Q1 2025 American Express Co Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q1 2025 earnings call.
Speaker Change: At this time, all participants are on a listen only mode. Later, we will conduct a question and intercession. The second question.
Speaker Change: If you wish to ask a question, please press star, then one on your touchtone phone. [inaudible]
Speaker Change: 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 two. If you are using a speaker phone, please pick up the hand set before pressing the numbers.
Speaker Change: Should you require assistance during the call? Please press star, send zero. As a reminder, today's call is being recorded. I will now like to turn the conference over to our host head of investor relations, Mr Kartik Ramachandran. Thank you. Please go ahead.
Speaker Change: Thank you, Dana, and thank you all for joining today's calls. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance.
Speaker Change: These are based on management's current expectations and our subjects to risks and uncertainties.
Speaker Change: Factors that could cause actual results to defer materially from these statements are included in today's presentation slides and in our reports on file with the SEC.
Speaker Change: The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, as well as the earnings materials for the prior periods we discuss.
Speaker Change: 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.
Speaker Change: and then Christophe Caillec, Chief Financial Officer, will provide a more detailed review of our financial performance.
Speaker Change: After that, we'll move to a Q&A session on the results with both Stephen and Christophe. With that, let me turn it over to Stephen.
Steve Squeri: Thanks, Kartik. Good morning, and thanks for joining us. We had another strong quarter to start the year. We delivered revenues of 17 billion of 8% year over year on an FX-adjusted basis, or 9% excluding the leap year impact.
Speaker Change: and we generated net income of $2.6 billion or $3.64 per share.
Speaker Change: During the first quarter, our premium customer base continue to spend at healthy levels.
Speaker Change: Total card members spending grew 6% in the quarter, or 7% excluding the impact of leap year, with spending on goods and services continuing to grow at a faster rate than in 2024.
Speaker Change: In Teenie, while we saw a sequential slowdown in airline billing's growth, Billings in restaurants and lodging remained strong in the quarter, and overall Teenie growth was in line with the steady levels we saw through most of last year. We also continue to grow our customer base, adding 3.4 million new cards in the quarter. As in past quarters, Millennial and Gen Z consumers made up over 60% of new consumer accounts acquired globally in Q1. [inaudible]
Speaker Change: In addition, Cardiffy growth was up 20% on an FX-adjusted basis, retention continued to be high, and our credit performance remained excellent.
Speaker Change: While it's still very early in the second quarter, through the first week and a half in April , overall spending levels have remained consistent with what we saw in the first quarter in both goods and services, NT&E, and across all customer segments.
Speaker Change: Based on the steady, spend, and credit trends we've seen to date, we're maintaining our full-year revenue growth guidance of 8 to 10 percent, and EPS of $15 to $15 and 50 cents.
Speaker Change: While we recognize that uncertainty in the environment has increased, the guidance incorporates the changes that we see in the macroeconomic outlook as of today.
Speaker Change: As we think about the near future, we have a resilient and differentiated business model that positions us well to navigate a range of economic environments
Speaker Change: First and foremost, we have a global premium customer base at scale. In fact, as our customer base has grown over the past several years, it has gotten even more premium.
Speaker Change: Our card members have high incomes, are loyal, high spending, and have excellent credit profiles. And as you know, we underwrite all our card members through the credit cycle.
Speaker Change: Another key differentiator of our model is our mix of revenues, with a combination of spend and fees accounting of 75% of our overall revenue base, which makes us less reliant on lending revenues and less sensitive to credit cycles compared to our competitors.
Speaker Change: Also, we have significant expense leverage and flexibility that has grown as our scale has increased over the past several years enabling us to effectively control our cost while continuing to invest from a long term.
Speaker Change: In addition to the natural hedges in our customer engagement expenses, we have several levers across our marketing and operating expense lines enabling us to quickly pivot if the environment changes.
Speaker Change: Looking ahead, we'll need to see how things play out in the coming months. That said, we are operating from position of strength, and we have a set of principles that guide us. Our fundamental objective, as it is with everything we do, is to manage the company for the long term growth for our shareholders. [inaudible]
Speaker Change: As we do so, we are focused on four core principles.
Speaker Change: Above all, we'll back our customers through ongoing enhancements to our products and services as well as providing support for those who may need it. We'll also back our colleagues so they continue to focus on innovating for our customers and providing a world-class experience that is core to our brand. Thank you very much.
Speaker Change: We'll exercise discipline and expense management using the various levers in our business model maintain financial flexibility.
Speaker Change: and will continue to invest strategically for the long term in areas that strengthen our foundational capabilities such as technology, control management, and customer acquisition, as well as capitalizing on opportunities that emerge for expanding our membership model with new and enhanced products, services and experiences.
Speaker Change: As we move ahead, we are committed to following these principles and leveraging the advantages of our business model which makes me confident that we are well positioned for continued growth over the long term. I'll now turn it over to Christophe to provide more color on our first quarter results and then we'll answer your questions.
Thank you, Stephen. Good morning, everyone.
Christophe LeCayac: In the first quarter, we generated 8% FX-adjusted revenue growth for 9% excluding the impact of the peer and earnings per share of $3.64.
Speaker Change: These results are tracking in line with the guidance we gave for the food you
Speaker Change: Key business indicators such as spend, retention, credit performance, and demand for our premium products continued to be strong and stable in the quarter.
