Earnings Call: Q1 2010

May 4, 2010

Good day, ladies and gentlemen, and welcome to Mastercard's First Quarter 20 10 Earnings Conference Call. My name is and I will be your coordinator for today. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of the conference. At this time, I'd like to turn the presentation over to your host for today's call, Ms. Barbara Gasper, Head of Investor Relations. Ma'am, you may proceed. Thank you, Jeremy. Good morning and thank you all for joining us today either by phone or webcast for a discussion about our Q1 With me on the call this morning are Bob Sealander, our Chief Executive Officer Ajay Banga, President and Chief Operating Officer, Officer, who as you know will succeed Bob as Mastercard's CEO on July 1 as well as Martina Hundejian, our Chief Financial Officer. Following some comments by Bob, Ajei and Martina, highlighting some key points about the business environment and our first quarter results, we will open up the call your questions. 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. The earnings release and the slide deck have also been attached to an 8 ks that we filed with the SEC earlier this morning. Replay of this call will be posted on our website for 1 week through May 11. 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 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 Bob Seelander. Bob? Thanks, Barbara, and good morning, everyone. I'd like to start by saying how pleased I am that we've been able to deliver another strong quarter of earnings results. This is indicative of the underlying momentum of our business as well as some encouraging signs of economic recovery in pockets around the world. In the Q1, we saw net revenue growth of 13.1% on an as reported basis and 10.2% on a constant currency basis. Gross dollar volume or GDV grew 8.3% on a local currency basis. We continue to see growth in process transactions and cross border volumes have returned to double digit growth. We maintained solid expense control, which allowed us to expand our operating margin nearly 5 percentage points from last year's Q1. All of this helped fuel net income growth of almost 24% for the quarter or approximately 19% on a constant currency basis. We believe that some of the improvements we saw in the quarter can be attributed to recent positive macroeconomic data points. For example, the stabilization of unemployment rates in the United States as well as increased consumer confidence, although still at low levels were likely contributors to increased spending in discretionary categories and to the improvement we saw in U. S. Credit volume. While credit growth in the U. S. Was still negative for the quarter, we've moved beyond the double digit declines of 2,009. During the month of March, we saw positive growth in processed U. S. Credit volume for the first time in approximately 18 months. This trend continued through the 1st 4 weeks of April. Given the challenges we've all faced over the last 18 months or so, it is to see scientists that the global recovery is continuing across a number of countries, specifically in Russia, has reached a self sustaining momentum. This is particularly evident across emerging market environments. I recently returned from a series of business meetings across Asia and I was struck by the overwhelming sentiment of optimism that many of our customers about their future business opportunities. This is in contrast to some of my recent interactions with bankers in the U. S. And Western Europe who have been more cautious. Nonetheless, we continue to see improvements across a number of economic indicators, which bode well for our business. Excluding the U. S. Region, we saw strong GDV growth of approximately 15% on a local currency basis for the quarter. I'd now like to introduce Ajay Banga, Mastercard's next Chief Executive Officer and of the company's Board of Directors. Over the course of the succession planning process, our Board focused on identifying someone who possesses his deep background in financial services, his experience working in numerous geographies have all prepared him well for this role and make him the perfect CEO to lead Mastercard into the future. As we work together over the For me, it has been challenging and exciting to have led the company for the past 13 years. I'm proud of how our company has demonstrated strong performance. Importantly, we built an incredible set of assets that offer a true competitive advantage, including a world renowned brand in our iconic priceless advertising platform, a global technology network that is second to none, offering incredible flexibility and about the payments business. I look forward to continuing my current role and then transitioning to the Executive Vice Chairman role in July. And now, I'd like to turn it over to Ajay to provide some comments on our business. Thank you, Bob. Let me start off by saying that Bob has just done a tremendous of that positioning. Martina is going to get into the details of the results shortly. So I thought I'd spend a few minutes sharing some of our thoughts Some business highlights with you. The payments industry is still very much a growth industry, not just in the emerging markets where there is an obvious potential for growth all around, but also in the developed world, where there is continued opportunity for growth by market segment and in new and alternative payment platforms like contactless, mobile, e commerce and remittances. We're just very economic cycles. Our industry and our business have been built on the widespread adoption of credit and debit products globally and we remain very optimistic about the growth potential of these businesses. We will invest our resources in initiatives designed to accelerate our business key markets around the world and to drive growth beyond that secular momentum. To do this, you will find by customer and by product, including capturing the large opportunity we believe prepaid products represent. Innovation will be key to our future success. So you should expect to see us putting an even higher level of effort in these areas, while we continue to innovate in more of the traditional spaces of debit, credit and prepaid. I'm sure will hear a lot more from us about this when we host our Annual Investment Community Meeting in