MASTERCARD, INC. Item 2. Management's discussion and analysis of financial condition and results of operations
The following supplements management's discussion and analysis ofMastercard Incorporated for the year endedDecember 31, 2021 as contained in the Company's Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission onFebruary 11, 2022 . It also should be read in conjunction with the consolidated financial statements and notes ofMastercard Incorporated and its consolidated subsidiaries, includingMastercard International Incorporated (together, "Mastercard" or the "Company"), included elsewhere in this Report. Percentage changes provided throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations" were calculated on amounts rounded to the nearest thousand.
Key Developments
Beginning inFebruary 2022 , in response to the Russian invasion ofUkraine ,the United States and other governments imposed sanctions and other restrictive measures on certain Russian-related entities and individuals and, inMarch 2022 , we suspended our business operations in Russia1. We have taken steps necessary to ensure compliance with all applicable regulatory restrictions with sanctioned entities and individuals and have suspended our business operations with non-sanctioned customers inRussia . Throughout this process, our priority has been the safety and well-being of our employees and their families. These actions have impacted our 2022 performance to date and are expected to continue to impact our full year 2022 performance. As a point of reference, for the year endedDecember 31, 2021 , approximately 4% of our net revenues were derived from business conducted within, into and out ofRussia . Additional financial implications directly related to these actions include, but are not limited to, incremental employee-related costs, reserves on uncollectible balances with certain customers and impacts to rebates and incentives as a result of revised estimates of customer performance through the date of the suspension of our business operations. We continue to monitor the effects of the Russian invasion ofUkraine and the related impacts to regional and global economies. The full extent to which this matter affects our business, results of operations and financial condition will depend on future developments, including the duration of the invasion and the impacts on regional and global economies, which are uncertain, and cannot be predicted at this time. 1 As a result of the suspension of our business operations, which included the suspension of our network services, cards issued by Russian banks are no longer supported by theMastercard network regardless of where the cards are used, inside or outside ofRussia . In addition, anyMastercard issued outside ofRussia will not work at merchants or ATMs located inRussia .
Financial Results Overview
The following table provides a summary of our key GAAP operating results, as
reported:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Increase/(Decrease) 2022 2021 Increase/(Decrease)
($ in millions, except per share data)
Net revenue $ 5,497 $ 4,528 21% $ 10,664 $ 8,683 23%
Operating expenses $ 2,479 $ 2,187 13% $ 4,696 $ 4,145 13%
Operating income $ 3,018 $ 2,341 29% $ 5,968 $ 4,538 32%
Operating margin 54.9 % 51.7 % 3.2 ppt 56.0 % 52.3 % 3.7 ppt
Income tax expense $ 523 $ 412 27% $ 665 $ 774 (14)%
Effective income tax rate 18.7 % 16.6 % 2.1 ppt 11.9 % 16.6 % (4.6) ppt
Net income $ 2,275 $ 2,066 10% $ 4,906 $ 3,894 26%
Diluted earnings per share $ 2.34 $ 2.08 13% $ 5.02 $ 3.91 28%
Diluted weighted-average shares
outstanding 974 994 (2)% 977 996 (2)%
30 MASTERCARD JUNE 30, 2022 FORM 10-Q
--------------------------------------------------------------------------------PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table provides a summary of our key non-GAAP operating results1,
adjusted to exclude the impact of gains and losses on our equity investments,
Special Items (which represent litigation judgments and settlements and certain
one-time items) and the related tax impacts on our non-GAAP adjustments. In
addition, we have presented growth rates, adjusted for the impact of currency:
Three Months Ended June 30 , Increase/(Decrease) Six Months Ended June 30 , Increase/(Decrease)
2022 2021 As adjusted Currency-neutral 2022 2021 As adjusted Currency-neutral
($ in millions, except per share data)
Adjusted net revenue $ 5,491 $ 4,528 21% 27% $ 10,627 $ 8,683 22% 27%
Adjusted operating expenses $ 2,313 $ 2,121 9% 12% $ 4,496 $ 4,079 10% 13%
Adjusted operating margin 57.9 % 53.2 % 4.7 ppt 5.4 ppt 57.7 % 53.0 % 4.7 ppt 5.3 ppt
Adjusted effective income tax
rate 18.8 % 15.9 % 2.9 ppt 3.1 ppt 12.3 % 16.4 % (4.1) ppt (4.0) ppt
Adjusted net income $ 2,497 $ 1,937 29% 37% $ 5,199 $ 3,678 41% 49%
Adjusted diluted earnings per
share $ 2.56 $ 1.95 31% 40% $ 5.32 $ 3.69 44% 52%
Note: Table may not sum due to rounding.
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Key highlights for the three and six months endedJune 30, 2022 , during which we suspended our business operations inRussia , versus the comparable periods in 2021: Net revenue Adjusted net revenue Three Months EndedJune 30, 2022 Adjusted net
revenue increased 27% on a currency-neutral
GAAP Non-GAAP basis, whichincludes 1 percentage point of growth from
(currency-neutral) acquisitions. Primary drivers of the increase were as
up 21% up 27% follows:
- Gross dollar volume growth of 14% on a local currency
basis
- Cross-border volume growth of 58% on a local currency
basis
- Switched transactions growth of 12%
- Other revenuesincreased 18% or 23% on a currency-neutral
basis, which
includes 3 percentage points of growth due to acquisitions.
