Q4 2019 Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the American Express Q4 2019 earnings call.

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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 Perot's. Please go ahead.

He Leah and thank you all for joining today's call as a reminder, before we before we begin today's discussion contains forward looking statements.

About the company's future business and financial performance. These are based on management's current expectations that are subject to risks and uncertainty.

Factors that could cause actual results could differ materially.

Included in today's presentation slides and in our reports on file with the FCC. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials as well as the materials for the prior periods we discussed.

All of these are posted on our website at <unk> IR, It's not American Express dotcom.

Well begin today with Steve Squeri, Chairman and CEO , who will start with some remarks.

Great and results.

And then just Campbell Chief Financial Officer will provide a more detailed review of our performance.

After that we'll move to accumulate session on the results with both Steve and Jeff with that let me turn it over to Steve. Thanks, Rosy. Good morning, I'm pleased to report that our 2019th fourth quarter and full year results continue to steady consistent performance that we've delivered over the past two years.

Strong topline growth continued with revenues growing 9% in the quarter. This marked our 10th straight quarter of FX adjusted revenue growth at or above 8%.

Once again, our revenue growth was broad based driven by well balanced mix of fees spend in Leds.

We added 11.5 million, new proprietary cards, and 29 team delivered solid solid billings growth and continue to grow loans, while maintaining industrially industry, leading credit metrics.

These results show that our strategy of investing in share scale and relevance is working.

This strategy is the heart of our financial model and it gives us confidence that in today's economic environment. We can sustain high levels of revenue growth, which is the foundation steady double digit earnings growth.

My confidence in our ability to generate consistent solid results over the longer term is based on several factors. The fundamental strengths, we derived from our differentiated business model the significant growth opportunities, we see across our business and our demonstrated success in executing our investment strategy against the four strategic imperatives I laid out two years ago.

Let me take a few minutes to share some of the highlights of the progress we made on each of these strategic imperatives in 2019.

We expanded our leadership in the premium consumer space by continuing our disciplined strategic approach of refreshing, our premium charge products and upgrading our co brand portfolios globally.

In all these cases Weve added features that are card members value acquisitions remains strong and approximately 70% of our new card members are choosing fee based products, which helped to drive 17% growth in subscription like fee revenues for the year.

Our new card members are skewing younger at a more digitally engaged our refreshed products are also enabling us to reengage with our existing customer base, where we are seeing increased organic spend all time high net promoter scores and steady retention.

In our commercial business, we've taken our successful approach to strategic product refreshes and applied it to our business card portfolio in the us and select markets around the World. In addition to the refreshes we've expanded our commercial card offerings with the introduction of several new products for business customers of all sizes and to deepen our relationships with our business.

Customers, we continued our focus on growing our noncore product offerings by expanding our safety automation solutions as well as offering a variety of lending and flexible payment programs to help our business customers manage cash flow and grow their businesses.

In total over the past two years, we've refreshed and launched over 50 proprietary products across both our commercial and consumer businesses around the world, resulting in greater customer engagement and strong new card acquisitions, which are driving our revenue growth.

Turning to the network business in 2016, we spent an ambitious goal of achieving virtual parity coverage in the United States by the end of 2019.

Setting. This goal was a recognition of the fundamental importance that our merchant network plays in driving growth across across our businesses and a galvanized our organization focused on achieving it.

I'm very pleased to report that as of yearend 2019 based on our internal tracking and our understanding of the latest industry data. We have achieved virtual parity covered with approximately 99% of credit card accepting merchants in the US now able to accept the American Express card.

Of course, we recognize that virtual parity coverage will always be a moving target. The merchant landscape is dynamic with hundreds of thousands of us businesses opening and closing every year. Therefore, we will continue to focus on maintaining virtual parity coverage into use in 2020 and beyond.

We're also making good progress to include priest coverage across our international markets, where our card members live work and travel to the most and this will continue to be a focus for us.

Going forward as we continue to grow and network will work with our merchant partners in the us and around the world to ensure that our card members a warmly welcomed and encouraged to spend in millions of places where they are amex cards et cetera.

Finally, I'm also pleased to report that the People's Bank of China officially accepted our network application and important next step in our plan to build the network business in China.

On a digital front, we've we've been hard at work integrating the acquisitions.

We've made over the last few years into our mobile app to provide our card members with premium access and experiences across a wide range travel dining and lifestyle services that differentiate us from our competitors. We're also working with our partners in our internal development teams deliver a wide range of new online and mobile features capabilities and services.

To help our customers manage alive and their business efficiently and securely.

Our goal in these initiatives is to deepen the digital ties we have with our customers Center American Express becomes an indispensable part of their lives.

And we're seeing good results as customer engagement with our digital channels is strong and growing today, 81% of our active card members are digitally engaged with us VR App and will website and we've seen a 26% increase year over year in the customers who use our mobile App daily.

Those are just some of the highlights of our accomplishments in 2019 as I've reported each quarter for the past two years. The progress we've made in each of these areas is driving our performance and shows that our financial model and investment strategy has generated sustainable growth.

While we will continue to strategic approach and why we're confident that we have a long runway for steady growth over the long term.

