Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the American Express Q3 2019 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to ask your question. Please press Star then one on your Touchtone phone.
You will hear a tone, indicating that you've been placed in Q you may remove yourself from the Q at any time by pressing the pound key.
If you're using a speakerphone please pick up the handset before pressing the numbers.
Should you require assistance during the call. Please press Star then zero.
As a reminder, today's call is being recorded.
I would now like to turn the conference over to our host head of Investor Relations Ms. Rosy Perez. Please go ahead.
Thank you Alan and thank you all for joining today's call as a reminder, before we begin today's discussion contains forward looking statements about the company's future business I.
Financial performance.
These are based on management's current expectations, then are subject to risks and uncertainties.
After that could cause actual results could differ materially from these statements are included in todays slide.
And on our reports on file with the FCC. The discussion today also contains non-GAAP financial measure the comparable GAAP financial measures are included in this quarter is there any material as well as the earnings materials for the prior periods we did.
All of these are posted on our website at IR Dot American Express dotcom.
Well begin today with Steve Squeri, Chairman and CEO , who will start with some remarks about the company's progress and result.
And then just Campbell CFO will provide a more detailed review of our financial performance.
After that we'll move to acuity, especially on the result, with both speed and.
With that let me turn it over to that's rosy good morning, everyone and thanks for joining US as you saw in our release earlier today, our third quarter results are a continuation of the consistent steady performance, we've been delivering over the last few years.
We had strong FX adjusted revenue growth of 9% in the quarter and our EPS of $2, an eight cents was 11% higher than last year.
The consistently high levels of revenue growth, we're delivering as the result of the focused approach we've taken in executing our strategy and the strength of our differentiated business model.
This was the ninth straight quarter, where FX adjusted revenue growth was 8% or higher.
Im, especially pleased that our revenue growth continues to be driven by a well balanced mix of spend loans and fees.
[noise] card fee revenues were particularly strong growing 19% and exceeding $1 billion. This quarter for the first time.
Nearly 70% of the cards, we've acquired this year, our fee based products, providing us recurring subscription like revenues.
The trends we saw in the business remained consistent with an economy that continues to expand albeit at a more modest pace than last year.
Our FX adjusted proprietary billings grew 7% led by strong growth in our us and international consumer businesses.
We continued to deliver healthy loan growth and our credit performance remained at industry, leading levels in fact better than expectations. We had at the beginning of the year.
So as you can see even with some uncertainty in the global economic and political environment, our strategy of investing in share scaling relevance is enabling us to deliver steady steady solid results.
With that in mind I'd like to discuss our progress on the three company wide initiatives I laid out at Investor Day. As a reminder, these cut across all of our strategic imperatives.
They are focusing on our customer as a platform for growth expanding and leveraging our network of strategic partners and prioritizing our investments in international to drive growth.
Let's start with customers as a platform for growth.
Our global diverse customer base has become a major source of growth for us one of the ways, where deepening relationships with existing customers is through the disciplined strategic approach, we've taken to continuously refresh our products.
These refreshes are not just cosmetic changes we are redefining membership by adding innovative experienced fill in rational value that our customers respond well to and we're pricing for that additional value.
In the third quarter, we continued the refresh of our platinum card portfolio across several international markets and we're following a similar playbook with our goal cards.
Now, we're updating our iconic green card a few weeks ago, we introduced a new ocean plastic design and later this month, we will announce an array of changes to the product, including new benefits broader payment flexibility and a digital focus.
And just yesterday, we announced a major refresh of our corporate card program, which includes a number of new features including newer enhanced benefits with Uber Hilton and clear, which is the biometric identification system that expedite the airport security process.
As part of that announcement, we introduced an extension of our corporate card program designed to meet the needs of startups with features that include corporate liability and dynamic spending capacity.
As I've said on prior occasions, we typically see a significant increase in spending when our customers add an additional amex product to their wallets and our corporate card members represent a great opportunity here.
For many of our customers. The corporate card is their first American express product to encourage them to add a personal card, we're creating ways that provide benefits for carrying both such as a new program that offers and incentive for corporate card members to obtain one of our select consumer courts.
These initiatives are proving to be a terrific platform for growth, we're seeing a lift in spending and engagement on our refreshed products over 60% of our total loan growth is coming from existing card members and we're earning a steady stream of revenues as more customers move to fee based products, which are price for the additional value we're delivering.
Our customers have also become one of the best in most efficient ways to bring new card members into the franchise through our member get member referral program. We've acquired over 250000, new customers. This year. So far in addition successful referrals have increased 35% compared to last year's third quarter.
Turning to partnerships.
The third quarter to continue to demonstrate the benefits of our powerful network of partners, who helped us deliver enhanced value across the enterprise.
As I've said before partnerships are essential to each of our strategic imperatives and they take many forms from the over 50 co brand relationships, we have around the world. So our recent digital partnerships to expanding our merchant network.
We talk about partnerships, we have to start with delta, our largest deepest and longest running relationship.
At the end of September we announced seven refresh Delta Skymiles co branded cards as part of our renewed 11 year agreement with the airline.
The new cards, which will be available in January in the US will feature a range of customize travel benefits for both consumers and small business card members.
Also in the third quarter, we launched a new small business credit card in the UK with British Airways and one in Singapore, with Singapore Airlines, and we announced the reef, we announced refresh consumer cards in Canada with air miles and Scotiabank.
