Q1 2024 American Express Co Earnings Call
Unknown Executive: Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q1 2024 earnings call.
Ladies and gentlemen, thank you for standing by welcome to the American Express Q1 2024 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 Star then one on your Touchtone phone you walk here.
Unknown Executive: 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 star and then one on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from the queue at any time by pressing star, then two. If you're using a speakerphone, please pick up the handset before pressing the number.
Tone educating you had been placed in Q you may remove yourself from the queue at any time by pressing Star then two if you are using a speakerphone. Please pick up the handset before pressing the numbers should you require assistance during the call. Please press Star then zero as a reminder, today's call is being recorded I would now like to turn the conference over to our host.
Unknown Executive: Should you require assistance during the call, please press star, then zero. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Mr. Kartik Ramachandran. Please go ahead.
Head of Investor Relations Mr. Kartik Ramachandran. Please go ahead.
Unknown Attendee: Thank you, Daryl, and thank you all for joining today's call. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainty. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC. The discussion today also includes non-GAAP financial measures.
Unknown Attendee: Thank you Darryl and thank you all for joining today's call as a reminder, before we begin today's discussion contains forward looking statements about the companys future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties.
Unknown Attendee: Factors that could cause actual results to differ materially from these statements are included in today's presentation slides and in our reports on file with the SEC.
Unknown Attendee: 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 discuss all of these are posted on our website at IR Dot American Express Dot com.
Unknown Attendee: The Comparable Gap Financial Measures are included in this quarter's earnings materials as well as the earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com. We'll begin today with Steve Squeri, Chairman and CEO, who will start with some remarks about the company's progress and results. And then Christophe LeCayac, Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q&A session on the results with both Steve and Christophe. With that, I'll turn it over to Steve. Thank you.
Unknown Attendee: 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 Christopher Kayak Chief Financial Officer, who will provide a more detailed review of our financial performance. After that we'll move to a Q&A session on the results with both Steve and Christophe with that let me turn it over to Steve.
Stephen J. Squeri: Q1 was another strong quarter with revenues up 11% year-over-year to $15.8 billion and EPS up 39% to $3.33. We expect the trends we've seen for the past several years to continue through the first quarter of 2024. Our double-digit revenue increase was driven by strong spending growth, up 7% overall on an FX-adjusted basis, with U.S. consumer card spending up 8% in the quarter, and spending from international card members up 13% on an FX-adjusted basis. Spending by U.S. SME card members continues to be soft, but new customer acquisitions, retention, and credit on our small business products all continue to be Fee revenues again grew by double digits, up 16% on an FX-adjusted basis.
Christopher Kay: Q1 was another strong quarter with revenues up 11% year over year to $15 8 billion and EPS up 39% to $3 33.
The trends we've seen for the past several years continued through the first quarter of 2024.
Christopher Kay: Our double digit revenue increase was driven by strong spending growth up 7% overall on an FX adjusted basis with the U S consumer card spending up 8% in the quarter and spending from international card members up 13% on an FX adjusted basis.
Christopher Kay: Spending by U S. SME card members continued to be soft, but new customer acquisitions retention and credit our small business products all continue to be strong.
Christopher Kay: Fee revenues again grew by double digits up 16% on an FX adjusted basis.
Stephen J. Squeri: We continue to attract high-spending, high-credit-quality customers to the franchise, with new card acquisitions accelerating quarter over quarter, adding 3.4 million new cards in the quarter. Our fee-based products accounted for approximately 70% of the new account acquisitions globally, and we continue to see strong demand from millennial and Gen Z consumers, who accounted for over 60% of the new consumer account acquisitions globally. Finally, our credit metrics continue to be best in class.
Christopher Kay: We continue to attract high spending high credit quality customers to the franchise with new card acquisitions accelerating quarter over quarter, adding $3 4 million new cards in the quarter.
Christopher Kay: Our fee based products accounted for approximately 70% of the new account acquisitions globally, and we continue to see strong demand for millennial and Gen Z consumers, who accounted for over 60% of the new consumer account acquisitions globally.
Christopher Kay: Finally, our credit metrics continue to be best in class.
Stephen J. Squeri: The ongoing momentum in our business has resulted from the great work of our colleagues across the company and the loyalty and engagement of our premium customers around the world. Based on our performance and the trends we've seen through the first quarter, we are reaffirming our full year guidance of 9 to 11 percent revenue growth and EPS of $12.65 to $13.15. Our first quarter results continue to show that our strategy is working, and we feel good about where we are and where we are headed.
The ongoing momentum in our business as a result of the great work of our colleagues across the company and the loyalty and engagement of our premium customers around the world.
Christopher Kay: Based on our performance and the trends we've seen through the first quarter. We are reaffirming our full year guidance of 9% to 11% revenue growth and EPS of $12 65.
Christopher Kay: $2014 15.
Christopher Kay: Our first quarter results continue to show that our strategy is working and we feel good about where we are and where we are heading.
Stephen J. Squeri: In 10 days, we'll be hosting our 2024 Investor Day. At that session, we'll have a series of presentations from our senior business leaders that, taken together, will demonstrate why we are confident that our long-term growth aspiration is the right one. We will discuss our strategy for growing our premium consumer base in the U.S. through our membership model, our plans for winning the recovery in the U.S. small business space, our runway for growth in international, our progress in expanding merchant coverage and enhancing our network capabilities globally, how we're driving efficiency, growth, and service through technology, and how it all comes together from a financial perspective. We'll end our investor day with a Q&A session. Christophe will now take you through a detailed look at Q1 performance. Thank you.
Christopher Kay: In 10 days, we'll be hosting our 2020 for Investor day.
Christopher Kay: At that session, we'll have a series of presentations from our senior business leaders that taken together will demonstrate why we are confident that our long term growth aspiration is the right. One we will discuss our strategy for growing our premium consumer base in the U S through our membership model.
Christopher Kay: Our plans for winning the recovery in the U S small business space, our runway for growth in international our progress in expanding merchant coverage and enhancing our network capabilities globally, how we're driving efficiency growth and service through technology and how it all comes together from a financial perspective, we will end our.
Christopher Kay: Investor day, with a Q&A session.
Christopher Kay: Christoph will now take you through a detailed look at Q1 performance. Thank.
Christophe Le Caillec: Thank you, Steve, and good morning, everyone. It's good to be here to talk about the first quarter results, which reflect another quarter of strong results and are tracking in line with the guidance we gave for the full year. Starting with our summary financials on slide two, first quarter revenues were $15.8 billion and grew 11% year-over-year. This revenue momentum drew a reported net income of $2.4 billion and earnings per share of $3.33 on slide three.
Christoph: Thank you, Steve and good morning, everyone. It's good to be here to talk about the first quarter results, which reflect another quarter of strong results and are tracking in line with the guidance we gave for the full year.
Christoph: Starting with our summary financials on slide two.
Christoph: First quarter revenues were $15 8 billion and grew 11% year over year. This revenue momentum drove reported net income of $2 4 billion and earnings per share of $3 33.
Christoph: On slide three.
Christophe Le Caillec: Bill, business grew 7% versus last year in the first quarter on an FX-adjusted basis. In line with the overall spend environment we have seen in the past few quarters, as we expect, Looking by category, we saw 6% growth in goods and services spending and 8% growth in travel and entertainment spending. There are a few other key points to take away as we then break down our spending trends across our businesses.
Christoph: <unk> business grew 7% versus last year in the first quarter on an FX adjusted basis in line with the overall spend environment, we have seen in the past few quarters as we expected.
Christoph: By category, we saw 6% growth in goods and services spending and 8% growth in travel and entertainment spending.
Christoph: There are a few other key points to take away is we then breakdown our spending trends across our businesses.
Christophe Le Caillec: Starting with our largest segment on slide four, U.S. consumer group billings increased by 8% this quarter with growth across all generations and age cohorts. Millennial and Gen Z customers grew their spending 15% and continue to drive our highest-billed business growth within this segment. In fact, we see that younger customers use their cards more overall, and this is even more pronounced in certain spend categories. For example, customers aged 35 and under use their cards at restaurants over 70% more on average than other customers in this segment.
Starting with our largest segment on slide four U S. Consumer grew billings at 8% this quarter with growth across all generations and age cohorts.
Christoph: Millennial and Gen Z customers grew their spending 15%.
Christoph: And continue to drive our highest billed business growth within this segment in fact, we see that younger customers used cars more overall and this is even more pronounced in certain spend categories. For example, customers <unk> 35, and under use their cards at restaurants over 70% more on average.
Christoph: And then other customers in this segment.
