Good morning. My name is Heidi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Q4 Full-Year 2018 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. [Operator Instructions] Thank you. Warren Kneeshaw, Head of Investor Relations, you may begin your conference, sir.

Thank you, Heidi. Good morning, everyone, and thank you for joining us for our fourth quarter 2018 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 for questions. 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. Please note that due to our decision to deconsolidate our Venezuelan entity starting at the beginning of 2018, we’ve been providing additional information regarding our switched transaction and card growth rates. The adjusted growth rates eliminate Venezuelan switch transactions and card counts from prior periods. In addition, starting this quarter we are providing further adjusted growth rates for switch transactions and adjusted growth rates for cross border volume normalized for the effects of different switching days between periods. These adjustments have been made to current and prior quarters. This information is being provided so that you can better understand the underlying growth rates of our operating metrics. Our comments on the call today will be on the basis of these adjusted growth rates. A couple of other comments. As many of you are aware we recently announced an agreement on the terms of a recommended offer to buy Earthport. We will not be at liberty to further comment on this potential transaction as it is regulated by the takeover panel in the UK. I would also like to announce that we are planning to hold our next investment community meeting on September 12, 2019. We initially planned to hold this event in Q2 but have settled on a September date as a result of some scheduling issues. 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 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 President and Chief Executive Officer, Ajay Banga.

Thank you, Warren and good morning, everybody. So, we had a very strong end to the year bringing 2018 to a record close. For the year, revenue was up 20%, EPS up 41% and these are both on a currency-neutral basis and excluding special items. If you exclude the impact of accounting changes, acquisitions and the $100 million contribution to what we are now referring to as the Mastercard Impact Fund that affect year-over-year growth comparisons. So basically apples-to-apples, our underlying net revenue growth was up 15% and operating income was up 21%. These results essentially reflect broad-based growth across each of our regions and I think are a clear attraction of our focus on execution. We continue to invest in the business for the long-term. I believe that we are very well positioned to drive strong growth in the future and Martina will describe this in much more detail when she lays out our new multi-year performance objectives. Turning to the macroeconomic environment, we continue to see solid overall growth and expect this to continue in 2019 although with some moderation. Having said this, like others, we’re keeping a close eye on a number of items; increased trade tensions, rising interest rates and other economic and political factors that could slow growth over the longer term. In the U.S., economic growth remains positive with low unemployment and overall still healthy consumer confidence. Our SpendingPulse estimates for Q4 show retail sales remains strong, up 4.8% versus a year ago same period ex-auto, ex-gas. In Europe, we continue to see moderate grow with UK spending holding up reasonably well again according to our SpendingPulse estimates with year-over-year retail sales up 3.5% in Q4 ex-auto, gas and restaurants despite the debate around Brexit. We have, however, seen some recent declines in consumer…

Thanks Ajay, and good morning, everyone. Turning to page three, you will see that we delivered another very strong quarter to end the year. Here are a few highlights on a currency neutral basis, excluding special items related to certain legal and tax matters. Net revenue grew 17% in line with our expectations and closing out a great year of growth. This includes a 5 ppt benefit from the new revenue recognition rules. Excluding this benefit revenue growth was 12%. Operating income grew by 21%, including a 7 ppt benefit due to the new revenue recognition rules. Net income was up 36%, reflecting strong operating results and the impact of the U.S. Tax Reform, which contributed approximately 12 ppt to this net income growth. And EPS was $1.55, up by 40% year-over-year. The share repurchases contributing $0.03 per share. During the quarter we repurchased about 888 million worth of stock and an additional $773 million through January 30, 2019. Let me turn to page four, where you can see the operational metrics for the fourth quarter. Worldwide gross dollar volume or GDV growth was 14% on a local currency basis, up 1 ppt from last quarter. We saw solid double-digit growth across all regions. U.S. GDV grew 10%, up approximately 1 ppt from last quarter, with strength in consumer credit driven by the implementation of recent deal events. And outside of the U.S. volume growth was 16%, slightly up from last quarter. Cross-border volume grew at 17% on a local currency basis in line with expectations and driven by double-digit growth in all regions except for Latin America. Q4 cross-border growth was slightly lower than the growth you saw in Q3, primarily due to the high volume of crypto currency wallet funding in Q4 of 2017. Turning to page five,…

Thank you Martina. Heidi, we’re now ready for the question and answer session.

