MA Stock | Mastercard Incorporated Q1 2026 Earnings Call

Good morning. My name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Incorporated Q1 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Please only press star one once to queue up for a question as pressing star one multiple times may affect your position in the queue. If you would like to withdraw your question, press star one. Thank you. Mr. Devin Core, head of investor relations. You may begin your conference.

Thank you, Julianne. Good morning everyone and thank you for joining us for our first quarter 2026 earnings call. With me today are Michael Miebach, our chief executive officer and Sachin Mehra, our chief financial officer. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data, and the slide deck that accompanied this call in the investor relations sections of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the facts that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our chief executive officer, Michael Miebach.

Great. Thanks, Michael. Turning to page three, which shows our financial performance for the first quarter on a currency neutral basis, excluding where applicable special items and the impact of gains and losses on our equity investments. Net revenue was up 12% reflecting continued growth in our payment network and our value-added services and solutions. Operating expenses increased 9%. And operating income was up 13%. Net income and EPS increased 15% and 18% respectively driven primarily by the strong operating income growth in the quarter. EPS was $4.60 which includes a 10-cent contribution from share repurchases. During the quarter, we repurchased 4 billion worth of stock and an additional 1.7 billion through April 27, 2026. This quarter, we accelerated the pace of our share buybacks given current valuation levels and our strong conviction in our long-term growth potential. Now turning to page four where I'll speak to the growth rates of our key volume drivers for the first quarter on a local currency basis. Worldwide gross dollar volume or GDV increased by 7% year-over-year. In the US, GDV increased by 4% with credit growth of 8% and debit growth of 1%. Excluding the impacts from the migration of the Capital One debit portfolio, our US debit GDV growth would have been 7%. The migration of the debit portfolio is now basically complete. Outside of the US, volume increased 9% with credit growth of 9% and debit growth of 8%. Overall, cross-border volume increased 13% globally for the quarter, reflecting continued growth in both travel and non-travel related cross-border spending. As one would expect, starting in March, we began to see some impact on cross-border travel from the conflict in the Middle East. Turning now to page five, switch transactions grew 9% year-over-year in Q1. Excluding the impacts from the migration of the Capital One debit portfolio, our switch transaction growth would have been 10%. We continue to drive contactless penetration, which in Q1 stood at 78% of all in-person switched purchase transactions. This is up 5 PPT since the same period last year. In addition, card growth was 5%. Globally, there are 3.7 billion Mastercard and Maestro branded cards issued. Turning to slide six for a look into our net revenue growth rates for the first quarter discussed on a currency neutral basis. Payment network revenue increased 8% primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives. Value-added services and solutions net revenue increased 18% primarily driven by growth in our underlying drivers, strong demand across security solutions, digital and authentication, business and market insights, and consumer acquisition and engagement and pricing. Now, let's turn to page seven to discuss key metrics related to the payment network. Again, all growth rates are described on a currency neutral basis unless otherwise noted. Looking quickly at each key metric, domestic assessments were up 6% while worldwide GDV grew 7%. The difference is primarily driven by mix partially offset by pricing. Cross-border assessments increased 18% while cross-border volumes increased 13%. The 5 PPT difference is driven primarily by pricing in international markets. Transaction processing assessments were up 15% while switch transactions grew 9%. The 6 PPT difference is primarily due to favorable mix and pricing slightly offset by lower revenue from FX volatility. Other network assessments were 277 million this quarter. Moving on to page 8, you can see that on a non-GAAP currency neutral basis excluding special items, total adjusted operating expenses increased 9%. The growth in operating expenses was primarily driven by increased spending to support various strategic initiatives including investing in our infrastructure, geographic expansion, and enhancing and delivering our products and services as well as the increase in foreign exchange activity related expenses within the quarter. Turning now to page nine, let me comment on the operating metric trends for Q1 and the first four weeks of April. As we look across Q1 and April, growth rates of our operating metrics were impacted by timing of holidays, namely Ramadan and Easter. March would have seen the benefits from the timing, while February and April saw a negative impact. Looking at the Q1 operating metrics on a sequential basis, switch metrics were generally in line with Q4 and underlying spend remains stable. Of note, US switched volume was flat sequentially as the strength in consumer and business spend offset the impact from the migration of Capital One's debit portfolio in the quarter. Excluding Capital One on a like-for-like basis, US switch volume growth was over 1 PPT higher in Q1 as compared to Q4. Now on to switch transactions. Excluding the migration of the Capital One debit portfolio, switch