In addition to co brands, we've been expanding our digital partnerships earlier. This week, we announced two new offerings with paper Allen Venmo for US consumer card members first is the ability to pay for purchases made to pay Pal with membership rewards points and we're also introducing split the bill functionality within the Amex mode.
Mobile app.
On the merchant side with the help of our Optblue partnerships, we remain on track to achieve virtual parity coverage in the us by the end of the year.
In international our strategy of selectively increasing our investments to drive share scale and relevance through a country by country approach is delivering strong results.
Despite despite political and economic uncertainty in some regions international remains the highest growth area of our business.
Third quarter results showed continued strong growth across both consumer and small business segments.
Driven by results in our top strategic countries, where weve allocated incremental investments.
Since the beginning of the year, we've launched 18, new a refresh proprietary cards and Rico brand cards, and 30 network cards across international.
As a result, we're taking share and generating strong billings growth in the mode in most of our proprietary countries.
With overall FX adjusted consumer proprietary buildings up 14% in the quarter and FX adjusted SMB billings up 18%.
And finally, we're making good progress on expanding merchant coverage, which is key to our overall international growth strategy.
As you can see we've made a lot of progress in each of our three priority areas since March and there's more to come in summary, I feel very good about our performance in the quarter in year to date.
As we look ahead I expect the consistent trends, we've seen to continue into Q4 translating into revenue growth of 8% to 10% in the quarter and we're reaffirming our full year guidance of adjusted EPS between 75, and a 35.
Our performance reinforces my confidence in our ability in today's environment to sustain high levels of revenue growth and consistent double digit EPS growth, which creates value for our shareholders I'm excited about the opportunities that lie ahead and look forward to updating you on our progress now let me turn it over to Jeff.
Well, thank you, Steve and good morning, everyone. Good to be here today to talk about yet another solid quarter of steady and consistent performance.
Let's get right to our summary financials on slide three.
Third quarter revenues of $11 billion grew 9% on an FX adjusted basis with this growth is driven again by a well balanced mix spanned land and fee revenues.
You continue to see a spread between our reported revenue growth of 8% and FX adjusted revenue growth of 9%.
Although the U.S. dollar has strengthened recently the spread between our reported an FX adjusted revenue growth has lessened slightly relative to Q2.
As you recall the year over year strengthening of the US dollar began in the third quarter of last year.
Assuming the dollar stays roughly where it is today you should see reported an FX adjusted revenue growth levels more similar to each other in the fourth quarter 2019.
Our strong topline revenue performance drove net income of $1.8 billion up 6% from a year ago and earnings per share was $2 made sense, representing EPS growth of 11% in the third quarter.
This EPS growth was supported by the 4% reduction in our share count enabled by our continued prudent management of the capital generating capabilities of our business model as we returned five and a half a billion dollars in excess capital to shareholders through dividends and share repurchases in the last four quarters.
Yeah.
Turning now to the details of our performance I'll start with billed business, which you see several views of on slides four through six.
Starting on slide four our FX adjusted total billings growth for the third quarter was 6%.
We think it is important though to continue to break out the billings growth between our proprietary and network businesses due to the differing trends as we exit our network business in Europe , and Australia, we expect to fully lapped the billings impact from these exits in 2020.
Our proprietary business, which makes up 86% of our total billings and drives most of our financial results was up 7% in the third quarter on an FX adjusted basis, the remaining 14% of our overall billings, which comes from our network business GNS was down 2% in the third quarter on an FX adjusted basis.
Turning to our proprietary billed business growth on slide five the trends this quarter continued to be consistent with the economic Tony.
The us consumer continues to show solid growth with even some modest acceleration as we have gone through 2019.
The international consumer so it was even higher levels of growth.
And our commercial customers are lapping a particularly strong 2018 with spending trends that have diverged a bit from the consumer segment.
You see this as you turn to slide six.
We first spoke last quarter about potential signs of caution in commercial spending trends relative to the strong and steady growth we see in consumer.
Over the last few months, the headlines and macro data, which suggests that these trends continue, particularly among the larger corporations within our customer base.
We see these dynamics in our large and global corporate card trends, where we had a 1% decline in billed business on an FX adjusted basis in the third quarter. So adjusting for the reduction in spending from just two large customers, where we saw some client specific decreases the growth rate would have been a bit above 1% this quarter.
In contrast, spending from our us small and midsized enterprise card members or Smbs grew a solid 6% in the third quarter with importantly, relatively stable growth throughout the three months of the quarter.
We continue to feel great about the long term opportunities with both of these customer types and as Steve highlighted a few minutes ago, we are making investments that leverage our strong leadership position and differentiated business model to take advantage of these opportunities.
International SMB remains our highest growing customer type with 18% FX adjusted billings growth in the third quarter.
Given our focused on this segment and the low penetration we have in the top countries, where we offer international small business products. We believe we have a long runway to sustain this strong growth.
Moving to us consumer, which made up 33% of the company's billings in the third quarter billings were up 8%.
And taking the number out our decimal actually a bit stronger than Q1 in Q2.
This growth reflects continued strong acquisition performance and solid underlying spend growth from existing customers.
These trends also highlight the continued strength of the consumer in the U.S.
Moving to the right international consumer growth remained in the teams at 14% on an FX adjusted basis.
