Mastercard Incorporated : 2020 Q4 Earnings Release

Earnings Release

Mastercard Incorporated Reports Fourth-Quarter and Full-Year 2020

Financial Results

• Fourth-quarternet income of $1.8 billion, or diluted earnings per share (EPS) of $1.78
• Fourth-quarteradjusted net income of $1.6 billion, or adjusted diluted EPS of $1.64
• Fourth-quarternet revenue of $4.1 billion, a decrease of 7%, on both an as reported and a currency-neutral basis
• Fourth-quartergross dollar volume up 1% and purchase volume up 3%

Purchase, NY - January 28, 2021 - Mastercard Incorporated (NYSE: MA) today announced financial results for the fourth-quarter and full-year 2020.

"The momentum we bring into 2021 reflects how our employees stepped up to the challenges of last year. Our payments solutions, services and insights supported our customers and consumers as they navigated through the pandemic," said Michael Miebach, Mastercard CEO. "During the quarter, we expanded key partnerships around the globe and our acquisition of Finicity added to our Open Banking portfolio. We are encouraged by the availability of effective vaccines, and we remain focused on the innovations that will enrich the digital experience, strengthen security and trust, and enable choice through our multi-rail platform, all of which position us well for the future."

Quarterly Results

Fourth-Quarter Operating Results					Increase / (Decrease)
$ in billions, except per share data	Q4 2020		Q4 2019		Reported		Currency-
		GAAP		neutral
Net revenue	$4.1	$4.4		(7)%	(7)%
Operating expenses	$2.1	$2.0		2%	2%
Operating income	$2.1	$2.4		(14)%	(14)%
Operating margin	49.9%	54.4%		(4.4) ppt		(4.3) ppt
Effective income tax rate	17.6%	15.1%		2.5 ppt		2.4 ppt
Net income	$1.8	$2.1		(15)%	(15)%
Diluted EPS	$1.78	$2.07		(14)%	(14)%
Key Fourth-QuarterNon-GAAP Results 1					Increase / (Decrease)
$ in billions, except per share data	Q4 2020		Q4 2019		As adjusted		Currency-
			neutral
Net revenue	$4.1	$4.4		(7)%	(7)%
Adjusted operating expenses	$2.0	$2.0		-%		-%
Adjusted operating margin	51.0%	54.4%		(3.3) ppt		(3.2) ppt
Adj. effective income tax rate	17.5%	15.9%		1.5 ppt		1.5 ppt
Adjusted net income	$1.6	$2.0		(17)%	(17)%
Adjusted diluted EPS	$1.64	$1.96		(16)%	(16)%

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

Q4 2020 Key Business Drivers

(YoY growth)

Gross dollar volume	Cross-border volume2	Switched	2
(local currency basis)	(local currency basis)	transactions
up 1%	down 29%	up 4%

2. Growth rates normalized to eliminate the effects of differing switching and carryover days between periods.

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

• Net revenue decreased 7%, on both an as reported and a currency-neutral basis, which reflects the impacts of COVID-19 and includes a 1 percentage point benefit from acquisitions. The decline was driven by the impact of the following factors:
• • Cross-bordervolume decline of 29% on a local currency basis.
  • Rebates and incentives were flat, but grew 1% on a currency-neutral basis.
  • These decreases to net revenue were partially offset by:
  • • Gross dollar volume growth of 1%, on a local currency basis, to $1.7 trillion.
    • Switched transactions growth of 4%.
    • Other revenues growth of 16%, or 17% on a currency-neutral basis. This includes a 1 percentage point increase due to acquisitions. The remaining growth was driven primarily by the company's Cyber & Intelligence and Data & Services solutions.
• Total operating expenses increased 2%. Excluding the impact of Fourth-Quarter Special Items, adjusted operating expenses were flat on both an as adjusted and a currency-neutral basis. This includes 3 percentage points of growth from acquisitions. Excluding acquisitions, expenses decreased 3% primarily related to lower advertising and marketing, travel and professional fee spend.
• Other income (expense) was favorable $34 million versus the year-ago period, primarily due to higher net unrealized gains recorded on equity investments in the current period versus the prior period. Excluding this activity, adjusted other income (expense) was unfavorable by $67 million versus the year- ago period, primarily due to increased interest expense related to debt issuances in the current year and lower investment income.
• The effective tax rate for the fourth quarter of 2020 was 17.6%, versus 15.1% for the comparable period in 2019. The adjusted effective tax rate for the fourth quarter of 2020 was 17.5%, versus 15.9% for the comparable period in 2019, primarily due to the company's geographic mix of earnings.
• As of December 31, 2020, the company's customers had issued 2.8 billion Mastercard and Maestro- branded cards.