transaction growth was generally in line with Q4. Moving to our cross-border metrics, our overall cross-border volume remains healthy with growth at 13% in the first quarter. Cross-border card not present ex-travel grew at 18% and remained strong and the sequential decline in cross-border travel was due primarily to the conflict in the Middle East and portfolio shifts. Now looking specifically at cross-border travel for the first four weeks of April. The sequential decline from Q1 is due to an acceleration of the impact of the conflict, the portfolio shifts and the negative impact from the timing I just mentioned. None of these factors relate to any fundamental change and underlying consumer and business spend remains healthy. Turning to page 10, I wanted to share our thoughts for the remainder of the year. We delivered another solid quarter fueled by the strength of our payment network and value-added services capabilities. Despite elevated geopolitical risks, the macroeconomy has remained largely supportive with healthy underlying consumer spending and the fundamentals of our business remain strong. With that said, we are operating in a period of heightened uncertainty magnified by the ongoing conflict in the Middle East. Since the outbreak of the conflict at the end of February, we have seen restrictions on travel and a reduction in the world's energy supply. And as I noted earlier, we are seeing impacts from that in our cross-border travel metrics. But let's take a step back. We are a global company and we are heavily diversified across geographies, products, consumer segments, services and so on. This diversification reduces concentration risk while enabling us to deliver consistently on solid topline and bottom line growth. So while the conflict in the Middle East is a headwind, our global diversified business positions us well to sustain growth both in the short and long term. We are confident in our strategy, delivering value to our customers and partners across the globe and innovating to power the next wave of digital payments. As we look at Q2 and the full year, our base case assumes underlying consumer spending remains healthy outside of the impact of the conflict in the Middle East. We assume the conflict ends in Q2 and the related headwinds will be largest in Q2 and then progressively recover as we move through the second half of the year. As it relates to our expectations for the second quarter of 2026, year-over-year net revenue growth is expected to be at the low end of low double digits range on a currency neutral basis excluding inorganic activity. This includes our current estimates for the impacts from the conflict in the Middle East without which we would have expected Q2 growth to be generally in line with the first quarter on a currency neutral basis. We expect minimal impact from a disposition that we anticipate to close within the quarter and a tailwind of approximately 1 to 2 PPT from foreign exchange. From an operating expense standpoint, we expect Q2 growth to be at the low end of low double digits range versus a year ago again on a currency neutral basis excluding inorganic activity. We anticipate a 0 to 1 PPT benefit from the disposition while foreign exchange is forecasted to be a headwind of approximately 0 to 1 PPT for the quarter. On other income and expense in Q2, we expect an expense of approximately $150 million. This excludes gains and losses on our equity investments which are excluded from our non-GAAP metrics. This higher sequential expense is primarily driven by the following. First, Q1 came in better than expected, aided by a few one-time items. We do not expect these to repeat in the second quarter. Second, we expect lower cash balances and higher debt levels in the second quarter. Cash balances tend to be seasonally lower in the second quarter. And as I noted earlier, we have accelerated the pace of our share repurchases. And lastly, a one-time unfavorable impact from the disposition I mentioned earlier. As it relates to our expectations for the full year 2026, net revenue growth remains at the high end of a low double digits range on a currency neutral basis excluding inorganic activity. We anticipate minimal impact from the planned disposition and a tailwind of approximately 1.5 PPT from foreign exchange. From an operating expense standpoint, we expect growth to be at the low double digits range versus a year ago on a currency neutral basis excluding inorganic activity. We expect a 0.5 to 1 PPT tailwind from the disposition and a headwind of 0.5 to 1 PPT from foreign exchange on a full year basis. And finally, we expect a non-GAAP tax rate in the range of 20 to 21% for both Q2 and the full year. As a reminder, the Q1 tax rate was lower primarily due to discrete tax benefits, including those related to share-based payments. And with that, I will turn the call back over to Devin.

Thank you, Sachin. You may now open up for questions.

Thank you. At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. Please only press star one once to queue up for a question, as pressing star one multiple times may affect your position in the queue. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Will Nance from Goldman Sachs. Please go ahead. Your line is open.

Hey guys, thank you for taking the question. Michael, I wanted to ask on the VAS strategy and the growth you've been putting up there. I think there's been a focus on how you differentiate yourself with the strategy and I think historically, you know, Mastercard has been very forward-leaning on embracing new networks and things like A2A payments. Can you talk about the evolution of that strategy maybe in the context of the planned divestiture and how some of these types of activities fit into the broader strategy around VAS? Thank you.