As we mentioned earlier, we continue to have widespread growth in our proprietary business across key markets. Despite the mixed macroeconomic and geopolitical environment.
While growth in Australia, and Mexico moderated to the high single digits. This quarter, we continued to see strong growth of 19% in both the UK and Japan as well as double digit growth in our top markets across the EU.
All on an FX adjusted basis.
Finally on the far right as I mentioned earlier Global network services was down 2% on an FX adjusted basis, driven by the impacts of regulation in the European Union, and Australia, where we are in the process of exiting our network business.
Although network billings are down in these regions. If you were to exclude the European Union in Australia. The remaining portion of GNS was up 3% on an FX adjusted basis.
Overall than we continue to feel good about the breadth of our billings growth and the opportunities we see across the range of geographies end customer segments in which we operate.
Turning next to loan performance on slide seven total loan growth was 9% in the third quarter with over 60% of that growth again coming from our existing customers.
We feel good about our lending strategy, which is focused on taking advantage of the unique opportunity we have to deepen our share of our existing customers borrowings.
We believe we have a long runway to continue this strategy.
Moving to the right hand side of slide seven net interest yield was 11.1% in the third quarter up 30 basis points relative to the prior year.
Reflecting continued positive impacts from mix and pricing risk.
We remain focused on optimizing our lending capabilities and pricing constructs and we're seeing lower loan balances on promotional offers as we have shifted towards more premium products.
The combination of loan growth in yield increases are contributing to the 12% growth in net interest income that we delivered this quarter.
Slide 810 shows the credit implications of our strategy.
As you can see the trends on both write off rates and delinquencies continue to be stable in billet benign, reflecting in part the low unemployment rate and relatively stable economy.
We see these trends across both our carbon consumer and commercial segments. The GCP net loss ratio remains lower than last year.
And as you're seeing the tables that accompany our earnings release, both consumer and small business credit trends also remain steady.
These trends lead to the same conclusion, we have reached in each quarter. So far this year.
We do not see anything in our portfolio that would suggest a significant change in the credit environment, both on the consumer and commercial side.
In fact, all of these portfolios are performing much better than we expected to beginning of the year.
This brings us to provision expense.
In the third quarter provision expense growth was 8%, reflecting the greater stability in our credit trends that began in the second half 2018.
Clearly as we've gone through the year credit performance for us as well as for others in the industry has been better than expected.
That's what we saw again in the third quarter and as a result, we now expect full year provision growth of around 10%.
While we are on the subject provision though.
We take a few minutes to talk about Cecil.
We are making good progress on our efforts to prepare for implementation on January Onest 2000.
Consistent with our comments last quarter based on our work so far we estimate that if we implemented Cecil today, our current total reserves of $2.8 billion would increase by roughly 25% to 40%.
This estimate includes a roughly 55% to 70% increase in lending card reserves somewhat offset by a significantly lower charge card reserve given the extremely short life of a charge receivables.
Stepping back there were three important takeaways on seasonal that I would like to leave you with.
First we believed that the capital impact of the onetime implementation, increasing reserves will likely be very manageable, given our strong balance sheet, 30%, plus our OE and spend centric model.
SEC it is important to keep in mind to the C., so well have an impact on our provision expense going forward.
Although the ultimate impact will be heavily dependent on many factors, we will likely have higher provision expense under Cecil relative to the current accounting methodology as we continue to grow our loan book.
Since we are currently finalizing our seasonal models and working on our 2020 plan will provide more color on the expected 2020 impact from Cecil next quarter's call.
Finally.
Diesel is nearly an accounting driven acceleration of estimated losses. There is no change to the underlying economics, our view of the risk profile or the ultimate expected losses in our portfolios given this as well as our strategy of investing for growth we do not.
Intend to change our investment plans because of the impacts diesel will have on provision expense growth in 2020.
Now, let's get back to our results.
And turn to the strong revenue growth of 9% on an FX adjusted basis that you see on slide 10.
Consistent execution of our strategies and are focused on investing in share scale and relevance has driven topline revenue growth of 8% or more for over two years.
This consistent revenue performance has occurred in both the robust economic environment of 2018 and is somewhat slower growth environment between 19.
And despite the modest sequential deceleration in volume growth. We saw this quarter our revenue growth of 9.4% in the third quarter was relatively flat to the 9.6% growth we delivered last quarter.
This revenue growth was again driven by broad based growth across span lend and fee revenues as you can see on slide 11.
And importantly, the portion of our revenue coming from spend in fee revenues remained at 80% in the third quarter in line with goes through both recent history and a much longer view of our history.
Discount revenue was up 6% on a reported base system was up 7% on an FX adjusted basis, which I'll come back to on the next slide.
Net card fee growth accelerated to 19% and as Steve said surpassed $1 billion in the third quarter for the first time.
This is the financial outcome of the disciplined approach to product refreshment and our unique value propositions that Steve also talked about in his opening remarks.
We are really pleased by the confidence that our customers place in our value propositions when they choose to pay the subscription like fees and as Steve mentioned earlier, but I think it bears repeating we continue to see that the majority of our new card members around 70%. So far this year are choosing our fee based products as well going.
Forward, we feel good about our ability to maintain strong growth in these membership revenues given the breadth of products that are driving this momentum across geographies and across customer segments.
Net interest income grew at 12% in the third quarter, driven by the growth and in loans in net yield that I just mentioned a few moments ago. So let's come back now to the largest component of our revenue discount revenue on slide 12.
