Fourth-quarter net income of $933 million, including a special item, or $0.86 per diluted share
Fourth-quarter net income of $940 million, excluding a special item,1 or $0.86 per diluted share
Fourth-quarter net revenue increase of 9%, to $2.8 billion
Fourth-quarter gross dollar volume up 9% and purchase volume up 8%, both adjusting for the impact of recent EU regulatory changes2
Purchase, NY- January 31, 2017 – Mastercard Incorporated (NYSE:MA) today announced financial results for the fourth quarter and full year 2016. The company reported net income of $933 million, an increase of 5%, or 4% on a currency-neutral basis and earnings per diluted share of $0.86, up 9%, or 7% on a currency-neutral basis, both versus the year-ago period. Excluding a special item in this quarter related to merchant litigation in the U.K., the company reported net income of $940 million, an increase of 6%, or 5% on a currency neutral-basis, and earnings per diluted share of $0.86, up 9%, or 7% on a currency-neutral basis, both versus the same period in 2015.
“We’re pleased to have delivered strong results for the quarter and full year, driven by solid execution of our strategy and leveraging our differentiated service offerings,” said Ajay Banga, Mastercard president and CEO. “Our continued investments in digital, safety and security, data analytics, loyalty and processing position us well for future growth in our core business and new payment flows.”
Net revenue for the fourth quarter of 2016 was $2.8 billion, an increase of 9%, or 10% on a currency-neutral basis, versus the same period in 2015. Net revenue growth was driven by the impact of the following:
An increase in switched transactions3 of 17%, to 15.2 billion;
A 9% increase in gross dollar volume, on a local currency basis and adjusting for the impact of recent EU regulatory changes, to $1.2 trillion; and
An increase in cross-border volumes of 13%.
These factors were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes. As of December 31, 2016, the company’s customers had issued 2.3 billion Mastercard and Maestro-branded cards.
Total operating expenses decreased 1% to $1.4 billion during the fourth quarter of 2016 compared to the same period in 2015 and were flat on a currency-neutral basis. Excluding the special item, total operating expenses decreased 2%, or 1% on a currency-neutral basis. The decrease reflects the impact of ongoing cost management activities offsetting our continued investments in strategic initiatives.
Operating income for the fourth quarter of 2016 increased 23%, or 22% on a currency-neutral basis, versus the year-ago period. Excluding the special item, operating income increased 24%, or 23% on a currency-neutral basis. The company delivered an operating margin of 49.4%, or 49.8% excluding the special item.
Mastercard reported other expense of $52 million in the fourth quarter of 2016, versus $82 million in the fourth quarter of 2015. The decrease was mainly due to lower impairment charges on investments in the current quarter versus the comparable period in the prior year, partially offset by increased interest expense related to the company’s recent debt offerings.
Mastercard’s effective tax rate was 28.8% in the fourth quarter of 2016, or 28.7% excluding the special item, versus a rate of 13.1% in the comparable period in 2015. The difference was primarily due to the recognition of discrete benefits in the fourth quarter of 2015.
During the fourth quarter of 2016, Mastercard repurchased approximately 11 million shares at a cost of $1.1 billion. Quarter-to-date through January 26, the company repurchased an additional 2.3 million shares at a cost of $247 million, which leaves $4.7 billion remaining under current repurchase program authorizations.
Full-Year 2016 Results
For the full-year 2016, Mastercard reported net income of $4.1 billion, an increase of 7%, or 8% on a currency-neutral basis, and earnings per diluted share of $3.69, up 10%, or 11% on a currency-neutral basis, versus the year-ago period. Excluding special items, net income was $4.1 billion, up 6%, or 7% on a currency-neutral basis. Earnings per diluted share were $3.77, up 10%, or 11% on a currency-neutral basis, compared to the same period in 2015.
Net revenue for the full-year 2016 was $10.8 billion, an increase of 11%, or 13% on a currency-neutral basis, versus the same period in 2015. Contributing to this growth were switched transactions growth of 16%, cross-border volume growth of 12% and gross dollar volume growth of 11%, on a local currency basis and adjusting for the impact of recent EU regulatory changes. These factors were partially offset by an increase in rebates and incentives.
Total operating expenses were $5.0 billion, an increase of 9%, or 11% on a currency-neutral basis, for the full-year 2016, compared to full-year 2015. Excluding special items, total operating expenses were $4.9 billion, an increase of 10%, or 12% on a currency-neutral basis. The increase was primarily due to continued investments to support strategic initiatives, lapping of the favorable impact of foreign exchange gains in 2015 and higher data processing expenses.
