萬事達 (MA) 2014 Q2 法說會逐字稿

Welcome to the MasterCard Second-Quarter 2014 Earnings conference call.

My name is Christine, and I will be your operator for today's call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question and answer session.

Please note that this conference is being recorded.

I will now turn the call over to Barbara Gasper, head of Investor Relations.

You may begin.

Thank you, Christine.

Good morning to everyone.

Thank you for joining us for our discussion about our Second-Quarter 2014 Financial Results.

With me on the call today are Ajay Banga, our President and Chief Executive Officer, and Martina Hund-Mejean, our Chief Financial Officer.

Following comments from our Ajay and Martina, the operator will announce your opportunity to get into the queue for the Q&A session.

Up until then, no one is actually registered to ask a question.

Even if you think you have already dialed into the queue, you will need to register again following our prepared comments.

This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website, MasterCard.com.

These documents have also been attached to an 8-K that we filed with the SEC earlier this morning.

A replay of this call will be posted on our website for one week through August 7, 2014.

Finally, as set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance.

Actual performance could differ materially from what is suggested by our comments today.

Information about the factors that could affect future performance are summarized at the end of our press release, as well as contained in our recent SEC filings.

With that, I will now turn the call over to Ajay Banga.

Ajay?

Thank you, Barbara.

Good morning, everybody.

For the second quarter, we are pleased to report a net revenue growth of 13%, both as reported and adjusted for currency.

That increase is driven by healthy volume and transaction growth, which resulted in net income growth of 10%, as reported on 9% adjusted for currency and an EPS growth of 14%.

And these results include the impact of all the acquisitions that we've completed so far this year.

Let's start with looking at the underlying global economic trends with the United States, where the economy seems to be improving but not without some challenges.

Our second-quarter spending pulse data showed US retail sales, ex-auto, growing at 3.8%.

And that's a noticeable improvement over the first-quarter growth of 2.3%.

However, over that quarter, the monthly trend decelerated.

Partially as a result of lower gasoline spending, which consumers did not appear to roll over into additional discretionary spend.

While we said that overall we think the current US economic recovery is very much a work in progress, we see some favorable indicators, the continued improvement in unemployment figures, consumer confidence levels, and so on.

There are in fact early indications for July retail sales, again ex-auto, of showing further improvement over the second quarter.

But there are some factors that could weigh on that economic recovery.

Like the slowing recovery in housing and the improvement in unemployment coming in part from an upswing in part-time workers rather than just full-time positions.

Despite those mixed signals, our US business saw an improvement in the quarter, primarily driven by stronger growth in our consumer credit volume and continued good growth in commercial credit.

Europe.

Europe continues on a slow recovery path.

PCE growth projections remain unchanged for the year at 3.5%.

Consumer confidence, economic sentiment, unemployment rates all continue to improve across the region.

If you asked of us in the case of the UK in particular, our SpendingPulse data showed retail sales, ex-auto, growing by 4.8% in that quarter.

One of the strongest rates in the last four years, with growth spread evenly across the sectors.

MasterCard's total European volume growth for the second quarter was in the low teens, processed transaction growth was in the high teens, both a bit lower than the first quarter.

The region's growth was driven by a number of countries including Russia, Turkey, Sweden and Italy.

In Latin America, full year GDP growth expectations for the region have been revised down from 2.5% to 2.3% because of slower-than-expected performance in some of the key countries, including Brazil and Mexico.

In our second-quarter SpendingPulse data from Brazil showed that retail sales grew 4.1%, down from the 5.9% growth in the first quarter.

And this, by the way, is the weakest growth rate since August of last year.

On the other hand, the Mexican economy showed some improvement in the second quarter.

And we believe that will continue as the US economy improves.

Our business in the region remains healthy.

But it has slowed somewhat over the first quarter, with second-quarter GDV growth in the low teens and processed transaction growth remaining in the high teens.

Across the Asia-Pacific region, business sentiment and consumer confidence were up, with improvements in many countries tied to changes in that political environments.

Our business in Asia-Pacific, Middle East, Africa continues to do well, with processed transaction growth remaining about 30% and GDV growth in the high teens for the second quarter.

Before we go to some of our business highlights, let me say a few words about a couple of legal and regulatory matters.

And first, with regards to the proposed European interchange legislation, not much has changed since last quarter.

We are actively engaged with all parties, while the Council of Ministers continues its review.

We still believe that the proposed legislation is most likely to be adopted sometime in the first half of 2015.

Second, let's talk about Russia.

As you know, the Russians are implementing changes to their domestic payments market in the form of a new payments law, which will impact MasterCard.

We are pursuing multiple options to comply with the new law, while fulfilling our US obligations.

According to that law, ownership of domestic Russian switching has to be majority controlled by a Russian entity and should use Russian technology in order to relieve a foreign payments network from the collateral requirement that has now been delayed, by the way, until October 31, 2014.

The law provides some flexibility.

You are all aware of our RFP process to find a local switching partner, as one path that we are pursuing.

In addition, the processing center we currently have in Russia, we believe gives us a basis to build our own on-soil switching capabilities.

And we are exploring options to leverage that as well.

Overall, we expect only minimal impact from the current Russia situation on our 2014 results.

That situation is still fluid, as you all know, that it's difficult to put any future annualized impact into precise dollars.

