenses increased 13%, including a three ppt increase from acquisitions.
Operating income was up 19%, which includes a one ppt decrease related to acquisitions.
Net income was up 16%, which includes a two ppt increase related to acquisitions.
EPS was up 19% year over year to $2 65.
Which includes a <unk> <unk> contribution from share repurchases.
During the quarter, we repurchased $2 4 billion worth of stock and an additional 519 billion through January 23 2023.
So, let's turn to page four where you can see the operational metrics for the fourth quarter worldwide gross dollar volume of GDP increased by 8% year over year on a local currency basis.
On the same basis, if you exclude Russia from the prior beat it by.
By 14%.
In the U S. G D increased by 7% with credit growth or 14%, reflecting in part the recovery of spending on travel.
Debit increased 1%, excluding the impact of the roll off of the previously discussed customer agreement debit increased approximately 5% outside of the U S volume increased 8% with credit growth of 9% and debit growth of 7%.
<unk> volume was up 31% globally for the quarter.
Mmm, reflecting continued improvement and travel related cross border spending.
Turning now to page five.
<unk> grew eight per cent your over your in Q4.
<unk>, Russia from the prior year switch transactions grew 18% year over your <unk>.
<unk> President and card not present rules rates remained strong.
<unk> President Rude what he did in part by increases in contact us penetration in all regions when excluding Russia.
Contact list now represents 56% of all in person switched purchase transactions.
<unk> <unk> was 5% or 9% if you exclude cards issued by Russian banks from the probably your cargo.
Globally, there are 3.1 billion Mastercard and managed for granted causation.
Now, let's turn to page six four highlights on the revenue line items again described on our currency neutral basis, unless otherwise noted.
The increase in net revenue of 17% was primarily driven by domestic <unk>.
Transaction in volume growth as well as gruden services, partially offset by rules and rebates and incentives.
Acquisitions contributed one P B D to this group.
Looking quickly at the individual revenue line items domestic assessments were up six per cent, while worldwide through solid volume rude eight per cent.
The difference is primarily driven by makes.
Hotspot volume fees increased 40% white cross-border volumes increased 31 per cent to nine P. P. G difference is primarily due to favourable mix as higher yielding X enter your cross border volumes grew faster than enjoy your cross border volumes this quarter.
Transaction processing fees were up 16% what switch transactions grew 8% a.
A P. P. G difference is primarily due to favourable mix effects related revenues and pricing.
Other revenues were up 16%, including at one P. P. D contribution from acquisitions remaining road was driven primarily by a Siberian intelligence and data and services solutions.
Finally, rebates and incentives were up 18%, reflecting the strong growth in volumes and transactions and new and renewed deal activity.
Moving on to page seven you can see that on a non-GAAP currency neutral basis, excluding special items total adjusted operating expenses increased 13%, including a three P. P T and back from acquisitions.
[noise] Scooting acts acquisitions, the Romanian trees was primarily due to hire personnel.
To support the continued execution of our strategic initiatives, partially offset by lower advertising and marketing costs.
Turning to page eight let's discuss the operating metrics for the first three weeks of January compared to Q4 2022.
Each of these metrics with the exception of cross border guard not present, excluding travel will favorably impacted by the lapping of the slower group that occurred in January 2022 related to the omicron barrier.
Switched volumes grew 21% of your over your Uhm seven P. B D versus Q4 switched.
Switch transactions grew 12% you earlier at four P B G versus Q4.
Overall cross border volumes grew 42 per cent your over your upper 11 P. P. G versus Q4, driven by cross border traveled route of 84% year over your 25 bvt versus Q4.
Cross border guard not present, excluding travel route 10% year over year up to P. G. D V D from Q4.
A couple of administrative notes for your reference to help you understand the trends in the business X, Russia, we have suspended where we suspended operations in March 2022. We have included in appendix later in this text to show all the data points from this scheduled if you excluded activity from Russian issued cards from prior periods.
Recently, and the impacts of the pandemic receipt going forward, we will no longer provide operating metric levels.
Percentage of 2019.
Turning out to pay Tonight, and I wanted to share thoughts on the upcoming your let me start by saying that I believe that we are well positioned to address the significant growth opportunities that.
