10-QPeriod: Q1 FY2018

Mastercard Inc Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 2, 2018For Securities:MA

Summary

Mastercard Inc. reported robust financial performance for the first quarter of 2018, demonstrating significant year-over-year growth across key metrics. Net revenue surged by 31% to $3.58 billion, driven by a strong increase in transaction volumes, cross-border activity, and gross dollar volume, partially offset by higher rebates and incentives. The company benefited from the adoption of a new revenue standard, which contributed 4 percentage points to revenue growth, and from recent acquisitions. Operating expenses also saw a substantial increase of 43%, largely due to investments in strategic initiatives, acquisitions, and a notable contribution to the Mastercard Center for Inclusive Growth. However, adjusted operating expenses, excluding special items, rose by 35% on a currency-neutral basis, reflecting ongoing investments. Net income grew by a strong 38% to $1.49 billion, or $1.41 per diluted share, showing continued profitability despite increased operational investments. The company also benefited from a lower effective income tax rate of 17.3%, primarily due to the U.S. Tax Reform legislation enacted in late 2017.

Financial Highlights

51 data points
Beta

Revenue

$3.58B

Net Income

$1.49B

41.7% Net Margin

EPS (Diluted)

$1.41

Total Assets

$22.94B

Cash & Equivalents

$6.89B

Free Cash Flow

$953.00M

Financial Statements
Beta
Revenue$3.58B
Operating Expenses$1.75B
Operating Income$1.82B
Interest Expense$43.00M
Net Income$1.49B
EPS (Basic)$1.42
EPS (Diluted)$1.41
Shares Outstanding (Basic)1.05B
Shares Outstanding (Diluted)1.06B

Key Highlights

  • 1Net revenue increased by 31% to $3.58 billion in Q1 2018, driven by strong transaction and cross-border volume growth.
  • 2Net income grew by 38% to $1.49 billion, with diluted EPS rising to $1.41.
  • 3Operating expenses increased by 43% to $1.76 billion, influenced by investments, acquisitions, and litigation provisions.
  • 4Adjusted operating expenses (excluding special items) increased by 35% on a currency-neutral basis.
  • 5The effective income tax rate decreased significantly to 17.3% from 26.9% in the prior year, primarily due to U.S. Tax Reform.
  • 6Mastercard repurchased approximately 7.9 million shares of its common stock for $1.35 billion during the quarter.
  • 7The company generated $1.035 billion in net cash from operating activities, a significant increase from the prior year.

Frequently Asked Questions

Revenue growth was primarily driven by a 17% increase in switched transaction volume (adjusted for Venezuela deconsolidation), a 21% increase in cross-border volume on a local currency basis, and a 14% increase in gross dollar volume on a local currency basis. The adoption of a new revenue standard also contributed significantly to revenue growth.

Operating expenses increased due to several factors including the adoption of the new revenue guidance, acquisitions, an $100 million contribution to the Mastercard Center for Inclusive Growth, and ongoing investments in strategic initiatives. Additionally, provisions for litigation settlements increased substantially compared to the prior year.

The U.S. Tax Reform, which reduced the U.S. corporate income tax rate from 35% to 21%, led to a significant decrease in Mastercard's effective income tax rate to 17.3% from 26.9% in the prior year. This tax legislation also involved provisional amounts related to the Transition Tax and remeasurement of deferred tax assets, which were recorded during the period.

Mastercard continued its commitment to returning capital to shareholders. During the quarter, it repurchased approximately 7.9 million shares for $1.35 billion and paid dividends totaling $263 million. The company intends to continue paying quarterly cash dividends, subject to board discretion and financial conditions.