Q2 2024 American Express Co Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q2 2024 earnings call.

Operator: American Express Q2 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 1 on your touch-tone phone. You will hear a tone indicating that you have been placed in queue. You may remove yourself from the queue at any time by pressing star then 2. If you are using a speakerphone, please pick up the handset before pressing the numbers.

Speaker Change: At this time, all participants are on a listen-only mode.

Speaker Change: Later we will conduct a question and answer session.

Speaker Change: If you wish to ask a question, please press star then 1 on your touchtone phone. You will hear a tone indicating that you have been placed in queue.

Speaker Change: You may remove yourself from the queue at any time by pressing star then 2.

Speaker Change: If you are using a speakerphone, please pick up the handset before pressing the numbers.

Operator: 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. Thank you. Please go ahead.

Speaker Change: Should you require assistance during the call,

Speaker Change: Please press star then 0. 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. Thank you. Please go ahead.

Kartik Ramachandran: Thank you, Donna, and thank you all for joining today's call. As a reminder, before we begin, today's discussion includes 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 uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slide and in our reports on file with the SEC. The discussion today also includes non-GAAP financial measures.

Speaker Change: Thank you, Donna. 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 uncertainties.

Speaker Change: Factors that could cause actual results to differ materially from these statements are included in today's presentation slide and in our reports on file with the SEC.

Speaker Change: The discussion today also contains non-GAAP financial measures.

Kartik Ramachandran: 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 Christopher Kayak, Chief Financial Officer, will provide a more detailed review of our financial performance

Speaker Change: The comparable GAAP 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.

Stephen Joseph Squeri: We will begin today with Steve Squeri, Chairman and CEO , who will start with some remarks about the company's progress and results.

Speaker Change: and then Christophe Lacayac, 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, let me turn it over to Steve.

Kartik Ramachandran: 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.

Stephen Joseph Squeri: Good morning, and thanks for joining us. As you saw in our earnings release issued a short time ago, we reported strong second quarter results and raised our EPS guidance for the full year, based on the continued momentum we're seeing in our core business. Revenue in the quarter reached an all-time high, and earnings grew 44% year-over-year, or 21% after excluding the gain of 66 cents we realized from the sale of a certified

Stephen Joseph Squeri: Good morning and thanks for joining us. As you saw in our earnings release issued a short time ago, we reported strong second quarter results and raised our EPS guidance for the full year based on the continued momentum we're seeing in our core business.

Christophe Lacayac: Revenue in the quarter reached an all-time high, and earnings grew 44% year-over-year, or 21% after excluding the gain of 66 cents we realized from the sale of a certify.

Stephen Joseph Squeri: The strong performance of our core business year-to-date and our expectations for the balance of the year will enable us to increase our investments in marketing and other strategic areas that drive our growth without using any of the proceeds from the ACERTIFIES, delivering exceptional earnings results. In fact, we now expect to invest around $6 billion in marketing this year, up about $800 million versus last year, all of it funded from the results of our core business.

Christophe Lacayac: The strong performance of our core business year-to-date and our expectations for the balance of the year will enable us to increase our investments in marketing and other strategic areas that drive our growth without using any of the proceeds from the ACERTIFY sale.

Christophe Lacayac: While still delivering exceptional earnings results, in fact, we now expect to invest around $6 billion in marketing this year, up about $800 million versus last year, all of it funded from the results of our core business.

Stephen Joseph Squeri: As a result, we are raising our EPS guidance range for the full year to 1330 to 1380, up from 1265 to 1315 previously, and we continue to expect revenue growth in line with our 9 to 11% range for the year.

Christophe Lacayac: As a result, we are raising our EPS guidance range for the full year to $13.30 to $13.80, up from $12.65 to $13.15 previously, and we continue to expect revenue growth in line with our 9% to 11% range for the year.

Stephen Joseph Squeri: As we've seen through the first half of the year, our core business continues to generate strong momentum, even against the backdrop of a slower growth environment. The continued momentum we're generating reflects the earnings power of our business model, which is driven by several interrelated factors, including, first and foremost, the quality of our loyal premium customer base, plus the increasing scale of our business, a well-controlled expense base, the success of the strategic investments we're making to enhance Amex membership, and our talented colleagues around the world.

Christophe Lacayac: As we've seen through the first half of the year, our core business continues to generate strong momentum, even against the backdrop of a slower growth environment.

Christophe Lacayac: The continued momentum we're generating reflects the earnings power of our business model, which is driven by several interrelated factors, including

Christophe Lacayac: First and foremost, the quality of our loyal premium customer base, plus the increasing scale of our business, a well-controlled expense base, the success of the strategic investments we're making to enhance Amex membership, and our talented colleagues around the world.

Stephen Joseph Squeri: Our continued strong performance starts with our premium customers who are high spending, have a long tenure, and have excellent credit profiles. And we continue to attract large numbers of high quality premium customers with our superior products, as seen in the consistently strong new account acquisitions and 24 consecutive quarters of double-digit growth in card fee revenue we've delivered. Next, we have scale.

Christophe Lacayac: Our continued strong performance starts with our premium customers.

Christophe Lacayac: We're high-spending, long-tenured, and have excellent credit profiles.

Christophe Lacayac: And we continue to attract large numbers of high-quality premium customers with our superior products as seen in the consistently strong new account acquisitions and 24 consecutive quarters of double-digit growth in card fee revenue we've delivered.

Stephen Joseph Squeri: Over the past few years, the scale of our business has grown significantly. Compared to year end 2021, revenues have grown by nearly 50%. Card member spending has increased by almost 40%. Cards Enforced Globally have risen by around 23 million, or about 20%, and the number of merchant locations on our network has grown by over 30 million, or nearly 50%. This increased scale drives growth and gives us significant flexibility in running our business for the long term. At the same time, our operating expenses are growing well below revenues as we drive efficiencies across the business.

Christophe Lacayac: Next is scale. Over the past few years the scale of our business has grown significantly. Compared to year-end 2021, revenues have grown by nearly 50 percent. Card member spending has increased by almost 40 percent.

Christophe Lacayac: Cards Enforced globally have risen by around 23 million or about 20% and the number of merchant locations on our network has grown by over 30 million or nearly 50%. This increased scale drives growth and gives us significant flexibility in running our business for the long term.

Christophe Lacayac: At the same time, our operating expenses are growing well below revenues as we drive efficiencies across the business.

Stephen Joseph Squeri: The combination of our increasing scale and our well-controlled expense base produces significant operating leverage that generates more investment dollars we can inject into our business. Another key factor driving our momentum is the success of the strategic investments we've been making in critical areas like marketing, value propositions, technology, control management capabilities, and talent to sustain our growth. And to keep the momentum going, we're continuing to invest in enhancing our unique membership model through ongoing product innovations and new capabilities and benefits.

Christophe Lacayac: The combination of our increasing scale and our well-controlled expense base produces significant operating leverage that generates more investment dollars we can inject into our business.

Christophe Lacayac: Another key factor driving our momentum is the success of the strategic investments we've been making in critical areas like marketing, value propositions, technology, control management capabilities, and talent to sustain our growth.

Christophe Lacayac: And to keep the momentum going, we're continuing to invest in enhancing our unique membership model through ongoing product innovations and new capabilities and benefits.

Stephen Joseph Squeri: For example, as we execute our strategy of regularly refreshing our products, we have focused on embedding additional value in our premium cards to make them highly attractive to customers across generations and geographies. This enables us to add large numbers of new premium card members to our customer base, drive greater engagement with existing customers, and charge for the value we add. We are on track to refresh approximately 40 products globally by the end of the year.

Christophe Lacayac: For example, as we execute our strategy of regularly refreshing our products,

Christophe Lacayac: We focused on embedding additional value in our premium cards to make them highly attractive to customers across generations and geographies.

Christophe Lacayac: This enables us to add large numbers of new premium card members to our customer base, drive greater engagement with existing customers, and price for the value we add.

Christophe Lacayac: We are on track to refresh approximately 40 products globally by the end of the year.

Stephen Joseph Squeri: As part of that number, we look forward to announcing our refreshed U.S. Consumer Goal Card in the coming weeks, adding to the nearly two dozen refreshed and updated products we've announced through the first half of the year. We also continue to add new capabilities and benefits through both internal innovation and bolt-on acquisition. For example, our Resi dining reservation platform has seen significant growth since its acquisition in 2019, and our planned acquisitions of TOC and Roam will further expand our dining portfolio, giving our customers access to more great restaurants and increasing the digital offerings we provide to restaurants and merchants in food and beverages.

Christophe Lacayac: As part of that number, we look forward to announcing our refreshed U.S. Consumer Goal Card in the coming weeks, adding to the nearly two dozen refreshed and updated products we've announced through the first half of the year.