September. So let's do a quick review of some of our recent announcement in this area and that will give you a sense of where we are focusing our efforts. Last month, we launched Mastercard Labs, our new global search and development organization focused on payment innovation aimed at differentiating Mastercard among customers and consumers. Mastercard has contributed significant innovations in the past as well, including Pay to build solutions on our own, but also with partners to most efficiently and effectively meet the emerging needs of the payment space. Another example is our launch of Mastercard Marketplace in the United States, powered by a new alliance with NexJunk. Mastercard Marketplace place allows cardholders access to merchant funded offers from thousands of merchants. What's new and different about it is that shoppers can What types of offers they want to see and the marketplace then tailors the discounts to shoppers' stated preferences as well as their interactions and the behavior of shoppers just like them. Importantly, merchants are then able to customize consumers and a targeted promotions engine for merchants. Think of it more as a match.com for and with some of the largest online retailers among the over 28,000 participating merchants, We're very excited about what this platform can do for us and our customers. I hope you had a chance to sign up and check out the overwhelming offers and VIP invitations to exclusive shopping events. Our in control solution continues to momentum with recent U. S. Commercial wins including JPMorgan, 5th Third and the First National Bank of Omaha. We're very optimistic we will be able to bring you further deal news on this in the near future. We're also making progress in the U. S. Debit front, but not as we've heard from with deals at any price just to gain market share. In addition to the SunTrust deal, which we announced back January, we have signed debit deals with a number of other banks in this past quarter, including Ohio based First Merit who will be converting their debit and credit portfolios to Mastercard. Additionally, Ally Bank, the online banking unit of GBank Financial Services will issuing Platinum Debit Mastercard Cards later this year to their U. S. Online checking and money market account holders. On the credit front, HSBC renewed their global mass affluent premier credit relationship with Mastercard and as part of a long term contract renewal, Mastercard is now the exclusive brand of choice for HSBC's premier card program, which is aimed and targeted at affluent customers around the world. Prepaid continues to be a high growth area as we further build our market leadership. On Earth Day recently, the U. S. Treasury announced a green initiative to reduce paper checks. Treasury will leverage the Direct Express program with Promedica Bank that already has more than 1,000,000 Mastercard branded prepaid cards. Express will be expanded beyond social security benefits to now include all Veterans Affairs, Railroad Retirement and Office management, sorry about that, benefit recipients that currently receive paper checks. This conversion process will begin and all existing recipients receive payments electronically starting in March 2013. Being part of this tremendous growth opportunity just validates the efficiency that payment cards deliver over the traditional forms of payment. These are just some of our efforts that I've made at the point of public announcement. Stay tuned. We expect to have more to on a number of fronts as we move through the year and continue to build and bring even more new products and services to the market. I'll now turn it over to Martina to discuss the Q1 financial results in detail. Martina? Thanks, Ajay, and good morning, Let me begin on page 2 of the deck, which shows our reported results. As Bob said, we are very pleased to of 2010 with strong first quarter financial results. Revenue grew 13.1 percent to 1.3 billion over the comparable period last year. On a constant currency basis, net revenue grew 10.2%. This revenue increase was primarily driven by a 10.9% increase in cross border volume, an 8.3% increase in gross dollar volume a local currency basis and a 4.6% increase in the number of process transactions. Pricing contributed approximately 5 percentage points to net revenue growth. This growth was somewhat tempered by in rebates and incentives due to the impact of our cross border pricing structure, customer agreement activity and volume increases. Operating expenses increased 2.2%, primarily due to foreign exchange fluctuations. Excluding the impact of foreign exchange, operating expenses were up slightly as we continue to manage our prudently. Our operating income was $700,000,000 for the quarter and resulted in a quarterly operating margin of 3.5%, a 4.9 percentage point improvement over the year ago quarter. We delivered net income of €455,000,000 or 3 point 46 dollars per diluted share, up roughly 24% over the Q1 of 2019. Turning to Page 3, we are seeing stronger performance across a number drivers including the strongest volume growth since the Q3 of 2008 and cross border volumes We're back to pretty healthy double digit growth levels as well. Worldwebgrossdollarvolume or DDV was up 8.3% on a local currency basis in the 1st quarter and grew 14 point 8% on a U. S. Dollar converted basis to €631,000,000,000 We've to see stabilizing trends in U. S. GDV with good sequential improvement in the Q1, which was down 1.1% as compared to a decline of 3.4% in the Q4 last year. Across the rest of the world, GDV continued to grow a healthy 14.7% on a local currency basis. Worldwide credit GDV grew 3.5 percent on a local currency basis versus the slight decline in the 4th This is the Q1 since the Q4 of 2008 where worldwide credit GDV was positive. U. S. Credit GDV growth continues to improve on a sequential basis, but was still down in the high single digit range. Credit GDV for the rest of the world grew 9.1% on a local currency basis. Let's turn to debit. Worldwide debit GDV grew 18.1% on a local currency basis. This compares to about 12% growth in the Q1 of last year. In the U. S, debit GDV volume grew 7%. Debit growth for the rest of the world was approximately 33% primarily driven once again growth in our Asia Pacific, Middle East Africa region. On