Mastercard Incorporated (MA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Mastercard Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to one of your speakers for today, Warren Kneeshaw, Executive Vice President, Investor Relations. Please go ahead, sir.

Thank you, Carol, and good morning, everyone, and thank you for joining us on short notice to discuss the recently announced organizational changes. With me today are Rick Haythornthwaite, the Chairman of the Board of Mastercard; Ajay Banga, our President and Chief Executive Officer; and Michael Miebach, our Chief Product Officer. Following comments from Rick, Ajay and Michael, the operator will announce your opportunity to get into the queue for the Q&A session. We ask that you limit your questions to matters related to the organizational announcement as we will not be taking questions related to our business performance on this call. This call is being webcast and is available in the Investor Relations section of our website, mastercard.com. A replay of this call will be posted on our website for 30 days. I'd like to remind everyone that today's call may 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 in our recent SEC filings. With that, I'll now turn the call over to Rick.

Good morning, everyone, and thank you for joining today's call. This is an exciting moment for Mastercard as we announce a leadership transition. Michael Miebach, our current Chief Product Officer, has been selected as Mastercard's next Chief Executive Officer. Michael will transition to this role on January 1, 2021, at which time he will join the Board of Directors. As part of this transition, he will become President of Mastercard effective March 1, 2020. At the end of the year, Ajay Banga will step down as CEO, and I will retire. Ajay will then become Executive Chairman of the Board; and Merit Janow will become lead independent director. Ajay has been an outstanding leader for Mastercard. Since becoming CEO, he's led the strategic and cultural transformation of the company that has enabled Mastercard to thrive. At Ajay's leadership, Mastercard has diversified its business and expanded its addressable market. He's built a growth-oriented mindset and operated with a real sense of urgency, fueling the company's 13% compound annual revenue growth from 2009 through 2019 and a 16x increase to our stock price during his tenure with the company. We're fortunate that we will continue to benefit from his experience and expertise when he becomes Executive Chairman. The Board is confident that Michael has the leadership experience and capabilities to build on the extraordinary platform developed both by Ajay and his predecessors. Michael shares the values Ajay fostered and has played an instrumental role in the company's transformation. We're very pleased that Michael will succeed Ajay and continue to drive and evolve our successful strategy. The Board's decision was the result of a comprehensive process, looking at diverse slate of both internal and external candidates. And as part of the search process, the Board retained a leading global leadership assessment and executive search firm to provide an independent view and complement our well-established internal processes. Michael was elected as Mastercard's next Chief Executive Officer unanimously, and I'm very excited about the vision and experience that he will bring to leading the company. And with that, let me now turn it over to Ajay.

Thank you, Rick. And thank you, everyone, for being here today. I just want to let you know, first of all, that having Rick as my Chairman, mentor and friend over the last decade has been an outstanding privilege because he has been the most supportive, and yet the willingness to question and push management for the best in times demonstrates his skill and capacity as the Chairman. And, Rick, thank you very much for your leadership over the last decade for me, personally. It's been a privilege to be a part of Mastercard's transformation of the company, and I believe the company today is stronger than ever. We have developed a deep bench of leaders. We have a management team that I have deep faith in, that I believe is second to none. We are well positioned for the future. We have the right assets in space, and now is the right time to pass the baton to Michael. I think Mastercard will continue to benefit from Michael's deep expertise in digital innovation, his knowledge of payment technologies, his experience around the world in dealing with regulation and his capacity to integrate and work with fintech and financial services players to forge partnerships right across the whole payments ecosystem. Over his career, Michael held leadership positions in Europe, in the Middle East and Africa and in the U.S. across payments, data, banking services and technology and is passionate about creating trusted products with the highest levels of safety and security for our customers. And frankly, given our time working together, Michael has been a key driver in developing and executing the strategy that has come in place to evolve and diversify the Mastercard you see today. He's a global citizen. The vision may start with his role in Middle East, Africa. And just in South Africa, which is one of the first trips I made with him, for example, kickstarted much of the work that has led to the financial inclusion journey that our company has been on over the past number of years, leading to now are reaching 500 million people on that journey and making further commitments for the next 5 years. And Michael has been a key architect of our multi-rail strategy to address the broader set of payment flows, including leading the Vocalink acquisition and our pending transaction with Nets. And his appointment as President and then CEO reaffirms our commitment to advancing customer-focused innovation. And the months ahead, my priority, my north star, is to ensure a seamless transition for our company and to continue our great relationships with our customers, regulators, partners and, of course, investors. I'm very excited about working with Michael and supporting Mastercard's success when I become Executive Chairman. And with that said, let me turn it over to Michael.