But if you look for a number, press for a number, our estimate today would be that our revenue could be impacted by something less than $50 million, in a full-calendar year of this effort, the exact amount, along with any investment required for our on-soil switching capability, will obviously depend on the final form of our operating construct in Russia.

So let's move on to some of our recent business activity.

First, talking about Russia.

I will tell you that as we continue to work through the challenges there, our business continues to move forward.

For example, we just renewed our business agreement with Alfa-Bank, Russia's largest private bank.

And that should help us expand our existing partnership in issuing affluent cards and accelerating the growth of contactless technology in the Russian market.

Let's go beyond that to talk about how we deepen our relationships with merchants and leverage these into partnerships to grow our business.

I'm going to highlight some recent additional activity in that space, not only with merchants, but also with mobile operators and with governments.

We've been investing in our merchant relationships over the past few years.

We are now 40% of our customer-facing people, salespeople, in the United States are dedicated to that space.

Last quarter, I mentioned the Walmart, Sam's Club and Target wins; and this quarter we got a few more to talk about.

Beginning in spring of 2015, BJ's Wholesale Club will be converting their entire credit business to chip-enabled MasterCard credit cards.

We're very pleased to be chosen as BJ's partner to help them deliver a more secure solution to their cardholders.

We've also had a couple of important renewals in our merchant Co-brand business with Sears and Expedia, continuing our long-standing relationship with both of them.

Outside of the US, MasterCard was selected as the Co-brand partner for the Landmark Shukran credit card in the UAE.

Landmark Group is one of the largest retail organizations in the Middle East, 1,800 stores.

They also have the region�s largest retail loyalty program in seven countries, with almost six million members.

But our business with merchants is not just about co-brands.

We're also working with merchants in a number of activities that leverage our other assets, Advisors, MasterCard Labs and so on.

Using our Advisors data analytics, we are working with Expedia to help them improve the effectiveness of their marketing campaigns by identifying the best people to target, and with Shell and Williams Sonoma to enhance their loyalty propositions.

Another example, we're working with a major cruise line to identify opportunities for them to reduce their costs by moving their B2B payments from Check, wire and ACH to purchasing cards and virtual card members using our inControl capability.

And finally, with MasterCard Labs, we're bringing our partners together to help solve some of their business challenges.

In one example earlier this summer, MasterCard worked on the first-ever in-flight wearable technology hackathon, with American Airlines, where we gave our technology and our mentorship.

We used technology tools, like Simplify Commerce and MasterPass, to develop wearable solutions for travel.

Moving onto mobile.

Last quarter, we talked about mobile as being just one of the many ways that consumers are shifting from physical to digital payments, and how it represents one of the most significant changes in our space.

In this quarter we've continued to develop and expand our partnerships, with both handset manufacturers and network operators.

So a couple of examples.

We worked with Samsung in Australia last year, if you remember.

We continued to deepen that relationship by launching Russia's first contactless mobile payment service at Russian Standard Bank.

Using Samsung phones, Russian Standard's mobile banking application, and MasterCard's mobile NFC technology, our prepaid products and enhanced processing services.

This partnership brings our products and services together to deliver innovation in yet another market with Samsung.

In Canada, Rogers Wireless, which is that country's largest wireless service provider -- they've got nine millions subscribers or so -- recently launched their SureTap wallet.

And that's got a MasterCard prepaid card embedded inside.

That new application allows Rogers subscribers to use their NFC-enabled smart phones to make contactless payments, which are already accepted, for example, in Canada in 18 of the 20 largest merchants.

Then onto MasterPass.

We're continuing with our global expansion of MasterPass.

MasterPass, as you know, is our digital acceptance platform connecting consumers and merchants.

This quarter, MasterPass launched in Singapore, in Poland, and South Africa.

We're now up to ten markets.

We expect to do four more by the year end.

It's more than a wallet, by the way, it's a platform that provides a safe and secure foundation to support multi-channel shopping and the ability to create innovative tools that you can use to enhance the consumer buying experience before, during and after the actual purchase.

Over the next few years, we think we will be in all the markets that represent about 75% of our total volume.

MasterPass has been designed from the start with tools that make it very easy for merchants and issuers to integrate with it.

Last quarter, we launched our in-app payment capability.

Now we have a number merchants, one example, is Starbucks in Australia, committed to including MasterPass in their apps.

So finally, partnerships with governments and our efforts in financial inclusion.

To drive this expansion, you've got to connect the right technologies and platforms.

You've got to take prepaid and mobile payments with a network and then adapt them to the local marketplace.

And the only way that happens is you have the right partnership between the public and private sector.

We're actually seeing the results of some of that work happen today.

In the last two years, we've launched over 100 new programs designed to bring access, convenience and security to over 350 million people around the world, who didn't have access to financial products before these programs were launched.

You already know about what we�ve done in South Africa and Nigeria.

Let me give you some more color with a few more examples this quarter.

In Pakistan, we are partnering with the Bank of Punjab to issue millions of prepaid cards with biometric recognition to the nearly 90% of the Pakistani population who are unbanked and receive funds from Government disbursement programs.

This program will help the Government of Pakistan improve their service, reduce inefficiencies, reduce leakage in the process.

And in June, we announced the launch of the first Arabic mobile money implementation with the National Bank of Egypt and a mobile network, Etisalat.