Speaker Change: while the level of macroeconomic uncertainty has increased, the activity that we see across our customer base is consistent with, and in many cases, better than what we saw in 2024.
Speaker Change: Turning to Bill Business Performance, starting on slide three. I remind you that the grow over from Leapur in 2024 drove of that percentage point drag on year over year growth rates across segments and spend categories. . . .
Speaker Change: As we look at spend trends over the next few slides, I'll speak to bill business growth rates that are adjusted for leap here as well as FX.
Speaker Change: Total Bill business was up around 7.5% year-over-year. This growth is around a percentage point higher than what we saw for the food year 2024.
Speaker Change: Goods and services spending sustained the uptick we saw in Q4 of last year.
Speaker Change: Continuing to grow at a faster pace than what we saw in 2024.
Speaker Change: And TLE grew in line with the steady levels we saw for most of the last, most of last year, reflecting continued strength in restaurant and large spending.
Speaker Change: We did see a disseleration in airline spending relative to 2024 trends Although spending on front of tabbing tickets remains strong up around 11% in the quarter
Speaker Change: As we break down, spend trends across our business over the next few slides, there are few key points I want to highlight.
Speaker Change: We continue to see solid growth across our affluent U.S. consumer base. We've spent up 8%
Speaker Change: Millennial and Gen.C. customers once again drove our highest-built business growth within the segment.
Speaker Change: Commercial services spend was up 3% versus last year, consistent with the trends we saw in 2024.
Speaker Change: US SME spending at wholesale merchants saw modest acceleration in growth over the quarter, possibly reflecting higher purchases in advance of potential price increases.
and many more.
Speaker Change: International card service to spend was up 14%. The strong growth was seen across to geographies with each of our top five markets growing by double digits.
Speaker Change: and we continue to see strong demand for an engagement with our products.
Turning to lending performance on slide seven [inaudible]
Speaker Change: Loans and Conmember Receivables increased 7% year-over-year on an FX-adjusted basis.
Speaker Change: Our premium products continue to be the primary driver of that growth with our pay-over-time and co-brand portfolios driving around 80% of growth in cod member revolving loans in the first quarter.
Speaker Change: These products tend to attract high-created worthy customers, supporting our model of growing lending while maintaining best-in-class credit performance.
I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: Turning to slide 8 and 9, our credit performance continues to be very strong. Both the frequency and ride of rates were below pre-pandemic levels and flats to the prior year.
Speaker Change: The profile of the portfolio has strengthened over the past few years.
Speaker Change: Looking at our recent acquisitions, the delinquency rate of low 10-year customers defined as those with 24 months or less of 10-year is about 30% lower than 2019 levels for U.S. consumer court members.
Speaker Change: This quarter, we had about $1.2 billion of provision expense. [inaudible]
Speaker Change: This includes a small reserve release mostly reflecting the strength quality of the portfolio and the macroeconomic outlook as of quarter-end.
Turning next to Riverdale on slide 10. [inaudible]
Speaker Change: Total revenues were up 8% year-over-year on FX-adjusted basis, or 9% excluding leave here.
Speaker Change: Before we discuss this quarter's trends, I remind you that the strengthening of the US dollar that occurred throughout last year continues to be a headwind to reported revenue growth, although big less than we anticipated earlier in the quarter.
Speaker Change: Also, starting this quarter, we consolidated process revenue within service fees and other revenue.
Speaker Change: Starting the discount revenue, our largest revenue line was a 5% year over year FX-adjusted, and it's mostly driven by the spend trends I discussed earlier.
Speaker Change: Net Carfees were at record levels and increased 20% FX-adjusted as shown on slide 12, reflecting our 27th consecutive quarter of double digit Carfee groove.
Speaker Change: And we saw strong demand for our products as we acquired 3.4 million new cars in the quarter.
and many more. Thank you. Thank you.
Speaker Change: The key driver of our strong car fee growth over the past few years has been the acquisition of new car members on fee-paying products which accounted for around 70% of new accounts in the quarter.
Speaker Change: Another important contributor has been our ability to attract customers on higher fee products all the time.
Speaker Change: Over the past three years, the average car fee per new account acquired has increased by around 40%. Reflecting strong demand for our premium products and our success in pricing for the increased value we provide customers as we refresh our products.
[inaudible]
Speaker Change: Turning to slide 13, net interest income increased 11% on an FX-adjusted basis, growing slightly faster than loans and receivables as we saw increases in net yield versus last year.
[inaudible]
Turning now to expense performance on slide 15. [inaudible]
Speaker Change: The VCE to revenue ratio came in at 43% this quarter. Rewards expense grew 16% year over year. As a reminder, this quarter we are growing over the benefit we saw in Q1 of last year from changes to our URR model.
Speaker Change: In addition, as we mentioned last quarter, some small changes we made to the program that are good for both customers and our overall academics by driving a small increase in the URR in the short term.
Now that we have lapped impact from the URL model change law,
Speaker Change: from the URR model chains last year, we expect rewards to grow more in line with the historical trend for the remainder of this year. [inaudible]
and many more. Thank you.
Speaker Change: As you can see, marketing and FX continue to be key sources of expense leverage for our business.