Thank you. [Operator Instructions] and your first question comes from the line of Craig Maurer with Autonomous Research. Please go ahead.

Yes, hi thanks. Two questions for you, first versus what your main competitor said last night your commentary on the global outlook seems far more sanguine. Is this a reflection of generally Mastercard’s progress in taking share globally and how that’s informing your view of the year? And secondly to what degree should we expect progress in VocaLink this year and progress in real time ACH payments across geographies? Thanks.

Craig, I think the first part is a combination of two or three things, one of which is, yes, we’ve been growing share for the last few years and that gives us some degree of a better leg to stand on. But remember, we’ve also been diversifying our revenues with more legs to the revenue stool, so to say, which includes services. And as Martina told you we expect services revenue to grow faster than our core payments revenue. And so we too have a sense in our business -- of our numbers I cannot compare those to what competitors feel remember I'm talking about ours as a vision of our company. And I feel relatively good about those numbers. The thought about the world economy as a whole, I mean, look it’s based on assessment of travel and knowledge and research and data and my sense is that our worldwide economic situation is still in a relatively good place even though we’re reaching the 10th year of a global expansion. And will that change over the next year or two, who knows? Will it change someday, for sure, just I don’t think that 2019 is a year in which you will see more than some moderation that’s our current assumption over 2018. That moderation is built into Martina’s commentary about the way we think about our performance in 2019. So that’s the way we’ve put our thoughts together. The part about VocaLink and about fast ACH, we’re -- my sense is -- first of all in the UK VocaLink’s position and business and its relationships with all the contracts they have has received good support and extensions. So that's a good thing. In markets outside, software has been implemented in the U.S. and is rolling out it’s there in a number of markets in Thailand and parts of the Nordics. We believe that there are tons of opportunities coming along for infrastructure in a number of countries. Now once the RFP is won it takes years to actually put those switches up on the ground. There's also opportunities to partner with domestic switches to improve their capabilities. Some of which you will see us talk about over the next six to nine months. But you should remember that to me faster payments is not a sprint like digital payments and acceptance these are marathons and we are willing to play the marathon.

Thank you.

Your next question comes from the line of Moshe Orenbuch with Credit Suisse. Please go ahead.

Great, thanks. Maybe we could kind of talk about the outlook in the U.S., I mean, you alluded to some wins and I think Cabela’s was certainly one. Are there others that we would see during 2019 that are going to be converted? And how do you think about the underlying situation, is there likely an impact from what's going on with tax refunds in terms of either amounts or timing of consumer spending.

We don't really see a very significant change in terms of what we see in our numbers in the U.S. When you look at the GDV growth in the United States, in fact we had a little bit of a higher GDV growth versus Q3 that is a predominantly driven because of the conversions and the wins that we had. We continue to see some of that for the rest of 2019 and even when you split that out, we believe that the U.S. is actually still performing relatively well. We also see actually a relatively good cross-border trends from people traveling from the U.S. to other countries. We saw very, very small decline from other countries traveling into the U.S. given the stronger U.S. dollar, but it was a relatively small decline from a growth rate. So it's still growing, but it was just a little bit of a smaller growth rate. So, we feel relatively good. As you heard, what I said in my prepared remarks as well as what Ajay reinforced, 2019 in our numbers we put a little bit of a moderation from a personal consumption expenditure in there. Personal assumption expenditure worldwide last year was a little over 5% like 5.3%, 5.4%. You can see that we put a little bit of a lower number for our 2019 numbers also for our three year long-term performance outlook in there because at some point in time you do have to expect a bit of a downturn.

Thanks so much.

Your next question comes from the line of Ramsey El-Assal with Barclays. Please go ahead.

