Earnings Call: Q2 2014

Jul 31, 2014

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, and good morning to everyone. Thank you for joining us for our discussion about our Q2 2014 financial results. With me on the call today are Ajay Banga, our President and Chief Executive Officer and Martino Hunmejian, our Chief Financial Officer. Following comments from Ajay and Martina, the operator will announce your opportunity to get into the queue for the Q and A session. 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 ks that we filed with the SEC earlier this morning. A replay of this call will be posted on our website for 1 week through August 7. 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 With that, I will now turn the call over to Ajay Banga. Ajay? Thank you, Bhavan, and good morning, everybody. So for the Q2, we are pleased to report a net revenue growth of 13%, both as reported and adjusted for currency. That increase was 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 So 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 2nd quarter spending pulse data showed U. S. Retail sales ex auto Growing at 3.8 percent and that's a noticeable improvement over the 1st quarter number of 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. Having said that, overall, we think The current U. S. Economic recovery is very much a work in progress. We see some favorable indicators, the continued improvement in unemployment figures, consumer levels and so on. But in fact early indications for July retail sales again ex auto are showing further improvement over the 2nd 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. So despite those mixed signals, our U. S. 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 in 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. And if you add to this, in the case of the U. K. In particular, our spending pulse data showed retail sales ex auto growing by 4.8% in that quarter and one of the strongest rates in the last 4 years with growth spread evenly across the sectors. So Mastercard's total European volume growth for the Q2 was in the low teens, process transaction growth was in the high teens, both a bit lower than the Q1. 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 And our 2nd quarter spending bug data for Brazil shows that retail sales grew 4.1%, down From the 5.9% growth in the Q1 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 Q2 and we believe that will continue as the U. S. Economy improves. Our business in the region remains healthy, but It has slowed somewhat over the Q1 with 2nd quarter GDV growth in the low teens and process 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 Changes in their political environments. Our business in Asia Pacific, Middle East, Africa continues to do well with process transaction growth remaining about 30 And GDV Growth in the High Teens for the 2nd quarter. So 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. And we still believe that the proposed legislation is most likely to be adopted sometime in the first half of twenty fifteen. 2nd, let's talk about Russia. As you know, the Russians are implementing Changes to the 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 Filling our U. S. Obligations. And 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 have now been delayed by the way till October 31. 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 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. It's difficult to put any future annualized impact into 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 $3,000,000 in a full calendar year of this effort. The exact amount Along with any investment required for an on-site switching capability will obviously depend the final form of our operating construct in Russia. So let's move on to Sure. So let's move on to some of our recent business activity. 1st, talking about Russia. I want to tell you that as we continue to work through the Our business continues to move forward. For example, we just renewed our business agreement with Alfa Bank, Russia's largest private bank So let's go beyond that to talk about how we deepen our relationships with merchants and leverage these into partnerships to To grow our business, I'm going to highlight some recent additional activity in that space, but 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 and 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. In this quarter, we've got a few more to talk about. Beginning in spring of 2015, BJ's Wholesale To help them deliver our most secure solution for their cardholders. We've also had a couple of important renewals in our merchant co brand business With SaaS and Expedia continuing our long standing relationship with both of them. Outside of the U. S, Mastercard was selected as the co partner for the Landmark Shukran credit card in the UAE. Landmark Group is one of the largest retail organizations in the Middle East 1800 stores. We also have the region's largest retail loyalty program in 7 countries with almost 6,000,000 members. For us, 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. So 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've worked 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 numbers Using our in control capability. And finally, with Mastercard Labs, we're bringing our partners together to help solve some of their business challenges. 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 use technology tools like Simplify Commerce and Masterpass to develop wearable solutions for travel. Moving on to mobile. Last quarter, we talked about mobile as being just one of the many ways that consumers are shifting from physical to digital payments 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 continue to deepen that relationship by launching Russia's first contactless mobile payment service with 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 kind of 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 9,000,000 subscribers or so recently launched their SureTap wallet And that's got a Mastercard prepaid card embedded inside. And that new application allows Rogers subscribers to use their NFC enabled smartphones To make contact us payments, which is already accepted, for example, in Canada in 18 of the 20 largest merchants. And on to Masterpass. We're continuing with our global expansion of Masterpass. Masterpass, as you know, is our digital acceptance platform connecting In this