Q1 2024 Mastercard Inc Earnings Call

Good morning, My name is Andrea and I will be your conference operator today at this time I would like to welcome everyone to the Mastercard incorporated Q1, 'twenty 'twenty four earnings conference call.

Andrea: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Andrea: He's the only press star one wants to queue up for question as pressing star one multiple times may affect your position in the queue.

Andrea: If you would like to withdraw your question Press Star one thank you.

Mr. Devin Carr head of Investor Relations you May begin your conference.

Devin Carr: Thank you Audrey and good morning, everyone and thank you for joining us for our first quarter 2024 earnings call with me today are Michael <unk>, Our Chief Executive Officer, and Sachin Mehra, Our Chief Financial Officer, following comments from Michael and Sachin the operator will announce your opportunity to get into the queue for the Q&A session.

Devin Carr: The event that the queue will open for questions you.

Devin Carr: 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.

Devin Carr: Additionally, the release was furnished with the SEC earlier this morning.

Devin Carr: Our comments today regarding our financial results will be on a non-GAAP currency neutral basis, unless otherwise noted.

Devin Carr: Both the release and a slide deck include reconciliations of non-GAAP measures to GAAP reported amounts.

Devin Carr: Finally, as set forth in more detail in our earnings release I would like to remind everyone that today's call will include forward looking statements regarding mastercard's future performance.

Devin Carr: 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 will now turn the call over to our Chief Executive Officer, Michael <unk>.

Michael: Thank you Devin good morning, everyone our momentum.

Michael: <unk> continued this quarter as we once again delivered strong revenue and earnings growth quarter, one net revenues were up 11% and.

Michael: And adjusted net income up 16% versus a year ago on a non-GAAP currency neutral basis.

Michael: These results were powered by healthy consumer spending and strong cross border volume growth of 18% year over year on a local currency basis, we had new deal wins in every region and were driving growth by scaling our innovative technologies. That's why people choose Mastercard, a simple seamless and secure way to pay with.

Michael: With these strong results we are reiterating our full year 2020 for outlook for both net revenue and operating expense on a currency neutral basis, excluding acquisitions and special items.

Michael: On the macroeconomic front the picture remains mixed first strong labor markets and solid wage growth remain in countries across the globe.

Michael: This is supportive of healthy consumer spending.

Michael: Inflation has been moderating with a path towards normalization of monetary policy in most countries.

Michael: Assistant inflation in the United States could delay rate cuts here.

Michael: And third geopolitical uncertainty remains in several countries. In addition to these areas. We are closely monitoring the strength of the dollar.

Michael: Commodity prices and consumer balance sheet health.

Michael: With tailwind and headwinds to economic growth remain on balance we are positive about the growth outlook.

Michael: With this backdrop, we are focused on our strategic priorities consumer payments inflows and southern send new networks.

Michael: The recent realignment of our organizational structure will help our teams to execute on these priorities faster to deliver more value to our partners and customers.

Michael: In payments a growth algorithm consists of being in the flow to capture the natural growth of economies accelerating the secular shift to electronic payments.

Michael: Further penetrating new flows growing market share and optimizing our customer portfolios.

Michael: The address a few of those.

Michael: Dancing with the shift to digital for person to merchant payments. The secular opportunity has been a very important component of our growth algorithm across both volume and transactions.

Michael: We are confident this will continue over the long term our acceptance footprint is a key competitive advantage and we continue to expand our reach globally, while enhancing the user experience for digital transactions through our technologies.

Michael: Our fast and secure contactless technology has been instrumental in displacing cash contact let's now represents more than two of every three in person switch purchase transactions up from one in three prior to the pandemic.

Michael: And our tap on film capabilities or simply a cost effective way for merchants of all sizes to accept digital card payments.

Michael: I now live in over 100 markets in Brazil alone. The number of active devices is now over 1.5 million Apple continues to expand tap to pay on iPhone in markets like Brazil, where recently the solution was rolled out by Syntex Stone, New bank, some up and cloud work.

Michael: Okay.

Michael: Payments become more digital there is an increasing demand from consumers and merchants for a simpler and more secure payment experience.

Michael: Online or through a wallet provider or tokens deliver an elevated level of security and payment credentials are shared between the bank and the merchant.

Michael: This improves the performance of our clients' portfolio, while supporting new ways to pay this key differentiator it creates a flywheel effect.

Michael: Lower fraud higher approval rates and a better consumer experience bring more transactions and volume to the Mastercard network, which in turn drive small payments revenue and brings more data tokens also create a streamlined way to accelerate the monetization of associated services to our customers in quarter, one took a nice transaction SKU over.

Michael: 50% year over year with more room to go is only approximately one in four transactions on the Mastercard network, a toga nice today.

Michael: Further opportunity lies in the verticals traditionally underpenetrated by court.

Michael: Merchants are embracing solutions to simplify checkout reduce missed payment and drive engagement.

Michael: We're focused on segments, such as housing and health care that have sizable spend and where our solutions can address the needs of providers and consumers.

Michael: Rent payments as vulnerable to go where we are working with aggregators to enable digital payments and health care are partnering with several provide us to grow acceptance in key markets like Germany.

Michael: And we are playing in the gaming community all Pons intended with partners like Global Videogame Commerce company seller to improve the payment experience.

Michael: The opportunity to bring more transactions onto the Mastercard network remains we now switch approximately two thirds of our total transactions worldwide up from approximately 55% in 2018.

Michael: Our actions in markets with switching penetration was historically low like Japan, Mexico, Colombia, and Chile have increased this penetration and we will continue to focus on this.

Michael: My takeaway for you is the secular opportunity is large and it's lasting and we are well positioned to go after it.

Michael: Our momentum also continues with issuers and co brand partners as we are winning new deals and retaining key business in every region star.

Michael: Starting in the Americas in the first quarter, we further solidified our position in Brazil signed.

Michael: Signing an agreement with Banco Bradesco, one of the largest banks in the market across credit commercial and services.

Michael: We're making great progress in converting the previously announced debit wins in the United States. The Pfizer of money Network card program for the California Employment Development Department has now gone live with Mastercard.

Michael: On the conversions of citizens in Webster, we are well underway.

Michael: We are further strengthening our leadership position with retail co brands and in the U S. Mastercard will be the exclusive network for the city issued Dillard's co brand.