Christophe Lacayac: We also continue to add new capabilities and benefits through both internal innovation and bolt-on acquisitions.

Christophe Lacayac: For example, our Resi dining reservation platform has seen significant growth since its acquisition in 2019.

Christophe Lacayac: And our planned acquisitions of TOC and Roam will further expand our dining portfolio, giving our customers access to more great restaurants and increasing the digital offerings we provide to restaurants and merchants in the food and beverage industry.

Stephen Joseph Squeri: Finally, our talented colleagues across the company are the engine that drives our growth. Their creativity, determination, and deep commitment to providing the best customer experience every day is what has made American Express what it is today and will continue to make us successful in the future. The combination of all these factors is what drives our premium business at a scale that can deliver superior earnings on a sustainable basis. The power of our unique business model and the ongoing momentum we're seeing in the business, driven by our loyal customers and dedicated colleagues, gives us confidence in our ability to achieve our expectations for the year and our long-term aspirations for the business. With that, I'll now turn it over to Christophe.

Christophe Lacayac: Finally, our talented colleagues across the company are the engine that drives our growth. Their creativity, determination, and deep commitment to providing the best customer experience every day is what has made American Express what it is today and will continue to make us successful in the future.

Christophe Lacayac: The combination of all these factors is what drives our premium business at a scale that can deliver superior earnings on a sustainable basis.

Christophe Lacayac: The power of our unique business model and the ongoing momentum we're seeing in the business, driven by our loyal customers and dedicated colleagues, gives us confidence in our ability to achieve our expectations for the year and our long-term aspiration for the business. With that, I'll now turn it over to Christophe.

Christophe Le Caillec: Thank you, Steve, and good morning, everyone. It's good to be here to talk about our second quarter results, which reflect another quarter of strong performance. Starting with our summary financials on slide 2, second quarter revenues were $16.3 billion and grew 9% year-over-year on an FX-adjusted basis. Net income was $3 billion in the quarter, generating earnings per share of $4.15.

Christophe Lacayac: Thank you, Steve, and good morning, everyone.

Christophe Lacayac: It's good to be here to talk about our second quarter results, which reflect another quarter of strong performance.

Christophe Lacayac: Starting with our summary financials on slide 2. Second quarter revenues were $16.3 billion and grew 9% year-over-year on an FX-adjusted basis.

Christophe Lacayac: Net income was $3 billion in the quarter, generating earnings per share of $4.15.

Christophe Le Caillec: Our second quarter results also reflect the sale of our certified business, which closed during the quarter. We recognize the NAFTA tax gain on the sale of $479 million, equating to 66 cents of EPS impact. Excluding this gain, EPS grew 21%, reflecting the power of the business to generate strong earnings growth, even in a slower growth environment, as Steve noted. On slide 3, billable business grew 6% versus last year on an FX-adjusted basis, reflecting stable growth and in line with the softer spend environment we've seen in the past few quarters.

Christophe Lacayac: Our second quarter results also reflect the sale of our Certified Business, which closed during the quarter.

Christophe Lacayac: We recognize the NAFTA tax gain on the sale of $479 million equating to 66 cents of EPS impact.

Christophe Lacayac: Excluding this gain, EPS grew 21%, reflecting the power of the business to generate strong earnings growth, even in a slower growth environment, as Steve noted.

Steve: On slide 3, bill business grew 6% versus last year on an FX-adjusted basis, reflecting stable growth and in line with the softer spend environment we've seen in the past few quarters.

Christophe Le Caillec: Stability and spend growth were also visible by category, where we saw 6% growth in goods and services and 7% growth in travel and entertainment spend. However, we did see some slower growth in certain T&E categories versus the prior quarter, such as in airline and lodging.

Speaker Change: The stability in spend growth was also visible by category where we saw 6% growth in goods and services, 7% growth in travel and entertainment spending.

Speaker Change: We did see some slower growth in certain T&E categories versus the prior quarter, such as in airline and lodging.

Christophe Le Caillec: At the same time, growth in our largest T&E category, restaurants, remained strong, and goods and services strengthened a bit versus the prior quarter when excluding the impact of leap years. Stepping back, while spend growth in certain categories was slightly higher or lower versus the prior quarter, overall spend growth was stable, and we continue to see strong growth in the number of transactions from our card members, which grew 9% this quarter. There are a few other key points to take away as we then break down our spending trends across our business, starting with our largest segment on slide four. U.S. Consumer Group Billings at 6% this quarter with balanced growth across both goods and services and T&E.

Speaker Change: At the same time, growth in our largest T&E category, restaurants, remains strong, and goods and services strengthened a bit versus the prior quarter when excluding the impact of leap year.

Speaker Change: Stepping back, while spend growth in certain categories was slightly higher or lower versus the prior quarter, overall spend growth was stable, and we continue to see strong growth in the number of transactions from our card members, which grew 9% this quarter.

Speaker Change: There are a few other key points to take away as we then break down our spending trends across our businesses.

Speaker Change: Starting with our largest segment on slide 4, U.S. consumer group billings at 6% this quarter with balanced growth across both goods and services and T&E.

Speaker Change: Our premium customer base continues to demonstrate steady growth.

Christophe Le Caillec: Our premium customer base continues to demonstrate steady growth. We also saw growth across all generations. Millennial and Gen Z customers grew their spending 13% and continue to drive our highest billed business within this segment. These younger card members continue to demonstrate strong engagement, and we see that they transact over 25% more on average than our older customers. And in some categories, like dining, the trends act almost twice as much.

Speaker Change: We also saw growth across all generations. Millennial and Gen Z customers grew their spending 13% and continue to drive our highest billed business within this segment.

Speaker Change: These younger card members continue to demonstrate strong engagement and we see that they transact over 25% more on average than our older customers.

Speaker Change: And in some categories, like dining, the trends act almost twice as much.

Christophe Le Caillec: Turning to commercial services, overall growth came in at 2% this quarter. Spending growth from our U.S. small and medium enterprise customers increased a bit sequentially versus last quarter, but remained moderate. Lastly, on slide 6, we 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, and we are also seeing double-digit growth across all regions.

Speaker Change: Turning to commercial services on slide 5.

Speaker Change: Overall growth came in at 2% this quarter.

Speaker Change: Spending growth from our U.S. small and medium enterprise customers increased a bit sequentially versus last quarter but remained modest.

Speaker Change: Lastly, on slide 6, we see our highest growth again this quarter in international card services at 13%.

Speaker Change: We continue to see double-digit growth in spending from international consumers and from international SME and large corporate customers.

Speaker Change: And we are also seeing double-digit growth across all regions.

Christophe Le Caillec: Stepping back, we continue to see stable, stable spend growth across customer segments, spend categories, and our U.S. and international geographies. And while we are not in a high-growth spend environment, particularly in the U.S., our spending volumes are tracking in line with our expectations and support our revenue expectations for the year. Moving on to loans and card member receivables, on slide seven, we saw year over year growth of 11%, demonstrating strong growth but continuing to moderate as expected.

Speaker Change: Stepping back, we continue to see stable...

Speaker Change: Stable spend growth across customer segments, spend categories, and our U.S. and international geographies. And while we are not in a high-growth spend environment, particularly in the U.S., our spending volumes are tracking in line with our expectations and support our revenue expectations for the year.

Speaker Change: Moving on to loans and card member receivables on slide 7, we saw year-over-year growth of 11%, demonstrating strong growth but continuing to moderate as expected.

Christophe Le Caillec: As we progress through 2024, we expect loan growth in particular to continue to moderate by a few percentage points but to still grow in double digits as we exit the year. Turning next to credit and provision on slides 8 through 10.

Speaker Change: As we progress through 2024, we expect loan growth in particular to continue to moderate by a few percentage points, but to still grow in double digits as we exit the year.

Speaker Change: Turning next to credit and provision on slide 8 through 10.

Christophe Le Caillec: Our credit performance remains very strong and is a direct result of our disciplined growth strategy, which has been focused on growing our high-credit-quality premium customer base, including through the younger customers we attract to the franchise. This strategy, coupled with our robust risk management practices, is an important aspect of our business model. Going forward, we expect our write-up rates to remain generally stable for the remainder of 2024.

Speaker Change: Our credit performance remains very strong and is a direct result of our discipline growth strategy which has been focused on growing our high credit quality premium customer base including through the younger customers we attract to the franchise.

Speaker Change: This strategy, coupled with our robust risk management practices, are an important aspect of our business models.

Speaker Change: Going forward, we expect our write-off rates to remain generally stable for the remainder of 2024.

Christophe Le Caillec: Turning now to the accounting for this credit performance on slide nine. The quarter of a quarter reserve buildup of $101 million is mostly driven by growth in our loan balances, largely offset by lower delinquency. This reserve bill, combined with net write-offs, drove $1.3 billion of provision expense in the second quarter. As you see on slide 10.