The remaining growth
was driven primarily by our Cyber & Intelligence and Data &
Services solutions.
These increases were partially offset by:
- Rebates andincentives (contra-revenue) increased 19%, or
23% on a currency-
neutral basis, primarily due to increased volumes and
transactions and new
and renewed deals.
Six Months Ended June 30, 2022 Adjusted netrevenue increased 27% on a currency-neutral
basis, which includes 2 percentage points of growth from
GAAP Non-GAAP acquisitions.Primary drivers of the increase were as
(currency-neutral) follows:
up 23% up 27%
- Gross dollar volume growth of 15% on a local currency
basis
- Cross-border volume growth of 56% on a local currency
basis
- Switched transactions growth of 16%
- Other revenuesincreased 18%, or 22% on a currency-neutral
basis, which
includes 5 percentage points of growth due to acquisitions.
The remaining growth
was driven primarily by our Cyber & Intelligence and Data &
Services solutions.
These increases were partially offset by:
- Rebates andincentives (contra-revenue) increased 22%, or
25% on a currency-
neutral basis, primarily due to increased volumes and
transactions and new and
renewed deals, which includes a 1 percentage point reduction
from Special Items.
MASTERCARD JUNE 30, 2022 FORM 10-Q 31
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PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Adjusted
Operating expenses operating expenses
Three Months Ended June 30, 2022 Adjustedoperating expenses increased 12% on a
currency-neutral basis, which includes 5 percentage points of
GAAP Non-GAAP growth due to acquisitions. The remaining increase was
(currency-neutral) primarily due to higher personnel costs and unfavorable
up 13% up 12% foreign exchange activity.
Six Months Ended June 30, 2022 Adjusted operating expenses increased 13% on a
currency-neutral basis, which includes 5 percentage points of
growth due to acquisitions. The remaining increase was
GAAP Non-GAAP primarily due to higher personnel costs, increased spending
(currency-neutral) on advertising and marketing and unfavorable foreign exchange
activity.
up 13% up 13%
Effective income Adjusted effective
tax rate income tax rate
Three Months Ended June 30, 2022 The adjustedeffective income tax rate of 18.8% was higher
than prior year due to a discrete tax benefit in 2021
GAAP Non-GAAP related to the remeasurement of the Company's net deferred
(currency-neutral) tax asset in
the
18.7% 18.8% 2021.
The adjusted effective income tax rate of 12.3% was lower
Six Months Ended June 30, 2022 than prior year due to a discrete tax benefit related to
final U.S. tax regulations published in the current year,
partially offset by a discrete tax benefit in the prior
Non-GAAP year related to the remeasurement of the Company's net
GAAP (currency-neutral) deferred tax
asset in the
change in 2021.
The
valuation
allowance release of
the U.S. foreign tax credit carryforward deferred tax
asset.
11.9% 12.3%
Other financial highlights for the six months ended
•We generated net cash flows from operations of
•We repurchased 13.7 million shares of our common stock for
•We completed a euro-denominated debt offering for an aggregate principal amount
of
Non-GAAP Financial Information
Non-GAAP financial information is defined as a numerical measure of a company's performance that excludes or includes amounts so as to be different than the most comparable measure calculated and presented in accordance with accounting principles generally accepted inthe United States ("GAAP"). Our non-GAAP financial measures exclude the impact of gains and losses on our equity investments which includes mark-to-market fair value adjustments, impairments and gains and losses upon disposition and the related tax impacts. Our non-GAAP financial measures also exclude the impact of special items, where applicable, which represent litigation judgments and settlements and certain one-time items, as well as the related tax impacts ("Special Items"). Our non-GAAP financial measures for the comparable periods exclude the impact of the following:
Gains and Losses on Equity Investments
•In the three and six months endedJune 30, 2022 , we recorded net losses of$117 million ($113 million after tax, or$0.12 per diluted share) and$193 million ($181 million after tax, or$0.18 per diluted share), respectively, primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities. •In the three and six months endedJune 30, 2021 , we recorded net gains of$243 million ($182 million after tax, or$0.18 per diluted share) and$337 million ($269 million after tax, or$0.27 per diluted share), respectively, primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities.
Special Items
Litigation provisions
•In the second quarter of 2022, we recorded charges of
32MASTERCARD JUNE 30, 2022 FORM 10-Q --------------------------------------------------------------------------------
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
•In the second quarter of 2021, we recorded charges of$67 million ($52 million after tax, or$0.05 per diluted share) related to litigation settlements and estimated attorneys' fees withU.K. merchants.