The service called the Flous wallet, I hope I got that right, will allow Etisalat subscribers to transfer money, pay their bills, top off their mobile phones and make purchases either online or face-to-face.

Also in June, Tabung Haji, the first and largest Islamic non-bank financial institution in the world, launched their first Shariah-compliant debit MasterCard.

So cardholders can use their card anywhere MasterCard is accepted, including on their pilgrimage to Mecca and Medina.

This event marks the beginning of a broader collaboration with Tabung Haji in the Islamic payment space.

And together, we are supporting Malaysia's economic transformation program to drive financial inclusion and to accelerate that country's migration to electronic payments.

So with that, let me turn the call over to Martina for an update on our financial results and operational metrics.

Martina?

Thanks, Ajay.

Good morning, everyone.

Let me begin on page 3 of our slide deck, where you see the as-reported, as well as FX-adjusted growth rates.

All of my comments pertain to the FX-adjusted figures, which are almost the same as the as-reported numbers.

We are very pleased with our strong performance this quarter.

Net revenue growth was 13%.

This, combined with operating expense growth of 14%, resulted in a 9% increase in net income.

While acquisitions had minimal impact on net revenue and net income in the quarter, they did contribute 3 ppt to operating expense growth.

EPS growth was 14%, and share repurchases contributed $0.04 per share.

During the second quarter, we repurchased almost 16 million shares at a cost of approximately $1.2 billion.

Through July 24, 2014, we repurchased an additional 1.4 million shares at a cost of approximately $106 million.

And we now have $728 million remaining under the current authorization.

We will continue to look to repurchase shares on an opportunistic basis.

Cash flow from operations was $729 million.

And we ended the quarter with cash, cash equivalents and other liquid investment of about $5.7 billion.

So let me turn to page 4, where you can see the operational metrics for the second quarter.

Our worldwide gross dollar volume, or GDV, was up 13% on a local currency basis, down slightly from last quarter.

Overall, our US GDV grew 9%, which was essentially the same as last quarter.

On the credit side, we had strong volume growth of 10%.

This was an increase from last quarter, driven by improvements in consumer credit, with growth in high single digits and continued strong growth in commercial credit, which was in the mid-teens.

Similar to last quarter, our US debit growth was 9%.

Outside of the US, volume growth was 15% on a local currency basis.

This continued to be driven by APMEA with high-teens growth.

Cross-border volume grew 16% on a local currency basis, just slightly lower than the 17% we saw in the first quarter.

Growth in both APMEA and Europe was in the high-teens.

Key contributors to this growth included the UK, Italy and Sweden.

The deceleration of cross-border volume growth in Canada and Brazil continued into the second quarter.

And in addition, we saw a deceleration in Australia, in Russia and China, with Australia likely due to currency.

Turning to page 5, processed transactions grew 12% globally to more than $10.6 billion.

We continued to see double-digit growth in most regions.

And globally, the number of cards grew 8%, with over 2 billion MasterCard and Maestro-branded cards.

Now let's turn to page 6, and here we're going to go through some highlights on a few of our revenue line items.

Domestic assessments grew 10%, while worldwide GDV grew 13%.

This 3 ppt gap is primarily due to higher volume growth in markets with lower-than-average revenue yields.

This lower yield continues to be impacted by two factors.

The first is lower fees in some markets, as a result of either local market structure or the existing domestic schemes that we compete against.

And the second is a higher proportion of cash volume, particularly in emerging markets.

Now, the second factor actually does provide us with a good opportunity for future growth, as we work to influence consumer behavior to use electronic forms of payment directly at the point-of-sale instead of cash.

Cross-border volume fees grew 13%, while cross-border volume grew 16%.

After excluding the 4 ppt contribution from pricing, the resulting gap between revenue and volume growth continues to be due, for the most part, to the higher mix of intra-European activity.

Transaction processing fees grew 14%, primarily driven by the 12% growth in processed transactions.

Overall net revenue growth was 13% growth, both as reported and FX-adjusted, as the impact of the Euro and the Real essentially offset each other.

Beyond those two currencies, we still experienced some headwind, although a little less than last quarter, from the weakening of the other local currencies such as the Russian Ruble, the Turkish Lira the Argentine Peso and the Canadian Dollar.

That was reflected mainly in the domestic assessment category.

Let me move to slide 7. And here you can see total operating expenses were up 14% in the quarter, in line with our expectations.

As I said before, 3 ppt was due to expenses related to acquisitions, which were mainly in the G&A line.

When looking specifically at the 19% growth in G&A, our acquisitions, primarily C-SAM and Provus, along with the consolidation of our majority-owned HomeSend investment contributed 3 ppt.

The balance of the growth is primarily due to the continued organic investments we are making in strategic initiatives.

The decrease in advertising and marketing was mostly due to lower media spending relative to last year.

And finally, the $20 million increase in D&A is the result of our growing level of capital expenditures, mainly associated with additional investments in technology to support initiatives like MasterPass and Priceless Cities.

It also includes the impact of the amortization of intangible assets related to the acquisitions we made.

Turning to slide 8, let's discuss what we've seen in July through the 28th.

Each of our business drivers is slightly down compared to the second quarter, but most are still in double digits.

All of this has been factored into our full-year outlook.