Michael: We have also extended our long standing partnerships with target that T J X companies.

Michael: In Asia Pacific Middle East and Africa, We signed a 10 year exclusive partnership with first I would all be bank the largest bank in the UAE agreement spans consumer and commercial issuance across UAE, Saudi Arabia, Oman and Egypt.

Michael: We entered into a new exclusive co brand agreement across the EMEA region with global Hotel aligns the world's largest aligns with independent hotel brands and in India. We signed a 10 year consumer credit issuance deal with Axis Bank and.

Michael: And finally in Europe, we extended our long standing partnerships with Citi actually called the deal renews, our payments relationship with one of the largest banks in the region, while continuing to embed comprehensive marketing consulting and loyalty solutions.

Michael: These examples like many others are true partnerships, our teams are invested and making them a win win experience and we will continue to use our innovative product capabilities and differentiated service offerings and our solution selling approach abuse positive results for our customers and for Mastercard.

Michael: Now you asked before why are we winning that's exactly why we're winning.

Michael: Moving next to the new flows pillar of our growth algorithm, we continue to execute against our strategy to further penetrate the addressable market in targeted areas like commercial payments.

Michael: And disbursements and remittances.

Michael: And commercial is about making sure we are connected to the right partners and have the right solutions to power growth made.

Michael: We made great strides in securing key partnerships, including traditional banks travel and ERP providers.

Michael: The previously announced our expanded agreement with Wells Fargo in the U S. As.

Michael: As part of our small business relationship I'm happy to share that we've made significant progress on the conversion of this card portfolio to the Mastercard network.

Michael: Also this quarter, we won our first commercial credit issue in steel with Spi Cod in India and commercial.

Michael: Solutions, where components of Banco Bradesco and first Abu Dhabi Bank deals I mentioned earlier.

Michael: In addition to aligning with the right partners. It's also about having the right solutions to help commercial clients address their needs like consumers. They want an easy and secure payment experience, our new innovative mobile virtual card app enables commercial cards to be seamlessly added to digital wallets as you do as a consumer of businesses can easily in.

Michael: Abel employees to pay for expenses with a click and a smile.

Michael: At the same time, they can optimize and back office processes with robust spend controls enhanced reconciliation data.

Michael: HSBC, Australia, and Westpac will be the first financial institutions to offer this solution.

Michael: The same principle applies to the open loop commercial fleet space.

Michael: While the auto market leader, our differentiated capabilities have positioned us as a preferred partner with the market leading fleet providers such as core PE.

Michael: In fleet Fintech H B has announced they will now convert their commercial credit card probing exclusively to the Mastercard network.

Michael: And sticking to new flows disbursement in remittances, we continued to extend our reach to new markets in quarter. One we grew transactions by over 40%.

Michael: Combined our portfolio of domestic and international money movement capabilities into one offering Mastercard move it includes our Mastercard send and cross border services and reaches nearly 10 billion endpoints worldwide.

Michael: This quarter, we extended our reach further in China with a connection to Ali pay the U S. The partnering very to a tee to create a white label solution for banks to modernize their disbursements and remittances through a plug and play solution.

Michael: And we will work with Sweden based the Garo to support account based cross border and domestic payments.

Michael: Now shifting from payments to services and new networks, another important component of our growth algorithm.

Michael: It starts with a powerful set of diversified solutions with best in class fraud capabilities data analytics consulting marketing loyalty identity and open banking assets.

Michael: These carefully curated assets help us grow and diversify our revenues and differentiate our payments.

Michael: Would you dive goes in services and new networks across several vectors first remember a portion of our services revenue was driven by payments and.

Michael: These metrics continue to perform well in addition, we're driving growth by increasing the penetration of existing customers.

Michael: Extending our services across new customers and new payment flows.

Michael: And we build and deploy new solutions here are a few examples of how we are executing against these.

Michael: Starting with increasing penetration with existing customers success in delivering our services strengthening relationships and can generate opportunities for future service engagements are best in class conversion support is often an entry point are great. Examples with Westpac in Australia, and New Zealand, where we expanded our service offerings to include digital strategy.

Michael: <unk>.

Michael: Marketing solutions innovation sprints and portfolio optimization campaigns.

Michael: We have a diverse set of solutions to also help banks manage critical business needs outside of payments take credit risks for example, core to all banks, our consultants are working with Fort Brazil to improve their credit policies and management.

Michael: And a Saudi National Bank, we are enabling new credit risk modeling and scoring capabilities.

Michael: There's still room to further penetrate services are top 50 services customers on average are using two to three times more services than the balance of our issuing and acquiring customer base.

Michael: We're also driving growth by extending our reach across multiple rails and networks outside of the Mastercard network Master card access provides customers with a single trusted connection to quickly and easily source a suite of services and we are seeing great traction.

Michael: Example, Saudi National Bank will leverage access to deploy a set of scheme agnostic services across their portfolio.

Michael: Also continued to innovate and develop new services and solutions. This helps us to meet the evolving needs of our clients, while growing our addressable target market.

Michael: Here's an example think about how people are shifting to streaming and other digital services as they do Theyre looking for one simple view of all their subscriptions I think we've all been there. Its why we developed smart subscriptions. It's an open banking powered solution that puts a simple dashboard all subscriptions, regardless of network right into their consumer banking.

Michael: <unk>.

Michael: Cyber crime is a growing concern last year alone people in the United States lost over $12 billion to Internet scams.

Michael: <unk> protect builds on the cyber security protections, we have delivered for years combines our identity biometric AI and open banking capabilities to identify and prevent scams before they occur.

Michael: As part of this with partnering with organizations around the world, including Verizon to collaborate on new solutions to protect consumers.

Michael: Binding master cuts identity insides with Verizon's robust network technologies.

Michael: New AI powered tools will be designed to more accurately identify and block scam us.

Michael: We continue to enhance our solutions with generative AI to deliver even more value a world leading real time fraud solution decision intelligence has been helping banks score and safely approvals billions of transactions, ensuring the safety of consumers in the entire payments networks for years.

Michael: The next generation technology decision intelligence pro is supercharged by generative AI to improve the overall score and boost fraud detection rates on average by 20%.

Michael: So overall, there's a strong demand for our services and new networks across a diverse customer base. They continue to grow faster than the core and we remain optimistic about the opportunity ahead.