•In the three and six months endedJune 30, 2022 , we recorded net charges of$26 million ($20 million after tax, or$0.02 per diluted share) and$30 million ($24 million after tax, or$0.02 per diluted share), respectively, directly related to imposed sanctions and the suspension of our business operations. The net charges are comprised of general and administrative expenses of$33 million and$67 million , respectively, primarily related to incremental employee-related costs and reserves on uncollectible balances with certain sanctioned customers. These charges are offset by net benefits of$6 million and$37 million , respectively, in rebates and incentives (contra-revenue) primarily related to a reduction in liabilities as a result of lower estimates of customer performance for certain customer business agreements due to the suspension of our business operations inRussia . See Note 6 (Investments) and Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1 and "Key Developments" above for further discussion related to certain of our non-GAAP financial measures. We excluded these items because management evaluates the underlying operations and performance of the Company separately from these recurring and nonrecurring items. We believe that the non-GAAP financial measures presented facilitate an understanding of our operating performance and provide a meaningful comparison of our results between periods. We use non-GAAP financial measures to, among other things, evaluate our ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of performance-based compensation.
Currency-neutral Growth Rates
We present growth rates adjusted for the impact of currency which is a non-GAAP financial measure. Currency-neutral growth rates are calculated by remeasuring the prior period's results using the current period's exchange rates for both the translational and transactional impacts on operating results. The impact of currency translation represents the effect of translating operating results where the functional currency is different than ourU.S. dollar reporting currency. The impact of the transactional currency represents the effect of converting revenue and expenses occurring in a currency other than the functional currency of the entity. The impact of the related realized gains and losses resulting from our foreign exchange derivative contracts designated as cash flow hedging instruments is recognized in the respective financial statement line item on the statement of operations when the underlying forecasted transactions impact earnings. We believe the presentation of currency-neutral growth rates provides relevant information to facilitate an understanding of our operating results. The translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as cash flow hedging instruments ("Currency impact") has been excluded from our currency-neutral growth rates and has been identified in our "Drivers of Change" tables. See "Foreign Currency - Currency Impact" for further information on our currency impacts and "Financial Results - Revenue and Operating Expenses" for our "Drivers of Change" tables. Net revenue, operating expenses, operating margin, other income (expense), effective income tax rate, net income and diluted earnings per share adjusted for the impact of gains and losses on our equity investments, Special Items and/or the impact of currency, are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with GAAP. MASTERCARD JUNE 30, 2022 FORM 10-Q 33 -------------------------------------------------------------------------------- PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following tables reconcile our reported financial measures calculated in accordance with GAAP to the respective adjusted non-GAAP financial measures: Three Months Ended June 30, 2022 Diluted Operating Other income Effective income earnings per Net revenue expenses Operating margin (expense) tax rate Net income share ($ in millions, except per share data) Reported - GAAP$ 5,497 $ 2,479 54.9 %$ (220) 18.7 %$ 2,275 $ 2.34 (Gains) losses on equity investments ** ** ** 117 (0.6) % 113 0.12 Litigation provisions ** (133) 2.4 % ** 0.7 % 89 0.09 Russia-related impacts (6) (33) 0.5 % ** - % 20 0.02 Adjusted - Non-GAAP$ 5,491 $ 2,313 57.9 %$ (104) 18.8 %$ 2,497 $ 2.56 Six Months Ended June 30, 2022 Diluted Operating Other income Effective income earnings per Net revenue expenses Operating margin (expense) tax rate Net income share ($ in millions, except per share data) Reported - GAAP$ 10,664 $ 4,696 56.0 %$ (397) 11.9 %$ 4,906 $ 5.02 (Gains) losses on equity investments ** ** ** 193 (0.2) % 181 0.18 Litigation provisions ** (133) 1.2 % ** 0.5 % 89 0.09 Russia-related impacts (37) (67) 0.5 % ** 0.1 % 24 0.02 Adjusted - Non-GAAP$ 10,627 $ 4,496 57.7 %$ (205) 12.3 %$ 5,199 $ 5.32 Three Months Ended June 30, 2021 Diluted Operating Other income Effective income earnings per Net revenue expenses Operating margin (expense) tax rate Net income share ($ in millions, except per share data) Reported - GAAP$ 4,528 $ 2,187 51.7 %$ 137 16.6 %$ 2,066 $ 2.08 (Gains) losses on equity investments ** ** ** (243) (0.9) % (182) (0.18) Litigation provisions **$ (67) 1.5 % ** 0.2 % 52 0.05 Adjusted - Non-GAAP$ 4,528 $ 2,121 53.2 %$ (106) 15.9 %$ 1,937 $ 1.95 Six Months Ended June 30, 2021 Diluted Operating Other income Effective income earnings per Net revenue expenses Operating margin (expense) tax rate Net income share ($ in millions, except per share data) Reported - GAAP$ 8,683 $ 4,145 52.3 %$ 130 16.6 %$ 3,894 $ 3.91 (Gains) losses on equity investments ** ** ** (337) (0.3) % (269) (0.27) Litigation provisions ** (67) 0.8 % ** 0.1 % 52 0.05 Adjusted - Non-GAAP$ 8,683 $ 4,079 53.0 %$ (207) 16.4 %$ 3,678 $ 3.69
Note: Tables may not sum due to rounding.