So the numbers through July 28, 2014, are as follows.

Starting with processed volume, we saw global growth of 11%, down slightly from the second quarter.

In the US, our processed volume grew 8%, down 2 ppt from what we saw last quarter.

As expected, we are now seeing more of an impact from the Chase migration.

Processed volume growth, outside of the US, grew 14%, about 1 ppt lower than the second quarter, primarily due to some continued deceleration in Brazil, Russia and Canada.

Globally, processed transaction growth was 10%, also about 2 ppt lower than what we saw in the second quarter, including the Chase migration.

And now, with respect to cross-border, our volume grew at a healthy 14% globally, about 2 ppt lower than second quarter.

For the most part, this deceleration can be explained by three factors.

The first is the timing of Ramadan, the impact of which we expect will reverse in August.

Second, the impact of foreign exchange on consumer purchasing power in certain travel corridors, such as Canada to the US.

And lastly, the impact of some government-imposed taxes on foreign purchases, particularly from Brazil.

Looking forward, let's begin with our long-term performance objectives for the 2013 to 2015 period.

We continue to believe that our business can deliver an 11% to 14% net revenue CAGR, and at least 20% EPS CAGR.

This includes our views on the developments related to Chase, Russia and the European regulation that we talked about.

We also remain committed to our annual operating margin target of at least 50%.

Remember, these objectives are on a constant-currency basis and exclude new M&A activities.

As we discussed at last year's Investor Day, we are looking to add capabilities in strategic spaces such as loyalty, processing, mobile, Information Services, and safety and security, both organically and inorganically.

Over the past four to five years, we've looked at a large number of opportunities, but only a few have met our strategic and financial criteria.

Also, it can often take many months to evaluate and close a deal.

It just so happens that several have come to the finish line within a relatively short period this year.

Our past acquisitions, like DataCash and Access Prepaid, along with the five we've done so far this year -- so that's Provus, C-SAM, ECS, Pinpoint and our majority investment in HomeSend.

All of these deals are on point from a strategic perspective and help us grow our business.

You should expect us to continue to evaluate more such investments.

Moving on, let me offer some commentary about 2014.

While M&A activities are not included in our performance objectives, we continue to get a lot of questions about how they will impact our as-reported financials.

So let me take this opportunity to provide a little more color on that.

As I discussed on last quarter's earnings call, EPS dilution is expected to be $0.06 to $0.08 for the full year 2014.

Specifically, most of the impact will show up in the G&A line.

And we expect G&A to increase by about $80 million in each of the two remaining quarters, before considering any organic growth in G&A over last year.

Including the impact of these acquisitions, the expected growth rate in G&A for the second half of the year will be in the high teens.

Now, here are some additional thoughts about 2014, which are essentially unchanged since our last call.

Our expectations of full-year net revenue growth remain at the low end of our three-year range.

The strong underlying growth trends we are seeing in volume in transactions is allowing us to absorb the minimal impact expected from the Russian situation, as well as a good portion of the attrition that we anticipate from Chase this year.

The pace of the Chase attrition during the second quarter was essentially in line with our internal projections, and we continue to believe most of it will occur in the latter half of this year, with the remaining flowing over into 2015.

In addition, we also continue to expect a 1 ppt contribution to our 2014 as-reported net revenue growth from our M&A transactions.

Overall, we haven't changed our view about total operating expense growth from what we said in May.

That we expect the as-reported growth rate for full year 2014 to be in the low teens, after including the impact from M&A activities.

Along with growth in G&A that I just talked about, we continue to expect D&A growth in the 25% range for full year 2014 due to our higher level of capital expenditures, as well as the impact of amortizing intangible assets related to acquisitions.

As a reminder, you should be reflecting roughly $10 million per quarter to account for the interest expense associated with the debt offering we launched in late March.

When we look at the sell side models out there, it appears that many of you still have not accounted for this in your other income and expense line.

For now, you should also continue to assume a full-year tax rate of about 32%.

But recognize that we're still working on a number of initiatives to better align our tax structure with our business footprint, which will likely result in a lower tax rate over time.

Finally, with respect to foreign exchange in 2014, if those rates remain similar to where they are today -- so that's the Euro trading at the $1.34 level and the Brazilian Real at the $2.23 level for the rest of the year, the net impact of the euro and the real would be a slight tailwind for the full year.

Further, beyond the functional currency impact of the Euro and the Real, we have already seen an almost 2 ppt headwind to net revenue growth year to date from other currencies depreciating against the US dollar and the Euro.

As I've said before, we carefully manage those exposures, but we have also assumed some impact for the rest of the year.

Now let me turn the call back to Barbara to begin the Q&A session.

Barbara?

Thanks, Martina.

We're now ready to begin the question-and-answer period.

Don't forget my earlier comments that if you dialed into the queue when you first joined the call, you will need to register again to ask a question.

And in order to get as many people as possible, we ask that you limit yourself to a single question and then queue back in for additional questions.

Christine?

Thank you.

Ladies and gentlemen if you have a question please press star then one on your touch-tone phone.

(Operator Instructions) Our first question is from Tien-tsin Huang of JPMorgan.

Please go ahead.

Great thanks.

Thanks for all the details.

Just want to ask on the cross-border yield, which was stronger than we expected.

