Good morning. My name is Kim, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Q4 Full-Year 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you. Warren Kneeshaw, Head of Investor Relations, please go-ahead, sir.

Thank you, Kim and good morning, everyone. Thank you for joining us for our fourth quarter 2017 earnings call. With me today are Ajay Banga, our President and Chief Executive Officer; and Martina Hund-Mejean, our Chief Financial Officer. Following comments from Ajay and Martina, 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 to accept registrations. You can access our earnings release, supplemental performance data, and the slide deck that accompany this call in the Investor Relations section 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 currency-neutral basis and exclude special items unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to their GAAP equivalents. 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 factors that could affect future performance are summarized at the end of our release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I'll now turn the call over to our President and Chief Executive Officer, Ajay Banga.

Thank you, Warren, and good morning everybody. So, our business continues to perform well. We are very pleased to have delivered strong results again this quarter and I think that driven by our continued focus of the execution of our strategy that we laid out for you, in fact as recently as the Investor Day in September. For the quarter, we delivered net revenue growth of 18% and an EPS growth of 30%, excluding special items, which are primarily related to the U.S. tax reform and our Venezuela operations. On that same basis, net revenue growth for the year was 15%, and EPS growth of 21%. Major economies around the world generally improved in 2017 and we expect to see a relatively steady environment again this year although with some pockets of instability. In the U.S., consumer conference has been healthy, unemployment remains low, and holiday retail sales was solid although year-over-year quarterly growth was slightly lower in Q4 than in the previous quarter according to our SpendingPulse estimates. In Europe, the economy has been relatively stable. Germany and France are driving some mild growth. Retail sales growth in the UK, however slowed in the fourth quarter, again according to SpendingPulse. And about the UK, we remain concerned about the potential impacts of Brexit over the medium and longer-term. Latin America, there the region has been recovering from its economic recession, and whilst Brazil and Mexico both have presidential elections coming up, and of course Mexico has the added uncertainty of NAFTA renegotiations we are cautiously optimistic that economic growth in that region in 2018 will be similar to 2017. The political and economic crisis in Venezuela continues to worsen and Martina is going to discuss that in some detail when she comes on to her section. Now in Asia,…

Thanks Ajay, and good morning everyone. As you can see in the highlights on Page 3, we have delivered another strong quarter. Foreign exchange was of a tailwind of about 2.5 ppt to net revenue, and 3 ppt to net income, primarily due to the strengthening of the euro. I will now highlight the numbers on a currency neutral basis, excluding the impact of special items, which I will explain in more detail on the next slide. Net revenue grew 18%, driven by solid momentum in our core business and includes a 3 ppt benefit from acquisitions. Operating expenses increased by 15%, and includes an 8 ppt impact from acquisitions, primarily for Vocalink. Operating income grew by 20%, while net income was up 25%, resulting from our strong underlying performance and a lower tax rate. EPS was $1.14, up by 30% year-over-year with share repurchases contributing $0.03 per share. During the quarter, we repurchased about 1 billion worth of stock and an additional $287 million through January 30, 2018. So, let me turn to Page 4 and here I’m going to touch on the special items we had taken this quarter. The U.S. tax reform resulted in three impacts to the tax line in our P&L in the fourth quarter. This is our best estimate based on our current interpretation of the new tax laws and could still change during 2018. The first item is a 629 million charge related to deemed repatriation on accumulated foreign earnings and is payable over eight years. The second item is related to the revaluation of our deferred tax assets and liabilities at the new corporate tax rate of 21%. Since we are in a net deferred tax asset position, we have recorded $157 million charge this quarter. Finally, we have an $87 million…

Thanks Martina. Kim, we’re now ready to start the question-and-answer session.

Thank you. [Operator Instructions] And your first question comes from the line of James Schneider with Goldman Sachs. Your line is open.

Good morning. Thanks for taking my question. I was wondering if you could maybe start out on the healthy trends you’ve seen across the globe, particularly in international debit, which I think accelerated as you mentioned quite a bit, there is particular pickup in Europe, can you maybe talk about how much of that is market share, how much of that is improving economy? And maybe you can kind of talk about the impact going forward on your yields given it seems like there was a substantial decrease again in the number of Maestro cards as you convert those to standard debit?