With that in mind, we expect to deliver revenue growth in 2020 of 8% to 10% on an FX adjusted basis and earnings of $88, an 85 cents to $9 in 25 cents. Looking ahead, our business is strong and our focus is clear we're incredibly talented team at all levels and strong relationships with a wide.

Array of outstanding business partners from our co brand and digital partners to our millions of merchant partners around the globe all working together to deliver the best products and services for our customers on excited about the opportunities that lie ahead in 2020 and beyond and I'm confident in our ability to continue to deliver sustainable growth for our shareholder.

Now, let me turn it over to Jeff.

Well, thank you, Steve and good morning, everyone. Good to be here today to talk about the fourth quarter and what was a solid year for American express and delay out our expectations for 2020.

I'll discuss both our quarterly and full year results. This morning since it is our yearend call consensus looking at our performance on an annual basis is both more in line with how we actually manage the business and also gives us a better sense of the underlying trends.

Turning to our summary financials on slide three fourth quarter revenues of $11.4 billion grew 9% on an FX adjusted basis and full year revenues of 43.6 billion.

Also grew 9% on an FX adjusted basis.

This growth as it has been all year continues to be driven by a well balanced mix of growth in FY spend and lend revenues and was consistent with a high levels of revenue growth we've delivered for over two years.

The strong topline performance drove net income of $6.8 billion for the full year and $1.7 billion for the fourth quarter.

In understanding our year over year results.

Need to spend a minute on some discrete impacts in our reported results this year and last year.

As a reminder, the fourth quarter of 2018 contained 58 cents of positive adjustments for discrete tax items related to the tax act of 2017 and certain tax audits in.

In addition, as you remember in the first quarter of this year, we had a 21 cents charge from the resolution of certain merchant litigation.

If you adjust for these two impacts as we have done on slide three full year 2019, adjusted EPS was $8.20 up 12 cents versus the prior year adjusted EPS of $7 in 33 cents.

Including the $2.03 of Vps in the fourth quarter, which was up 17% versus the prior year.

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 total FX adjusted billed business growth was up 6% in the fourth quarter and for the full year.

We do think it is important to continue to breakout the billings growth between our proprietary and network businesses due to the differing trends as we continue to see the impact of exiting our network business in Europe , and Australia due to regulatory changes.

The 13% of our overall billings that comes from our network business GNS was down 1% in the fourth quarter and down 2% for the full year on an FX adjusted basis as a result of the market exits.

We do expect to fully lap the billings impact from these exits in the latter part of 2020 and return to positive levels of growth.

Our proprietary business, which makes up 87% of total billings and drives most of our financial results was up 7% in the fourth quarter and 8% for the full year on an FX adjusted basis.

Turning to slide five as we have said throughout 2019, the proprietary billed business growth trends are consistent with the economic environment.

All of growth, but slower than the very robust growth we saw in 2018.

You see this as you turn to slide six to look at the billings by customer type for the fourth quarter.

Starting with us consumer, which made up 33% of the company's billings in the fourth quarter and remains our largest customer segment.

Billings were up 7% inline with the 7% to 8% growth we have seen all year.

This growth reflects continued strong acquisition performance and solid underlying spend growth from existing customers.

These trends also highlight the relative strength of the consumer in the U.S.

Moving to the right international consumer growth remained in the double digits at 11% on an FX adjusted basis, despite the mixed macroeconomic and geopolitical environment.

In the fourth quarter, we saw growth moderate in Mexico, and the UK sequentially driven by external factors the growth in the UK to remain in the mid teens and we continue to see strong growth in the mid teens in our top markets across the European Union as well as in Japan.

Spending from our us small and midsized enterprise card members or Smbs grew a solid 6% in the fourth quarter inline with the third quarter.

We continue to feel good about the city acquisition results, we are seeing in our USS semi customers and importantly, as we think about 2020 .

We saw stabilization in this key customer segments in Q4.

International estimate remains our highest growing customer type with 15% FX adjusted billings growth in the fourth quarter, we feel great about the strong growth we saw throughout 2019 coming off of even higher levels of growth and 28.

Given our focus on this segment.

And the low penetration we have in the top countries, where we offer international small business products. We continue to believe we have a long runway to sustain strong growth going forward.

And then for the relatively small part of our volumes, 9% this quarter that come from large and global corporate card billings, we saw a decline of 1% on the fourth quarter on an FX adjusted basis similar to what we saw last quarter.

As we've said for years now this is not a growth segment for us, but it is an important part of our merchant value.

Finally on the far right Global network services was down 1% on an FX adjusted basis, driven by the market exits that I mentioned earlier, if you were to adjust for those impacts the remaining portion of GNS was up 3% on an FX adjusted basis in line with Q3.

Overall, we continue to feel good about the breadth of our billings growth and the opportunities we see across the range of geographies and customer segments in which we operate.

Turning now to loan performance on slide seven total loan growth was 8% in the fourth quarter with about 60% of our growth for the year coming from our existing customers.

We continue to focus on taking advantage of the unique opportunity we have to deepen our share of our existing customers borrowings.

At the same time as we've been saying all year, we have increased our investments in premium products.