** Not applicable
34MASTERCARD JUNE 30, 2022 FORM 10-Q --------------------------------------------------------------------------------
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table represents the reconciliation of our growth rates reported under GAAP to our non-GAAP growth rates:
Three Months Ended June 30, 2022 as compared to the Three Months Ended June 30, 2021
Increase/(Decrease)
Operating Effective income Diluted earnings
Net revenue expenses Operating margin tax rate Net income per share
Reported - GAAP 21% 13% 3.2 ppt 2.1 ppt 10% 13%
(Gains) losses on equity
investments ** ** ** 0.3 ppt 17% 17%
Litigation provisions ** (3)% 1.0 ppt 0.5 ppt 1% 1%
Russia-related impacts -% (2)% 0.5 ppt - ppt 1% 1%
Adjusted - Non-GAAP 21% 9% 4.7 ppt 2.9 ppt 29% 31%
Currency impact 1 6% 3% 0.8 ppt 0.1 ppt 8% 9%
Adjusted - Non-GAAP -
currency-neutral 27% 12% 5.4 ppt 3.1 ppt 37% 40%
Six Months Ended June 30, 2022 as compared to the Six Months Ended June 30, 2021
Increase/(Decrease)
Operating Effective income Diluted earnings
Net revenue expenses Operating margin tax rate Net income per share
Reported - GAAP 23% 13% 3.7 ppt (4.6) ppt 26% 28%
(Gains) losses on equity
investments ** ** ** 0.1 ppt 14% 15%
Litigation provisions ** (1)% 0.5 ppt 0.4 ppt -% 1%
Russia-related impacts -% (2)% 0.5 ppt 0.1 ppt 1% -%
Adjusted - Non-GAAP 22% 10% 4.7 ppt (4.1) ppt 41% 44%
Currency impact 1 5% 2% 0.7 ppt 0.1 ppt 7% 8%
Adjusted - Non-GAAP -
currency-neutral 27% 13% 5.3 ppt (4.0) ppt 49% 52%
Note: Table may not sum due to rounding.
** Not applicable 1 See "Non-GAAP Financial Information" for further information on Currency impact.
Key Metrics
In addition to the financial measures described above in "Financial Results
Overview", we review the following metrics to evaluate and identify trends in
our business, measure our performance, prepare financial projections and make
strategic decisions. We believe that the key metrics presented facilitate an
understanding of our operating and financial performance and provide a
meaningful comparison of our results between periods.
Gross Dollar Volume ("GDV") 1 measures dollar volume of activity on cards
carrying our brands during the period, on a local currency basis and U.S.
dollar-converted basis. GDV represents purchase volume plus cash volume and
includes the impact of balance transfers and convenience checks; "purchase
volume" means the aggregate dollar amount of purchases made with
Mastercard -branded cards for the relevant period; and "cash volume" means the
aggregate dollar amount of cash disbursements and includes the impact of balance
transfers and convenience checks obtained with Mastercard -branded cards for the
relevant period. Information denominated in U.S. dollars relating to GDV is
calculated by applying an established U.S. dollar/local currency exchange rate
for each local currency in which our volumes are reported. These exchange rates
are calculated on a quarterly basis using the average exchange rate for each
quarter. We report period-over-period rates of change in purchase volume and
cash volume on the basis of local currency information, in order to eliminate
the impact of changes in the value of currencies against the U.S. dollar in
calculating such rates of change.
Cross-border Volume 2 measures cross-border dollar volume initiated and switched
through our network during the period, on a local currency basis and
Switched Transactions 2 measures the number of transactions switched by
Operating Margin measures how much profit we make on each dollar of sales after our operating costs but before other income (expense) and income tax expense. Operating margin is calculated by dividing our operating income by net revenue. 1 Data used in the calculation of GDV is provided byMastercard customers and is subject to verification byMastercard and partial cross-checking against information provided byMastercard's transaction switching systems. All data is subject to revision and amendment byMastercard orMastercard's MASTERCARD JUNE 30, 2022 FORM 10-Q 35 -------------------------------------------------------------------------------- PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS customers. Starting in the first quarter of 2022, data related to sanctioned Russian banks was not reported to us and therefore such amounts are not included. Subsequent to the suspension of our business operations inRussia inMarch 2022 , there is no Russian data to be reported. 2 Growth rates are 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. In the fourth quarter of 2021, we began clearing and settling transactions and volumes on a daily basis. Foreign Currency Currency Impact
Our primary revenue functional currencies are the
Our operating results are also impacted by transactional currency. The impact of
the transactional currency represents the effect of converting revenue and
expense transactions occurring in a currency other than the functional currency.
Changes in currency exchange rates directly impact the calculation of gross
dollar volume ("GDV") and gross euro volume ("GEV"), which are used in the
calculation of our domestic assessments, cross-border volume fees and certain
volume-related rebates and incentives. In most non-European regions, GDV is
calculated based on local currency spending volume converted to U.S. dollars
using average exchange rates for the period. In Europe , GEV is calculated based
on local currency spending volume converted to euros using average exchange
rates for the period. As a result, certain of our domestic assessments,
cross-border volume fees and volume-related rebates and incentives are impacted
by the strengthening or weakening of the U.S. dollar versus non-European local
currencies and the strengthening or weakening of the euro versus other European
local currencies. For example, our billing in Australia is in the U.S. dollar,
however, consumer spend in Australia is in the Australian dollar. The currency
transactional impact of converting Australian dollars to our U.S. dollar billing
currency will have an impact on the revenue generated. The strengthening or
weakening of the U.S. dollar is evident when GDV growth on a U.S.
dollar-converted basis is compared to GDV growth on a local currency basis. For
the three and six months ended June 30, 2022 , GDV on a U.S. dollar-converted
basis increased 8% and 10%, respectively, while GDV on a local currency basis
increased 14% and 15%, respectively, versus the comparable periods in 2021.
