Q1 2021 American Express Co Earnings Call
Hum.
[music].
Ladies and.
Gentlemen, thank you for standing by welcome to the American Express Q1, 2021 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 a question. Please press one and then zero on your Touchtone phone.
You will hear a message, indicating you've been placed in Q you may remove yourself from the queue at any time by pressing one and zero again.
If youre using a speakerphone please pick up your handset before pressing any 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 call over to our host head of Investor Relations Ms. Vivian Zhang. Please go ahead.
Thank you Alan and thank you all for joining today's call.
And 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 and are subject to risks and uncertain factors.
Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our report on file with the SEC net.
And 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 earnings materials for prior periods. We discussed all of these are posted on our website at IR Day American Express Dot Com, we will begin today with Steve <unk>, Chairman and CEO, who will start.
With some remarks about the company's progress and results and then Jeff Campbell Chief Financial Officer will provide a more detailed review of our financial performance. After that we will move to a Q&A session on the results with both Steve and Jeff with that let me turn it over to Steve Thanks, Vivien and Hello, everyone. We appreciate you.
Joining us for today's call.
Early this morning, we reported first quarter revenues of $9 1 billion and earnings per share of $2 74.
I'm pleased to say that our overall core business performance was slightly better than our expectations with credit performance continuing to be best in class and we're especially encouraged about the progress we're making toward our aspiration of returning to the original EPS expectations, we had for 2020 and 'twenty 'twenty two.
As I discussed in January we're looking at 2021 is a transition year, where our focus is on investing to rebuild growth momentum, but firing up our core business scaling next horizon opportunities, while continuing to reap retain financial flexibility and while I feel good about our results for the quarter, what I feel really good about us to progress.
We are making to rebuild momentum.
When we talk about firing up core we're looking for meaningful progress and four areas spending volumes coming back to pre pandemic levels, bringing new customers into the franchise, retaining and deepening relationships with our current customers and signing up additional merchants, we're making good progress and all of these areas.
Overall spending on American Express cards, and Q1 continued the sequential improvements we saw through the last two quarters of 2020 U S volumes exceeded our expectations and the quarter and spending and March from U S consumer and small business small and medium size enterprise customers was higher than March 2019 levels non U S volume.
A bit due to renewed lockdowns in certain international countries excluding.
Excluding travel and entertainment categories spending on our cards and Q1 was up 11% on and FX adjusted basis versus 2019 levels. This marked the third straight quarter of positive growth.
And although the teeny volumes were significantly lower and the first quarter versus last year, we've seen a steady sequential upward trend and monthly teeny spending and a noticeable improvement in recent weeks, particularly in the us as the vaccine rollout accelerating.
These trends indicate that the pent up demand for consumer travel we've been talking about is real and it increases our confidence that the domestic the domestic consumer travel will continue to recover as the year progresses in terms of bringing new customers into the franchise card acquisitions are also gaining momentum and were up sequentially in the quarter globally.
In fact, new accounts required on key premium U S consumer and small business products were above 2019 levels and exceeded the prior quarters and initial spending on these new cards as strong and the average FICO scores of these new U S consumer and small business card members are higher than those acquired pre pandemic.
In addition card acquisitions and some of our largest travel co brand portfolios have accelerated since the fourth quarter and important indicators that travel remains an attractive category for consumers over the long term and.
Another indicator of building momentum and our core businesses, retaining and increasing engagement with existing card members. We have a good story to tell here as well card member attrition on our proprietary products, which also includes our co brands continues to be lower than in the previous years and customer satisfaction levels remained higher than pre COVID-19 levels.
The additional value we provided on several of our premium products helped drive card member loyalty and spending in 2020 and as we believed has been sustained into this year. For example, 95% of U S. Platinum card members, who took advantage of the streaming credits and 88% who use wireless credits offered last year.
Our continuing to spend in these categories months later, we're also seeing good engagement on the new offers we rolled out earlier and the first quarter from platinum card members, which include statement credits with Paypal and other select merchants. The uptake on these offers are in line with the wireless and streaming offers we announced last year.
Overall card member engagement with our digital channels and capabilities us at all time high in most areas for example over 88% of our U S card members and making their payments digitally and 87% us our website or app for self service. The number of Amex offers redeemed and Q1 increased fivefold versus.
Last year's first quarter, topping $5 3 million redemptions and finally, we continue to see strong adoption of paid planet. Our buy now pay later feature after we recently expanded the capability to all U S. Consumer cards since launching paid planet card members have created over 6 million plans totaling over $5 billion of us.
Counts receivable.
Another key driver and momentum is expanding merchant coverage in the first quarter, we continued to make progress growing merchant coverage internationally, while maintaining our coverage levels in the us.
When it comes to building momentum we aren't just focused on the near term. We're also focused on scaling next horizon opportunities that will drive growth over the longer term.
China represents an exciting opportunity in this regard as you know developing our card processing network and mainland China has been a priority for us and we're pleased with our progress since getting the green light to start processing payments and China eight months ago, we have reached mobile wallet parity coverage through our partnerships partnerships with Chinese major mobile wallet providers and to date we have.
And over 14 million merchants to the network at the point of sale with more to come a key enabler of our coverage growth and China is the progress, we're making and modernize our network, particularly and adding the capability to process debit transactions globally, which is an essential need for customers in China and helps us.
Per for potential additional debit applications elsewhere.
We remain focused on scaling our China business by acquiring card members through the relationships. We've established with 16 issuing partners and I look forward to sharing more highlights of our progress over the course of the year.
And our commercial business. Our growth is has been and will continue to be driven primarily by small and medium size enterprises.
Key element of our longer term growth strategy for SMA franchise is to deepen our relationships with current customers and attract new ones by offering a range of supplier payment and cash flow management solutions, both on and beyond the card, giving business owners more tools to help them manage their businesses Cabbages and one example of how we plan to bring this strategy to life.