Speaker Change: Turning now to the accounting of this credit performance on slide 9.

Speaker Change: The quarter-over-quarter reserve bill of $101 million is mostly driven by growth in our loan balances, largely offset by lower delinquencies.

Speaker Change: This reserve bill combined with net write-offs drove $1.3 billion of provisional expense in the second quarter.

Christophe Le Caillec: We ended the second quarter with $5.6 billion in reserves, representing 2.8% of our loans and card member receivables, a slight decrease compared to Q1. It's worth noting that there is a seasonality component to reserves, although we are also encouraged by the strength of the performance we see in the portfolio. Moving next to revenue on slide 11, total revenues were up 9% year-over-year, benefiting from diversification across revenue streams, customer segments, and geography.

Speaker Change: As you see on slide 10, we ended the second quarter with $5.6 billion of reserves, representing 2.8% of our loans and card member receivables, a slight decrease compared to Q1.

Speaker Change: It's worth noting that there is a seasonality component to reserves, although we are also encouraged by the strength of the performance we see in the portfolio.

Speaker Change: Moving next to revenue on slide 11.

Speaker Change: Total revenues were up 9% year-over-year, benefiting from the diversification across revenue streams, customer segments, and geographies.

Christophe Le Caillec: Looking at the components of our revenue, our largest revenue line, discount revenue, grew 5% year-over-year 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 card fee revenues were up 16% year-over-year on an FX-adjusted basis, as you can see on slide 13. We're now generating over $2 billion in quarterly car fee revenue as the differentiated value and experience we offer on our products continues to resonate with our car members globally. This is an important metric for us because it also reflects the choice that our customers make each year to renew their membership.

Speaker Change: Looking at the components of our revenue, our largest revenue line, discount revenue, grew 5% year-over-year on an FX-adjusted basis, as you can see on slide 12. This growth is mostly driven by the spending trends we discussed earlier.

Speaker Change: Net card fee revenues were up 16% year-over-year on an FX-adjusted basis, as you can see on slide 13.

Speaker Change: We're now generating over $2 billion in quarterly car fee revenue as the differentiated value and experience that we offer on our products continues to resonate with our car members globally.

Speaker Change: This is an important metric for us because it also reflects the choice that our customers make each year to renew their membership. We are pleased with the growth and expect to exit the year with further momentum.

Christophe Le Caillec: We're pleased with the growth and expect to exit the year with further momentum. In the quarter, we acquired 3.3 million new cards, demonstrating the demand we're seeing for our products and the investment we've made. Acquisition of our premium fee-based products continues to account for around 70% of new accounts. And importantly, as we have increased the total number of cards acquired, we have maintained discipline and writing standards. Moving on to slide 14.

Speaker Change: In the quarter we acquired 3.3 million new cards demonstrating the demand we're seeing for our products and the investment we've made.

Speaker Change: Acquisition of our premium fee-based products continue to account for around 70% of new accounts.

Speaker Change: And importantly, as we have increased the total number of cards acquired, we have maintained discipline and the writing standards.

Christophe Le Caillec: Net interest income was up 20% year over year. This growth is driven by the increase in our revolving loan balances, which also contributes to the continued net yield expansion versus the prior year. As we've shared before, we continue to expect this growth to further moderate as we progress through the year. To sum up, revenues on slide 15, the power of our diversified model continues to drive strong revenue momentum, even in a slower growth environment, as our results in this quarter were fueled by growth in all our major revenue lines across each of our different business sectors and across geographies. Moving to expenses on slide 16. Starting at the top of the page, variable customer engagement expenses came in at 42% of the total revenues for the second quarter.

Speaker Change: Moving on to slide 14.

Speaker Change: Net interest income was up 20% year-over-year. This growth is driven by the increase in our revolving loan balances, which also contributes to the continued net yield expansion versus the prior year.

Speaker Change: As we've shared before, we continue to expect this growth to further moderate as we progress through the year.

Speaker Change: To sum up, revenues on slide 15, the power of our diversified model continues to drive strong revenue momentum, even in a slower growth environment as our results in this quarter were fueled by growth in all our major revenue lines.

Speaker Change: Across each of our different business sectors and across geographies.

Speaker Change: Moving to expenses on slide 16. Starting at the top of the page, variable customer engagement expenses came in at 42% of the total revenues for the second quarters.

Christophe Le Caillec: Looking forward, I expect variable customer engagement expenses as a ratio to revenues to be in line with this level for the balance of the year. On the marketing line, we continue to invest at an elevated level, at $1.5 billion in the second quarter. Given the strong performance in the core business, we now anticipate our full-year marketing spend to be around $6 billion, or 15% higher versus last year, as we plan to invest at high levels to sustain our growth momentum. To put this in perspective, this is an incremental $800 million above what we spend in 2023.

Speaker Change: Looking forward, I expect variable customer engagement expenses as a ratio to revenues to be in line with this level for the balance of year.

Speaker Change: On the marketing line, we continue to invest at an elevated level at $1.5 billion in the second quarter.

Speaker Change: Given the strong performance in the core business, we now anticipate our full-year marketing spend to be around $6 billion, or 15% higher versus last year, as we plan to invest at high levels to sustain our growth momentum.

Speaker Change: To put this in perspective, this is an incremental $800 million above what we spend in 2023.

Christophe Le Caillec: At the same time, we intend to deploy those investments in a disciplined way. As I discussed at Investor Day, our investment optimization engine is engineered to make profitability-based decisions at the margin. And there is a high bar for returns on these substantial incremental investments. Moving to the bottom of slide 16, we have operating expenses. Operating expenses were $3 billion in the second quarter, down 13% versus last year due to the 531 pre-tax gain we recognized from the sale of our certified business. Excluding the gain, operating expenses were up 3% in the quarter, well below the pace of revenue growth, even as we continue to invest in technology and our control management capabilities.

Speaker Change: At the same time, we intend to deploy those investments in a disciplined way. As I discussed at Investor Day, our investment optimization engine is engineered to make profitability-based decisions at the margin, and there is a high bar for returns on these substantial incremental investments.

Speaker Change: Moving to the bottom of slide 16 brings us to operating expenses.

Speaker Change: Operating expenses were $3 billion in the second quarter, down 13% versus last year, due to the $531 pre-tax gain we recognized from the sale of our Certified Business.

Speaker Change: Excluding the gain, operating expenses were up 3% in the quarter, well below the pace of revenue growth, even as we continue to invest in technology and our control management capabilities.

Christophe Le Caillec: Excluding the impact of the Certified Gain, we continue to expect operating expenses for the year to be fairly flat to 2023. This quarter's results demonstrate how the scale of the business and strong expense discipline enable us to generate significant efficiency. And those efficiencies are enabling us to invest at elevated levels while still generating significant levers to drive strong earnings growth. Turning next to Capitol on slide 17.

Speaker Change: Excluding the impact of the Certified Gain, we continue to expect operating expenses for the year to be fairly flat to 2023.

Speaker Change: This quarter's results demonstrate how the scale of the business and strong expense discipline enable us to generate significant efficiencies.

Speaker Change: And those efficiencies are enabling us to invest at elevated levels while still generating significant levers to drive strong earnings growth.

Christophe Le Caillec: Our CET1 ratio was 10.8% at the end of the second quarter, within our target range of 10% to 11%. We also returned $2.3 billion of capital to our shareholders, including $1.8 billion of share repurchase. This is the highest level in over two years, and the recent CCAR results further demonstrate the strength of our portfolio and the resilience of our business model. The stress test results show that under a severely adverse scenario, our portfolio remains profitable.

Speaker Change: Turning next to Capital on slide 17.

Speaker Change: Our CET1 ratio was 10.8% at the end of the second quarter.

Speaker Change: within our target range of 10 to 11 percent.

Speaker Change: We also return $2.3 billion of capital to our shareholders, including $1.8 billion of share repurchase.

Speaker Change: This is the highest level in over two years.

Speaker Change: And the recent CCAR results further demonstrate the strength of our portfolio and the resilience of our business model.

Speaker Change: The stress test results show that under a severely adverse scenario, our portfolio remains profitable.

Christophe Le Caillec: In fact, we are the most profitable financial institution as a percentage of asset growth across all the banks subject to CCAR and have the lowest credit card loss rate under stress as well. This results in our stress capital buffer remaining at 2.5%, the lowest prescribed level.

Speaker Change: In fact, we are the most profitable financial institution as a percentage of asset growth across all the banks subject to SCICAR and have the lowest credit card loss rate under stress as well.

Speaker Change: This results in our stress capital buffer remaining at 2.5%, the lowest prescribed level.

Christophe Le Caillec: 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 approach. This brings me to our 2024 guidance on slide 18. Let me step back and make a few observations about the growth in the business and the way we see the balance of the year unfolding. We have a core business that is comfortably generating mid-teens EPS growth, even in a slower growth environment and before the gain from the F-certified sale.