Christophe Le Caillec: Looking at commercial services on slide five, overall growth came in at 2% this quarter. However, spending growth from our U.S. small and medium-sized enterprise customers remains modest, given the unique dynamics seen by small businesses. Lastly, on slide 6, you see our highest growth again this quarter in international card services at 13%. We continue to see double-digit growth in spending from international consumers and from international SME and large corporate customers, as well as strong growth across our geography. Overall, while we do continue to see a softer spend environment, our spending volumes are tracking in line with our expectations to support our revenue guidance for the future.
Christoph: Looking at commercial services on slide five overall growth came in at 2% this quarter spending growth from our U S small and medium sized enterprise customers remained modest given the unique dynamics seen by small businesses.
Christoph: Lastly on slide six you'll see our highest growth again this quarter in international card services up 13%, we continued to see double digit growth in spending from international consumers and from international SME and large corporate customers.
Christoph: Strong growth across our geographies.
Christoph: Overall, while we do continue to see a softer spend environment, our spending volumes are tracking in line with our expectations to support our revenue guidance for the full year.
Christophe Le Caillec: And we are pleased with the continued strong engagement of our customers as the number of transactions from our COD members continued to grow double digits this quarter. Now, moving on to loans and car member receivables on slide 7, we saw year-over-year growth at 12%. As we progress through 2024, we continue to expect this growth to moderate but to still grow modestly faster than before. Turning next to Credit and Provision on slides 8-10.
Christoph: And we are pleased with the continued strong engagement of our customers as the number of transactions from our card members continue to grow with double digits this quarter.
Christoph: Now moving on to loans and content of our receivables on slide seven we saw year over year growth of 12% as we progress through 2024, we continue to expect this growth to moderate but still grew modestly faster than billings.
Christoph: Turning next to credit and provision on slide eight through 10.
Christoph: First and most importantly, we continued to see strong and best in class credit metrics. We attribute this performance to the high credit quality of our customer base.
Christophe Le Caillec: First, and most importantly, we continue to see strong and best-in-class credit metrics. We attribute this performance to the high credit quality of our customer base. Our Robust Risk Management Practices and our Disciplined Growth Strategies. As we expected, our write-off and delinquency rates ticked up a bit, increasing very modestly quarter over quarter. Going forward, we expect to see these delinquency and write-off rates remain strong, with some continued modest increases in 2024.
Christoph: Our robust risk management practices, and our disciplined growth strategy.
Christoph: As we expected our write off and delinquency rates ticked up.
Christoph: Increasing very modestly quarter over quarter going forward, we expect to see these delinquency and write off rates remained strong with some continued modest increase in 2024.
Christoph: Turning now to the accounting of credit of this credit performance on slide nine.
Christoph: The quarter over quarter growth in our loan balances combined with a modest increase in our requirement of loans and receivables delinquency rate resulted in a $148 million reserve build.
Christophe Le Caillec: Turning now to the accounting for this credit performance on slide nine. The quarter-over-quarter growth in our loan balances, combined with a modest increase in our consumer loans and receivables delinquency rate, resulted in a $148 million reserve bill. This reserve bill, combined with net write-offs, drove $1.3 billion of provision expense in the first quarter.
Christoph: This reserve build combined with net write offs were $1 $3 billion of provision expense in the first quarter.
Christoph: As you've seen as you see on slide 10, we ended the first quarter with $5 6 billion in reserves, representing two 9% of our total loans and card member receivables. We continue to expect this reserve rate to increase a bit as we move through 2024 similar to the modest increases we've seen over the past few quarters.
Christophe Le Caillec: As you see on slide 10, we ended the first quarter with $5.6 billion in reserves, representing 2.9% of our total loans and card member receivables. We continue to expect this reserve rate to increase a bit as we move through 2024, similar to the modest increases we've seen over the past few quarters. Moving next to revenue on slide 11. Total revenues were up 11% year over year in the first quarter. Our largest revenue line, discount revenue, grew 6% year-over-year in Q1 on an FX-adjusted basis, as you can see on slide 12. This growth is mostly driven by the spending trends we discussed earlier. Net car rental revenues were up 16% year-over-year in the first quarter on an FX-adjusted basis, as you can see on slide 13.
Christoph: Yeah.
Christoph: Moving next to revenue on Slide 11, total revenues were up 11% year over year in the first quarter.
Christoph: Our largest revenue line discount revenue grew 6% year over year in Q1 on an FX adjusted basis as you can see on slide 12.
Christoph: This growth is mostly driven by the spending trends discussed earlier net card fees revenues were up 16% year over year in the first quarter on an FX adjusted basis as you can see on slide 13.
Christoph: We are pleased with this group and continue to expect to exit the year with some further momentum, reflecting our cycle of product refreshes.
Christoph: In the quarter, we acquired $3 4 million new cards, demonstrating the demand we're seeing for our products and the investments. We've made importantly acquisition of our premium fee based products.
Christophe Le Caillec: We are pleased with this group and continue to expect to see the year with some further momentum reflecting our cycle of product refreshment. In the quarter, we acquired 3.4 million new cards, demonstrating the demand we're seeing for our products and the investments we've made. Importantly, acquisition of our premium fee-based products accounted for around 70% of new accounts, and the spend, revenue, and credit profiles of our new card members continue to look strong. Moving on to slide 14.
Christoph: It is around 70% of new accounts and the spend revenue and credit profile of our new card members continue to look strong.
Christoph: Moving to slide 14, you can see that net interest income was up 26% year over year in Q1.
Christoph: This growth is driven by the increase in our revolving loan balances and also by continued mix net yield expansion versus last year. We do expect this growth to continue to moderate as we move through the year and I would remind you that for our business model, we would not expect to see a meaningful impact from a lower interest rate.
Christoph: And this year.
Christophe Le Caillec: You can see that net interest income was up 26% year over year in QMOP. This growth is driven by the increase in our revolving loan balances and also by continued next net yield expansion versus last year. We do expect this growth to continue to moderate as we move through the year. And I would remind you that, for our business model, we would not expect to see a meaningful impact from a lower interest rate environment this year.
Christoph: To sum up revenues on slide 15, the power of our diversified model continues to drive strong revenue growth momentum.
Christoph: I would note as you think about the CFPB late fee rule that lead fees from our U S. Consumer segment make up a small portion less than 1% of our overall revenue. While we have no specific plans to mitigate as of now we are always looking at our pricing and policies in the <unk>.
Christoph: During the course of business.
Christoph: Moving to expenses on slide 16, starting at the top of the page variable customer engagement expenses came in at 40% of total revenues for the first quarter.
Christophe Le Caillec: To sum up revenues on slide 15, the power of our diversified model continues to drive strong revenue growth momentum. I would note, as you think about the CFPB late fee rule, that late fees from our U.S. consumer segment make up a small portion, less than 1%, of our overall revenue.
Christoph: As you look at these costs I would note that card member rewards included $196 million benefit as a result of enhancements to our remodels for estimating future membership rewards redemptions.
Christophe Le Caillec: While we have no specific plans to mitigate as of now, we are always looking at our pricing and policies in the ordinary course of business. Moving to expenses on slide 16. Starting at the top of the page, variable customer engagement expenses came in at 40% of total revenues for the first quarter. As you look at these costs, I would note that card member rewards included a $196 million benefit as a result of enhancements to our remodels for estimating future membership rewards redemption, some of which we reinvested for growth in our remarketing.
Christoph: Some of which we reinvested for growth in our marketing line.
Christoph: Looking forward I still expect our variable customer engagement expenses to grow slightly higher than our revenue on a full year basis as we continue to focus on our premium products and drive engagement from our card members.
Christoph: On the marketing line, we increased investments to $1 5 billion in the first quarter. We continue to be pleased with the strong high quality customer acquisition and engagement, we see as a result of these actions.
Christoph: And we are on track to increase marketing spend in 2024 versus last year.
Christoph: Moving to the bottom of slide 16 brings us to operating expenses, which were $3 6 billion in the first quarter flat to last year's expense and in line with our expectations for the year.
Christophe Le Caillec: Looking forward, I still expect our variable customer engagement expenses to grow slightly higher than our revenue over a four-year basis as we continue to focus on our premium products and drive engagement from our economy. On the marketing line, we increased investments to $1.5 billion in the first quarter.
Christoph: When you look at the components of our operating expenses salaries and benefit grew modestly versus last year compared to the growth. We've seen in this line over the past years. This reflect the discipline with which we manage our expenses and is a great example of how are we able to drive efficiency while continuing.
Christophe Le Caillec: We continue to be pleased with the strong, high-quality customer acquisition and engagement we see as a result of these actions, and we are on track to increase marketing spending in 2024 versus last year. Moving to the bottom of slide 16 brings us to operating expenses, which were $3.6 billion in the first quarter, flat with last year's expenses and in line with our expectations for the year. When you look at the components of our operating expenses, salaries and benefits grew modestly versus last year, compared to the growth we've seen in this line over the past year.
