MasterCard : 2020 Q2 Earnings Release

Earnings Release

Mastercard Incorporated Reports Second-Quarter 2020 Financial Results

• Second-quarternet income of $1.4 billion, or diluted earnings per share (EPS) of $1.41
• Second-quarteradjusted net income of $1.4 billion, or adjusted diluted EPS of $1.36
• Second-quarternet revenue of $3.3 billion, a decrease of 19%, or 17% on a currency-neutral basis
• Second-quartergross dollar volume down 10% and purchase volume down 9%

Purchase, NY - July 30, 2020 - Mastercard Incorporated (NYSE: MA) today announced financial results for the second quarter of 2020.

"Our platform uniquely positions us to support the shift to digital across consumer and business payments that has been accelerated by the COVID-19 pandemic, including an increase in consumers' preference for contactless payments," said AjayBanga, Mastercard CEO. "Further, our broad range of market-leading services -from insights and analytics to cybersecurity tools-means we are able to support our partners' evolving needs in a rapidly changing world. We continue to execute against our strategy and are excited to enhance and grow our open banking reach and capabilities, including through the planned acquisition of Finicity."

Quarterly Results

Second-Quarter Operating Results					Increase / (Decrease)
$ in billions, except per share data	Q2 2020		Q2 2019		Reported		Currency-
		GAAP		neutral
Net revenue	$3.3	$4.1		(19)%	(17)%
Operating expenses	$1.6	$1.7		(5)%	(4)%
Operating income	$1.7	$2.4		(29)%	(26)%
Operating margin	51.2%	58.3%		(7.1) ppt		(6.7) ppt
Effective income tax rate	16.0%	18.7%		(2.7) ppt		(2.4) ppt
Net income	$1.4	$2.0		(31)%	(29)%
Diluted EPS	$1.41	$2.00		(30)%	(27)%
Key Second-QuarterNon-GAAP Results 1					Increase / (Decrease)
$ in billions, except per share data	Q2 2020		Q2 2019		As adjusted		Currency-
			neutral
Net revenue	$3.3	$4.1		(19)%	(17)%
Adjusted operating expenses	$1.6	$1.7		(6)%	(5)%
Adjusted operating margin	51.8%	58.3%		(6.4) ppt		(6.0) ppt
Adj. effective income tax rate	16.3%	18.5%		(2.2) ppt		(1.9) ppt
Adjusted net income	$1.4	$1.9		(29)%	(27)%
Adjusted diluted EPS	$1.36	$1.89		(28)%	(26)%

1. The Key Second-QuarterNon-GAAP Results exclude the impact of gains and losses on the company's equity investments, special items as described on page 10 ("Second-Quarter Special Items") and/or currency. See page 10 for the company's non-GAAP adjustments and the reconciliation to GAAP reported amounts.

Q2 2020 Key Business Drivers

(YoY growth)

Gross dollar volume	Cross-border volume	Switched
(local currency basis)	(local currency basis)	transactions
down 10%	down 45%	down 10%

The following additional details are provided to aid in understanding Mastercard's second-quarter 2020 results, versus the year-ago period:

• Net revenue decreased 19%, or 17% on a currency-neutral basis, reflecting the impacts of COVID-19 and includes a 1% benefit from acquisitions. The decline was driven by the impact of the following factors:

A 10% decrease in gross dollar volume, on a local currency basis, to $1.4 trillion. A decrease in cross-border volume of 45% on a local currency basis.

A decrease in switched transactions of 10%. These decreases were partially offset by:

An increase in other revenues of 12%, or 14% on a currency-neutral basis. This includes a 4 percentage point increase due to acquisitions. The remaining 10% growth was driven primarily by the company's Cyber & Intelligence and Data & Services solutions.

A decrease in rebates and incentives of 10%, or 7% on a currency-neutral basis, primarily due to decreased volumes offset by new and renewed deals.

• Total operating expenses decreased 5%. Excluding the impact of Second-Quarter Special Items, adjusted operating expenses decreased 6%, or 5% on a currency-neutral basis, and includes 4 percentage points of growth from acquisitions. Excluding acquisitions, the 9% decline was primarily related to lower advertising and marketing, travel and professional fee spend, some of which the company expects to incur in the third quarter of 2020.
• Other income (expense) was unfavorable $139 million versus the year-ago period, primarily due to lower net unrealized gains recorded on equity investments in the current period versus the year-ago period. Excluding this activity, adjusted other income (expense) was unfavorable by $72 million versus the year- ago period, primarily due to higher interest expense related to recent debt issuances.
• The effective tax rate for the second quarter of 2020 was 16.0%, versus 18.7% for the comparable period in 2019. The adjusted effective tax rate for the second quarter of 2020 was 16.3%, versus 18.5% for the comparable period in 2019, primarily due to a more favorable geographic mix of earnings.
• As of June 30, 2020, the company's customers had issued 2.6 billion Mastercard and Maestro-branded cards.

Return of Capital to Shareholders

During the second quarter of 2020, Mastercard paid $401 million in dividends. The company resumed its share repurchase program at the end of the second quarter. Quarter-to-date through July 27, the company repurchased approximately 3.3 million shares at a cost of $1.0 billion, which leaves $5.9 billion remaining under the current repurchase program authorization.

