10-QPeriod: Q3 FY2018

Mastercard Inc Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 30, 2018For Securities:MA

Summary

Mastercard Inc. reported strong financial results for the third quarter and the first nine months of 2018, demonstrating robust growth across key metrics. Net revenue saw a significant increase, driven by higher transaction volumes, cross-border activity, and gross dollar volume, partially offset by increased rebates and incentives. The company also benefited from a lower effective income tax rate due to U.S. tax reform and discrete tax benefits related to legal provisions. Operationally, Mastercard continues to invest in strategic initiatives and expand its capabilities, reflected in increased operating expenses. Despite these investments, the company generated substantial net cash from operations. Mastercard also demonstrated a commitment to shareholder returns through significant share repurchases and dividend payments. While facing ongoing litigation and regulatory scrutiny, the company's financial position remains strong, supported by healthy liquidity and access to capital.

Financial Highlights

54 data points
Beta

Revenue

$3.90B

Net Income

$1.90B

48.7% Net Margin

EPS (Diluted)

$1.82

Total Assets

$23.34B

Cash & Equivalents

$6.87B

Free Cash Flow

$2.28B

Financial Statements
Beta
Revenue$3.90B
Operating Expenses$1.61B
Operating Income$2.29B
Interest Expense$48.00M
Net Income$1.90B
EPS (Basic)$1.83
EPS (Diluted)$1.82
Shares Outstanding (Basic)1.04B
Shares Outstanding (Diluted)1.04B

Key Highlights

  • 1Net revenue increased by 15% for the third quarter and 21% for the first nine months of 2018, compared to the prior year periods, with currency-neutral growth also showing strong performance.
  • 2Operating income grew by 18% in the third quarter and 19% in the nine-month period, reflecting efficient operational management.
  • 3Net income rose significantly by 33% for the third quarter and 34% for the nine-month period, driven by revenue growth and a lower effective tax rate.
  • 4Diluted earnings per share (EPS) showed strong year-over-year increases of 36% for the third quarter and 38% for the nine-month period.
  • 5The company generated substantial cash flow from operations, with $4.9 billion for the nine months ended September 30, 2018, an increase from the prior year.
  • 6Mastercard repurchased 21.8 million shares of common stock during the nine months ended September 30, 2018, totaling $4.0 billion, and paid dividends of $785 million.
  • 7The effective income tax rate decreased significantly to 16.1% for the third quarter and 17.2% for the nine-month period, primarily due to the U.S. Tax Reform and discrete tax benefits.

Frequently Asked Questions

Mastercard reported strong revenue growth. Net revenue increased by 15% to $3.9 billion for the three months ended September 30, 2018, and by 21% to $11.1 billion for the nine months ended September 30, 2018, compared to the respective periods in 2017. This growth was primarily driven by increased transaction volumes, cross-border activity, and gross dollar volume.

The adoption of the new revenue recognition standard had a positive impact on Mastercard's reported financials. For the three and nine months ended September 30, 2018, the new standard contributed approximately 3 and 4 percentage points to net revenue growth, respectively. It also impacted operating expenses, with a 2 and 3 percentage point increase in adjusted operating expenses for the respective periods.

Mastercard is involved in several significant legal and regulatory proceedings, most notably the ongoing U.S. merchant class litigation. In September 2018, parties entered into a class settlement agreement for the Damages Class, and Mastercard had accrued a liability of $912 million as of September 30, 2018, for this and related opt-out merchant cases. Other ongoing matters include interchange fee disputes in Europe and Canada, and ATM non-discrimination rule complaints.

Mastercard's effective income tax rate decreased substantially. For the three months ended September 30, 2018, it was 16.1% compared to 26.0% in the prior year, and for the nine months, it was 17.2% compared to 26.8%. Key drivers for this reduction include the lower U.S. corporate income tax rate enacted as part of the U.S. Tax Reform, a more favorable geographic mix of earnings, and discrete deferred tax benefits related to legal matters and share-based payments.