Thanks for taking the question.

Our next question comes from Sanjay Sakarani from KBW. Please go ahead. Your line is open.

Thank you. Good morning. I want to talk about the assumptions on the outlook for the war ending in Q2. I'm just curious if you could elaborate on the assumptions you're making on cross-border. I assume that's where the biggest impact is, and then where the offsets are that are helping you raise the guidance. And then just one follow-up on the portfolio shift point you made. Does that impact cross-border for a year going forward? Thank you.

Sure. So Sanjay, first I'll kick off by saying we have taken what we believe to be our best estimate as it relates to our base case as it relates to the conflict ending in Q2, because we had to predicate this on some assumption and that's what we shared with you. So let's just start with that piece of it. The impact is most pronounced and assumed to be most pronounced in cross-border travel. That is a correct statement on your part. The second point I'd make there is that the impact would be in our assumptions most pronounced in the second quarter. And while there will be some impact in Q3 and Q4, we expect that there will be a gradual recovery, a progressive recovery which will take place in Q3 and Q4 based on the assumption that the conflict ends in Q2. So that's kind of two things I want to mention. You also asked a part 1B question to that which was what are the offsets. So I think what you're asking is our full-year guide, which by the way on a currency neutral basis is basically unchanged. The increase you're seeing in the full-year guide is primarily being driven by a change in FX assumptions for the year. So on a currency neutral basis it's unchanged to what I shared a quarter ago. Notwithstanding the fact, look, we started the year strong, consumer spending is healthy. We're executing on our strategy. We had a first quarter where we outperformed our own expectations. So we're off to a good start in the year. That obviously provides a little bit of a buffer relative to 3 months ago versus today notwithstanding the fact that there are other things which have moved around such as the impact of the conflict which is kind of offsetting that as well. So that's component number one which we've got to keep in mind. The other piece I'd mention is that look, as you go through the year, a few things to keep in mind. I think you know this already, Sanjay, is that in Q2 of last year, we had the highest levels of FX volatility. So that creates the biggest headwind in Q2 of this year. We have some headwind from FX volatility in Q3, but it's less than what was there in Q2. So that's something to keep in mind. And then in Q4, we had more normalized levels of FX volatility. So the headwind kind of dissipates as you go across the end of the year. So that's the second point. The last point I'd make is that from a value-added services and solutions standpoint which represents roughly 40% of the revenues of the company, look, the business continues to perform. We delivered 18% currency neutral growth in the first quarter, another solid quarter and we're seeing strong demand for those capabilities. So that's something which again as I think about the rest of the year we'll have to keep executing and that's kind of based in the assumptions and the guidance that I've shared with you.

And Sanjay I know you asked the question also as part of your question 1C was the impact of portfolio shifts. And you're right, the impact of portfolio shifts will stay with us for quarters. Again, every portfolio is a different migration schedule but that kind of factors in there. You are seeing a more pronounced impact in travel because some of the portfolios were more travel heavy so that's something to keep in mind.

Our next question comes from Harshida Rawat from Bernstein. Please go ahead. Your line is open.

Hi, good morning. I want to ask about switch transaction growth. Sachin and Michael, historically it used to grow kind of in the low double digit to low teens range. More recently, the growth has decelerated a little bit to 9%. I know there's one point of Capital One debit in there, but maybe talk about some of the other drivers within that switch transaction growth and some deceleration versus history. And then as we think about the high end of low double digit medium-term revenue objective, maybe talk about the growing importance of value-added services in that algorithm and remind us about your conviction in the sustained strong growth of that. Thank you.

