10-QPeriod: Q2 FY2013

Mastercard Inc Quarterly Report for Q2 Ended Jun 30, 2013

Filed July 31, 2013For Securities:MA

Summary

Mastercard Inc. (MA) reported a strong performance for the second quarter and first half of 2013, demonstrating significant revenue growth and improved profitability. Net revenue increased by 15% for the quarter and 12% for the first half, driven by robust growth in dollar volume and transaction processing. Net income rose by 21% for the quarter and 17% for the first half, leading to a notable increase in diluted earnings per share. The company continued its aggressive share repurchase program, returning substantial capital to shareholders while maintaining a strong balance sheet and ample liquidity. Operational efficiency improved, with operating expenses growing at a slower pace than revenue, resulting in an expanded operating margin. The company highlighted strong performance across its various revenue streams, including domestic assessments, cross-border volume fees, and transaction processing fees. While facing ongoing legal and regulatory scrutiny, particularly concerning interchange fees, Mastercard has managed these challenges, with significant litigation settlements being processed and provisions made. The company remains focused on its strategic drivers of growth: personal consumption expenditure growth, the shift from paper to electronic payments, and its share in electronic payments through innovation.

Financial Highlights

52 data points
Beta

Revenue

$2.10B

Net Income

$848.00M

40.5% Net Margin

EPS (Diluted)

$0.70

Total Assets

$12.02B

Cash & Equivalents

$2.35B

Free Cash Flow

$714.00M

Financial Statements
Beta
Revenue$2.10B
Operating Expenses$868.00M
Operating Income$1.23B
Interest Expense$5.00M
Net Income$848.00M
EPS (Basic)$0.70
EPS (Diluted)$0.70
Shares Outstanding (Basic)1.21B
Shares Outstanding (Diluted)1.22B

Key Highlights

  • 1Net revenue increased by 15% to $2.1 billion for Q2 2013 and by 12% to $4.0 billion for the first half of 2013, compared to the prior year periods.
  • 2Diluted earnings per share (EPS) grew by 25% to $6.96 for Q2 2013 and by 21% to $13.19 for the first half of 2013.
  • 3Operating income showed strong growth, up 26% for Q2 and 18% for the first half, indicating improved profitability and operational leverage.
  • 4Mastercard repurchased approximately $1.35 billion of its Class A common stock during the first half of 2013, demonstrating a commitment to returning capital to shareholders.
  • 5The company generated strong operating cash flow, with $1.6 billion for the first six months of 2013, an increase from $1.1 billion in the prior year.
  • 6Cross-border volume fees saw a significant increase of 20% for Q2 and 17% for the first half, highlighting the continued growth in international transactions.
  • 7The company maintained a strong liquidity position, with $5.1 billion in cash, cash equivalents, and available-for-sale investment securities at June 30, 2013.

Frequently Asked Questions

Mastercard's primary revenue drivers are fees charged for transaction processing and other payment-related services, largely based on the dollar volume of activity on cards carrying its brands and the number of transactions processed. For Q2 2013, Net Revenue increased 15% driven by growth in dollar volume and transaction processing. Cross-border volume fees increased by 20% and transaction processing fees by 9% for the quarter.

Mastercard has a strong commitment to returning capital to shareholders. During the first half of 2013, the company repurchased approximately $1.35 billion of its Class A common stock under its existing authorization programs. Additionally, the company declared and paid quarterly cash dividends, totaling $110 million for the first six months of 2013, and intends to continue paying them, subject to Board discretion.

Mastercard is involved in various legal and regulatory proceedings, particularly concerning interchange fees and antitrust matters. While these can be complex and uncertain, the company has made provisions and settlements for significant litigation, such as the U.S. merchant class litigation. The company actively monitors and engages with regulatory developments globally, especially concerning interchange fee caps proposed in regions like the European Union.

Mastercard operates globally and uses foreign currency forward contracts to manage risks associated with foreign currency exchange rates. While the company's functional currencies are primarily the USD, EUR, and BRL, and exchange rate fluctuations can impact reported revenues and expenses, the company actively works to mitigate these impacts through its risk management activities. For the first half of 2013, the net foreign currency impact on net revenue was minimal.