Speaker Change: 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 approach.

Christophe Le Caillec: Second, the pace of earnings generation in the core business, combined with the strong demand we are seeing in the market for our products, is enabling us to invest around 15% more in marketing compared to last year. As a result, we were able to fund significantly more investments from our core business than our expectation at the start of the year without relying on the one-off gain from the certification. With that, as Steve mentioned, we are raising our guidance for EPS for the year to a range of $1330 to $1380.

Speaker Change: This brings me to our 2024 guidance on slide 18.

Speaker Change: Let me step back and make a few observations about the growth in the business and the way we see the balance of the year unfolding.

Speaker Change: First.

Speaker Change: We have a core business that is comfortably generating mid-teens EPS growth, even in a slower growth environment, and before the gain from the F-certified sale.

Speaker Change: Second, the pace of earnings generation in the core business, combined with the strong demand we are seeing in the market for our products, is enabling us to invest around 15% more in marketing compared to last year.

Speaker Change: As a result, we are able to fund significantly more investments from our core business than our expectation at the start of the year without relying on the one-off gain from a certified.

Christophe Le Caillec: And within that range, we now expect to drop all 66 cents of the certified gain to the bottom line. This is a departure from our usual practice of reinvesting a significant portion of one-off gains in growth initiatives, but we are confident in the ability of our business to support the year-over-year growth of around $800 million in marketing while delivering mid-teens EPS growth. Finally, we still expect to deliver revenue growth in the year in line with our initial 9 to 11% range.

Speaker Change: With that, as Steve mentioned, we are raising our guidance for EPS for the year to a range of $1330 to $1380, and within that range, we now expect to drop all $0.66 of the Certified Gain to the bottom line.

Steve: This is a departure from our usual practice of reinvesting a significant portion of one-off gains in growth initiatives. But we are confident in the ability of our business to support the year-over-year growth of around $800 million in marketing while delivering mid-teens EPS growth.

Steve: Finally, we still expect to deliver revenue growth in the year in line with our initial 9-11% range. With that, I turn the call back over to Kartik to open up the call for your questions.

Kartik Ramachandran: With that, I turn the call back over to Kartik to open up the call for your questions. Thank you, Christophe. Before we open up the lines for Q&A, I will ask those with you to please limit themselves to one question. Thank you for your cooperation.

Kartik Ramachandran: Thank you Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourselves to one question.

Operator: Now open up the line for questions.

Kartik Ramachandran: Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator?

Operator: Ladies and gentlemen, if you wish to ask a question, please press star, then 1 on your touch-tone phone. You'll hear a tone indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing star, then 2. If you are using a speakerphone, please pick up the handset before pressing the numbers.

Speaker Change: Ladies and gentlemen, if you wish to ask a question, please press star, then 1 on your touchtone phone. You'll hear a tone indicating that you've been placed in queue.

Speaker Change: You may remove yourself from the queue at any time by pressing star then 2. If you are using a speakerphone, please pick up the handset before pressing the numbers. One moment please for the first question.

Ryan Matthew Nash: One moment, please, for the first question. Our first question is coming from Ryan Nash of Goldman Sachs. Please go ahead.

Speaker Change: Our first question is coming from Ryan Nash of Goldman Sachs. Please go ahead.

Stephen Joseph Squeri: Good morning, Steve. Good morning, Christophe. Good morning. Good morning. Steve, can you maybe expand on, you know, what you're seeing in the U.S. consumer and SMEs, you know?

Christophe Le Caillec: Good morning, Christophe. Good morning.

Ryan Matthew Nash: Good morning, Steve. Good morning, Christophe. Morning. Morning.

Ryan Matthew Nash: Steve, can you maybe expand on, you know, what you're seeing in the U.S. consumer and SMEs, you know, U.S. consumer, we saw a little bit of a slowdown from 8 to 6

Ryan Matthew Nash: Are you seeing a broader slowdown in the consumer? Maybe just talk about what you're seeing on a same store sales basis. And then on the SME side, you obviously saw a slight uptick. So maybe if you could just expand on those both. Thank you.

Stephen Joseph Squeri: Yeah, so I think, look, in the US consumer, you saw a little bit of a sequential decline. But also remember, last quarter, we had the extra day. So you know, it's not really apples to apples.

Speaker Change: Yeah, so I think, look, in U.S. consumer, you saw a little bit of a sequential decline, but also remember

Speaker Change: Last quarter we had the extra day, so you know, it's not really apples to apples, but...

Speaker Change: Listen, the U.S. consumer was 6% up for the quarter, continued to be.

Stephen Joseph Squeri: But listen, the US consumer was 6% up for the quarter, and continued to be strongly influenced by millennial and Gen Z growth. It's now up to 33% of our total billings, and they're up 13%. And so we feel good about where the U.S. consumer is. Obviously, organic spending, we'd like to see a little bit higher, but it is a slower growth economic environment. But one thing I will point out before touching on SME, you know, when our Consumer, a lot of their spending is, you know, discretionary.

Speaker Change: strongly you know influenced by millennial and Gen Z growth you know it's now up to 33% of our total billings and they're up

Speaker Change: 13%. And so we feel, you know, we feel good where the U.S. consumer is. Obviously, organic spending, we'd like to see a little bit higher, but it is a, it is a slower growth economic environment. But one thing I will point out before

Stephen Joseph Squeri: And for our consumers, if they decide they're going to pull back, they'll pull back a little bit on discretionary spending, but they'll continue to pay their bills, which is why, you know, our credit numbers continue to be so strong. And we continue to widen the gap between us and our competitors. So we feel that, you know, look, the US consumer has been pretty consistent. And we think it's going to be pretty consistent throughout the year.

Speaker Change: Touching on SME, you know when

Speaker Change: Our consumer.

Speaker Change: A lot of their spending is, you know, is discretionary.

Speaker Change: For our consumer, if they decide they're going to pull back, they'll pull back a little bit on a discretionary, but they'll continue

Speaker Change: to pay their bills, which is why, you know, our credit numbers continue to be so strong, and we continue to widen the gap between us and our competitors. So we feel that, you know, look, the U.S. consumer's been pretty consistent, and we think it's going to be pretty consistent throughout the year.

Stephen Joseph Squeri: From a small business perspective, you know, while there still is an organic decline year over year, that organic decline is less than it was last quarter and the quarter before that. So, you know, we're seeing slight improvement. In both the US consumer and in small business, retention is still strong, and acquisition is still, And so what I like about where we're sitting is, as the economy rebounds, whenever that may be, organic growth will pick up, driving future growth.

Speaker Change: From a small business perspective, you know, while there still is an organic decline year over year, that organic decline is less than it was last quarter and the quarter before that. So, you know, we're seeing slight improvement.

Speaker Change: In both the U.S. consumer and in small business, retention is still strong and acquisition is still strong.

Stephen Joseph Squeri: And then just the last comment on internationally, you didn't ask about it, because probably it is so strong, it's up 13% in the quarter, and even small business and commercial within, you know, within international is up 14%. So we feel, you know, we feel good about where we are right now. Thank you. Fargo, please go ahead.

Speaker Change: And so, what I like about where we're sitting is...

Speaker Change: As the economy rebounds, whenever that may be, organic will pick up, driving future growth, and then just the last comment on international, you didn't ask about it, because probably it is so strong, it's up 13% in the quarter, and even small business and

Speaker Change: Commercial within, you know, within international is up 14%. So we feel, you know, we feel good about where we are right now.

Donald James Fandetti: Thank you. The next question is coming from Don Fandetti of Wells Fargo. Please go ahead.

Speaker Change: Thank you. The next question is coming from Don Fandetti of Wells Fargo. Please go ahead.

Donald James Fandetti: Yes, can you talk a little bit, I know you're reiterating your revenue guide for 24 of 9 to 11 percent, but you know, just given the results, do you think you're sort of more leaning towards the mid to lower end? And then can you talk about where you're investing in marketing in terms of U.S. consumer, commercial, and international?

Stephen Joseph Squeri: Yes, so I think Look, quarter to date, we're at about 10%, both reported in FX, and for the quarter, we were at 8 and 9, and so I think we're going to wind up within that range, and I think depending upon how organic either rebounds or stays where it is will determine where we wind up within that range, but we're very comfortable with sort of the 9 to 11. As far as investment, you know, what we do is, we will look at the myriad of opportunities that we have to acquire more cardholders, and depending upon at any given point in time, because our acquisition engine is a very dynamic engine, and things change all the time, we will allocate those investments either to U.S. consumers, small businesses, or internationally. Traditionally, the US consumer business would get more of that investment, you know, followed either by international and small business.

Speaker Change: Yes, so I think...