Speaker Change: In our flexible model, there's an important advantage that allows us to dial up or down expenses as needed through a different economy environment.
and many more. Thank you.
Let me move to Capitol on slide 16.
Speaker Change: Our C-T-1 ratio was 10.7% within our 10 to 11% target range. [inaudible]
Speaker Change: We return $1.3 billion of capital to our shareholders, including 0.6 billions of dividends and 0.7 billion of shared purchases, and this quarter we increase our dividend by 17%.
Thank you.
Speaker Change: Our differentiated spend-and-feet-driven business model generates a strong ROE, which was 34% in the quarter, providing us with very strong capital fixability.
Speaker Change: Before we turn to our 2025 guidance, let me talk about the transverse scene in recent weeks.
Speaker Change: Steve Discuss, looking at the first week and a half of April , overall spending trends are consistent with Q1.
Speaker Change: We are seeing this performance with both P&E and business services, as well as across our U.S. consumer, international and commercial customer segments.
Speaker Change: Given the environment, we have also seen SME purchases acciterate with wholesale merchants.
Thank you. Thank you.
Speaker Change: Additionally, demand for our products is in line with our expectations.
This brings me to our 2025 guidance.
Speaker Change: Given the stability of our performance to date, we are maintaining our guidance of revenue growth of 8-10% and earnings per share between 15 and 15-50.
Speaker Change: This guidance incorporates a macroeconomic outlook with a peak weighted average and employment rate of around 5.7% higher than the outlook as it stood at quarter-end
Speaker Change: Of course, there are clearly many uncertainties in the macroeconomic environment, but given the balance of factors, we believe this guidance is appropriate.
Speaker Change: And more importantly, we remain confident and focused on the long-term growth of the company. With that, we now turn the code back over to Kartik and we will take your questions.
Speaker Change: Thank you, Christophe. Before we open up the line for Q&A, I will ask those in the queue to please limit yourself to just one question.
Speaker Change: Thank you for your cooperation and with that the operator will now open up the line for questions. Operator?
Thank you.
Speaker Change: Ladies and gentlemen, if you wish to ask a question, please press star, then one on your touch-tone phone.
Speaker Change: 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 two. If you are using a speaker phone, please pick up the handset before pressing the numbers. One moment please for the first question.
Speaker Change: Our first question comes from Sanjay Sakhrani of KBW, please go ahead [inaudible]
Thank you.
Sanjay, make sure your phone is not on mute. [inaudible]
Sorry, I was unbued [inaudible]
Speaker Change: Good morning. Sorry. So Steve, we've heard a lot about pull forward of spending and I'm just curious if you guys have seen any indication that that sort of propping up the spend volumes.
Speaker Change: and then just sort of along the lines, if we do see some volatility or weakness in spending and revenues, you know how far do you want to go in terms of sort of protecting earnings, you know how low does revenues need to go for you to sort of just cut the link? [inaudible]
line in terms of expense reductions, thanks. [inaudible]
Speaker Change: So, look, we really haven't seen any pull forward at all, I think when you look at...
Speaker Change: When you look at the entire first quarter, and I think you really want to focus in on March and on early April , there's really been no portfolio at all. We see a little bit in small business.
Speaker Change: a little bit in the wholesale, you know, pulled forward, but, I mean, you're talking a couple of points here, you're not talking about anything significant. So, you know, I don't think that, that has been a phenomenon. Having said that,
Speaker Change: It's still early in the game, right? I mean, we're early innings here, and we'll just have to see how it all plays out, but just to be clear, from a consumer perspective, we've seen no football at all.
Speaker Change: and you know, people continue to, you know, book and we didn't talk about this in the poll, but, you know, we had the highest...
Speaker Change: Number of travel bookings that we've had, you know, that we've ever had.
Speaker Change: and that includes a high international as well, international bookings from our...
Speaker Change: or travel related services. So, I think that, you know, we haven't seen, we haven't seen to pull forward, we're seeing our customers act as, as they have acted in the past.
Speaker Change: You know, one thing that has not been associated with our card member spending has either been what's happened with the stock market or what's happened with consumer confidence . . . . . . . .
Speaker Change: You know, our card members may say they don't have any confidence into the economy but they still continue to spend and they're not they're not spending off what's in the market. So those those two factors which I get asked a lot about are not really factors in our in our customer spending. [inaudible]
Speaker Change: I think, look, as we've said before, from a guidance perspective, and I said this at conferences.
Speaker Change: You know, we believe that, you know, at that 8% range, we can make our EPS, our EPS number. And the other thing that I will say is that
Speaker Change: I'm not going to pass up good opportunities to invest with the future just to hit a number. I mean, it's not how I run the company over the last...
You know, seven years or so.
Speaker Change: and as I said, even during COVID, we continue to invest. Thank you very much.
One others might have pulled back and so...
I just want to reinforce, we are running this company.
A little longer term.
Speaker Change: You know, if I see a good opportunity, I'm going to continue to invest in it.
Speaker Change: But I do believe where we are right now with the macroeconomic situation and the way it is that we can continue to be within our guidance range on both revenue and EPS as we've said in the past.
Speaker Change: You know, we have the aspirational goal of 10% revenue, however, we also have said that we can make, we can hit our EPS range if revenue goes, if revenue goes lower.