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Year-to-Date 2020 Results

Year-to-Date 2020 Operating Results					Increase / (decrease)
$ in billions, except per share data	2020		2019		Reported		Currency-
		GAAP		neutral
Net revenue	$7.3	$8.0		(8)%	(6)%
Operating expenses	$3.4	$3.4		1%	2%
Operating income	$3.9	$4.6		(15)%	(13)%
Operating margin	53.3%	57.6%		(4.3) ppt		(3.9) ppt
Effective income tax rate	15.4%	17.2%		(1.8) ppt		(1.6) ppt
Net income	$3.1	$3.9		(20)%	(18)%
Diluted EPS	$3.08	$3.80		(19)%	(17)%
Key Year-to-Date 2020 Non-GAAP Results 1					Increase / (decrease)
$ in billions, except per share data	2020		2019		As adjusted		Currency-
			neutral
Net revenue	$7.3	$8.0		(8)%	(6)%
Adjusted operating expenses	$3.4	$3.4		-%	2%
Adjusted operating margin	53.7%	57.6%		(3.9) ppt		(3.5) ppt
Adj. effective income tax rate	15.5%	17.7%		(2.2) ppt		(2.0) ppt
Adjusted net income	$3.2	$3.8		(15)%	(12)%
Adjusted diluted EPS	$3.19	$3.66		(13)%	(11)%

1. The Key Year-to-Date 2020 Non-GAAP Results exclude the impact of gains and losses on the company's equity investments, special items as described on page 11 ("Year-to-Date Special Items") and/or currency. See page 11 for the company's non-GAAP adjustments and the reconciliation to GAAP reported amounts.

Year-to-Date 2020 Key Business Drivers

(YoY growth)

Gross dollar volume	Cross-border volume2	Switched
(local currency basis)	(local currency basis)	Transactions2
down 1%	down 24%	up 1%

2. Growth rates normalized to eliminate the effects of differing switching and carryover days between periods. Carryover days are those where transactions and volumes from days where the company does not clear and settle are processed.

The following additional details are provided to aid in understanding Mastercard's Year-to-Date 2020 results, versus the year-ago period:

• Net revenue decreased 8%, or 6% on a currency-neutral basis, reflecting the impacts of COVID-19 and includes a 1% benefit from acquisitions. The decline was driven by the impact of the following factors:

A 1% decrease in gross dollar volume, on a local currency basis, to $2.9 trillion. A decrease in cross-border volume of 24% on a local currency basis.

An increase in rebates and incentives of 6%, or 9% on a currency-neutral basis, primarily due to new and renewed agreements and partially offset by decreased volumes.

These decreases to net revenue were partially offset by:

an increase in other revenues of 19%, or 20% on a currency-neutral basis. This includes a 5 percentage point increase due to acquisitions. The remaining growth was driven primarily by the company's Cyber & Intelligence and Data & Services solutions.

an increase in switched transactions of 1%.

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• Total operating expenses increased 1%. Excluding the impact of Year-to-Date Special Items, adjusted operating expenses were flat, or increased 2% on a currency-neutral basis, primarily due to 5 percentage points of growth from acquisitions, partially offset by lower advertising and marketing, travel and professional fee related spend.
• Other income (expense) was unfavorable $353 million versus the year-ago period, primarily due to net unrealized losses recorded on equity investments in the current period verses gains in the year-ago period. Excluding this activity, adjusted other income (expense) was unfavorable by $106 million versus the year- ago period, primarily due to higher interest expense related to recent debt issuances.
• The effective tax rate for the first half of 2020 was 15.4%, versus 17.2% for the comparable period in 2019. The adjusted effective tax rate for the first half of 2020 was 15.5% , versus 17.7% for the comparable period in 2019, primarily due to a more favorable geographic mix of earnings.

Second-Quarter 2020 Financial Results Conference Call Details

At 9:00 a.m. ET today, the company will host a conference call to discuss its second-quarter 2020 results.

The dial-in information for this call is 833-714-0894 (within the U.S.) and 778-560-2664 (outside the U.S.). A replay of the call will be available for 30 days and can be accessed by dialing 800-585-8367 (within the U.S.) and 416-621-4642 (outside the U.S.), using passcode 1556868.

A live audio webcast of this call, along with presentation slides, can also be accessed through the Investor Relations section of the company's website at investor.mastercard.com.

Forward-Looking Statements

This press release contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this press release, the words "believe", "expect", "could", "may", "would", "will", "trend" and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to Mastercard's future prospects, developments and business strategies. We cautionyou to not place undue reliance on these forward- looking statements, as they speak only as of the date they are made. Except for the company's ongoing obligations under the U.S. federal securities laws, the company does not intend to update or otherwise revise the forward-looking information to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions, changes in general economic or industry conditions or other circumstances arising and/or existing since the preparation of this press release or to reflect the occurrence of any unanticipated events.

Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:

• regulation directly related to the payments industry (including regulatory, legislative and litigation activity with respect to interchange rates and surcharging)
• the impact of preferential or protective government actions
• regulation of privacy, data, security and the digital economy
• regulation that directly or indirectly applies to us based on our participation in the global payments industry (including anti-money laundering, counter financing of terrorism, economic sanctions and anti-corruption;account-based payment systems and issuer practice regulation)

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