Further, the impact from transactional currency occurs in transaction processing
revenue, other revenue and operating expenses when the transacting currency of
these items is different than the functional currency of the entity.
To manage the impact of foreign currency variability on anticipated revenues and
expenses, we may enter into foreign exchange derivative contracts and designate
such derivatives as hedging instruments in a cash flow hedging relationship as
discussed further in Note 17 (Derivative and Hedging Instruments) to the
consolidated financial statements included in Part I, Item 1.
Foreign Exchange Activity
We incur foreign currency gains and losses from remeasuring monetary assets and liabilities, including settlement assets and obligations, that are denominated in a currency other than the functional currency of the entity. To manage this foreign exchange risk, we may enter into foreign exchange derivative contracts to economically hedge the foreign currency exposure of a portion of our nonfunctional currency monetary assets and liabilities. The gains or losses resulting from the changes in fair value of these contracts are intended to reduce the potential effect of the underlying hedged exposure and are recorded net within general and administrative expenses on the consolidated statement of operations. The impact of this foreign exchange activity, including the related hedging activities, has not been eliminated in our currency-neutral results. Our foreign exchange risk management activities are discussed further in Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1. Risk of Currency Devaluation We are exposed to currency devaluation in certain countries. In addition, we are subject to exchange control regulations that restrict the conversion of financial assets intoU.S. dollars. While these revenues and assets are not material to us on a consolidated basis, we can be negatively impacted should there be a continued and sustained devaluation of local currencies relative to theU.S. dollar and/or a continued and sustained deterioration of economic conditions in these countries. 36MASTERCARD JUNE 30, 2022 FORM 10-Q --------------------------------------------------------------------------------
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Results
Revenue
For the three months ended June 30, 2022 , net revenue increased 21% versus the
comparable period in 2021. Excluding the impact of Special Items, adjusted net
revenue increased 21%, or 27% on a currency-neutral basis, and includes 1
percentage point of growth from acquisitions. The remaining increase was
primarily driven by domestic and cross-border transaction and volume growth and
an increase in our Cyber & Intelligence and Data & Services solutions within
other revenue. These increases were partially offset by an increase in rebates
and incentives (contra-revenue) of 19%, or 23% on a currency-neutral basis,
primarily due to increased volumes and transactions and new and renewed deals.
For the six months ended June 30, 2022 , net revenue increased 23% versus the
comparable period in 2021. Excluding the impact of Special Items, adjusted net
revenue increased 22%, or 27% on a currency-neutral basis, and includes 2
percentage points of growth from acquisitions. The remaining increase was
primarily driven by domestic and cross-border transaction and volume growth and
an increase in our Cyber & Intelligence and Data & Services solutions within
other revenue. These increases were partially offset by an increase in rebates
and incentives (contra-revenue) of 22%, or 25% on a currency-neutral basis,
primarily due to increased volumes and transactions and new and renewed deals,
which includes a 1 percentage point reduction from Special Items.
See Note 3 (Revenue) to the consolidated financial statements included in Part
II, Item 8 of our Annual Report on Form 10-K for the year ended December 31,
2021 for a further discussion of how we recognize revenue.
The components of net revenue were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Increase/ (Decrease) 2022 2021 Increase/ (Decrease)
($ in millions)
Domestic assessments $ 2,283 $ 2,056 11% $ 4,417 $ 3,854 15%
Cross-border volume fees 1,615 1,076 50% 3,010 2,008 50%
Transaction processing 3,061 2,612 17% 5,973 4,963 20%
Other revenues 1,745 1,475 18% 3,329 2,822 18%
Gross revenue 8,704 7,219 21% 16,729 13,647 23%
Rebates and incentives
(contra-revenue) (3,207) (2,691) 19% (6,065) (4,964) 22%
Net revenue 5,497 4,528 21% 10,664 8,683 23%
Special Items 1 (6) - ** (37) - **
Adjusted net revenue (excluding
Special Items 1) $ 5,491 $ 4,528 21% $ 10,627 $ 8,683 22%
Note: Table may not sum due to rounding
** Not meaningful.
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
MASTERCARD JUNE 30, 2022 FORM 10-Q 37 -------------------------------------------------------------------------------- PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Drivers of Change
The following tables summarize the drivers of change in net revenue:
Three Months Ended June 30, 2022
Special
Operational Items 3 Acquisitions Currency Impact 4 Total
Domestic assessments 13 % 1 - % - % (2) % 11 %
Cross-border volume fees 61 % 1 - % - % (11) % 50 %
Transaction processing 22 % 1, 2 - % - % (5) % 17 %
Other revenues 20 % 2 - % 3 % (5) % 18 %
Rebates and incentives
(contra-revenue) 23 % - % - % (3) % 19 %
Net revenue 26 % - % 1 % (6) % 21 %
Six Months Ended June 30, 2022
Special
Operational Items 3 Acquisitions Currency Impact 4 Total
Domestic assessments 17 % 1 - % - % (2) % 15 %
Cross-border volume fees 59 % 1 - % - % (9) % 50 %
Transaction processing 24 % 1, 2 - % - % (4) % 20 %
Other revenues 17 % 2 - % 5 % (4) % 18 %
Rebates and incentives (contra-revenue) 26 % (1) % - % (3) % 22 %
Net revenue 25 % - % 2 % (5) % 23 %
Note: Tables may not sum due to rounding.