We've been focused on integrating cabbages digital capabilities into our business and in Q1, we began the rollout of the <unk> platform, which includes a business checking account and working capital solutions to our small business customers.
And our consumer business <unk>, our online dining platform helps drive bookings and spending and restaurants, which is a top category for our card members when the pandemic hit Reza quickly pivoted its value proposition for restaurant owners to help them expand their offerings and find new ways to attract customers, including enabling takeout meal kits.
Family meals and virtual events <unk> also provided a number of special offers for Amex card members as a result over the past year <unk> has seen significant growth and engagement for both consumers and restaurants. In fact, we've seen a number of reservations booked on the platform more than doubled since December and Amex card members, who use <unk> are some of our highest spending and most.
Profitable customers.
Those are just some of the examples of our progress in rebuilding our growth momentum both on our core business and with next horizon opportunities.
<unk> as we've increased our investments in both categories. We've also been focused on maintaining our financial strength and flexibility we resumed share repurchases this quarter and our capital ratios continue to be well above our targets.
Before I hand, the call over to Jeff I want to share some thoughts on where I see things heading into near term.
As I sit here a little over a year since the global global COVID-19 pandemic started I'm optimistic that the hopeful signs, we're seeing us vaccine distribution and accelerates will continue and get stronger as we move through the year.
Of course, we're still cautiously keeping an eye on progress on the progression of the virus virus and its impact on local local lockdowns and cross border travel restrictions and certain areas, but there are clear indicators that the economy is improving particularly in the us and I believe this will translate into continued continued steady improvements from.
American Express.
Given all of this we remain firmly committed to executing on on our 2020 investment strategy for rebuilding growth momentum for the longer term as I said last quarter, we're not focused on achieving a particular EPS target. This year. Instead, we're focused on achieving our aspiration of returning to the original EPS expectations, we had for.
<unk> 2020, and 2022 and for the company to be positioned to execute on our financial growth algorithm going forward.
And I'm encouraged by the results we've seen thus far and 2021, which makes me even more confident and our roadmap for achieving our 2022 aspiration I'm, particularly proud of our colleagues who have remained nimble and focus through the uncertainties of the past year their dedication and hard work along with the flexibility of our business model the loyalty of our customer base the strength of our partnership.
<unk> and the value of our brand makes me feel very good about the future.
Jeff will now walk you through our results and we will we will take questions after that.
Well, thank you, Steve and good morning, everyone. Good.
Good day beer today and talk about our first quarter results, which reflect good progress towards the aspirations. We have for 2022 that Steve just outlined.
As I've said since the beginning of the pandemic last year. The key drivers of our financial performance in this environment remain volume and credit trends along with this year and marketing investments, we are making to rebuild growth momentum.
I'll spend most of my time. This morning on these topics, but first looking at the summary financials on slide three when you consider year over year results last year's first quarter included two months of pre pandemic results and.
And so as you would expect first quarter revenues of $9 1 billion were down 13% year over year on and FX adjusted basis.
But in contrast.
We don't typically look at monthly results were you to look at our revenues and just the month of March you'd see that they were up 7% year over year.
Our first quarter net income was $2 $2 billion and earnings per share was $2.74 included and these results is a $1 <unk> 5 billion credit reserve release due to improvements and the macroeconomic outlook and continued strong credit performance.
So now let's get into the first key driver of our performance volumes beginning with a few comments on some nomenclature changes we have made to our volume reported.
Thinking ahead on how we expect our card processing network and mainland China to grow in the coming quarters and years, we have renamed what we previously called GNL billed business.
And as processed volumes, because our business model and China is unique and different from what we do with our Gms partners and other regions. We have also changed what we previously referred to as proprietary billed business to just build business.
And renamed what we used to call our overall volumes from billed business to network volumes you.
You will see we have recast prior periods and the disclosures that accompany our earnings release as well as an appendix slide 27.
So with these changes and mind moving on to our volume performance on slide four we saw continued recovery across all of our volumes and the first quarter with total network and billed business volumes down eight and 9%, respectively and processed volumes down only 1% all on an FX adjusted basis.
Getting into the details of our billed business growth, which you will see several of US have on slides five through 10, we've shown first quarter trends on both a year over year basis, and relative to 2019 and order to provide a clearer picture of how spending is recovering as we begin to lap the onset of the pandemic and March of last year.
Sure.
Also note that the trends we've seen in the first two weeks of April are a continuation of the trends we saw exiting the first quarter that I'll focus on this morning.
In addition, it remains important to look at spending on travel and entertainment categories separately from spending and other categories, which we will now be calling goods and services spending given the very different impacts. The pandemic has had on these two very different categories.
Overall, there are a few key points I would suggest is the takeaways on volumes from all of these slides first there are clear signs of volume momentum that we feel good about.
As you can see on slide five our overall build business volume growth continued to recover steadily throughout the months of the first quarter with the reopening of the economy and rollout of the vaccine is progressing well and the U S and search and other geographies.
Spending on goods and services, which represents the vast majority or 86% of our volumes exceeded our expectations growing 6% year over year and up 11% versus 2019 and in the quarter and up 15% and the month of March.
Spending on travel and entertainment also showed sequential improvement given the progress on the medical front and the U S.
Further reinforcing our view of the consumer and small business travel will recover over time.
Second the growth and goods and services spending has continued to improve steadily and both our consumer and commercial businesses and.
And consumer is shown on slide six we continue to see strong online and card not present and spend growth, which was up 23% year over year this quarter, even as the recovery of offline spending accelerated.
Driving goods and services volumes up 7% year over year and 13%.
Versus 2019.
And commercial as you can see on slide seven SMB.
SME spending remains the most resilient across our customer types and supported by continued growth and <unk> spending which drove overall commercial spend on goods and services up 5% year over year and up 8% versus 2019.
First quarter.