Thank you, Ajay. Our company has outstanding people, industry-leading technology and an admired brand and with that, tremendous potential. I'm honored to have the opportunity to lead Mastercard. And as Rick on the Board, I want to thank the entire Board of Directors for their confidence and trust. I dedicated the last decade of my career to payment innovation, and I'm fortunate to have worked closely with Ajay throughout all of this and evolve and execute Mastercard's strategy. Now I'm excited to continue this partnership and look forward to working with our colleagues and the leadership team to build and deliver solutions and address ever-changing needs of our customers, partners and consumers. As I look at what lies ahead, I see tremendous opportunity for our company. During the next 5 years, we will see significant advancements in areas such as the rollout of 5G, our broad application of data analytics and AI, proliferation of the Internet of Things. This still requires state-of-the-art cyber solutions and data capabilities as well as flexible options to effect digital payments. We will build on strong platforms that we've created in these spaces to capitalize on this opportunity. And I think we will do this by putting the customer first, the consumers' experience at the forefront of everything that we do, by leveraging new technologies to continue to diversify our products and services and by providing choice to our customers to allow them to deliver the best programs for their unique business needs. And we will capitalize on this opportunity by expanding into new areas adjacent to payments such as open banking and digital identity where we can leverage our core competencies. And we will keep doing this in a disciplined way. With focus on execution, we evolve our strategy and continue to lead the industry forward. I'm incredibly excited about what lies ahead for Mastercard, and I look forward to getting out there in my new role and spending time with our customers, employees and shareholders. Thanks again, Ajay. The Board, our leadership team and all of our people, I'm deeply honored to be the next President and CEO of Mastercard.

Thanks, Michael. Carol, we're now ready to take questions.

[Operator Instructions] Your first question this morning comes from Ramsey El-Assal from Barclays.

Congratulations to you all for an important series of transitions. I was just wondering if you're contemplating any other organizational changes with you taking on the CEO role. Obviously, there would need to be a succession plan in product. But how do you see the general sort of structure of the organization in the context of you taking the reins?

Yes. Thank you for that question. Our plan initially will be as I step into the role of President that all the business functions will report to me. But that includes sales, marketing, O&T, and then, of course, I will continue to lead our product function. So that is the initial change for the time being. Otherwise, I will look at our product organization. I will continue to lead it and see how we need to transition that over time. And then, of course, Ajay isn't going anywhere. So we will see until the end of the year what other changes we will consider.

Your next question comes from Craig Maurer from Autonomous.

And again, congratulations, Ajay. It's been an absolute pleasure over the last decade. Michael, a quick question for you. Looking out over the next 5 to 10 years, where do you see the biggest risks for Mastercard's business?

Thank you, Craig. As I look out the next 5 years and I reflect on the last couple of years, I think one thing is for sure, that there's going to be more change and the speed of change is going to increase. We'll see more changing technology, faster-changing technology. So as I look ahead, if you just focus on the key trends in our industry, be it -- what I was talking about earlier, 5G, there's going to be more data around; the Internet of Things, the more -- every device is going to be a connected device, there'd be more data, more payments. So people will have a clear desire for cyber solutions and safety in that kind of an environment. And I think here, there's risks involved in that, that we can help address, but for us, I think that's broadly speaking a significant opportunity. When you look around what is happening in the industry, you see governments getting engaged in electronic payments, and they see the benefit of payments. Governments get engaged in different ways around payments, so there's engagement that pushes electronic payment. There's also trends of national listed solutions. So here, again, I see a mix between opportunity for us. We've been navigating this for years. I think we'll see more of it. I think we've learned a lot over the years, and I think we can position ourselves well to be an established local partner in all of these markets. Those will be the top things I would say to you.