quarter, Mastercard launched in Singapore, in Poland and South Africa. We're now up to 10 markets. We expect to do 4 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 multichannel shopping and the ability to create innovative tools that you could 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. Mastercard 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've got a number of 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 Welcome 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 happened today. In the last 2 years, we've launched over 100 new programs designed to bring access, convenience and security To over 350,000,000 people around the world who didn't have access to financial products before these programs were launched. You've already moved to Europe in South Africa and Nigeria. And let me give you some more color with a few more examples this quarter. So in Pakistan, we are partnering with the Bank of 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, Reduced leakage in the process. And in June, we announced the launch of the first Arabic mobile money implementation with the National Bank of Egypt At a mobile network, Episilat, the service called the FLORUS Wallet, I hope I get that right, will allow Episilat subscribers to transfer money, pay their bills, Top off their mobile phones and make purchases either online or face to face. And also in June, Safoon Haji, the 1st and largest Islamic non bank financial institution in the world launched their first Sharia compliant debit Mastercard. So cardholders can use their card anywhere Mastercard is accepted, including on their pilgrimage to Mecca and Mavena. This event marks the beginning of broader collaboration with Taboo Mahaji in the Islamic payment space. Together, we are supporting Malaysia's economic transformation program to drive financial inclusion and to accelerate that country's migration So with that, let me turn the call over to Martina for an update on our financial results and operational metrics. Martina? Thanks, Ajay, and good morning, everyone. Let me begin on page 3 of our slide deck, where you see the as reported as well FX adjusted growth rates. All of my comments pertain to the FX adjusted figures, which are almost the same at the reported numbers. So we're 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 Q2, we repurchased almost 16,000,000 shares at a cost of approximately 1,200,000,000 Through July 24, we purchased an additional 1,400,000 shares at a cost of and we now have $728,000,000 remaining under the current authorization. We will continue to look to repurchase shares on an opportunistic basis. Cash flow from operations was 729,000,000 We ended the quarter with cash, cash equivalents and other liquid investments of about $5,700,000,000 So let me turn to page 4, where you can see the operational metrics for the Q2. Our worldwide gross dollar volume or GDV Overall, our U. S. GDV grew 9%, which was essentially the same as last quarter. On the credit side, we had strong volume growth 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 U. S. Debit growth was 9%. Outside of the U. S, 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 Q1. Growth in both APMEA and Europe was in the high teens. Key contributors to this growth included the U. K, Italy and The deceleration of cross border volume growth in Canada and Brazil continued into the 2nd quarter. And in addition, we saw a deceleration in Australia and Russia and China with Australia likely due to currency. Turning to page 5, process transactions grew 12% globally to more than 10,600,000,000 We continue to see double digit growth in most regions. And globally, the number of cards grew 8% With over 2,000,000,000 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 year lower yield continues to be impacted by 2 factors. The first is lower fees in some markets 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 process transactions. Overall, net revenue growth was 13% 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 and that was reflected mainly in the domestic assessment category. Let me move to page 7 and here you can see total operating expenses were up 14% This is related to acquisitions, which were mainly in the G and A line. So when looking specifically at the 19% growth in G and A, Our acquisitions, primarily CSAM 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 $20,000,000 increase in D and A is the result of our growing level of capital Mainly associated with additional investments in technology to support initiatives like MasterPath and Chrysler 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 28. Each of our business drivers is slightly down compared to the 2nd 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 are as follows. Starting with processed volume, we saw global growth of 11%, down slightly from the 2nd quarter. In the U. S, 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. Process volume growth Site of the U. S. Grew 14%, about 1 ppt lower than the 2nd quarter, primarily due to some continued Deceleration in Brazil, Russia and Canada. Globally, process transaction growth was 10%, Also about 2 ppt lower than what we saw in the Q2, including the Chase migration. And now with respect to cross border, our volume grew at a healthy 14% globally, about 2 ppt For the most part, this deceleration can be explained by 3 factors. The first is the timing of Ramadan, the impact of which we expect will reverse in August. 2nd, the impact of foreign exchange Tumor purchasing power in certain travel corridors such as Canada to the U. S. 