I heard there was some pricing that helped there, but can you also just comment on how sensitive your revenues can be from FX volatility?

I know that Visa put that in our minds quite a bit, so curious how much settlement trading has an impact on your business and also if this new pricing that you put in is sustainable?

Thanks

I'm going to take this Tien-tsin, it's Martina.

First of all we said that we had a quarter 4 ppt impact from pricing in the cross-border fees.

Quite the majority of that is actually going to roll off next quarter.

Secondly with respect to foreign exchange volatility, our cross-border volumes are really only impacted from a foreign exchange volatility in terms of what the exchange rates are, in terms of where people are actually transacting.

What we do from a settlement trading revenue point of view when we actually effect that exchange that is not reflected in the cross-border fees.

It's actually reflected in the transaction processing fee.

And when we look at the foreign exchange volatility, it did go down over the last year or so.

But in terms of an impact on our settlement trading fee, it was relatively small.

We're talking about $10 million or so.

It was not a big factor for us at all.

Next question, please.

The next question is from Bryan Keane of Deutsche Bank.

Please go ahead.

Yes, hi guys.

Just wanted to follow-up on cross-border just trying to understand when we look at the competitors in your volume your volume seemed to be so much higher.

Just trying to figure out how much of that is share gain or is that just business mix?

Obviously Europe plays a part in this.

So if you can just help us understand kind of volumes versus the industry.

Thanks

Yes, Brian so when we look at our cross borders as I said it was 16% this quarter the prior quarter it was 17%.

And when we roll out Europe in the prior quarter, we basically said it was the same number 17% growth.

When you look at it this quarter, in the second quarter and you pull out Europe actually for the rest of the world, we grew 14%, so it all depends on mix.

In terms of where people are traveling to and what the overall the mix comes out.

Thank you.

I was just going to ask any share gains there before -- is share gains explaining a lot of this besides mix?

I mean are you gaining share in taking away from competitors?

Look, I think it's a number of factors.

One is obviously what are you doing with the existing portfolio that you have of banks.

And in terms of how you are pointing the portfolios to be able for people to really use those cards across borders and transact in other countries.

Two, obviously there are some share gains in it.

But I think you're going to have to look at those very comprehensively.

There are a number of drivers.

Okay helpful thanks.

I just want to correct one thing when I said I pulled out Europe it's not all of our European region.

It's really Western Europe, which is a not synonymous where Visa Europe is operating.

Okay, thanks so much

Thank you.

And as a reminder, if you have a question please press star then one on your phone.

Our next question is from David Hochstim of Buckingham Research.

Please go ahead.

Thanks.

I wonder if you could provide some more color on the consistent increasing growth in US credit purchase volume we've seen over the last two quarters?

Is most of that Citi reinvigorating the American Airlines co-brand or are there other things that are big contributors?

It's Ajay.

It's a bunch of things.

We've been winning some co-brands over time.

Citi-American is clearly one of them, but there are others too.

And going against it is the roll off of the Chase book.

That's been relatively slow in the first half, but it's picking up as we expected in the second half.

So it's kind of an in and out over there that's going on in the consumer part of the book.

And our commercial credit book continues to well.

It's at a higher growth rate in the low- to mid-teens kind of number, compared to the number for the consumer book.

But it's a mix of the two things that's going on.

Okay, thanks.

Thank you.

Our next question is from Sanjay Sakhrani of KBW.

Please go ahead.

Thank you.

Hoping to just get a little more cadence on the rebate line given the Chase conversion is now underway.

Could you just talk about how we should think about how that progresses through the rest of the year?

Thanks.

I don't think that you should be expecting any major surprises on that.

So when you look at this year versus last year on a quarter by quarter basis, the only thing that you saw last year is that we had a little bit less of rebates in the second quarter and a little bit more in the fourth quarter.

I think for this year you should just expect a little bit more of an even distribution of that, i.e you're not going to see the fourth quarter going up in such a significant way.

And maybe just for the year it's kind of comparable then?

Very comparable.

All right, great.

Thanks.

Thank you.

Our next question is from Moshe Orenbuch of Credit Suisse.

Please go ahead.

Great thanks.

I wanted to kind of turn back to the acquisitions, because the -- I guess the guidance you gave us on the -- kind of on revenues 1% for the full-year.

So that's roughly $140 million.

I mean it sounds like the costs are still higher than that kind of on a run rate.

Could you kind of talk a little bit about how you see that progressing into 2015?

And ultimately I mean I understand that some of the acquisitions don't have a ton of revenue coming with them.

So could you just talk a little bit about how you think about then in terms of the returns that they're going to generate for the Company?

Yes, look.

We are separating acquisitions really into two buckets.

One bucket is capabilities set and the things that we really need to do in order to effect some of our strategies.

I would put, for instance, a Company like C-SAM in that.

To be honest C-SAM did not come with a lot of revenues, but they came with a huge amount of capabilities, over 200 engineers in India that are really very well trained on mobile platforms and helping significant on our execution in the MasterPass arena.

The other part of the acquisitions is buying fully fledged businesses like the business that we just closed, which is Pinpoint.

That came in a literally at the end of the quarter, so you're not seeing a lot of revenues of there.

That's a fully-fledged business.

It comes with revenues, it comes with expenses.

And you will be seen that coming in over the next couple of quarters, more still given the other acquisitions on the expense line on the revenue line.