Christoph: To grow our business with.
Christoph: We continue to see Opex as a key source of leverage and are focused on delivering low levels of growth as we have historically done.
Christoph: Turning next to capital on Slide 17.
Christoph: We returned $1 6 billion of capital to our shareholders in the first quarter on the back of strong earnings generation. Our CET. One ratio was 10, 6% at the end of the first quarter within our target range of 10% to 11%. We plan to continue to return to shareholders the excess capital we generate while supporting.
Christoph: Our balance sheet growth, we do not expect any material near term changes to our capital management.
Christophe Le Caillec: This reflects the discipline with which we manage our expenses and is a great example of how we are able to drive efficiency while continuing to grow our business. We continue to see ARPEX as a key source of leverage and are focused on delivering low levels of growth as we have historically done. Turning next to Capitol on slide 17.
Christoph: That brings me to our 2024 guidance on slide 18, we feel really good about our first quarter results, which are tracking in line with our expectations for the year.
Christoph: These results continue to reinforce that our strategy is working and we plan to continue to invest to support our momentum.
Christophe Le Caillec: We returned $1.6 billion of capital to our shareholders in the first quarter on the back of strong earnings generation. Our CET1 ratio was 10.6% at the end of the first quarter, within our target range of 10-11%. We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth. We do not expect any material near-term changes to our capital management. That brings me to our 2024 guidance on slide 18.
Christoph: As Steve discussed for the full year of 2024, we are reaffirming our guidance of having revenue growth of 9% to 11% and earnings per share of between $12 65.
Christoph: And $13 in 15.
Christoph: And we remain committed to running the business for the long term.
Christoph: As a reminder, this guidance and the items related to the full year 2020 for the just walk through do not include the potential impact from the sale of our certified business that we previously announced we expect to realize a sizeable gain on the sale and to reinvest a substantial portion of the gain back into our business.
As we've done with similar transactions in the past.
Christoph: We will we still expect the deal to close in the second quarter and plan to provide more detailed data with that I'll turn the call back over to Kartik to open up the call for your questions.
Christophe Le Caillec: We feel really good about our first quarter results, which are tracking in line with our expectations for the year. These results continue to reinforce that our strategy is working, and we plan to continue to invest to support our momentum. As Steve discussed, for the full year of 2024, we are reaffirming our guidance of revenue growth of 9 to 11% and earnings per share between $12.65 and $13.15, and we remain committed to running the business for the long term.
Unknown Attendee: Thank you Christophe before we open up the lines for Coke 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 operator.
Unknown Attendee: Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your Touchtone phone.
Unknown Attendee: Hear a tone, indicating you've been placed in Q you may remove yourself from the queue at any time by pressing Star then Q if youre using a speakerphone. Please pick up the handset before pressing the numbers.
Christophe Le Caillec: As a reminder, this guidance and the items related to Food Year 2024 that I just walked through do not include the potential impact from the sale of our certified business that we previously announced. We expect to realize a sizable gain on the sale and to reinvest a substantial portion of the gain back into our business, as we've done with similar transactions in the past. We still expect the deal to close in the second quarter and plan to provide more detail there. With that, I'll turn the call back over to Karthik to open up the call to your questions.
Speaker Change: One moment please for the first question.
Speaker Change: Our first question comes from the line of Sanjay <unk> with <unk>. Please proceed with your question.
Sanjay: Thank you good morning.
Sanjay: I guess a question for both Stephen Christophe Christophe you said that you guys are seeing a softer spending environment I'm. Just curious when you look at the data what's driving that is it inflation is it just a bit of tapering off after the post pandemic spending and I'm just curious as we think about what gets that going again what is it obviously.
Unknown Attendee: Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit themselves to just one question. Thank you for your cooperation, and with that, the operator will now open up the line for questions. Operator? Ladies and gentlemen...
Sanjay: The comparisons get easier as well so that should help but maybe you can just walk through that thank you.
Speaker Change: Yes, let me, let me start and then Christophe Ken can jump in but.
Speaker Change: When you look at overall spending our overall spending is 7%, but consumer spending is 8% and I think consumer spending.
Unknown Executive: Ladies and gentlemen, if you wish to ask a question, please press star, then one on your touchtone phone. You'll hear a tone indicating you've been placed in queue. You may remove yourself from the queue at any time by pressing star, then two. If you're using a speakerphone, please pick up the handset before pressing the number.
Speaker Change: Relatively strong and when you look at international International Consumer spending is up 14% and overall international is up 13%.
Where you're seeing some softness is in SMA and so SME is up approximately 1%.
Speaker Change: And so I think as SME comes back.
Unknown Executive: One moment, please, for the first question. Our first question comes from the line of Sanjay Sakhrani with KVW. Please proceed with your question.
Speaker Change: We look as an opportunity down the road as SME comes back that will drive some some stronger spending and I think the good things that we see from an SME perspective is that we're still acquiring cards credit looks really good and even though organic has come down organic transactions have gone up.
Sanjay Harkishin Sakhrani: Thank you. Good morning.
Sanjay Harkishin Sakhrani: I guess question for both Steve and Christophe. Christophe, you said that you guys are seeing a softer spending environment. I'm just curious, when you look at the data, what's driving that? Is it inflation? Is it just a bit of a tapering off after the post-pandemic spending? And I'm just curious, as we think about what gets that going again, what is it?
So.
Speaker Change: I think in aggregate, we see softness and I think a lot of that softness is driven from a from a commercial perspective, but 8% consumer growth in the U S is not too bad.
Speaker Change: Thank you. Our next question comes from the line of from Mihir Bhatia with Bank of America. Please proceed with your question.
Stephen J. Squeri: Obviously, the comparisons get easier as well, so that should help. But maybe you could just walk through that. Thank you. Yeah, let me.
Mihir Bhatia: Hi, Thanks for taking my question.
Mihir Bhatia: I wanted to ask about the membership rewards expense it looks like a little bit of a change there with model announcements and stuff can you just talk about that a little more.
Stephen J. Squeri: Yeah, let me start and then Christophe can jump in, but, you know, when you look at overall spending, our overall spending is 7%, but consumer spending is 8%, and I think consumer spending is relatively strong, and when you look at international, international consumer spending is up 14%, and overall international spending is up 13%. Where you're seeing some softness is in SMEs. And so SMEs are up approximately, you know, 1%. And so I think as SME comes back, which we look at as an opportunity down the road, as SME comes back, that'll drive some stronger spending.
Speaker Change: But for the U R are the redemption.
Speaker Change: <unk> change from the 96% at year end.
Speaker Change: Can we think of the $196 million benefit is a onetime thing right.
Speaker Change: Or is that.
Speaker Change: Going to be companies.
Speaker Change: Hey, Amir Thank you for the question so.
Speaker Change: You should think about it as a one time thing.
Speaker Change: And there you RR <unk>, 96% is still a 96%.
Speaker Change: What we do is because it's such an important model for us we on a regular basis redo the model and every time, we redevelop the model we try to enhance the models. So we see the model with more data and try to refine their <unk> calculation.
Stephen J. Squeri: And I think the good things that we see from an SME perspective are that we're still acquiring cards, credit looks really good, and even though organic growth has come down, organic transactions have gone up. So, you know, I think in aggregate, we see softness, and I think a lot of that softness is driven from a commercial perspective, but, you know, 8% consumer growth in the U.S. is not too bad.
Xactly: Xactly, what happened and when we.
Xactly: Did that in Q1.
Xactly: We came back with a little bit of the benefit I see a little bit because you have to remember that the entire membership rewards bank.
Xactly: Is about $14 billion is a bit less than $14 billion. So $196 million is very small.
Mihir Bhatia: Thank you. Our next question comes from the line of Mihir Bhatia with Bank of America. Please proceed with your, Hi, thanks for taking my question.
Xactly: Compared to the size of their of the balance sheet and so it's a one off.
Xactly: And we don't expect something similar anytime.
Mihir Bhatia: Thank you. Our next question comes from the line of Mihir Bhatia with Bank of America. Please proceed with your question.
Xactly: Anytime soon.
Thank you. Our next question comes from the line of Mark Devries with Deutsche Bank. Please proceed with your question.
Christophe Le Caillec: Hey Mihir, thank you for the question. So you should think about it as a one-time thing. And the URR is 96%. It's still at 96%.
Mark C. DeVries: Yes. Thanks.
Mark C. DeVries: Would you discuss what drove the reacceleration in the new.
Mark C. DeVries: Card growth this quarter.