a local currency basis, worldwide purchase volume grew 8 0.7%. U. S. Purchase volume was also slightly positive for the quarter. Gross border volume growth on a local currency basis was up 10.9%. We saw double digit growth in our Asia Pacific, Middle East, Africa and European regions, while our cross border business in Latin America was good, largely due to the strength of our Brazilian cross border volume. We continue to see good growth in our U. S. Cross border volumes, the strong cross border acquiring from travel into the United States. When we look Process transactions, they increased 4.6% compared with the year ago quarter to €5,400,000,000 In Asia Pacific, Middle East, Africa and the Latin American regions, process transactions continue to grow at double digit rates. With the exception of Europe, all other regions grew at mid to high single digit rates. The number of Mastercard branded cards worldwide was essentially flat on a year over year basis at 957,000,000 cards for the quarter. Excluding the U. S, the rest of the world card issuance grew approximately 7%, demonstrating the continuing growth for Mastercard from the secular shift from cash to electronic payment forms. As of March 31, 2010, there were approximately 1,600,000,000 Mastercard and Maestro branded cards issued globally. Now let's turn to Page 4 the components of revenue. Domestic assessment increased 6.1% from the Q1 of 2019 due to increased volumes and the impact of the April 2009 pricing change partially offset by the repeal of some European pricing beginning in of 2009. Foreign exchange contributed roughly 3 percentage points of growth. Cross border volume fees increased 39% versus Q1 'nine, a little more than half of this 125,000,000 increase was due to pricing actions during 2,009. The remainder was primarily due to cross border volume which was up 10.9% on a local currency basis. 3 percentage points of growth. Transaction processing fees increased 16.7% compared to the year ago period. We continue to benefit from April 2009 U. S. Pricing changes, which accounted for approximately 0.11 percentage points of the increase. The impact of foreign exchange contributed roughly 3 percentage points of growth. Process transactions grew 4.6% in the quarter and continued to be affected by the loss of certain debit portfolios in the UK and the U. S. Excluding the loss of these portfolios, process transactions grew approximately 10%. Other revenues increased 12.6% versus the Q1 of 2019, primarily driven by compliance and penalty fees. All of this resulted in an increase of €255,000,000 or 17.1 percent in gross revenue. For the quarter, rebates and incentives grew 103,000,000. Approximately 55 million of this increase was due to rebates associated with our new cross border pricing structure. The remainder was attributed to new and renewed agreements and volume growth. Overall, rebates and Incentives, we presented 25.2 percent of course, gross revenues versus the 22.6% in the Q1 a year ago. Now let's turn to page 5 for some detail on expenses. During the Q1, total operating expenses 2.2% and were up only 0.5% excluding the impact of currency fluctuations. Within total operating expenses, general and administrative expenses increased 2.1% with currency fluctuations accounting for 1 point 4 percentage points of the increase. The remaining change in G and A was primarily driven by a 2.9 increase in personnel costs, mainly due to increased payroll taxes related to the vesting of equity compensation awards. Travel and entertainment costs was also up somewhat versus extremely low levels in last year's Q1. These increases were partially offset by lower severance costs and reduced payroll. Advertising and marketing spend was down 0.7% versus the year ago period. Excluding the impact of foreign exchange, ENM declined about 4% versus the Q1 of 9, primarily due to lower spend in the U. S. Depreciation and amortization was up as result of continued investments in datacenter equipment and capitalized software. Moving to the cash flow statement and balance sheet highlights on Page 6. We generated $95,000,000 in the Q1 primarily driven by operating income partially offset by payments of year end payables, litigation settlement payments and the payroll tax liability associated with the vesting of equity compensation awards. We ended the quarter with cash, cash equivalents and other liquid investments of $3,300,000,000 Before getting into some thoughts For full year 2010, let me give you an update of what we've seen recently. When looking at our Mastercard process volumes through April higher than the first. We see continued strong growth in our Asia Pacific, Middle East, Africa region and Europe region and some good increases in the U. S. And acquired cross border volumes as more consumers and business people travel to the U. S. As Bob said earlier, growth in U. S. Credit process volume was more positive in April than it was in March. However, when we look at total U. S. Process volume growth in April, it is very similar to the Q1 growth rate due to the was also similar to what we saw in the Q1. Now let's turn our thoughts for 20 10. Please look to Slide 7. In order for our full year 20 10 net revenue growth to be as strong as the double digit growth we saw in the Q1, we would have to see further improvements in some of macroeconomic indicators, stronger volume growth and cross border activity beyond what we are currently forecasting. As the year progresses, we will see some tempering in top line growth due to the following factors. First, we begin to experience tougher comps given that signs of economic recovery began to show in the second half of two thousand and nine. 2nd, the roll off of a few portfolios will continue to dampen our process transaction growth. Right now, we expect this to bottom out in the Q4 of the year, but we expect process transaction growth to remain in the single digit range. We will continue to give you an indication of the adjusted transaction growth rate each quarter in order to demonstrate how the underlying business is performing. And we continue to expect contra as a percentage of gross revenue to average and cross quarter volume growth in particular. Therefore, as a percentage of gross revenue, contra will be a bit higher in the remaining quarters for the