Speaker Change: You know, look, quarter to date, we're at about 10%, both reported in FX, and for the quarter, we were at 8 and 9, so I think we're going to wind up within that range, and I think, depending upon how organic

Speaker Change: with

Speaker Change: Sort of the 9 to 11.

Speaker Change: As far as investment, what we do is we will look at

Speaker Change: the myriad of opportunities that we have to acquire more cardholders and depending upon at any given point point in time because

Speaker Change: Our acquisition engine is a very dynamic engine and things change all the time. We will allocate those investments either U.S. consumer, small business, or international.

Speaker Change: Traditionally, the U.S. consumer business would get more of that investment.

Speaker Change: you know, followed either by international and small business. But as I sit here today, it's hard to say exactly what percentages will be, but it will be focused on acquiring more cardholders. And the key about that is.

Stephen Joseph Squeri: But as I sit here today, it's hard to say exactly what percentages will be, but they will be focused on acquiring more cardholders. And the key about that is that when we acquire cardholders in the second half of the year, it's really not going to drive spending for us this year. It will,

Speaker Change: is that when we acquire cardholders in the second half of the year, it's really not going to drive spending for us this year. It will, what we're doing here is we're investing for the for the medium and the longer term.

Stephen Joseph Squeri: What we're doing here is investing for the medium and the longer term, and it'll acquire cardholders that will spend for us for us next year. So I think the takeaway from, you know, the point that Christophe made and the point that I made is that businesses are so we feel the business is strong right now that we're able to, you know, invest more. And we have a line of sight into those opportunities without compromising on credit. The only thing I

Speaker Change: and it will acquire cardholders that will spend for us.

Speaker Change: for us next year. So I think

Speaker Change: The takeaway from, you know, the point that Christophe made and the point that I made is the business is, we feel the business is strong right now, that we're able to, you know, invest more and we have line of sight into those opportunities without compromising on credit.

Stephen Joseph Squeri: The only thing I will add to that, Don, is that revenue growth was exactly as we were expecting it to be. And as we talked about it on the Q1 call, we talked about stable billings, which is exactly what we got. We talked about card fees remaining in terms of growth where they were in Q1 before picking up a bit of momentum in the balance of the year. We still think that is the right way to think about card fees. And we talked about the NII growth rate moderating a little bit. So, whether revenue growth is where we thought it would be is the next question. Sanjay Sakhrani of KBW, please go ahead.

Speaker Change: The only thing I will add to that, Don, is that...

Donald James Fandetti: The revenue growth was exactly as we were expecting it to be, and as we talked about it under

Speaker Change: Q1 call. We talked about stable billings, which is exactly what we got. We talked about card fee remaining in terms of growth where it was in Q1 before picking up a bit of momentum in the balance of the year. We still think that is the right way to think about card fees. And we talked about NII growth rate moderating a little bit.

Speaker Change: So that revenue growth is where we thought it would be.

Sanjay Harkishin Sakhrani: Thank you. The next question is coming from Sanjay Sakhrani of KBW. Please go ahead.

Speaker Change: Thank you. The next question is coming from Sanjay Sakhrani of KBW. Please go ahead.

Sanjay Harkishin Sakhrani: Thanks. Good morning. Steve, I think I heard you say a gold cart refresh will probably be announced shortly. I guess just can we contextualize what that means? I assume it probably helps cart fees next year. And then just the spend trends intra-quarter, were those pretty stable? It sounds like they were, but just clarifying.

Stephen Joseph Squeri: Yeah, so I'm not going to get into the details of the card. But what I would say is, you know, one of the big advantages of the refresh is that it makes the marketing dollars work a lot harder, right? So what happens is, when you do a product refresh, whether it's gold, whether it's Delta, you know, whether it's Hilton, or whether it's another gold or platinum card that we do internationally, What happens is you're able to provide more value to those cardholders that already have the product. For example, you may be able to upgrade a green card to a gold card.

Speaker Change: Yeah, so not going to get into the details of the card, but what I would say is, you know, one of the big advantages of the refreshes

Speaker Change: is, it makes the marketing dollars work a lot harder, right? So what happens is, when you do a product refresh, whether it's gold, whether it's Delta, you know, whether it's Hilton, or whether it's another gold or platinum card that we do internationally,

Speaker Change: What happens is you're able to provide more value to those cardholders that already have the product.

Speaker Change: You may be able to upgrade a green to a gold.

Speaker Change: And obviously you're able to acquire even new card holders with that.

Speaker Change: And what happens is as you go out and acquire new cardholders, you'll have buzz around the fact that we have a new card and it has, you know, obviously a different value proposition.

Stephen Joseph Squeri: And obviously, you're able to acquire even new cardholders with that. And what happens is, as you go out and acquire new cardholders, you'll have buzz around the fact that we have a new card and it has, you know, obviously, a different value proposition. And you'll have the marketing that goes with it. And so when you do a refresh, and you have your marketing spend, your marketing dollars work a little bit, you know, the overall value proposition is a lot stronger, and it works a little bit, a little bit harder for you. And what do you think?

Speaker Change: And you'll have the marketing net that goes with it. And so when you do a refresh and you have your marketing spend, your marketing dollars work a little bit, you know, the overall value proposition is a lot stronger and it works a little bit, a little bit harder for you.

Christophe Le Caillec: And when it comes to their intra-quarter billings, we typically don't talk about those, and there's nothing much to say here, so there's nothing noticeable in terms of monthly billing growth.

Speaker Change: And when it comes to their intra-quarter billings, we typically don't talk about those, and there's nothing much to say here, so there's nothing noticeable in terms of monthly billing growth.

Craig Jared Maurer: Thank you. The next question is coming from Craig Maurer of FT Partners. Please go ahead.

Speaker Change: Thank you. The next question is coming from Craig Maurer of FT Partners. Please go ahead.

Craig Jared Maurer: Good morning. Thanks for taking the question.

Stephen Joseph Squeri: I wanted to ask about the marketing spend, and it seems like you're putting the pedal down. Typically, when American Express does this, it's because, or at least in the past, you've seen this happen because Amex is either anticipating or already seeing a slowdown from competitors in terms of their market activity, and you see a significant opportunity.

Craig Jared Maurer: Yeah, good morning. Thanks for taking the question.

Craig Jared Maurer: I wanted to ask about the marketing spend, and it seems like you're putting the pedal down.

Speaker Change: So, typically...

Speaker Change: When American Express does this, it's because, or at least in the past,

Speaker Change: You've seen this happen because Amex is either anticipating or already seeing

Speaker Change: A slowdown from competitors in terms of their market activity.

Speaker Change: And you see a significant opportunity to gain share. Is that, is any of that thought process going into this here? And second,

Stephen Joseph Squeri: That thought process going into this here, and second, business development costs.

Christophe Le Caillec: I'm curious if that's due to some slower partner growth that might have meant less incentives or what went into that. Thanks.

Speaker Change: Business development costs were lower than what was being forecast so I'm curious if that's due to some slower partner growth that might have meant less incentives or what went into that. Thanks.

Stephen Joseph Squeri: Yeah, so a couple points. Six billion dollars for the year in total marketing is not an area we've ever, not an area we've ever been in before, and an $800 million year over year increase is a pretty significant increase. I think that [inaudible] When we make a decision, Craig, to put, So, if you look at where we have been from a marketing spend perspective for the first two quarters, you know, that would show a trajectory of $6 billion. So we're really keeping all of our marketing spending consistent quarter to quarter because we do see the opportunity.

Speaker Change: Yeah, so, a couple points, I think.

Speaker Change: Six billion dollars for the year in total marketing is not an area we've ever, not an area we've ever been in before.

Speaker Change: When we make a decision, Craig, to put...

Speaker Change: To put more marketing dollars in, it's because we see the opportunity.

Craig Jared Maurer: If you look at where we have been from a marketing stand,

Craig Jared Maurer: for the first two.

Craig Jared Maurer: for the first two quarters.

Speaker Change: You know that would show a trajectory of six billion of six billion dollars So we're really keeping all of our marketing spending

Speaker Change: consistent quarter-to-quarter because we do see the opportunity.

Stephen Joseph Squeri: And we see the opportunity within the credit box and within the dimensions of who we're looking for for our cardholders. Um, you know, it's not due to a slowdown in, in, and in billings. This was something that we had planned to do at the beginning of the year when billings were where they weren't going to be. Um, and as far as competitors pulling back, I don't see competitors pulling back at all.

Speaker Change: And we see the opportunity within, you know, within the, within the credit box.

Speaker Change: and within the dimensions of who we're looking for, for our cardholders.

Speaker Change: It's not due to a, we're not making this investment because of a slowdown in billings. This was something that we had planned to do at the beginning of the year where billings were where they weren't going to be.