On the right you see that discount revenue grew 7% on an FX adjusted basis in line with the last two quarters, making this the eighth consecutive quarter with discount revenue growth above 6%.
We see this discontinued evidenced that our strategy of focusing on driving discount revenue not the average discount rate is working.
Moving on now to the things we are investing in to drive our strong revenue growth, let's start with our customer engagement costs, which you can see on slide 13 were $5 billion in the third quarter up 11% versus last year.
Starting at the bottom marketing and business development costs were up 11% in the third quarter and were in line with Q2 remember that this line has two components, our traditional marketing and promotion expenses and then payments, we make to certain partners, primarily corporate clients GNS partner banks and co brand partners.
Also remember that this is the second quarter, where we are seeing the impact of our renewed agreement with Delta, which increased our marketing and business development costs by $200 million relative to our original outlook for the full year.
Continuing on to rewards expense you can see that it was up 9% relative to the prior year a bit higher than our billing trends given our evolving value propositions.
Moving into the top of the slide card member services costs were up 22% in the third quarter. We continue to expect this line to be our fastest growing expense category is it includes the costs of many components of our differentiated value propositions, such as airport lounge access into the travel benefits, which we believe are difficult for others to replicate.
And helps support the strong acquisition and engagement, we are seeing on our fee based products.
Moving on into operating expenses on slide 14, we saw a 5% increase in the third quarter consistent.
With our long track record of getting operating expense leverage by growing opex more slowly than revenues.
I would offer two comments here.
First as I mentioned last quarter some of the investments, we're making to delivered continued strong revenue growth.
With that Salesforce premium servicing digital capabilities.
We will cause us for this year to see more growth in this line than we've seen in recent years.
Second as a reminder, through our Amex ventures group, we have a strategic investment portfolio of over 40 investments.
This quarter's opex included a net benefit of roughly five cents related to the impact of mark to market adjustments on our strategic investment portfolio, which is somewhat higher than the benefit we saw last year.
Altogether I would just some up by saying that we're confident that we have a long runway to continue to grow our operating expenses more slowly than our revenues.
Turning to capital on Slide 15, RCT one ratio in the second quarter was 11% at the top end of our 10% to 11% target range and we returned $1.8 billion of capital to our shareholders. As we said our primary focus is on maintaining our cetone ratio within our 10% to 11% target range.
As the governor of our capital distribution plan.
We have historically been very focused on maintaining capital strength, while aggressively returning excess capital to our shareholders and we will continue with that philosophy going forward.
So that brings us to our outlook and then we'll open the call for your question.
But each quarter of this year, we've demonstrated consistent progress against our objectives of delivering high levels of revenue growth and double digit EPS growth.
Now looking ahead, given today's economic environment, we see a long runway to sustain this performance.
In the near term give you a bit more color on the fourth quarter. We expect revenue growth to continue with the strong levels, we have seen and to be within our 8% to 10% guidance range for the quarter.
And if FX rates stay where they are the headwind from the strong dollar should lessen in the fourth quarter.
We expect the stability, we've seen in our credit trends to continue.
With full year provision growth of around 10%.
And given the consistent operating performance trends, we have seen throughout the first three quarters of the year.
We expect our Q4 EPS results will be very much in line with our year to date results. Excluding the five set mark to market benefit our investment portfolio that we saw in the third quarter and of course any other contingencies that may occur in the fourth quarter.
Which would bring us to reaffirm our adjusted earnings guidance of $7, an 85 cents to $8.35 for the full year.
In addition, we are working towards having a 2020 plan.
Showing high revenue growth and double digit EPS growth.
Off of the middle part of our 2019 EPS guidance range.
Of course this assumes we do not see a material deterioration in the economic environment versus where we are today and given my earlier comments around Cecil It does not factor in any potential impacts from sea sold in 2020.
To close our year to date performance and expectations for the full year demonstrate consistent execution against our strategies as well as the financial growth algorithm I shared with you at our last Investor day.
We remain focused on sustaining high levels of revenue growth and in today's environment double digit EPS growth with that I'll turn the call back over to Rosen. Thank you, Jeff before we open up the lines for acuity ill ask those in the key to please limit yourself to one question. Thank you for your cooperation.
With that the operator, we'll now open up the line of question operator.
Ladies and gentlemen, as a reminder, if you wish to ask a question. Please press Star then one on new Touchtone phone, you'll hear your tone, indicating that you've been placed in Q.
And you may remove yourself from the Q by Paris, and anytime by pressing the pound key.
If you using a speakerphone please pick up your hands had before pressing the numbers.
Our first question will come from the line of Craig Maurer from Autonomous Research go ahead. Please.
Yes, good morning, Thanks, our AG.
I had a question on.
Net card fees.
That.
Basically what I'm trying to get as you showed some some acceleration in that card fee growth cards in the US basic cards in force has been largely range bound throughout the year. So Ken net card fees continue to accelerate.
Cards remains somewhat flattish and should card growth in the us accelerate again or how should we think about that.
Craig as you recall, we tend to discourage people a little bit from looking at that gross cars in force number because what's really important here is the quality of the cards you have in the quality of the cards are bringing in both Steve and I talked about the fact that 70% of the new card members are bringing in our on fee.