Third we are seeing a faster pace of spending recovery in the us versus other regions as shown on slide eight the total volumes from our U S consumer and SME customers are recovering faster than other customer types and were up 1% versus 2019 levels and the month of March even with the continue.
And drag of <unk> spend and not yet fully recovering.
International consumer and SME spending on the other hand is recovering more slowly due to renewed restrictions and key international geographies and the fact that historically, we tend to have more travel related spending and our international regions.
And large and global corporate card spending, which historically has been primarily travel and entertainment continued to be down the most during the first quarter as we expected since this will be the last customer type to see travel recover.
Fourth teeny spending, though still down significantly did improve steadily across all categories throughout the months of the first quarter and consumer tea and the continued to recover faster than that of Smes and large corporations as you can see on slides nine and 10 and we expect this trend to continue given the pent up demand to travel that we.
C and our consumer base and the positive early signs of domestic travel recovery that we see and the U S. As the vaccine rollout progresses.
On G&A spending the trends we've seen on the first quarter are encouraging and give us more confidence and our current assumption that by Q4, T&D spending well have recovered to around 70% of its Q4 2019 levels led by recovery and U S consumer domestic travel.
Turning next to the other key volume driver receivable and loan balances on slide 11 receivable balances were down 4% sequentially and 6% year over year and the first quarter in line with spending volumes.
Loan balances, however were down 5% percent sequentially and 13% year over year more than spending volumes as we continued to see the liquidity and strength amongst our customer base, leading to higher paydown rates, which relates to the very strong credit performance and I'll talk about it and just a moment.
Looking forward I would expect the recovery and loan balances to continue to lag the recovery and spending volumes.
So turning next to our second key driver of credit and provision on slides 12 through 16 as.
As you flip through the slides there were a few key points I'd like you to take away.
We continue to see extremely strong credit performance with card member loans and receivables write off dollars, excluding GCC down, 53% and 82% year over year, respectively. As you can see on slide 12, we attribute this performance to our robust.
Risk management practices, the premium nature of our customer base as well as the unprecedented level of government stimulus and forbearance programs.
Clearly macroeconomic forecasts have him group over the last 90 days as you can see on slide 13.
However, we still have two very different macroeconomic forecast scenarios and we continued to put significant weight on the downside scenario and the modeling we did to calculate our first quarter credit reserves.
The impact of the improvement and the set of macroeconomic assumptions on our reserve models, coupled with the sequential decline in loan and receivables balances.
And our strong credit performance led us to release $1 5 billion of reserves. This reserve release and are extremely low write offs drove our provision expense benefit of $675 million and the first quarter as shown on slide 14.
That said the balances enrolled and our financial relief programs are still $2 $1 billion higher than they were pre pandemic as you can see on slide 15.
And the coming quarters, we will see how the card members exiting our financial relief programs will perform that will be an important milestone for us, though I would observe that all of the early exit performance indicators have looked quite strong.
There also continues to be some uncertainty and the medical environment and the vaccine rollout and we.
We'll have to see how that plays out and so we continue to hold a significant amount of reserves.
<unk> 16 shows you this and that we ended the first quarter with $4 8 billion of reserves, representing six 4% of our loan balances and 0.5% of our card member receivable balances respectively.
Moving on to our third key driver marketing investments to rebuild growth momentum on slide 17, we invested $1 billion and marketing and the first quarter as we continued to ramp up new card acquisitions, while maintaining our value injection efforts.
And we acquired $2 1 million, new cards, and the first quarter up around 20% sequentially.
Importantly, the number of new accounts and we acquired on our premium fee based products was up 35% versus Q4 with acquisition volume is on many of our premium U S consumer and small business products exceeding 2019 levels.
As Steve mentioned and 2021, our focus is on rebuilding growth momentum and maximizing our investments to do so as a result, we continue to expect to spend a little over $4 5 billion and marketing is full year, our ultimate marketing investment levels will be governed by the universe of attractive.
And then opportunities and the pace at which we wind down our value injection efforts as our customers begin again, two experienced the full benefits of our existing value propositions.
So what two or three key drivers mean for our financial performance this quarter.
As I said earlier year over year revenues on slides 18, and 19 are impacted by the prior year quarter, including two pre pandemic months.
So first quarter revenues were down 13% year over year on and FX adjusted basis, primarily driven by volume declines impacting net discount revenue and net interest income.
As well as declines in travel related revenues and delinquencies impacting other commissions and fees and other revenues.
Net card fees, however grew 10% year over year and the first quarter as you can see on slide 20, demonstrating.
Demonstrating the impact of the strong continued card member engagement that Steve discussed looking.
Looking forward I expect the growth rate of net card fees will slow for a few more quarters driven by our decision last year to pull back on new card acquisitions as we were managing through the peak of uncertainty during the beginning of the pandemic.
Given the renewed momentum we are now beginning to see and new card acquisitions and I would expect net card fee growth to then re accelerate.
Moving on to net interest income on slide 21, you'll see that net interest income declined 22% year over year on and FX adjusted basis, while the primary driver of this decline in loan volumes net interest yield on our card member loans also decreased 60 basis points due to the higher pay down rates from revolving card members on our Craig.
Card products looking forward I expect the recovery and net interest income to lag the recovery and loan volumes.
Volumes are also the primary driver of the discount revenue trends you see on slide 22.
As expected, though the contraction and discount revenue continued to be a bit larger than the decline and build business. The average discount rate declined eight basis points year over year, driven by the greater declines we saw in tea and he's spending where we on average earning higher discount rates.
Year over year erosion, and the first quarter is a bit less than in Q4 due.
And due to the recovery and T&D spending throughout the quarter that I spoke about earlier.
Looking forward, we still expect that <unk> spending recovers to around 70% of 2019 levels by Q4 as I mentioned previously.
Obviously overall revenue growth of around 9% to 10% for full year 2021.