We have a staff established a clear set of strategic priorities and I'm, making steady progress against each of them.
This is evidenced by the many wins across the products and services Michael is discussed underscore and over time.
On the macroeconomic front as Michael laid out we are monitoring and number of both positive and negative factors, we do expect consumer spending to hold up relatively well in this environment driven in part by the strong labor market.
It is important to remember that we are coming off of your of strong growth as we left the effects of the pandemic and we expect that mood board growth rates to moderate accordingly.
From across borders traveled standpoint, most regions of recovered and are well above 2019 levels in Q4.
The exception is Asia, where there is still room to improve with China reopening.
Just a little further context here.
China represented about 1% of inbound cross-border travel volumes pre pandemic in 2019.
In queue for this volume would that approximately 20 per cent of Q4 2019 levels.
Holly Shire represented about two per cent of outbound cross border travel volumes pre pandemic in 2019.
Q for this volume was at about 50 per cent of Q4 2019 levels.
With this in mind, our base case scenario for the full year 2023 is for net revenues to grow at the high end of a low double digit rate on a currency neutral basis, excluding acquisitions and special items. This growth rate would be higher by approximately one and a half P. P. T. If you exclude Russia related revenues.
From 2022.
Acquisitions are forecasted to have a minimal impact of this girl trade foreign exchange and expect it to be a tailwind of approximately one P. D. D for the your primarily due to the recent printing of the Euro relatively U S. Dollar.
In terms of operating expenses, we will connect me to carefully manage our expenses as we invest in our payments. So this is a new network priorities to drive short and long term growth.
<unk>, we expect operating expenses to grow at the high end of a high single digit rate on a currency neutral basis, excluding acquisitions and special items.
Acquisitions are forecast to add about half of a P. P. T to this group while foreign exchange is expected to be one DVD headwind for the year.
Turning now to the first quarter.
Your <unk> your net revenue road and expect it to be at the low end of a low double digit rate again on a currency neutral basis, excluding acquisitions and special items, and just and reflects generally resilient consumer spending a.
A couple of points to note Q.
Q1 will be the last quarter in which we experienced the lapping effect of our decision to suspend operations in Russia into one of 2022, and we expect cross border volume growth in Q1 2023 to be elevated as a result of the effects of omicron and two 120 22.
Acquisitions are forecast to add about a half a P. P. T to this group while foreign exchange would expect it to be a headwind of two P. B D for the quota.
From an operating expense standpoint, we expect Q1 operating expense rude to be at the low end of a high single digit rate versus a year ago on a currency neutral basis, excluding acquisitions and special items acquisitions are forecast to add about two P. P. T to this road, while foreign exchange is expected to be a tailwind.
Approximately one P P G for the quota.
Other items to keep in mind.
Other income and expense line, we are in an expense run rate of approximately $100 million per quarter, given the prevailing interest rates and debt levels.
This excludes gains and losses on our equity investments, which are excluded from a non-GAAP metrics and finally, we expect a non-GAAP tax rate of approximately 18% in Q1 and 18, 218.5% for the your based on the current geographic mix up our business and with that I will tell them to call back over to war.
Thank you <unk> <unk>, we're not ready for the evening session.
Thank you at this time I would like to remind everyone in order to ask a question.
The number one on your telephone keypad.
He's only press start one wants to queue up for question is pressing star won multiple times may affect your position in the queue.
We'll go first to <unk> at Bernstein.
Thanks, <unk> for my protection I'd like to ask about payback.
<unk> 10 o'clock capabilities.
Different countries Dr.
Talked about different purposes of J P. Morgan.
<unk> to add to that.
The risk of cards longer time.
Countries. So can you talk about the pushing for Cynthia and also maybe ketchup on that.
Special Scott has mastercard.
To participate in this transaction take care.
Right.
<unk>, let me start off on that so that the way we think about this is.
And it is about you know delivering choice to consumers choice two mentions in just banks and we are therefore in all relevant ways to pay but it's also true that the card ecosystem over the years has driven tremendous value. So it is a prevalent way to pay for.