Based products, we've talked for a couple of quarters now about bringing in general a more premium oriented mix of card members and that cards. Enforce number is also influenced by our periodic efforts frankly to go back and cancel some inactive card members. So we feel tremendously strong about the breadth of the product.
Yes that are driving card fee growth I think theres, a long runway to continue and I think the I'll just add one other point I think the other thing Thats really important is.
The recent strategy of consistently refreshing our products is critically important to to not only growing card fees, but it's also what we've seen is we see an uptick in spending for even from existing cardholders. So again I think the numbers a little bit deceptive because.
You've got a clean out and you also have a switch you've got a lot of upgrades in there as well. So we feel really we feel really confident about the strategy we're on.
We'll next go to the line of Bob Napoli from William Blair Go ahead. Please.
Thank you and good morning costing on your.
To be payments strategy you acquired.
Hey during the quarter.
That does.
Automated.
You have a lot of different partnerships, there and so it's an area that massive market Tammy can move the needle I would think for American Express can can you update your thoughts on.
Your investments into BTB payment space and 80 in a our automation in it that can move the needle materially for amex over the long term.
Yes, I think look Bob I think as we've said and we said this at Investor day as well.
Our believes this is a long term opportunity having said that we are we've entered into partnerships with people like bill Dot com at the real small end in a market. We've done member mineral entry and wax it in sort of mid mid space. We've done trade shift we've done a rebound we have now an investment in a khan.
Help sort of look toward automate those processes, but one thing I will point out is while it is a long term play most of our spending in an SMB segment today is be to be spending Anat continues that continues to grow. So we feel really confident about what we're doing but as I've said before the integration into the.
Procurement process.
It's a tough integration and it takes time and Thats why we that's what we do these partnerships thats why we make these investments and Thats why we still believe it's a it's a long term play, but we are seeing value just from a b to b perspective, especially in SMB, where the majority of our spending is b to B NARTD.
Our next question will go through to the line of Rick Shane with JP. Morgan go ahead. Please.
Hey, guys. Thanks for taking my question.
Just wanted certain delve into the divergence between acceleration Paul billed business on an account basis at the consumer level and a deceleration.
On the commercial business.
Historically has that provided any signal that we should be paying attention to.
No not necessarily I think if you look at the last recession, you would've seen sort of the reverse you would've seen consumer coming down first and then den commercial so I don't think that I don't think that is the signal at all as Jeff pointed out.
Our consumer business.
Has grown slightly in the us quarter over quarter really strong across all segments as it relates to.
International whether its SMB or whether its.
Consumer mid teen double digit growth carloads, let me comment on where you maybe seeing some softness as we look at the numbers you see in a 1% decline as it relates to global.
Couple of adjustments in there with you maybe some jet fuel the things like that but you also have to realize we're coming off the high.
It was almost 10% growth in the third quarter of last year. So.
To me, that's almost stable and when I think about large in global haven't been involved with this were real long time.
Im pretty comfortable about that when you look at asset me in the US and were about 6% up year over year again off off a double digit high you got to delve into it and we look at it we look at sort of three components of that have that bill and we look at all we continuing to acquire and that has been steady for us.
Are we losing accounts either from a competitive perspective or from the perspective of losses accounts, such as two out of business and that has been steady where we're seeing sort of a softening a little bit is any organic spend what thinking about it from retail perspective, you would think of same store sales, but even that again we.
Came off a high in the third quarter of of last year and Thats still a positive trend. So what Weve concern me is is that if that same same count spending had gone down. It is not it is still in positive territory, albeit not in the same sort of significant growth that we saw and to be honest that was growth that we had not had not.
Seen before so the sustainability of that was questionable in our minds anyway, and so we feel we feel pretty good about it and again as Jeff mentioned, the credit quality credit quality still pristine.
We'll next go to line of Bill Cartoonish with Nomura Instinet go ahead. Please.
Thank you good morning, I had a follow up question on your fee based products.
Some innovative fintech players like square enjoying some success and targeting the Unbanked and under bank customer segment for example.
With their their cash app and goal of getting customer. So you can use it as their primary bank account through direct deposit.
You guys were well ahead of this trend years ago. When you identified an opportunity to generate fee based income in the segment with products like being burdened serve.
Can you give us some general color on how you guys are thinking about those products today.
Do you still see the growth opportunity there as attractive.
Focused are you on growing those products is continued innovation and enhancement of the underlying app something that you guys are investing in and just in general are you seeing some customers use bluebird answer for direct deposit. Thanks, not we're not focused on it at all.
In fact.
We sold we sold that last year to income.
That's not a segment that we see as an opportunity for us.
We took a run at it.
And you know the theory of the case was that you would be able to upgrade those customers into our into our product.
Into our traditional product set the reality is that was a bridge too far to cross.
And so we sold off that portfolio Bluebird observe.
And the gift cards to income last year, and I think incomes really happy with that transaction and we're really happy with that transaction, we do not see that as a growth opportunity.
For for Us at all.
Our next question will be from the line of Moshe Orenbuch with credit Suisse. Go ahead, great. Thanks, recognizing that debt credit no signs of deterioration in fact actually is probably improved over the course of the year.
Any sense as to how to think about just the way that the.
The impact of C., so on ongoing provisions relative to that kind of 50 ish percent increase on the on the credit.
As we speak about the growth of provisions into next year.