Stephen Joseph Squeri: I think competitors right now, you know, the environment is just as competitive as it's ever been. Obviously, you make these investments because, you know, obviously you want to gain more traction with your cardholders and you want to gain, you want to gain more share, either way.

Speaker Change: And as far as competitors pulling back, I don't see competitors pulling back at all. I think competitors right now, you know, the environment is just as competitive as it's ever been.

Speaker Change: Obviously, you make these investments because you obviously want to gain, you want to gain more traction with your cardholders and you want to gain, you want to gain more share.

Christophe Le Caillec: Craig, let me add a few things and I will also answer your question about business development expenses. So the other element here to factor into the decision to invest more is the visibility we have in the balance of your performance. The business is generating a lot of earnings. We have more visibility in terms of the credit performance and the balance of year in terms of the OPEX as well. And that gives us confidence in our ability to actually deploy more marketing dollars, there you know and to get to your question about business developments uh it's uh expenses it's there's nothing here you know uh significant there there was uh in the quarter some efficiencies i would use that word in terms of the commercial span and the incentives that we have with some or some uh card members and partners here and it gave us a bit of efficiency but there was nothing related specifically to co-brand partners or or anything of that

Speaker Change: Craig, let me add a few things and I will also answer your question about business development expenses. So the other element here to factor into the decision to invest more is the visibility we have in the balance of your performance.

Speaker Change: The business is generating a lot of earnings. We have more visibility in terms of the credit performance and the balance of year in terms of the OPEX as well. And that gives us confidence in our ability to actually deploy more marketing dollars.

Richard Barry Shane: Thank you. The next question is coming from Rick Shane of J.P. Morgan. Please go ahead.

Speaker Change: To get to your question about business developments, expenses, there's nothing here significant.

Speaker Change: There was, in the quarter, some efficiencies. I will use that word in terms of the commercial span and the incentives that we have with some card members and partners here, and it gave us a bit of efficiency, but there was nothing related specifically to co-brand partners or anything of that nature.

Speaker Change: Thank you. The next question is coming from Rick Shane of J.P. Morgan. Please go ahead.

Richard Barry Shane: Thanks, everybody, for taking my question, and I apologize. I can't see my computer this morning, so it's a little hard to get context on the marketing spend. But what I'm trying to understand is the following.

Richard Barry Shane: Thanks everybody for taking my question and I apologize I can't see my computer this morning so it's a little hard to get context on the marketing.

Christophe Le Caillec: What I've heard is that given the strength of the underlying business, the incremental marketing spend is going to be funded organically as opposed to from the certified gain. What I'm wondering is whether that $800 million year over year has changed materially from your prior guidance. Have you, in fact, increased your expectations and funded it organically, or is it roughly the same, and it's just a matter of how you're going to pay for it?

Speaker Change: Spend, but...

Richard Barry Shane: What I'm trying to understand is the following, what I've heard is that given the strength of the underlying business

Speaker Change: The incremental marketing spend is going to be funded.

Speaker Change: organically as opposed to from the certify game.

Speaker Change: What I'm wondering is that $800 million year over year, has that changed materially?

Speaker Change: from your prior guidance. Have you in fact increased your expectations and funded it organically or is it roughly the same and it's just a matter of how you're going to pay for it?

Christophe Le Caillec: Yeah, let me, let me take that question, and I hope you fix your computer problem soon. The way to think about this is we always, so we entered the year thinking we wanted to invest, and we wanted to invest more because we see the opportunities, and they are compelling investments with attractive returns. The fact of the matter is that the core business, which I would define as like the business excluding the certified gain, is generating more earnings than we had anticipated.

Christophe Le Caillec: Yeah, let me.

Speaker Change: Yeah, let me take that question, and I hope you fix your computer problem soon. The way to think about this is...

Speaker Change: We always, so we entered the year thinking we want to invest and we want to invest more because we see the opportunities and they are compelling investments with attractive returns.

Speaker Change: The fact of the matter is that

Speaker Change: The core business, which I would define as like the business excluding the certified gain, is generating more earnings than we had anticipated. So you're right, we can afford to spend more.

Christophe Le Caillec: So you're right, we can afford to spend more and fund it through the core business. But on top of that, we also raise a little bit of our marketing dollars. Now, it's not a significant amount. You know, as we've said in the past, in a given week, we spend $120 million on average on marketing dollars. So 100 or 200, a bit more, a bit less, it's actually not that material. But the key thing here is that in terms of funding, it's going to be funded entirely from the core business. And because it's generating more earnings than we had anticipated at the beginning of the year.

Speaker Change: and to fund it through the core business. But on top of that, we also raised a little bit our marketing dollars.

Speaker Change: Now it's not a significant amount either as we've said in the past in a given week we spent a hundred and twenty million dollars on average of marketing dollars so

Speaker Change: 100 or 200 a bit more a bit less it's actually not that material but the key thing here is that in terms of the funding it's going to be funded all from the core business and and because it's generating more earnings that we had anticipated at the beginning of the year.

Jeffrey David Adelson: Thank you. The next question is coming from Jeff Adelson of Morgan Stanley. Please go ahead.

Speaker Change: Thank you. The next question is coming from Jeff Adelson of Morgan Stanley . Please go ahead.

Jeffrey David Adelson: Hey, good morning, Stephen, Christophe, morning, morning. Just wanted to revisit the credit quality a little bit. I know last quarter, Christophe, you were talking about your expectation for write-offs to kind of continue ticking up from here. And seems like your view has now shifted to a more stable outlook for the rest of the year; you just need to talk about what you're seeing from your core customers' health, maybe driving some more confidence in the outlook there.

Speaker Change: Hey, good morning. I'm Stephen Kristof. Morning. Morning.

Stephen Kristof: I wanted to revisit the credit quality a little bit. I know last quarter, Christophe, you were talking about, you know, your expectation for write-offs to kind of continue ticking up from here.

Speaker Change: It seems like your view has now shifted to a more stable outlook over the rest of the year. Can you just maybe talk about what you're seeing from your core customers' health?

Speaker Change: Maybe we're striving some more confidence in the outlook there. And then, you know, should we also be thinking about a stable reserve rate from here versus I think you were talking about more of an uptick over the rest of the year as well previously? Thank you. Yeah.

Jeffrey David Adelson: And then, you know, should we also be thinking about a stable reserve rate from here versus, I think you were talking about more of an uptick over the rest of the year as well previously? Thank you. Yeah, yeah.

Christophe Le Caillec: Hey, good morning, Jeff. So you're right. We have changed a little bit the way we think about credit write-offs for the balance of the year, and we are at the beginning of Q3 now. We had good visibility in terms of what's going to write off in Q3 and Q4, so we can be more confident in terms of providing a direction here. To your point, the direction we're providing now is that it's going to be stable at about the level you saw in Q2, at around 2.1%.

Speaker Change: Hey, good morning, Jeff. So you're right. We have changed a little bit the way we think about credit.

Speaker Change: Write-offs for the balance of your and

Speaker Change: You know, we are at the beginning of Q3 now, we had good visibility in terms of what's going to ride off in Q3 and Q4, so we can be more confident in terms of providing a direction here, and to your point, the direction we're providing now is that it's going to be like stable at about the level you saw in Q2 at around 2.1%.

Christophe Le Caillec: Now, I need to say this specifically to address your question on the reserve and how to think about it for the balance of the year. A big driver of the reserve is going to be delinquency levels, right? Those card members that are showing signs of stress early on.

Speaker Change: Now, I need to say this, specifically to address your question on the reserve and how to think about it for the balance of your, a big driver of the reserve is going to be the delinquency levels, right? Those card members that are showing signs of signals of stress early on.

Christophe Le Caillec: The delinquency improvement in the quarter, there is seasonality in that improvement, right? And so we expect that the delinquency rate is just going to pick up a bit in the balance of the year, and that will drive a bit of incremental reserve together with the volume growth that we expect to see. But from a reserve rate standpoint, we are at 2.8%. You know, it's a good reference point for what to expect for the balance of the year.

Speaker Change: The Delinquency Improvement in the Quarter

Speaker Change: there is seasonality in that in that improvement right and so we expect either that delinquency rate is just going to probably take up a bit in the balance of year and that will drive

Speaker Change: You know, a bit of incremental reserve together with the volume growth that we expect to see.

Speaker Change: But from a reserve rate standpoint, we are 2.8%.

Speaker Change: You know, it's a good reference point for what to expect for the balance of the year. It might increase a little bit, we'll see. It's hard to predict where CSPL is just going to land exactly at the end of Q4. But it's a good guide in terms of what to expect for the balance of the year. I would expect 2.8, maybe 2.9%, but we're going to be in that range.

Christophe Le Caillec: It might increase a little bit. We'll see. It's hard to predict where Seaspool is just going to land exactly at the end of Q4. But it's a good guide in terms of what to expect for the balance of the year. I would expect 2.8%, maybe 2.9%, but we're going to be in that range from where we are now for the balance Bank. Yeah, thanks.