And that shift in portfolio mix, coupled with some steady tightening we have done on the risk management side over the past several years has led to lower loan growth.

The shift towards more premium products has also led to lower loan balances on promotional offers which along with continued positive impacts from pricing for risk contributed to the 50 basis point year over year increase in net interest yield in the fourth quarter that you see on the right hand side of slide seven.

So the combination of loan growth and yield increases drove the 12% growth in net interest income that we delivered this quarter.

Ultimately, we are focused on driving profitable revenue growth as the financial outcome. Our lending strategy. So we are pleased with the stability in net interest income growth that we saw in 28 team.

Turning next to the credit metrics on slide eight if you were to take an average for the year to smooth out the quarterly volatility lending write off rates were up 22 basis points in charge rate for up 14 basis points on average for the full year.

This level of modest write off rate increases and be a EU environment is consistent with the expectations. We have talked about for several years now.

And as you can see on the bottom of the slide delinquency rates have been relatively stable all year.

And the GCP loss ratio continue to actually be down year over year.

These trends reflect both the credit implications of our strategy as well as the relatively stable economy and low unemployment rate.

We continue to expect modest increases in our loss rates in 2020, consistent with the trends we've now seen for several years.

Importantly.

I will do not see anything in our portfolios that would suggest a significant change in the credit environment, both on the consumer and commercial side in fact.

All of these portfolios performed much better in 2019 than we expected at the beginning of the year.

This brings us to provision expense, which grew 7% in the fourth quarter and for the full year.

The business decisions, we've made to shift more towards premium products, along with tightening things a bit on the risk management side, both contribute contributed to the loan growth credit metrics and provision trends we saw 2019.

Moving forward.

Other maybe some variability in the monthly trends, we expect to relatively steady loan growth in 2020.

And as I mentioned, a few moments ago from a credit perspective.

We expect the kind of modest increases in loss rates year over year that we'd be can been seen to continue.

As a result of these dynamics, we do expect higher provision expense growth in 2020 than we saw in 2019.

While we're on the subject to provision, yes, let me touch on Cecil.

As you know if the seasonal accounting changes went into effect on January Onest 2020 for us as well as the rest of the industry.

Our first quarter results will report the implementation or day, one impact, which we will which we estimate will increase credit reserves by about $1.2 billion.

The increase will run net of tax through equity with no impact to earnings.

I'd remind you that are unique aspect of American express is our charge card.

So, although our card and other lending reserves will go up by approximately $1.7 billion. We will have an offset from the approximately <unk> point $5 billion decrease in charge reserves given the short life of those receivables.

Now as a reminder, this increase will not have a material impact on our capital ratios or our ability to return capital to shareholders, given our 30% plus return on equity in the multiyear phase in period for regulatory capital purposes.

Then we get to the ongoing or as some would say the day to impact of accounting for Cecil and our ongoing provision expense starting in the first quarter 2020.

Under our current outlook, we expect a relatively modest increase to our annual 2020 provision expense from the implementation of Cecil.

More significantly.

Hi to expect that there will be more quarter to quarter volatility under Cecil compared to the previous methodology.

Some of this volatility should net out over the course of the year, making our long standing focused on annual results rather than quarterly results, even more pronounced and 2020 .

Now, let's get back to our results and turn to revenues on slide 10, FX adjusted revenue growth was 9% in the fourth quarter end for the full year. The focused execution of our strategy has delivered strong topline revenue growth of 8% or more for the last 10 quarters on an FX adjusted basis.

This consistent revenue performance has occurred in both the robust economic environment of 2018, and somewhat slower growth environment or 2019 and continues to be supported by a well balanced mix of growth in fees spend inland revenues as you see on slide 11.

Net card fees remains the fastest growing revenue line up 17% for the full year and accelerating to 20% in the fourth quarter.

We are really pleased by the confidence that our customers placed in our value propositions when they choose to pay these subscription like feeds and we continue to see that the majority of our new card members around 70% are choosing our fee based products as well.

Supported by the continued execution of our product refreshments strategy and our focus on premium value proposition. We expect card fee revenues will remain the fastest growing revenue line in 2020.

We are confident in our ability to maintain strong card fee growth given the breadth of products that are driving this momentum cross geographies and customer segments as well as the high levels of engagement, we see with new and existing card members.

These high levels of engagement supported by the progress we've made around coverage continued to drive steady growth in our largest and most important revenue line discount revenue, which was up 6% for the full year end in the fourth quarter broadly in line with billing.

And net interest income grew at 12% for the full year in in the fourth quarter driven by the growth in loans in net yield that I mentioned, a few moments ago.

Looking ahead I expect net interest income growth to continue to be a bit higher than loan growth driven by continued benefits from pricing and mix as well as a modest tailwind from 2019 rate cuts.

Importantly.

The portion of our revenue coming from fee and spend revenues remained at 80%.

For the full year and the fourth quarter inline with history, and we expect that revenue composition to continue given our differentiated spend and fee centric model.

Moving onto expenses on slide 13, overall expenses grew 9% in the fourth quarter end for the full year. There are three important items, so impacting the quarter here that more or less offset but are important to understand.