You should be expecting that over a number of years, these business really will be helping to aid our growth.

From a dilution point of view, I already talked about the $0.06 to $0.08 in 2014.

I think you should still expect some dilution in 2015, probably to the tune of half of that number.

Just remember that these acquisitions are lapped during the year, different ones at a different times of the year.

The impact of that dilution will depend on that portion of the impact in the calendar.

And that portion will run over into the next year as well.

That's what Martina is referring to.

By and large most of the deals we do, even if they�ve got revenue there may be a dilution of the first year because we�re ending up either putting an investment into their capabilities to either raise their safety and security capabilities, or their accounting and compliance capabilities to what we would feel comfortable with, just given how that interfaces with the rest of our Company.

A lot of money goes into that effort, into upgrading their accounting and to upgrading their compliance, into upgrading their firewalls, into upgrading their safety systems, their capabilities in cyber security, hiring of a few new people.

That's what goes into this first block.

That tends to create some dilution.

Companies like C-SAM, on the other hand, are all about rolling out MasterPass.

And that all we want to do enable mobile space.

I just said we are in 10 countries already.

That's way more than anybody else is in.

And by the way we're adding four more by the end of the year.

In two years we're going to be in 75% of our GDV.

I doubt we could have done that without the acquisition of C-SAM and its innate capability of that very talented workforce that they have.

Any comment on the current pipeline of future deals?

You will listen to us when we have a deal to tell you about.

Honestly, I've been here five years almost.

I think Martina and I have probably looked at 100+ deals.

We've done two before this year, three maybe including Truaxis, which has capabilities, small, and now we've added these five here.

Some of the five we've done just now, like ECS.

We've been -- we bought a share in ECS two years ago.

And we've worked with them for two years before entering into this transaction.

We've been working with C-SAM for well over two years as well.

So a lot of these deals they're in the hopper for a while.

And there are others in the hopper, I just no ability to predict to you when exactly they may come to fruition.

Or frankly, we just get away from them because they don't work, either in a return sense, or a management capability sense, or a geography sense or product set sense.

It's got to fit one of those strategic needs and that's kind of how it's constructed.

Thank you very much.

Thank you and once again if you have a question press start one on your phone.

Our next question is from Jim Schneider of Goldman Sachs.

Please go ahead.

Good morning.

Thanks for taking my question.

I was wondering if you could just comment on the domestic assessments yields that you mentioned the lower yield trend you saw in Q2.

How should we think about that trend continuing or reversing over the next few quarters, please?

Look, I think you should be thinking about that trend continuing.

This is not a new trend.

We've been seeing that for a number of years actually.

You will continue to see it as we are really growing in a really major way in markets outside the United States.

in many emerging markets where there are certain structures and then some markets you have domestic schemes where you have to compete against.

And so you're going to have to align your pricing structure in that way.

In addition to that, look at all of the things that we're doing in the financial inclusion space.

Ajay was talking a little about it.

When people get an electronic payment means in their hand first, typically their accessing ATMs first and pulling cash out of the ATM and then they'll walk across the street to be buying something in a store.

That is typically a lower yielding transaction for us.

As we're actually working with those countries and with those consumers to be migrating them to not go to the ATM, but directly to the store, that is where you're going to see some movement from us in terms of being able to get a higher yield.

I think you should continue to see that trend for quite some time to come.

That's helpful, thank you.

Thank you.

Our next question is from Moshe Katri of Cowen.

Please go ahead.

Hey, thanks, good morning.

Is it possible to quantify the impact from the Chase conversion?

That's in terms of what's embedded in your guidance for the year.

And any sort of color on the potential margin or yield impact from that.

Thanks.

Yes, Moshe actually all of that is comprehended in what in my thoughts on 2014 revenues.

It's also comprehended in the 2013 to 2015 performance targets that we laid out.

We saw only a little bit in the second quarter.

You saw a little bit of an impact when you look, in particular, when you look at our US credit numbers even though they're very strong at the 8% range.

And you're going to see more in the third and the fourth-quarter.

We think that fairly large portion of the portfolio will be rolling off, but we also believe that some remaining portion of the portfolio will be rolling off in the first and the second quarter.

As we told you before we do not have a schedule from Chase, so we don't really know.

This is all our own internal projections.

As we're having these earnings calls, we'll update you

Anything on yield or margin impact?

On the yield, I think you should see some relatively same yield that you saw over the last couple years.

I think you should see very similar yield development going forward.

There's not going to be too much of a difference

Remember, our yield is comprised of many different things.

It's not just one client, even if they're a decent sized one.

�It has to do with geography, has to do with mix of products, has to do with mix of clients, has to do with some many factors that trying to isolate that one client�s yield impact on MasterCard's total that's a rat hole you're going into.

Thanks.

Thank you.

Our next question is from Darrin Peller of Barclays.

Please go ahead.

Thanks, guys.

Trends, I mean even beyond cross-border on the topline look pretty strong at least versus our estimates.

I mean notably, the transaction processing line in particular also I mean it grew.

And it grew materially faster than the actual transaction process growth itself.

Again, just if you can you give us a little more color on what sort of what drives that difference?

And then secondly on the other revenue lines anything that is notable there from the sequential revenue increase?

Yes, okay.