Yes, James, good morning. And let me just take you through a minute. In Europe, where we are seeing really good drivers in Italy and Germany and France, number of these kind of countries and those are good economic environments, I called out that the holidays in January that’s the little longer in some of these countries. In terms of where we added the market share, what’s really in the Nordics, so we actually have flipped the deal in Sweden. That is coming in over this year, and that will actually benefit these kind of numbers. From a Maestro point-of-view, yes you are absolutely right, we have been talking about that in a number of countries we’re actually flipping our Maestro portfolios into debit Mastercard both portfolios. We are very well on our way in many of those countries, and what we are actually seeing is, when we do these kind of flips that are on the new debit Mastercards we see about 2x to volume that we use to see you on the Maestro cards. So, we're not just seeing cross-border volume, but we are also seeing local volume. That will continue to benefit and it will improve our yield over time. You have actually been seeing that our yield has been improving over the last many years, both on the core business where you’re seeing it predominantly because of the additional processing that were coming in, by the way we are now processing about 54% of the transactions that are done on Mastercard versus - when you just look two years ago it was just shy of 50%. And secondly, of course, the healthy cross-border trends. When you look at our word total yields, you know that is where obviously our growing services offerings are really benefiting us and that’s why you’re seeing very healthy yields across the whole company.

Thank you.

And your next question comes from the line of Don Fandetti from Wells Fargo. Your line is open.

Good morning. You know, the cross-border number, even if you sort of strip out crypto currency was notably better and I know the dollar has been generally weakening, do you expect as you think about guidance for 2018 and just look out, have a sort of stepped up into a structurally higher cross-border rate and then lastly can you talk about volume into the U.S. cross-border?

Don, I’m so glad you’re asking this question because of course when you see for the first four weeks in the year it’s 22% cross-border number, you’re asking exactly the right question in my opinion. What we always say is, four quarters do not make a year, in-fact the guidance that we are giving - four weeks don't make a year. So, four weeks don't make a year, but in particular, all of the guidance that we’re giving you for the top line of 2018 we are not planning on those kind of cross-border numbers, growth numbers. We are planning much more to what we have been seeing over the last couple of years. And even with the weaker dollar, I don't think that trend will change much. So, I don't think it’s prudent to be planning on this kind of number and I would like to point you back to the guidance that we had from a new revenue point-of-view.

And then the volume into the U.S.?

Volume into the U.S., we actually do is see, you now it is kind of mid-single digits, volume into the U.S., what we do see is a volume outside of the U.S. is picking up.

Okay, thank you.

Thank you. And your next question comes from the line of Darrin Peller with Barclays. Your line is open.

Thanks guys. Nice job. Just wanted to touch on, when you look at your guidance for 13% revenue growth or 15% including the accounting change, just, you know versus the 18% run rate, just to make sure we have the right variables that would cause the deceleration being I guess Venezuela M&A grew over lower pricing, anything else we’re missing there? I mean, just little pricing benefits? And then just quickly Martina, on the - when you look at the tax investments, I just wanted to squeeze in, what will be the steady state of investment beyond 2018, some of this just feels that it could be one-time or should we expect that to continue? Thanks guys.

Okay. And the first question, first of all you need to take into account the 0.5 ppt on the Venezuela. That’s the impact on revenue. And then in particular, you also need to take into account the acquisitions that you called out. We had 8 months of acquisitions built into 2017 numbers, and so you only get the lapping asset from the four months. So, when you actually look at the total results at 2017, we're basically saying that 2018 is just going to be slightly better in part because of course what we’re expecting in the United States, even though we have a very watchful in the number of work potential risk countries around the world, right. Middle East, Africa, West Country, we are watching very carefully Brazil, we are watching very carefully Mexico, as well as the potential impact from a Brexit point-of-view. So overall, while the U.S. is a little better, we are actually believing that the economic environment in 2018 will be very similar to 2017. So, all of this is based Darrin, just slightly better than 2017 on the net revenue side. That’s where we are.