And if <unk> any recovery from our slowly or quickly you could see full year revenue growth, but somewhat lower or higher than that nine or 10%.
Moving on to expenses, we are continuing to break out on slide 23, our variable customer engagement expenses, which moved naturally inline with spend volumes and benefits usage and marketing and Opex, which are driven by management decisions.
Variable customer engagement expenses in total were down 10% year over year relative to the past few quarters, we did experience higher usage of travel related benefits and rewards.
Which we see as a clear sign of the pent up demand we've been talking about looking.
Looking forward a good way to think about these variable customer engagement expenses is that I'd expect them to be about 40% of our total revenues for the next few quarters.
Moving on to operating expenses, you can see that they were down 10% year over year and the first quarter, primarily driven by a few sizable gains and our amex ventures equity investment portfolio, partially offset by some higher deferred and other compensation expenses and 2021, we still expect our operating expenses to be.
And 11 $5 billion below 2019 levels as we continue to keep tight control over our operating expenses, while also investing to rebuild growth momentum.
Turning next to capital and liquidity on slide 23, our capital and liquidity positions remain tremendously strong.
Our CET one ratio increased to 14, 8% and the first quarter, our highest level. Since we began reporting this ratio and our cash and investment balance ended the quarter at $61 $5 billion far above our target levels, driven by the shrinkage and our balance sheet over the past year.
We resumed share repurchases and the first quarter repurchasing three 3 million shares and we remain committed to our dividend distributions and to our long term CET, one target ratio of 10% to 11% and.
And Q2, we plan to repurchase shares up to the maximum amount permitted under the fed authorized capacity.
Of around $900 million.
Looking forward, our capital distributions will be a function of the fed's guidelines, our capital generation and the growth and our balance sheet.
Sure.
So, let's close by talking about what the signs of momentum we saw in Q1 might mean for the future and.
And January laid out two scenarios of potential outcomes for 2021 that were primarily based on what happens with credit reserves. Our original scenario, one or low scenario assumed a much worse medical and economic environment share and that we would not release any credit reserves and the year now three months into the year.
The macro outlook has improved and credit performance has remained very strong. So we've already released one $5 billion of reserves.
Leaves us however, with a lot of credit reserves, we built due to economic uncertainty.
So our updated scenario on on slide 25 assumes that this uncertainty persists that the medical and economic environment does not improve further and we therefore do not release any additional credit reserves this year.
Such and economic outcome would likely put some pressure on our current assumption of a 70% <unk> recovery by Q4 and likely drive us somewhat weaker revenue recovery.
Combination of these things could lead to an EPS outcome as low as around $6 per share.
Our updated scenario two and contrast assumes that we continue to see strong credit performance and a steady improvement and the economic outlook.
Moving to less uncertainty and having no need to maintain our current level of credit reserves.
This sort of economic outcome would also likely drive us somewhat stronger revenue recovery in line with the 9% to 10% revenue growth assumption I spoke about earlier in this scenario, our 2021 EPS could be as high as $7 50.
More importantly in either scenario as I said earlier, our marketing investment levels will be governed by the universe of attractive investment opportunities that we see not by a focus on any specific EPS outcome for 2021, what we are focused on is managing the company to rebuild growth momentum.
And and achieving our aspiration and being back to the original EPS spec EPS expectations that we had for 2020.
And 2022.
And for the company to be positioned to execute on its financial growth algorithm beyond 2022.
And with that I'll turn the call back over to Vivian.
Thank you Jeff before we open up the lines for Q&A I'll ask those in the queue to please limit yourself to just one question. Thank you for your cooperation and with that the operator will now open up the line for questions Alan.
And thank you ladies and gentlemen, if you would like to ask a question press one and then zero on your Touchtone phone, you'll hear and message, indicating you've been placed and in the Q and you may remove yourself from the queue at any time by repeating the one and then zero command.
And we're using a speakerphone please pick up your handset before pressing the numbers.
Our first question will come from the line of Don and Eddie with Wells Fargo Go ahead.
Two 4% and March versus 19.
Hey, Don Don Don could you start again, we missed the beginning.
Sure No problem. So Jeff if you look at your TNT down about 54% versus 19 and March and April It sounds like you gained a lot of momentum.
It looks like you know down 30% for Q4 would be pretty conservative.
How are you thinking about that and also what are your T and the assumptions as you sort of look at your 2000.
Two aspirational guy.
Well, maybe I'll start and then Steve you might want to add a few comments. So let me work backwards. So in 2022.
Assuming on that consumer travel and entertainment spending is mostly back to where it was pre pandemic small business lagging that a bit and then large and global corporation travel still being well below its 2019 levels. The other comment I would make about 2020.
And two is domestic.
Yes, <expletive> travel and the U S and around the globe will be the fuel that gets us to that level, we would still expect cross border travel to be a little weaker next year.
And then it was in 2019, just given the likely lingering.
And number of cross border restrictions that you've seen.
As of how we feel about our Q4 assumption and look here.
He had a clear inflection point this quarter.
In the us and so we feel good but Steve you may want to add a few yeah, no I think that.
Those are the assumptions as Jeff just went through or where exactly to assumptions, we have we have and our and our calculus here, but I think when you look at when you look at this quarter and you look at the trends.
That we're seeing I mean, we're seeing an increase in bookings right. So we're seeing our travel or travel bookings are up 50% over the.
This quarter up 50% over Q4, 'twenty when you look at and we look at this really carefully when you look at February versus March and.
March now we were 50% of 2019 2019 bookings and that was 19%. So we have 31% and and February and then went to 50%. So we feel we feel really good about that when we also start to really dig into the data we start to look at.
Cohorts of spending and we are seeing.
People that are younger or are getting back and.
On a much higher level their overall <unk> spending is probably about 85% to 90% and.
And almost 100% back to where they were in 2019 and in restaurants and and when we look at older people as they get vaccinated, we're seeing sequential growth month on month.