Michael: With that I will wrap it up in summary, we delivered another strong quarter of revenue and earnings growth. We are successfully executing against our strategy in realizing our growth algorithm are.

Michael: Our differentiated capabilities, our diversified business model and our focused strategy positions us well to capitalize on the significant opportunity in front of us.

Michael: Sachin over to you well thank you Michael.

Sachin: Turning to page three which shows our financial performance for the first quarter on a currency neutral basis, excluding where applicable as special items and the impact of gains and losses on our equity investments in line with our outlook net revenue was up 11%, reflecting continued growth in our payment network and value added services and solutions.

Sachin: Operating expenses increased 9%, including a minimal impact from acquisitions and operating income was up 12%, including a minimal impact from acquisitions.

Sachin: Net income and EPS increased 16% and 19% respectively, both reflecting the strong operating income growth as well as a lower tax rate primarily due to a change in geographic mix of earnings and discrete tax benefits related to share based payments.

Sachin: EPS was $3 31, which includes a <unk> <unk> contribution from share repurchases during the quarter, we repurchased 2 billion worth of stock and an additional $815 million through April 26 2024.

Speaker Change: Let's turn to page four where I will speak to the growth rates of some of our key drivers for the first quarter on a local currency basis.

Speaker Change: Worldwide gross dollar volume or GDP increased by 10% year over year in the U S. GDP increased by 6% with credit growth of 6% and debit growth of 6%.

Speaker Change: Outside of the U S volume increased 13% with credit growth of 12% and debit growth of 13% overall cross border volume increased 18% globally for the quarter, reflecting continued strong growth in both travel and non travel related cross border spending.

Speaker Change: Turning now to page five switched transactions grew 13% year over year in Q1, both card present, and Gartner PRASM growth rates remained strong.

Speaker Change: Revenue growth was aided in part by increases in contactless penetration as contactless now represents approximately 67% of all in Boston switched purchase transactions. In addition card growth was 8% globally. There are $3 4 billion Mastercard and maestro branded cards issued.

Speaker Change: Turning to slide six for a look into our net revenue growth rates for the first quarter discussed on a currency neutral basis.

Speaker Change: <unk> network net revenue increased 8%, primarily driven by domestic and cross border transaction and volume growth in ultra includes growth in rebates and incentives.

Speaker Change: Value added services and solutions net revenue increased 15% despite tougher comps in Q1 2023.

Speaker Change: This growth was primarily driven by strong growth in our underlying drivers and continued demand for our consulting and marketing services loyalty solutions and fraud and security capabilities. This was partially tempered by slower relative growth in our other solutions.

Speaker Change: Now, let's turn to page seven to discuss key metrics related to the payments network again, all growth rates are described on a currency neutral basis, unless otherwise noted.

Speaker Change: Looking quickly at each key metric domestic assessments were up 10% while worldwide G. D. V also grew 10%.

Speaker Change: Cross border assessments increased 22%, while cross border volumes increased 18%.

Speaker Change: Four ppt difference is primarily driven by favorable mix and pricing.

Speaker Change: Transaction processing assessments were up 12% while switched transactions grew 13%. The one ppt difference is primarily due to lower revenues related to FX volatility versus the prior year, partially offset by favorable mix.

Speaker Change: Although net book assessments were $226 million this quarter as a reminder, these assessments primarily relate to licensing implementation and other franchise fees and may fluctuate from period to period.

Speaker Change: Moving on to page eight you can see that on a non-GAAP currency neutral basis, excluding special items.

Speaker Change: Total adjusted operating expenses increased 9%, which includes a minimal impact from acquisitions. The growth in operating expenses was primarily due to increased spending to support the continued execution of our strategic initiatives as well as an increase in indirect taxes as discussed on our Q4 earnings call.

Speaker Change: This was partially offset by the timing of advertising and marketing spend.

Speaker Change: Turning to page nine let me comment on the operating metric trends in the first quarter and through the first four weeks of April as a reminder, our Q1 switch metrics include the impact of the leap year in 'twenty 'twenty, four which added just over one ppt of growth across each of switched volumes switched transactions and cross border.

Speaker Change: Volumes. In addition, our swish metrics in Q1 and in the first four weeks of April were impacted by the timing of Easter which occurred at the end of Q1 this year as compared to in April in 2023.

Speaker Change: After removing the impact of those two items, our operating metric trends were generally stable for the quarter as well as when looking at the first four weeks of April.

Speaker Change: A few items to note U S switched volume and transaction growth benefited from the commencement of the conversion of the citizens debit portfolio to Mastercard.

Speaker Change: Outside of the U S growth was negatively impacted primarily by the lapping of the conversion of the Natwest debit portfolio to Mastercard.

Speaker Change: Cross border card not present ex travel continues to show strength and cross border travel route was impacted by tougher comps as we lapped the recovery of travel, particularly in Asia Pacific, which opened up later from Covid restrictions and the rest of the world.

Speaker Change: Yeah.

Speaker Change: Turning to page 10, I wanted to share our thoughts for the remainder of the year are.

Speaker Change: Our business fundamentals remain strong and our diversified business model and momentum with customers position us well for the opportunities ahead. This is all underpinned by healthy consumer spending the secular shift to digital forms of payment and strong demand across our value added services and solutions offerings as Michael said, there are a number of headwinds in deal wins that we are.

Speaker Change: And we stand ready to manage investment levels as appropriate while maintaining focus on the execution of our strategy overall, we remain positive about the growth outlook.

Speaker Change: As it relates to the full year 2024, our torch for net revenue and operating expenses remain unchanged on a currency neutral basis, excluding acquisitions and special items.

Speaker Change: We expect net revenue to grow at the high end of a low double digit range on a currency neutral basis, excluding acquisitions.

Speaker Change: This reflects continued healthy consumer spending and higher value added services and solutions growth in all quarters for the balance of the year as compared to Q1.

Speaker Change: Acquisitions are forecasted to have a minimal impact for the year and foreign exchange is now expected to be a headwind of one to two ppt for your primarily driven by the recent appreciation of the U S dollar.

Speaker Change: In terms of operating expenses are.

Speaker Change: Our expectations for the full year are to grow at the low end of a low double digit range on a currency neutral basis, excluding acquisitions and special items.