First there were a few positive income tax and other tax related developments in the quarter.

That show up in the lower effective tax rate as well as in the operating expense line.

We then as we often do took the opportunity to reinvest the upside we saw relative to our original plans to do two important things for the long term health of the business.

First we accelerated the funding of some incremental business growth initiatives similar to what we did in last year's fourth quarter.

And second we accelerated some of the things we are doing to evolve our organization for the future and improve operating efficiencies and as a result, we took a restructuring charge in the fourth quarter, which is included in the salary and benefits line in the tables that accompany our earnings release.

As I mentioned before the impact of these three items roughly offset one another and.

And you see the impacts across Opex marketing and business development and the lower effective tax rates at the bottom of the pace.

Looking at the full year, our Opex growth of 8% was also impacted by the litigation related charge. We took in the first quarter 2019 that I mentioned earlier in my remarks.

And as I've said previously some of the investments we are making to deliver continued strong revenue growth.

Both and Salesforce growth and premium servicing and enhancements in digital capabilities.

Caused us in 2019 to see more growth in operating expenses than we've seen in recent years or importantly than we expect to see going forward.

We have a long track record of generating operating expense leverage by growing opex more slowly than revenues going forward. We are confident that we have a long runway to continue to do so.

Turning now to slide 14 to look at the trend in customer engagement expenses overall customer engagement expenses for the full year group presented as a result of our investment strategy starting at the bottom marketing and business development costs were up 10% for the full year due to our continued focus on funding growth initiatives and in part the.

Incremental impact of the 11 year extension of our longstanding partnership with Delta that we signed earlier this year.

Moving on to rewards expense you can see that are grew 8% and was broadly in line with proprietary billed business growth for the full year.

And as they continue to evolve our value propositions and see high engagement with our premium benefits card member services grew 25% for the full year.

While there were some adjustments the cause slower growth in card member services in the fourth quarter. We continue to expect this line to be our fastest growing expense category. As it includes the cost of many components of our differentiated value propositions, such as airport lounge access and other travel benefits, which we believe are difficult for others.

To replicate and help support the strong acquisition and engagement, we are seeing on our fee based products.

Going forward, we continue to expect total customer engagement expenses to grow a bit faster than revenues as we continue to invest in share scale and relevance.

Turning to capital on Slide 15, we ended the year with the Cetone ratio of 10.7% near the top of our 10% to 11% target range. During the year, we increased our dividend by 10% and returned $6 billion of capital to our shareholders.

This outcome is a testament to the 30% plus return on equity that our financial model generates as well as our focus on maintaining capital strength, while consistently returning excess capital to our shareholders. As we've said our primary focus is on maintaining our cetone ratio within our 10% to 11% target range as the gun.

I wonder of our capital distribution plans and we do not believe that see so we'll have a material impact on those plans.

To sum up we feel really good about our steady and consistent performance throughout 2019.

Looking ahead, we see a long runway to sustain high levels of revenue growth in double digit EPS growth in today's economic environment.

That brings me to our outlook for 2020, and then we'll open the call for your questions.

Our guidance for 2020 is consistent with our financial growth other.

As Steve mentioned at the start of our call. We are introducing our 2020 earnings per share guidance at a range of $8 in 85 cents to $9.25.

Our guidance does assume an economy that looks somewhat similar to 2019 and reflects what we know today about the regulatory and competitive environment.

Consistent with the performance we've been delivering for over two years. This guidance includes revenue growth of 8% to 10% on an FX adjusted basis and at current exchange rates, we'd expect a more modest headwind from FX in our reported growth than we saw in 2019.

And as I mentioned earlier, we will continue to invest to drive those high levels of revenue growth and so we expect customer engagement expenses to grow faster than revenues again in 2020.

And we are committed to generating operating expense leverage by growing our 20 to 20 opex at a slower paced than revenues and slower than the pace. We saw in 2019.

Looking at the drivers of our financial results. There are few other key planning assumptions I'd highlight.

As I mentioned earlier, we expect provision growth to be higher in 2020 than it was in 2019, including a relatively modest increase from seasonal.

We do expect expect Cecil to drive more volatility quarter to quarter. So focusing on the full year results will be even more critical in 2020.

In addition, we expect that our effective tax rate will be around 21% next year.

In summary.

We remain focused on sustaining high levels of revenue growth in in today's environment double digit EPS growth as I look at our performance over the past two years in our expectations for 2020, a clearly demonstrate consistent execution against our strategy as well as our financial growth algorithm with that.

I'll turn the call back over to rose. Thank you, Jeff before we open up the lines for Q in a I'll ask those in the keys and please limit yourself to just one question. Thanks for your collaboration and with that operator, we'll now open up the line for customers.

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Our first question comes from Don Vendetti with Wells Fargo. Please go ahead.

Okay. Good to see the solid Todd for 20, Jeff Winter confirm today.

EPS guidance includes the negative impact Cecil.

Yes, absolutely.

So when you think about the rains we provided this year Darren I would say the normal thing of.

You have to think about a little stronger economy pushes us towards the higher end a little weaker economy is wire lower end ranges there and Cecil is the other uncertainty, but absolutely we are contemplating what I call be relatively modest impact.

