American Express Company (AXP) — Q4 2019 Earnings Call Transcript

Thank you, Liya, 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. Factors that could cause actual results to differ materially are included in today's presentation slides and in our reports on file with the SEC. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, as well as the materials for the prior periods we discussed. All of these are posted on our website at 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, Jeff Campbell, Chief Financial Officer, will provide a more detailed review of our performance. After that, we'll move to Q&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Thanks, Rosie. Good morning. I’m pleased to report that our 2019 fourth quarter and full-year results continued the steady consistent performance that we've delivered over the past two years. Our strong top-line growth continued with revenues growing 9% in the quarter. This marks our 10th straight quarter of FX-adjusted revenue growth at or above 8%. Once again, our revenue growth was broad-based, driven by a well-balanced mix of fees, spend and lend. We added 11.5 million new proprietary cards in 2019, delivered solid billings growth, and continue to grow loans while maintaining industry-leading credit metrics. These results show that our strategy of investing in share, scale and relevance is working. This strategy is the heart of our financial model and it gives us confidence that in today's economic environment, we can sustain high levels of revenue growth, which is the foundation for steady double-digit earnings growth. My confidence in our ability to generate consistent solid results over the longer term is based on several factors. The fundamental strengths we derive from our differentiated business model, the significant growth opportunities we see across our business, and our demonstrated success in executing our investment strategy against the four strategic imperatives I laid out two years ago. Let me take a few minutes to share some of the highlights of the progress we made on each of these strategic imperatives in 2019. We expanded our leadership in the premium consumer space by continuing our disciplined strategic approach of refreshing our premium charge products and upgrading our co-brand portfolios globally. In all these cases, we've added features that our card members value. Acquisitions remain strong and approximately 70% of our new card members are choosing fee-based products, which help to drive 17% growth in subscription-like fee revenues for the year. Our new card members are skewing younger and are more digitally engaged. Our refreshed products are also enabling us to reengage with our existing customer base, where we are seeing increased organic spend, all-time high net promoter scores and steady retention. In our commercial business, we've taken our successful approach to strategic product refreshes and applied it to our business card portfolio in the U.S. and select markets around the world. In addition to the refreshes, we've expanded our commercial card offerings with the introduction of several new products for business customers of all sizes. And to deepen our relationships with our business customers, we continued our focus on growing our non-card product offerings, by expanding our AP automation solutions, as well as offering a variety of lending and flexible payment programs to help our business customers manage cash flow and grow their businesses. In total, over the past two years, we've refreshed and launched over 50 proprietary products across both our commercial and consumer businesses around the world, resulting in greater customer engagement and strong new card acquisitions that are driving our revenue growth. Turning to the network business. In 2016, we set an ambitious goal of achieving virtual parity coverage in the United States by the end of 2019. Setting this goal was a recognition of the fundamental importance that our merchant network plays in driving growth across our businesses and to galvanize our organization’s focus on achieving it. I'm very pleased to report that as of year-end 2019, based on our internal tracking and our understanding of the latest industry data, we have achieved virtual parity coverage with approximately 99% of credit card accepting merchants in the U.S. now able to accept the American Express card. Of course, we recognize that virtual parity coverage will always be a moving target. The merchant landscape is dynamic with hundreds of thousands of U.S. businesses opening and closing every year. Therefore, we will continue to focus on maintaining virtual parity coverage in the U.S. in 2020 and beyond. We're also making good progress to increase coverage across our international markets, where our card members live, work and travel to the most. And this will continue to be a focus for us. Going forward, as we continue to grow our network, we’ll work with our merchant partners in the U.S. and around the world to ensure that our card members are warmly welcomed and encouraged to spend in the millions of places where their Amex cards are accepted. Finally, I'm also pleased to report that the People's Bank of China officially accepted our network application, an important next step in our plan to build the network business in China. On a digital front, we've been hard at work integrating acquisitions we've made over the last few years into our mobile app to provide our card members with premium access and experiences across a wide range of travel, dining and lifestyle services that differentiate us from our competitors. We are also working with our partners and our internal development teams to deliver a wide range of new online and mobile features, capabilities and services to help our customers manage their life and their business efficiently and securely. Our goal in these initiatives is to deepen the digital ties we have with our customers, so the American Express becomes an indispensable part of their lives. And we're seeing good results as customer engagement with our digital channels is strong and growing. Today, 81% of our active card members are digitally engaged with us via our app and the website, and we’ve seen a 26% increase year-over-year in the customers who use our mobile app daily. Those are just some of the highlights of our accomplishments in 2019. As I’ve reported each quarter for the past two years, the progress we've made in each of these areas is driving our performance and shows that our financial model and investment strategy has generated sustainable growth. That's why we’ll continue the strategic approach and why we are confident that we have a long runway for steady growth over the long term. With that in mind, we expect to deliver revenue growth in 2020 of 8% to 10% on an FX-adjusted basis and earnings of $8.85 to $9.25. Looking ahead, our business is strong and our focus is clear. We have an incredibly talented team at all levels and strong relationships with a wide array of outstanding business partners from our co-brand and digital partners to our millions of merchant partners around the globe, all working together to deliver the best products and services for our customers. I'm excited about the opportunities that lie ahead in 2020 and beyond, and I'm confident in our ability to continue to deliver sustainable growth for our shareholders. Now, let me turn it over to Jeff.