Speaker Change: Acquisitions are forecasted to have a minimal impact to this growth rate for the year, while we expect a zero to one ppt benefit from foreign exchange.

Speaker Change: Now turning to Q2 2024 year over year net revenue growth is expected to be at the low double digit range on a currency neutral basis, excluding acquisitions acquisitions are forecasted to have a minimal impact to this growth rate, while we expect an approximately two ppt headwind from foreign exchange for the quarter.

Speaker Change: From an operating expense standpoint, we expect Q2 operating expense growth to be at the low end of a low double digit range versus a year ago again on a currency neutral basis, excluding acquisitions and special items.

Speaker Change: Acquisitions are forecasted to add zero to one ppt to this opex growth and foreign exchange is expected to be a tailwind of approximately one ppt for the quarter.

Speaker Change: Other items to keep in mind, our other income and expenses in Q2, we expect we expect an expense of approximately $85 million. This expense is higher than what we had in Q1 driven by lower forecasted net average cash balances in Q2, primarily due to higher working capital requirements as well as the <unk>.

Speaker Change: Graphic mix of cash.

Speaker Change: This assumes the prevailing interest rates and debt levels continue and excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.

Speaker Change: Finally, we expect a non-GAAP tax rate of approximately 17% for both Q2 and on a full year basis. All based on the current geographic mix of our business and with that I will turn the call back over to Deb. Thank you Andre you may open up the lines for Q&A now.

Deb: Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Please press star one wants to queue up for question. That's pressing star one multiple times may affect your position in the queue.

Deb: We'll pause just a moment to compile the Q&A roster.

Speaker Change: And we'll take our first question from Sanjay Suck Ronny at K B W.

Speaker Change: Thank you and good morning.

Speaker Change: Yeah, Sachin I just a question on the guide I mean, it seems like a lot of the the guide lower on on revenues, it's just FX, but I'm just confirming when we look at the volume and yield trends does seem to be doing fairly well.

Speaker Change: Slightly better than expectations and you mentioned the conversion beginning just trying to think through as we look ahead. It seems like those trends seem constructive I just want to make sure that that's the way you were looking at it.

Sachin: Yes, good morning, Sanjay I think you said it exactly right first of all just to be very clear like I said, our guide for the full year on a currency neutral basis, excluding acquisitions is unchanged relative to what we shared at the last earnings call.

Sanjay Harkishin Sakhrani: But what we're seeing generally speaking is healthy consumer spending these trends are very much in line with what we expected when we put the data out in the first place. So nothing unusual to report from an overall.

Sachin: Spending trend standpoint, obviously, the U S dollar has appreciated quarter over quarter and what Youre seeing is really our best reflection of what we think the impact of the strengthening U S. Dollar is going to be on our as reported numbers, which is what we shared with you. That's the only real update our guy who'd otherwise is very much unchanged.

Sachin: And as it relates to your question on conversions, the conversions, which which are taking place are very much things, which we had contemplated in our original guide. So that's very much part and parcel of what we had contemplated so business as usual I wont be very clear, there's nothing which has really changed from a guide standpoint, when you look at it on a currency neutral basis, excluding acquisitions.

Speaker Change: Great. Thank you.

Speaker Change: Sure.

Speaker Change: Well move next to Greg Craig Moore at Ft partners.

Speaker Change: Good morning, Thanks for taking the questions two.

Speaker Change: Two questions first it looks in the April trends as if the most material slowdown was intra Europe cross border could you just confirm if that's the case and if that was really.

Speaker Change: Predominantly Easter like you suggested secondly.

Speaker Change: We should be coming up on the six months.

Speaker Change: Anniversary of your announcement of Chinese domestic market approval.

Speaker Change: When should we expect the first transaction to be processed and.

Speaker Change: Have you been able to work out whether you'll be able to.

Speaker Change: Use existing issued cards in the domestic market.

Speaker Change: After a work around on the ENV code or will you have to reissue.

Speaker Change: Greg I'll take the first question your observation on entry or was exactly right what youre seeing in the first four weeks of.

Greg Moore: April is is exactly what you said is related to the timing of Easter Easter has actually a more pronounced impact in intra Europe and Thats why youre seeing a more exaggerated number out there.

Greg Moore: And then on your second question as it relates to China, Michael is going to just take that right now.

Michael: So on China.

Michael: We got the license in November and we shared our excitement about that southern excitement continues teams have been busy.

Michael: Building out issuance relationships with our banking partners in China and building out the acceptance footprint.

Speaker Change: Obviously not starting.

Michael: From zero here, we had a strong cross border business that we have.

Speaker Change: Relationships in play that give us a heads up.

Speaker Change: There was a timeline associated with the license and we're expecting to go live with the first transactions to very specific question here in the month of May.

Speaker Change: As far as using existing cards in China I think are the key question here behind that is.

Speaker Change: How can you use existing acceptance in China and start to generate volume and here our approaches through the partnership with the digital wallets to have these cards put into the digital wallet. So they can be used at a whole wide range of merchants in China. So.

Speaker Change: I do want to say we are excited at the same time, it's clear we're gonna start processing remember he transactions domestically.

Speaker Change: This is a medium to long term opportunity in the short term, there's more work that we need to do to build out more acceptance and continue to get more card programs out of and we feel very encouraged about that our teams are very busy with that activity and Craig I'll just add a couple of points as it relates to try out one I think you might have seen in the press that the Chinese government is pushing.

Speaker Change: Hard to increase inbound cross border travel by expanding acceptance.

Speaker Change: Our international Cogs.

Speaker Change: That's where we are.

Speaker Change: Making sure that they are encouraging tourism inbound into the country and we're actively working on expanding our footprint there.

Speaker Change: Just expanding on what Michael said, that's point number one as it relates to how we're seeing the China play play out.

Speaker Change: The second point I'll make on China as you know, it's kind of interesting when you think about a mastercard card issued in China going forward.

Speaker Change: That would probably be one of the few networks, which is most widely accepted across the globe just by virtue of the fact that those clubs are now going to be accepted in China that expect they'll already accepted across the globe.

Speaker Change: <unk> from our competitors in many ways. So we like what we're doing in terms of pursuing our strategy down there I just wanted to make sure I kind of brought those two points as well.

Speaker Change: Okay. Thank you for the color appreciate it.

