Q1 2025 Mastercard Inc Earnings Call
Audra: Good morning, my name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Inc
Audra: 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 the star key followed by the number one on your telephone keypad.
Please only press star one once to queue up for a question, as pressing star one multiple times may affect your position in the queue. If you would like to withdraw your question, press star one again. Thank you.
Speaker Change: Mr. Devin Corr, Head of Vestor Relations, you may begin your conference.
Speaker Change: Thank you, Audra, good morning everyone, and thank you for joining us for our first quarter 2025 earnings call. With me today are Michael Miebach, our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer. [inaudible]
Speaker Change: Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session
Speaker Change: It is only then that the queue will open for questions [inaudible]
Speaker Change: You can access our earnings release, supplemental performance data, and a slide deck that accompanied this call in the Investor Relations section of our website, mastercard.com Additionally, the release was furnished with the SEC earlier this morning
Speaker Change: Our comment today regarding our financial results will be on a non-GAAP currency neutral basis unless otherwise noted
Speaker Change: Both the release and the slide deck include reconciliation of non-GAAP measures to gap reported amounts.
Speaker Change: Finally, a 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.
Actual performance could differ materially from these forward-looking statements.
Speaker Change: Information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings.
Speaker Change: A replay of this call will be posted on our website for 30 days.
Speaker Change: With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach. Thank you, Devin. Good morning everyone.
Speaker Change: Before I dive into specifics from the quarter, a few themes stand out for me. First, we delivered a fantastic first quarter, and that revenues were up 17% and adjusted net income up 13% versus a year ago, as always, on a non-GAAP currency neutral basis.
Second
Speaker Change: We are successfully executing against the significant secular opportunity in payments. It's a core part of our growth algorithm and an opportunity in any economic environment. [inaudible]
Speaker Change: Third, we are at the forefront of digital transformation, delivering a diverse set of solutions to the dress evolving needs of our customers.
Speaker Change: Capabilities that make payments simple, smart, and more secure, and services that go beyond our rails and beyond payments.
Now let's get into the details.
Speaker Change: We're operating in an uncertain environment. Consumer and business sentiment has weakened primarily due to concerns surrounding the impact from tariffs and geopolitical tensions. On the other hand, so far this year the fundamentals that support consumer spending have been solid and our drivers are generally stable. [inaudible]
Speaker Change: No matter what, it remains clear that we have intentionally embedded resiliency, we have a well-diversified business? Yes.
Speaker Change: Both from a geographic and product perspective, as well as across a wide range of discretionary and non-discretionary span categories.
Speaker Change: We closely manage our expenses and have leave us to pull if needed.
Speaker Change: And we remain focused on executing against our short, medium, and long-term objectives.
Speaker Change: There's a substantial opportunity for us to drive sustainable growth across consumer payments, commercial and new payments for those, and value added services and solutions. That's what I will focus on today.
Starting with Consumer Payments.
Speaker Change: Our innovations including contactless capabilities and tokenisation have become a foundation for payments in today's digital economy.
Today 73% of all in-person switch transactions are contactless. [inaudible]
and approximately 35% of all our switch transactions are tokenised. [inaudible]
Speaker Change: These technologies will continue to play an important role as we move forward into the next phase of digital commerce.
Such as Agentic AI.
Speaker Change: We announce MasterCard Agent Pay, the leverage our agentic tokens as well as franchise rules, fraud and cyber security solutions combined. These will help partners like Microsoft facilitate safe, frictionless and programmable transactions across AI platforms.
Speaker Change: You will also work with companies like OpenAI to deliver smarter, more secure and more personalized agentic payments [inaudible]
Speaker Change: The launch of Agent Pays is an important step in redefining commerce in the AI era.
Speaker Change: We are thrilled with these collaborations as we work together to scale and build trust in the authentic commerce.
Speaker Change: We also continue to advance crypto payments with an end to end approach [inaudible]
Speaker Change: at more than 150 million MasterCard acceptance locations worldwide. Kraken, Ok-Ex and Bleep, among our newest card issuance partners, helping to connect the crypto economy to everyday spending.
Speaker Change: And behind the scenes, we have enabled stablecoin settlement on the MasterCard Network itself. We're working with Fintech acquire a new way to enable the option to settle payments and stablecoins for their merchants. We're working with Fintech. We're working with Fintech. We're working with Fintech.
Speaker Change: And we help make these payments secure with crypto secure, now actively monitoring risks for hundreds of issuers globally.
Speaker Change: This is an addition to our work on blockchain technology to unlock faster and more transparent cross-border B2B payments with our multi-token network which we discussed last quarter.
Thank you.
Speaker Change: Our consumer payment technologies also enable us to further capture the significant secular opportunity and expand into new markets. China, for example.
Speaker Change: As we approach the one year anniversary of the first locally switched transaction
Speaker Change: We launched domestic on-soil tokenization capabilities. These were developed through our joint venture to make online transactions more safe and secure.
Speaker Change: Additionally, we are working to scale commercial as well as consumer payments. [inaudible]
Speaker Change: Over the last year we have launched ten new small business programs.
Speaker Change: We also continue to win and renew partnerships around the globe, to drive growth in consumer payments.
Speaker Change: CIMB Nyaga, Indonesia's second-largest private bank has chosen transition their international branded consumer car portfolio to MasterCard.
Speaker Change: We have embarked on this long-term partnership to help enhance customer acquisition and experiences through analytics and technology.
Speaker Change: We're also expanding our partnership with one of the leading regional financial groups in Latin America, Rufo Pro-America, across eight countries [inaudible]
Speaker Change: In addition to incremental card issuance, they will utilize our consulting and data analytic capabilities to drive growth
Speaker Change: Sub strategic partnership also play an important role unlocking cash and new consumers.