Christophe Le Caillec: What we do is, because it's such an important model for us, we, on a regular basis, redevelop the model. And every time we redevelop the model, we try to enhance it. So we feed the model with more data and try to refine its URR calculation. That's exactly what happened.
Mark C. DeVries: Yes, I mean, so we.
Speaker Change: We invested more.
Speaker Change: And I think when you when you go back.
Speaker Change: And you look at the first quarter of last year, we had $3 4 billion $3 $4 million excuse me $3 4 billion being a pretty sizable amount of cards to acquire two quarter $3 4 million cards.
Wired and if you remember at that time, you had the SBB situation and so there was a pullback there was not only a pullback on our side there was a bit of a pullback in the industry and I think there was some consumer trepidation as well and so.
Christophe Le Caillec: And when we did that in Q1, we came back with a little bit of the benefit. I say a little bit because you have to remember that the entire membership rewards bank is about $14 billion. It's a bit less than $14 billion, so $196 million is very small compared to the size of the balance sheet.
Speaker Change: As the year went on.
Speaker Change: We started to build up in it.
Speaker Change: It culminated this year with the first quarter of $3 4 million cards, we invested more in marketing as we said we were going to do but I'd also like to highlight that a key driver of that acceleration is is the product refreshes that we do we've talked a lot how product refreshes.
Christophe Le Caillec: And so it's a one-off. And we don't expect... something similar anytime soon. Thank you. Our next question comes from the line.
Mark C. DeVries: Thank you. Our next question comes from the line of Mark DeVries with Deutsche Bank. Please proceed with your question.
Speaker Change: Really stimulate demand and how it makes our marketing dollars work a lot harder and so we had the delta product refreshes, we had a product refresh in Japan, we had a hilton small business cloud, we had a British Airways carton.
Stephen J. Squeri: Yeah, I mean, we invested more. And I think, you know, when you look at the first quarter of last year, we had 3.4 billion, 3.4 million, excuse me, 3.4 billion would be a pretty sizable amount of cards to acquire in a quarter, 3.4 million cards acquired. And if you remember at that time, you had the SVB situation.
Speaker Change: We're on our way to those 40 product refreshes that we talked about and with product refreshes do they do stimulate demand.
And it stimulates upgrades and so forth so.
Speaker Change: Thats really whats behind.
Speaker Change: The increase sequentially.
<unk> of cards quarter over quarter, but we're sort of back to where we were at this time last year. The only thing I would add mark.
Stephen J. Squeri: And so there was a pullback. Not only a pullback on our side; there was a little bit of a pullback in the industry, and I think there was some consumer trepidation as well.
Speaker Change: As we increase the NCAA.
Speaker Change: The percentage of new cards that are coming out of CP product remained stable at about 70% right. So it talks about the quality of this $3 4 million new cards.
Stephen J. Squeri: And so, you know, as the year went on, we started to build it up, and it culminated this year with, you know, in the first quarter of 3.4 million cards. We invested more in marketing, as we said we were going to do. But I'd also like to highlight that a key driver of that acceleration is the product refreshes that we do. And we've talked a lot about how product refreshes really stimulate demand and how they make our marketing dollars work a lot harder. And so we had the Delta product refreshes. We had a product refresh in Japan. We had a Hilton small business card. We had a British Airways card.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Craig Maurer with Ft Partners. Please proceed with your questions.
Craig Jared Maurer: Yes. Good morning, Thank you.
Craig Jared Maurer: Okay.
Craig Jared Maurer: So wanted to ask about your assumptions on page 23 of the deck it looks like for quarters.
Craig Jared Maurer: The second and third quarter, you're assuming a better macro scenario in the U S. So just curious.
Speaker Change: With in combination of the reward of standby and we are waiting for our operator.
Christophe Le Caillec: And, you know, we're on our way to those 40 product refreshes that we talked about. And what product refreshes do, they stimulate demand, and that stimulates upgrades and so forth. So that's really what's behind the increase sequentially of cards quarter over quarter, but we're sort of back to where we were at this time last year.
Speaker Change: Sorry, what are you guys hearing me here.
Speaker Change: I'm here.
Speaker Change: Okay Alright.
Speaker Change: Alright, so what.
Speaker Change: What I was saying was.
The what seems to be firmer macro assumptions for quarter second quarter, second and third quarter and the rewards benefit how come.
Speaker Change: EPS guide was held.
Christophe Le Caillec: The only thing I would add, Mark, is that as we increase the NCA, the percentage of new cards that are coming in a fee-paying product remains stable at about 70%, right? So it talks about the quality of this $3.4 million.
Speaker Change: Flat im assuming theres, probably a bigger buffer in there and second if you could comment on what's what the.
Speaker Change: Trends have been in your loan workout program have you been seeing.
Speaker Change: Higher lower additions to that program and how is progress been in terms of getting consumers on good payment plans and maintaining them.
Craig Jared Maurer: Thank you. Our next question comes from the line of Craig Maurer with FT Partners.
Craig Jared Maurer: Yeah, good morning. Thank you. Um, so I wanted to ask about your assumptions on page 23 of the deck. It looks like, you know, for quarters second, the second, and third quarter, you're assuming a better macro scenario in the US. So just curious, with the reward standby, we are waiting for our operator. Sorry, were you guys hearing me, or not? I'm here. Okay, sorry. So, what I was saying was, with what seems to be firmer macro assumptions for the quarter, second, second, and third quarter, and the rewards benefit, how come the EPS guide was held flat? I'm assuming there's probably a bigger buffer in there.
Speaker Change: Okay.
Okay.
Speaker Change: American Express Speaker line are you guys. There operator can you confirm if you can hear us in the room.
I can hear you.
Okay.
Speaker Change: Yes.
Speaker Change: Ladies and gentlemen, please standby.
Speaker Change: We will continue with the next question in just a moment.
Speaker Change: Hello.
Yes.
Speaker Change: I can hear you can you hear me.
Speaker Change: Hi. This is Rob can you hear me operator can you confirm if you can hear us now.
Speaker Change: Yes.
Rob: I can hear you Darrell do you hear them.
Christophe Le Caillec: And second, if you could comment on what the trends have been in your loan workout program. Have you been seeing higher or lower additions to that program? And how's progress been in terms of getting consumers on good payment plans and maintaining them?
Speaker Change: Hi, this is <unk>.
Speaker Change: I can hear everyone in my chair please standby, while we check mature for answering some textbooks attending the call we are going to dial back in so please stay on the line or if the call just drop we ask you to dial back in thank you.
Unknown Executive: Transcribed by https://otter.ai American Express speaker line. Are you guys there? Operator, can you confirm if you can hear us in the room?
Speaker Change: Okay.
Unknown Executive: Ladies and gentlemen, please stand by. We'll continue with the next question in just a moment.
Speaker Change: Ladies and gentlemen, please remain on line will color our zoom momentarily. Thank you.
Unknown Attendee: Hello, can you hear us? Hi, I can hear you. Can you hear me?
You guys are back are you able to hear me.
Unknown Executive: Operator, can you confirm if you can hear us now? I can hear you, Darryl. Do you hear them?
Operator: Yes, operator. Thank you. Please go ahead.
Speaker Change: Okay. So.
Unknown Executive: Hi, this is... I can hear everyone. I'm not sure.
Speaker Change: Last question was from the line of Craig Maurer with Ft Partners. Craig you May have to ask your question again, we didnt hear it.
Unknown Executive: Please stand by while we check in. For folks attending the call, we are going to dial back in, so please stay on the line, or if the call does drop, we ask you to dial back in. Thank you. Ladies and gentlemen, please remain on the line. The call will resume momentarily.
Craig Jared Maurer: No problem, thanks, and good morning again.
Good morning, So wanted to ask about the assumptions later in the deck it looks like you're assuming a firmer economic environment for quarters, two and three so taking that with the benefit on rewards should we assume there's a larger buffer built into your guide because.
Unknown Executive: You guys are back, are you able to hear me? Yes, operators.
Unknown Executive: Thank you. Please go ahead. Okay, so that last question was from the line of Craig Maurer with FT Partners. Craig, you may have to ask your question again. Yeah, we didn't hear it.
Craig Jared Maurer: No problem. Thanks. And good morning again.
Craig Jared Maurer: So I wanted to ask about the assumptions later in the deck. It looks like you're assuming a firmer economic environment for quarters two and three. So taking that with the benefit of rewards, you know, should we assume there's a larger buffer built into your guide because you didn't raise the EPS guide? And second, on the same lines, I wanted to ask about your loan workout program. Are you seeing any change in terms of the pace of loans being added or loans being worked out and how loans are progressing through that program? Thanks.