Speaker Change: Thank you. The next question is coming from Mark DeVries of Deutsche Bank. Please go ahead.
Mark Devries: Yeah, thanks. So if some of these steeper tariffs go through is initially proposed, Steve, can you just talk about which segments of your business you would expect to be under the most pressure and is there anything you can do from a risk management perspective to get out in front of that?
Mark Devries: Well, I mean, look, from a wrist management perspective, you know, we're constantly...
Mark Devries: on a daily basis modifying our inputs and modifying our models and looking on that. So we always like to think we're way out in front of that anyway, but...
Mark Devries: You know, I think that way you would wind up looking is you would look at small businesses first, I think.
Small Businesses
You know, might be the ones that would be impacted. [inaudible]
You know, first, first.
and if you think about...
Mark Devries: and our consumers. What our consumers tend to do is what they would tend to do is they spend a little bit less, revolve a little bit less, and I'll just take you back to come of it. Remember, we have a really self-liquidating balance sheet, right? And so our balance sheet's made up a lot of our AR, and as consumers spend a little bit less.
Mark Devries: That's how they regulate, that's how they regulate risk. And so, you know, but small businesses, I think small businesses are the ones that we would, you know, pay a lot, you know, a lot more attention to just because cost.
Mark Devries: They could be put in a situation that will not be able to be effectively in the market. So we will continue to look at small businesses as this situation evolves.
Mark Devries: But, you know, rest assured, we're looking at this prolactively right now, much like we, much like we did pre-COVID in terms of, you know, looking at people's lines, looking at who we bring into the franchise and what I would say is that...
Mark Devries: If you look at our card base now, versus our card base in 2019, it is more premium than it was at that point with higher FICO's, the other thing that I'll say...
Mark Devries: and secondly, our low 10-year court members, they had the frequency rates are actually lower than our low 10-year court members were back in 2019.
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Thank you. Bye.
Speaker Change: Thank you, the next question is coming from John Fandetti of Wells Fargo. Please go ahead.
John Fandetti: Good morning. Steve, can you talk a little bit about, you know, card refresh and fee growth? I know one of your competitors recently raised fees on co-brand cards in this environment. Do you still feel like you have the ability to sort of grow fees?
John Fandetti: to doing, you know, refreshes, we've refreshed over 150 products over the last five years or so, you know, we've got a bunch of, a bunch of refreshes, you know, in progress, you know, how many we wind up doing, you know, we'll see how it all, how it all plays out, it's, it's more due, I think.
Thank you.
John Fandetti: As far as, you know, raising fees, we don't raise fees indiscriminately. You raise fees when you add value, and our playbook has been
We will...
John Fandetti: Raise the fee when we raise value that is even more commensurate than with the fees. So as we think about refreshes, what I will tell you is that whatever fee we wind up raising, and love, the reality is...
John Fandetti: We don't do a lot of refreshes without raising the fees, but we also don't do any refreshes without significantly enhancing the value that we put in. So, you can rest assured that when someone does a rational calculation of what the fee raises and what the value is, it becomes an easy decision. [inaudible]
John Fandetti: to continue with the product, or even a better decision to get the product at that particular point in time. So that the environment will not impact. That's it.
John Fandetti: are fee decisioning with our cards because that fee decision is totally based on value and our card members wind up getting that more than they put in. And one might argue it might even be a better investment at this time than in a good environment.
Thank you. Thank you.
Rick Shane: Thank you. The next question is coming from Rick Shane of JP Morgan. Please go ahead.
Rick Shane: Hey guys, thanks for taking my questions this morning. Steve, you talk about...
investing across the cycle, basically as a strategic. Thank you.
initiative.
Speaker Change: I'm curious tactically given where we are, where you see opportunities and I'm curious sort of where you're going to be more aggressive, where you're going to be more defensive than I did note.
Speaker Change: that the amount of capital you retain from first quarter profits was the highest it's been since COVID. So I'm curious how you're looking at capital aggressively, defensively as well. Yeah, so I'll let Christophe answer the capital question. I mean, there's always.
You know
Christophe LeCayac: We look to return about 80% of our earnings to our shareholders, and you'll notice from quarter to quarter it does swing, and particularly in the first quarter, just go back historically, the first quarter is usually one of our lowest quarters where we do return capital, but the capital that we return this particular quarter was only about 300 million less than we actually returned in the fourth quarter. [inaudible]
Christophe LeCayac: of last year. So it wasn't all that much. They're checking the slides to make sure that my comment was correct there. But
Christophe LeCayac: You know, look, from an investment perspective, you just saw that we just-
Christophe LeCayac: Completed the center acquisition, we believe that that's an important acquisition for us for small business and for middle market, and that obviously has some capital implications, you know, especially in the second quarter as we closed it, but
Christophe LeCayac: When you look at our business and specifically in technology, we're constantly upgrading our technology infrastructure. When I talk about technology infrastructure, I'm not only just talking about the hardware aspect of it, but I'm talking about all the systems that run behind it. And the reality is that
Christophe LeCayac: You know, some of these projects go for a couple of years and some of them are months and what have you but...
Christophe LeCayac: You know, you anticipate, you know, times may be a little bit tough. It has to continue because, you know, we're running this company for the long term and you know anybody that's
Christophe LeCayac: Ever been involved in this realize you don't stop and start long-term projects.