Speaker Change: There's tremendous secular opportunity in Africa. One way we unlock it is by partnering with the mobile network operators across the continent. [inaudible]
Speaker Change: For example, we partner with MTN Mobile Money in Uganda to give their subscribers the option to pay using card credentials without the need for a physical card or bank account.
Speaker Change: Trevor remains an important vertical and one where we are seeing continued success [inaudible]
Speaker Change: This quarter we launched a new debit co-brand card with Wyndham Rewards.
Speaker Change: And we renewed our credit co-brand partnership with Spirit Airlines with an additional agreement to launch a new debit program with them in the future [inaudible]
Speaker Change: Putting it all together, we are partnering in creative ways to ensure and capture the secular shift.
Speaker Change: Our decades-long innovation in payments has placed up at the forefront of today's digital commerce. And now, we're positioned to lead tomorrow's advancements, such as the Genetic AI in crypto, as I mentioned earlier.
Speaker Change: Commercial and New Payment Flows, resented another large, addressable market opportunity
Speaker Change: This quarter will launch two commercial point of sale solutions, each combine our product capabilities in a modular way to meet the specific needs of varied businesses.
Speaker Change: A business builder product combines commercial cards and tools to help entrepreneurial clients launch and scale their ventures. V1 Bank will be among the first issues to offer the program.
Speaker Change: Every developer developed a mid-market accelerator to address the critical needs of the largest and fastest growing commercial segment mid-market. It combines our digital payment technology, rewards, and security solutions with customs-selected features like cashflow and expense management tools. [inaudible]
Speaker Change: We're working with citizens to bring this to market in the United States with plans to scale globally. [inaudible]
Speaker Change: Beyond commercial point of sale solutions, we are working to unlock the substantial invoice payment opportunity by enhancing our capabilities.
Speaker Change: We entered into a new partnership with Core Pay to enhance our current corporate cross-border payment solutions with industry leading currency risk management and integrated large ticket capabilities.
Speaker Change: This will give our financial institution partners a simple connection to a comprehensive suite of cross-border payment offerings regardless of ticket size and geography
Speaker Change: At the same time, the partnership expands the distribution reach of MasterCard Move
Speaker Change: And this goes to a broad set of small and mid-sized businesses, including the existing core pay customers.
Speaker Change: Finally, we extended our agreement for Corpay to exclusively offer MasterCard virtual car programs to its customers
Speaker Change: Furthermore, we're extending our leadership in virtual cards by making it easier for businesses to access and deploy.
Speaker Change: We launch B2B rate manager to equip MasterCard virtual card issues with a taster and more scalable way to implement and use flexible interchange rates.
Speaker Change: We're also streamlining the onboarding process for issuers to deliver embedded virtual car technology into partner platforms that end corporates use every day, such as HRS and SEVENT.
Speaker Change: To further scale, we continue to embed our virtual card technology into widely used platforms
Speaker Change: ERP Software Company Odoo, in collaboration with Stripe, will exclusively issue MasterCard corporate cards integrated into Odoo's
Speaker Change: We're also seeing strong demand for our MasterCard move capabilities with transaction growth up more than 35% year over year this quarter. This solution has extensive reach and broad applicability to meet the ever growing needs of customers and businesses. Let's look at some of the most interesting use cases here.
Speaker Change: In the person-to-person space, we now facilitate domestic transfers by simply tapping your phone, partnering with Samsung to power their new wallet P2P offering
Speaker Change: And we support near real-time person-to-person cross-border remittances, adding partners like MoneyGram, Insta-Pay Technologies, and Curfx Discordr.
Speaker Change: MasterCard Move also enables disbursements like gig economy wage payouts to offer more flexibility in speed to businesses and individuals . . .
Speaker Change: Checkout.com is using MasterCard move to help enable disbursement and payment use cases for the gig economy as well as for insurance and health care merchants.
Speaker Change: and our technology can also speed up purchase return payments within minutes rather than days or weeks.
Speaker Change: which is clearly something we can all benefit from. World Pay is now using this with multiple UK merchants to deliver faster refunds.
Speaker Change: Across commercial point of sale, invoice payments and MasterCard move we are expanding across use cases while making it easier and more attractive to use our solutions.
Speaker Change: The third pillar of our strategy is services and solutions. We've made targeted investments in diversified solutions in high growth areas [inaudible]
Speaker Change: As we said at the investor day last year, approximately 85% of our value added services and solutions revenues are recurring in nature, providing a stable baseline for growth
Speaker Change: And we are well positioned for future growth as we continue to scale by further penetrating existing customers and targeting new buying centers and new services.
Speaker Change: We are leveraging one to many distribution with global technology partners who can embed our services as part of their value proposition.
Speaker Change: Galileo will enable ethical alerts for most of their car portfolios and integrate our open banking powered capabilities onto their platform.
Speaker Change: Global Cybersecurity Company, Viking Cloud, will distribute our risks warring and cyber security remediation capabilities to further enable their small business clients to protect against cybercrime.
Speaker Change: and Financial Crime Prevention Company, Feet Say, is extending their use of MasterCard's consumer fraud risk solution
Speaker Change: It's already live in the UK with 14 major banks and this partnership streamlines our ability to scale account-to-account fraud solutions to new markets globally
Speaker Change: To further penetrate existing customers, we bring differentiated solutions that drive impact throughout their value chain. This can be a cross-consumer onboarding, activation, and usage, all the while making payment safe and secure.
Speaker Change: Our services help balance a positive frictionless consumer onboarding experience with ensuring consumers are who they say they are.
Speaker Change: And bringing our identity attributes and open banking solutions together we have helped experience and hands their digital checking account offerings within experience smart money.
Speaker Change: Once those customers are on board it, our assets can support their ongoing engagement and loyalty, resulting in improved customer satisfaction .