Many many use cases.
On the side, we have alternative payment.
Methods emerging and we look at those as <unk>.
Options to go after you use cases, and that's exactly what happens here in the context of our partnership with J P. Morgan. This is focused on existing a C H payments, which are not bringing the value to the <unk> or the consumer that they are looking for frankly, very specifically, what we're doing here the issue with some of these account.
Account payments as he never really know what a balance is on the account and are open banking capabilities already providing a payment success factor. Here tells this is a good time to a debit. This particular account so true value broad.
Somebody's willing to pay for <unk> slash the mentioned so.
Good example of wedding candy value created an alternative payment tools, while this doesn't take away from the power concept, bringing to consumers and merchants. So we see this as co existence, where does this going over time, we don't quite know, but are multi rail strategy physicians as well to play and.
Either field.
Okay.
Next question.
<unk> well if research.
Hey, guys. Thanks, nice job on the corner around here when we when we look ahead and we're looking at the transfer showing us for January even despite easier comps on <unk>.
It does look like you have pretty conservative itself.
Got it for the ear.
[noise] just given the the trends we're seeing even beyond you know for January but X, Russia. Your anniversary that after March and the numbers go materially higher groceries. So can you just tell us if there's some building blocks like around what you're assuming on backward.
Macro activity going forward and maybe rebates incentives.
Is that a factor here, thanks again guys.
Sure down good morning, So let me let me provide you a little bit of color ear like I mean, what <unk>.
Generally assumed in our in our base assumptions that I mentioned when I was living my prepared remarks is resilient.
Brazilian consumer spending through 2023, I mean, <unk> resilient consumer today, and we're seeing a generally resilient consumer spending battle going forward in our base case.
The other thing which.
Contemplated as as we mentioned.
Hotspot standpoint, particularly cross-border traveled standpoint, the vast majority of the Regents have now reached that stage, where they are kind of growing and growing at a holy base, but they're not going at an accelerating pace. So they've reached that level of stability. So let me give it a limited color ear, you'll remember as we were coming out of Covid right into Europe came back from.
Hotspot standpoint, after that'd be so it'll several inter mark it's coming back from across the border standpoint U S. U K, Canada Latin America all of those all of those are growing at a healthy pace and we're assuming they'll get a royalty base, but not at an accelerating pace. The one area, where we are assuming a an increase in.
Growth is around Asia Pacific Asia Pacific has been a lagger in terms of recovery of cross border travel and we're expecting that there will be with the borders recently opening in several markets.
N a D that there will be you know some level of recovery, which will come through there. When you index back to 2019. So that's kind of you know generally been the base case, we've kind of sealed <unk> I.
I mean, it to be perfectly honest with you I I think that the reality is we've got things, which are helping us from a sure win standpoint, we've got strong consumer spending our services capabilities <unk> all of that is built into our our guide is b as we go forward also remember that in 2022.
We did have elevated levels of it affects volatility which were there in the market, which actually supported the growth rate.
Which we had in 2022, it's hard to predict what that looks like on a going forward basis, we do our best assumptions on that affects baldoni standpoint, but that's kind of the building blocks as to how we've gone about building our our our our business. The last point I'll make is around rebates and incentives you asked a question as you can see.
Oh, we talk about how we are delivering wins, we're winning with new customers, we are expanding our business with existing customers.
So we are building and assumptions, probably rebates and incentives standpoint, which would be consistent with what you're seeing it on track record for my wedding standpoint, as it relates to us.
Right.
Okay. Thanks, Los Angeles.
Sure.
We'll go next to Lisa L. S. At S. C P <unk>.
Hi, Good morning, Thank you for taking my question.
Can follow up in your prepared remarks related to new flows you highlighted.
B P O S payments as a notable opportunity area and highlighted a few new Seb Coe brand when there can you.
Talk a little bit more holistically about this opportunity remind us a how big it is an M. P. What's different about it what do you have to do different K S. Mastercard to capture this opportunity relative to the consumer side. Thank you.
Quietly sir so the opportunity here lies really.