Speaker Change: We'll go next to Ramsey Alice all at Barclays.

Ramsey Clark El: Hi, Thank you for taking my question Michael.

Ramsey Clark El: Michael how would you characterize or how do you think about the the penetration rate of existing customers. When it comes to value added services.

Ramsey Clark El: More important part of the growth algorithm, how do you measure how do you think about how mature the long term opportunity is when it comes to cross selling value added services into your base.

Speaker Change: Ramsey you.

Ramsey Clark El: Hitting on a really important point value added services key differentiator for our payment solutions.

Ramsey Clark El: Payment solutions, the link is pretty clear more volume more data and I talked about the whole growth algorithm earlier on the call know this doesn't just naturally have to us. It requires really focused execution to your point. We are all at any point in time very clear what our cross sell ratios are.

Ramsey Clark El: What value, we can offer to our customers and who we haven't offered to and who we haven't offered it to I gave you a stat earlier that talked about that.

Ramsey Clark El: You have two to three times more services with our top 50 customer. So there is tremendous potential in there and our teams are very focused on that across the company, we have our existing relationship manager.

Ramsey Clark El: Ailes force out there across the whole world, but we're also having a set of very specific more hunter oriented sales forces that drive very specific new products with deep value that we are driving.

Ramsey Clark El: Driving two separate selling centers into these customer so it's a pretty broad approach at any point in time, we see that data and we drive that because as he said this is a near term growth opportunity that we should leverage and be well.

Speaker Change: Thank you.

Unknown Attendee: We'll go next to harsh Terawatt at Bernstein.

Unknown Attendee: Good morning, Michael can you talk about the U S merchant class action settlement I noticed still needs to be approved by the college, but how should we think about the implications from changes proposed John Cena charging for specific brands and how do you think this thank you.

Speaker Change: Alright, Thanks, Sue Hershey to so.

Michael: First word I would say relief.

Speaker Change: This has been long standing and we are.

Michael: Happy that there was an agreement found with the merchant community as well as with visa and emphasis be behind us. So what this was about the use merchant rules class. So what was the in focus here was the business rules that math that makeup the mastercard.

Michael: Promise.

Michael: And the conversation was around how can we provide opportunities to merchants to.

Speaker Change: Manage their cost of acceptance on one hand at the same time, how do we keep the major promise to consume months off the Mastercard branded that is you can pay anywhere and you will not be discriminated against in the payments. So that was a toggle over the years and an agreement was reached and basically what happens is are we going to have a mild reduction of <unk>.

Speaker Change: Interchange rates.

Speaker Change: Number one and we're providing more clarity and simplification around surcharges rules and discounting rules on one hand at the same time, we retain the promise of the owner on our all card.

Speaker Change: Rule out there so that as well.

Speaker Change: What is out there we don't expect any dramatic impact on the business from the interchange changes.

Speaker Change: And for merchants.

Speaker Change: We will see what the choices they make on sort of charging and on discounting were seen in the past that you know.

Speaker Change: Surcharges is not always clear to consumers, it's not always preferred so we'll see what choices will come up so broadly speaking out unexpected a major impact on our business.

Speaker Change: In terms of financial impact.

Speaker Change: Have accounted for the.

Speaker Change: Legal fees associated with that otherwise there is no impact on Mastercard. So all in a very good outcome and it proves one point it proves the point that there is a lot of momentum and a lot of competition in the payments market and yet again.

Speaker Change: Another moving item and merchants agreed to this and this is a good step forward for everybody.

Speaker Change: Thank you.

Speaker Change: We'll take our next question from Danielle lab at Mizuho.

Danielle Lab: Hey, guys. Thank you for taking my question, so rebates and incentives were a little bit.

Danielle Lab: Hey, Dan two on rebates and incentives very much in line with what I kind of shared in terms of lot of talks at the last earnings call very much in line with our expectations with how we ended up in the first quarter as it relates.

Danielle Lab: What the usual puts and takes are as it relates to what drives rebates incentives. So I won't repeat that but the reality is we continue to be out in the market working to win business. We've got a strong pipeline of deals will continue to execute on that.

Danielle Lab: We're about them on every earnings call as it relates to the second quarter as we see it right now we expect rebates and incentives as a percentage of our payment network assessments to be roughly similar to slightly down from what we saw in the first quarter. So the reality is located just make sure we put this in perspective right.

Danielle Lab: Do these rebates and incentives to bring more volume onto our network when we bring more volume into our network. It gives us the opportunity to optimize those portfolios to grow them at a faster pace helps us deliver more services, which helps us drive net revenue accretion from a yield standpoint, and so it's very much in line with our strategy and that's what I've got and the nature of our thoughts for the second quarter.

Speaker Change: Yeah, it's a it's a competitive marketplace. So we have to be competitive on the financial side, we clearly see the flywheel effect that Satya just talked about between payments and services more volume on more ability to sell our services, but it's also clear that we are very very focused what deals we want to win so we don't want them.

Danielle Lab: In every deal and we're very very targeted here whatever meets our financial criteria and our strategic focus in certain markets and certain verticals.

Speaker Change: Thank you guys great results I appreciate it.

Speaker Change: Well go next to Darrin Peller at Wolfe Research.

Darrin David Peller: H guys.

Darrin David Peller: Guys. Thank you maybe we just hit on.

Darrin David Peller: Some specific travel trends.

Darrin David Peller: And really more broadly consumer trends, if you could just give us a little more on what youre seeing from a travel dynamic standpoint into detail a bit.

Darrin David Peller: Into April and I know Easter timing was a factor, but it seems like it could be a little more than that so is there anything youre seeing behavior wise thats impacting that do you expect that to rebound and then maybe just Michael if you can give us a sense of your view of where we are in the.

Michael: The dynamic of conversion onto onto electronic payments further consumer payment side.

Darrin David Peller: The changes in patterns, we're seeing in terms of the U S growth rate in particular, and then more broadly.

Speaker Change: Thanks, guys.

Speaker Change: Yeah.

Michael: Sure I'll take the first part of your question as it relates to cross border travel.

Speaker Change: Really what we are seeing is exactly what we said which is.

Speaker Change: The lower growth rate that you are seeing in the first four weeks of April as we've seen it and we've analyzed is being primarily driven by just the timing of Easter does nothing unusual to call out the only thing I won't say is when you think about cross border travel you should think about it in the context of ultra tougher comps, particularly as it relates to <unk>.