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 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 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 4 to 5 years, we've looked at a large number of opportunities, but only a You have met our strategic and financial criteria. Although 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 Data Cash and Access Prepaid along with the 5 we've done so far this year, so that's Provus, CSAM, You should expect us to continue to evaluate more such investments. So moving on, let me offer some commentary about 2014. So while M and 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 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 Show up in the G and A line and we expect G and A to increase by about $80,000,000 in each of the 2 remaining quarters before considering any organic growth in G and A over last year. Including the impact of these acquisitions, the expected growth rate in G and A for the second half of the year unchanged since our last call. Our expectations for full year net revenue growth remains at the low end of our 3 year range. The strong underlying growth trends we are seeing in volume and transactions is allowing us to absorb the minimal impact 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 Q2 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 and 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 talked about, we continue to expect D and 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 As a reminder, you should be reflecting roughly $10,000,000 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 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 headwinds to net revenue growth year to date from other currencies depreciating against the U. S. Dollar and the euro. As I 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 and 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 And our first question is from Tien Tsin Huang of JPMorgan. Please go ahead. Great. Thanks. Thanks for all the details. Just wanted 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. So I'm going to take this Tien Tsin, it's Martina. First of all, we said that we had in the quarter for PPT impact from pricing in the cross border fees, quite the majority of that is actually going to roll off next quarter, okay? 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 affect 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 $10,000,000 or so. So it was not a big factor for us at all. Next question please. Thank you. The next question is from Bryan Keane of Deutsche Bank. Please go ahead. Yes. Hi, guys. Just wanted to follow-up on that on cross border. Just trying to understand when we look at the competitors in Your volume seems to be so much higher. Just trying to figure out how much of that is share gain or is that just business 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 cost border, as I said, it was 16% this quarter. The prior quarter, it was 17%. And when we pull out Europe, in the prior And when we pull out Europe, in the prior quarter, we basically said it was the same number 17% growth. When you look at 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. And then Okay. So I was just going to ask and then any share gains there before. Is it share gains explaining a lot of this besides mix? I mean are you gaining share and 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're pointing the portfolios to be able for people to Really use those cards across borders and transact in other countries. 2, obviously there are some share gains in it, but I think you're going to have to look at this Very comprehensively, there are a number of drivers. Okay. Helpful. Thanks. Yes. I just want to correct one thing. When I said I pulled out Europe, it's not all of our European regions. It's really best in Europe, which is synonymous to Where Visa Europe is operating. Okay. Thanks so much. Thank Our next question is from David Hoxton of Buckingham Research. Please go ahead. Yes. Hi, thanks. I wonder if you could just provide some more color on the consistent increase in growth in U. S. Credit purchase volume we've seen over the last few 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. City American is clearly one of them, but there are those 2. 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 Backed 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 do well. It's 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 Zakhrani of KBW. Please go ahead. Thank you. I was hoping to just get a little bit 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. So 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 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 4th quarter. So 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 Q4 going up in And then 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 kind of on revenues percent for the full year. So that's roughly $140,000,000 I mean it sounds like the costs are still higher than that kind of on a run rate. So could you 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 So could you just talk a little bit how you think about them in terms of the returns that they're going to generate for the company? Yes. Look, we are Separating acquisitions really into 2 buckets. One bucket is capability set and the things that we really need to do in order to affect Some of our strategies, I would put for instance a company like CSAM in that. To be honest, CSAM did not come with a lot of revenues, but they came with a huge amount of Over 200 engineers in India that are really very well trained on mobile platforms and helping significant And on our execution in the MasterPath arena, the other part of the acquisitions are buying fully fledged businesses like the business That we just closed which is pinpoint and that came in literally at the end of the quarter. So you're not seeing a lot of revenues there. That's a fully batched business. It On the expense line on the revenue line, but you should be accepting that over a number of years we'll be really helping that these business This really will be helping aiding our growth. From a dilution point of view, I already talked about the $0.68 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 are done at 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, you would get why do we get even if we got revenue, there may be a dilution in the 1st year because We're ending up either putting an investment into their capability 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. And so a lot of money goes into that effort into Upgrading their accounting and to upgrading their compliance and to upgrading their firewalls and to upgrading their safety systems, their capabilities on cybersecurity, Hiring of a few new people, that's what goes into the first slot. That tends to create some dilution. Companies like CSAM on the other hand are all about rolling out And all that we want to do in the mobile space. I mean, I just said, we're in 10 countries already. That's way more than anybody else's in. And by the way, we're adding 4 more by the end of the year. And in 2 years, we're going to be in 75% of our GDV. I doubt we could have done that Without the acquisition of CSAM and its innate capability of that very talented workforce that they have. Just as a follow-up, any comment on the current