Christophe LeCayac: The other thing that you don't stop and start is you don't stop and start your refer strategy. I mean we have been committed.
Christophe LeCayac: to continually enhancing and developing our products and services over the...
Christophe LeCayac: over the long term and we're on a program that basically says, we're going to refresh all of our products and I'll put all in quotes.
Christophe LeCayac: from a three to four year cycle. And so you just can't stop that. If you...
Speaker Change: You know, if you did, then I think you're doing a disservice to your customers and you're doing a disservice to your shareholders. And this goes back to Sanjay's earlier question about, you know, how much, you know, potentially would you cut? [inaudible]
Speaker Change: to, you know, to make EPS guidance. And, you know, my perspective is, is that, you know, we're, again, we're running it for the longer term and for me to...
Speaker Change: Stop a technology project or for me to stop a refresh or enhancements because I want to make another 20 cents for the year.
Speaker Change: is full-hearted and it's not something that you should never expect me to do. So we're looking to make sure that this company continues...
Speaker Change: to become stronger day by day, and you do that by continuing to invest and continuing to stay true to what your principles are.
Speaker Change: So maybe to add a bit of color on Capitol, there's not a lot to add as a matter of fact because you covered most of it, but...
Speaker Change: As you know, Ray DeGoviner here is at receipt, you want a ratio. Thank you.
that is what we'll define the amount of.
Speaker Change: of Share We Po that we're going to do. And either we target between 10 and 11, we're a little bit on the high side, I'm 10.7%, but you shouldn't read anything in that. And if you look at over time, we've been at 10.8, 10.5. So we ending up a little bit on the high side at the end of the quarter, and that's it. Right.
[inaudible]
Speaker Change: But we distributed the executive amount that we had in our plans in terms of capital.
and others. Thank you. Thank you.
Speaker Change: I will mention though that either this is the first quarter where we you know we increase the dividend by 17%.
Thank you.
Speaker Change: Thank you, the next question is coming from Erika Najarian of UBS, please go ahead.
Erica Najarian: Hi, thank you. I just wanted to confirm, you know, the...
Erica Najarian: I just wanted to confirm that, A, you feel like you can generate, you know, 8 to 10 percent revenue growth, even in light of, you know, an unemployment rate that we haven't seen in a while. And to that end, I think, Steve, you mentioned that the stock market really did impact spend. I'd be curious to understand, since your data is so good, in terms of how spend progressed January through March, particularly in your affluent consumer segment, you know, as you
Erica Najarian: Call the January off to a strong start. And then, you know, just wondering whether or not the resilience had sort of carried through even though we had all the headline risk and stock market volatility in March.
Yeah, so I'll give you a little color on...
Erica Najarian: on the spending here. The reality is, January , February and March pretty much looked exactly the same.
Erica Najarian: point two here, point two there, and the first 11, 12 days in April are slightly stronger than that. So it has been consistent, it has been really no movement.
Erica Najarian: Really up or down, the only thing I would say is that...
Erica Najarian: You know, when you looked at, you know, small business, you did see a little bit of a pickup as we moved into the end of March, but I'm talking minor, you'll have a point or something like that. And then you saw a little bit of a pickup in the first 11 days, but we'll see how all that plays out. And I think April will be an interesting month because...
Speaker Change: Yeah, you have Easter and traditionally, you know, you don't have as much corporate spend, you may not have as much small business spend, retail spend, so forth and so on. So we'll see how April plays out in last year. Easter was I think at the end of. [inaudible]
Speaker Change: at the end of March. As far as unemployment, look, we have 5.7 incorporated on macro, I think for us...
Speaker Change: When we really look at unemployment, it's really more white collar unemployment, that is...
that is more of a driver of potentially spending.
Speaker Change: and it is total overall unemployment because of how our car base.
Speaker Change: 10s to skew. So, you know, we watched that, we'll watch that very carefully, but we feel really comfortable with even on the unemployment level that we have in our outlook is higher than it's been, we feel comfortable with holding the guide at this particular...
Speaker Change: You know, at this particular point in time. So, you know, obviously it'll be more to come as the months go by. But right now, from a spend perspective, very consistent. And we feel comfortable with the unemployment level as far as our guidance goes. [inaudible]
Erica Najarian: Let me, maybe, Erika, give you a bit more color in terms of how to think about that 5.7 . . . . . . . . . . .
Erica Najarian: You know, we thought he would be useful to investors, to analysts, to share with you how we've been thinking about their credit reserve. And as you know, we were on multiple scenarios. The map is very complicated. It's, you know, lifetime losses. So, the 5.7 represents the peak and employment rate. [inaudible]
Erica Najarian: or for the purpose of this reserve calculation. So it doesn't mean that we are anticipating that tomorrow, an employment will jump to 5.7 and we'll stay there for the balance of the year. You have to think about it in the context of the Cecil calculation. Thank you very much.
Speaker Change: Thank you. The next question is coming from Jeff Ailsen of Morgan Stanley . Please go ahead.
Hey, good morning. Thanks for taking my questions.
Jeff Ayleson: Steve, I know that Millennial and Gen Z cohort continues to be a source of strength for AMX. You're calling out to continue 60% plus of acquisitions, the better FICO and DQs versus industry and your Span growth is running higher there. But just curious, are you noticing any sort of under the hood issues with that group from things like, you know...