Taking our existing set of tools, namely Ah from the card ecosystem very specifically the the virtual card capability, which came through an acquisition uhm. Many many years ago now build out ourselves into the leader here. So this <unk>.
<unk> set of tools and a huge opportunity in terms of clothes to be addressed and make them more efficient. We're looking at a 14 trillion dollars from an opportunity perspective, if you recall, what we laid out across to foreclose new clothes. This is the this is the.
One of the large ones here.
<unk> and the way to go about this is really just say all right.
Players that we already have an hour ecosystem, we bring in D. C and since it is a lot of deals with financial institutions, but there's also a lot of deals with partners travel space in the travel space is really the one that's been most promising for us and that is coming back right. Now. So this is a near term opportunity cash and checks dominated existing tools existing plan.
This is right for us to go after it and were leaning in.
And at least I, maybe I can just add a little bit out here, particularly as you as you think about the virtual card opportunity, which might be just talk about.
You know the differentiation, which is provided by technology, which was what Michael talked about by virtue of the acquisition, which we had with our virtual called capabilities, but there's also a differentiation in terms of our approach from a go to market standpoint, and specifically when you target flows from a good market standpoint, you go on a vertical by vertical basis, because you know we've been very successful in the <unk>.
Travel Buddhism part of the reason we've been successful in the traveled vertical is having a deep understanding of what it takes and the travel integrator level to be able to embed your technology. There. So that you are the payment choice, which people will exercise when to activate those payments. Similarly, as we look at that opportunity going forward. There are several other verticals where.
Making the similar kinds of advances in that specific as it relates to the the.
V C N peace, but you also asked about small business in the commercial point of sale opportunity, which was there and the reality is we've been winning significant new deals in that small business opportunity and we see candidly aim a very sizeable market opportunity and commercial point of sale a large part of that is still in cash in check.
And the reality is just like we didn't b two am where we displace Katherine check utilizing digital technology is an invasion that's kind of the advances were making also and commercial point of sale. So that's how we kind of see and frame the opportunities that across both of these areas.
You can hear it helps you have a CFO that used to be the head of our commercial products.
[laughter].
[laughter].
[laughter].
We'll go next attention long at J P. Morgan.
[noise] hi, Thank you good morning to everyone I wanted to ask just big picture if you would.
Her eyes visibility here for us on revenue versus like you.
You know you can go back to pandemic or pre pandemic, just curious on visibility, giving you mentioned lots of moving piece.
Pieces and then same thing on expenses you said in the prepared remarks here that you're prepared to adjust.
Since if necessary if the base case any I'll look here's the show some operating leverage can we assume the same operating leverage if any weakens relative to expectations sorry for the wrong question.
Sure attention so.
On your question revenue <unk>, it's like I laid out right I mean at the end of the day.
We put our base case together, we've kind of laid out what our assumptions out from our base case standpoint, and you know at the end of the day, we don't have the Crystal ball to actually suggested that is the way things are going to play out but based on everything we are seeing in the nature of current trends as well as leading indicators, particularly as it relates to the overall strength of the labor market, we feel better.
Good about what they were saying from a <unk> standpoint, as it relates to the October revenues it'll as it relates to one component of revenues, which we often time to think about is around you know on an <unk> basis versus you know what what it is on the cards neutral basis.
Hard to predict where the foreign exchange market <unk>, but again, we've seen you know recent strengthening although you rotate place and that's what we kind of shared with you in terms of our assumptions from an effect standpoint, and then you asked about operating leverage look I mean, the reality is we've always operated with the philosophy of delivering positive operating leverage over the <unk> we.
We'll look at the top line will look at how our expenses about against that top line. We have in the past demonstrated our capability to modulate our expenses to the extent, we start to see adverse impacts take this on the top line and vice versa and the reality is what we don't want to do is impact the longterm growth potential of our business. So we will <unk>.
Best in our business with a high on the longterm will be prudent about not going into space as one opex standpoint, which are not in demand, obviously I'm kind of stating the obvious here, but the reality is the philosophy remains unchanged. We will look to deliver positive operating leverage as a company and we have the tools and the ability to actually modulate expenses if not.
If you feel like the top line growth is gonna get him back to it over the long term.