Lets diesel in there. So you should go with that is full GAAP guidance.

And there are you in your guidance.

I mean, I assume we're sort of at the trough built business here as you're lapping some tougher comps do you have an acceleration built and then.

You talked about the discount rate.

Our knowing that you're short are willing to scale up and down.

Well I think what I would actually point you to his remarks, Steve started we've had 10 straight.

Quarters now dawn of revenue growth, which is ultimately what we're focused on.

In the 8% to 10% range in the fourth quarter was another strong quarter of revenue growth. So actually when we look at that metric, which ultimately is the end goal of the mixture of everything we're doing with card fees with pricing loan growth billings with the discount rate, we actually see a lot of stability in the momentum.

We are entering in terms of revenue growth, yes, I think the other point is that if you look over these 10 quarters. We've shown that there isn't elasticities to our build business. That's still continues to drive the high revenue growth and so given the high card fees.

The higher growth in card fees that consistent performance. We've had from a net interest income perspective billings can fluctuate up and down the other thing I would point out is not all billings are created equally.

So we feel really we feel really comfortable with where we wound up in how we entered a year from billings perspective.

Next question is from Mark Devries with Barclays. Please go ahead.

Yes, Thanks, Steve Let me questions here just on on what inning you guys are in in this kind of product launch in refresh cycle.

Assuming given you've done 50 already that it's pretty late innings and the reason I am asking is as you pointed out it's been a big contributor to adding new customers reengaging with existing ones and presumably have been really helpful and in generating a strong revenue growth and if we are in kind of later innings. What are you looking to is kind of the levers to continue to sustain that revenue.

Gross yeah. The interesting thing is I wouldn't I wouldnt equate this to innings.

I would equate this to baseball seasons, because the way you got to think about this is that product refreshes can happen on a three to four year basis, and so we get to play a seasoned all over again and so you look at 50, you look at 50 refreshes over the last two years, there are still more to do with India.

Listing portfolio and by the time, you get done I guess, what you some of your products or three three and four years old now so I Wouldnt think about this is a onetime thing and I think you have to think about this is continuous refreshment.

Because look the reality is our customer base constantly changes, we're looking to appeal to new customers at all in all aspects. If you look at platinum before we did the refresh platinum was not as attractive to millennials as it is today and if you look at the value in the benefits that we put on it it's become a much more attractive product and most of our growth has.

Come from.

You know millennial uptake look we have since the refresh we have 60% more platinum cards than than we did prior to that refresh and over 50% of of the new cards acquired to millennials. So I wouldn't think about this is an inning game I think about this as we constantly played a baseball season and.

This is going to be another season and another season in another season, it's just going to be different it's going to be different.

Different card products and when you look at our portfolio of card products.

So it's an hundreds so.

We got we have a ways to go.

Next we go to Betsy Graseck with Morgan Stanley . Please go ahead.

Hi, I was hoping that you could talk a little bit about the network opportunities outside the U.S. I know you mentioned, Steve that is essentially achieve parity in the us now.

Maybe you can give us a sense because I know that was a three year outlets. They gave I think last year and where are we there and should we expect acceleration. Thanks.

Yes, so look from a.

From an outside the US perspective, obviously, we're nowhere near where we are in the us we.

We identified a strategy that we wanted to increase overall coverage internationally by 20%.

Over a three year period, we talked about that at Investor day, I'd say without without giving specific metrics on this we've made progress we expect to hit that 20% growth target over.

Over that three year period, it's a very it's a very focused strategy in that we're looking at key cities. We're looking at the key cities in that our card members travel to in that are that we have large card card bases in and we're also working with our network partners in in markets that we do not have proprietary businesses.

To continue to continue to grow that and let's not forget our efforts in China.

No we are.

Our license has been accepted we are waiting for the final approval and hopefully sometime this year. We will we will launch launched the network and that will increase that will increase not only coverage in China, but what it will do is it'll put more cards on the network as we engage with.

The Chinese banks to have more Chinese travelers as they go into.

And the reality is there going to go into a lot of our European and Asian cities, which is going to put more demand and will actually then helped drive.

More coverage. So we're we're still committed to it and we continue to invest in it and any other point I would make out is the US is not is not done.

From the US perspective, as I said in my remarks, it is a moving feast and so what we need to do is to continue to sign those merchants that come into business and we also need to do is to continue our efforts to have warm acceptance and from a warm acceptance perspective, what we mean is a decals on the doors, we put up.

Over a million decals. This year just in the United States alone and it's an education process as well it's in education process for the merchants and it's an education process for our card members that in fact, the card is accepted so.

What weve laid what we would call technical acceptance of is some more work to be done from a warm warm it warm warm except this perspective and our card members. Realizing now that the coverage is there so you'll see a lot of work it in those areas as well.

Next we go to Bob Napoli with William Blair. Please go ahead.

Good morning, Thank you, Steve Jeff and resin appreciate it.

Yes.

The.

Your competitors have been making some significant acquisitions visa acquiring Pat Pat.

Mastercard several acquisitions, I mean, Paypal buying honey.