pipeline of future deals? You will listen to us and we have a deal to tell you about it. Thanks so much. Honestly, we have been here these 5 years now almost. I think Martina and I have probably looked at 100 plus deals, right? And we have done 2 Before this year, 3 maybe, including True Access, which is capability small. And now we've added these 5 here. Some of the 5 we've done just now Like ECS, we've been we bought a share in ECS 2 years ago and we've worked with them for 2 years before entering into this transaction. We've been working with CSAM for well over 2 years as well. So a lot of these deals, they are in the hopper for a while and there are others in the hopper. I have just no ability to predict When exactly they may come to fruition or frankly, we'll just get away from them because they don't work either in a return sense or a management capability sense For a geography sense or a product set sense, so it's going to fit one of those strategic needs and that's kind of how it's constructed. Thank you very much. Thank you. Our next question is from Jim Schneider of Goldman Sachs. Please go ahead. Good morning. Thanks for taking my question. I was wondering to just comment on the domestic assessment 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. And you will continue to see it as We are really growing in a major way in markets outside of the United States in many emerging markets where there are certain structures and in some markets you 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 bit about it. When people get an electronic payment means in their hand first, Typically, the accessing ATMs first and putting cash out of the ATMs and then they walk across the street to be buying something in a store, That is typically a lower yielding transaction for us. As we are actually working with those countries and with those consumers to be migrating them, To be not going to the ATM, but directly to the store that is where you are going to see some movement from us in terms of being able to Get a higher yield, but I think you should continue to see that trend for quite some time to come. That's helpful. Thank Thank you. Our next question is from Moshe Katri of Cowen. Please go ahead. Hey, thanks. Good morning. Is it possible By 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. So, Roshi, actually all of that is comprehended and what I my thought said about 2014 revenues is also comprehended in the 2013 to 2015 performance targets that we laid out. Just we saw only a little bit in the Q2, right? You saw a little bit of an impact when you look in particular at Our U. S. Credit numbers even though they're very strong at the 8% range, and you are Going to see more in the 3rd and the 4th quarter. We think that a 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 1st 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. And as we're having these earnings calls, we'll update you. And anything on yield or margin impact? On the yield, I think you should see some relatively same In yield over the that you saw over the last couple of years, I think you should see very similar Going forward, there's not going to be too much of a difference. So remember, our yield is comprised of many different things. It's not just one Even if they're a decent sized one, there's it's all to do with geography, it's to do with mix of products, it's to do with mix of clients, it's to do with so many factors Trying to isolate that one client's yield impact on Mastercard's total, that's a rat hole you're going into. All right. 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 top line 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 give us a little more color on sort of what drives that difference? And then secondly on the other revenue Anything that is notable there from the sequential revenue increase? Yes. Okay. So first of all from a transaction processing Key point of view, you have a little bit of pricing in there, which is by the way coming off in the Q3 and you have a little bit of the acquisition revenues in there, okay? So while that is not a real driver on the total top line, some acquisition revenues is in 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. 1, Our advisers 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 That is really coming to fruition. And lastly, we're also seeing some very nice growth with So for instance, we talked to you last quarter, the quarter before about Qantas. Some of these deals that excess What's PPAs are 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 large a broader strategic question On pricing, it seems like you had a 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 Your largest competitors has been more drawing a line in the sand on pricing. And I just wanted to 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 4 or 5 years? Thanks. Look, 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 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 pricing thoughts and that has really not changed over the last few years, I would say. So you see so for some years where we have Fairly 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 that would lead us to believe that we are changing our thinking on that. My view is by the way just to be clear, The impact of pricing in the Q2 of this year. Yes, there was 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. That was there in the Q1. It was not there in the Q2. The second part of this is that If you look at our strategy on pricing, our strategy on pricing is that we effectively look there's so many lines of pricing in So many countries that people are always looking like Martina said for the opportunity at the right place where the value equation makes 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 keep taking some pricing benefits as they come. And that's what we're doing. And when you talk about how our numbers are doing this quarter or last quarter vis a vis 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 Look at our growth in the space of how much opportunity there is in our industry. And I think our 30% revenue growth is a good place to be. I agree. Thank you. Thank you. Our next question is from James Friedman of Susquehanna. Please go ahead. Hi. Thank you. I wanted to ask About the commercial product, I. J, you had alluded to the 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. Hi. So first of all, I'm very glad you used the carefully word prepared. Barbara