Perfect. Thank you.
We'll go next to Sanjay Saccharine E a K E W.
Thanks, Good morning, first off I'm glad we're getting rid of the relative to 2019 metric for good reason.
[laughter] just a question on cross border and sort of the operating assumption. This year I know, there's a number of different trends that you guys talked about but there are still a decent amount of pent up demand I guess, how do you think cross border travel behaves in a in a backdrop, where macro might get worse from here.
Maybe you could use some historical precedent here, maybe just give us sort of how you're thinking about it.
Sure So Sunday.
Let me share a few thoughts on how we think about cross border right. So at the end of the day, there are numerous things which impact.
How people travel and spend in the cross border environment, but as the outside when I wanted to say is that the fundamentals around the crossbow proposition as delivered by Mastercard actually stand to be very sounds just like they were in the pre pandemic days, we send this through the pandemic and it's played out in that manner, Let me get a little bit more specific as of late.
Two pent up demand your question about pent up demand with reality as we all know from what would be your on the earnings schools of airlines that capacity is can stream from an airline standpoint, and with that can screen capacity and elevated prices you are seeing that impact them through when you do the times Q, which is probably is multiplied by quantity you get.
I know what the results back from a spin standpoint as fast forward as capacity comes back online.
One would expect that people will there will be some level of adjustment and prices because of the demand supply equation gets a little bit more <unk> and so overall, we're not assuming that that necessarily results in a tailwind because capacity comes back on line right because there's gotta be an adjustment, which takes place from a price standpoint.
<unk>, Okay <unk>.
We <unk>, we open wrong and you know, we hope cross-border spending kind of goes with more capacity prices remain elevated and people can be the spelled.
Better data point of view on that and that's what per day.
The other point I'll make is as it relates to what the impact of F X Ray It says on cross border in cross border travel reality is.
What we've seen historically is that when exchange rates move for example, with a dollar strength thing with a lag effect you would tend to see inbound into the U S get impacted that's only natural it gets more expensive or people coming from different parts of the globe you coming to the U S. But what we've also seen as individuals tend to then redirect that cross borders.
To other parts of the globe, where they don't feel the impact of that come through moments in foreign exchange rate does have an impact on how we think about cross border going forward.
And just to add one one point here uhm Sanjay that is over.
Over the last two years, you know we've been winning portfolios into space, we've really focused on the space and expecting to come back.
You recall, let me just remind everybody here across airlines across travel online travel agencies across lodging across other forms of Tramper transference like trains Marianne.
Virgin Atlantic Amtrak Jetblue, Cathay specific British Airways and Sofa, we have one portfolios at least bolster that in terms of market access to these partners with additional products. So does masker travel rewards out there which is now in 80 countries. So we believe into the Macroetch X.
<unk> environment than such and just laid out we have the better proposition. So it remains an exciting space the pace and wishful girl will have to say that is characterized by one such and just said that'd be certainly have a differentiate proposition and that and one last comment I Wanna make Sanjay yeah, I'm happy or excited about metrics and how it changed.
The metrics from a metrics perspective, I Wanna complete back to Lisa's question earlier, I mentioned, a 14 trillion on a commercial P. O S. But there's also 24 trillion on accounts payable, which makes the total of opportunity in this combined space 38 trillion. So that conversation earlier wasn't important one on a very big.
Part of our priorities.
Thanks.
We'll go next to Jason.
Bank of America.
Okay. Thanks, guys I'm really appreciate the China Cross border data you gave there for both inbound and outbound I think he said the inbound is running at about 20% of 2019 levels in the fourth quarter and I've found.
Found at about 50 per cent of 2019 levels and in the fourth quarter can you give us a sense of how much improvement you're expecting in those metrics in 2023 as as the reopening Progressors Uhm and then separately can you just make any high level comments on growth for each of your three strategic pillars in 23. Thank you.
Sure so.
First Jason that I'm, not gonna share specifics as it relates to help me build a model for the full year, what I will share with you as it relates to the recovery of both inbound and outbound for China. You know we have built in you know some level of recovery progresses. It's it's our best estimate as to what we expect.
[noise] happened by virtue of you know the <unk>.