Thanks for taking my question, guys. You mentioned in guidance that your three year CAGR does not include minimal pricing. I guess, just very generally speaking how would you characterize your ability to take price versus the last three year cycle or even prior to that?

So Ramsey, we really have not made any significant changes on the philosophy of how we do pricing. Pricing is value added, the customer has to feel that they would like to have that product and that service and that their product in that service brings value add to the company to the customer and therefore we are getting compensated for it. And we really have not changed that in any shape or form. And as part of that, of course, from time-to-time we are able to make some price adjustments. But believe me, these are not only up price adjustments some are also actually down price adjustments. And that's what we do from a list price point of view, we do it in many countries around the world some is regional pricing. In addition to that you have to factor in of course field pricing. And this is a competitive situation as you know it gets more and more competitive as you're talking about larger clients, larger clients are more demanding than some very smaller clients. And so, you have to be responsive to that. And so our promise about minimal pricing includes really both of those components. List price and the changes that we make from time-to-time as well as deal pricing.

Thanks.

And your next question comes from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.

Hi, thanks good morning. Just wanted to expand on Craig and Ramsey’s question and looking at the next three years versus the past three years. I'm curious, if you see a difference in where the growth is actually coming from. Because it feels like you have more contribution from FinTech and net new logo wins, is that fair? And does your secular guidance include any meaningful contribution from the new payment flows that you've been investing a bunch in?

Yes, Tien-Tsin, it includes all those. I'd say, as Martina said, clearly we expect our diversified revenues from services, from these new businesses to give us a higher growth rate than what we would get from our core payments over the coming three years. And that's what you would expect considering they're growing off one, a smaller base; and two, where we're getting into our stride with some of those that we've been investing in for three, four, five years. There are others where the investment is one and two years old and those probably will only show results hopefully maybe towards the later part of this next three year cycle or maybe even in the next three year cycle after that. And that's kind of the marathon comment that I was making in response to Craig. So it's a mix of stuff, but you should expect us to continue to grow our services revenue at a faster rate than our core payments revenue. Within our core payments, really we see growth and secular movement to electronic forms of commerce helped and share wins helped and a broader and expanded platform of products helped sold us acceptance and sold us digitization. So it’s a mix of things that are built into growing the core, diversifying our client base, but remember that building new services will give us more than the other two growth rates over the next three years.

Yes. And just to add to that, on the B2B side of course, that is also adding something to the bottom line and that's where we're looking at it in two different parts. One, our commercial business that we have today, which is really our core commercial business, which is more card-based that is continuing to grow actually we are seeing very good growth rates in that. But in addition to that all the B2B verticals that we're building out both from a domestic and from a cross-border point of view such as the B2B Hub, such as Mastercard Track. And again as Ajay said, we think that by the end of the period, you are going to see some added numbers because of that.

That's why I was talking about being excited about the MYOB business in Australia. I was just in Australia last week, and it's a really interesting effort to take the B2B Hub outside of the U.S. and that's early days that's one of those that we're in the early stage of investing.

That's great. Thanks for that, good results and thanks for the FX sensitivity Martina as well. Appreciate it.

Your next question comes from the line of Lisa Ellis with MoffettNathanson. Please go ahead.

Hi, good morning guys. Nice quarter. My question is related to the longer term trends around cross-border. I was just looking back and I mean back in I guess fiscal 2016 your overall cross-border volume growth on an FX neutral basis was around 12% more or less in line with purchase volumes, but then it up ticked in 2017 to about 15%, up ticked again in 2018 to more like 18%. And I know you said it's going to moderate a little bit, but still be strong in 2019. Can you just -- putting aside the sort of quarterly gyrations, can you just talk about that evolution over multi-year period, like what's driving that sustained outperformance? I think Martina, you've mentioned before that you've kind of got an internal team focused on it. Can you just give a little bit more color there to give us a sense for where that's headed over the longer term?