Craig Jared Maurer: But you didn't raise EPS guide in second.
Craig Jared Maurer: Along the same lines I wanted to ask about your loan workout program are you seeing any change in terms of.
Craig Jared Maurer: The pace of loans being added or loans being worked out and how loans are progressing through that program. Thanks.
Christophe Le Caillec: Okay. Hey, good morning, Craig.
Craig Jared Maurer: Okay.
Speaker Change: Hey, good morning, Craig.
Speaker Change: They're.
Christophe Le Caillec: They're under how we think about the balance of the year. So, as I say, we're gonna stick to our EPS guidance. We're not gonna change that range at this point in time.
Speaker Change: Under how we think about the balance of your so with as I said.
Hey.
Speaker Change: Speak to our EPS guidance not going to change that range at this point in time, there is still a lot of things that need to play out in the balance of year and we're seeing that that guidance best represent what we expect at this point in time, specifically about how to think about that you are a benefit as I said in my prepared remarks.
Christophe Le Caillec: There's still a lot of things that need to play out in the balance of the year, and we think that that guidance best represents what we expect at this point in time. Specifically, about how to think about that URL benefit. As I said in my prepared remark, I would say that a significant portion of that benefit was reinvested in the marketing line. We knew and saw that benefit coming in the quarter, and we took advantage of that as well to dial up the marketing. So, all in all, it doesn't have a meaningful impact on EPS for the full year.
Speaker Change: I'd say that a significant portion of that benefit was reinvested on the marketing line.
Speaker Change: We knew we saw that benefit coming in the quarter and we took advantage of that as well to start up the marketing so.
Speaker Change: All in all it doesn't have a meaningful impact on EPS for the full year.
Christophe Le Caillec: When it comes to their, uh..., you know, what we call their financial relief program and their modified loans. So this is an important program for us. We have, we think, you know, one of their best programs in the industry. We have innovative programs, for instance, we have a short-term program. We are also, you know, in that short-term program, enabling the core members to retain some spending capacity and, you know, usage of the product.
Speaker Change: When it comes to their.
Speaker Change: Either they're what we call their financial relief program under the modified loans. So this is an important program for US we have we think either one of their best program in the industry. We have innovated for instance, we have a short term program. We are also.
Speaker Change: In that short term program.
Speaker Change: Enabling the card members to retain some spend capacity in <unk>.
Speaker Change: Usage of the products that we really think that its differentiator to have the card members that are experiencing stress. So that program is working really well for us it's theory effective and what.
Christophe Le Caillec: So we really think that it's a differentiator to help the core members that are experiencing stress. So that program is working really well for us. It's very effective, and what I can say is that enrollment in the program was moderated in Q1, and that the performance of the core members within this program is very, very strong. You know, we have a ton of metrics. One of the metrics we talked about in the past was payment loyalty and how much the core members who are, you know, in delinquent status or paying us versus paying our peers.
Speaker Change: What I can say is that the enrollment in the program as moderated in Q1.
Speaker Change: And that the performance of the core members within this program is very very strong.
We have a ton of matrix, we one of the metric we've talked about in the past was we're looking at payment loyalty and how much the card members, who are either in delinquent status or paying us versus being our peers and we like what we're saying right where typically in front of their wallet in terms of repayments and it's definitely.
Christophe Le Caillec: And we like what we're saying, right? We're typically front of their wallet in terms of repayments. And it's definitely contributing to the strong credit metrics that you've seen. We think it's also consistent with our brand in terms of being there for our core members and having their backs.
Speaker Change: Contributing to the strong credit metrics that you've seen.
Speaker Change: We think it's also consistent with our brand in terms of being there for our card members and having their box. So that program is working well, but just to be specific on your question. The enrollment in this program is moderating in Q1.
Christophe Le Caillec: So that program is working well, but just to be specific about your question, the enrollment in this program is moderating in Q1. Thank you. Our next question comes from the line of John Hecht with Jeffreys. Please proceed with your question. Morning, guys. Most of my questions have been asked, so I guess I'm going to ask...
Speaker Change: Thank you. Our next question comes from the line of John Hecht with Jefferies. Please proceed with your question.
John Hecht: Good morning, guys. Most of my questions have been asked so I guess I'm going to ask about.
John Hecht: Thank you. Our next question comes from the line of John Hecht with Jeffreys. Please proceed with your question. Good morning, guys.
John Hecht: The visa and Mastercard settlement.
John Hecht: <unk> interchange rates and then some steering mechanisms that I know historically, given your premium brand in and so forth and so forth. Those those actions haven't had any impact on the business, but we haven't talked about that for a while so I'm wondering if you guys just have some updated thoughts about that yeah.
John Hecht: Most of my questions have already been asked. So I guess I'm going to ask about, you know, the Visa and MasterCard settlement, the reduction in interchange rates, and then some steering mechanisms. And I know, historically, given your premium brand, and, and so forth, and, you know, so forth, those those actions haven't had any impact on the business. But, you know, we haven't talked about that for a while. So I'm wondering if you guys just have some
Speaker Change: Well, it's really hard to say, how it's going to how it's going to play out over time I mean, this has been going on.
Stephen J. Squeri: Yeah, well, it's really hard to say how it's going to play out over time. I mean, this has been going on, you know, probably close to 20 years, and it still has to be approved by the courts.
Speaker Change: Probably close to 20 years.
Speaker Change: And it still has to be approved by the courts.
Speaker Change: And we'll see but what I would say is it really doesn't change.
Speaker Change: Our strategy in any way I mean, we're still focused on premium customers are customers still.
Stephen J. Squeri: And we'll see. But what I would say is it really doesn't change our strategy in any way. I mean, we're still focused on premium customers. Our customers still engage with the products, and will demand to use the products. And, you know, we'll still maintain our virtual parity. So we'll see how it all plays out. But, you know, we're going to continue to focus on what we control. And the only other thing I would say is that, you know, our pricing is, policies, and structures are fundamentally different from the network.
Speaker Change: <unk>.
Speaker Change: Engage with their products will demand to use the products and we will still maintain our virtual parity. So we'll see how it all plays out but we're going to continue to focus on what we control and the only other thing I would say is that our our pricing policies and structures are fundamentally different.
Then the networks.
Speaker Change: Operator.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yeah.
Unknown Executive: Operator. Not a screw around, darling. Ladies and gentlemen, thank you for your patience and for standing by.
Speaker Change: Okay.
Speaker Change: The screw around donlin.
Speaker Change: Yes.
Speaker Change: Ladies and gentlemen, thank you for your patience and standing by our conference will resume momentarily we are experiencing technical difficulties. Please remain on the line and once again.
Unknown Executive: Ladies and gentlemen, thank you for your patience and standing by. Our conference will resume momentarily. We are experiencing technical difficulties. Please remain on the line, and once again, your conference will begin shortly. Thank you so much for joining us.
Speaker Change: Your conference will begin shortly thank you so much for joining us.
Unknown Executive: Okay, you are back in.
Speaker Change: Okay you are back in.
Unknown Executive: Operator, we can hear you. Can you go ahead and ask for the next question, please?
Operator: Operator, we can hear you can you go ahead and ask for the next question. Please.
Jeffrey David Adelson: Sure. Our next question comes from the line of Jeff Adelson with Morgan Stanley. Please proceed with your question.
Sure. Our next question comes from the line of Jeff Adelson with Morgan Stanley. Please proceed with your question.
Jeffrey David Adelson: Hey, good morning, guys. Can you hear me? Okay. Yeah, we can.
Jeffrey David Adelson: Hey, Good morning, guys can you hear me Okay, Yes, we can.
Stephen J. Squeri: Okay, good. Yeah, I just wanted to ask about the prior comments you made last quarter about the card refresh plans for this year, 40 card products. You know, from a quick count on our, and it seems like you've done eight so far this year with Delta, Hilton, and maybe a card in India, is that right? And maybe you could just talk a little bit about, you know, trajectory over the rest of the year, cadence over the rest of the year, and what the response has been to some of those refreshes so far. I think, more notably, the Delta, the big Delta one you did earlier this year, would be interested to hear the response you've seen from customers so far on that. Thank you. Yeah, so the answer is.
Jeffrey David Adelson: Okay. Good.
Jeffrey David Adelson: I just wanted to ask on that.
Jeffrey David Adelson: The prior comments you made last quarter about the card refresh plans for this year 40 card products.
Jeffrey David Adelson: From a from a quick count on our own and it seems like you've done eight so far this year with Delta health and maybe a card in India.
Jeffrey David Adelson: Is that right and maybe you could just talk a little bit about trajectory over the rest of the year cadence over the rest of the year.