Okay. And on the tax savings?

On the tax impact, it's your second question, so what we’re doing, in terms of the center for inclusive growth, as Ajay said, we are planning over several years to put $0.5 billion into that center. The first chunk is going to go in Q1 with $100 million and then we are going to see how we are going to lay it out for the next several years. So, you are going to have do expect that you're going to continue to do some contributions in that. Not in 2018, but likely 2019, 2020 et cetera. The employee benefits, that is a permanent adjustment of course, you know that subjects the one-time thing. We really want to make sure that our employees are focused on making sure that they are well situated from pension benefit point-of-view. So, this is going to go in this year. Sometime this year, we haven't given a date yet and that’s going to continue. The other investments are also in our baseline, and I would suggest to you that both organically as well as inorganically we're going to continue to look at that and make more investments.

Okay, excellent.

Particularly in those serious that we have been talking about. From digital and technology, and data and fast ACH, the kind of things we talked about in September. Very focused on the strategy.

It makes sense. Thanks guys.

Thank you. And your next question comes from the line of David Togut with Evercore. Your line is open.

Thank you, good morning. Europe continues to accelerate nicely and clearly a lot of that is due to some solid market share gains, but I’m wondering Ajay if you could comment on the merchant acceptance footprint in Europe for electronic payments, especially post interchange caps a couple of years ago? And then my follow-up is on PSD2, and any update you could give us on bringing Vocalink’s capability to the European continent in advance to PSD2?

The first part, the merchant acceptance, you know there is growth across the European region on merchant acceptance from large outlooks that earlier used to prefer to take either local payment systems only, or cash and goods. That changes all the way to small ones. What you do see really changing also is a reduction in suppression. So, even if the outlook says we accept, you know actual fact we have showed up for a small ticket charge or low value payment, they would encourage you to kind of lay of the idea of producing electronic payment. I think all that has changed quite dramatically. It’s helpful. It’s part of the secular change in the way cash is used in the European economy. I wouldn't declare victory on that right now because I think a year or two in Europe is a relatively small time in a set of complicated countries with lots of local dynamics vis-a-vis local schemes, local players, and the like. So, I would tell you, keep your eye on the space and keep working into the acquiring community, we are talking about a four, five-year translation in a continent like Europe. It’s good signs, it’s helpful, it’s a nice tailwind, and I am not running with it to the bank yet. That’s kind of the first part. Your second question was about, remind me what the second question was.

PSD2.

PSD2. You know, we’re coming up to the timeframe of when all this starts to go live in so many ways in different aspects of implementation in Europe. We have been working both internally, as well as with the help of our largest clients, as well as in conversations with regulators about the implications of PSD2, and the things we can do around PSD2 with these European merchants and European Banks and the new European entities that will get creative as part of the PSD2. The PSD's and the various acronyms that are being created in PSD2. Your question was around Vocalink and PSD2. So, to get Vocalink on to the ground in different European countries beyond the software status. which is kind of what it is today in the Nordics and some other markets around the world will require us to actually participate in the RFP process of different ACH systems being opened up in Europe. We’re participating, you heard me in my opening comments, we are participating in those RFPs. These stake a year or two to get resolved and settled. After they get settled, it will take a while to get invested in and implemented, but we are very active in all of those and one of the reasons why I think you will see us using some of the tax reform money in a sensible way in our business is to keep on focusing on the opportunity with fast ACH, thanks to Vocalink’s capabilities in Europe, but also outside of Europe even in the United States and other markets. It’s not just an infrastructure, but it could be in the applications, it could be in the scheme rules and it could of course be in different aspects of the range of things we could do with fast ACH.

Thank you very much.

Thank you. And your next question comes from the line of Andrew Jeffrey with SunTrust. Your line is open.