Opening in the Guardian requirements being a being lifted but suffice it to say that the.
The opportunity is pretty sizable the fact that we were in Q4 at 20 per cent of 2019 levels from an inbound traveler's standpoint respiratory problems standpoint, it's just suggest about the fact that if you would just think about what's going on in the regions and how they recovered and bounce right back and gone well above 2019 levels as a significant opportunity both on inbound.
As it relates to China.
Sorry, the second part of your question, Jason just the three strategic colors, but you're modeling for revenue growth of nose and 23.
Again, I mean, when you the strategic priorities, we've got payments services. In your networks is is Michael stopped about <unk> I'll give you a general sense I mean, you know about it from a payment standpoint, we've been doing this have you been doing this for many decades and you know that that is assumption to part of how we deliver our our revenue growth over the last decade don't you.
How services have grown and screwed growing at a healthy pace in my in my view the demand for our services capabilities still remains very strong you've seen that we've been growing at a faster pace and services relative to the overall growth of our business and I don't think we should assume anything different another going forward basis Ah new networks is relatively nascent really.
So is it again I would put that into the space. All you know is growing it's going on for small base at a very healthy clip, but but the reality is on the overall Mastercard, it's still to have a meaningful impact. So that's kind of the best I can share with you on that Jason is the model that really is one not of separate pillars. This is an integrated business proposition with <unk>.
<unk> <unk> differentiate payments and payments as often times a way to build out a further a broader set of services and so forth. So it kind of goes in a circle.
A virtual circle I have to say when you look at it. The historically, we gave you a number a coupla years ago that services, a third of a quarter. It has been growing faster I'll give you. An example earlier my prepared remarks on consumer clarity, which is something that is transaction related and it is growing faster with <unk>.
Wish you. So there there's a lot of momentum in there, but there is also the kind of services that are not related to the underlying payments business. For example, what the example, I gave you a test and learn we're working with a set of customers to work on their base core business as in lows. The example that I gave you so different sense of dynamics, but they go <unk>.
And hand, and that is the power of the differentiate and diversified business model that we have.
I appreciate it thank you guys.
On the next <unk> E B S.
Are you on your.
Alrighty, let's go to the next and tried to bring it back on.
Alright are you there.
Yes, we'll go next time Wilson Nance at Goldman Sachs.
Hey, guys. Good morning, maybe I'll squeeze one last 2019 versus 2019 question before the matrix go away.
Some of them the kind of moving pieces in December and it seemed like across some of the matrix.
For them to take a little bit of a step down on the 2019 stacks or just any color what you're seeing on a regional basis between kind of e-commerce and travel and how those trends.
Continued into January maybe excluding from the impact of China.
Thing and then just more numerical piece of that question is.
Appreciate the call you gave on the China metrics on inbound and outbound travel just wondering if you have any.
Just the overall contribution of China to cross border volume.
Alright, well so I'll take your questions in order would hear you talk about you know some color around how weird seeing things shape up in queue for a relative 2019 levels will be.
Seeing.
Pretty stable levels as as it relates to switch volume switch transactions and <unk>, each one of them quarter over quarter. So for example, and switch volumes in Q3 as a percentage of 2019, we're running at 154 cents and pupil running at 156 per cent and you can see this on the slide and slide deck, which we shared with Ya.
You know the one thing to just keep in mind is in the U S with in queue for we have seen a little bit of an impact come through from lower gas prices and that's kind of being reflected.
And the numbers you see right here you know you you ask the question for from a regional color standpoint, I'd say, there's <unk> consistent growth that we're seeing in both regions. For example in Europe , you know you're congested all up pretty well Latin America and.
<unk> also actually holding up pretty well from abroad standpoint in queue for China wasn't.
Negative, particularly in its domestic volumes and again remember address we don't generate a lot of revenue from the domestic side, but it was impacted negatively because of the flare up in the Covid situation, which took place there. So that's one needs to keep in mind that would be used to keep in mind is that from India standpoint, we are now that we're out of the <unk>.
Oh, and we've started new issuance you still have the tail effect of the models coming through does that differently. The fact that you actually for a you're not issuing new cards in India as a result of an impact of.