So first of all from a transaction processing fee point of view you have a little bit of pricing in there, which is by the way coming off in the third quarter.

And you have a little bit of the acquisition revenues in there, okay?

While that is not a real driver on the total topline, some acquisition revenues is the transaction processing fees.

And by the way some of that some little acquisition revenues is also in the other growth line.

But the other revenue growth line is really driven by a couple of factors.

One, our Advisors consulting business is doing extremely well.

This is the business that is really helping many, many banks as well as merchants around the world, to be executing on the projects that they have to execute on.

Secondly, you're seeing our information services business.

That is where we are actually doing the data utilization and really helping people to be analyzing some of the things that they would like to do.

That is really coming to fruition.

Lastly, we�re also seeing some very nice growth with Access Prepaid.

So for instance, we talked to you last quarter or the quarter before about Qantas.

Some of these ideals that Access Prepaid is doing are actually going into that line item.

All right.

That's helpful thanks.

Thank you.

Our next question is from Chris Brendler of Stifel.

Please go ahead.

Hi.

Thanks, good morning.

I wanted to ask sort of a larger broader strategic question on pricing.

It seems like you had the little bit of tailwind this quarter that is lapping and sort of going away next quarter it sounds like.

So not much pricing for the rest of this year.

But as you look out, I know you're always opportunistic, but it seems like one of your largest competitors has been more drawing a line in the sand on pricing.

And just wondering if that in any way impacts your thinking?

And how you view pricing going forward relative to how you've used pricing over the last four or five years?

Thanks.

We don�t look at pricing in isolation.

Pricing has to be part of the business and we have to be sure in terms of the value that our products develop that we've put the right kind of pricing in the market in order to make sure that people are using our products.

And from there on, that is our thoughts on pricing.

That has really not changed over the last few years, I would say.

So you see for some years where we have very small pricing for some years we have a little larger pricing.

And I don't think from a strategic point of view we have seen changes in the market place that would lead us to believe that we are changing our thinking on that.

My view, just to be clear, the impact of pricing in the second quarter of this year.

Yes, there is some impact left over in the cross-border area.

But if you look at our total revenue growth for the quarter, there was very little impact from pricing.

Just to be clear.

It was there in the first quarter, it was not there in the second quarter.

Second part of this is that if you look at our strategy on pricing, our strategy on pricing is that we have effectively look -- and there are so many lines of pricing and so many countries that people are always looking like Martina said for the opportunity at the right place where the value equation makes sense.

I very consciously took pricing off the table as part of our guidance when I came because I don't believe that's the strategy for the Company.

The strategy for our Company is to grow our franchise and to grow our revenue and to keep taking some pricing benefits as they come.

And that's what we're doing.

And you talk about how are numbers doing this quarter or last quarter, there's really any other competitor.

I don't even look at it as a traditional competitor, I look at our growth in the space of how much opportunity there is in our industry.

And I think our 13% revenue growth is a good place to be.

I agree.

Thank you.

Thank you once again if you have a question press star one on your phone.

Our next question is from James Friedman of Susquehanna.

Please go ahead.

Thank you.

I wanted to ask about the commercial product.

Ajay you had eluded to progress there in some of your prepared remarks.

Two questions there, do you believe you're taking market share in commercial?

And secondly, is it biased more domestically versus internationally?

Thank you.

First of all, I'm really glad you used the carefully word prepared word, prepared.

Barbara thinks I don't follow my prepared remarks.

She was making jokes about it before we started the call about my ad-libbing.

So anyway, I will remind her of that and I will ask her to talk to you in great detail.

Now, the actual commercial product thing.

Yes we are gaining share.

We've been gaining share for a few years now, two to three year.

I actually think there's more opportunities up ahead if it can keep executing on the hard work that our product teams have done to put together a value prop that make sense.

And there's more to be done in that space.

We're really on a journey on this whole commercial space.

I don't believe MasterCard had adequately worked in this area five, seven years ago.

So I think we're really getting to our right place there.

Yes, we're gaining share.

Is it biased to the US?

Not really.

Actually let me make sure I answer that question correctly.

We are growing in commercial around the world.

The US was the one that first jumped onto executing against the improved product quality and using all our tools like Smart Data and virtual cards and purchasing cards and all those pieces.

They worked on it.

Now it's moved overseas as well to other regions, but it started in the US.

The commercial card tends to be used, not just domestically, but also cross-border, just by major nature of the book it aims at.

It's got a mix of everything inside there.

Thank you.

Thank you.

Our next question is from Glenn Greene of Oppenheimer.

Please go ahead.

Thank you, good morning.

I want to back to, maybe Martina for the pricing just to clarify the impact in the quarter and going forward.

And I realize I guess there was a four point benefit in the cross-border, which I guess was a little bit more than I would've thought.

But I think more importantly just sort of to make sure we're all on the same page for the back half, are we fully anniversaried on the cross-border going into 3Q?

And should the Delta on volume and revenue growth be something like maybe five points lower on revenue growth than volume road going into the back half?

Is that the right way to think about it?

First of all we had, yes, the pricing was pretty much in cross-border I called out the 4 ppt that was much lower than what you saw in the first quarter.

And the first quarter in that line item it was actually 10 ppt.

And yes, that is anniversarying in the third quarter, so you're not going to see that going forward.