For example, we help power Sam's Club's Loyalty Rewards program [inaudible]
Speaker Change: We're working with First Abu Dhabi Bank to develop an AI-powered concierge integrated into the bank's MasterCard offers platform
Speaker Change: This innovative solution will have customers discover and access card offers and benefits in a contextual manner.
Speaker Change: Additionally, our Business and Market Insights Services help our customers with portfolio optimization.
Speaker Change: If combined are consulting expertise and analytics insights to help customers like Intessa Sampalo to optimize the program performance.
Speaker Change: We also provide tools to protect our customers and the ecosystem more broadly.
Speaker Change: Last year, we enhanced our AI powered decision intelligence to supercharge our fraud scoring and detection rates, and it's working. Detecting more than 40% more fraud versus quarter one last year.
Speaker Change: On a cyber security front, recorded future just unveiled malware intelligence. It's a new capability enabling proactive threat prevention for any business using real-time AI-powered intelligence insights.
These are just two examples how we deploy AI. Bye.
Speaker Change: and this uniquely positions us to enhance our AI's performance, resulting in greater accuracy and reliability.
Speaker Change: and we're deploying AI to enable many solutions in market today. In fact, in 2024, AI enabled approximately one in three of our products within value added services and solutions. [inaudible]
Speaker Change: and were intentionally investing in areas like AR-powered threat intelligence that are right with opportunities for growth.
Speaker Change: Today I've shared numerous wins, new partnerships, and new product innovations. The execution is evident and our momentum continues.
Speaker Change: So I want to wrap up with some key takeaways for you. We delivered another quarter of very strong results. We're monitoring the macro environment and prepared to adjust as needed. If a broad set of solutions that drive value for our customers.
Speaker Change: He was strong, resilient, and diversified business model. In most importantly, we are focused on delivering our strategy and growth for the long term.
Sachin, over to you.
Sachin Mehra: Thanks Michael. Turning to page three which shows our financial performance for the first quarter on a currency neutral basis, excluding where applicable, special items and the impact of gains and losses on our equity investments.
Sachin Mehra: Net revenue was 17% reflecting continued growth in our payment network and our value-added services and solutions.
Acquisitions contributed one PPT to this growth. [inaudible]
Sachin Mehra: Operating expenses increased 14% including a 4 ppt increase from acquisitions, and operating income was up 19%, which includes a 1 ppt headwind from acquisitions.
Sachin Mehra: Net income in EPS increased 13% and 16% respectively, driven primarily by the strong operating income growth, partially offset by a higher effective tax rate due to the impact of the global minimum tax rules commencing in the current period.
Sachin Mehra: EPS was $3.73, which includes an 8th-cent contribution from Sherry Burgesses
Sachin Mehra: During the quarter, we repurchased 2.5 billion worth of stock and an additional $884 million through April 28, 2025
Sachin Mehra: Now turning to page 4, let's first look at some of our key volume drivers for the first quarter on a local currency basis
Sachin Mehra: Worldwide Growstall of volume or GDP increased by 9% year over year. In the US, GDP increased by 7% with credit growth of 6% and debit growth of 8%.
Sachin Mehra: This growth was impacted by the lapping of the citizens' debit portfolio migration to MasterCard, which commenced in Q1, 2024 in 2004.
Sachin Mehra: Outside of the US, volume increased 10% with credit growth of 9% and debit growth of 12%
Sachin Mehra: Overall, cross-border volume increased 15% globally for the quarter, in line with expectations and reflecting continued growth in both travel and non-travel-related cross-border spending
Turning now to page 5 [inaudible]
Sachin Mehra: Card present growth was aided in part by an increase in contactless penetration, as contactless now represents approximately 73% of all in person switched purchase transactions
Sachin Mehra: In addition, Card growth was 6%. Globally, there are 3.5 billion MasterCard and Maestro branded cards issued.
Sachin Mehra: Turning to slide six or a look into our net revenue growth rates for the first quarter discussed on a currency neutral basis. [inaudible]
Sachin Mehra: Payment Network Net Revenue increased 16%, primarily driven by domestic and cross-water transaction and volume growth. It also includes growth and rebates and incentives.
Sachin Mehra: Value added services and solutions in that revenue increased 18%, this includes a 4% which point increased from acquisitions.
Sachin Mehra: He was also driven by growth in our online drivers and price it. [inaudible]
Sachin Mehra: Now let's turn to page 7 to discuss key metrics related to the payment network. Again, all growth rates are described on a currency neutral basis unless otherwise noted.
Sachin Mehra: Looking quickly at each key metric, domestic assessments were up 12% while Worldwide GDP grew 9%. The two PPP difference is primarily driven by mix and pricing. [inaudible]
Sachin Mehra: Cross-water assessments increased 18% while cross-water volumes increased 15%. The 3PBT difference is primary driven by pricing in international markets [inaudible]
Sachin Mehra: Transaction processing assessments were up 17% while switch transactions grew 9%. The 7PBT difference is primarily due to revenue related to FX volatility, favorable cross-border mix and pricing.
Sachin Mehra: Other network assessments were 231 million this quarter As a reminder, these assessments primarily relate to licensing, implementation and other franchise fees and may fluctuate from period to period
Sachin Mehra: Moving on to page 8, you can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 14%, which includes a 4PPT impact from acquisitions.
Sachin Mehra: This growth was primarily driven by increased spending to support the continued execution of our strategic initiatives.
Sachin Mehra: Total adjusted operating expenses were lower than expected this quarter, primarily due to the cadence of expenses between the first quarter and the remainder of the year
Sachin Mehra: Turning now to page 9, let me comment on the operating metric trends for the first quarter and the first four weeks of April
Starting with Q1, we saw a healthy consumer in business spending. [inaudible]
Sachin Mehra: Our operating metrics remain generally stable after adjusting for the following three items. First, the Leap Year in Q1 2024, which reduced Q1 2025 growth by over 1 ppt across switch volumes, switch transactions and cross-border volumes.