thinks I don't follow my preparedness and she was making jokes So anyway, I will remind her of that and I will ask her to talk to you in great detail. Now the actual commercial Yes, we are gaining share. We've been gaining share for a few years now, 2 to 3 years. I actually think there's more opportunities up ahead if we can keep executing on the hard work that our product teams have done to on the hard work that our product teams have done to put together a value prop that makes sense and there's more to be done in that space. We are really on a journey On this whole commercial space, I don't believe Mastercard had adequately worked in this area 5, 7 years ago. So I think we're really getting to our right place there. Yes, we're growing share. Is it biased to the U. S? Not really. Actually, let me make sure I answered that question correctly. We are growing in commercial around the world. The U. S. Was the one that first jumped on to executing against the improved product quality and using all our tools like Smart data and virtual cards and purchasing cards and all those pieces and they worked on it. And now it's moved Overseas as well to other regions, but it started in the U. S. The commercial card tends to be used not just domestically, But also cross border, just by nature of the kind of book it aims at. So 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 go back to maybe Martina for the pricing just to clarify the impact in the quarter and going And I realized I guess there was a 4 point benefit in the cross border, which I guess was a little bit more than I would have thought. But I think more importantly just to sort of make sure we're on the same Page for the back half. We fully anniversaried on the cross border going into 3Q. And should the delta on volume and revenue growth be something like maybe 5 points Slow on revenue growth and volume growth going into the back half. Is that the right way to think about it? So first of all, we had again, the pricing was pretty much in I called out the 4 ppt. That was much lower than what you saw in the Q1. In the Q1, in that line item, it was actually 10 ppt. And yes, that is anniversarying in the Q3, so you are not going to see that going forward. And then there was a little bit as I said from a transaction And processing fee point of view, but when you look at the overall net revenues and you extrapolate those line items to overall net revenues, overall pricing in the quarter actually It was a relatively small, very small contributor. And how you should be thinking about that is all 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 A 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 interregional volume developing. So Europeans and in fact That was a little bit 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. And as long as they stay closer to home, Our European cross border transactions are priced lower than the interregional transactions. So that's where the mix is coming in and the relative growth I see that changing for at least a number of quarters to come. Okay. Thank you. Again, Anthony, it's just really interesting If you go beyond this a little bit and to understand what's going on with the Europeans, for example, or others, if you look at all our data on which of 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 6, 8 months because you've had some unrest in Thailand. You've got problems in Vietnam with the Chinese situation. We'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 2 is That people are staying closer to where they're comfortable and the Europeans in particular are relatively intrepid travelers outside. They have been They travel frequently. They take a few holidays a year. In case you sort of 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 that if you So look at what's going on there. There is a genuine difference right now in the way people are traveling. So just this. And that's in addition 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 and trade outside of China. So it's just this is 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 directly. Christine, I think we have time for one last question. Okay. Our last question that 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 So given that most of our revenues and profits are still rolling up into the U. S. 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 was No tax conversion. Okay. With the changes in Technology with EMV higher focus on security. Do you think that has Mastercard benefited? Do you think you're Meaning some market share head to head when it comes down to a bigger focus on technology? I don't know. I do know that we put a lot of effort in the space on both innovation and technology. Look at Masterpass. I'd consider Mastercard to be the wallet part of it. There's more to come. As I said, it's a whole platform. The fact that we're live in more countries that we've actually got Tens of thousands of merchants signed up that we've got some momentum on the ground in terms of Masterpass being both an online An 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 so in such a single patent way. It's always a very complicated Discussion. It always has pricing built into it as you know, but also always has all these other aspects. And I think all I'm trying to do in the company, what we are doing is to assemble a portfolio of assets, be it the security The AMV 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 top wing. And that's what we're trying to do. Thank you. Jose, last question done. Back to me. Okay. Closing remarks, I guess. So we delivered strong results for the first half of twenty fourteen In spite of this mixed economic environment and we are focused on delivering yet another good year. We're going to work through the regulatory challenges in Russia and Europe. We've got a track 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 technology, 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 in mobile spaces, as Martina mentioned that pace of M and A activity has accelerated recently. There's a Shortage of growth opportunities in our business frankly. And while our investments are having an impact on our OpEx right now, we believe that we are investing in thoughtful way that ensures continued top line growth and good long term return 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 our strategic focus areas and you can get to 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.