Yes, obviously, the most active areas fair question that we're still not ready to quantify I do think these range. We've given for the one time impact you can sort of do some back of younger low.
Math.
Off of that but there are so many complex pieces to see so obviously seasonal will also require us to incorporate into our accounting provision forward looking economic forecast amongst the over 100 other variables that will be part of the 150 plus customer segments in may.
Models that drive this so.
Directionally I am very comfortable saying varies some odd given our levels of growth some higher provision expense you would expect in a normal economic environment undersea sold.
Hi, I'm, just not ready to give an exact number I really want to emphasize though what I said in my earlier remarks, which are that from our perspective.
This is pure accounting driven acceleration of losses that ultimately would have run through our financial statements anyway. It has zero impact on real economics, It has zero impact.
On our view of risk and that is why as we think about 2020.
We think we're going to make a series of decisions about what we're willing.
And what we think is prudent to invest in continuing to drive the business for the long term and then we'll let the C store.
Changes to the revision fall where they will.
We'll go now to the line of Betsy Graseck with Morgan Stanley Go ahead. Please.
Hey, Thanks, good morning.
Hi, Betsy.
Okay. So I just wanted to dig in a little bit Steve to comment that you were making earlier around fee.
Opportunity to penetrate your corporate card customers with personal card and the reason I asked the question as I would've thought this was something that was.
Well, you know well done already was maxed out but your comment suggest if not I wanted to understand is this.
It's the go to market strategy different and what kind of opportunity set you forget and then Jeff If you could just reiterate the.
Mark to market.
Benefit that you had and where we're supposed to strip that out I'm getting a couple of questions in on Onyx actually where we're supposed to strip that five cents out of thanks, Yes. The reality is we really have not focused.
On penetrating our.
Our corporate card base, what our personal cards for pretty much forever, we did some test.
Last year part of it was a a reluctance in our with our corporate card customers for us to access the base, but the tide has changed the tide has change we've had companies come to us and ask us.
As they look to bring more value to their employees can we can we do that and so this is a welcome opportunity for US I would say it is absolutely new territory for us. So it's it's not been maxed out at all that's not to say that.
Our corporate cardholders do not have personal cards, but it is to say that weve never utilized our corporate card distribution opportunities within the corporate card to Organise companies that have our corporate card. So we're excited about the opportunity and.
And think that it's going to provide provide another another opportunity to to lift our overall carts.
And on the Mark to market bets I'd make two points.
Just to remind everyone. Beginning last January will begin all companies began to apt to mark to market various investments for us that really means to 40 or so investments we have through our Amex ventures fund in general those marched have not been material. This quarter, there were a little bit more material they needed to about.
Five cents positive we see that is an ongoing part of our business.
My only reference to the five cents in terms of to use your phrase Betsy.
Not mine stripping out was that when I talked about Q4 I made the observation that we feel really good about the consisting consistent operating performance of the company. We expect Q4 to look very similar to the first three quarters. So as you think about the pure operating performance of the company in the first three quarters.
In Q1, I take the merchant litigation charge outs. So that puts you at $2 a share in Q2, its $2.07 share and again going back to this operating performance concept in Q3 that takes you to the about two dollar and three cents levels Thats, the only context in which I was trying to bring up to five cents.
Thank you for the question.
We'll move on to the line of Mark Devries with Barclays Go ahead.
Yes. Thanks.
I don't imagine you've gotten this question in a while just given how strong your revenue growth has been and it sounds like you are pretty constant and the outlook for 20 to 20 as well on revenue growth, but I have been getting some questions from investors asking how much room.
You guys have to control and for the growth of Opex should should revenue growth. So Steve I guess is the guy who is responsible.
For getting those opex under control when when revenue is weaker mention hearing your commentary on thoughts there.
Yes, I mean look I think if you look at sort of how we've controlled opex over the last eight years I think it was an aggregate growth probably about 6% or so.
As we look at it and as we've sort of change philosophy, a little bit to look at high revenue growth it made sense to.
To not walk away from some of these op ex opportunities that we had as Jeff said.
I don't think this is a consistent.
Consistent playbook that we're going to that we're going to run, but I have all the confidence in a world in our ability to control to control our opex will still providing operating leverage when you think about sort of nine to five here, which is what we've done you on the problem is when you're growing revenue at four and growing revenue of five if you want that leverage you got.
To grow Opex at about one so yes. The delta is roughly two relatively similar to what we've been doing and we'll look at good investment opportunities, but you're right I.
I was known as the Opex Guy here for a lot for a lot of years.
And still am I still drive people crazy about it and I will continue to do that.
But we're not going to make any foolish decisions and I believe that we still have operating leverage opportunities as it relates to opex in revenue.
We have a question from a line of David Togut with Evercore ISI go ahead.
David you there.
David.
Please check your mute future on your phone.
We will move onto the line of Chris Donat with Sandler Oneill.
Hi, good morning.
Had a question about marketing spend because it is I think about this year and even last year you had some elevated marketing spend with the brand refresh in 2018 that spilled into 2019, and then you have the Delta agreement, which also led to that 200 million of elevated spending and then you got all these product refreshes.
Im just wondering as we think about 2020.
Do you come up against some easier comps on spending or are there things in the pipeline that will likely absorbed marketing spend in 2020, just thinking about how to compare 2020 to 2019, yes in many ways, Chris I think the examples you side or a wonderful.