Second, the timing of Easter and other holidays [inaudible]
Sachin Mehra: Easter occurred in April this year as compared to the end of Q1 in 2024. And finally, as it relates to cross-water travel, we saw a pull forward of spend into Q4 2024 from Q1 2025 as we mentioned on our last earnings score.
Sachin Mehra: Now, turning to the first four weeks of April , sequentially switch volumes, switch transactions, and transport of volumes also remain generally stable after adjusting for the points I just mentioned Thank you.
Let me double-click on Frostwater for a minute.
Sachin Mehra: Crosswater travel growth broadly remains strong, but we are seeing some moderation in select markets in the Middle East and Africa as they come off recent periods of extremely high growth
Sachin Mehra: Cross-border Card Not Present Extrable Growth continued to be very strong. Summing it up, total cross-border continued to grow at a healthy clip with 16% growth year-to-date through April 28 on a local currency basis.
Sachin Mehra: Turning now to page 10, I want to share our thoughts for the remainder of the year.
Sachin Mehra: The headline is that our business remains strong, and consumer spending remains healthy. [inaudible]
Sachin Mehra: On the macroeconomic front, the fundamentals that support consumer and business spending have been solid to date
Sachin Mehra: Specifically, unemployment rates remained low and for the most part wage growth continues to outpace the rate of inflation.
Sachin Mehra: At the same time, increased economic and geopolitical uncertainty has weakened sentiment and creates risks. But remember, our business is diversified.
Sachin Mehra: and that is true across products and services, discretionary and non-discretionary spend categories, domestic and cross-border spend, and countries and corridors
Sachin Mehra: For example, when looking at cross-border corridor pairs, meaning the inbound and outbound flows between two countries No cross-border corridor pair represented more than 3% of our total cross-border volume in 2024 [inaudible]
Sachin Mehra: This diversification brings resilience, as does our discipline approach to capital allocation.
Sachin Mehra: Now, turning to our expectations for the full year 2025, our base case assumes consumer spending remains healthy. We continue to expect net revenue to grow at the high end of a low double digits to low teens range on a currency neutral basis excluding acquisitions. [inaudible]
Sachin Mehra: Acquisitions are expected to add 1 to 1.5 PPT to the scroll trade for the year.
Sachin Mehra: Given recent currency fluctuations, we now estimate a minimal impact from foreign exchange.
Sachin Mehra: From an operating expense standpoint, we continue to expect growth to be at the low end of a low double digit range versus a year ago on a currency neutral basis, excluding acquisitions and special items
Sachin Mehra: Acquisitions are forecast to increase the off-extral trade for the year by approximately 5 pbt while we expect a mineral impact from foreign exchange.
Now turning to the second quarter of 2025. [inaudible]
Sachin Mehra: You're over your net revenue growth is expected to be at the low teens range on a currency neutral basis excluding acquisitions.
Sachin Mehra: Acquisitions are forecasted to have a 1 to 1.5 PPT impact to this growth rate, while we expect a minimal impact from foreign exchange for the quarter. Thank you.
Sachin Mehra: From an operating expense standpoint, we expect Q2 growth to be at the low end of a low double digits range versus a year ago, again on a currency need for basis, excluding acquisitions and special items.
Sachin Mehra: Acquisitions are forecasted to have a 4-5 PPG impact to this op-x growth, while we expect a minimal impact from foreign exchange for the quarter . . . .
Other items to keep in mind?
Sachin Mehra: On other income and expenses in Q2 we expect an expense of approximately $135 million given the prevailing interest rates and debt levels
Sachin Mehra: This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. This expense is higher than the first quarter, primarily due to three factors. First, Q1 benefited from a one-time interest income impact related to a tax matter. This expense is higher than the first quarter. This expense is higher than the first quarter.
Sachin Mehra: Second, we expect interest income to decrease in the second quarter due to an expected lower average cash balance and third we expect incremental interest expense in Q2 related to our recent additions. We expect a higher average cash balance.
Sachin Mehra: Finally, we expect our non-gab tax rate to be at the 20 to 20.5% range for both Q2 and the full year based on the current geographic mix of our business.
Speaker Change: As a reminder, the Q1 tax rate was lower due to discrete tax benefits related to share-based payments in the first quarter. And with that, I will turn the call back over to Devin. Thank you Sachin. Thank you, Michael. Audrey, you may now open a call for questions.
Audra: 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 only press star one once to queue up for a question, as pressing star one multiple times may affect your position in the queue.
Your first question comes from Harshita Rawat at Bernstein.
Harshita Rawat: In the spirit to say that travel is about two tours, econ, remainder, and within e-commerce is there, if the bulk of it e-retail, just trying to get a sense of US inbound overall on travel and econ. Thank you.
Speaker Change: You know, share with you that we have a very diversified portfolio. There is no overdependence on any one corridor pair.
Harshita Rawat: which actually is going to influence our numbers one way or the other. So that's kind of point number one. The second thing I'll mention to you is, I think we had shared some statistics back a few years ago as it relates to what our mix of cross-border travelers, vis-a-vis cross-border travelers. [inaudible]
Harshita Rawat: Corrable, and this was back, I think it was during the COVID time frame, where we had mentioned that Card Not Present and Card Present.
Harshita Rawat: Crossbow order was roughly half and a half and one-third of the card not present was travel related. So we've kind of given you some general sense on that and you should assume with the business of our size that things generally tend not to move around big time over, you know, of course, a couple of years as it relates to the mix. So that's generally what we kind of share with you there. Thank you.
Harshita Rawat: As it relates to, you know, the Cardinal present X travel component, you can see some really solid growth there, you can see that in the metrics that we've got here. And look, I mean...