1 Includes impacts from our key metrics, other non-volume based fees, pricing and mix.
2 Includes impacts from our cyber and intelligence solutions fees, data analytics and consulting fees and other value-added services.
3 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
4 Includes the translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as cash flow hedging instruments.
38MASTERCARD JUNE 30, 2022 FORM 10-Q --------------------------------------------------------------------------------
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following tables provide a summary of the trend in volumes and transactions.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Increase/(Decrease) Increase/(Decrease)
USD Local USD Local USD Local USD Local
Mastercard-branded GDV 1 8% 14% 39% 33% 10% 15% 23% 20%
United States 10% 10% 34% 34% 12% 12% 24% 24%
Worldwide less United States 7% 16% 41% 33% 9% 17% 23% 18%
Cross-border volume 1 46% 58% 70% 58% 45% 56% 18% 11%
Mastercard -branded GDV 1 adjusted for
Russia 2 12% 19% 38% 32% 14% 20% 23% 19%
Worldwide less United States adjusted
for Russia 2 14% 25% 41% 32% 15% 24% 23% 17%
Cross-border volume 1 adjusted for
Russia 2 50% 64% 69% 57% 48% 59% 17% 11%
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Increase/(Decrease) Increase/(Decrease)
Switched transactions 12% 41% 16% 24%
Switched transactions adjusted for Russia 2 22% 39% 23% 23%
1 Excludes volume generated by Maestro and Cirrus cards.
2 Starting in the first quarter of 2022, as a result of imposed sanctions and
the suspension of our business operations in Russia , we have provided adjusted
growth rates for our key operating metrics excluding activity from Russian
issued cards from the current and prior periods.
Operating Expenses
For the three months endedJune 30, 2022 , operating expenses increased 13% versus the comparable period in 2021. Adjusted operating expenses increased 9%, or 12% on a currency-neutral basis, versus the comparable period in 2021, which includes a 5 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and unfavorable foreign exchange activity. For the six months endedJune 30, 2022 , operating expenses increased 13% versus the comparable period in 2021. Adjusted operating expenses increased 10%, or 13% on a currency-neutral basis, versus the comparable period in 2021, which includes a 5 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives, increased spending on advertising and marketing and unfavorable foreign exchange activity.MASTERCARD JUNE 30, 2022 FORM 10-Q 39 -------------------------------------------------------------------------------- PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The components of operating expenses were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Increase/ (Decrease) 2022 2021 Increase/ (Decrease)
($ in millions)
General and administrative $ 1,947 $ 1,718 13% $ 3,791 $ 3,394 12%
Advertising and marketing 210 216 (2)% 391 335 17%
Depreciation and amortization 189 186 2% 381 349 9%
Provision for litigation 133 67 ** 133 67 **
Total operating expenses 2,479 2,187 13% 4,696 4,145 13%
Special Items 1 (166) (67) ** (200) (67) **
Adjusted total operating expenses
(excluding Special Items 1) $ 2,313 $ 2,121 9% $ 4,496 $ 4,079 10%
Note: Table may not sum due to rounding
** Not meaningful.
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Drivers of Change
The following tables summarize the drivers of changes in operating expenses:
Three Months Ended June 30, 2022
Special
Operational Items 1 Acquisitions Currency Impact 2 Total
General and administrative 9% 2% 5% (3)% 13%
Advertising and marketing 1% ** 1% (4)% (2)%
Depreciation and amortization ** ** 6% (4)% 2%
Provision for litigation ** ** ** ** **
Total operating expenses 8% 4% 5% (3)% 13%
Six Months Ended June 30, 2022
Special
Operational Items 1 Acquisitions Currency Impact 2 Total
General and administrative 7% 2% 5% (2)% 12%
Advertising and marketing 20% ** 1% (5)% 17%
Depreciation and amortization 1% ** 11% (3)% 9%
Provision for litigation ** ** ** ** **
Total operating expenses 8% 3% 5% (2)% 13%
Note: Tables may not sum due to rounding.
** Not meaningful.
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
2 Represents the translational and transactional impact of currency.
General and Administrative
For the three months endedJune 30, 2022 , general and administrative expenses increased 13%, or 16% on a currency-neutral basis, versus the comparable period in 2021. Current period results include growth of 5 percentage points from acquisitions and 2 percentage points from Special Items. For the six months endedJune 30, 2022 , general and administrative expenses increased 12%, or 14% on a currency-neutral basis, versus the comparable period in 2021. Current period results include growth of 5 percentage points from acquisitions and 2 percentage points from Special Items. The remaining increase for both the three and six months endedJune 30, 2022 was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and balance sheet remeasurement losses due to unfavorable foreign exchange activity. 40MASTERCARD JUNE 30, 2022 FORM 10-Q --------------------------------------------------------------------------------
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The components of general and administrative expenses were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Increase/ (Decrease) 2022 2021 Increase/(Decrease)
($ in millions)
Personnel 1 $ 1,319 $ 1,130 17% $ 2,500 $ 2,234 12%
Professional fees 109 106 3% 195 203 (4)%
Data processing and telecommunications 225 215 5% 460 415 11%
Foreign exchange activity 2 35 8 ** 71 16 **
Other 1 259 259 -% 565 526 7%
Total general and administrative expenses $ 1,947 $ 1,718 13% $ 3,791 $ 3,394 12%
Note: Table may not sum due to rounding.