Jeff Ayleson: To no repayment starting, you know there's been some reporting of some servicing issues for that group with the repayment starting and I'm just wondering if there's any stat you can give on maybe spend per card or account for that cohort just given that it's represented so much of your account growth so far. Thanks. Thank you very much.
Jeff Ayleson: We haven't seen anything and just take you back to, we'll just throw a couple of statistics out, when you look at spend growth for that cohort for the quarter, it was up about 15%
Jeff Ayleson: in the US consumer business and it's representing about 35% of our overall spend.
Jeff Ayleson: in the quarter. So Millennial and Gen Z is even a larger contributor.
Jeff Ayleson: International, I'll take you back to investor day where we talked about how they continue to grow year-to-year and so we're still seeing that. The thing I will point out is that
Jeff Ayleson: are millennial, not every millennial, not every Gen Z have our card. As I think I mentioned a little bit earlier, the delinquency rate that we're seeing is a lot less than what the industry sees. The PICO is a lot higher.
Jeff Ayleson: and a lot of them tend to be more lower tenure as they come into the franchise and that delinquency rate is better than it was back pre-COVID. So, we don't disclose, you know, the...
Jeff Ayleson: The actual court account, Billings on it, and we did disclose it as we did that last at the investor day, and maybe we'll do that at another point in time, but today I'm not going to share that because I don't have it at my fingertips either. So, maybe what I can add to those if you're looking for numbers.
Jeff Ayleson: Their Millennial and Gen Z combine spent about 20% less than the older generations, so they do spend a bit less, they revolve a bit less as well.
Jeff Ayleson: The other data point that we have shared in the past as well, that echoes what Steve just said is that...
Steve Squeri: acquisition, the average vital of this cohort is 750. So, very strong, very strong.
Speaker Change: Thank you. The next question is coming from Craig Maurer of F.T. Partners. Please go ahead.
Craig Moorer: Yeah, thanks. I appreciate you taking the questions. I wanted to go back to something you said earlier. You know.
Speaker Change: Investors are spending time hardening their books for what is expected to be a significant change in the economy.
over the next sort of 1912 mine show.
Speaker Change: You would mention FICO scores, consumer confidence, wealth effect, you know, not to channel John Wick but the boogie man of the last recession was FICO creep and you know was FICO creep and companies getting caught thinking they were making better loans
Speaker Change: Plus, you know, with consumer confidence, falling, and the wealth effect, especially how that might impact the younger cohorts, you know
Speaker Change: Maybe you can talk about what you're basing your view on that consumer confidence and wealth effect won't impact spend and sorry not sneak this in, but could you also let us know what percentage of SMB build businesses related to e-commerce businesses? Thanks.
Speaker Change: I don't have the sneak in, I can't answer because I don't have that on my fingertips here either, but I guess that will become potentially more important as time goes on, so we'll look into that. Craig as far as what we're basing it on in terms of the wealth effect.
and Consumer Confidence, History. [inaudible]
Speaker Change: You know, the history of our card holders. I mean, it's just, you know, I've been here for 40 years and, you know, been through, you know, 9-11, financial crisis, COVID, and everything else. And the reality is, is that...
You know that?
That has not been...
Speaker Change: sort of the determining driver from a, from a credit crunch perspective for us. So, and again, I look, I think, you know, we'll continue to look at
Speaker Change: at FICO scores, and I think that has been, you know, we've said this, and I think the industry has said this, that has been a...
Speaker Change: You know, an acceleration probably in some of the, in some of the FICO scores, but it's not the only thing we look at. It's, it's an easy metric to talk about, but certainly that's not...
Speaker Change: What was in our, it's not within our models, the only thing in our models there's a lot more in our models that go into making credit decisions but you know look we look at historically at what our card base has done and what has impacted our card base and I would say that you know white collar unemployment from a credit perspective has probably been our John Wick if you will then more than anything else. [inaudible]
[inaudible]
Speaker Change: I have just one thing, Craig, if you take a step back away from Saiko and you look at Delinquency Rate, as you would expect the variability from the credit standpoint is higher with a low 10-year court members. [inaudible]
Speaker Change: and therefore we are looking, and that's why we might prepare to remark and share this new data point for you guys to get an appreciation in terms of how we're thinking about that credit risk.
Speaker Change: If you look at the low 10-year conmembers, so those who've been with us less than two years...
Speaker Change: The Delinquency Rate of 30% lower. So that reflects a lot of things, including...
Speaker Change: the skew that we saw in their preview in the five, six years.
Speaker Change: in the previous five, six years in terms of acquiring premium card members and managing the book very, very carefully. So, the link on C-rated is just, you know, it's a good metric to look at and that looks much better than where we were, you know, pre-COVID. And at that time, we were already passed in the industry. [inaudible]
I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Chris Kennedy: Thank you. The next question is coming from Chris Kennedy of William Blair. Please go ahead.
Chris Kennedy: Good morning, thanks for taking the question. Steve, you mentioned the acquisition of center that comes after a string of other deals, whether it's cabbage, napendo, others.
Chris Kennedy: Can you just talk about that journey and kind of give a state of the union on the SME technology investments and then how can that translate into better organic spend over time? Thank you.