Harshita Rawat: The sustained growth comes through even now. So net net, but I tell you is I feel pretty good about how our portfolio is positioned. We continue to stay very focused in growing our portfolio which is cross water focused for all the right reasons. Not every portfolio is going to be once we'll go after, but the ones we do go after we see good promise for growth and you're seeing that comes through in the metrics which we've shared with you.
We'll move next to Andrew Jeffrey at Truest Securities.
Speaker Change: Hi, William Blair these days, fortunately. Thanks for taking the question to appreciate it. I wonder if I could dig in a little bit on the economics of your tokenized offerings. Michael, I think you said they're 35% I guess I'm assuming.
Speaker Change: Cardinal, present transactions have tokenized. Can you just speak to where you think that number can go and what that means that economically for MasterCard in the next several years? Thank you very much.
Michael Miebach: Initially a strategy was put it out there and get a base level offering across the world.
Michael Miebach: and we put in life cycle management and the likes and we started to price for that because that is additional value that we put out and we've seen the benefit of three quarters of that pricing from our international market. So that is where we are today and we're going to continue to monitor that as great demand and tokenization and I gave you an update that even in China we build a locally based developed solution to drive the same kind of [inaudible]
Impact in China for us.
Michael Miebach: You know, when you start to think about where we are going, as we were talking about agentic commerce, where again token technologies, it's the center of that. You can start to see there's a lot of value created, and you know our pricing strategies, we always strive to recoup some of our investments and share the value that we create for our customers, so that's the broad direction.
We'll go next to Tinjian Wong at JP Morgan.
Michael Miebach: to some spending. I just want to understand the case a little bit more and what's discretionary versus non-discretionary growth versus maintenance and I think there's some one-timers for recorded future integrations. So I just want to better understand that given this running double digits overall. Thanks.
Speaker Change: Sure, attention. So on, on OPEX, like I mentioned, you know, operating expense in the first quarter came in.
Speaker Change: slightly lower than what we had originally anticipated, primarily due to the cadence point which you were mentioning out here which is specifically as it relates to there are several areas in which we were expecting to actually incur expense in the first quarter. For example in A&M we were expecting A&M being advertising and marketing which I know you know was expected to be hired came and slightly lower again it's not because we're not going to do the spend it's just a question of timing based on when sponsorships take place when we have to activate around those sponsorships when we do the media around those sponsorships
Speaker Change: Disciples, Sponsorship, so that's kind of one area. But in addition to that, we do expand from the extent. Thank you very much.
Speaker Change: Expect from a key and stand point that as the year continues that you will see particularly in the second half an increase in operating expenses which will take place in the second half of the year.
Speaker Change: because we do have plans to make investments, and there are several areas which we will make investments on, such as investing in the great secular opportunity that Michael was talking about. We've got this opportunity in front of us. We believe it's there in several markets across the globe. We've got this opportunity. We've got this opportunity. We've got this opportunity in front of us.
Speaker Change: We do plan to invest in frontline resources to actually happen to that opportunity and that would be one area.
Speaker Change: The second area I would tell you is around harming of infrastructure, right? This is something as a payment network which...
Speaker Change: is really important. It's important that we continue to invest in our infrastructure in order to deliver to our customers what our customers expect from us. So that will be another area where we focus on an expense standpoint. [inaudible]
Speaker Change: And finally, I'll mention that we can receive good growth from a services standpoint and we'll continue to invest in areas from a services standpoint from a product development and capabilities perspective. So several areas, the cadence is like you said, it was a little lower in the first quarter, we expected to ramp up as we go through the remainder of the year.
Speaker Change: We've given you guidance on operating expenses for the second quarter, so I think you can back into, you know, what we expect in the second half based on what I've given you in full year guidance and what you kind of now have visibility for the first half of the year. On your question on recorded future, again, we've shared with you what we think the impact of two acquisitions would be, which is recorded future and men are and recorded future being the larger of the two. And just as a reference point that the last earnings call we had shared with you on on on these acquisitions that we've shared with you in the second half of the year.
Speaker Change: Roughly two and a half percentage points of the growth we are talking about from acquisitions is run rate expenses. That is the expense to run the business.
Speaker Change: Approximately 1% relates to the amortization of intangibles and the remaining relates to one time integration costs and other expenses which you have to incur more in a one time nature standpoint. And nothing's changed from what we shared with you three months ago on that.
Speaker Change: We'll move to our next question from Sanjay Sakhrani at KPW. Thank you, good morning. Michael Sachin, this might be a question for both of you. I know you're seeing resilience on the part of the consumer, but I'm just curious if you just peel back the onion a little bit. Is there anything that you're seeing? [inaudible]
Speaker Change: that concerns you in terms of the health and the consumer and spending habits, especially with tariffs and such. I know like this quarter seem to come in a little bit stronger than expected but you're not revising the outlook. Just want to make sure that there's nothing. Is that just prudence or something you're seeing? Thanks.
Speaker Change: So let me start up and then Sachin always has plenty of detail to deep dive in. So overall, I mean
Sachin Mehra: First of all, we have a very unique lens on consumer spending. This is across the world, so we have regional data to look at, and I'll give you some highlights around that.
Sachin Mehra: And one thing that's, you know, to be said about an engaged consumer, it also means it's a consumer that is leveraging all the tools that the visually economy offers to consumer in terms of finding what's the best deal, looking for the best deal. So it's not so much about spending up and down, but it's also the choices of the quick connected
Edith,
Audrey Knews,
Yes we can, please continue.
Sachin Mehra: Decide between discretionary and non-discretionary spending. So that's overall, none of this has changed.
Sachin Mehra: In our data, we don't really see significant upfront, upfronting of spending, so that's not a trend that came through.
Sachin Mehra: That was your specific angle of your question. If I look across the board, this hasn't shown in any of the regions in the US, we see generally stable con spending. Thank you very much.
