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pww.comMastercard Incorporated, Q1 2007 Earnings Call, May-02-2007 - NYSE:MA

NYSE:MA

Chris McWilton [Executives] 💬

Chris McWilton, the Chief Financial Officer of Mastercard Incorporated, provided a comprehensive overview of the company’s first quarter 2007 performance during the earnings call on May 2, 2007. Below is a detailed list of his statements:

Opening Remarks

  • Quarter Highlights:

    • Record net income of $215 million or $1.57 per share.
    • Revenue growth of 23.9%, driven by GDV growth, processed transactions growth, and cross-border pricing changes.
    • Operating margin improvements from 24.7% to 34.3%.

  • Business Developments:

    • Agreement with Lloyds TSB: Lloyds will issue a majority of their credit card portfolio through MasterCard, enhancing the existing relationship.
    • World Elite Program Launch: Partnered with Sotheby's and GE Money to target affluent customers with premium travel services and luxury rewards.
    • PayPass Initiative Progress: Over 14 million cards and devices accepted at over 51,000 merchant locations worldwide.

  • Litigation Update:

    • Trial date for Amex Discover litigation set for September 9, 2008.

Financial Details

  • Revenue Growth:

    • Net revenue of $915 million, a 23.9% increase.
    • Currency fluctuation contributed 2.5 percentage points to revenue increase.
    • Cross-border transaction restructuring contributed 5.25 percentage points.

  • GDV and Transaction Growth:

    • GDV grew 16.4% on a local currency basis to $509 billion.
    • Processed transactions increased 19.4% to $4.2 billion.

  • Revenue Yield:

    • Net revenue per $1,000 of GDV was 18.0 basis points.

  • Assessment Fees:

    • Net assessment increased $18 million or 7.4% to $262 million.
    • Gross assessments increased $49 million or 11.9%.
    • Certain assessment fees totaling $31 million were reclassified.

  • Operating Fees:

    • Net operating fees increased 31.9% to $158 million.
    • Growth driven by transaction growth and cross-border revenue increase.

  • Expenses:

    • Total operating expenses increased 8.2% to $601 million.
    • General and administrative expenses increased 14.6%.
    • Advertising and marketing expenses decreased 2.3%.

  • Cash Position:

    • Ended the quarter with $2.5 billion in cash, cash equivalents, and available-for-sale securities.
    • Stockholder's equity of $2.6 billion.

Guidance for Second Quarter 2007

  • Cross-Border Impact:
    • No further revenue growth impact from the cross-border transaction pricing restructuring.
  • Debit Portfolio Conversion Costs:
    • Incurred costs in Q2 2006, which will not recur or will be partially offset in Q2 2007.
  • Advertising and Marketing:
    • Modest growth expected for 2007.
    • A&M as a percentage of full-year spend will be slightly higher than traditional but lower than 2006.
  • Special Items:
    • $23 million expense for litigation settlements in Q2 2006.
    • $395 million non-cash charge for MasterCard Foundation contribution.
    • $7 million in interest income from IPO proceeds held for redemption.

Q&A Session

  • Marketing Strategy:
    • Shifted some marketing spending to Q2 to capitalize on competitors' reduced spending and internal distractions.
  • Bank of America Deal:
    • Agreed to file an 8-K regarding the deal, indicating a positive relationship and potential leveraging of sponsorship assets.
  • SEPA and Belgium Situation:
    • SEPA interchange introduction faced merchant pushback in Belgium, leading to individual negotiations with banks.
    • Remains optimistic about SEPA opportunities and the strength of the Maestro brand.
  • Revenue Momentum:
    • Global momentum driven by strong operational statistics, particularly in Latin America, Asia-Pacific, and the Middle East.
    • Increased international travel and strong growth in emerging markets.
  • Incentives and Rebates:
    • Focus on effective revenue pricing and basis points per dollar of GDV.
    • Maintained effective basis point yield despite rebate and incentive fluctuations.
  • Litigation and Regulatory Environment:
    • No updates on Amex and Discover cases or interchange cases.
    • EU stance on interchange softened, recognizing its value.
  • Brazil Initiative:
    • Processing and plastic processing in Brazil, showcasing opportunities for transitioning to a global processor.
  • Personnel Costs and G&A:
    • Continued fast buildup in personnel costs, particularly in SEPA markets, with expectations of stability in 2008.
  • Rebate Question:
    • Customers remain aggressive in negotiations, demanding value for every penny.
  • Pricing Initiatives:
    • No significant leverage on pricing, but ongoing efforts to ensure appropriate pricing for value provided.
  • Long-Term Operating Margins:
    • Focus on maximizing margins through revenue growth and cost control.
  • Market Activity:
    • No signs of broad-based economic distress, with strong revenue and volume growth.
  • Debit vs. Credit and International vs. U.S.:
    • Signature-based debit transactions carry similar pricing to credit transactions.
    • Pin-based debit is less favorable.
    • International volume drives the business due to cross-border processing and currency conversion revenues.
  • Market Share and Differentiation:
    • Focus on profitable share gains rather than market share.
    • Differentiation through customer-focused strategies, advisory capabilities, and unified global structure.

Closing Remarks

  • Optimism for 2007:

    • Strong fundamentals and optimism for the year.

    • Delighted with the quarter's performance.

Barbara Gasper [Executives] 💬

Barbara Gasper, the Head of Investor Relations for Mastercard Incorporated, made the following statements during the Q1 2007 Earnings Call:

  1. Opening Remarks:

    • Thanked the operator and welcomed everyone to the call.
    • Introduced Chris McWilton, Mastercard's Chief Financial Officer, and Tara Maguire, Corporate Controller.
    • Provided an overview of the agenda, including comments from Chris McWilton about the quarter, followed by a Q&A session.
    • Mentioned that the call would last up to one hour and that all participants were in listen-only mode.
    • Instructed participants on how to ask questions.
    • Noted that the earnings release and slide deck could be found on the investor relations section of the company's website and were attached to an 8-K filed with the SEC.
    • Announced that a replay of the call would be posted on the website for one week until May 9th.

  2. Forward-Looking Statements Disclaimer:

    • Reminded everyone that the call included forward-looking statements about Mastercard's future performance.
    • Stated that actual performance could differ materially from what was suggested in the comments.
    • Directed listeners to information about factors that could affect future performance, which was summarized at the end of the press release and in recent SEC filings.

  3. Introduction of Chris McWilton:

    • Passed the call over to Chris McWilton to discuss the financial results.

  4. Q&A Session Announcement:

    • Announced the beginning of the Q&A session.
    • Requested that participants limit themselves to a single question with one follow-up and then re-queue if they had additional questions.

  5. Closing Remarks:

    • Invited anyone with additional questions to contact Investor Relations or Corporate Communications.

    • Thanked everyone and wished them a good day.

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