Illustration of why a few years ago event, we began to encourage people to focus on broadly what we call our customer engagement costs right, because we pull different levers at different times in the rewards category or to your point in the traditional marketing category around brand spending or and spending we do.
In the payments Department partner area with Delta.
And at other times restructures to put resources into card member services. So the trends in any one of those lines may vary a little bit from year to year from quarter to quarter. The broad group of all of them. The however is what we're using to drive high levels of revenue growth and we've been very can.
Assistant for some years now, Chris and saying, we do expect that collectively those costs are going to grow a little faster than revenue, but that's what's going to enable us to drive in today's environment, 8% to 10% revenue growth. It's why the Opex leverage Steve just talked about is so important to help mitigate.
That margin compression you get from customer engagement, because op ex the grow more slowly than our revenues you combine that with our strong balance sheet and thats. How we have a model that is consistently producing double digit EPS.
Our next question will be from the line of Dominic Gabriel with Oppenheimer go ahead. Please.
Hey, Thanks, so much for taking my question.
Look the diversity of the revenue growth is really strong for sure and I think one thing that is taking some investors by surprise is not only the feed for card or the NIM expanding this quarter, but.
To some extent, but really the discount rate has been on quite a nice trajectory and I know that you talked about not managing to the discount rate, but the your strategy.
Has shown at least over the last number of quarters that the discount rate is moving up as well and that's a nice benefit as well can you just talked about what you've lapped and what's going into the discount rate expanding just as a natural.
Piece of the puzzle here next summer and as you know I always say this I really don't focus on on a discount rate.
All that much.
It's been it's been consistent it's it's a little bit up but I think you've got a couple of things going on I mean, you've got there's some strategic and renegotiations that we lapped.
There was.
Activity in Europe , there was activity in Australia in any given quarter, there's a mix of business.
And so all those things contribute what I would I really focusing on is that consistent discount revenue growth.
And if you want to project. This out the reality is is that as you expand into b to b.
You're not going to have the same kind of discount rate in b to b, but again they are what I'd like to focus on is what the margin is right and so if you look at a lower discount rate you will also look at lower rewards cost and things like that and so ultimately what we really focused in as is the is the margin between the discount rate in the costs that go along with those.
Billings, but.
We're really pleased.
With the with the way discount revenue has has gone.
And when all the numbers come in the discount rate is.
It is flattish to up and.
That's that's okay too.
We'll go to learn of James Friedman with Susquehanna for your question go ahead. Please.
Yeah, and congrats on the numbers guys I just wanted to ask Jeff with regard to the did GNS slide six up 3% adjusted.
I think you made your in your prepared remarks, you said that we were lapping that 2020 might be.
This might be over meaning like the tough compares.
Is 3%, what we should be thinking about.
As kind of the new norm when we bought back because yeah. So.
Couple of question or couple of comments stands first remember in many ways. The most important aspect of our GNS network. These days.
That is driving coverage.
Now 170, or so countries around the globe and we rely on a network of great partners to do that for us in many countries and Thats priority. One second thing is that not all Jeanne Hess billings are the same in general as you know the financial contribution from GNS.
Itself is more modest than its billing contribution.
That contribution also varies a lot from country to country and we have a few large countries to drive a whole lot of billings much more modest economics in those billings can be a little bit volatile quarter to quarter. So.
I don't I wouldn't take the 3% as a mark of what you will consistently see once we finish lapping Europe and Australia, I think you'll see it probably trend back up a little bit from there, but the most important thing to keep in mind is the GNS network around the globe is really about coverage.
Okay.
We have a question in queue from a line of Jason Kupferberg with Bank of America go ahead. Please.
Good morning, guys I'm, Jeff just wanted to put a finer point on your EPS math, because I know you didnt formally narrow the full year EPS range, but it sounds like you're pointing us to around two or three or so for Q4, which I think would get us to around 819 or so for the full year. So I just wanted to clarify that and then do you think that weve troughed in terms of large.
Enterprise.
Im growth just the down one this this quarter I know there were some moving parts there but.
Well, let me make a few comments on guidance, maybe including philosophy, Jason and I. Just gave you can comment on the large global customers look our philosophy, which we have tried to be true to this year as we come out at the beginning of year and retire here's our expectation for the full year and we give you some color around that and then our expert.
Station is as we report our results each quarter, we're going to tell you if something has happened so dramatically that it takes us out of that original range, but beyond that we're just going to give you. Some color about how things are going we also really want to emphasize that we're running the company for the long term, we're certainly not running it to produce.
Quarter by quarter results, but we will be true to our annual kinds of earnings commitment. So thats just I think important background as to the specific math look I think Jason due to your math I'm not going to.
Confirm or not confirm your specific math, but I think I was trying to be very clear that our operating performance has been really consistent across the first three quarters, you can measure that at $2 a share $2 and seven essentially share probably two or three for this quarter and we'd expect the fourth quarter two up something like that.
As far as global in large accounts global large accounts in in 20, 818 had or had a really terrific.
Terrific year and so.
You know going into this year, our expectations warrant warrant the same expectations as they were last year as we think about sort of planning forward.
I would think about sort of the zero percent range.
For the fourth quarter for global in large accounts and then I think it gets back to historical levels for us which is anywhere between one and 4% I. This is just because a lot of that is DNA as we start to penetrate more into the b to B space, then I think you'll see that go up but as I've said traditionally.