Jeffrey David Adelson: And what the response has been to some of those refreshes so far I think more notably the delta the big Delta when needed earlier the share would be interested to hear the response, you're seeing from customers. So far on that thank you yeah. So.
Speaker Change: So that the product refreshes, who will go out through the year, we don't really talk about exactly when theyre going to be going to be released but you can rest assured all 40 will where approximately 40 will be will be done.
Stephen J. Squeri: So the product refreshes will go out through the year. We don't really talk about exactly when they're going to be released, but you can rest assured all 40 will, or approximately 40 will be, be done.
Stephen J. Squeri: You know, it's a little early to tell on the refreshes, as it's still in the early stages here. But what I would say, from a Delta Reserve perspective, it has really, really gone well, probably beyond our expectations. So that is a great product, you know, it's a great product. We raised the fee by $100 and added over $500 worth of value. So that's, that's going well.
Speaker Change: You know, it's a little early to tell on the refreshes as it's still in.
Speaker Change: The early stages here, but what I would say.
Speaker Change: From a a delta reserve perspective, it has really really gone well probably beyond our expectations. So that is a it's a great. It's a great product.
Speaker Change: We raised the C $100.
Speaker Change: We added over $500 worth of $560 worth of value. So that's that's going well.
Stephen J. Squeri: And, you know, as I said, the proof will be in the pudding because, you know, refreshes really do help to drive demand. It drives awareness. It not only drives, and it drives more engagement with existing cardholders. And it's been a strategy that has worked very, very well for us over the last number of years. And it's one that we're committed to on a going forward basis because it's not only important to drive demand again, but you really want to reignite and reengage with the base. And what we really do is we look at what our customers really want and make sure that we're adding that value that makes the most sense to them.
Speaker Change: As I said the <unk>.
Speaker Change: Roof will be in the pudding because.
Speaker Change: Refreshes really do help to drive demand it drives awareness.
And not only draw and it drives more engagement with existing with existing cardholders and it's been a strategy that has worked very very well for us.
Speaker Change: Over the last number of years and it's one that we're committed to on a go forward basis, because it's not only important to again drive demand but.
Speaker Change: You really want to you want to reignite and Reengage with the base and we really do is we look at what our customers really want and.
Speaker Change: And make sure that we're adding that value that that makes the most sense to them.
Richard Barry Shane: Thank you. Our next question comes from the line of Rick Shane with J.P. Morgan. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Rick Shane with J P. Morgan. Please proceed with your question.
Richard Barry Shane: Hey guys, thanks for taking my question. And Steve, it ties in with what you were just talking about.
Richard Barry Shane: Hey, guys. Thanks for taking my question.
Richard Barry Shane: And Steve it ties in with what you were just talking about when we think about the life cycle of the customer it's acquisition its engagement and then ultimately it's loyalty and retention and I think the real strength of American Express is on the loyalty retention side.
Stephen J. Squeri: When we think about the life cycle of a customer, it's acquisition, it's engagement, and then, ultimately, loyalty and retention. And I think the real strength of American Express is on the loyalty and retention side. When you talk about refresh, that's acquisition and engagement. Can you talk about what you're doing investing on the back office side as the portfolio is growing so quickly to make sure that you maintain the loyalty and retention aspect of the business as well?
Speaker Change: When you talk about refresh that's acquisition and engagement can you talk about what youre doing investing on the back office side as the portfolio is growing so quickly to make sure that you maintain of loyalty and retention aspect of the business as well.
Stephen J. Squeri: Well, I think, you know, it truly is a virtuous cycle, and I think, you know, you've got it right. It's important to obviously acquire cards. And then as you acquire a card, you really want to engage them and get those cardholders spending in as many areas as they can. And so you know, you look at this ramp-up period over maybe a zero to 24 month period.
Steve: Well I think.
It truly is a virtuous cycle and I think you've got it right it's important too.
Steve: To obviously acquire cards and then as you acquire a card you really want to engage them and get those cardholders spending in as many as many areas as they can and so you look at this ramp up period over a maybe a zero to 24 month period, and then at that point in time.
Stephen J. Squeri: And then at that point in time, you know, what's important is that we are engaging with the customer as a customer who is embedded within the franchise, and you know, part of our marketing dollars go not only to acquiring new customers, but we look at how people are spending, we look at how they're spending relative to other people like them, and that's where you'll see offers to either upgrade cards, line increases, other products that we have. And so it's that constant engagement, it's the analytics that go behind it that really leads to retention. What you cannot do is once you have somebody, you just can't let them be stagnant.
Steve: What's what's important is that.
Steve: We are engaging with the customer as a customer who is.
Steve: Who is embedded within the franchise.
Steve: Part of our marketing dollars.
Not only goes to acquiring new customers, but we look at how people are spending we look at how they're spending relative to other people like them and Thats, where youll see offers to either upgrade cards line increase is other products that we have and so its that constant engaged.
And it's the it's the analytics that go behind it.
Steve: It really leads that a retention, which you cannot do is once you have somebody you just can't let them be stagnant and so.
Stephen J. Squeri: And so, you know, and there's a lot of learnings from our commercial business and from our merchant business, where, you know, we have tremendous account managers that work with our clients on a daily basis, and weekly basis to help them grow their spend. Now, obviously, with, you know, tens of millions of consumer card members, you can't necessarily do that necessarily personally all the time, but you can do that by communicating through the channels that we have.
Steve: There's a lot of learnings out of our commercial business and out of our merchant business, where we have tremendous account managers and that work with our clients on a daily on a daily basis weekly basis to help them grow their spend now obviously with tens of millions of consumer card members you can't do that.
Steve: Necessarily personally all the time, but you can do that through communicating through the channels that we have and another big part of our value proposition and our service proposition is when people do call into us our customer care professionals.
Stephen J. Squeri: And another big part of our value proposition and our service proposition is when people do call into us, our customer care professionals, you know, are able to look at their spending, look at how they're doing and offer them other opportunities to really grow with us, either from a, you know, again, from a lending perspective or from a card upgrade perspective. So I think it's really important what happens on that back office as that continues to fuel that virtuous cycle. Thank you. Our next question comes from the line of Bill Carcache with Wolfe Research. Please proceed with your question. Thanks. Good morning, Steve and Christophe. Morning.
Steve: <unk> to look at their spending look at how they're doing and offer them other opportunities too to really grow to grow with us either from a again from a lending perspective or from a card upgrades for card upgrade perspective. So I think it's really important what happens on on that back office has that continued.
Steve: To fuel that virtuous cycle.
Steve: Okay.
Steve: Thank you. Our next question comes from the line of Bill <unk> with Wolfe Research. Please proceed with your question.
Bill: Thanks, Good morning, Steve and Christophe good morning.
Bill: Although you mentioned Christoph that the rewards benefit was one off are you seeing any evidence of customers driving greater value from experiential and partner funded rewards.
Bill: I'm just wondering if there is a possibility of that.
Bill Carcache: Thank you. Our next question comes from the line of Bill Carcache with Wolf Research. Please proceed with your question.
Bill: Pressure on the rewards rate.
Could potentially abate in a sustained way as customers generate greater value in other ways.
Stephen J. Squeri: So Christophe can get a little bit more into the detail, but I think you've hit on a really good point and one that really is part of our value proposition, whether it's embedded value that we get from our partners that's embedded in the value proposition, and we're seeing that increase over time, and that's also, as you look at refreshes, you see that within the refreshes. But it's also what Amex offers and how we continue to work with our merchant partners to provide more benefits to our card members on an ongoing basis.
Speaker Change: So let me pissed off and get a little bit more into the detail, but I think you've hit on a really good.
Speaker Change: A good point and one that.
Speaker Change: It really is part of our of our value proposition, whether its embedded value that we get from our from our partners thats embedded in the value proposition and we're seeing that increase over time and that's that's also as you look at refreshes you see that within the refreshes, but it's also the amex offers and how we can.
Speaker Change: Continue to work with our with our merchant partners to provide more and more benefits to our card members on on an ongoing basis. So I think when you take that entire portfolio of the rewards opportunities that we have the embedded value that comes.
Stephen J. Squeri: So I think when you take that entire portfolio of the rewards opportunities that we have, the embedded value that comes within the value proposition and Amex offers, all of that together, and it gets back to what Rick's point was, all of that together leads to more loyalty and more retention.
Speaker Change: Within the value proposition and Amex offers all of that together and it gets back to what Rick's point was all of that together leads to more loyalty and more and more retention.
Christophe Le Caillec: And to build on that a little bit on the reward side, we are constantly trying to innovate on the MR side, on the number of partners engaged in the program, and on the ease of redemption as well. One of the latest innovations that is actually very successful in terms of how many core members are using it is the ability to just select a transaction on your statement, your digital statement, and actually use MR points to pay for that specific transaction.