Speaker Change: Asia, because Asia was late to come out of the restrictions of Covid. So last year you saw.

Speaker Change: A strong recovery take place in terms of cross border travel in Asia, and then you just creates for tougher comps this year, but fundamentally the value prop is very so we've got great portfolio as we continue to win portfolios, which are travel leaning cross border travel leaning and we're executing on this portfolio. So nothing unusual that I am seeing travel growth rates are very Holly.

Speaker Change: And they are actually I would say are running at a clip which is.

Speaker Change: You know when I go back to the pre Covid days. It actually is running at a clip which is pretty comparable to what we used to see in the pre COVID-19 days when adjusted for this timing of Easter and the combo packs.

Speaker Change: Right just the last comment.

Speaker Change: Just a last comment on travel and tourism in general such an earlier I mentioned that the Chinese government is really focused on driving inbound tourism I just came back from a series of trips Indonesia, one of them and you see yet another government that is driving inbound tourism, we see it in India, we see it in Spain, and so forth in order to.

Speaker Change: You know work with governments and how to actually do that Theres, a whole practice around our public sector business to build out use the data that we have to create not.

Speaker Change: In order to aid the portfolio that we have created approaches with governments to promote their respective destinations and all this comes and in hand to a much more holistic approach that we're now seeing around travel vis vis competitors out there.

Speaker Change: So that was one thing I wanted to add on the conversion piece and the shift to digital payments.

Speaker Change: You asked specifically about the United States I want to hang it up a little bit a little bit broader starting off with there is a tremendous secular opportunity from a geographic perspective. So there is opportunity left here in the United States, but do you look around the world and you see some other countries.

Speaker Change: G seven economies like Italy, you have 45% cash so tremendous opportunity even in developed opportunities to go develop price to go after that I, just mentioned, Indonesia, and Indonesia, you have over 70% cash. So this is a country, where the president has put out by 2045, they're going to be the fourth largest economy in the world 280 million people today is the.

Speaker Change: A whole range across developed and developing economies for us to continue to grow and push into you heard us talk about.

Speaker Change: Changing behaviors post Covid people are.

Speaker Change: Adding more takeout foods are doing more things generally online and that is generally a preferential place for carded transaction. So going into these verticals is important we gave you. The example on a number of occasions of takeout food. That's one transaction in our restaurants, but it's multiple transactions as you pay your platform.

Speaker Change: The platform pays the restaurant and so forth, but think about <unk>.

Speaker Change: Think about.

Speaker Change: Public transport. It's another example, you hear we're talking real scale around the globe.

Speaker Change: Yeah.

Speaker Change: That has multiple transactions as consumers get into open loop systems multiple times, a day and then when they get out of the station. They use that same tapping behavior as they buy a coffee and so forth. So there's tremendous transaction opportunity driven by change in behaviors of consumers and then this whole new sectors as I mentioned about in the prepared remarks health care rent and so.

Speaker Change: Fourth so the secular opportunity.

Speaker Change: This was.

Speaker Change: Not just a throw away comment earlier, when I say, it's being in its last thing. It goes up exactly in those layers and we are very focused on each and every one of those layers. So this is around for a while.

Speaker Change: Okay.

Speaker Change: We will go next to Tien Tsin Huang of Jpmorgan.

Speaker Change: Good morning, just wanted to ask on value added services.

Speaker Change: The outlook here can you just elaborate on the visibility for faster growth beyond the first quarter I know comps are a big part of it just curious about visibility beyond the comps and then is there a potential to catalyze growth in the other category within value added services. Thank you.

Speaker Change: Sure Tien tsin I'll take that so.

Tien: Like I mentioned right I mean first of all our overall.

Tien: Outlook and the demand we're seeing for our value added services and solutions continues to be quite compelling and strong I mean, we're out.

Tien: They're actively as Michael mentioned earlier, driving and pushing harder across the various factors, which you kind of talked about so I won't repeat them as it relates to the thoughts I shared as it relates to growth rates for value added services and solutions for the remaining quarters of the year, which I said that the growth rates would be higher in each of the quarters compared to.

Tien: Q1.

Tien: It's really based on what we're seeing in the nature of the pipeline, how we're seeing things shape up in terms of.

Tien: The cadence of how we are going to deliver on these value added services and solutions, we feel pretty good about the outlook there which is why we are sharing with you what we're thinking about and the nature of this higher growth relative to Q1 in each of the quarters.

Tien: The only other comment I'll make is it's a little bit of.

Tien: The remainder out here, which is as we deliver on these value added services and solutions. We're obviously generating revenue from the value added services and solutions, but there is also driving very compelling kind of.

Tien: Cases for us to accelerate our payments growth rates. So that's part and parcel of the strategy. That's all kind of very interdependent, one or the other.

Tien: On your other question, which was around other solutions growth look we continue to remain focused on growing the other solutions. It's primarily comprised of a real time infrastructure assets as our bill payment assets.

Tien: And that inherently is slightly slower growth compared to what we've got in.

Tien: Our safety and security solutions, our consulting marketing loyalty solutions.

Tien: So we'll continue to drive on that I don't necessarily expect that the growth rates there are going to get comparable to what we see on the CFT and security side as well as on the consulting marketing loyalty solution side, primarily because the opportunity which is there on safety and security and consulting is a much larger Tam, it's a faster growing Tam and we're pivoting to <unk>.

Tien: Execute on it the good news is.

Tien: The safety and security piece as well as the.

Tien: <unk> marketing and data analytics and insights component is the lion's share of what comprises our value added services and solutions.

Speaker Change: Got it okay. Thanks, so let's kind of talk to that.

Speaker Change: But the piece Tien tsin.

Speaker Change: As discussed earlier about existing customers under cross sell so thats an opportunity we laid out the drive into new customer segments.

Speaker Change: That's pretty clear and here give you. An example on the personalization thing our dynamic yield acquisitions dating back to 2020, you have a lot of high end retail and commerce brands that want to engage on that everybody's trying to cut through the clutter take Saks fifth Avenue to using our personalization services. So those are all opportunities to get into.

Tien: Vertical said, we're not even in today and in a significant way so.

Tien: That is what gives us.