Sachin Mehra: Europe , a bit more of a challenging environment, but also generally spending in Asia, if you look at another big region there
Michael Miebach, CFO Alphabet and Google
English, so overall nothing particularly concerning at this point in time the headline of our trends has generally remained stable is very very much spun on.
Speaker Change: Yeah, Sanjay, I'll just add a couple of points here. You know, you can talk about the beaten Q1. So a couple of things which I wanted to share with you. The beaten Q1 was primarily driven by two factors. One was higher levels of effects volatility and lower rebates and incentives than what our expectations were. And so when I kind of think about that, and I think about the implications of the full year, I perfectly well expect that rebates and incentives because it's a timing issue, as far as I'm concerned, will actually occur as it, as a year goes along. We continue to remain very active in the markets, we're going to continue to do the deals.
who's we need to do as far as that process. Thank you.
Speaker Change: And as you and I both know, the effects followed to be super hard to predict. So, you know, you had the tailwind from the effects followed to ring Q1, and that's what we've got
Speaker Change: Another point I'll mention to you is you asked about, you know, what is the impact in addition to what Michael just mentioned?
Speaker Change: You know what we are seeing is inbound into the US and in terms of cross-water travel you are seeing some level of moderation take place there no question about it and this has been particularly true in the latter half of Q1 and going into the first four weeks of
Speaker Change: OPA Pro, that being said, what you are seeing is what is not coming into the US is going into other regions.
Speaker Change: So this is where the beauty of the diversified business model comes into play.
Speaker Change: And as I mentioned, right, our concentration to any one currency quarter there is.
Sachin Mehra, Michael Miebach
We'll move next to Adam Frisch at Evercore ISI.
Adam Frisch: Hey guys, good to be back with you. Two questions I had for you this morning. One, the potential impact of the Cap 1 Discover Deal. Trying to quantify the potential, let's just take the worst case scenario to get that off the table. If they're debit portfolio, we're to leave.
Speaker Change: You guys, how should we think about that impact to your financials and then? [inaudible]
Speaker Change: The second question, and that was the worst case scenario, and then the second question is...
Speaker Change: How does China factor into being a contributor to your revenue projections in the near term? Is that still relatively small and not a major source or is it growing in importance in your future near term projections? Thank you.
Hey Adam, welcome back.
Speaker Change: So, on your question around cap 1 and discover, look I mean like I mentioned in the last Sonic score, right? The guide we've given you as it relates to our folio numbers, contemplates our best estimate of what we think the impact of that transaction will be. I think cap 1 has been fairly clear about their desire to migrate the debit portfolio.
Speaker Change: Over to the Discover Network, and that's very much contemplated in what we're thinking about in terms of our outlook for the year. Again, there's a level of uncertainty associated with the timing.
and the reason I say that is because...
Speaker Change: The transactions were approved that still needs to go through a period of getting into activity to actually make stuff happen there. So we'll keep you updated if there's any meaningful change relative to our expectations as we built into our folio guide on the Capital One Discover Transaction.
Speaker Change: On your first search, just one point, so the relationship with Capital One has been a strong one for a number of years. We've grown together in the market.
Speaker Change: There are areas now in this setup where we'll continue to have a strong relationship. If you have both organizations talk about that at the same time it might be areas where we compete. .
Speaker Change: Going forward, but that is not unique. We have many examples. You look into acquiring space, for example, where we have great strategic partnerships on one hand and it will be certain aspects of our business where we compete, so we continue to expect a strong relationship with this government
Sorry, actually it was Capital One.
So, net net, what I would tell you is...
The impact of on revenues of the joint venture is still...
Sachin Mehra, Michael Miebach
Speaker Change: It's been fairly small again going back to the diversification theme we've been talking about and we could do what we need to do in terms of driving that business.
Just one day to point that chair with you. Um.
Speaker Change: As it relates to cross-border inbound and outbound from China because this is something which people kind of track, you know, we follow this closely as well Cross-border travel volume inbound into China is now north of a hundred percent of pre-COVID levels
Speaker Change: Slightly north of 100% and then outbound, the same metric outbound from China is running in the mid 80s close to approximately 85% of pre-COVID level. So just in case you're interested in understanding what the recovery path might look like on a going forward basis. So just in case you're interested in the recovery path, you're interested in the recovery path, you're interested in the recovery path.
Speaker Change: Now finally, to add, we now have the full tool set there. I mentioned tokenization capabilities, obviously important to participate in contactless and online transactions there. Now earlier there was a question about your external environment. We obviously closely monitor US-China relationships
All of this.
We'll move next to Trevor Williams at Jeffries.
Trevor Williams: Great. Thanks very much. I just wanted to follow up on the full-year guide, Sachin, if you could talk to you directionally at least what you're building in for the rest of the year across switch volume and cross-border, you've talked about lapping citizens and now that's a dynamic to keep in mind, but if there's any other underlying acceleration, assume relative to the current run rates when we kind of normalize for the holiday timing in.
Speaker Change: March and April , and then just any comment on what you're assuming for FX volatility. Thanks very much.
Sure.
Speaker Change: So a few thoughts for you on that. One, as I mentioned my prepared remarks, we continue to assume our base case is that, you know, there's a strong consumer which can continue to persist, right? I mean, you know, that's what the fact and the data shows us so far and, you know, while there's the level of uncertainty which we talked about, but that's what the current data is. So the base case is that the strength and consumer spending, you know, continues. Thank you very much.
Speaker Change: In terms of items which are unique to this year as we kind of go through the year, it's one is the fact which you mentioned which is the lapping of the wins we had last year, which is going to start to come through as the year progresses, you know it's starting in Q1, it will continue at more excel hurry pace in Q2 and then it will go on for the quarters to come just because that's kind of...