year than the 25% level we saw in Q1. Let me remind you that we look at rebates and incentives in the context of longer term net revenue growth. Overall, we continue to anticipate Our total operating expenses for 20.10 will be flat to slightly down over 2,009 levels including severance charges. Some of the savings obtained from our 2,009 severance actions will be reinvested back into the business areas such as e commerce and prepaid as well as some additional marketing efforts. Turning to the components of operating expense. General and administrative expense is expected to be down from 2,009 levels including severance. We still expect advertising and marketing to be up mid single digits from our full year 2019 spend. While our current full year view for advertising and marketing expense has not changed, our expectations for the quarter cadence of spend has changed from our initial thoughts. Rather than the absolute level of spend being relatively equal In the remaining three quarters, we now expect the quarterly spend to increase sequentially as we move through the year. And depreciation and amortization will trend upward over the balance of the year due to the impact of increased investments in our business. We continue to assume an effective tax rate of 34.5 percent for 20 10. And finally, we remain focused on our for the 2,009 to 2011 period of annual margin expansion of 3 percentage points and average annual net income growth of 20% to 30%. Remember, while all of our objectives are on a constant basis, our as reported numbers will include any impact of foreign exchange. Assuming yesterday's exchange rates hold for the balance of the year, we would expect the current tailwind to revenue we saw in this quarter to be a roughly neutral in the ships and business momentum, we believe we will be able to deliver another solid year. Let me now turn the back to Barbara to begin the Q and A session. Barbara? Thank you, Martina. We're now ready to begin the question and answer period. And in order to get to as many people as possible in our allotted time frame, we ask that you limit yourself to a single question with one very brief follow-up And ladies and gentlemen, your first question comes from the line of Tien tsin Huang with JPMorgan. You may proceed. Thanks so much. I wanted to ask about Europe. The purchase volume there, I guess, was a little bit better than we expected. You comment on recent trends in Europe, both in cross border and also in the on the purchase GDV side? Anything we should consider as we look to the next few quarters? Tien Tsin, it's Martina. There is nothing specific really to call out. We are Some better momentum in Europe, but we can't really point to any specific factor at this point. Okay. So in terms of recent trends there, just to clarify, anything there worth noting from a macro perspective? If you're just talking about over the recent issues that Europe has regarding Greece And some of the other countries, we really have not seen any impact on our numbers related to those kind of issues. Okay, good to know. As my It's probably not a brief one, but just thoughts on Visa's acquisition of CyberSource and does this increase your desire at all to do a deal in e commerce? Tien Tsin, it's Ajay. We are already present in the gateway business for quite some time. We've had MIGS, as you know, gateway system in Asia for quite a while and that's a relatively large gateway system. It's the biggest actually, one of the biggest in Asia Pacific. We've got plans to expand our gateway footprint. We've gateways that are part of our mobile strategy as well as we've talked about launching in tandem with Itau in Brazil. So gateways as such are interesting. So I think the whole e commerce strategy goes personalized offers, online shopping, which is what the Mastercard marketplace is about. It also is about giving merchants access to new customers and getting incremental sales from existing customers and reducing the amount of abandoned shopping carts, which is again what the better Inversion ratio of things like the marketplace is about and of course, it's about enabling issuers to have a much stronger link with their card So between marketplace, gateways, R and D in our e commerce business, Mastercard Labs, the mobile strategy, you'll find us focusing on this on this space in many different ways over the next couple of years. Got it. Thanks for that. Congrats, Ajay, by the way. Thank you, And your next question will be from the line of Julio Quinteros with Goldman Sachs. Real quickly on the puts and takes in the rebates, can you just make sure that there's it sounds like there's 2 parts. So I just want to make sure One is the cross border component and the other one is the component for some of the new contracts plus volumes. The way that they ramp up as we go forward. Can you just kind of walk us through how to think about this on a quarterly basis? Obviously, it's going to be higher for the rest of the year. I want to make sure we understand when you think about The changes, especially on the contracts, when to expect to see those things ramp up? Yes. Julio, as you know, it's always very difficult to predict what on a quarter by quarter basis because it depends on when we really sign a contract and at that point in time, we have to consider what the accounting implications are. But for the whole year, we said that contra at this point in time is forecasted to be as a percent of growth between 6% 27%. And that is really based on the kind of volumes that we are forecasting as well in particular cross border volumes because Obviously, as you know, as part of the rebates and incentives, we have the cross border pricing structure in there. For this particular quarter. Rebates and incentives grew by €103,000,000 roughly half of that or €55,000,000 was related to the cross border pricing structure. In the other half, you can pretty much divvy up between new and renewed agreements as well as volume growth. And we would expect that for the next few quarters, As you know, as part of the conversion, you typically have to take some of the cost of that into your P and L in period. Okay. And then just the tempering of or not the tempering, but the revenue growth expectations as you go forward, have to think about the portfolio loss an offset, but