American Express has done some some interesting tuck in acquisitions, but first of all is there any concern about some of the acquisitions from a competitive perspective.

I would like a visa plan.

Is that Amex seems like there are so many opportunities to leverage your your brand in your network with all of this innovation and the and the Fintech and software space is there.

The areas that you would like to to leverage or invest more into whether its security or or or other areas.

Look I mean, we're not getting into specific obviously specific acquisitions, but.

What you've seen our focused over the last you know.

So 24 months has really been from some of our digital capabilities, whether that be messy or resi or.

Okay can.

Obviously lounge body and we did a come pay and so we're trying to do is build out the organic footprint that we have with our existing card members were trying to engage them more more digitally.

And look I think that.

Our competitor our competitors visa Mastercard pay Pal pay Pal is really a partner more than a competitor.

When you looked at what they're doing they're doing things that are smart for them.

They are run by really smart people in.

They've got their strategies in there.

Our main focus is connectivity and bringing more and more and different types of transactions across across those rails and I think that the acquisitions that they've done to build out from a network perspective, or our smart acquisitions for them. When we looked at where we're trying to do from a card member and a merchant perspective, we feel really comfortable.

Well, what we've done and.

I think just looking at the plant acquisition, which I think is a good acquisition by by visa.

It allows them to.

Provide connectivity from their bank partners into Fintechs in fact, we use we use plaid today, we have an investment in plan.

I will make a little bit on that as well.

And so that's a more sensible acquisition for them than it would be for us not only from an economic perspective, but certainly from a strategic perspective, and I think just a.

Customer perspective so.

We look at everything we have our own target list of things that we want to do and.

And things that quite honestly, just don't make sense for us where we're positioned with our model.

Next we go to Moshe Orenbuch. Please call with credit Suisse. Please go ahead, great. Thanks are you guys highlighted the being with between that eight and 10% revenue growth kind of for a long string of quarters and.

Pretty much right in the middle is that over the course of 2019 as you look into 2020, you talked a little bit maybe of a little bit of slow down on that net interest income are there any other things that you'd be looking at to accelerate from where they were here.

Well.

Okay, I guess I, we look at the stability we've seen overall in revenue growth 10 quarters of eight to 10 and see.

Tremendous momentum to continue to meet that same target in 2020.

When you look at acceleration I would actually point Q2 card fee growth occurs growth has been.

Our fastest growing revenue line and actually accelerated in Q4 and for all the reasons. Steve described we're pretty bullish on our ability to keep that as our fastest growing revenue line I'd also point out to everyone that of course, you have a large because really we give the accounting for this as you would know most we have.

Large portion of next year's card fees, just sitting on the balance sheet.

Waiting to be amortized. So we feel really good about that line and net interest income I would point out actually has been very steady sequential.

Strykers wall are booked loan growth rate has moderated a little bit that part of that is just us being a little bit.

Tighter about things like promotional offers and Thats why your yield who is going up and net interest income growth has actually been pretty flat. So.

Gosh.

We would look at the 2020 revenue guidance and say, it's a continuation of what we've been putting up for about two and a half years.

And we feel pretty good about the stability, we see in the economy. This stability we see.

In our credit performance and the tremendous strength frankly of the U.S consumer.

Next we go to a question from Sanjay Sakhrani with KBW. Please go ahead.

Thanks, Good morning.

Sounds like the guidance ranges are more related to execution than anything else, but last year. Jack you guys had talked about a scenario, where there was macroeconomic weakness to the extent that there was any weakness how should we think about this guidance, especially on the side. Thanks.

Well look I think the results we posted Sanjay in 2019 demonstrates that we've got a model that produced steady results in the really robust economic environment in 2018 and continued to produce those same results in the more modest growth environment of 2019. So so.

There is clearly a range of economic outcomes around where we are aware our model is flexible enough or resistant enough to change I'll go back to the card fee point I just made two moshe where in our card fee growth is actually pretty resilient.

In different economic environments. So we feel good about our guidance across any reasonable range.

Of economic outcomes than anyone is forecasting right now now theres, a sudden dramatic shift upwards or downwards, that's the kind of thing that.

I would take two probably caused us to move off that range.

Next we go to Jason Kupferberg with Bank of America. Please go ahead.

Thanks, guys. Good morning, So I just wanted to start on the enterprise commercial side I know, it's still only 9% of billings, but I think last quarter, we were expecting maybe a little bit of an uptick we got instead, a little bit of a downtick there on a constant currency basis. So I was just wondering I know last quarter, you had a couple of specific customers that.

Our call outs as driving some of the softness where those continuing to be headwinds in Q4 was there more of a Malays incorporates teen need you still think we get back to call. It low single digit in 2020, and then just on a quick side no can you size that restructuring charge for us in the quarter. Thank you.

So let me quickly do the facts on it too and then Steve will probably add a little bit of color on the large and global I guess, we look at it and we say sequentially at spot. The same as it was last quarter. Yes, you do have the same two large customers, where there's some things you need to those customers going on but look we've said for a long time this isn't a growth segment for us.

As a big companies doing TNT, it's an important part of the franchise.

So we're not frankly, particularly overly focused on that rate we're focused on other parts of commercial on the restructuring charge.