As we look at.
Their growth and so if you look at.
And just people over 45, youre, seeing and 11% increase and their overall <unk> spending month to month.
And that's only going to get better.
For us as we move along and the last the last thing that gives us a lot of the great. Hope is is redemptions as MLR redemptions I mean, when you. When you go back and look at sort of MLR redemptions that that we had RMR point redemptions and.
In the fourth quarter for for Air was like 30% and and it's up to 54%. So we are we.
We're doing some we're doing some good things here and our customers are doing some good things and we will continue to make sure that.
We're retaining these customers because they're going to spend and as Jeff said, our co brand card Youre doing are doing quite well as well so.
All of that leads to again in an environment.
<unk> continues to improve us us having a lot of confidence.
And hitting our 2020.
2020 plan in 2022.
Thank you.
We'll go next to the line of one moment please.
Well go next to the line of Craig Maurer go ahead. Please.
Hi, good morning. Thanks.
Hope everybody is well.
I wanted to just ask about the guide a little bit for 2021.
Versus your original scenarios that you laid out with fourth quarter earnings.
Much higher was the reserve release than you would envision and I'm trying to understand how much pull forward.
Reserve release benefit might have happened and first quarter because of how strong credit quality was and the fact that lending did not accelerate.
Yeah. So I think Greg the first comment I would make us remember we're not trying to provide guidance. This year. We tried to give people a couple of low and high scenarios back in January to help people think about the year and we updated and this quarter. What we are incredibly focused on is that 2002.
And two aspiration.
We are really growing and confidence about all of that said if you are if I take you back to January the then $5 low scenario assumed that the world would be.
And so tough this year that you would not end up releasing any credit reserves. So we just released a 1 billion point on five of reserves.
Its about a buck that takes you from $5 to $6. So you're $6 assumes once again world from here is suddenly going to get really tough.
And youre not going to release any more reserves at the high and yes. We had assumed you released some modest level of reserves, which is why the high end on it went up from seven.
750, so that's how we thought about it I just wanted to close by again, emphasizing we're not focused on any particular EPS outcome. This year, we're incredibly focused on what we are trying to achieve for 2020 two.
Well go next to the line of Mark Devries with Barclays Go ahead. Please.
Yes. Thanks.
And I think I think that guidance around the corporate <unk> spend and makes a lot of sense, but Steve I'd be interested in getting your color on recent conversations youre, having with your large corporates on.
And when they think they'll feel comfortable having their employees travel more freely.
Whether they will recover to pre pandemic levels, how much substitution.
A virtual occurs and.
And then finally, just given that.
Do you see more upside or downside to that 70% recovery level.
Alright so.
<unk>.
When you think about corporate the first thing people have to do is get back into the offices right because if people hired back into the offices there is nowhere to travel to us.
And you're starting to see look I mean <unk>.
Jeff and I are and here today with 80 of our closest friends and a building that has about 5000 people and we've said we're not going to have people really come back until till after labor day Youre seeing other companies sort of gradually get back get back into it. So I think there is step one first step is let's get <unk>.
Back into the office and then companies are going to say, okay, how comfortable I am having visitors into the building.
And.
My anticipation is.
Most companies will start opening start the process of reopening in the United States now July through.
September and get to some capacity level and you guys have your own situations yourselves, where you're most of you are probably sitting at home today. So I think what's going to happen is it's going to be it's going to be slow, which is why we really haven't assumed a lot of corporate <unk> coming back and a lot of a lot of <unk>.
Travel coming back and having said that corporate tenet takes many forms on.
And we do have salespeople that are on out and on the road and calling on accounts and there is car rental and theres gas and they are still staying at hotels and restaurants and so.
I think for a segment of it and I think when you look at a segment of our let's call them industrial.
Corporate <unk> costs corporate customers. They have people that are going to plant and visiting.
Making customer calls and so forth I think that eventually what will happen is investment banks and consultants are going to want to go out and meet with their clients again.
There's been a lot of deals that have been done and a lot of relationships.
And that had been built but.
There's nothing like in person and I just think.
We'll take a bit of time and look Theres also does that substitution is a substitution of webex and zoom and and what have you which is why we've been talking 2023 before it gets back to 2019 levels and I think with that.
That assumption.
And we feel good about hitting that 2020 aspiration and 2022. So when you think about what goes into our assumption for 2022, you've got a slower return of international.
You've got a much lower return of of corporate and yet we're saying we'll be at 22020 levels and so is there upside from a consumer perspective on on travel I think that all depends on the rollout of the vaccine.
Governments opening up their borders and things like that I think.
From a domestic travel perspective, pent up there is pent up demand.
<unk>.
And talking and talking to Ed Bastian and talking to Christmas that Theyre seeing a lot of bookings out our front I just went through some of our travel data. So as we as we go through this.
I think what's going to be the key thing to watch for is how much does international travel come back from a consumer and we're assuming that sort of now and the second half of 2022, okay, not not really not really this year and I think the other thing youre seeing and mark as you've seen in <unk>.
Vergence I mean, you see what's going on and India right now.
And there's a lot of countries that are having different results and different.
Different situations.
As it relates to the vaccine, but one thing is in arguable the more vaccine rollout the more people feel confident the more people feel confident the more they'll get out and spend and Thats why I think when you look at sort of towards the end of this second quarter into third quarter and the summer you're going to see people hitting the road youre going to see people hit and the Sky.
And especially in the us.
We will go next to the line of Betsy <unk> with Morgan Stanley Go ahead. Please.
Hi, good morning.
Hi, Betsy and good morning.
So my question is on the $2 1 million accounts acquired in the quarter, maybe you could give us some color on the type of customer.
No age bracket income geography that kind of thing and give us a sense of what's resonating is it more the cash back the teeny the specific and.
And since that you are making on.