Operating income for the full-year 2016 was $5.8 billion, an increase of 13%, or 15% on a currency-neutral basis, versus the same period in 2015. Excluding special items, operating income was $5.9 billion, an increase of 13%, or 14% on a currency-neutral basis, versus the same period in 2015. The company delivered an operating margin of 53.5%, or 54.5% excluding special items.
Mastercard’s effective tax rate was 28.1% for the full-year 2016, versus a rate of 23.2% in 2015. Excluding special items, the effective tax rate was 28.1% for the full-year 2016, versus a rate of 23.4% in the comparable period in 2015. The increase was primarily due to the recognition of larger discrete tax benefits in 2015.
Fourth-Quarter Financial Results Conference Call Details
At 9:00 a.m. ET today, the company will host a conference call to discuss its fourth-quarter financial results.
The dial-in information for this call is 877-201-0168 (within the U.S.) and 647-788-4901 (outside the U.S.), and the passcode is 40272333. A replay of the call will be available for 30 days and can be accessed by dialing 855-859-2056 (within the U.S.) and 404-537-3406 (outside the U.S.), using passcode 40272333.
This call can also be accessed through the Investor Relations section of the company’s website at www.mastercard.com/investor. Presentation slides used on this call are also available on the website.
Non-GAAP Financial Information
The company has presented certain financial data that are considered non-GAAP financial measures that are reconciled to their most directly comparable GAAP measures in the accompanying tables.
The presentation of growth rates on a currency-neutral basis represent a non-GAAP measure and are calculated by remeasuring the prior period’s results using the current period’s exchange rates for both the translational and transactional impacts in our operating results.
About Mastercard Incorporated
Mastercard (NYSE: MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. Mastercard products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone. Follow us on Twitter @MastercardNews, join the discussion on the Beyond the Transaction Blog and subscribe for the latest news on the Engagement Bureau.
Forward-Looking Statements
This press release contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this press release, the words “believe”, “expect”, “could”, “may”, “would”, “will”, “trend” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Mastercard’s future prospects, developments and business strategies. We caution you to not place undue reliance on these forward-looking statements, as they speak only as of the date they are made. Except for the company’s ongoing obligations under the U.S. federal securities laws, the company does not intend to update or otherwise revise the forward-looking information to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions, changes in general economic or industry conditions or other circumstances arising and/or existing since the preparation of this press release or to reflect the occurrence of any unanticipated events.
Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:
payments system-related legal and regulatory challenges (including interchange fees, surcharging and the extension of current regulatory activity to additional jurisdictions or products);
the impact of preferential or protective government actions;
regulation to which we are subject based on our participation in the payments industry;
regulation of privacy, data protection and security;
the impact of competition in the global payments industry (including disintermediation and pricing pressure);
the challenges relating to rapid technological developments and changes;
the impact of information security failures, breaches or service disruptions on our business;
issues related to our relationships with our customers (including loss of substantial business from significant customers, competitor relationships with our customers and banking industry consolidation);
the impact of our relationships with stakeholders, including issuers and acquirers, merchants and governments;
exposure to loss or illiquidity due to settlement guarantees and other significant third-party obligations;
the impact of global economic and political events and conditions, including global financial market activity, declines in cross-border activity; negative trends in consumer spending and the effect of adverse currency fluctuation;
reputational impact, including impact related to brand perception, account data breaches and fraudulent activity;
issues related to acquisition integration, strategic investments and entry into new businesses; and
potential or incurred liability and limitations on business resulting from litigation.
For additional information on these and other factors that could cause Mastercard’s actual results to differ materially from expected results, please see the company’s filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K for the year ended December 31, 2015 and any subsequent reports on Forms 10-Q and 8-K.
________________________________________________________
1
See Non-GAAP Reconciliation for details of all special items referenced in this release.
2
As noted last quarter, the company no longer charges fees on domestic EEA co-badged volume due to EU regulations implemented in June 2016, and thus excludes that volume from its metrics. The impact on net revenue is de minimis.
3
The company is introducing a new name for what was previously referred to as “processed transactions.” The company will now refer to these as “switched transactions.” The methodology for calculating this metric has not changed and reflects the transaction counts that Mastercard has authorized, cleared or settled.