Yes, I mean, we really have a multi-faceted effort really kind of like running this like a business in terms of what we're doing from a cross-border focus point of view. And you just -- you are seeing fruits of the labors really coming through even though I have to tell you 2019 where we have a 19% cross-border growth as we have said before that was extraordinary and you shouldn't expect that to repeat itself every year.

In 2018.

In 2018. So in…

We’re already in 2019 mentally, but we are still taking 2018.

So in 2019, that's why I guided you guys more to around a mid-teens rate. So all of the work that we have been doing, obviously, it all starts on what kind of portfolios you're going after, right? What kind of clients are you working with? What kind of portfolios are you getting from the clients? But then secondly, once you have the portfolios, you have to do very particular things in order to get cross-border growth going in terms of how people are using that particular product, how you make sure that people know that this is a fantastic product to use that if you do certain things you actually get the best foreign exchange rates, which Mastercard can give. So there are many, many different facets which allow us to work and by the way, this comes out of our advisors group in a very big way, with the client, in terms of optimizing those kinds of portfolios. And we have a very honed skill in order to be able to do that. In addition to that, when you look at the various verticals, so what I talk mostly about right now is the consumer and the commercial portfolios, where are travelers actually using the cards, where it’s being used in the e-commerce space. As you know, we have also focused for many years now really on the virtual card product that is being used by a number of our clients also in the sense of a cross-border transaction. And that has made a fairly significant difference over those years.

Lisa, the only thing I’d add to is, put an envelope around this and start with the thinking of cross-border is both determined by the level of travel and tourism on the one hand and a consumer level combined with corporate travel and commercial travel at a commercial level, combined with cross-border e-commerce. When you look at all three together, we get what the market is growing at in a secular way. How much we extract from that secular growth is the effort that our team tries to put in using analytics and data and targeted offers of the type that Martina is referring to. And then the third part of it is, if you have the right portfolios you can get a little bit more out of it. And I think we've got a little bit of all of those working some as tailwinds, some as headwinds I am pretty certain that most people and most companies in the space would try and do things of the time we're talking about. It's not rocket science, it's a question of disciplined execution.

Terrific. Thank you. Thanks for the color.

And your next question comes from the line of James Friedman with Susquehanna. Please go ahead.

Hi, thanks. It's Jamie. I just wanted to ask with regard to the cycle guidance site. I realized that the services is contemplated to grow in excess of the corporate average is commercial writ large, including B2B. Is that also contemplated to grow faster than corporate average? Thank you.

Jamie, we're really not providing any individual guidance on this. So most of the commercial portfolio is part of the core and as you just heard us say, the new stuff in B2B, we are building out as we speak. So that's the B2B Hub, that is Mastercard Track and a number of things that we are doing on the cross-border space.

Okay. Got it, thank you.

And your next question comes from the line of Eric Wasserstrom with UBS. Please go ahead.

Thanks very much. Two questions please, the first Martina just on the going back to the three year performance objectives, just intuitively, the delta between the low-teens on revenue and the high-teens on EPS. If we extrapolate the current level of share repurchases still implies something around 100 basis points of annual operating margin improvement. So, can you just maybe touch on that issue?

So, listen, as I said in my prepared remarks, we really do not run the company by just expanding operating margin. We run the company for top-line growth and bottom-line growth. And depending how you put it together, and you just said it, you can do math, I can do math. By itself, it might imply an expansion in the operating margin, but I don't want you to take this to the bank, because investments will continue to be made in a number of areas in order to continue to have the top line grow for many, many years to come. So we have that flexibility to be able to do that.

Just in terms of management philosophy, this is really important we do not measure ourselves by expansion of operating margin, we do not. If we were to do that you would think that we would be in an industry of a very mature type where expansion of margin is what I should be holding up as my management objective. But I feel we’re in a growth industry with enormous opportunities, as I’ve been saying for the last decade for the next decade. In that industry, having the management discipline to focus on expanding the franchise, but doing it on a profitable way is the way we present our goals. So the idea of sticking to a minimum operating margin is just for you all and every investor telling by side to realize that we are not throwing the company out of the water. We’re really working it hard and working every lines of P&L, but also to be honest to the way, in which we operate every day and every minute of the day, which is grow the franchise and do it profitably as compared to find ways to expand the operating margin as the only management objective. That’s what we’re trying to give you as a threading of the needle here. Given to myself I would even have dropped the idea of talking about the 50% operating margin because we’re beyond it already. I'm just doing it to reassure you that we’re sensible and disciplined about managing profitability.