it looks like you're coming in much stronger on the cross border and U. S. Credit volumes also appears to be a little bit better. Is that kind of a good way kind of characterizing the puts and takes here? Yes. I mean, puts and takes is obviously both on the overall volume as well us on transaction growth, we do have some headwinds. So we'd like you to take those into account because they're really not being finished with we are not going to be finished with the headwinds until the Q4 has rolled around, so and including the Q4. And then we are seeing some better numbers in cross border volume than we otherwise saw before, but we'll have to see how that's going to go forward. Great. Thanks guys. Good luck. Thanks, Julio. And next you have a question from the line of Adam Friesch with Morgan Stanley. You may proceed. Thanks. Good morning, guys. A. J, first well, congratulations. You're obviously inheriting a phenomenal franchise there. I wanted to get color from you on three fronts. 1, what will be the most Noticeable difference in Mastercard in 12 months to 24 months from now. 2, some additional thoughts on innovation. It's great to that's a big focus of yours. That's good music to our ears. Your thoughts on building versus buying and whether Mastercard will get more active in the M and A space. And then finally, your split in resource allocation between the U. S. And non U. S. Regions. Don't worry, Barbara, I don't have any follow ups after that. That's actually 4 questions, not 3. But hey, thanks for the good wishes. What difference will you see where you'll see a guy who wears a different hat from Bob running the company. I Literally. Literally, right. So let's take it at that As I say, Swamy, as they would say. Look, I believe that this company has just built off an outstanding foundation. I've said this I have said it in employee meetings. The first one to ask me this question is you can imagine. I don't have any plans to dramatically change things when the company is working the right way. People change things when you feel that things are broken. This is not in that kind of form. It's a company with an outstanding track record of revenue growth and profit growth. There are things to do, which we are working on, which we've been working on not just since joined but from earlier. And one of those is to focus on innovation as a way of differentiating our company and our products, both for our can be talked about today, be it the launch of Mastercard Labs, which is really an attempt to focus our innovation effort by bringing technology and business people together in one organization with an effort to fast track ideas and bring them out the door. The second gateways are oriented more towards how a merchant experiences the event. There's wallets that are oriented more to our customer experiences the event, but then there's all these other things you can do with things like the Mastercard marketplace to make that With reward schemes, this is all WIP, work in our process. I think on the build versus buy, in all There's no straight answer to these things. It depends a little bit on what you see in the marketplace when it fits with your strategic priority. 1st, it must bring something to you, you do not possess either in the form of distribution of products or people. It must fit with your hurdles in terms of what you expect to make back from the money we invest on behalf of our shareholders. And if doesn't fit those 2 primary criteria, we'll build it. And I don't have a real answer. It depends on issue by issue, item by item, circumstance by circumstance. This company invested money a little while ago in buying Orbiscom to get hold of InControl, which is IP And I would tell you that we are beginning to see a lot of interest in all my travels in the last just 3 months I've been to different markets. Been to Russia, Turkey, Poland, India, the UK, Brazil, Colombia, Mexico and Canada, in addition to the U. S. And I'm telling you Clients everywhere, senior managers and those clients really understand what InControl is about. Bob has been all over Asia in the last month. He's been to Australia, to Hong Kong, to to China and back. And he has the same experience that we've been having on this topic. So yes, would that have been a good buy? Yes, because we couldn't ourselves compared to having an intellectually property protected item we could have picked up when we bought ORBISCOM. So there's no real answer. It's an answer of what's right for that strategic priority. Resources between U. S. And international, I don't know that yet. I don't know the answer I think you will find that the way I look at this business and the way Bob has been looking at it is While we believe that the international markets, not just the developing markets by the way, we believe even developed Europe has opportunities for us that is relatively well positioned in that marketplace and with some more opportunities coming through it, I believe that the world outside of the United States is an Active place for our growth. We already get 55% of our revenue from outside of the United States roughly and that's already higher than a of other companies in our space. That doesn't mean that we would believe we should invest less in the United States. I think the United States is still the of our business and we need to grow there and demonstrate revenue growth in that marketplace. But I think find us thoughtfully investing in both spaces as the opportunities come along. That was great color. Thanks very much, Ajay. And I look forward to seeing you guys tomorrow at our payment Appreciate it. Bye bye. Terrific. And so your next question comes from the line of Andrew Jeffrey with Credit trends are headed in the right direction. Can you drill down in that a little bit, maybe Martina to talk about categories of U. S. Credit spending? I think Visa said a couple of weeks ago or last week that it saw still greater strength in sort of non items within their credit book of business. Can you comment on that a little bit and just maybe give us a little color on what we're Hi, Andrew. We are seeing Some trends that people are willing to do a lot a bit more discretionary purchases versus the non discretionary purchases. As you Most of our cards are really everyday cards, so you're using them