Sure. Harshida. So on your question around switch transactions. I think you kind of got the first part which I shared in my prepared remarks which is adjusted for the Capital One migration, we grow at about 10%. But I think your question was a little bit beyond the fact that it's 10%. You said we were growing at higher rates previously. I think one of the bigger factors that influences switch transaction growth is the mix of our portfolio. And so I'll give you a real life example. So back in the days when we were operating in Russia before we suspended our operations in Russia, we had significantly higher growth in switch transactions and at that point in time when we suspended operations, one of the things which I called out was that recognize that this market is a low average ticket size market. And so the fact that we no longer do business there impacts our switch transaction growth rates because average ticket size kind of plays a part. Point number one. And then if you just extend that logic through to different parts of the globe, depending on where we're seeing more and less growth and what the average ticket size is, that influences what our switch transaction growth is. And the reason I say this is because mixes in geography are going to impact where our switch transaction growth is. But fundamentally, what's going on in terms of the imperative for the business to continue to focus on driving switch transaction remains. Case in point, for the longest time, we were not switching transactions in Japan. We're now switching transactions in Japan. We were previously not switching transactions in a meaningful way in Mexico. That's something which has actually started to happen. So you know that as a matter of fact that the company is very focused on driving greater switch transaction growth for all the reasons we've kind of mentioned in the past, which is it not only generates revenue, it provides data. When you get data, you can deliver value-added services and solutions, which drives incremental revenue. So, really important. And just as another metric point so that you're aware, in our most recent quarter our proportion of switch transactions is now north of 70%. So the reality is we are executing on the switch transaction strategy. We continue to remain very focused and believe that's an important area especially in light of what we shared with you at investor day a year and a half ago when we talked about the sizable opportunity which remains from a secular standpoint in terms of switch transactions which still remain to be or rather transactions which still remain to be digitized, very much a focus area for us.

Our next question comes from Adam Frere from Evercore ISI. Please go ahead. Your line is open.

Thanks guys. A quick clarification and then a question. Getting a bunch of questions from investors. Sachin, if the war were to go longer or near-term impacts were deemed more destructive, what's the calculus on how that might impact your outlook if at all? And then my question is on stablecoin and a shout out to Devin and Jordan for a terrific call explaining the rationale for the BVNK deal a few weeks ago. Do you feel like the mounting challenges with getting the Clarity Act passed in DC delays the time frame for the industry in general or is there enough motion to keep the momentum going and having BVNK's capabilities helps you shape the trajectory a little bit more? Thank you.

So Adam on the first question I really am not going to go into multiple scenarios of how the war plays out. I kind of shared with you what the base case is and what the impact is. I also shared with you in my prepared remarks what the impact would have been had it not been for the conflict occurring in Q2 where I said basically had it not been for the conflict our growth rate in Q2 would have been generally in line with what we had in Q1. So the reality is things will move. We do understand that the conflict is something which is outside of our control like Michael mentioned. It's not like we're sitting on our hands. We're working with our customers to try and find opportunities where we could be helpful to them and even in this environment and if it's useful maybe I can just size for you really for the impacted countries which is let's take the GCC and Israel. From a cross-border volume standpoint, GCC and Israel represent roughly 6% of our cross-border volumes and so and this is both inbound and outbound. You have to take both into consideration because if you don't, I mean, but we have impact from an issuing and an acquiring standpoint. So it's important for you to just get a general size of what we're talking about here.

Thanks guys. Our next question comes from Tien-Tsin Wong from JP Morgan. Please go ahead. Your line is open.

Hey, thanks a lot. Just want to ask on the agentic side if that's okay and Mastercard Agent Pay. Michael, we talked about some of the partners and some of the activity on the ground, but can you just give us a little bit more detail on volumes or any surprises with respect to actual activity or actual demand? And then I'm curious if you were to maybe talk about it in the context of who's pushing the hardest across all the players in the four-party model. What are you listening to for clues on how to invest harder, etc.

Our next question comes from Darren Peller from Wolf Research. Please go ahead. Your line is open.

Hey, thanks guys. Just a first a quick follow-up Sachin just when you think about the way to normalize cross-border for the effects of Ramadan and Easter shifting or any other normalization just to give us a sense of what you see as sustainable given the portfolio shift. I'm curious if you could help us quantify that. And then Michael, I want to ask about Mastercard Threat Intelligence more broadly. We're all hearing about instances of fraud picking up around AI on payments. Are you seeing that inflection in demand really pick up pace for your value-added services and offerings around cyber and fraud? I mean, clearly that could be a nice boost sustainably for VAS.