Got it, okay. That’s very clear, thank you. And then, Ajay, if I could just follow up on one strategic initiative the expansion of the B2B Hub into Australia is that targeting a similar sort of middle market corporate profile? And can you give us a sense of how you’re defining the TAM opportunity?

Yes, it’s targeting small and middle market not just middle market in fact MYOB is one of the most interesting providers of local on the ground expertise in providing payments and supply enablement and reconciliation services to both small and middle market corporate clients in Australia. And this partnership with them that has been a year in the making is actually very interesting for us because it is validation of the idea of the B2B Hub that originated in the United States as being possible in another market. And I want to take it to more markets as the next few years go by that’s the objective. But right now in Australia we’re just focused on executing it well to get to the 60,000 customers that MYOB has, which as I said have got a fairly large volume of revenue and payment size going through them. That gives you bill presentment, supply enablement, payments capability, reconciliation of payments versus what’s due in the bills, it gives you all that capability through this relationship with MYOB.

Thanks very much.

And your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.

Hey, thanks guys. Quick question on e-comm growth, when you think about -- on overall cross border growth I mean in terms of the deceleration, can you just quickly touch on the components was e-comm holding up, was the physical point of sale and then what kind of contribution from Maestro? And Ajay just a higher level question when you think about the backdrop term of this uncertain macro, can we revisit your willingness and ability to manage expenses if it were necessary? How much are you able to -- could we see a low single-digit expense growth if the economy really turn I just to be curious your thoughts. Thanks guys.

Okay. First of all on cross-border, so let me give you a little bit more detail. 2018 as I said was 19% for the whole year the fourth quarter of 2018 was 17% and impart was obviously because of the cryptocurrency that we had at the year ago quarter. And then there are a few ups and downs quite frankly just to give you a little bit more detail on this one. So for instance when you look at Brazil, when you look at Argentina, of course with the devaluation of the currency there was a bit of an impact on it. In Sweden, we had a deal lapping, in Canada because of the stronger U.S. dollar you have that a little bit going down. But that all was offset pretty much by a terrific performance in China and in Japan and that’s why you’re not seeing a lot of variations in the Q4 numbers. And then when you go to January 28 days, the 28 day number down to the 12%, pretty much all of these factors were the same factors other than the ones that I called out, which were on top of it. A year ago quarter had particularly large European cross-border and it imparted was because of how the French take vacation by the way. And in this year, we were hit by the snowstorm that started at the end of the first week of January.

I just want you to know she is married to a Frenchman. I don't want to start a political circumstance, but she is married to a Frenchman.

So that is a little bit -- was a hit on that one. And we called out the cryptocurrency on that one already. So it’s really nothing this year is going on, and that's why we have the confidence for the rest of the year. On e-comm you asked a particular question on that, cross-border e-comm we saw the growth rate just going down a tag.

Okay.

To your question on expense. I'm not going to tell you what number we could come to, because I don't know until we dealing with it, again we just as back in the 2009 and 2010 period. You should know that if we see a sustained economic downturn then is where we'd like to take a look at some of the expenses. My desire to play with expenses only works in a sustained downturn. If it's a quarter here or a quarter there, I'd be lost to stop investing in the right things, whether it's new product development or it's service capability or it’s even the investment in the brand. But we've got a number of levers in our expenses, some of which have a shorter-term turnaround, some of which have a longer-term impact. And you should -- if you go back and look at our behavior around expenses some years ago, we're very committed to being managing our way through it. As you can imagine when we make budgets for the year, we go through upside and downside scenarios. And given all the chatter in the environment around 2019, we’ve been even more careful this year in our downside scenario and our thinking around it.