Ah Christian old cards, which are taking place which need to be more than compensated for by issuing some new cards and that takes time as as assures get wrapped up and ready to go so you've seen that come through in in in queue for as well, but it'll be all that I I would say that.
We continue to see pretty good and consistent growth voted for 2019 levels across all the metrics here.
And a step down compared to last year and the year before is of course, there because he got the mathematics of the laughing effects and so forth of July 2019, I think that's instructive you hear that tells us that yes, we're expecting a resilient consumer.
It will continue to spend.
And you'd ask a question about China in my prepared remarks, I shared with you that China inbound crossbow to travel pre pandemic was roughly 1% of our total corresponding volumes in our outbound that similar metric coming out about Stanford was about two per cent. So I know there was a second part of your <unk>.
Question.
Okay.
David <unk> at Evercore ISI.
Thank you good morning, Europe continues to be a driver of differentiated growth from Mastercard.
For the year head could you talk through some of your assumptions on.
The biggest opportunities in Europe , Germany, Poland, Italy, when you think about you know both economic outlook in cash Digitization.
We've seen mixed reports six nine months ago more concerned about Europe , given high gas prices now it seems like the outlook has been a little better with lower gas prices in a more mild winter.
Plenty insights would be greatly appreciated.
David Let me start off on that so.
Looking at Europe really in three categories as the UK on one hand, and there's emerging Europe and then there is continental central Europe .
And slightly different picture on all of them first of all starting off with with the continent here. The concern has been around for awhile and rising gas prices and energy prices and the impact on the customer's ability to spend.
Combination of fiscal measures to provide cushions to consumers along with energy saving measures along with the gas storage now reaching full capacity has really alleviated. Some of these concerns. So we continue to see a fairly resilient European consumer.
Star base assumption as we look forward.
Okay somewhat different economic outlook and that might be a little more shaky there, but fundamentally in this market. We are seeing a lot of tailwind for us from share gains over the last couple of years, So that worked well for us and emerging Europe continues to be a dramatic digitization opportunity as we've seen in markets like Russia.
Which unfortunately is not enough you know any longer badware seem very high digitization rates have been pushing that indeed, and what the emerging markets somewhere in between is particularity as like Germany, where there was a significant digitization opportunity and they're still remains but we caught up a lot in Germany over the last two years, particularly on the contact us.
<unk>, which is now reaching half half of the transactions there so healthy.
Healthy mix in Europe , and very strong share position with opportunities to come through from portfolio that we have shared with you over the last couple of years as they go into effect and I'll just add David to Michael's point around you know the deals which we've recently wanted to know just to give you a little bit of perspective.
Talk about Santander historically that migration is in progress and withdrew the bulk of a 9 million card migration. There we expect to be complete by early twenties twenty-three on that one Natwest Kamensky reassurance Mastercard debit cards in December of 2021 that is well underway and we would expect some of that to continue to happen to <unk>.
23, and then the other one we had spoken about historically with Deutsche Bank, and we expect that the migration.
One will commence somewhere in the middle of 2023, So just to give you a little bit of sense of strawberry kind of thinking about things.
Yeah. Thanks, so much for all the great detail much appreciate it.
Sure.
Well, maybe next to ask my share of a car at city.
Oh, Thank you <unk>.
Uhm.
I just wanted to get into a couple of things now that we're getting rid of 2019 over the past few years <unk> and looking forward.
<unk> in terms of the growth Algo, how should we think of.
<unk> that is V. As you think of normalized visibility and then is it smarter question.
Regards to.
Specifically for 22.
<unk> laws and and <unk>.
So I needed to I.
I'm gonna need a little bit more clarity in the second part of your question, but we'll get to that let me take the first question first which is as it relates to the <unk> algorithm.
Just suffice it to say that the fundamentals of our business actually are very very sound brought algorithm, which was actually enabled stronger would be delivered pre pandemic very much stand sound. Even today. So the reality is you know if you think about D. C grow do you think about the opportunity for the secular shift to electronic thumbs up.
Payment you think about the fact that we're growing.