Craig, one thing I would add is that one of the benefits of having Michael step into this role is his enormous on-the-ground experience in not just Europe and Eastern Europe, but also in the Middle East and Africa. So he's kind of operated even before coming to the U.S. in the developed world as well as in the emerging world. And he understands that what it takes to be required as an MNC, to be welcomed to a country in an industry like payments is to be doing things that add value to their economy, that make them feel that they are grateful for the fact that we can be a part of that development in that economy. Michael knows how to operate and navigate that with respect for those local institutions and those local leaders, and I think that's a differentiation in our company that Michael can build on enormously.

Your next question comes from Tien-Tsin Huang from JPMorgan.

Ajay, I've got to say, the 16x return on the stock under your leadership in the release, just seeing that is encouraging and pretty amazing, so congrats to you. And I guess we learned a lot from you, so thanks to you on that as well. Just for Mike, wanted to ask, on the leaderships, how would you describe yourself there? Just this concept of if I put a spectrum out there of decisiveness versus consensus building, how would you put yourself on that spectrum? It's so important given where Mastercard sits in the food chain?

Tien-Tsin, good to hear you. I love Michael over Mike. I just have to say that right at the beginning.

Sorry about that. I apologize. I apologize. I catch you casual right up front. Michael, Michael.

So that is your answer on leadership style as well. No, but broadly speaking, my approach is -- and I've lived it over the last 10 years. We have a very strong leadership team. I've been part of it. And it's pretty clear that the success of this company is a function of Ajay's leadership, but also, it's a function of the team. So it is a team sport. Success is a team sport, and that's how I look at it. It's kind of enabled the team. But of course, I have a view where things should be going, so a mix of those.

Got it. And then you mentioned -- if you don't mind, a quick follow-up. You mentioned sort of consumer and product orientation. Is that an area that we should expect Mastercard to invest a little bit more heavily to be a little bit more consumer-oriented in the product side?

The -- our approach has been to participate in as many payment flows as we can; address needs on either side of a payment; lately, stepping into related transactions in data. But these underlying principles are putting the customer first. I don't think there's a change there. We're just going to do more of that and make sure that in the end, we have deep understanding of what an engine of our product is actually trying to do. So you'll see more of that with the hiring of a CXO that we started last year, we're going down that road. And just simply becoming that multi-rail company, that one-stop shop, I think that is just in itself a statement about how we're going to put customer needs at the forefront, just help them with more of their needs. So those priorities that we've put out, participating in more flows, B2B, P2P, you heard us talk about it, that is not going to change. And I see that still as a huge opportunity. And I will see where the banking takes out, that's still early days. But here, we put our product set out there last year, and we continue to see that growing.

Your next question comes from Moshe Orenbuch from Crédit Suisse.

Congratulations to everyone. And I would say, the question is for Mike. As Ajay kind of mentioned your most impressive resume and things you've done, what are the things that you'd like to focus on over the next year, areas to build up as you're kind of getting ready for that position? And maybe for Ajay, if you could just tell us what you're going to do with all your free time in 2021 and beyond.

I'll take that one first, while Michael thinks through what he wants to say. But I'm pretty clear. I'm not going to hang out with you, Moshe.

In a lot of times, Citibank days.

So listen, I -- first of all, I've got until the end of the year. I am very much committed to everything I'm doing, both as being the CEO of the company, but even more importantly, I told you my north star is to make this transition as seamless and as, in fact, beneficial as possible. And then as an Executive Chairman, I probably will spend much more of my time looking outside of the company with the influences that the company can spend more time with, and while Michael runs the company, which is what he should be doing. I think that's how our equation will work. And then after that, if you've got some ideas to me, I'll give you my cellphone number, call me. I'm always looking for things. Okay, Michael, your turn.