Speaker Change: And to Bill that's a little bit on the rewards side, we are constantly trying to innovate on the EMR side.
Speaker Change: On the the number of partners engaged to program the ease of redemption as well one other leaders innovation that is equity theory successful in terms of how many card members are using it as the ability just to select a transaction on your on your statement your digital statement and actually use it more points too.
Speaker Change: Two to pay for that specific transactions.
Christophe Le Caillec: And we're seeing a lot of Codd members, you know, using that. So we're constantly trying to make it easier and better for our Codd members to redeem, to make the product, their, you know, the EMR program competitive and more and more economical as well for us. So it's definitely a place of innovation that is very dynamic.
Speaker Change: And we're seeing a lot of card members using that so we constantly trying to make it easier and better for our recon members to redeem to make the product.
Speaker Change: There.
Speaker Change: The MLR program competitive and more and more economies as well for us. So it's definitely a place of innovation that is a very dynamic please.
Speaker Change: Thank you. Our next question comes from the line of Don <unk> with Wells Fargo. Please proceed with your question.
Donald James Fandetti: Thank you. Our next question comes from the line of Don Fandetti with Wells Fargo. Please proceed with your question.
Don: Yes, Christoph your international build business growth continues to be very strong.
Don: You can do you build that into your guidance at this level for 'twenty for revenue growth and can you give us an update on how your acceptance initiatives or gallon.
Christophe Le Caillec: Yeah, so we are, you know, ICS and international was the fastest growing segment of American Express pre-COVID and has been for several quarters now as well. The opportunity is just much bigger for us in international. We have either, we're also investing, everything else being equal, a bit more in international. Their brand out in international is probably a bit more premium as well than it is in the US.
Christoph: Yes, so we are.
Ics in international was the fastest growing segment of American Express pre Covid and has been for several quarters now as well the opportunity is just much bigger for us and international.
Speaker Change: We have Peter.
Speaker Change: We're also investing everything else being equal proportionately a bit more in international.
Speaker Change: Their brand out in international was probably a bit more premium as well, but it is in the U S. So there's definitely a massive opportunity for us and we're going after it and that's baked in our guidance for this year is also factored in as we think about our long term aspiration part of their part of the things that lead.
Christophe Le Caillec: So there's definitely a massive opportunity for us, and we're going after it. And that's baked into our guidance for this year. It's also factored in as we think about our long-term aspirations. Part of the things that we're going to do to deliver on that guidance for this year and that long-term aspiration is actually to grow at a faster pace in international. It's a great opportunity for us, so we're going to talk more.
Speaker Change: Due to <unk>.
Speaker Change: Deliver on that guidance for this year and that long term aspiration is actually to grow at a faster pace in international it's it's a great opportunity for us for sure and so we're going to talk more about international.
Stephen J. Squeri: So, we're going to talk more about international business at Investor Day. We'll have a separate segment on that, but we're also going to talk about how we continue to grow our international coverage. And if you remember a number of years ago, we talked about our international city strategy, we talked about industries we're going after, and so we'll provide some updates on that. But, you know, the top line is that international acceptance continues to grow and continues to improve.
Speaker Change: At Investor Day, we will have a separate segment on that but we're also going to talk about.
Speaker Change: How we continue to grow international coverage and if you remember.
Speaker Change: Years ago, we talked about our international City strategy, we talked about industries, we're going after and so we'll provide some updates on that but the topline is international acceptance continues to grow and continues to improve and when you look at.
Stephen J. Squeri: And when you look at the international business growing at the rate it's growing and coverage continuing to grow, we see that as a long runway for future growth. Thank you. Our next question comes from the line of Gus Galla with Monez Crespi and Hart. Please proceed with your question.
Speaker Change: The international business growing at the rate, it's growing and coverage continuing to grow we see that as a long runway for future growth.
Speaker Change: Thank you. Our next question comes from the line of Gus <unk> with <unk> Crespi Hardt. Please proceed with your question.
Gus: Hi, guys. Good morning, Thank you for taking my question.
Gus Galla: All right, guys, good morning.
Gus: Wanted to dig in and ask.
Gus: Pablo the opportunities to lower cost of funding.
Christophe Le Caillec: Yeah, so the pay over time, you mean like how it's performing, how it's growing pay over time? Yeah, yeah, let's talk about the performance and the unit of economics if we if we. Yeah, so pay over time is there is a facility that is available in our charge product. It's your, It's a service that, you know, a lot of call members are taking advantage of. It's the opportunity for them to reverse some of their transactions or part of their balance. Their performance is very strong.
Gus: And similar line of thought here can you talk a little bit about being paying overtime feature.
Gus: Thanks.
Pablo: Yes, so the pay overtime, you mean like how it's performing how it's growing bigger overtime, yes, the solid performance in the unit economics.
Speaker Change: Yes. So they over time is there is a facility that is available on our charts product sure.
Speaker Change: It served its a service that.
Speaker Change: A lot of card members are taking advantage of the opportunity for them to revolve some of their transaction sort of part of their or their balance their performance is very strong essentially either this segment of our balances that is the fastest growing.
Christophe Le Caillec: It's actually the segment of our balances that is the fastest growing. And from a, you know, I would say from a performance standpoint because that product, but that service, is attached to our charge card products. So typically, premium card members' credit performance is also, you know, the best that we have in our lending products. So it's a very efficient way for us to grow balances by extending credit to premium card members.
Speaker Change: And from her.
Speaker Change: I would say from a performance standpoint, because that.
Speaker Change: Product, but that service is attached to our charge card products. So typically premium card members. The credit performance is also the best that we have in our lending products. So it's a very efficient way for us to grow balances by extending.
Speaker Change: Credit to premium card members and the first question forgot was.
Christophe Le Caillec: And the first question that was, Funding mix. Funding and so the funding mix is still you know it's still evolving towards more deposits and as you know deposits is for us they're the most effective and the most economical source of fund and you know it's a very stable source of fund as well for us. I think we are we are at about 92% of our deposit direct deposit balances are below the FDIC cap so it's a stable resilient growing source of funding for us and it's generating you know a lot of good things for us including supporting our growth and growth plan and growth aspiration and when you look at their yield that I you know I had under on the lending slide one of the driver behind the yield expansion year-over-year is actually a more effective cost of fund and it's not a one-off right that has been a trend for several years now and there is more to come.
Speaker Change: Funding mix and funding.
Speaker Change: So the funding mix is still.
Speaker Change: It's still evolving towards more deposits and as you know deposits is for us there.
Most effective and divorced economy coal.
Speaker Change: Social fun and.
Speaker Change: It's a very stable source of Venezuela for US I think we are.
Speaker Change: We are at about 92% of our deposit direct deposit balances are below the FDIC cap. So it's a stable resilient growing.
Speaker Change: The source of funding for us and it's generating.
A lot of good things for us, including in supporting our growth and growth plan and growth aspiration and when you look at the yield that is.
Speaker Change: I had under on the lending slide one of the driver behind the yield expansion year over year is actually a more effective cost of funds and it's not a one off right that has been a trend for several years now and there is more to come.
Moshe Ari Orenbuch: Thank you. Our next question comes from the line of Moshe Orenbuch with TD Cowen. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Moshe Orenbuch with TD Cowen. Please proceed with your question.
Moshe Ari Orenbuch: Great, thanks so much. You know, if you look at your commercial spending, particularly SME growth, it's been particularly weak in the last couple of quarters. And you notice on slide five, goods and services have basically been flattened down for a couple of quarters. And, you know, you mentioned things that are, you know, unique to small business, but maybe you could expand that a little more and talk about what things we might see that would cause that to start to turn and how long you can, you know, kind of maintain the kind of team's growth and loans while that, you know, is kind of You talk about those things so well. Thank you.
Moshe Ari Orenbuch: Great. Thanks, so much.
Moshe Ari Orenbuch: If you look at your commercial spending, particularly SME growth, it's been particularly weak the last couple of quarters.
Moshe Ari Orenbuch: Otis on slide five the goods and services has basically been flat to down for a couple of quarters.
You mentioned things that are unique to small business, but maybe could you expand that a little more and talk about what things we might see that would cause that to start to turn.
Moshe Ari Orenbuch: And how long you can kind of maintain that kind of teens growth in loans, while that is kind of flattish you're talking about those things. Thank you.
Christophe Le Caillec: All right, let me start. And I'm sure Steve will, will add up to this.
Speaker Change: Okay Alright.
Speaker Change: Alright, let me start and I'm sure Steve will add up to this asset. There. So you are right I mean, the SME Bill business, that's been in that one 2% range for four year now we think that this is macro driven.