Return of Capital to Shareholders

During the fourth quarter of 2020, Mastercard repurchased approximately 3.1 million shares at a cost of $1.0 billion and paid $399 million in dividends. Quarter-to-date through January 26, the company repurchased approximately 1.0 million shares at a cost of $356 million, which leaves $9.5 billion remaining under the current repurchase program authorizations.

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Full-Year Results

Full-Year Operating Results					Increase / (decrease)
$ in billions, except per share data	2020		2019		Reported		Currency-
		GAAP		neutral
Net revenue	$15.3	$16.9		(9)%	(8)%
Operating expenses	$7.2	$7.2		-%	1%
Operating income	$8.1	$9.7		(16)%	(15)%
Operating margin	52.8%	57.2%		(4.4) ppt		(4.1) ppt
Effective income tax rate	17.4%	16.6%		0.8 ppt		1.0 ppt
Net income	$6.4	$8.1		(21)%	(20)%
Diluted EPS	$6.37	$7.94		(20)%	(19)%
Key Full-YearNon-GAAP Results 1					Increase / (decrease)
$ in billions, except per share data	2020		2019		As adjusted		Currency-
			neutral
Net revenue	$15.3	$16.9		(9)%	(8)%
Adjusted operating expenses	$7.1	$7.2		(1)%	(1)%
Adjusted operating margin	53.3%	57.2%		(4.0) ppt		(3.7) ppt
Adj. effective income tax rate	17.2%	17.0%		0.2 ppt		0.3 ppt
Adjusted net income	$6.5	$7.9		(19)%	(17)%
Adjusted diluted EPS	$6.43	$7.77		(17)%	(16)%

1. The Key Full-YearNon-GAAP Results exclude the impact of gains and losses on the company's equity investments, special items as described on page 12 ("Full-Year Special Items") and/or currency. See page 12 for the company's non-GAAP adjustments and the reconciliation to GAAP reported amounts.

Full-Year 2020 Key Business Drivers

(YoY growth)

Gross dollar volume	Cross-border volume2	Switched
(local currency basis)	(local currency basis)	Transactions2
flat	down 29%	up 3%

2. Growth rates normalized to eliminate the effects of differing switching and carryover days between periods.

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

• Net revenue decreased 9%, or 8% on a currency-neutral basis, which reflects the impacts of COVID-19 and includes a 1 percentage point benefit from acquisitions. Gross dollar volume of $6.3 trillion was flat on a local currency basis. The net revenue decline was driven by the impact of the following factors:
• • Cross-bordervolume decline of 29% on a local currency basis.
  • Rebates and incentives growth of 3%, or 4% on a currency-neutral basis, primarily due to new and renewed deals.
  • These decreases to net revenue were partially offset by:
  • • Switched transactions growth of 3%.
    • Other revenues growth of 14%, or 15% on a currency-neutral basis. This includes a 3 percentage point increase due to acquisitions. The remaining growth was driven primarily by the company's Cyber & Intelligence and Data & Services solutions.

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• Total operating expenses were flat. Excluding the impact of Full-Year Special Items, adjusted operating expenses decreased 1%, on both an as adjusted and a currency-neutral basis. This decrease includes 4 percentage points of growth from acquisitions. Excluding acquisitions, expenses decreased 5% primarily related to lower advertising and marketing, travel and professional fee spend, partially offset by higher personnel costs to support the company's continued investment in its strategic initiatives.
• Other income (expense) was unfavorable $388 million versus the year-ago period, in part due to lower net unrealized gains recorded on equity investments in the current period versus the prior period. Excluding this activity, adjusted other income (expense) was unfavorable by $251 million versus the year-ago period, primarily due to increased interest expense related to recent debt issuances and lower investment income.
• The effective tax rate for 2020 was 17.4%, versus 16.6% in 2019. The adjusted effective tax rate for 2020 was 17.2%, versus 17.0% in 2019, primarily due to a discrete tax benefit related to a favorable court ruling in 2019.

Return of Capital to Shareholders

For the full year 2020, Mastercard repurchased approximately 14.3 million shares at a cost of $4.5 billion and paid $1.6 billion in dividends.

Fourth-Quarter and Full-Year 2020 Financial Results Conference Call Details

At 9:00 a.m. ET today, the company will host a conference call to discuss its fourth-quarter and full-year 2020 results. The dial-in information for this call is 833-714-0894 (within the U.S.) and 778-560-2664 (outside the U.S.). A replay of the call will be available for 30 days and can be accessed by dialing 800-585-8367 (within the U.S.) and 416-621-4642 (outside the U.S.), using passcode 5773008.

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

Forward-Looking Statements

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

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

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