Speaker Change: And to your point, credit losses, we expect stability from...

Speaker Change: from where we are now for the balance of a year.

Christophe Le Caillec: Thank you. The next question is coming from Mark DeVries of Deutsche Bank. Please go ahead.

Speaker Change: Thank you. The next question is coming from Mark DeVries of Deutsche Bank. Please go ahead.

Mark Christian DeVries: Yeah, thanks. You know, as I think you pointed out, it is pretty unusual for you to let a gain like the Assertify gain fall to the bottom line.

Mark Christian DeVries: And I realize you don't give 2025 guidance, but Steve, just kind of wondering, you know, if you're still expect to target that mid-teens EPS growth off this higher 2024 EPS level?

Mark Christian DeVries: Well, I'm actually glad you asked that question, because it is a one-time gain. And so, as we do give guidance for next year, we certainly do expect to be in that mid-teens EPS range.

Steve: Well, I'm actually glad you you asked that question because it is a one-time gain And so as we do give guidance for next year, we certainly do expect

Stephen Joseph Squeri: However, we will be, you know, and we'd expect that people would adjust for that one-time gain. I think by calling out that one-time gain the way that we have and not using it within the business, I think it makes your job a little bit easier to just sort of remove that and then build from there. Because, you know, when you look at it, it's a one-time gain. That's why they call it a one-time gain.

Steve: You know, to be in that mid-teens EPS range, however.

Steve: We.

Steve: We will be you know and we'd expect that people would adjust for that one-time gain I think by calling out that one-time gain the way that we have and not using it

Steve: Within the business, I think it makes your job a little bit easier to just sort of remove that and then build from there because, you know, when you look at it, it's a one time game. That's why they call it a one time game. But the thing that I would also point out is that, you know,

Stephen Joseph Squeri: But the thing that I would also point out is that, you know, because we have elevated our marketing spending to where it is, using the core business and not using the one time, that gives us the opportunity to actually reset our marketing at a much higher level for next year, which will allow us to drive even more growth as we go forward. So that's the, you know, that's the big advantage that we look at this by not using a one-time gain and saying, hey, look, that's what we didn't have in our core by adjusting our marketing by using core earnings.

Steve: Because we have elevated our marketing spending to where it is, using the core business and not use the one-time gain.

Steve: that gives us the opportunity to actually reset our marketing at a much higher level for next year

Steve: which will allow us to drive even more growth as we as we go forward so that's the you know that's the big advantage that we look at this by not using a one-time gain and saying hey look that's what we didn't have in our core by by adjusting up our marketing by using core earnings

Stephen Joseph Squeri: You know, our anticipation is we'll be able to keep that marketing there and grow from there going forward versus, you know, going back to the 5.2 billion. Thank you. The next question is from Kennedy of Fully.

Steve: You know, our anticipation is we'll be able to keep that marketing there and grow from there going forward versus, you know, going back to the 5.2 billion.

Chris Kennedy: Thank you. The next question is coming from Chris Kennedy of William Blair. Please go ahead. Good morning.

Chris Kennedy: Thank you. The next question is coming from Chris Kennedy of William Blair. Please go ahead. Good morning. Thanks for taking the question. At the Investor Day, digital banking was one of the key areas of investment over the next couple of years. Can you just talk about those investments and what the goal is there?

Stephen Joseph Squeri: Yeah, look, the overall goal is to be more engaged with both our small businesses and to be more engaged with our consumers. And I think, you know, digital banking is a bit of a journey for us. You know, we now have multiple accounts.

Speaker Change: Yeah, the overall goal is to be more engaged with both our small businesses and to be more engaged

Speaker Change: with our consumers and I think

Stephen Joseph Squeri: And, you know, we're just going to continue to invest not only in capabilities but also in making sure that our customers are using that. So there'll be more to come on that. But we're at the beginning of this journey, and there's still a long way for us to go. Terry Ma of Barclays, please go ahead.

Speaker Change: You know, digital banking is a bit of a journey for us, you know, we now have

Speaker Change: multiple accounts and you know we're just going to continue to invest not only in capabilities but continue invest in in a quiet in in making sure that our customers are using that so they'll be more to come on that but we're at the beginning of this journey and there's still a long way for us to go.

Terry Ma: Thank you. The next question is coming from Terry Ma of Barclays.

Speaker Change: Thank you. The next question is coming from Terry Ma of Barclays. Please go ahead.

Terry Ma: Please go ahead. Hey, thanks. Good morning. Just want to get some more color on how you're doing.

Terry Ma: Hey, thanks. Good morning. I just want to get some more color on how your announced product refreshers are going in terms of just acquisitions, retention, and just overall receptiveness, and whether or not you still feel pretty good about having net card fees exit the year higher than last year.

Christophe Le Caillec: in terms of acquisition for the product refreshers. And in terms of just overall how product refreshes are going and whether or not You still feel pretty good about having that car feed growth exit the year. Yeah, so So we feel very good about either adding a bit more momentum as we said in terms of the car feed growth We are like 16% FX-adjusted and we are definitely expecting This to tick up a bit in in in the balance of year It's on the back of their product refreshes, but not only on the back of product refreshes I mean, they're the single most important as I said in my prepared remark here single most important element of that is their renewed commitment that Card members tenured card members in the portfolio make every year to actually renew the membership, right?

Speaker Change: in terms of acquisition for the product refreshers.

Terry Ma: and in terms of just overall how product refreshes are going and whether or not you still feel pretty good about having that carb feed growth exit the year.

Speaker Change: Yeah, so we feel very good about either adding a bit more momentum, as we said, in terms of the coffee growth, we are at like 16% FX-adjusted and we are definitely expecting

Speaker Change: It's on the back of their product refreshes, but not only on the back of product refreshes. I mean, they're the single most important, as I said in my prepared remark here.

Speaker Change: The single most important element of that is the renewed commitment that card members, tenured card members in the portfolio make every year to actually renew their membership.

Christophe Le Caillec: That's a super important element of the mix here, but car refreshes. We're on track. We talked about 40 products and we are tracking well against that, and as Steve said, you know gold is next to come. Yeah, I mean we're about 40 products.

Speaker Change: That's a super important element of the mix here.

Speaker Change: Car Refreshers. We're on track. We talked about 40 products and we are tracking well against that. And as Steve said, you know, gold is next to come. Yeah, I mean, we're about halfway through on those product refreshes. Gold is the next big one to come. And, you know, it's really a little bit too early to tell how each one individually has done, but

Stephen Joseph Squeri: Yeah, I mean, we're about halfway through on those product refreshes; gold is the next big one to come. And, you know, it's really a little bit too early to tell how each one individually has done. But, you know, what you'll look at is, you know, 3.4 million cards, 3.3 million cards acquired, and retention rates are still strong. And, you know, those are the things that you look at, but, you know, we'll be able to have more color as the year goes on.

Speaker Change: You know, what you'll look at is, you know, 3.4 million cards, 3.3 million cards acquired and retention rates are still strong. And, you know, those are those are the things that that you look at. But, you know, we'll be able to have more color as the year goes on.

Saul Martinez: Thank you. The next question is coming from Saul Martinez of HSBC. Please go ahead.

Speaker Change: Thank you. The next question is coming from Saul Martinez of HSBC. Please go ahead.

Christophe Le Caillec: Hey, good morning, guys. So a question on your EPS guidance, the midpoint of your guidance range implies an EPS in the second half that at the midpoint of the range suggests around 2.6% growth. I think at the higher end, it's roughly a little under seven. Now, obviously, the higher marketing explains the bulk of it, if not all of it. But just wanted to ask, is there anything else there that is relevant that we should be thinking about driving that deceleration and, you know, maybe different than what you had anticipated?

Saul Martinez: Hey, good morning guys. So, a question on your EPS guide, the midpoint of your...

Speaker Change: Guidance range implies an EPS in the second half that at the midpoint of the range suggests around 2.6 percent growth. I think at the higher end it's roughly a little under 7. Now obviously the higher marketing explains

Christophe Le Caillec: Because obviously, you know, on a core basis, your numbers, stripping out a certified have been better than expected in the first half yet, you know, core basis kept EPS Guide, Unchanged. And on that second half outlook, I think you have said in the past, correct me if I'm wrong, that CART's acceleration ends the year closer to 20%. I think you, I don't think you've given a specific number on this call other than to say you see some acceleration, but it's 20% still the bogey there. Thanks. So we.

Speaker Change: The bulk of it, if not all of it, but...

Speaker Change: Just wanted to ask, is there anything else there that is relevant that we should be thinking about?

