10-QPeriod: Q2 FY2014

Mastercard Inc Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 31, 2014For Securities:MA

Summary

Mastercard Inc. reported strong financial performance for the second quarter and the first six months of 2014. Net revenue saw a significant increase of 13% and 14% respectively, year-over-year, driven by growth in domestic assessments, cross-border volume fees, and transaction processing fees. This top-line growth translated into a robust net income increase of 10% for the quarter and 12% for the six-month period, demonstrating effective operational leverage. The company's balance sheet reflects a solid financial position, although cash and cash equivalents decreased compared to the prior year-end, partly due to substantial share repurchases. Operating expenses, while increasing, were managed effectively, with total operating expenses as a percentage of net revenue remaining stable. Mastercard also continued its commitment to returning capital to shareholders through dividends and significant share repurchases, underscoring a positive outlook and confidence in its business model. The company also addressed ongoing legal matters, particularly the U.S. merchant class litigation, with a significant reserve in place.

Financial Highlights

53 data points
Beta

Revenue

$2.37B

Net Income

$931.00M

39.3% Net Margin

EPS (Diluted)

$0.80

Total Assets

$14.38B

Cash & Equivalents

$2.88B

Free Cash Flow

$715.00M

Financial Statements
Beta
Revenue$2.37B
Operating Expenses$985.00M
Operating Income$1.38B
Interest Expense$15.00M
Net Income$931.00M
EPS (Basic)$0.80
EPS (Diluted)$0.80
Shares Outstanding (Basic)1.17B
Shares Outstanding (Diluted)1.17B

Key Highlights

  • 1Net revenue increased by 13% for the three months ended June 30, 2014, and 14% for the six months ended June 30, 2014, compared to the respective prior-year periods.
  • 2Net income grew by 10% to $931 million for the three months ended June 30, 2014, and by 12% to $1,801 million for the six months ended June 30, 2014.
  • 3Diluted earnings per share increased by 14% to $0.80 for the quarter and 16% to $1.53 for the six-month period.
  • 4Mastercard repurchased approximately $2.8 billion of its Class A common stock during the first six months of 2014.
  • 5The company issued $1.5 billion in new debt (2.000% Notes due 2019 and 3.375% Notes due 2024) in March 2014.
  • 6General and administrative expenses increased by 20% for the quarter and 15% for the six months, primarily due to higher personnel expenses.
  • 7The company maintained a substantial accrued liability of $799 million for U.S. merchant class litigation and anticipated opt-out merchant cases as of June 30, 2014.

Frequently Asked Questions

Mastercard's revenue growth in the second quarter of 2014 was primarily driven by increases in domestic assessments, cross-border volume fees, and transaction processing fees, reflecting strong underlying transaction volumes and broader adoption of electronic payments.

Mastercard significantly repurchased its Class A common stock during the first six months of 2014, spending approximately $2.8 billion. This activity reduced the total equity on the balance sheet and decreased the number of outstanding shares, contributing to the increase in diluted earnings per share. It also reduced cash and cash equivalents.

Mastercard has accrued a liability of $799 million as of June 30, 2014, to cover its estimated probable losses related to the U.S. merchant class litigation and anticipated opt-out merchant cases. While the settlement received final approval in December 2013, it is currently under appeal. The company holds $540 million in a restricted cash fund related to this litigation.

Yes, in March 2014, Mastercard issued $1.5 billion in aggregate principal amount of notes: $500 million in 2.000% Notes due 2019 and $1 billion in 3.375% Notes due 2024. The net proceeds were used for general corporate purposes.