every day. So we definitely see the non repurchases continue and topping up a little bit with the discretionary side. The only real data that we have published in the past is really from The Mastercard spending pulse. And when you look at some of that data that is out there, you can see that some of the discretionary items such as what's happening from a furniture industry point of view, what's happening from an electronics industry point of view, when you look at the jewelry kind of areas that things are picking up, albeit they're still back to fairly low levels compared to like 2,000 and 2,007. So hopefully, we'll see a lot more to come, but we're starting to see the Kamsuna coming back into the market. Okay. That's helpful. Thanks. And as a follow-up, prepaid is an area that's gaining a lot of attention these days. Is there anything specific you can talk about in prepaid do you think starts to move the needle for Mastercard over the next several quarters? I can start and maybe Ajay may want to jump in here. But obviously, one of our flagship really are is the Comerica program. And as you know, we had one some months ago, 18 months 20 months ago, we had won the Social Security, issuance, all on Mastercard. The announcement was made very recently that they're actually winning more of the government programs. Those are significant programs. Given that the U. S. Treasury really wants to move off the paper checks into the electronic payment forms, this will be a good significant amount of momentum that we will eventually see. And by the way, we're not only seeing that in the United States, we're seeing that also in countries and we have featured with you at some point in time, for instance, Italy. So that's in the public sector arena. Is there anything The other couple of things that which allows us to issue payroll cards to Walmart employees, who otherwise would have taken a check and had to go to a check to get out that cash. So there's a series of these events, the U. S. Government piece Martina just talked about, she mentioned Italy and the Italian post office. We've also got a deal with Univision for a prepaid card and that appeals directly as you can imagine to the kind of community that looks at Univision as a source of news and entertainment both. And so we're trying to focus our prepared efforts, you because of the profitability and reuse dynamics of those. After all, if you think about a gift card, a Gift card is a one time acquisition with an average of $70 to $80 loaded on it, whereas a general purpose reloadable or a social security card tends to $800 a month on the average and people last there for a year or 2 years. You can imagine the profitability dynamics of that are more interesting than that of a gift card. Doesn't mean gift cards are not interesting, just means the others are somewhat more attractive. There is the whole space, be it corporate payroll and benefits with the medical reimbursement cards, there's just a series of spaces with Accor Services, JV in Europe that we are working on, so I don't know how to exactly tell you that there'll be something specific that will come in the next 18 months. You'll just see us working very hard at each and every one of these opportunities to get into the opportunity as it grows, but also to tap to more pieces of the value chain as we go along. Thank you very much. And Your next question will be from the line of Sanjay Sakhrani with KBW. Please proceed. Yes, thank you. I was wondering if you could elaborate Great. On the timing of the customer losses this year and their impact on process volumes, I was just I wanted a clarification on the rebates and incentives line. If SunTrust, the conversion happens in the Q4 as planned, does that take up that run rate rebates and incentives that you addressed, Martina? Thank you. Okay. First of all, on the timing of the customer losses, we are pretty I think done in terms of having seen the impact in our Q1 completed on one significant customer in the U. S. And we still have one other customer standing out there, which is VAMU for the rest of the year. And that's going to come off in fits and spurts over the rest of the year. In the U. K, we're through one of the portfolios probably like 50%, 60% and then the other portfolio also will still run through the rest of the year. So, Sanjay, you're really going to see for the rest of the year still some headwinds, both from a I really can't add anything more than what I already said, which means in Q4, we are probably going to see the impact from SunTrust, but we're not ready to establish any new baseline going forward. Okay, great. Thank you. And your next question will be from the line of Jason Kupferberg with UBS. Please proceed. Thanks and good morning guys. My first question is, I think in the past you've indicated that your next sizable contract renewals are scheduled for 2011. Can you assess the probability of those becoming early renewal situations that could possibly get renegotiated before the end of this year? And in in return? Jason, when we look at 2011, there is no really sizable in 2011. What we have is 1 sizable renewable in 2012, 1 in 2013 and 1 in 2014. So that's still way out, but obviously what we will be doing is we will be from a competitive point of view, trying to make sure that we expand where Mastercards are being issued. So that will be our approach for 2011. Okay. And then just to switch gears with United and Continental looking like they're going to merge here. Any thoughts on the opportunities or worst case scenarios for Mastercard, I think you did recently renew the Continental portfolio, but any thoughts there? Well, let me take that for a second and we're in the process of evaluating all those terms. It's my understanding and our that the existing Mastercard branded Continental cards will remain Mastercard branded for the life of the account. So I don't know what else opportunities or issues may come along as this merger goes through. It's very early days and so it's just that's kind of where we are right now. Okay. Thanks guys. And your next question will be from the line of Rod Bourgeois with in the debit market in the United States, which is certainly a growth category is without doubt something we want to play in. We are already A reasonable player, some of the