Speaker Change: That's the good news. Take as you want for the whole years you've got the revenue associated with that but it does actually take down growth rate on a year over your basis. Thank you.
Speaker Change: The other thing which you'll see is the lapping of certain amounts of pricing which was put in place last year so that will also start to come through as the year progresses and the last point I'd make is around
Speaker Change: I mentioned earlier about R&I and about how we had lower R&I in the first quarter and that we expect for that to be something which will play out as the progressives because we can view that more as timing than anything else so that should be very much part of how you're thinking about what we fact into the guide and the last point I'd mention is around FX volatility.
Speaker Change: On FX volatility, you will remember that last year in Q4, there were pretty high levels of FX volatility, so there's a tougher comp this year.
Speaker Change: I have no idea what effects volatility is going to look like. We do our best estimate in terms of what we think
Speaker Change: Will happen, but again, you know, I am proven wrong every day by my team about where that is going to actually show up, both to the upside and the downside. So we do our best as something around that, we put that into, you know, our guidance again, our guides are range, right? So that's why we give you a range, and so you should actually think about it in that manner. [inaudible]
Speaker Change: We'll move to our next question from Darren Peller at Wolf Research.
Speaker Change: Hey guys, thanks. Can we just touch for a minute on pricing? I know you talked about tough comps into the second app on pricing, given some moves you made last year around. It was cross-border into organization, but when we think about...
Speaker Change: The opportunities you have now into the second half maybe just give us a sense of the level is it's something that do you see it instituting new provides opportunities that could be somewhat similar to what you did over the second half last year as the year progresses even if it's not timed exactly
Speaker Change: All right, Darren, so pricing. The first thing to put out there is, it's obviously a competitive market.
Speaker Change: and we generally price to market, more importantly, the price to the value that we provide.
products that we put out there. So we will all continuously look for ways to recoup some of the investments and price for the value we do on the price, on the payment side generally.
Speaker Change: Hansen, the same as for the customer engagement and insights tools, but again we say you can engage your customer so much better therefore the ROI on your marketing spend is going to be improved and that is what we do. So to your question there and it's across the board we will continue to look for those opportunity as a matter of course as we run our business.
Speaker Change: There is no specific spikes or events planned into our outlook on that.
We'll take our next question from Timothy Chiodo at UBS.
Timothy Chiodo: Great, thank you. I want to talk a little bit about wins and migration in general, as it relates to unit economics and some of the incentives timing, just because it's topical, given some of the slapping and conversions and whatnot.
on the beginning of a contract. So...
Timothy Chiodo: We understand that sometimes the incentives can be either turned off or diminished during that time period. I was just hoping you could talk a little bit about the beginning and the end of those contracts in terms of incentives, the fixed, the variable component, and add any context there.
Speaker Change: Sure, so I think you've got to write, as it relates to, you know, when we get into a contract, every contract is different, but when we get into a contract we typically are incentivising our customers to bring volume onto the system
First, right, that's kind of a starting point, and that could be a combination of fixed incentives, or variable incentives, or both. And more often than not it's both. [inaudible]
Speaker Change: And there's rebates as well, and rebates are, you know, just a component of, when I say incentive, just think about it as rebates and centres into a tally [inaudible]
You know, the way it works is, the variable component...
Various with Bolly.
Speaker Change: It's as simple as that, right? As volumes occur, you pay the related rebates and incentives, there are adjustments which take place to that because you have to make projections as to what you think, you know, your volume outlook is going to be and you actually accrue your incentives on that basis. [inaudible]
Speaker Change: On the fixed component, the amortization of fixed incentives commences when programs launch, that's kind of when it starts and they're typically straight line over the life of the contract, right? The second body of question is at the end of the contract, what happens? [inaudible]
Speaker Change: and the answer to that is it depends on the customer and it depends on the dialogue we're having with the customer and the reason I bring that up is you know to the extent there's an opportunity let's say there's a contract which is expiring and we don't end up renewing it
Speaker Change: You might actually end up in a situation where you're having a negotiation around we're not going to get what we had in the past, we're only going to get a portion of what we had in the past, but we're going to get three other things as part of the deal and so...
Evin Corr, Sachin Mehra, Michael Miebach
Sometime in 2014-2015, right?
Speaker Change: Have a continuity which is there, so you're not always going to see the ramp up take place in terms of going to rack rate. It also depends by the way on the timing, right? Depending on what level of readiness the customer has got from a migration standpoint. So the customer at the end of the contract needs. [inaudible]
Speaker Change: Call it a year, a year and a half, two years, right? You might have an opportunity to actually work with the customer to try and see if there are opportunities there as well to either when you put full use and or potentially go to rack rate. So, I know I'm not giving you the kind of answer you're looking for, which is give me an answer as to whether it's one or the other, it depends.
Right.
Speaker Change: And, you know, when you look at our relationships, early I was referencing in my pad remarks, the term of strategic partnerships and that's exactly how we look at it, it's not just a relationship. So, you know, if we grew with somebody in consumer payments, you know we have a real big focus on commercial new payment flows, and this is how we toggle that, it's a long-term view in all cases.
Speaker Change: And one other thing I would say is just remind everybody about the virtuous cycle of growth, more payment volume. It's always in focus for us. It's going to power more data and more data allows us to drive more services. So that is the other lens that we take when we look at all of this. [inaudible]
We'll move next to Craig Maurer at F.T. Partners.
Craig Moore: No, I wanted to ask you guys what you thought were these? [inaudible]
Speaker Change: idiosyncratic pieces of your business that might allow you to perform better than peers or competitors as things slow, what are the unique assets you have that could perform better in a slow environment versus others. Thanks.
Right. Great question and I want to anchor it on.
Speaker Change: The nature of our highly diversified business, and that is an answer that I would have given you even if you had asked after growth areas in fast growing environments and not only in slow growing environments because the diversification helps us both ways and I think that's important.