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended December 31,
Twelve Months Ended December 31,
2016
2015
2016
2015
(in millions, except per share data)
Net Revenue
$
2,756
$
2,517
$
10,776
$
9,667
Operating Expenses
General and administrative
983
998
3,714
3,341
Advertising and marketing
308
319
811
821
Depreciation and amortization
92
93
373
366
Provision for litigation settlements
10
—
117
61
Total operating expenses
1,393
1,410
5,015
4,589
Operating income
1,363
1,107
5,761
5,078
Other Income (Expense)
Investment income
11
5
43
25
Interest expense
(30
)
(12
)
(95
)
(61
)
Other income (expense), net
(33
)
(75
)
(63
)
(84
)
Total other income (expense)
(52
)
(82
)
(115
)
(120
)
Income before income taxes
1,311
1,025
5,646
4,958
Income tax expense
378
135
1,587
1,150
Net Income
$
933
$
890
$
4,059
$
3,808
Basic Earnings per Share
$
0.86
$
0.79
$
3.70
$
3.36
Basic Weighted-Average Shares Outstanding
1,087
1,121
1,098
1,134
Diluted Earnings per Share
$
0.86
$
0.79
$
3.69
$
3.35
Diluted Weighted-Average Shares Outstanding
1,090
1,124
1,101
1,137
MASTERCARD INCORPORATED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
December 31,
2016
2015
(in millions, except per share data)
ASSETS
Cash and cash equivalents
$
6,721
$
5,747
Restricted cash for litigation settlement
543
541
Investments
1,614
991
Accounts receivable
1,416
1,079
Settlement due from customers
1,093
1,068
Restricted security deposits held for customers
991
895
Prepaid expenses and other current assets
850
663
Total Current Assets
13,228
10,984
Property, plant and equipment, net
733
675
Deferred income taxes
307
317
Goodwill
1,756
1,891
Other intangible assets, net
722
803
Other assets
1,929
1,580
Total Assets
$
18,675
$
16,250
LIABILITIES AND EQUITY
Accounts payable
$
609
$
472
Settlement due to customers
946
866
Restricted security deposits held for customers
991
895
Accrued litigation
722
709
Accrued expenses
3,318
2,763
Other current liabilities
620
564
Total Current Liabilities
7,206
6,269
Long-term debt
5,180
3,268
Deferred income taxes
81
79
Other liabilities
524
572
Total Liabilities
12,991
10,188
Commitments and Contingencies
Stockholders’ Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,374 and 1,370 shares issued and
1,062 and 1,095 outstanding, respectively
—
—
Class B common stock, $0.0001 par value; authorized 1,200 shares, 19 and 21 issued and outstanding,
respectively
—
—
Additional paid-in-capital
4,183
4,004
Class A treasury stock, at cost, 312 and 275 shares, respectively
(17,021
)
(13,522
)
Retained earnings
19,418
16,222
Accumulated other comprehensive income (loss)
(924
)
(676
)
Total Stockholders’ Equity
5,656
6,028
Non-controlling interests
28
34
Total Equity
5,684
6,062
Total Liabilities and Equity
$
18,675
$
16,250
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Years Ended December 31,
2016
2015
2014
(in millions)
Operating Activities
Net income
$
4,059
$
3,808
$
3,617
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives
860
764
691
Depreciation and amortization
373
366
321
Share-based payments
50
22
(15
)
Deferred income taxes
(20
)
(16
)
(91
)
Other
29
(81
)
52
Changes in operating assets and liabilities:
Accounts receivable
(338
)
(35
)
(164
)
Income taxes receivable
(1
)
(14
)
(8
)
Settlement due from customers
(10
)
(98
)
185
Prepaid expenses
(1,073
)
(802
)
(1,316
)
Accrued litigation and legal settlements
17
(63
)
(115
)
Accounts payable
145
49
61
Settlement due to customers
66
(186
)
(165
)
Accrued expenses
520
325
389
Net change in other assets and liabilities
(193
)
4
(35
)
Net cash provided by operating activities
4,484
4,043
3,407
Investing Activities
Purchases of investment securities available-for-sale
(957
)
(974
)
(2,385
)
Purchases of investments held-to-maturity
(867
)
(918
)
—
Proceeds from sales of investment securities available-for-sale
277
703
2,477
Proceeds from maturities of investment securities available-for-sale
339
542
1,358
Proceeds from maturities of investments held-to-maturity
456
857
—
Purchases of property, plant and equipment
(215
)
(177
)
(175
)
Capitalized software
(167
)
(165
)
(159
)
Acquisition of businesses, net of cash acquired
—
(584
)
(525
)
(Increase) decrease in restricted cash for litigation settlement
(2
)
(1
)
183
Other investing activities
(31
)
2
(84
)
Net cash (used in) provided by investing activities
(1,167
)
(715
)
690
Financing Activities
Purchases of treasury stock
(3,511
)
(3,518
)
(3,386
)
Proceeds from debt
1,972
1,735
1,530
Dividends paid
(837
)
(727
)
(515
)
Tax benefit for share-based payments
48
42
54
Cash proceeds from exercise of stock options
37
27
28
Other financing activities
(2
)
(17
)
(50
)
Net cash used in financing activities
(2,293
)
(2,458
)
(2,339
)
Effect of exchange rate changes on cash and cash equivalents
(50
)
(260
)
(220
)
Net increase in cash and cash equivalents</