Mastercard Incorporated — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial statements are unaudited. Mastercard operates a global electronic-payments network and related services.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Net revenue | $5.497 billion; up 21% year over year, or 27% currency-neutral adjusted | $10.664 billion; up 23% year over year, or 27% currency-neutral adjusted |
| Operating income / margin | $3.018 billion / 54.9%; prior-year margin 51.7% | $5.968 billion / 56.0%; prior-year margin 52.3% |
| Net income | $2.275 billion; up 10% | $4.906 billion; up 26% |
| Diluted EPS | $2.34 reported; $2.56 adjusted non-GAAP | $5.02 reported; $5.32 adjusted non-GAAP |
| Operating cash flow | Not presented separately for the quarter | $4.239 billion, versus $3.731 billion |
Adjusted figures exclude equity-investment gains or losses and specified special items; currency-neutral growth also excludes currency effects. Adjusted net income increased 29% in Q2 and 41% for the half year. Adjusted operating margin was 57.9% for Q2 and 57.7% for the half year.
Q2 growth reflected local-currency gross dollar volume up 14%, cross-border volume up 58%, and switched transactions up 12%. For the first half, these rose 15%, 56%, and 16%, respectively. Cross-border volume fees increased 50% in reported dollars in both periods. Rebates and incentives also increased, by 19% in Q2 and 22% for the half year.
Cash, debt, and liquidity at June 30: Cash and cash equivalents were $5.921 billion; cash, cash equivalents and investments totaled $6.4 billion, excluding $2.2 billion of restricted cash. Mastercard also had an unused $6.0 billion revolving credit facility and no borrowings under that facility or its commercial-paper program. Total debt was $14.5 billion, including $735 million due in December 2022. Current assets were $15.2 billion and current liabilities $12.1 billion. Management stated available liquidity, operating cash generation, and access to capital were sufficient for anticipated needs.
Changes, outlook, and notable items
- Russia: Mastercard suspended Russian operations in March 2022. The company said the impact would continue through full-year 2022; Russia represented approximately 4% of 2021 net revenue. Russia-related net charges were $26 million in Q2 and $30 million for the half year. The filing gives no specific forward revenue or earnings guidance.
- Profit comparability: Equity-investment results shifted from gains of $243 million in Q2 2021 to losses of $117 million in Q2 2022; first-half results shifted from gains of $337 million to losses of $193 million. These fair-value effects weighed on reported earnings comparisons.
- Tax: The first-half 2022 effective tax rate was 11.9%, versus 16.6% a year earlier, including a $333 million valuation-allowance release tied to U.S. foreign tax credit carryforwards. Q2’s rate rose to 18.7% from 16.6%, primarily reflecting a prior-year U.K. tax benefit.
- Capital returns and investment: Mastercard repurchased 13.7 million shares for $4.8 billion and paid $1.0 billion in dividends during the first half. It issued €750 million of notes due 2029 and acquired Dynamic Yield for $325 million in April.
- Litigation: A Q2 $133 million charge reflected a revised estimate for U.S. merchant opt-out claims. The U.S. merchant damages-class and opt-out litigation reserve was $914 million at June 30; the company stated this is not an estimate of potential loss if the matters proceed to final litigation. Other material proceedings include unresolved European merchant claims of approximately £1 billion and a proposed U.K. consumer collective action seeking more than £14 billion; outcomes and potential losses remain uncertain.
- Other exposures: Estimated net settlement exposure under customer guarantees was $53.7 billion after $8.6 billion in risk mitigants. Mastercard reported that historical settlement losses were low, but warned that economic conditions and legal outcomes could affect liquidity. Foreign exchange, regulation, competition, cybersecurity, and geopolitical developments are among the stated risks.
Important facts for investors to verify
- How payment volumes, cross-border activity, rebates and incentives, and currency movements affect revenue growth in subsequent quarters.
- The continuing business and financial effects of the Russia suspension, including whether they differ from management’s expectations.
- Developments in U.S. merchant litigation, European claims, and other regulatory matters, and any changes to reserves or potential exposure.
- Cash generation and liquidity after substantial repurchases and dividends, alongside debt maturities and settlement-guarantee exposure.
- Underlying operating performance excluding volatile equity-investment marks and specified non-GAAP adjustments, and the sustainability of the unusually low first-half tax rate.