** Not meaningful.
1 Total general and administrative expenses for the three months endedJune 30, 2022 includes a Special Item forRussia -related impacts of$33 million , of which$31 million is included within Personnel and$2 million is included within Other. Total general and administrative expenses for the six months endedJune 30, 2022 includes a Special Item forRussia -related impacts of$67 million , of which$35 million is included within Personnel and$32 million is included within Other. See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts. 2 Foreign exchange activity includes the impact of remeasurement of assets and liabilities denominated in foreign currencies net of the impact of gains and losses on foreign exchange derivative contracts. See Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1 for further discussion.
Advertising and Marketing
For the three months endedJune 30, 2022 , advertising and marketing expenses decreased 2%, or increased 2% on a currency-neutral basis, versus the comparable period in 2021. For the six months endedJune 30, 2022 , advertising and marketing expenses increased 17%, or 21% on a currency-neutral basis, primarily due to an increase in spending on marketing campaigns, advertising and sponsorships.
Depreciation and Amortization
For the three and six months endedJune 30, 2022 , depreciation and amortization expenses increased 2% and 9%, or 6% and 12% on a currency-neutral basis, versus the comparable period in 2021, which includes growth of 6 and 11 percentage points from acquisitions, respectively, due to the amortization of acquired intangible assets.
Provision for Litigation
For the three and six months endedJune 30, 2022 , we recorded litigation provisions of$133 million as a result of a change in estimate related to the claims of merchants who opted out of theU.S. merchant class litigation. For the three and six months endedJune 30, 2021 , we recorded litigation provisions of$67 million related to litigation settlements and estimated attorneys' fees withU.K. merchants. See "Non-GAAP Financial Information" in this section for further discussion.MASTERCARD JUNE 30, 2022 FORM 10-Q 41
-------------------------------------------------------------------------------- PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other Income (Expense) For the three months endedJune 30, 2022 , other income (expense) was unfavorable$357 million , versus the comparable period in 2021, primarily due to net losses in the current period versus net gains in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was favorable$2 million versus the prior year. For the six months endedJune 30, 2022 , other income (expense) was unfavorable$527 million , versus the comparable period in 2021, primarily due to net losses in the current period versus net gains in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was favorable$2 million versus the prior year.
The components of other income (expense) were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Increase/ (Decrease) 2022 2021 Increase/ (Decrease)
($ in millions)
Investment income $ 7 $ 3 ** $ 12 $ 4 **
Gains (losses) on equity
investments, net (117) 243 ** (193) 337 **
Interest expense (114) (106) 7% (224) (213) 5%
Other income (expense), net 4 (3) ** 8 2 **
Total other income (expense) (220) 137 ** (397) 130
**
(Gains) losses on equity investments 1 117 (243) ** 193 (337) ** Adjusted total other income (expense) 1$ (104) $ (106) (2)% $ (205)$ (207) (1)%
Note: Table may not sum due to rounding.
** Not meaningful.
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Income Taxes
The effective income tax rates were 18.7% and 16.6% for the three months endedJune 30, 2022 and 2021, respectively. The adjusted effective income tax rates were 18.8% and 15.9% for the three months endedJune 30, 2022 and 2021, respectively. Both the as reported and as adjusted effective income tax rates were higher versus the comparable period in 2021, primarily due to a discrete tax benefit in the prior year related to the remeasurement of the Company's net deferred tax asset in theU.K. due to an enacted tax rate change in 2021. The effective income tax rates were 11.9% and 16.6% for the six months endedJune 30, 2022 and 2021, respectively. The adjusted effective income tax rates were 12.3% and 16.4% for the six months endedJune 30, 2022 and 2021, respectively. Both the as reported and as adjusted effective income tax rates were lower versus the comparable period in 2021, primarily due to a discrete tax benefit related to finalU.S. tax regulations published in the current year, partially offset by a discrete tax benefit in the prior year related to the remeasurement of the Company's net deferred tax asset in theU.K. due to an enacted tax rate change in 2021. TheU.S. tax regulations resulted in a valuation allowance release of$333 million associated with theU.S. foreign tax credit carryforward deferred tax asset. The regulations limit our ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additionalU.S. tax expense.