The point I would make to everyone is this is just an example of what we've done for many many years, which is we had some very good developments on the tax side, we use that to accelerate some spending.

Around a range of growth initiatives, you see some of that in the marketing line some of that in some of the other customer engagement lines and yes, we did take a restructuring charge, it's a little bit more than $100 million.

Look we've we've been growing expenses we've added over.

5000 colleagues in the last year, we will continue to grow expenses in 2020, frankly, we're going to continue net to add colleagues, we got to make sure. We have the right people in the right place. So that we can continue as we have for many many years.

To scale, our company as we grow our volumes and so as far as the restructuring I think.

Jeff It hit all that look I think with the large and global it's.

From a company perspective, not a lot of companies are looking to grow their team anyway. So you don't have sort of the organic growth that you would have and then you have a couple of companies at pullback or you have a loss here or there and you.

You feel you feel at a number is but it is 9% of of the overall billings.

But from a profit perspective, it's a lot less than that this is this is an important an important part of our business.

From a network network perspective, and it allows us to utilize our scale and infrastructure to really support our middle market business and our in our small business and so it plays an important role.

I think where that where we are from a.

A perspective of overall billings were comfortable with the up be great. If it would grow but if it grows it's not going to make that much of a different from a profitability perspective, which gets back to my point about not a little billings are created equally.

Some billings have a lot more.

Profitability and others and so.

I think you'll you'll probably see this sort of flatness continue as we move in as we move into next year and.

It's something that we're doing in our own company as well I mean, we're not looking to grow our teeny expenses, it's not I don't sit around my staff and say, let's see how we can grow more DNA.

I wouldn't mind sitting around a lot of my customer staffs, and saying that but we don't do that and so I think companies are doing that and you're looking at TNT and looking at is more video conferencing and things like that and reducing some of the travel and you see that numbers.

Next signal to Rick Shane with Jpmorgan. Please go ahead.

Hey, guys. Thanks for taking my questions. This morning.

Look given the maturity of the business and.

So it's really impressive to see Youre us consumer business, which is a third of your business growing at the rate than it is on Im curious to sort of understand what we think is driving that is there any increase in discretionary spending among your legacy costs.

Customers or when you cite particularly the growth of millennials in the portfolio is it'll ramp in their spending.

Well you know Rick the interesting thing about our businesses, it's probably not mature yet.

And I think one of the reasons after the financial crisis, everybody jumped into this business, especially the banks in a big way.

Is because this is a business that just continues to grow when you look at the consumer business in the United States. It's it's sort of 8%, 8%, 8%, 8% you see that you'll see that continuing and I think when we look at our business and.

From a security perspective look it's a mix of new customers. It's it's a mix of or what we would call same store sales you thinking about this from a retail perspective, it's amiss mix of organic spending as well, but we're bringing in.

New customers to the franchise and our our brand is playing a lot more with millennials, which is over half of our customers that were acquiring at this particular point in time and the reach that we're getting with some of our co brand partners is getting us new customers as well. So I don't really look at this businesses as really mature I.

I look at this business as as having lot and I'm just talking about our business I'm talking about the card business in general.

I think about this is a business that still has a lot of legs and a lot of growth and you see a lot of the technological changes, whether it's sort of tapping go and making it easy to buy online.

And so forth I mean, just with contact list you are going to see more and more smaller dollar transactions coming on to card products, whether that be vending machine transactions, which is the next thing that's going to happen you're seeing this would transit obviously now in New York City, you can use tapping go.

Through through the New York City Transit system. So.

We don't really look at this is a mature business at all and we think this expansion opportunities for us not only with new customers new customers, but also with our existing customers. As you know we don't we have less than half their share of wallet and we have as we said for for a long time, we only have about 23% of their share of lending so.

We think there's still a lot upside in this business.

Next we'll go to David Togut with Evercore ISI. Please go ahead.

Thank you good morning International consumer and international SMB continue to be your fastest growth businesses in particularly you've called out strength in the UK and the European continent, given the regulatory changes with payment services directive to.

In Europe , and UK Vsan Mastercard have both acquired fast DCH rails, both to address PST to consumer a CH payments and also to complement their b to b.

Payment capability. So my question really is does fast DCH need to play a role in American Express his future.

And if so where would you have an interest geographically potentially to acquire fast DCH rails, yes. So what's couple of things number one I think from a consumer perspective, we see this sort of fast fast payments, we see as really looking to cannibalize some debit.

Looking to cannibalize some may CH, some check and things like that so from a consumer perspective, we have no. We haven't opened banking test right now from a consumer perspective, our ourselves where.

We are offering some of our non customers the ability to pay out of there.

If their bank account, so that could be an opportunity for us.

But I don't see that really impacting.

Credit and charge charge growth I look I think there what's interesting for fast payments AC age from B to B perspective, and I've said this multiple times on on calls like this and in meetings.

You know they will play a role in NBV payments that it will play a role in procurement in procurement spending as well the reality is is that.

We believe we can achieve the same things with with the network that we have today and it can activity that we have.

As we are we have the flexibility in pricing.

Look I don't I'm, not I'm not constrained by by interchange.