Chris Kennedy: Yeah, I think look what we've been on a journey here is to build more capabilities up for our SME customers.
Chris Kennedy: And if you look at it, one of the things that we've said is we wanted to increase our relevance with our SME customers and, you know, Kabbage
Chris Kennedy: You know, has become the platform where we want our SMEs to live.
with within that platform, obviously you have the ability to...
Chris Kennedy: to look at your card information to...
Chris Kennedy: to apply for loans. When you look at one AP in Nintendo, that's really all about automating the B2B piece of it. And then I think one of the things that was missing for us, and we were doing this for partnerships, but it became apparent it needed to be more core to our...
Chris Kennedy: More core to us overall is the expense management piece. You know, we already have the travel piece with with our travel service and so what we're doing is we're constantly building out, you know, the offerings that we have for our for our small bit for our small businesses. [inaudible]
you know, how that affects organic spend.
Um...
Chris Kennedy: You know, we'll have to see, but I think what it does, it will certainly help from a retention perspective and an acquisition and an acquisition perspective as well. I think from an organic perspective, the more we can utilize one AP in Nipendo, the more we can get a B2B payments in there through that channel. But, you know, we're on a journey. And now it all we're on.
Chris Kennedy: all needs to continue to be knitted together. Obviously, the center is not integrated into the Kabbage solution, but that's the Kabbage platform. But ultimately, what you will do is you'll have one ecosystem where all of these things live. And I think that will, you know, that will help drive more retention, more acquisition, and you know, potentially more, you know, more organic spending. I mean, organic spending, you know, traditionally is, is more of, you know, how they are running their business.
Chris Kennedy: So pre-COVID, we're just during COVID how all that organic spend went down and we saw post-COVID how it went up as they stopped up on inventory. So we'll have to see how that plays out. But we're excited about center and we're excited about the suite of capabilities that we've built out from SME perspective now. We're excited about the suite of capabilities that we've built out from SME perspective now.
Thank you.
Speaker Change: and many others. Thank you for watching. I hope you enjoyed this video. If you did, please click the Thumbs Up button, subscribe, and click the bell icon to get notified when I post a new video.
Speaker Change: Thank you, the next question is coming from Terry Ma of Barclays, please go ahead [inaudible]
and many more. Thank you. Thank you.
Hi, thank you, good morning.
Speaker Change: Maybe to just follow up on your comments and refresh strategy, you know you called out about 35 to 50 planned product refreshes for this year last quarter.
Speaker Change: I get that you want to invest in a long term and you don't want to stop the refresh strategy but just given that there's so much macro uncertainty
Speaker Change: and maybe potential uncertainty around the ROI of those refreshes. Do you kind of adjust or delay some of those until there is more clarity? Okay.
Speaker Change: and what does that mean for your marketing budget for the year? [inaudible]
Thank you.
Speaker Change: So, at the moment, no changes to the marketing budget at all. I don't think the refresh itself, when you're looking at the refresh, I think that, as I said before,
Speaker Change: We haven't stopped refreshes in the face of even the pandemic. We were working through our platinum refresh at that particular point in time, and also working on others behind the scenes because...
Speaker Change: You know, as I've said before, refreshments don't happen overnight. You know, years ago we got a lot of credit for reacting to the Chase Sapphire, but you know, it's something that we started 9 to 10 months ago. So no, we're not, we're not going to stop the refresh strategy. I don't, I don't think that. Let's go.
Speaker Change: From an ROI perspective, there would be, there would be what, as I would say, a reason to do that. You know, as we go to acquire cards, you know, we look at...
Speaker Change: with the credit boxes at that particular point in time. So, we'll see, but these refreshes happen over a period of time. So, it's up.
Speaker Change: It's hard to stop them once they're in progress and I think we have a lot of confidence once they're done to put them out into the marketplace.
Thank you.
Speaker Change: Thank you. The next question is coming from Gus Gala of NCH. Please go ahead.
Speaker Change: Hey, good morning Steve. Good morning, Christophe. I wanted to ask around restaurants.
Speaker Change: It seems like a lot of the work done there has been key in winning Gen Z millennial share versus other premium value profits available in North America. How do you think about enhancing the value proposition there and similar vein if you talk about other categories, or maybe your experiential differentiation where you're not really competing on the rewards, but more like the, you know, services could further help capture that Gen Z millennial base. [inaudible]
Speaker Change: Well, millennials in Gen Z is spending way more in restaurants from a transaction perspective than any other cohort that we have. And if you just look at the refresh strategy, look at what we did with gold. I mean, you know, gold could have been renamed the restaurant card.
Speaker Change: between the Rewards Accelerator, the Reggie Credit, and the Global Dining Collection. I think, look.
Speaker Change: You go back to the acquisition of Rezzi, you go back to the acquisition of top, you look at Rome.
Speaker Change: All three of those things are really targeted at, you know, sort of trying to build a mode around the restaurant industry, not only from a part-member perspective but also from a restaurant perspective. I mean, it is...
Speaker Change: It is a microcosm of our closed loop, right? When you think about what we've done with Rezzi and Talk, and as we integrate the Rome capabilities in, it's a closed loop within a closed loop. And I think that is...