Market share you think about how we are delivering on our services capabilities and driving growth from that and now as we're doing new and different things around your payment flows as well as a new networks that group algorithm actually is very sound very stable were inconsistent with what we have historically had and you know that's the way we think about the business for you know call it.
Not only the new <unk>, new medium to long term for a for a Mastercard now how can I I'm not sure I got the second part of your question could you repeat that please.
Yeah, I was asking about the cross border William spread how should one think of that as.
As we think of this year.
Yeah look I'm in a.
A crossbow proposition zone is very sounds stable and you know I think at the end of the day and like I said most of the regions are now back to when I would go there stable growth rates as we would normally obscene in the pre pandemic phase. The one exception is Asia, and there's a little bit of opportunity, which we have in Asia, which we've contemplated not calls for 2023.
Okay.
Almost next to Ken Sucharski at Thomas Research.
Hi, good morning, Michael and such and Thanks for taking the question I wanted to ask about the cross border recovery, we see the volumes for cross border travel R. R. Well above 2019 levels, where are you seeing the transactions versus 2019 levels on that same metric such and you made some interesting comments on price versus units.
And I'm, just trying to get a sense for how much the cross border travel volumes are benefiting from inflation and spend per transaction and how much recovery is still left from a number of transaction standpoint. Thank you [noise].
Sure can so my.
My comments actually gonna hold true for not only cross border four largely for you know the business. If you think about it right you know our transactions are the rules and our transactions is impacted by your average ticket size that puts and takes on the average ticket size not only in cross border body around domestic which are influenced by numerous factors one of which is inflation.
Others are the mix between God President Garner present.
Because what happens is typically with more Gardner president you tend to see her having a higher average ticket size, which results in lower transaction growth right now that being said also when you do more gotten on president you have the opportunity to Livermore services. When you deliver more services. It allows you to actually have a compensating effect from a from a revenue standpoint, so I.
I think those are two important things to keep in mind. The third I would say from an average tickets I standpoint, which impacts withdrawal foreign and domestic is what is the regional makes because different countries have different average ticket sizes, which influences what the growth rates are specifically on cross border average ticket. It has been pretty stable your over your <unk>.
And you know our assumption is we kind of think about this is you know.
Not knowing perfectly well where inflation is gonna go the variables that kind of talked about those those things we factor into our assumptions as it relates to transaction growth on a going forward basis.
Okay. Thanks, a lot.
Sure.
We have time for one last question.
We'll take that question from Dave counting at bird.
Yeah, Hey, guys. Thanks in maybe.
Maybe just to go back a little bit to Q1 guidance you talked a little bit about this but I know revenue you've got under non-GAAP basis, decelerating something like five per cent or so but every metric every corner metric in January accelerated by the kind of four to 11 per cent is there just tougher cops coming on some of those key metrics or is it rebates or maybe <unk>.
To a little bit about the gap, it's kind of what's going to happen to the rest of the order.
A couple of thoughts one in Q1 acquisitions contribute less to argue unreal 10 digit <unk>, because you're doing a sequential comparison between <unk> you want in your question there number two the suspension of operations in Russia.
<unk> has a greater impact in Q1 that it doesn't cure for as to just just the way the cadence of of the revenues are and then two other points at one point out is Michael talked about the several ones. We've got a deal activity, which is which has been play you know we've got it got to pay all of that and Ah and up to one kind of thoughts and then.
The last piece I'd mentioned as we did have elevated levels of ethics volatility in queue for I don't know where it affects what little is gonna play out we've done our best assumptions around that but those would be the the contributing factors.
Gotcha. Thank you.
Alright, Michael any final comments, yes. So thanks for your questions. Thanks for your trust right now we will figure out your questions offline, we could get into those unfortunately, the day will come when there's a call but as more questions for me than for such and I'm still hopeful we will get that at some point.
But you know the story has been recently and consumer and we still see some opportunity and some cross border for Asia, That's the base, where winning that feels good as we look ahead into 2023 and.
28000 excited people that Mastercard, they're gonna deliver on that opportunity with that thank you very much and speak to your next order.
Thank you.
And this concludes today's conference call you may now disconnect.
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