Some of the programs spend more get more kind of points bonus points and and a little bit on how you're thinking about this group of new accounts that you're acquiring and what that means for future spend trajectory and growth rates versus maybe what you were acquiring pre pandemic. If theres any compare contrast, there you can share there would be great. Thanks.
Okay, well, let me give you a cup of tea.
Probably a half hour meeting there, but let.
Let me, let me go through what silver $2 1 million new cards normally.
2019, you source average about $2 5 million new cards. When you look at the consumer cards, 60% of the cards, we acquired were millennial or Gen Z. We saw in the Independencia and you saw more cash back cards being acquired.
And there was a 35% jump in premium cards that we saw in this particular quarter and acquisition of platinum and gold cards was well above <unk>.
Pre pandemic pre pandemic levels. So we feel good about that and just just to give you. Some sort of contrast on net when you look at our fee based products, it's still a little bit lower I mean, we're acquiring about 60%.
It was about 70% in 2019, but sequential increases have have helped we're seeing co brand cards come back I mean, we talked about 90% more delta cards acquired.
And in this quarter than in the debt and the previous.
And then and the previous quarter and were seeing a higher level customer I mentioned that in my remarks. The FICO is is a lot higher and we're seeing good spending so.
We feel good about both our small business and and consumer.
We don't really talk about geographic distribution and things like that but.
Our intent.
It is not only to acquire cards, but we also when we talk about it we acquire build business.
And we're on we're on track.
To do from a bill billed business acquired perspective, where we Werent and 2019, so we feel good about that.
And I'd add just to make it clear back to us.
The sequential growth and the travel co brands has been tremendous there is still below where they were pre pandemic because you still don't have anywhere near as many people staying in hotels or sitting on airplanes and so that's what leaves us overall, a little bit below the level of pre pandemic, new card acquisitions, but we're quite confident that will come.
And back and once you look beyond that sector.
We think we are at great levels today.
We will go next to the line of Bahir Bhatia with Bank of America go ahead.
Good morning, and thank you for taking my question I wanted to us dig a little bit more on the 70% by year and any assumption is there.
It sounds like there is a mix shift between volumes and two between domestic and international weighted more towards domestic which I think we all understand but maybe is there a difference in revenue or profitability between that travel in terms of what you make so I guess, what im trying to ask us.
And he comes back is the contribution to revenue maybe going to lag a little bit on the comp.
Third to the contribution to volume just from that.
Mix shift and then any update on April billings trends. Thank you.
Yes, so when we report the volume as the volume and there's no. There's no different obviously if people are booking first class international tickets to Hong Kong, they cost a lot more than first class tickets and Indianapolis.
But the reality is we're giving your volume numbers. So it just means you need a lot more of those tickets Indianapolis and you do to Hong Kong. So no. There isn't there isn't there isn't a difference for us.
We're not giving you sort of.
When we talk about volumes were not giving you a number of trips booked here and what we're doing is we're giving you actual volume. So we may have actually more trips and fact.
And we look at.
We look at this.
Look it receipt of charges and transactions basically so we may have more transactions and air and you may have lower dollar, but that doesn't that doesn't mean anything to our margins.
And the thing I'd add and here is when you look at our other revenue and other fee and commission lines. There is some.
Some some dollars in there that do come from cross border travel and US we think about the 2022 aspiration, we don't actually expect that to be fully back to 2019 levels and 2022, we don't need it to be to hit our 2022 aspirations.
Actually put that in the category of things, Steve talked about earlier that even beyond 'twenty, two and it's still probably a couple of remaining tail winds and.
The last of cross border travel and corporate travel begin to come back to 2019 levels post 2022.
We will go next to line of Ming Zhao with Deutsche Bank go ahead. Please.
Great. Thanks for taking my question.
Wanted to touch on the recent extension of pay it plan it to all U S. Consumer cards have you seen any sort of usage acceleration since you expanded that and then can you actually explain for us how big the opportunity set can be and it could apply to that 2022 aspiration that you mentioned thank you.
Yes so.
It's really too early to.
To.
To sort of to tell on.
And just how much we've got it because we really just did it but.
It's not really and it's not.
And our calculus.
Help us make our our 2022 number it's totally it's totally upside for us but.
And just to put it and perspective, you are talking about 6 million plans from from inception, and Youre talking about $5 billion of oval overall overall.
And.
And it's a convenience feature that that we have.
I'd like to say it was our assets to buy now pay pay later, except we had it before a lot of the buy now pay later.
We just had it on a particular cards and now we've put it on on all of the card. So it really is all about meeting overall card members.
Cash flow needs.
And.
They will do this versus potentially.
Revolve on charge or.
<unk>.
Just a normal lending transaction it gives them more certainty so it's and the overall numbers that we have and the overall spending that we have but I wouldn't say and any way shape or form it's a big driver of 2022.
We'll go next to the line of Bill card Kochi with Wolfe Research.
One moment youre.
Your line is open and Sir go ahead.
Thank you good morning, Steve and Jeff.
Bill.
You guys have done a very effective job of adjusting your pre pandemic value propositions, but can you offer any thoughts on the work you've done more recently around potential post pandemic changes and consumer preferences that may be longer.
Longer lasting and the risk that that could lead to more permanent changes for example, how concerned are you guys about the risk that the value proposition associated with the airline lounges and may not be us great post COVID-19 and how confident are you that you'll be able to identify sustainable cost effective alternatives to maintain the overall value prop.
And across your different products to the extent that we can't just go back to the old.
The older pre pandemic offerings that you guys had yeah. So a couple a couple of points.
So look our strategy for the last three years has been to refresh our products on a on an ongoing basis ongoing basis anywhere from from sort.
Sort of three to four years and so we'll talk more as we as.
As we refresh those products and we will give you a little bit more color on net.
And I take the opposite view on sort of day travel value propositions I think they are actually going to be even stronger.
At this point I think that.