Speaker Change: That's something that's really, you know, appealing to our, to our restaurant customers and it's also appealing to our card members and especially Millennials, Millennials in Gen Z. You know, look, we'll look
Speaker Change: You know, look, one would argue that the other verticals where it does make sense with our travel businesses is also with them.
Speaker Change: You know, younger customers. I mean, you know, when you book a fine hotel and resort, the value proposition area is pretty good, right? I mean, it's early check-in, late check out, upgrades, free breakfast, $100 credit. So that's another example of where we're connecting our card members.
Speaker Change: with our partners from a hotel perspective, and obviously we've been doing that with airlines for years. So I think when you think about millennials and Gen Z, I think leaning in in those areas for them are pretty critical and the gold card relaunch is a really good example and our partnership with Duncan was a really good example of really leaning in.
Speaker Change: to the transaction, you know, affection that they have for dining and for all things that aren't dining.
Thank you.
Speaker Change: Thank you. The next question is coming from Rob Wildtack of Autonomous Research. Please go ahead.
Speaker Change: Good morning, guys. I wanted to follow up a little bit more on the SMB technology side with Kabbage, Center, etc. Steve, I think you mentioned eventually having one ecosystem. Could you speak to the integration effort there? How all these platforms come together? How that looks for the end customer today? And then when do you expect you can go to market with the full expanded product suite, inclusive of center? Thanks. Well, we just closed on center yesterday. So, you know, that's the end.
Speaker Change: It'll happen over time here. But if you look at, if you're an SME customer, you go on to the cabbage platform, you can, you can reach Micah, which is, if you're a card holder, and a lot of our card holders just do business right now with us through the app anyway, but.
Speaker Change: Preapp, it was through my Kartikount. And so as you go through, as you go through Kabbage, you can access my Kartikount, you can apply, you can apply from the loan, you can access your transaction checking accounts. So that's pretty much there at this point. What the next step is...
Speaker Change: It's to really then, as we integrate Centauron in, it's to link that right in. I don't have an exact time on that. As a bank holding company, there are certain...
Speaker Change: Hardening that we need to do, let's say that, around the center, around the center project, product, and so we're going to do that, but part of all of that will be integrating it, integrating it on into that platform. But again, just to remind everybody, we closed on yesterday. Thank you very much.
Thank you.
Speaker Change: Thank you. Our final question today is coming from Mihir Bhatia, Bank of America. Please go ahead.
Thank you.
Mihir Bhatia: Hi, good morning and thank you for taking my question. Stephen Christophe, you're not striking a pretty confident tone on the call today about the outlook in a variety of macro environments.
Mihir Bhatia: Thank you also talk before about a big more confident in achieving the mid-teen ZPS versus maybe some noise in the year over your revenue.
Speaker Change: So I just wanted to go back to where we started the Q&A, where Sanjay started the Q&A. Can you just talk a little bit more about the cost structure and the potential for cost optimization if things get choppy?
Mihir Bhatia: I can't understand there's rewards costs and things like that, that naturally get lower, but big picture just talk a little bit about the expense, flexing the model as you continue to invest. Thanks.
Mihir Bhatia: Yeah, I mean, here's what you can expect. I mean, obviously you've got the story as it relates to rewards and as it relates to...
Mihir Bhatia: to sort of cost a card remember services as spending goes down those those go down from a technology from a technology perspective we're not going to veer off our technology plan I mean it just doesn't make any sense to stop and start from a technology perspective. [inaudible]
Mihir Bhatia: or marketing budget is a lot bigger than it ever has been. And in an environment...
of uncertainty, E.
Mihir Bhatia: You know, you would raise the thresholds, you may not have, you may not have as much line of sight into the credit boxes you'd like to have.
Mihir Bhatia: And so there's a tremendous amount of expense flexibility within that line, and there's expense flexibility within our op-ex line as well. But what we will not do, as I said earlier, and I started this way,
Mihir Bhatia: We're not going to just cut expenses to make the EPS number if we see good opportunities
Mihir Bhatia: for growth. And, you know, one of the things that we did during COVID was we really ratcheted back on acquisition tremendously because we didn't have good line of sight.
into, you know, credit-worthy cardholders.
But what we did do is we pivoted.
Mihir Bhatia: A large percentage of that money and added incremental value to our value proposition to that particular point in time which the end result of that was twofold number one it led to higher retention for us and it led to more stickiness in terms of where we actually made those value proposition investments. .
Mihir Bhatia: and so we'll play the whole thing out, but again...
Mihir Bhatia: Quarter to quarter, year to year, it's about really investing for the long term here and making the right longer term decisions but there is flex in the model as it relates to marketing and as it relates to topics.
and others. Thank you.
Mihir Bhatia: With that, we will bring the call to an end. Thank you again for joining today's call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you.
Mihir Bhatia: Ladies and gentlemen, the webcast replay will be available on our investor relations website at ir.americanexpress.com shortly after the call
Mihir Bhatia: You can also access a digital replay of the call at 877-
6-6-0.
Six, eight, five three
612-7415.
Access Code,
Mihir Bhatia: 1375-2401 after 1pm Eastern time on April 17th through April 24th. That will conclude our conference call for today. Thank you for your participation. You may now disconnect. Thank you very much.
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and many more. Thank you. Thank you.
and many more. Thank you. Thank you.