I could price from a transaction perspective.

And one of the advantages we do have an in Europe . In particular is worth three parties system will not a four party system and so the relationships that we have with.

Card members and merchants.

With that direct connectivity, we believe we can accomplish the same things without acquiring either end of vocalink or north port or something like that but make no mistake. It will play a role in procurement. The other thing that I've said on these calls before is.

From a procurement perspective.

Fast DCH is really not.

Sort of the be all ends all given that most of these payments occurrence 60 to 90 days the bigger opportunity is really integrating the payment process within the procurement process and marrying the procure to pay in so and that takes a long long time and Thats why you do partnerships with people like S&P and people like a reba.

To try and integrate the payment in.

Companies are much look from my perspective hanging around procurement here as well companies are much more focused on how you merge the two then sort of paying their vendor in 20 minutes.

The last thing I want to do is really pay a vendor and 20 minutes, but what I really want to do is integrate the two together so I think theres a place for these acquisitions.

Again from visa Mastercard. It goes back I think a little bit sort of Tinplate acquisition, but I think we can accomplish same thing with the capabilities that we havent at the current moment.

Next I go to James Friedman with Susquehanna. Please go ahead.

Hi.

Thanks for taking my questions. So Steve I did and follow up to the previous question in the previous before that I did want to ask about that large and global corporate again, and I know, it's a little acquaint twister, but I'm looking at the appendix in terms of the.

Volumes from T. any.

And the Teeny actually grew 6% so that seems pretty good and consistent with the way that it's been.

But I realize not all teeny lands in large in corporate I assume some of that's in so anyway any context about how to grow but the margin corporate was yes, well see a t. and think about our consumer travel business and think about you just think about the expansion that we've had in small business international and the expansion that we've had in consumer Internet.

Optional and when you think about small business international it's not as mature as small businesses in the United States and so if you go back in history, what happened from a small business perspective in the United States that started as a teeny card and now has more much more into a b to b card and so the mix of volume that we have.

And the reality is when you think about sort of the teeny aspects as it relates outside outside the us small business international that we have there is a higher higher percentage of t. needed occurs on that card because that's the first thing that small businesses will put on internationally and then obviously our consumer.

Business is growing in leaps and bounds internationally and again that has a much more TLD focus than it does.

Retail focus.

Matt point I would add is on our cables that stat is to use stat, but it just goes to the point did for large in global segment is a small part of our total build it billings, so BPMI trends get dwarfed.

In terms of the global company by Whats consumers and Salt business are doing.

Next question from Chris Donat with Piper Sandler. Please go ahead.

Good morning, Thanks for taking my question, Steve I wanted to ask kind of a longer term history question about the your card fee strategy because when you go back a few years, there really wasn't that much growth or low single digit growth and card fees and I'm wondering if your view is what's what's changed more amex's approach or more of the consumer appetite for fee based cards.

Now it's been it's been our approach that has changed.

And which is why if you go back for the last couple of years. We have started to refresh products. We were not in the business of refreshing products. If you do not refresher product. It is really hard to increase the fee.

Adding adding value enables you to increase the fee, if you're not adding value can't do that.

We had a fundamental shift in sort of how we've approached business over the last few years, you've seen a lot more focused on coverage you've seen a lot more focused on have you seen a lot more focus on a focused international strategy and you've also seen a major focus on card refreshment and card refreshment remember is.

It's not just about fees is to get people to spend which then gets people to to revolve that spend so.

It really is more about engagement and is that the fees come along as you.

As you add value.

Our final question will come from Craig more with Autonomous research. Please go ahead.

Yes. Thanks for squeezing me in I wanted to get a little clarity on your thoughts for billed business growth trends in 2020 with.

Comps getting easier and we're starting to lap some of the issues in.

Corporate and Gms could we see an inflection point in 2020 were billed business growth starts to Reaccelerate and just a housekeeping item, our they're going to be any unique quarterly trends in marketing spend this year due to 2020 Olympics. Thanks.

Well I think the short answered on the second one created some notable obviously the Olympics as an important event from a lot of perspectives and we have a fabulous franchise in Japan, and it's benefiting from the Prime ministers.

Sensitivities, providing in the country to encourage more card use all good stuff for us, but but not big enough for you to see in our global results on the inflection point on billed business I really go back Craig to the theme, Steve and I, both talked a lot about over the last hour, which is our revenue momentum has been.

Very stable for 10 quarters, and that's because of the breadth of sources is because of the way we're focused on being thoughtful about things like card fees, which Steve just touched on or how we're pricing for risk.

In our lending portfolio and so.

We feel good about the trends on bill business, but we view, but more importantly, we're focused on the trends and stability.

On revenue that make us very comfortable with the guidance, we provided for another year of 8% to 10% revenue growth and it is not counting on it a big inflection upwards on billed business if that happens great, but that is not a planning assumption. If you will that underlies the guidance we.

Right.

With that will bring the Kaufman. Thank you Steve. Thank you Jeff. Thank you again for joining the call and for your continued interest in American Express as usual the IR team will be available for any follow up questions and we look forward seeing you had at our Investor day, which will be held on March 17 Pierre.

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