Speaker Change: Clearly, the economic picture isn't always even across the world, so we keep both of that in mind. Now another important aspect about our business is, yo . . . .
Speaker Change: Having payments and having a secular trend where payments move from cash and checks into digital is an underlying powerful secular trend that continues.
Michael Miebach, CFO Alphabet and Google
Speaker Change: So they can use that data to better serve their customers, optimize their processes or improve their working capital usage. It's it's self.
Speaker Change: Here's an underlying powerful trend that survives, you know, the up and down of the overall economic picture at any given moment at some medium to long-term trend. And there's other such trends that we have very specifically targeted for our services solution.
Thanks a lot. Thank you.
Speaker Change: It makes us a very very well diversified business in challenging economic times, but also in fast growing times.
Speaker Change: We'll go next to Bryan Keane at Deutsche Bank.
Bryan Keane: Yes, good morning.
Speaker Change: Satya I wanted to ask high level, we were at net revenue growth of 16% in the fourth quarter and we actually increased the point.
Bryan Keane: To 17% in the first quarter despite.
Speaker Change: A little bit of a volume slow down part of that is due to leap year as you said.
Speaker Change: But the net revenue growth maintained at that high level.
Speaker Change: It looks like transaction processing yields in particular jumped a little bit higher how much can you can you help us explain despite volumes going down to make sure. We understand the growth that was maintained or even uptick a point into the first quarter.
Speaker Change: And it doesn't sound like FX vol would be all of it.
Speaker Change: And then just thinking about going forward into the second quarter, if some of those benefits volume to revenue and yields will continue thanks.
Speaker Change: Sure. So can you kind of touched upon the answer to the question right. There, which is the lift you saw in Q1 was driven by two factors one is the FX one.
Speaker Change: Volatility point, which you just raised I mean it was.
Volatility levels were actually really high in the first quarter and that certainly contributed.
Speaker Change: And then the second was the point I made earlier in the call around our EBIT <unk> incentives came in lower than expected in.
Speaker Change: In the first quarter, which we expect will happen later in the year, but that's where we kind of saw come through the second part of your question as to the Andrew.
Speaker Change: And remember also that 17% number actually has the impact of acquisitions in there. So you have to actually do a lifetime from Q4 to Q1.
Speaker Change: With and without acquisitions, then as it relates to your question about.
Speaker Change: Q1 versus Q2, the things to keep in mind over there are there is a ramp up of the lapping of various wins, we had last year, which again I spoke about the lapping of pricing, which is taking place and the reality is FX FX walls are really hard to predict right and I'll tell you what was in the early part of April you had decently high FX walls, we factored that into our thinking which we've.
Speaker Change: Shared with you and then they started to taper off now I don't know if theyre going to go up again will come down again, we've put our best estimates together and Thats, how we think about it.
Andre: It is time for one more question Andre.
Speaker Change: Thank you and we'll take that question from Paul Golding at Macquarie.
Paul Golding: Thanks, so much it seems based on the commentary that Theres been added focus on crypto and enabling crypto tools just wanted to ask how youre thinking about the economics of incorporating those crypto partnerships, if youre seeing acceleration there and how that may or may not be impacting your relationship with traditional issuers stable.
Speaker Change: Coin has become a.
Paul Golding: A bigger part of the story here in Alaska.
Speaker Change: A couple of quarters. Thanks, so much.
Speaker Change: Alright. So this it's a very interesting space and you heard us talk about digital assets and blockchain.
Speaker Change: <unk> based technology for years.
Speaker Change: We've been investing but it's also true that it hasnt been a tremendously big part of our of our business, we've seen the honour and on RASK on ramp and offering part of facilitating investments into crypto assets and selling those investments for some time now.
Speaker Change: That was a fast growing business, but the fundamental technology to put to work to optimize payments. For example is something that is still relatively nascent stable coins is also relatively nathan's why is that because there isn't yet sufficient regulatory clarity now in the United States. We know there is there is two bills that are being discussed around this space here in Europe.
Speaker Change: Lawmaking is.
Speaker Change: Is going on around this space. So we feel the ecosystem is ready and we have been engaging with partners in the financial institution side to your question to put out some pilots, particularly in the wholesale space.
Speaker Change: There is private sector initiatives on stable coins.
Speaker Change: And one thing Thats for sure is if you look at the role that we play today in the in the traditional card payment space as we.
Speaker Change: Establish safety and security standards.
Speaker Change: Provide inter.
Speaker Change: Interoperability do you think about a world of stable coins. So that you could start to see there is a natural role emerging yet again for somebody like us who can provide trusted interoperability solutions safety and security standards and a need for our services across.
Speaker Change: Identity questions <unk> you name it across the board. So it's a space that's still emerging at this point in time.
Speaker Change: We mentioned our multi token network how will the economic model look like at this point in time early to say it has to settle we have to see how it grows once we have the regulatory clarity personally I'm quite excited about it payment innovation is something thats clearly the U S government Hasnt focus and many others do as well and we're a trusted partner in that space.
Michael Miebach: At closing comments Michael.
Michael Miebach: Closing comment is I'm delighted that such an Eni together in one room in New York again, we haven't had that for a long time, so that's fantastic.
Michael Miebach: And of course, I do want to thank everybody at Mastercard for all the hard work that you do to produce a strong such a strong quarter.
Michael Miebach: Looking into the new year with optimism into the rest of the year with optimism moving to push on and speak to you in a quarter from now thank you very much.
Michael Miebach: As you very much thank you.
Michael Miebach: And this concludes today's conference call. Thank you for your participation you may now disconnect.
Michael Miebach: Okay.
Michael Miebach: Yes.
Okay.
Michael Miebach: Sure.
Michael Miebach: Okay.
Yes.
Michael Miebach: Thanks.
Michael Miebach: [music].