So, Darren, I'll go first on your clarifying question and I'm going to actually say with the cross-border travel metric and I'm going to actually speak to the growth rate for Q1 compared to the first four weeks of April, because that 8% number that you see there going down to 2% growth is driven by primarily three things. Number one, conflict. Number two, portfolio shifts. Number three, the timing of Easter and Ramadan. These are the three factors. And I kind of laid them out in order of significance as well. But don't assume that the conflict is the biggest and then the other two are insignificant. It's kind of generally directionally the three of them are the key contributors to what you're seeing there. I think the more important thing honestly Darren out here is that by its very definition what you're seeing, let's take each one of them individually, conflict out of our control, don't expect for that to stay with us over the long term. So fundamentally nothing challenges the cross-border value prop as it stands. Number two as it relates to the portfolio shifts. Look, we're very clear in our mind in terms of what our approach on portfolio wins and losses are. We want to win the right kinds of portfolios. We already maintained that. We've always maintained that and we will continue to be very disciplined on that. So you're going to see wins which you've seen more of and on occasion you'll see things which will actually move away from us which is part of what's going on from a portfolio shift standpoint. And I won't spend a lot of time on timing because timing of Ramadan and Easter is what it is. Week over week you're going to see movements and changes on that. So that's what I was going to share with you there.

Our next question comes from Andrew Schmidt from Key Bank. Please go ahead. Your line is open.

Hi, Michael. Hi, Sachin. Thanks for taking the question. I appreciate the comments, Michael, on being selective with deals. But if you just comment on whether the competitive intensity for deals has changed at all or whether that's relatively stable and then Sachin if you have any comments around how we should think about rebates and incentives trending this year or in subsequent years that'd be great. Thanks so much.

Yeah, and just picking up on Michael's comments, look, at the end of the day, we have a rich pipeline. Our teams are super active in terms of winning the right kinds of deals, and we will continue to stay focused on that. The impact obviously will come through in terms of what you see on rebates and incentives. But again, we look at rebates and incentives, but we also look at overall net revenue yield for the company. And you can see the net revenue yield for the company is increasing. More specifically on your question on rebates and incentives, what I'll share with you is in the second quarter, we expect for rebates and incentives as a percentage of our payment network assessments to be slightly lower sequentially as compared to the first quarter.

Our next question comes from Matthew O'Neal from Bank of America. Please go ahead. Your line is open.

Yeah, thanks so much for taking my questions. Just curious if you take a step back from a high level, how does Mastercard think about a stablecoin transaction versus a local currency transaction from an economic contribution standpoint. In a future with a lot more stablecoin utilization is Mastercard kind of economically agnostic? Are there opportunities for accretion or the opposite? Thanks so much.

And the economics on the acquisition, once it's complete, I mean think about the value prop which is coming through there which is Michael talked about send, basically it was about convert, send, receive and store. There are these different attributes which come with the acquisition, the revenue model on that is basis points on volume so you were asking as to how you generate revenue, that's kind of the mechanism and that's all an addressable market which we don't participate in today, that's the accretive part of what Michael was alluding to.

Thanks so much. Very much in line with my understanding but I think important that keeps getting mentioned. I'll jump back in the queue.

Our next question is from Brian Bergen from TD Cowen. Please go ahead. Your line's open.

Hey guys, good morning. Thank you. May I ask on yield. Can you just dig in on the key drivers in the TPA spread uptick and any important considerations on pricing changes as you move through the balance of the year?

Look, I mean again from a pricing standpoint, a lot of what we do is again predicated on the value we deliver in the market. And so here's what I would tell you from a pricing standpoint. All of our planned pricing is already contemplated in the guidance that I've shared with you. And I've kind of given you a little bit of color as to what the cadence by quarter looks like as well without giving you specific numbers for Q3 and Q4. But the reality is all of that already contemplates what kind of value we plan to deliver and for which we plan to actually have pricing. So that's what I'll share.

Our last question comes from Jason Kupferberg from Wells Fargo. Please go ahead. Your line is open.

Good morning, guys. Thanks. Michael, in your prepared remarks, you mentioned how much growth we've seen in acceptance points in recent years, and I think some of that will continue to come from geographic penetration, but can we get an update on how you guys are thinking about the most fertile new categories of acceptance over the coming years just as you continue to grow the network? And then Sachin, just can you clarify on the VAS growth, currency neutral, that you were actually steady on an organic basis year-over-year because I think you lapped Recorded Future. Thanks.

And Jason on your question on VAS growth. So in Q1 we had approximately 18% growth in our VAS revenues and that has no impact from acquisitions. In other words there's no incremental impact coming through. If you're looking at it sequentially compared to Q4, in Q4 of last year, we had about 22% VAS growth and that had about three points of an acquisition impact in there.

Thank you. Any closing comments, Michael?

Thank you. This concludes today's conference call. You may now disconnect.