Thanks for taking the question. Ajay, kind of a big picture or strategic question for you, especially in the way last night of pretty meaningful shift in the PayPal eBay relationship. One of the things that PayPal has asserted is its value prop to large marketplaces, especially next gen marketplaces, and I see Mastercard building a pretty comprehensive value proposition of its own and I just wonder how you think about the sort of so-called commodity nature of Visa Mastercard versus sort of the value-add of a provider like PayPal and whether or not the lines perhaps are beginning to blur a bit in terms of go to market value proposition?

So, I think in the whole E&M commerce space there is so much going on Andrew in that whole space. And I think, if you go back in time, when essentially Visa and Mastercard in those places and other brands like ours, the other card, which were called card network brands. We got into a position where we became part of a drop down on a merchant's checkout site. You drop-down you got one brand or the other and you entered a lot of details, and you entered a lot of addresses and that created its own friction and it’s on lakh of branding at the checkout point. Even though the consumer was aware of the brand because they were looking at the card and entering the data. I think that’s moving and PayPal is one way of that moment, but our own efforts with branded checkout points is moving. And we will continue to do that. I think PayPal itself, its relationship with eBay, I mean look at the IPO time, something for Dan to answer, but I'm pretty certain that all of you thought about one day that relationship will come up for reassessment, and it’s come up for reassessment and eBay has chosen what it wants to do. I think Dan has done some interesting work of building out his partnerships in the meanwhile. So he has kind of consolidated his own position today with the second and third leg of the stool, and I think we are a key beneficiary of that because as you know, we’ve got a great partnership with PayPal, which includes all their co-branded cards and their corporate cards and all the understanding and how their wallet is used, including visibility of the brand and the non-steering towards ACH and the data…

Thank you.

Thank you. And your next question comes from the line of Jason Kupferberg with Bank of America. Your line is open.

Hi, thanks guys. Just two quick ones. First, on your rebate and incentive expectations for 2018, and then can you just give us the latest update on what you're thinking in terms of what may happen in Europe with European commission looking at some of the inter-European cross-border interchange fees, some of the potential funds, I know you’ve disclosed this in your 10-Qs, and anyway you could kind of frame up, what percent of your cross-border business is actually in-bound into Europe just so we have some sense of reference in case we get some headlines on this soon?

Okay. Jason, first of all on your first question, I am not going to give you any guidance on rebates and incentives at 2018 and it is because of the new revenue recognition rules coming in. There is so many moving parts between gross revenue and contra revenue that I just feel, you know given all of the work that we were able internally to do, I just feel that the net revenue numbers is just the best guidance that I can give you, but I do want to take the opportunity to deep dive into that just a little bit more. As you know, I will call it at $300 million benefit on the net revenue line, due to the new revenue recognition fule. $100 million of that is really in relation to customer business agreements and to incentives. And there are a number of facts that we had to be estimating in this. First of all, as you know we had amortization of incentives on previous deals that have been previously expensed. So, in prior years, we expensed those. And then we will be now expensed over the life of the deal. And that will be a negative, right. You estimate actually that roughly about $0.5 on incentives will need to be recognized as contra revenue under the new rules starting 2018 and we will, you know the average life of this recognition is approximately 7 years. So, it is not - so it is a headwind, it’s not really material in the context of our size. But then in addition to that we would have had some incentives in 2018 or later that will now have to be carried back to prior years to the original deal inception or carried forward. That will actually reduce the amount…

Martina is in accounting heaven for the last few weeks or months.

Yes, between rev rec and tax, I'm sure it's been a party.