Yes, and I think as you heard me say many times we don't leave this as just a scenario, we actually operationalize these scenarios. So if we ever see that something is happening in particular in the economic environment and we need to course correct from an expense point of view. All of our business units already know today what they will have to do and it will take them very little time to revisit the plan and to execute the way that we should be executing for you guys.

All right, makes sense. Thanks guys.

And your next question comes from the line of James Schneider with Goldman Sachs. Please go ahead.

Thanks for taking my question, good morning. I was wondering if you can maybe make -- it was one question and one clarification. First of all, you talked about the various drivers of the longer term outlook. But can you maybe quantify for us or dimensionalize the size of the B2B opportunity, especially for accounts payable and receivable. And how big that could potentially be towards the end of your forecasted outlook period? And then, maybe as a clarification, talk about exactly how much of a PCE slowdown you're expecting in 2019 relative to the broader longer outlook period? Thank you.

Jim, that really sounds like we should be helping you with your modeling questions. So listen, I'm not going to give you a lot more on B2B, you're going to have to reflect back to what we talked about the overall B2B opportunity, which is $120 trillion opportunity and what we said is that we are going after very particular slices of that B2B opportunity. So we're not going to run after all of the $120 trillion. And some of the things that we're already investing and like the B2B Hub, like Track, like what you're hearing from us from a cross-border point of view are actually attacking those kind of opportunities. And of course over the next three to five to seven years we are going to expect that some of that will manifest itself in revenue growth. For your 2019 question, really what we did is we put in a moderate downturn. So it's something that we can digest within the thoughts that I gave you from a low-teens revenue number for 2019.

Next question please?

Your next question comes from the line of Harshita Rawat with Bernstein. Please go ahead.

Hi, good morning. Thank you for taking my question. I want to ask about emerging markets, now emerging markets such as India likely a decent portion of your consumer to business addressable market. And on one hand these markets are greenfield with a lot of growth opportunities. On the other hand the competitive landscape is very different and you also have some accelerating government intervention and expansion by Chinese giants. So in that context can you talk about some of the steps you're taking to grow these markets and mitigate the risk of share losses and the risk of being disadvantaged by government nationalism.

The emerging markets are certainly attractive for the next decade or two I would tell you that of the total revenue that they comprise today of our business, you would be surprised that how small they are in the totality. So I think you've got to just think through as I said even in my remarks on China we don't really play in the domestic market as of now. And so the impact on us directly is relatively small. India is an interesting market as well has grown well, but at the end of the day the total impact to our revenue is still relatively small. That does not mean that a decade from now these won't be more attractive markets they're growing and they're attractive, their dynamics are different as you said. We are trying to play on multiple levels. The first is, we believe that our attitude towards the emerging markets be it Asia or Africa or Latin America or the Middle East is that we are there because the governments want us there. And so we go there with respect for that government and its sovereignty and we try and work with them in a way that show that we bring value to their economy to convert from cash to electronic payments to get safer transactions with better data being used for safety and services of that type as well as to get simple seamless experiences expand acceptance, improve the tax net, do things that governments find to be useful. And also distribute services to the bottom of the pyramid through financial inclusion. That's why you find us working so hard on expanding inclusive growth around the world. That's why we made that commitment of 500 million people to be reached by 2020. We're now at 360…

Okay, thank you very much.

We have reached the end of our allotted time. so, Ajay any final comments.

Sure, thank you all for your questions. And a few closing thoughts, we had a very strong end to the year bringing 2018 to a record close. We are executing against our strategy, we are growing our core products and diversifying our customer base and we're building new capabilities in so many sectors and services. We continue to drive solid deal momentum and I think Martina and I are very pleased to outline the company's new performance objective. We feel we have positioned ourselves well with our investments and our execution to drive continued strong growth in the future. So with that, thank you for your continuing support of all of us in the company and thank you for joining us today.

And with that, this does conclude today’s conference call. You may now disconnect.