People are going to want to have the safety and security of our lounges.
We're opening up more lounges were not backing away from these lounges. In fact, we've opened up numerous lounges during a pandemic and they've they've turned into a little bit more of an oasis with people, where they know with our brand our security and our reputation.
We're going to take take us good care of the people and our lounges as as possible and.
The other thing net.
It was a lot of questions. We got at this time last year was geez, what's the future of your travel co brand cards and when we look at the month of the month of March and we look at.
And so to Delta and we look at Hilton as.
Just two examples there.
There are 2019 spending levels.
Overall, and because people have been accumulating points and people want status and as I've said numerous times on these calls status is probably even going to be more important.
Going forward. So we will continue to do is we're not going to walk away from our travel value propositions.
If anything.
<unk> been more encouraged.
And that we did the right things and.
We will continue to add though I mean, I think if you look at our our history over the last three years or so three and a half years, we've kept our core value proposition and continue to add and during the pandemic.
I talked about the results, we have with wireless and the results we had.
With with streaming we got customers, who were not using our card for those things by putting some value and we're now four months after the value and they are still spending.
And we do and the same thing right now we've got a Paypal credit.
For our platinum card holders and we're picking up more card members that.
Didn't use Paypal and and as I've talked about Paypal and I've talked about.
Some of the other Fintech square and <unk> and stripe and so forth they are actually.
Not only helped us get.
Get cut more coverage, but.
<unk> helped us and ways to deliver more value to our to our card members. So.
We feel good about our card our value propositions, we feel good about the travel value propositions that are and our products, but we will continue to expand and evolve our value propositions as we have over time, we're not walking away from that strategy.
We'll go next to Ryan Nash with Goldman Sachs Go ahead. Please.
Hey, good morning, guys, Hey, Ryan.
So Steve maybe as a follow up on that so you injected significant value prop enhancements into the business like streaming and wireless as you just referenced and I believe some of those will evolve over the next few quarters. So can you maybe just talk about how you envision repurposing those marketing dollars I think Jeff you talked about spending a little over four and a half this year could we see.
And that come down beyond this beyond this year or do you expect to see these enhancements shifted towards customer acquisition, and maybe we could see customer acquisitions above that those $2 5 million per quarter that you talked about and in 2019 and yes. So so a couple of points. We spent I think it was like a $1 billion. This quarter some of that was.
And value injection.
Not the wireless and streaming and those of and this is different types of value injection, but the majority of that was customer acquisition and customer engagement.
And when we look at the rest of the year I think we said, we're going to spend $4 5 billion, but we'll spend.
To the attractive opportunities that are that are there. If there are not attractive opportunities we will not spend it. If there are attractive opportunities. We will we will spend more if if they are they are mere because we're focused on building that that momentum having said that given that you have sort of probably a six month value injection window and you've got.
Customer acquisition, and and customer retention more than likely you will see that overall dollar bucket come down next year.
As we go into 2022, when youre not doing that value injection.
The only thing I would add Ryan as we've talked about the fact that as you go through this year to Steve's point, you need to see the value injection spending come down and we were pleased this quarter because actually it was down sequentially and.
And we still continue to see tremendous customer attrition and retention rates further because the travel oriented value parts of our value propositions are becoming more valuable to people again.
We'll go next to the line of Jamie Friedman with Susquehanna Research go ahead. Please.
This is a very thoughtful IR deck. So thank you for for that and for the updated commentary I just wanted to ask in slide seven eight and nine.
You demonstrate the outperformance of SME you don't have to go to the slides.
Anchoring it but in terms of the outperformance of SME.
Steve and Jeff could you remind us what it is about that relative to <unk>.
And corporate that is different that makes it more sustainable. Thank you yeah, so you've probably heard us shuffling pages to get to 79.
But yeah.
Yes.
A huge difference I mean, so our corporate card is predominantly it's like 60% travel and entertainment, whereas our SME card is like 80%.
<unk> and services they use the card to run their business.
And as we've talked about travel coming back.
It comes back and layers. It comes back with consumer then its SME and then its and its large and corporate so it is a very different business and which is why we went and acquired cabbage to have a digital front for these smes, where they can not only get their card spending done but also.
Working capital loans have a transaction banking account.
And have merchant financing loan has short term loans and things like that because.
Small businesses small and mid sized businesses use this card to really help to run there to run their businesses, which is a fundamental difference between how corporations.
And as the card, which is to support <unk> and obviously it is <unk> opportunities with with large corporates, but that's why that's why small business has come back why are small businesses have done I think even better than what you might have thought is is the dispersion net we have across the small business arena and I've said this many times when <unk>.
Think about small businesses they tend to think about the small retail shop, where they tend to think about small restaurant and the reality is a lot of them didn't do so well. During this time, we don't have a tremendous amount of our small business base there.
It is a very.
Diverse base and when you think about professional services you think about <unk>.
Calling and plumbing and electric and and all those things.
Our basis is very wide and that has helped us because some small business segments. During this time have just been through the roof, others had been hit really hard and others have.
Businesses and have maintained as they were before the pandemic.
We will go on out to the line of Bob Napoli with William Blair Go ahead.
Thank you good morning, Steve and Bob.
A question on.
China, I guess and and debit as.
And we and our broader thoughts on debit and so what do we what.
Should we see out of China, you've changed your reporting somewhat because it's capex.
And <unk>.
And some significant numbers I guess out of China.
And you also talked about building, a debit capability broader than China, and I just wondered what your long term thoughts on that.
Yes, so I think we changed that to provide.
I think the appropriate level of transparency for free.
You guys because you know.
Obviously as we've said this all along GNL.
Volumes or not.
Work the same to us as GFS as proprietary volumes and and China volumes are.
Part of that that mix and so that's why we changed it to process volume because yes, you're right over time, we do expect that volume to be very significant and we wanted to make sure. We're providing the right level of insight that you guys could make.