Yes, and you also got Venezuela, but she has done an outstanding job often trying to put her arms around how to manage that through the next period of time. In Venezuela, we are still very much on the ground, doing all the right things. We got a great team. We are supporting a lot of our clients there. We are not pulling out of the business from the ground. That would be a very unfortunate thing to do, and I think it will spark all kinds of humanitarian issues given the role we play in that economy. In fact, we try to work with other players, including multilateral institutions try and find a way to make this a sensible outcome because there will be an outcome one day in Venezuela. So, this is not a, you know, you got to think-out long-term and you know what we're doing is all of these things whether it’s European cross-border of Venezuela or these rules. At the end of the day, we are trying to give you guys some thought on what we are thinking in terms of what the impact could be, but Martina has laid out a pretty good estimate of where we think our 2018 revenues and expenses in EPS and our combined 2016 to 2018 goals will go. And I said you, over 2016 to 2018 we’ve had a good run. We gave you an update in September when we raised our guidance. Now, what we're doing basically is making sure the accounting flows through. Yes, there is a small improvement in 2018, which she pointed out. Some of it gets eaten up by Venezuela. Some of it gets eaten up by the laughing of the acquisitions. That’s kind of where we are. We are running our business to win, share, and keep taking advantage of the secular trend in the business. That’s what we’re trying to do and not getting ourselves tied up between rebates and incentives and growth revenue and net revenue at a time when there are so many moving parts and asking someone to estimate accurately would be asking for the moon.

It all makes sense. Thank you.

Thank you. And your next question comes from the line of Bryan Keane with Deutsche Bank. Your line is open.

Hi, Brian.

Thanks. Just wanted to talk or ask about two things. One, just the strength in U.S. credit and debit, is that just some lapping of some of the headwinds, obviously USA, but the numbers are obviously picking up there may be strengthened.

It is.

Okay. There is nothing else that call out there?

No. Most of it is just that, and all the other things you read about as winning, they are all coming on board. So, you will see some benefit in Bank of America when it starts issuing. It will take time. You will see some benefit from the co-brand, the Cabela's co-brand. But these things will take time. Meanwhile, there is the natural spending pattern that shows up and there. As I said, fourth quarter growth was actually lower year-over-year than third quarter, just to be clear.

Yes, it doesn't seem there is no flips go on in the other way, like that created a headwind like USA.

Don't go there. You're giving me nightmares, don't go there.

Yes. And then my follow-up is just on tax reform. I just was trying to quantify total tax reform investments, I got the 100 million for the inclusive growth and then just thinking about employee retirement and then some of the accelerated investments that you talked about Ajay, just in all - it seems like maybe we’re getting to 20% to 25%, I am just trying to get to a number of what we are reinvesting total of the tax benefit? Thanks.

So, just to let you know, the total cash tax benefit as a result of the tax reform on an annual basis is in the ZIP Code or $450 million, right. And we’re doing then two things. One, we’re taking the $100 million in order to invest into the center for inclusive growth, and the other part that Ajay was mentioning in terms of the employee benefits, as well as the additional investments we’re doing, we have that embedded in the base line of the operating expenses. Okay, and that’s all embedded in the low double digits guidance that I have been giving to you for 2018. Based on the new revenue recognition rules.

I don't want to run a business in which I’m paying employees for their retirement long-term because this is not a one-year $1,000 contribution kind of thing. This is, we are adding to our already good 401(k) and defined contribution plans around the world. And second, we were investing in data in digital and fast ACH. We don't want to run a business if that stuff is kept as a separate item. So, Martina has got those embedded in the way we look at the future of our business. The only thing that’s not embedded in that is these lumpy contributions that will go into the center for inclusive growth because honestly $100 million is going into that center being directed for workforce training and financial intrusion in the U.S. and elsewhere that kind of lumpy contributions is the one that we’ve not got embedded in our guidance to you. We’re telling you about it, but it’s embedded in the total, but not in the net that we’re looking at. Right Martina?

Well, it’s in the low double-digit operating expense guidance. We put 2 ppt for that particular contribution.

In the total?

In the total.

But not in the organic growth?

No.

Okay, great, thanks. Very helpful. I got it. Thanks.

Thank you. And your next question comes from the line of Craig Maurer with Autonomous Research. Your line is open.

I wanted to ask you on Brazil, considering recent IPO drawing attention there plus you are seeing the recovery finally seeming to be on firmer ground, you’ve gained fairly enormous market share against visa there over the last few years and I believe last summer you are now the biggest new issuance brand in Brazil. I was wondering if you expect to see, a, these will be able to rebound against you there; and b, how you look at that market going forward, considering the big gains you got recently?