Then there was a little bit as I said from a transaction processing fee point of view.

When you look at the overall net revenues and you extrapolate those line items to overall net revenue, overall pricing in the quarter actually was a relatively small, very small contributor.

How you should be thinking about that is all of these thoughts that we have about pricing roll into what we are saying about 2014, what we see from a net revenue point of view, as well as roll into our long-term performance targets.

That's where we're wrapping it into.

Yes, I was thinking more about you've had at Delta on the volume and revenue growth negatively because of the strong intra-European volumes?

Yes, you're going to continue to see that likely.

Just because when you see the growth of the intra versus the inter regional volume developing.

So Europeans and in fact that it was a little even a change when you look versus the year ago volumes -- Europeans are staying closer to home.

Both it looks like from a pleasure point of view as well as from a business point of view.

As long as they stay closer to home, our European cross-border transactions are priced lower than the interregional transactions.

That's where the mix is coming in and the relative growth of interregional versus intra-European numbers impact this mix.

I don't see that changing for at least a number of quarters to come.

Okay thank you.

It's really interesting if you go beyond this a little bit and to understand what's going on with the Europeans, for example, there are others.

If you look at all our data on which are the hottest travel places around the world, you've got London, you've got Bangkok, you've got Paris and cities like that.

If you look at that data, tourism into Southeast Asia has been impacted over the last six, eight months.

You've had some unrest in Thailand, you've got problems in Vietnam with the Chinese situation.

You've got people canceling trips into that part of the world.

It's similar into a place like Russia for all the obvious reasons that we've been talking about.

So what's happening also I think in this last quarter or two, is that people are staying closer to where they're comfortable.

The Europeans, in particular, are relatively intrepid travelers outside.

They have been and they travel frequently, they take a few holidays a year.

In case you look at how many holidays the Europeans do get in the course of a year.

They have cut back as Martina is laughing at me.

She's half German, half French, so they take the most holidays in the world.

But the fact is if you look at what's going on there, there is a genuine difference right now in the way people are traveling.

There just is.

And that's in addition to what's going on with the China, where you can see the impact of a change in policies and growth on the ground to what's happening to cross-border volume in trade outside of China.

This is just something you're seeing.

Having said that, I think we have a pretty strong transaction growth rate in our cross-border and we do a lot of work to make that happen both from share, but also the kind of work we do with issuers and merchants to make that work the right way.

Christine, I think we have time for one last question.

Okay.

Our last question today is from Bob Napoli of William Blair.

Please go ahead.

Thank you and good morning.

Martina, did I hear you suggest a tax inversion?

But my real question was --

Not really, but we like to align our tax footprint to our business structure given that most of our revenues and profits are still rolling up into the US and into Belgium, which are high tax countries, but 60% of our business is really in many other jurisdictions.

Right okay, but my real question --

No tax inversion.

With the changes in technology with EMV higher focus on security, do you think that -- has MasterCard benefited?

Do you think you're gaining some market share head to head when it comes down to bigger focus on technology?

I do know that we put a lot of effort in the space, on both innovation and technology, look at MasterPass.

I consider MasterPass to be the wallet part of it.

There's more to come.

As I said, it's a whole platform.

The fact it'll be live in more countries and we've actually got tens of thousands of merchants signed up.

We've got some momentum on the ground in terms of MasterPass being both an online and in-app and a physical space play.

And the fact that it was designed in a way that allows banks and merchants to integrate very easily, much easier than many competing wallets, all that's helping us when we go to sell.

The focus on security is helping us when we go to sell.

But I don't know that I could pick one of those and tell you that a client, a merchant or a bank or a government, is turning business to me just because of that.

I actually don't think that anybody thinks in such a single patterned way.

It's always a very complicated discussion.

It always has pricing built into it as you know.

But it also always has all these other aspects.

I think all I'm trying to do in the Company, what we're doing, is to assemble our portfolio assets, be it the security part, the EMV part, the innovation part, the loyalty and rewards, the processing.

That's why you're seeing us invest in those areas.

That's where our organic and inorganic money is going.

It's going into those very specific areas because we think they help us build a portfolio to go talk with.

Thank you.

All set?

Last question done, back to me.

We delivered strong results for the first half of 2014, in spite of this mixed economic environment and we are focused on delivering yet another good year.

We'll work through the regulatory challenges in Russia and Europe.

We've got a track record of managing through these situations in other markets.

Every situation is different, but we manage our way.

We feel confident we will be able to navigate our way to these most recent ones as well.

On the other side of this, we see many opportunities around the world and that kind of provides some balances to these challenges we talk about.

We're investing in new technologies as I was just telling Bob and other services both organically and through acquisitions, including our recent transactions in the loyalty, processing, person-to-person and mobile spaces.

As Martina mentioned, the pace of M&A activity has accelerated recently.

There's no shortage of growth opportunities in our business frankly.

While our investments are having an impact on our OpEx right now, we believe that we are investing in a thoughtful way that ensures continued topline growth and good long-term returns for all of you who invest in our stock.

I'm hoping many of you will be able to join us at one of our investor days in September, either in St.

Louis or in Dublin where you'll have a chance to hear more about strategic focus areas and you can touch and feel some of our innovative products and services.

Thank you for your continued support to the Company.

And thank you for being on our call today.

Thank you.

And thank you ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.