transactions that have happened in the last few years have not worked in the favor of this company in terms of being able to hold on some of that business, but we're making progress. We have made progress at SunTrust. I just we've made progress with a number of different sized banks Yes, you will find us focused on growing our debit book, but focused on growing it with transactions that sense for our company. There are many other opportunities as well. I believe prepaid is another opportunity at getting at a similar pay now, in fact, funded card and so there's many ways to grow our presence in the non credit space and you'll find us making efforts on all those fronts. Okay, great. And then the follow-up kind of in a similar vein of asking about kind of key strategic initiatives. Do you have any plans to move more to acquire processing activities. We see some of that going around in the space and I'm wondering if that's an area where Mastercard will increase we focus? Look, I think the concept of being in processing both in some ways issuer processing and acquire processing is a bad thing for a company in our space. Some of our competition talks about it as well. We've got a program, let's say, process and a technology called IPS, integrated processing solutions that we've got signed up with a few customers and we are very focused on rolling that out the issuer processing side, I think there's a series of things that we've been doing on the acquire processing side in a number of countries. In some countries, We may actually have to do that on the ground to establish certain presence on the ground as part of the terms of doing business in those countries. You will find us thoughtfully looking at all these opportunities to grow our presence and hopefully you'll hear a little bit more about this when we meet September. Is that an area where you would be aggressive or just incremental with your strategy on the acquired processing side? Is not that far away. All right. I'll hold my horses. Thank you very much. Okay. Thank you. And your next question from the line of Chris Mamone with Deutsche Bank. Thanks. Could you maybe just go into some of the recent pricing changes that you made The Cirrus ATM network, I guess, we just always we always thought of the ATM business as being less lucrative certainly Than the POS side, so is the takeaway there that perhaps you're running out of areas In the POS side to exact pricing and now even ATM? No, Chris, I have to draw you back on in terms of what we're talking about pricing initiatives is 1, we got we're obviously looking at what kind of value we provide to the customer and what kind of pricing changes we might have to do in order to be competitive. And that's really in the vein how we're looking at it. And in the past, We've been saying that on a for the 2,009, 2011 period, our run rate for pricing was right kind of in the 200 basis points or so. So we're not looking at this any different. Obviously, we'll be reassessing as we are coming closer to September our Investor Community Days in terms of where we're going to go from here. But at this point in time, this is a pretty good viewpoint and it's fairly consistent what we said in the past. Okay. I guess as a follow-up, could you just give The underlying sort of same store transaction growth rates excluding the deconverting portfolios on a monthly basis through the Q1 and into April? For the first quarter? Yes. If you could just give us sort of what January to Feb to March that year will look like? Yes. I mean what I can Tell you only is really from a volume point of view, okay? Because in a transaction, it's fairly difficult, I mean, in terms of drawing any conclusions, because of the loss of the portfolios. But from a volume point of view, what we have seen is that January was an okay month. It was a little bit lighter in February and in March, it really kind of snapped back. And when we look at the average of quarter, okay, that we just said both for the U. S. And for the rest of world, we're seeing in April exactly the same at this point in time. That's for domestic volumes, okay? And then for the cross border side, our 10.9% that we said for the Q1 on average, that's a little bit higher when we look at the April numbers. Okay, that's helpful. Thanks. And your next question is from the line of Bob Napoli with Piper Jaffray. Go ahead. Good morning. I was hoping you might be able to give some update on Your thoughts around regulation and interchange, I guess the Conyers bill kind of popped up a little bit again last week. I was just wondering if you can give some color Your thoughts about what could happen when in that regard? I'll jump in on this one. As you probably know, Conyers and Durbin have been making various proposals in the US Congress and there are some amendments that have been put forward in terms of the perspective, we believe that these continue to be pushed by the merchant payments coalition and the Motivation behind these is really to put merchants in a position where they don't pay their fair share. At the end of the day, someone's stands that you can't give anybody a free lunch. And so we hope that that's the way they think about it as they work their way through financial regulatory reform. Okay. You really didn't mention anything on the call yet about, I guess, your focus on the Money Transfer segment or remittance or card to card. I just don't know if that's kind of moved down the scale somewhat given the other opportunities you have down the list of material opportunities over the next few years, but I was hoping you might give some updated thoughts on your activities there as well. Well, actually, when I talked, I did talk about remittances as it's in passing, that is true, but that's not because of the fact that it's not playing a role. We've got a series of pilots around the world in different corridors of money transfer remittances between the UAE and certain countries. We're in the process of looking at a pilot between the United States and Mexico. So we've got a series of pilots around the world and that is actually part of the whole space, mostly in mobile banking and mobile commerce that we're looking at it as a process. It's also possible to look at remittances cross border in the prepaid space, particularly when you