Tien: Great confidence has great demand as we look ahead into services and it was why we are saying, they're going to be higher than the first quarter.

Speaker Change: Thank you both.

Tien: Well move next to David <unk> at Evercore ISI.

David: Thanks for taking the question are you seeing any change in competitive intensity in Europe, primarily for your payment network. Your primary competitor called out share gains versus local payment networks in the quarter that has long been a source of.

David: Growth for Mastercard, so either changing competitive intensity from the principal competitor in Europe, <unk> any initiatives by local payment schemes to become more competitive themselves. Thank you.

Speaker Change: Hi, David.

Speaker Change: Europe.

Speaker Change: Fantastic growth story for Mastercard stock.

Speaker Change: Starting off with some of our big shifts in debit in the UK some great wins on the continent earlier I was talking about the renewal of Citi Ugly call.

David: Yeah, there's some big deals they are still in flight on conversion. If you think about when he credited 13 markets across the continent. So we're well positioned here.

David: Obviously Europe is in focus from a set of competitors that is local players.

David: As in local schemes and so forth, but we have long found a way to partner with with them. We feel they have a great proposition on credit and debit to compete at the same time their services partnerships that we drive across.

David: And then more traditional competitors of course, we're all I in Europe Europe is too much of a.

David: Our growth story overall for everybody to keep competing but we as I said earlier would try to turn these relationships into win win partnerships.

Tien: Only credit and yen decided to go with us because they feel we have shown better traction in serving their customer needs.

Tien: So it comes down to that and I feel pretty confident as I look across Europe and it continues to be a growth opportunity back to the question about <unk>.

Tien: <unk> opportunity Europe still has a lot to offer on that front and we have a whole set of solutions to go after that.

Speaker Change: Just one more point I'll add David as it relates you know we've had this long standing focus on conversion of maestro to debit Mastercard and that's very much the case in Europe as well that we continue to execute on that I feel like that's going to be one of those things, which will continue to provide us a natural tailwind as we continue to exit or execute on that capability.

Speaker Change: For example in this quarter we.

Speaker Change: Migrated or converted by roughly 7 million consumers from maestro to debit Mastercard and that's a global number if that's not just in Europe number, but I just wanted to share that with you is another piece of.

Speaker Change: How we are executing in Europe.

Speaker Change: Thank you very much.

Speaker Change: Okay.

Tien: Well move next to James Faucette at Morgan Stanley.

James Eugene Faucette: Great. Thank you very much I'm wondering you talked about strong cross border in travel trends et cetera.

Tien: Scene.

James Eugene Faucette: Some more indications of uneven consumer spending development in other parts of the economy generally I'm wondering if you can call out weather.

James Eugene Faucette: It would be in the U S or in other markets, if theres anything discernible at your level in terms of consumer shifting spending preferences or categories that are that are noteworthy.

Tien: If we should take and if there is anything that could impact mastercard or other indications that we should be aware of.

Speaker Change: Alright, let me let me start off on this and then Sachin can can comment further so you've seen the 18% growth. So this is strong so theres a travel component to that and there is an ex travel component to that ex travel continues to be particularly strong in this cross border e-commerce and the likes.

Sachin: On the travel side, if you if you break that down we talked about the trends I want to lift it up a little bit to the broader I think the broader angle of your question. So what are the various things that consumers think about as they make spending decisions how did make ends meet.

Tien: And travel has been strong ever since.

Tien: Covid, particularly strong from a recovery perspective, and it has been strong even before COVID-19 because the seeking of experiences as it's just a fundamental trend that hasn't gone away. So it is not one of those circular things disease, just a secular trend that we see people are seeking services and experiences and travel is the top of the list now as you.

Tien: Golden break this down into different countries, you're going to see different stages of inflation, you're going to see different monetary policy.

Tien: And fiscal policy, how governments and regulators are relaxed reacting to inflation and so forth.

Tien: And that affects consumers in different ways. If you see inflation in non carded verticals, that's going to impact your payment.

Tien: Patients are you spending decisions on carded verticals and so forth. So it's a pretty not uniform story around the world. That's why I come back to the fundamental trend travel is winning people want to go out and make that trip.

Tien: We remained pretty.

Tien: Optimistic around that.

Tien: As it relates to.

Tien: In Q1 cross border travel inbound and outbound.

Tien: And to and from China stood at approximately 80% of the pre COVID-19 levels. So there's still room to recover and granted China is going through a little bit of a slower period in terms of how the domestic economies performing but the reality is.

Tien: Let's still remains an opportunity over the medium to long term to to see how this recovery comes through in the nature of travel even from from that corridor per se.

Speaker Change: That's great color. Thank you Michael Thanks Sachin.

Sachin: Sure. Thanks James.

Speaker Change: We will take our next question from Tim <unk> at UBS.

Tim: Great. Thank you for taking the question I wanted to talk a little bit about U S. Debit trend. So you mentioned the citizens bank beginning portfolio beginning to come through but also unrig II more specifically, we we've talked about it in the past is a small portion of your overall net revenue in terms of U S online debit and often we talk about the risk or the threat to that.

Tim: While portion, but could you also talk about the flip side to that to the opportunity for Mastercard to gain the position on the back of the card for some of the.

Tim: The visa debit cards in the U S. Thanks.

Tim: Alright.

Tim: So Tim Crane.

Timothy H. Murphy: Great point, we love to talk about debit and you saw the 6% growth rate. So this is this is good we're doing well and the impact of the conversions is felt.

Timothy H. Murphy: As far as it comes to routing and Reg II.

Timothy H. Murphy: This question comes up for now for a couple of calls and I have to say.

Timothy H. Murphy: Where we are we're seeing some impact, but it's not material.

Timothy H. Murphy: That comes to the bigger question that you raised how do we look at that is so it's not material. That's great that gives us even more reason to look at the opportunity side of this and you're fighting for back of Cod in India and it comes down to the routing mandates such as just distorting the market I think what's happening here is.

Timothy H. Murphy: Ignoring the fact that India and a merchant will make a decision on the basis of a net economic outcome and the net economic outcome is not just the cost of operating related to some routing calls, but it is fraud costs et cetera, a whole package altogether and this is I think where we score well because we have a better proposition last five years.

Timothy H. Murphy: <unk> invested $7 billion into safety and security solutions.