First of all, I will always expect my competitors to make every effort possible there. They go to a strong company. They got good people in the ground, they are going to make efforts to win back share, and that’s the reality and it’s - I believe that we survived by being competitively paranoid about all of our competitors. That to me is just a, I take it as a, given that they will attempt. There’s a lot of competition in the ground. It’s not just Visa. It's Cielo. It's the local methods of doing a lot of work. There is a lot of competition on the ground locally. There’s also a lot of regulatory changes that is going on in Brazil, including with the Bankers Association attempting to look at the idea of the way instalments are paid and the whole instalment method is managed, including the settlement time. There’s a ton of things going on in a market in which we are today a very large market share player there. The political environment in Brazil, yes, this year 2017 showed an improvement, but you got to remember you are comparing 2017 to 2016, which was not a predictably let us delightful year in Brazil. It was a hard year, and they got some political stability, 2017 turned out to be better, good economic policies were getting put in place. Remember that 2018 has an election, and that election has currently identified two players to come there not of whom within the current government and so it’s a little unclear to me what instability that could cause in economic environment. That’s why Martina pointed out, and I pointed out that there are pockets of instability across the world that we’re careful of. Brazil is one of those. For this reason of the political circumstance, and the longevity of that economic reforms. I have been around a lot time long time working with Latin America and I have learnt that you cannot take for granted what happens for a couple of years because it does find its way through changes on where politics goes. So that’s where we are. I am relatively constructive about Brazil. We are investing on the ground, the number of people we have in our office has increased, our capabilities in the ground have increased, our technological investments in the ground have increased, and we're going to keep seeing growth there is what I’m hopeful for, but 2018 is a year to watch out for.

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

Thank you. Your last question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

Alright, thanks for including me here. I won’t to accounting question. Just want to ask a bit about the deal activity may be because based on Craig and Brian's questions, how would you characterize guys the pipeline for new deals and renewals this year in 2018 versus 2017. It seems like you have had a good backlog going. So, I’m curious what the pipeline might look like for this year, especially in things like B2B, if you can comment on that?

So, Tien-Tsin obviously with the numbers in Q4 that you saw in the rebates and incentives and we had given you a little bit of a heads-up in our November call that that number might be coming in a little bit higher than what we have forecasted before. That should show you that we have actually terrific deal activity in Q4 and those deals will be rolling in over the next 6 months to 18 months that depends, which deal you’re looking at. I quite frankly with everything that I’m seeing from the pipeline from our world regions around the world, I think that we’re going to have a similarly robust deal activity in 2018. I don't think there’s any letting up. I think there is a lot of players in the market that are looking to do things with us a network and it would be similarly robust.

And on B2B Tien-Tsin, you know the global travel deals that we did over the last couple of years they are actually helping us in our cross-border. As an example, back to somebody's question I forget on cross-border. But, there is all this work we’re trying to do with the B2B have. We’ve announced that one partner had signed up, there is a bunch of partners in the pipeline. Hopefully, a few of them will come into locking on. There’s all the work we're trying to do with fast ACH and Send in different parts of the world. So, B2B is pretty active far as right now. We consider ourselves to have good access from the place. So, we are working our pipeline hard.

Alright.

I’m sorry, we're going to cut you off, Tien-Tsin. We can chat another time. But thank you all for your questions and I would like to wrap-up with some closing thoughts. We’re pleased with 2017 financial results. We think it’s all driven by strong operating performance and execution of our strategy. Overall economic trends are positive, and as we said a couple of times in this call, we’re going to monitor some risks and uncertainties that Martina and I have spoken to. But overall, we expect 2018 growth to be similar to 2017. Meanwhile, we expect tax reform will benefit the U.S. economy and I have a positive impact on our company. We see this as an opportune time to further invest in our employees and communities and continue to strengthen our business and strategic investments in those key growth areas, while continuing to return excess capital back to our shareholders. And so, thank you for your continued support of all of us and our company, and thank you very much for joining us on the call today.

Thank you, ladies and gentlemen. This concludes today's conference call, and you may now disconnect.