Liquidity and Capital Resources
We rely on existing liquidity, cash generated from operations and access to
capital to fund our global operations, capital expenditures, investments in our
business and current and potential obligations. The following table summarizes
the cash, cash equivalents, investments and credit available to us:
June 30 , December 31,
2022 2021
(in billions)
Cash, cash equivalents and investments 1
6.0 6.0
1 Investments include available-for-sale securities and held-to-maturity
securities. This amount excludes restricted cash and restricted cash equivalents
of
We believe that our existing cash, cash equivalents and investment securities balances, our cash flow generating capabilities, and our access to capital resources are sufficient to satisfy our future operating cash needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations and potential obligations which include litigation provisions and credit and settlement exposure. 42MASTERCARD JUNE 30, 2022 FORM 10-Q --------------------------------------------------------------------------------
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our liquidity and access to capital could be negatively impacted by global credit market conditions. We guarantee the settlement of many of the transactions between our customers. Historically, payments under these guarantees have not been significant; however, historical trends may not be an indication of potential future losses. The risk of loss on these guarantees is specific to individual customers, but may also be driven by regional or global economic conditions, including, but not limited to the health of the financial institutions in a country or region. See Note 16 (Settlement and Other Risk Management) to the consolidated financial statements in Part I, Item 1 for a description of these guarantees. Our liquidity and access to capital could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to which we are a party. For additional discussion of these and other risks facing our business, see Part I, Item 1A - Risk Factors of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , Part II, Item 1A - Risk Factors of our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2022 and Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1 of this Report. Cash Flow The table below shows a summary of the cash flows from operating, investing and financing activities: Six Months Ended June 30, 2022 2021 (in millions) Net cash provided by operating activities$ 4,239 $
3,731
Net cash used in investing activities (812)
(4,702)
Net cash used in financing activities (4,975)
(2,801)
Net cash provided by operating activities increased$508 million for the six months endedJune 30, 2022 , versus the comparable period in 2021, primarily due to higher net income adjusted for non-cash items, partially offset by higher customer incentive payments.
Net cash used in investing activities decreased
Net cash used in financing activities increased$2,174 million for the six months endedJune 30, 2022 , versus the comparable period in 2021, primarily due to higher repurchases of our Class A common stock and lower proceeds from debt issuances in the current year.
Debt and Credit Availability
InFebruary 2022 , we issued €750 million ($788 million as ofJune 30, 2022 ) principal amount of notes dueFebruary 2029 (the "2022 EUR Notes"). Our total debt outstanding was$14.5 billion and$13.9 billion atJune 30, 2022 andDecember 31, 2021 , respectively, with the earliest maturity of €700 million ($735 million as ofJune 30, 2022 ) of principal occurring inDecember 2022 .
In
As ofJune 30, 2022 , we have a commercial paper program (the "Commercial Paper Program"), under which we are authorized to issue up to$6 billion in outstanding notes, with maturities up to 397 days from the date of issuance. In conjunction with the Commercial Paper Program, we have a committed unsecured$6 billion revolving credit facility (the "Credit Facility") which expires inNovember 2026 . Borrowings under the Commercial Paper Program and the Credit Facility are to be used to provide liquidity for general corporate purposes, including providing liquidity in the event of one or more settlement failures by our customers. In addition, we may borrow and repay amounts under these facilities for business continuity purposes. We had no borrowings outstanding under the Commercial Paper Program or the Credit Facility atJune 30, 2022 andDecember 31, 2021 . See Note 10 (Debt) to the consolidated financial statements included in Part I, Item 1 for further discussion on our debt and Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 for further discussion on our debt, the Commercial Paper Program and the Credit Facility.
Dividends and Share Repurchases
We have historically paid quarterly dividends on our outstanding Class A common stock and Class B common stock. Subject to legally available funds, we intend to continue to pay a quarterly cash dividend. The declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash and current and anticipated cash needs. Aggregate payments for quarterly dividends totaled$956 million for the six months endedJune 30, 2022 .MASTERCARD JUNE 30, 2022 FORM 10-Q 43
-------------------------------------------------------------------------------- PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OnNovember 30, 2021 , our Board of Directors declared a quarterly cash dividend of$0.49 per share paid onFebruary 9, 2022 to holders of record onJanuary 7, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was$479 million . OnFebruary 8, 2022 , our Board of Directors declared a quarterly cash dividend of$0.49 per share paid onMay 9, 2022 to holders of record onApril 8, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was$477 million . OnJune 20, 2022 , our Board of Directors declared a quarterly cash dividend of$0.49 per share payable onAugust 9, 2022 to holders of record onJuly 8, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be$474 million . Repurchased shares of our common stock are considered treasury stock. InNovember 2021 andDecember 2020 , our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to$8.0 billion and$6.0 billion , respectively. The program approved in 2021 became effective inMay 2022 after completion of the share repurchase program authorized in 2020. The timing and actual number of additional shares repurchased will depend on a variety of factors, including cash requirements to meet the operating needs of the business, legal requirements, as well as the share price and economic and market conditions. The following table summarizes our share repurchase authorizations and repurchase activity of our Class A common stock throughJune 30, 2022 : (in millions, except average price data) Remaining authorization at December 31, 2021$ 11,927
Dollar value of shares repurchased during the six months ended
$ 4,788 Remaining authorization at June 30, 2022$ 7,139 Shares repurchased during the six months ended June 30, 2022 13.7
Average price paid per share during the six months ended
$ 350.10
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, if any, and the potential impact of these pronouncements refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part I, Item 1.
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