Timothy H. Murphy: And that makes a competitive advantage for us so and that makes for a competitive advantage for us. So I see the opportunity. Our teams are out there talking to merchants that saying here's what the net proposition is always our ace versus choice be.

Timothy H. Murphy: And so far that is an encouraging set of dialogues.

Speaker Change: Excellent. Thank you.

Speaker Change: Our next question comes from Bryan Bergin at TD Cowen.

Bryan C. Bergin: Hi, guys. Good morning. Thank you I wanted to just ask about the changing the organizational structure and any financial implications would be where from them just how you're feeling that those early changes as you pursue the growth opportunities across the business.

Speaker Change: Right. So what we're doing here is you've heard us talk about the growth algorithm about our strategic priorities.

Bryan C. Bergin: And what's happening here is we are realigning our portfolio of activities always recognizing these are all interdependent, we're talking payments and services and altogether. It makes our competitive advantaged position, but we're basically say we want to focus on core payments are and our focus on new payment flows around our focus on an integrated services.

Bryan C. Bergin: As a set of offerings and that is what is part of this announcement plus we.

Bryan C. Bergin: We see tremendous opportunity on the AI side, particularly on the degenerative AI side and we've created a central role for that so these are four very seasoned leaders in the company that have tremendous experience around these topics that going to take this on and the whole idea is to move faster and drive more value to our customers.

Speaker Change: In terms of financial impact what I hope to see as we continue to deliver the growth that we're that we think is out there in terms of potential that is the impact that I'm looking for.

Speaker Change: So that's that's really the play there is nothing else to say behind beyond that I'm looking at I'm talking to Craig who is going to need to serve as this thing.

Speaker Change: What is going to be on our product roadmap going forward, how do we drive even more services growth et cetera. So that's the whole play is bringing the <unk> structure and strategy in line and.

Speaker Change: And move forward.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Next I'll move to Bryan Keane at Deutsche Bank.

Bryan Connell Keane: Hi, Good morning, just wanted to ask about the U K.

Bryan Connell Keane: Many positive yields youre getting on cross border.

Bryan Connell Keane: Your major peer.

Bryan Connell Keane: Isn't seeing the same kind of positive yield and they talk about low currency volatility is part of the reason. So I think you mentioned such in pricing and mix and just helping us understand how much is sustainable of those changes for yield in cross border and the differences maybe between your closest peer.

Speaker Change: Sure. So firstly I just wanted to quickly remind you that as it relates to the impact of FX volatility in our instance that shows up in our transaction processing assessments. It doesn't show up in our cross border assessments. So the impact of the what I would say the drag associated with FX volatility shows up in this transaction processing assessed.

Speaker Change: Currently it doesn't show up in our cross border assessment Light point number one point number two you are right about the yields on our portfolio performed well it goes back to what Michael said earlier, we want to win not only every portfolio, but we want to win the right portfolios and Thats, what we focus on doing over the last few years, which is winning the right portfolios for cross border and what that has helped us do.

Speaker Change: <unk> is C. This favorable mix come through where we are seeing.

Speaker Change: The enduring cross border grew at a more rapid pace than the intra Europe Cross border and you do know that the yields on the into cross border site are higher than the yields on intra across Florida intra Europe cross border. So that certainly hopefully yield standpoint, and then as it relates to your question on pricing look we've always kind of done pricing for the <unk>.

Speaker Change: We deliver when we deliver value to our customers whether it's on the issuing side of the acquiring side, we price for it.

Speaker Change: Called out that in this quarter, we had a little bit of a lift come through on pricing in the cross border assessments line and.

Speaker Change: And youll see that come through through the ensuing quarters as the year progresses as well.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: We will take our next question from Dave Koning at Baird.

David John Koning: Yeah, Hey, guys. Thanks, Nice job I guess advertising is my question.

David John Koning: It was the lowest in a long time by quite a bit too and I am wondering if there is some correlation between how much you have to advertise and even rebates that if you're giving.

David John Koning: Back some in in dollars to your clients you don't have to advertise quite as much is there a correlation there and maybe just why is it down so much.

Speaker Change: Yeah look I mean, the aggregate A&M spend is typically.

Speaker Change: The cadence of how we see the.

David John Koning: The promotions, we wanted to do so let me just step back and kind of think a little bit about why do we spend on A&M you can do it at the brand level, but you could do it towards activation of sponsorships and depending on when your sponsorship assets Huntley is when you want to do the activation around those sponsorship assets so that influences David.

David John Koning: Cadence of spend on A&M Youre right, we had lower A&M in the first quarter call. You had mentioned in my prepared remarks about how its the timing of A&M. What I was basically alluding to is that as the year progresses, we will be spending more on the advertising and marketing line on the second part of your question as to the traveling factor between the.

David John Koning: Expense line, and what we might be giving in terms of marketing for our marketing spend in terms of contract. There is an element of marketing, which we do give in terms of rebates and incentives to drive portfolio spend we work very closely with our issuing partners on that and so it's across both of those that we're looking to actually optimize from a market.

David John Koning: King standpoint.

David John Koning: Last comment I want to make on this is so we are a very large fintech, but we're not just a fintech we have a massive consumer brand, it's a fast moving brand.

David John Koning: It's amongst the top 10 brands on brand Z.

David John Koning: So investing in marketing is absolutely critical this is not a tradeoff that we make to from quarter over quarter. It fluctuates exactly the way that Satya just talked about when is the champions League on when is this on vendors that on and we have a very carefully curated set of sponsorship assets in and drive a bit of the timing, but we love our brands.

David John Koning: We invest in it I think for the fifth year in a row, we have been the number one sonic brand in the world. So there's a lot going on in the marketing side that we are very proud about and I think that brings us to the end what a great question to end the call on thank you so much.

David John Koning: It is labor day in most parts of the world today.

Speaker Change: So when I think our colleagues, yet again, which I do on every call on labor day. It makes even more sense. So a big call out to the 33000 at Mastercard and thank you to you and our shareholders for your continued support. Thank you very much speak to you next quarter Bye bye. Thank you.

Speaker Change: And this concludes today's conference call again, Thank you for your participation you may now disconnect.

Speaker Change: Okay.

David John Koning: No.

Speaker Change: Uh huh.

Speaker Change: Yeah.

Speaker Change: Okay.

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