As I've met with Cfos and so forth.
They're not driving to move their teeny spend up what's you are looking for us to do is actually to help to manage their teeny spend down and so it's a very interesting business in that our value proposition is we help you manager costs down.
And we do that through benchmarking, we do that through helping them negotiate and we do that by providing insights in so it's an interesting business where.
You know to retain cap to retain accounts, you actually help them shrink a little bit and.
And so then you need to go get some more accounts. So we're very comfortable with sort of traditional levels. I think what you saw last year was just people getting out a lot more including ourselves actually.
And just spending a little bit more on on T. any but.
I think it's fair to think about this in sort of the zero to 3% range going forward.
We'll go next to the line of Don Fandetti with Wells Fargo Go ahead. Please.
Yes. Good morning, so wanted to dig in a little bit on small business.
Year over year spend growth rate I mean, there's a couple of factors, obviously, you've got potentially like weaker or more caution on the corpus and thats fraud.
But I assume you're still getting that secular penetration I wanted to know if that's still.
Happening at the same rate and then also your position in small business is remarkably higher than your peers is there any change in competition are you holding share or is this all just sort of normal caution tougher comps and then lastly around that same thing when this b to b kick in as the small businesses automated.
Accounts payable accounts receivable I think you et cetera.
42% uplift in spend as that happens I mean is it just so early in that process, where we see in 2000 2020 long.
Thank you, yes, so down in the last the last question first I think it's still early in the process.
No.
Automating.
Automating that spend than what you do with someone like a ecom or what you do with some of the other providers.
These are interfaces to whatever sort of accounts receivable at procurement systems that they have and it's not always their priority to do that so.
That takes a little bit of time, so you'll see a little bit uptick in 2000, 2021, so forth and so on.
Look I think that let's just talk about sort of secular penetration I think we are still acquiring counts and we don't look at so much. It accounts as we look at acquired Bill business, we're acquiring billed business at pretty much the same rate we've been acquiring it.
As I mentioned before we're not losing accounts at any higher level or lower level than we've had probably for the last eight quarters, we're pretty consistent on that.
As far as our overall position in the market I think it's really really consistent and hasn't hasn't really changed.
I'll point, you back to what I said before I think the downturn that we've seen in our growth rate here is really around what we would call organic.
And not that it's not growing its just not growing fast enough or is not growing at the same rated it did it did last year when it had a lot of momentum, especially from from the tax Act, having said all that there is more competition in this space than we've seen.
On a long long time, because much like bank sound after sort of the great recession that the consumer credit card business was it was an attractive area banks have now found that.
This area as attractive as well, having said that if you added the next five largest issuers up in this small business space.
Ill.
Have the same refrain that I've had for the last two years, we'll begin to them all put together. So we're really comfortable where we are we don't see anything.
You know from a competitive perspective that is any different other than it keeps the step up the competition, but.
And we continue to add to our rave products, whether it's working capital terms, whether it's you know merchant financing cross border and.
Obviously.
The continued enhancements to our small business products. So we still feel still feel really good about where we are from small business perspective.
Our final question will come from a lot of Sanjay Sakhrani with KBW go ahead. Please.
Thanks, maybe just a follow up with some of the lines of questioning previously when you guys think about your comfort in delivering the high levels of revenue growth next year, which I assume is within the range of what we saw in 2019, how possible is it to tape hit those numbers with some more moderation and bill business volumes.
Is your level of comfort because you feel like some of the investments you've made will sustain that type of billed business growth or do you expect the high levels of fee income growth will persist given the delta fees come on in 2020 any color would be helpful. Thanks.
Yes.
So I mean, I look I think.
No we when you making his the issue right. So many investments that you make this year don't pay off this year they pay off as it goes next year and so you've hit the nail on ahead. When you think about sort of what we've done from a delta perspective, when you think about the cards that we required when you think about 70 investments that we've made in somebody.
Digital properties, when you think about sort of the consistent high discount revenue that we've had yes, even would have ticked down in billings, that's still will be positive and yet our fee our fee revenue due to our continued.
Maniacal focus on card refreshes. The other thing I would point out is that this is a growth story globally. This is not a growth story just in the United States and so when you think about 14% billings growth.
In consumer internationally, 18% SMB growth, even in particular to down there is not really going to hurt you all that much and we've been pretty consistent from an SMB and consumer perspective. So I think when you think about the three legged stool that we have from a revenue perspective of fees net interest income and discount.
Revenue, we feel really comfortable and Thats why as Jeff said is sort of at the end of his remarks.
In this same economic environment.
We feel good about eight to 10 look to billings wasn't the billings. This year weren't exactly we had projected and look where we off from a revenue perspective, so yes, our comfort level is there.
With that well bring the comps and then thank you Steve. Thank you Jeff. Thank you again for joining todays falling. Thank you for your continued interest in American Express the IR team will be available for any follow up question operator. Thank you.
Ladies and gentlemen, this conference will be made available for digitized replay beginning at 11 am eastern time today and running until October 25th at Midnight Eastern time.
Can access the 18 T. teleconference replay system by dialing one 804, 756 701 and entering the replay access code for seven one aid zero six international participants May dial 132, 0365384 for with the access code for seven one.
On page zero six.
I will conclude our conference call for today. Thank you for your participation answer using a TNT executive teleconference service you may now disconnect.