payroll cards on the one side and recipients on the other. And there's some work going on in that space as well. Thank you. And your next question will be from the line of David Parker. Go ahead. Thank you. Good morning. Visa Europe recently changed some of their interchange fees. Can you has this changed the competitive landscape over in Europe? And can you just an update on the SEPA initiative? Thanks. Yes. David, I think you're referring to The press coverage over an agreement reached by Visa with the European Commission, and I think it was limited to cross border within Europe and potentially in a couple of individual markets in terms of the debit interchange fees. As you You probably recall, it was over a year ago that we reached an agreement with the European Commission on debit as well as consumer credit cross border interchange fees within Europe. The way that I think I've described this in the asked is it gave some stability in terms of our issuers and acquirers understanding the nature of what was happening With regard to interchange fees, it supported the principle of interchange fees that we thought was very important, but it was also done at levels that lower than what we think is appropriate and necessary to support continued investment in the business by issuers in Europe. And that's why we also indicated that we're that we're continuing our appeal of the European Commission decision in the quarter first instance. We expect that will make its way through the court system later this year or early next year. Great. Thank you. And then just as a follow-up, you recently talked about upgrading your processing network. Can you provide some of the highlights that you implemented or changed? And Are there any more changes going forward that could take up some capital expenditures? Thanks. We make upgrades to our processing network on a fairly frequent basis. In fact, twice a year is what we're doing right now. It's a structured process. Issuers and acquirers are very much a part of the sole process because they have to do work at their end depending on elements of this upgrade they wish to take into their systems. It just so happens that the ones we've done in the recent past had a couple of interesting features in there, one The reward point redemption methodology, which has yet to be rolled out commercially. And so it's a little premature to talk about it. And another one The whole fraud detection methodologies, there's some bill pay capabilities in Asia Pacific and in Latin America, there's a series of these. And so each of our upgrades have this been built into our system with a few new features in each. I don't know that you should read more into it in terms of any kind of incremental investment cost because of that. This is something we've been for years. It doesn't mean there won't be incremental investments in strategic business ideas. I just wouldn't read too much into it based on the fact that there is an upgrade. Yes. And just to add to this, as you know, I mean, we have pretty steady state capital expenditures, we don't expect anything different for the rest of this year from a capital expenditure point of view, but what you're also seeing is as we are to our capital, our depreciation and amortization expense does go up and it will go up again this year. Operator, I think we have time for one last question. Yes, indeed. Your next and last question will come from line of Craig Maurer with SLSA. Go right ahead. Good morning. Quick question. I wanted to get your opinion on the launch of Aiello down in Brazil, the competing network that was launched in the JV that will focus Why you think they felt the need to launch that whether it was just a land grab on fees or was there something that the existing card business wasn't bringing to that sub segment? Well, I was in Brazil just last week actually when this announcement is happening and I had the opportunity to meet both Tesco and Banco, the Brazil, which by the way are actually really more aligned with our competitor than with us. So this question is probably better answered by them in some way. But my general sense of where they're trying to go and where the government of Brazil is trying to go is to help to individuals in their country. They've made a series of attempts over the last 7, 8 years, including the expansion of the ability of merchants, stores and convenience stores to even do basic cash availability and transactions of that site on behalf of banks. They're trying to provide access to people to come into the banking system. And I think what they're trying to do with Banco DO Brazil and Bradesco, which are very large banks in addition to Banco Itau, which is also a very large bank. But these 2 have use, plus also attach some processing assets into it. In all honesty, I don't expect major changes over the short or medium term as Both these clients were very clear that they intend to keep issuing other brands. In fact, I have specifically understood from them that their commitment Tensions with Mastercard remain exactly the same. So having said that, when somebody launches a local debit scheme in a marketplace, it does impact the market, it will take some business as a percentage away from the global payment schemes, but the global payment schemes bring different things to the table and the total market should grow as a result of this effort. So I think the opportunity in Brazil is much bigger than I think there's a much better position there that we all need to occupy and invest. Okay. Thanks, Ajay. And with further questions, I'd like to turn the call back to Mr. Bob Steelander for any closing comments. Thanks. As evidenced through our great performance and in the Q1, we are committed to leveraging the strength of our global network, processing capabilities, our strong relationship with customers and our product development platform to drive payments innovation and business results for our issuers, acquirers and our other partners around the world. We remain very optimistic about our future growth prospects. Mastercard is well positioned to take advantage of the recovery. We are fortunate to be part of an industry that offers tremendous for growth and the payment trends are working in our favor. Consumers, merchants, businesses and governments all over the world