The right the right assumptions and.
And there will be.
And China, it'll be charged credit and it'll be debit card and so as we as we build that capability.
We'll evaluate.
And where else if you build that capability for your network. It gives you the capability to do it.
And the markets and so we will evaluate over time, where that makes sense for us too.
And to roll that out so nothing really to announce here.
But I think it's important that you understand the capabilities that we're building as well and we are building these capabilities from a global perspective, so that we have it but to also point out we do have <unk> partners and.
Local markets today.
That have debit products.
Have American express debit products, they just tend to get us more.
Locally within within country as opposed to around the world and it's important.
At some point.
We will have a lot of traveling Chinese card members and it's important that they're able to us all of all of the products that we that our partners issued to them all around the world and debit being one of them.
We'll go next to the line of Rick Shane with Jpmorgan go ahead. Please.
Hey, guys. Thanks, so much for taking my question and I know you guys have been on here a while.
One of the consequences of the card Act.
Shifted the competitive landscape from offering lower rates to higher rewards and.
And we think at the peak of the.
GSE recovery that was particularly challenging for NXP because it had the impact on.
Basically, causing industry offers to converge to your core value propositions.
One of the responses we saw from you as you move on to your front foot in terms of targeting millennials for.
And for our card acquisition.
I'm curious as we sort of entered this period of expansion and all of your competitors are talking about growth.
And are the lessons you learned last cycle and either tactically or strategically how will you respond.
Well you know I.
And I have a different version of the of the card Act.
And then you do I think our competitors got into this more after the financial crisis when.
They really looked at this and said this was a very attractive business and the reality is the card Act had a lot less impact on us because remember 80% of our revenues are not from interest and.
And the fact that interest rates, especially on prior balances were now controlled.
Really had less impact on us and it did and our competitiveness and our competitors wound up just growing their overall business and one of the first things. They did is higher a lot of people from American Express to do that but you know look I think that the.
The lessons that we've learned over time and.
And look I've always said this we welcome competition on the lessons that we learned over time is you need to continue to focus in on what your customer needs are and how your customer.
Is changing and evolving and and and this is why.
And when I took over one of the first things I said is we're going to go to a strategy of refreshing our products on a real ongoing basis, you cannot have your green card sit out there for 30 years and think it is still as relevant 30 years ago as it is as it is today.
Millennials.
It was really not.
Not as much a card act millennials was us opening our eyes to the fact that our value proposition had a much broader appeal and and I think that we really started to communicate that and.
And look and.
I've said this publicly before.
I think your company there did a great job of really highlighting premium cards and from J P. Morgan and Gordon and his team did a fantastic job of highlighting premium cards to millennials and.
And our value proposition played play remarkably well there and as I, just said, 60% of our cards that we just acquired our millennials I think we had and expand our aperture.
And we did that we expanded that aperture and we realize that the value proposition that we had could have a wider audience and could have a wider target and we've done that and we will continue to do that you will continue to see that from a multicultural perspective, you will continue to see that from millennials Youll continue to see that.
And with women as well so I think what we learned is that.
Since then is that there is a broader market for our products and we initially thought.
Number one number two you always have to keep innovating.
And you have to innovate on a regular cycle basis, you can't stand on your laurels and and I would say that we learned more from.
Some of our trials and tribulations with Costco.
Then we did from the card Act.
Our final question will come from Sanjay Suck Ronny with K B W. Go ahead. Please.
Thank you good morning.
And most of my questions had been.
But just a quick one on credit Jeff I think you mentioned youre still waiting towards the negative on a higher weighting towards the negative scenario and your reserve calculation I'm, just curious sort of how realistic that us given sort of where we are and we're looking and delinquency rates here and the building momentum maybe you could just talk about that and then.
And just one quick one on the expenses you mentioned debenture gains helping expenses this quarter I mean should we just view it as a onetime gain or how should we think about that was that spent.
So on credit Sanjay Youre correct for the purposes of our accounting credit reserve, we did significantly weighted a downside scenario and I think that's in keeping with a little bit of a regulatory view, where you have the federal reserve's, saying to all banks.
We're still a little one on we'll see a little bit more time pass before we free everyone to go back to return and junior appropriate capital levels. So we thought it was appropriate to be conservative but to be clear. The reserve that we have on the books implies that some.
Steady recovery that were in the midst of now just stops.
And things get worse, so if it doesn't then.
And you would expect to see more reserves and the only other comment I'd make us it's April 23rd.
You're already at the point of the year, where you really can't.
For the most part see write offs go up significantly this year, even if bad stuff happens the actual write offs would go into next year.
On Opex, yes, we did have a $377 million gain on the really great portfolio, we have fintech investments weighted about 50 different companies, we have holdings and we do partnerships with those companies are trading all about those partnerships, but market has been pretty frothy.
And lately. So there was a big gain on a couple of those companies. This quarter. There's also some offsets and the equity markets are frothy, our deferred comp balances.
Or a bit of and offset or a hedge almost to the equity investments I would really think of it as sanjay mostly as a one time sort of thing. This year. The reality is we're not focused on any particular EPS outcome.
We're focused on us to the extent, we have good investment opportunities.
And we will see us us the financial strength, and we have right now and to pursue those opportunities because we are laser focused.
And increasingly confident of the aspiration, we have for 2022.
Okay.
Okay.
With that we will bring the clock you and and thank you again for joining today's call and for your continued interest in American Express the IR team will be available for any follow up questions Alan back to you.
And thank you.
Ladies and gentlemen.
The comp from the webcast replay will be available on our Investor Relations website at IR Dot American Express Dot com shortly after the call.
You can also access the digital replay of the call at 8662071041 or four zero to 97008 47 access code free for one 149 and four after 12 P. M. Eastern time today April 23rd through Midnight April 30th.
That will conclude our conference call for today. Thank you for your participation.
May now disconnect.