Christophe Le Caillec: There. So you're right. I mean, the SME bill business has been in that, you know, 1-2% range for a year now. We think that this is macro-driven. And we have a ton of data that confirms that it's not specific to American Express. And the rest of the industry is experiencing, you know, similar problems. I will note, as I think we said in the prepared remarks, that on the accretion side, it's going very strongly. So the demand for the product is there.
Speaker Change: And we have a ton of data that confirms that it's not specific to American express and the rest of the industry is experiencing in or similar similar trends I will note.
Speaker Change: As I think we said in the prepared remarks that on the accretion side, it's growing very strongly so the demand for the product is there are there.
Christophe Le Caillec: The quality of the applicants is there as well. And as we've said in the past, it's the tenured base that is moderating their spend. We'll see how it goes.
Speaker Change: The quality of the applicant is there as well and as we've said in the past, it's the or I would say the tenured base diet is moderating their spend.
Speaker Change: We'll see how it goes current.
Stephen J. Squeri: Those card members, the SME, as we've said in the past, have been going through a lot. They're certainly experiencing as well the compound effect of funding costs for several years now. And they are very careful in terms of how they're managing their cash flows and how they're spending. This being said, we are very focused on working with them, as I said, engaging with them. And we're confident that we have what it takes to win them back when they are ready to spend more.
Speaker Change: Those card members the SME as we've said in the past have been going through a lot, they're certainly experiencing as well, they're they're compounding effect of a funding cost for either for several years now.
Speaker Change: And they are very careful in terms of how they managing there there.
Speaker Change: Their cash flows and how they're spending these being said you know we are very focused on working with them as I said engaging with them.
And and we confident that we have what it takes to win them back when they are ready to spend more.
Stephen J. Squeri: Yeah, I think that, you know, Moshe, when you look at this... The FME has been, This entire space has been sort of disrupted over the last four years or so, maybe five years with COVID, where it took a tremendous drop for, you know, 18 months or so. And then all of a sudden, you had unbelievable, unsustainable, organic growth of, you know, like 19% and 20% in given years. It was crazy, crazy growth in 21 and 22.
Speaker Change: Yes, I think that you know Moshe when you when you look at this.
Speaker Change: The SME has been just.
Speaker Change: This entire space has been sort of disrupted over the last four years or so it would be five years with with Covid, where it took a tremendous drop four eight.
Speaker Change: 2018 months or so and then all of a sudden you had unbelievable unsustainable organic growth of 19% and 20% in given years. It was it was crazy crazy growth in 'twenty, one and 'twenty two and we saw last year after the first quarter.
Stephen J. Squeri: And we saw, you know, last year, after the first quarter, it really started to wane. And, you know, again, a couple of reasons. I think there's, again, a few reasons for that. I think there was a tremendous buildup in inventories. I think interest rates going up did not help, you know, from a small business perspective, especially as they thought about purchasing goods and services and buying those goods and services and stocking them in anticipation of another supply chain malady or meltdown.
Speaker Change: It really started to wane and again a couple I think there is again a few reasons for that I think there was a tremendous buildup in inventories I think interest rates going up.
Speaker Change: Did not help.
Speaker Change: From a small business small business perspective, especially as they thought about purchasing goods and services and buying those goods and services and stocking them.
Speaker Change: In anticipation of another supply chain sort of malady or meltdown.
Stephen J. Squeri: And, you know, what we do like is that our acquisition is still very strong. The transactions, even within the 10-year base, continue to go up. It's the larger transactions that we're really seeing the organic decline on, and a lot of that can be, you know, industry-specific construction. A lot of that can also be, you know, not buying big inventories up front. So I think what's important for us to focus on right now is to continue to acquire, continue to work with, and engage with them.
Speaker Change: And you know what.
Speaker Change: Good.
Speaker Change: What we do like is that our acquisition is is still very strong.
Speaker Change: The transactions even within the tenured base continue to go up it's the larger transactions that where we've really seen the organic decline on and a lot of that can be.
Speaker Change: Industry specific construction a lot of that can also be.
Speaker Change: Not buying not value big inventories upfront. So I think what's important for us to focus on right. Now is to Kid you acquire continue to work with them and engaging with them and then when they're ready to come back.
Stephen J. Squeri: And then when they're ready to come back, we're there for them as they want to spend even more. You know, as far as, and I started the conversation with this, as far as overall spending, that's what makes me feel really good about our overall spending because we're able to grow 7% with our commercial business growing, you know, very low, and small business only growing at 1%. And it's important. It's an important part of the franchise. And that's why, you know, we feel good because of the credit and the new acquisition.
Speaker Change: We're there for them as they want to spend spend even more.
Speaker Change: As far as and I started the conversation with this as far as overall spending.
Speaker Change: That's what makes me feel really good about our overall spending because we're able to grow 7% with our commercial business growing you know.
Speaker Change: Very low and small business only growing at 1% and it's important it's an important part of the important part of the franchise and that's why.
Speaker Change: We feel good because of the credit and of the new acquisition.
Ryan Matthew Nash: Thank you. Our final question will come from the line of Ryan Nash with Goldman Sachs.
Speaker Change: Thank you our final question will come from the line of Ryan Nash with Goldman Sachs. Please proceed with your question.
Ryan Matthew Nash: Please proceed with your question. Hey, good morning, guys. Good morning.
Ryan Matthew Nash: Hey, good morning, guys.
Ryan Matthew Nash: Good morning, good morning.
Christophe Le Caillec: Things have, in Q1, played out as we were expecting, right? We built business, came in similar to what we had experienced in the previous quarters. Car Fee is moderating slightly from 17% to 16% FX-adjusted growth rate, and we're still expecting that it will pick up a little bit in the balance of the year on the back of, you know, the things that you said, including the car refreshers and acquiring a lot of premium cars.
Ryan Matthew Nash: So maybe to bring together some of the pieces of revenue growth I think you were on the high end of the first quarter and I think Chris like you said the expectation that NII was going to slow let me just talk a little bit about how you think about the trajectory of the revenue growth do we need to.
Ryan Matthew Nash: <unk> spend stabilize to remain in the range or can we see the impact of repression refreshes in card acquisitions be enough to stabilize revenue growth within the range on a quarterly basis. Thank you.
Ryan Matthew Nash: So.
Chris: Things are in Q1 played out as we were expecting right.
Christophe Le Caillec: And NII at 26% is going to keep moderating because balances are moderating. So, you know, the guidance for the full year is still expected to be between 9% and 11%. We'll see exactly how things play out. There are still a lot of things to find out, you know, how the late payment charges are going to come in, and what's going to happen with the interest rates. So, you know, the best at this stage, I think it's to stick to the full-year guidance of 9% to 11%. And, but I would say, you know, Q1 validated their, you know, the trends and their, you know, their guidance that we gave at the beginning of the year.
Speaker Change: <unk> business came in similar to what we had experienced in the previous quarters.
Speaker Change: Coffee is moderating slightly from 17% to 16% FX adjusted growth rate and we still expecting that it will pick up a little bit in the balance of your on the back of the things that you said, including the card refreshes and acquiring a lot of premium cars in NII of 26% is just going to keep moderating because balances.
<unk> are our moderating so that.
Speaker Change: The guidance for the full year as sales to be between nine and 11% will see exactly how things play out they are still a lot of things.
Speaker Change: Things to either to find out how the late payment charges that are going to comment.
Speaker Change: What's going to happen with the interest rates so.
Speaker Change: Best at this stage I think is to stick to the full year guidance of nine to 11.
Speaker Change: But I would say.
Speaker Change: Q1 validated or either the trends in there.
Speaker Change: <unk> the guidance that we did reduce at the beginning of the year.
Unknown Executive: With that, we will bring the call to an end. 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. Operator, back to you. Ladies and gentlemen, the webcast.
Okay.
Speaker Change: With that we will bring the call to an end. 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 operator back to you.
Speaker Change: Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at IR Dot American Express Dot com shortly after the call.
Unknown Executive: Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can access a digital replay of the call at 877-660-6853 or 612-7415, access code 137, 45493 after 1 p.m. Eastern Time on April 19th through April 26th.
Speaker Change: You can access the digital replay of the call.
Speaker Change: 877 six.
Speaker Change: 606853 or 201.
Six one to 7415.
Speaker Change: Access code 137.
Speaker Change: 45493 after one P M. Eastern time on April 19 through April 26.
Unknown Executive: That will conclude our conference call for today. Thank you for your participation. You may now disconnect. (Inaudible) That will conclude our conference call for today.
Speaker Change: That will conclude our conference call for today. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Good morning.
Speaker Change: That will conclude our conference call for today.
Speaker Change: Okay.