Speaker Change: Driving that deceleration and, you know, maybe different than what you had anticipated because obviously, you know, on a core basis, your numbers dripping out of Certify have been better than expected in the first half, yet, you know, core basis kept the EPS

Speaker Change: Guide, Unchanged. And on that second half outlook, I think you have said in the past, if I'm wrong, that car acceleration ends the year closer to 20%. I think...

Speaker Change: I don't think you've given a specific number on this call, other than to say you see some acceleration, but it's 20% still the bogey there. Thanks.

Christophe Le Caillec: So, we haven't given a number, and I'm going to stick to that, but your math is, you know, we've done the math as well, and we're looking at those numbers, and you need to factor, as well, into account the fact that last quarter we had a, you know, about $200 million of one-off gain as well, you might remember linked to the URR model. But when, as you think about The first thing is that, as I said, it was kind of a previous question, I think it was from Jeff, we expect to build some balances in the balance of the year for credit reserves, CECL balance, CECL reserves, sorry, and so that will put a bit of pressure on the EPS. and you'll see that the EPS cadence, so the run rate is actually not moving that fast and remains very hot.

Speaker Change: So, we haven't given a number, and I'm going to stick to that, but your math is, you know, we've done the math as well, and we're looking at those numbers, and you need to factor as well into account the fact that last quarter we had a, you know, like about $200 million of

Speaker Change: [inaudible]

Speaker Change: As I said, it was from a previous question, I think it was from Jeff.

Speaker Change: We expect to build some balances in the balance of the year.

Speaker Change: for Credit Reserve, Cecil Reserve, sorry.

Speaker Change: And so that will put a bit of pressure on the EPS.

Speaker Change: The second thing is that APEX...

Speaker Change: We're investing in technology, as I said in my remarks as well, we're investing in our control management capabilities.

Speaker Change: and and typically as well it's a seasonal factor at American Express we've seen operating expenses pick up a little bit towards the end of the year so when you bake all of this into account including a bit more marketing that we are projecting at this at this point in time in the balance of year you actually get back on your feet and you'll see that

Speaker Change: The EPS cadence or run rate is actually not moving that much and remains like very high.

Moshe Ari Orenbuch: Thank you. The next question is coming from Moshe Orenbuch of TD Cowen. Please go ahead.

Speaker Change: Thank you. The next question is coming from Moshe Orenbuch of TD Cowen. Please go ahead.

Moshe Ari Orenbuch: Great, thanks. [inaudible]

Kartik Ramachandran: You know, Kartik, as you look at the as you look at the Net Interest Income, you know, that did decelerate by about six.

Moshe Ari Orenbuch: Great, thanks.

Moshe Ari Orenbuch: Is there, you know, Kartik, as you look at the, as you look at the, um...

Christophe Le Caillec: You know, that did decelerate about six points in the quarter, from the first quarter level, but still, the growth rate of NII is still well above the growth rate in loans. As you kind of approach the end of the year, do you think that those two kind of converge? Or will, you know, will there be margin pressure? And, you know, could that net interest income growth be lower than the growth imbalances by the Thank you for your question, Moshe. There are a couple of things to keep in mind here.

Speaker Change: Net Interest Income, you know that did decelerate about six points in the in the quarter

Speaker Change: You know from the first quarter level

Speaker Change: But still, the growth rate of NII is still well above the growth rate in loans. As you kind of approach the end of the year,

Speaker Change: Do you think that those two kind of converge or will, you know, you know, will there be margin pressure and, you know, could that net interest income growth be lower than the growth imbalances by then?

Christophe Le Caillec: The first one is that, as I've said, we should expect the volume, the balances, the loans to growth rate to moderate a bit further in the balance of the year, although it will remain in double digits. From a yield standpoint, we have a slide that shows the yield. We had a bit of a yield improvement on the back of, you know, I would say a few things, year over year yield improvement on the back of, you know, their revolve rates are a bit higher, and they keep ticking up a little bit.

Speaker Change: Thank you for your question, Moshe. There are a couple of things to keep in mind here. The first one is that, as I've said,

Speaker Change: We should expect the volume, the balances, the loans to growth rate to moderate a bit further in the balance of year, although it will remain in double digit.

Speaker Change: From a yield standpoint, we have a slide that shows the yield. We had a bit of a yield improvement on the back of, I would say, a few things.

Speaker Change: You're over your yield improvement. On the back off Agriculture Journal, their revolt rates or go higher. Keeping up a little bit and the 2nd thing is and was as we covered during the investi day on the funding side we still have this dynamic around You know bigger

Christophe Le Caillec: And the second thing is, and this was covered during investor day on the funding side, we still have this dynamic around, you know, a bigger share of our funding mix going to high-yield savings accounts, which for us is an effective funding channel. And so that dynamic is still going to play out in the balance of the year. And so you should expect to see the NII growth rate kind of like moderate a bit over the balance of the year.

Speaker Change: share of our funding makes going to high yield savings accounts, which for us is an effective funding channel. And so that dynamic is still going to play out in the balance of Euro and so you should expect to see the NII growth rate kind of like moderate a bit in the balance of Euro.

Speaker Change: Thank you. Our final question will be coming from Mihir Bhatia of Bank of America. Please go ahead.

Unknown Attendee: Hi, thank you for taking my question. I wanted to go back just on, just staying on spending and revenue. Is it fair to say that you're planning for this softer spending environment to continue for the next couple of quarters, so discount revenue growth will be at, like, current quarter levels is probably a fair way to think about it? Or are you thinking any change in that trajectory? And then just relatedly on spending, if I could just, if you could just discuss what happened to large and global spend, it looked like it decelerated a fair amount.

Mihir Bhatia: Hi, thank you for taking my question. I wanted to go back, just staying on spending and revenue.

Mihir Bhatia: Is it fair to say that you're planning for the softer spending environment to continue for the next couple of quarters, so discount revenue growth?

Speaker Change: We'll be here.

Speaker Change: Like, current quarter level is probably a fair way to think about it, or are you thinking any change in that trajectory? And then just relatedly on spending, if I could just, if you could just discuss, what happened in large and global spend? It looked like it decelerated a fair amount, so is there anything to call out there? I mean, I know it's a smaller business, but...

Unknown Attendee: So is there anything to call out there? I mean, I know it's a smaller business, but a fair, fairly meaningful deceleration. So let me take the first one around how we're thinking about billing. So we are.

Christophe Le Caillec: So let me take the first one on how we're thinking about billing. So, as I said, you know, we see a lot of stability across the last two, three quarters and even a bit further when you look at this in detail. So, you know, from a guidance standpoint, when we develop the guidance and the revenue guidance, that's what we pick. If there is upside to that spend level, then it's going to be a good thing for us, but from a guidance standpoint, that's what we are assuming on the revenue side. When it comes to global and large, last quarter, you remember there was like a pick-up. It was at 5%. This quarter, we're back to that 0%.

Speaker Change: So, fairly meaningful decelerations.

Speaker Change: So let me take the first one around how we're thinking about billing.

Speaker Change: We are, as I said, you know, we see a lot of stability across the last two, three quarters and even a bit further when you look at this in detail. So, you know, from a guidance standpoint, when we develop the guidance and the revenue guidance, that's what we take in.

Speaker Change: If there is upside to that spend level, then it's going to be a good thing for us, but from a guidance standpoint, that's what we are assuming on the revenue side.

Speaker Change: When it comes to global and large, last quarter you remember there was like a take-up, it was at 5% this quarter.

Christophe Le Caillec: There are a few things here. There's really nothing meaningful outside of what we noticed with one specific client, a significant drop in terms of their card member usage, but there was nothing really material there. Not a big change, not an inflection point in terms of what we see in terms of corporate cards.

Speaker Change: There was a, you know, we're back to that 0%. There are a few things here, like, there's, like, there's really nothing meaningful outside of, like, we noticed, like, one specific

Speaker Change: Client. Like a significant drop in terms of their card member usage, but there was nothing really material there. Not big change. Not an inflection point in terms of what we see in terms of corporate card spend.

Operator: Donna, back to you. All right. Well, 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: All right, well, with that, we will bring the call to an end.

Donna: Donna, back to you.

Operator: 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.

Speaker Change: Alright, well 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: Thank you.

Unknown Attendee: Dada.

Operator: Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at 877-660-6853 or 2016-127415.

Operator: Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at 877-660-6853 or 201-612-7415. Access Code 13747456 after 1 p.m. Eastern Time on July 19th through July 26th. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.

Speaker Change: Thank you. Dada.

Speaker Change: Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call.

Speaker Change: You can also access a digital replay of the call at 877-660-6853 or 201-612-7415.

Operator: Access code 1374-7456 after 1 PM Eastern Time on July 19 through July 26.

Speaker Change: Access Code 13747456 after 1 p.m. Eastern Time on July 19th through July 26th. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.

Operator: That will conclude our conference call for today. Thank you for your participation. You may now disconnect.