Well, thank you, Steve, and good morning, everyone. Good to be here today to talk about the fourth quarter and what was a solid year for American Express and to lay out our expectations for 2020. I’ll discuss both our quarterly and full year results this morning, since it is our year-end call, and since looking at our performance on an annual basis is both more in line with how we actually manage the business and also gives us a better sense of the underlying trends. Turning to our summary financials on slide three. Fourth quarter revenues of $11.4 billion grew 9% on an FX-adjusted basis and full-year revenues of $43.6 billion, also grew 9% on an FX-adjusted basis. This growth, as it has been all year, continues to be driven by a well-balanced mix of growth in fee, spend and lend revenues and was consistent with the high levels of revenue growth we’ve delivered for over two years. This strong top-line performance drove net income of $6.8 billion for the full year and $1.7 billion for the fourth quarter. In understanding our year-over-year results, we do need to spend a minute on some discrete impacts in our reported results this year and last year. As a reminder, the fourth quarter of 2018 contained $0.58 of positive adjustments for discrete tax items related to the Tax Act of 2017 and certain tax audits. In addition, as you remember, in the first quarter of this year, we had a $0.21 charge from the resolution of certain merchant litigation. If you adjust for these two impacts as we have done on slide three, full-year 2019 adjusted EPS was $8.20, up $0.12 versus the prior year adjusted EPS of $7.33, including the $2.03 of EPS in the fourth quarter, which was up 17% versus the prior year. Turning now to the details of our performance, I'll start with billed business, which you see several views of on slides four through six. Starting on slide four, total FX-adjusted billed business growth was up 6% in the fourth quarter and for the full year. We do think it is important to continue to break out the business growth between our proprietary and network businesses due to the differing trends as we continue to see the impact of exiting our network business in Europe and Australia due to regulatory change. The 13% of our overall billings that comes from our network business, GNS, was down 1% in the fourth quarter and down 2% for the full year on an FX-adjusted basis, as a result of the market exit. We do expect to fully lap the billings impact from these exits in the latter part of 2020 and return to positive levels of growth. Our proprietary business, which makes up 87% of total billings and drives most of our financial results, was up 7% in the fourth quarter and 8% for the full year on an FX-adjusted basis. Turning to slide five, as we have said throughout 2019, the proprietary billed business growth trends are consistent with the economic environment. Solid growth, but slower than the very robust growth we saw in 2018. You see this as you turn to slide six to look at the billings by customer type for the fourth quarter. Starting with U.S. consumer, which made up 33% of the Company's billings in the fourth quarter and remains our largest customer segment. Billings were up 7%, in line with the 7% to 8% growth we have seen all year. This growth reflects continued strong acquisition performance and solid underlying spend growth from existing customers. These trends also highlight the relative strength of the consumer in the U.S. Moving to the right, international consumer growth remained in the double digits at 11% on an FX-adjusted basis, despite the mixed macroeconomic and geopolitical environment. In the fourth quarter, we saw growth moderate in Mexico and the UK sequentially, driven by external factors. The growth in the UK did remain in the mid-teens. And we continue to see strong growth in the mid-teens in our top markets across the European Union, as well as in Japan. Spending from our U.S. small and mid-sized enterprise card members or SMEs grew a solid 6% in the fourth quarter, in line with the third quarter. We continue to feel good about the steady acquisition results we're seeing in our U.S. SME customers and importantly as we think about 2020. We saw stabilization in this key customer segment in Q4. International SME remains our highest growing customer type, with 15% FX-adjusted billings growth in the fourth quarter. We feel great about the strong growth we saw throughout 2019 coming off of even higher levels of growth in 2018. Given our focus on this segment and the low penetration we have in the top countries where we offer international small business products, we continue to believe we have a long runway to sustain strong growth going forward. And then for the relatively small part of our volumes, 9% this quarter, that come from large and global corporate card billings, we saw a decline of 1% in the fourth quarter on an FX-adjusted basis, similar to what we saw last quarter. As we’ve said for years now, this is not a growth segment for us but is an important part of our merchant value development. Finally, on the far right, global network services was down 1% on an FX-adjusted basis, driven by the market exits that I mentioned earlier. And if you were to adjust for those impacts, the remaining portion of GNS was up 3% on an FX-adjusted basis, in line with Q3. Overall, we continue to feel good about the breadth of our billings growth and the opportunities we see across the range of geographies and customer segments in which we operate. Turning now to loan performance on slide seven. Total loan growth was 8% in the fourth quarter with about 60% of our growth for the year coming from our existing customers. We continue to focus on taking advantage of the unique opportunity we have to deepen our share of our existing customers borrowing. At the same time, as we’ve been saying all year, we have increased our investments in premium products and that shift in portfolio mix coupled with some steady tightening we have done on the risk management side over the past couple of years has led to lower loan growth. The shift towards more premium products has also led to lower loan balances on promotional offers, which along with continued positive impacts from pricing for risk contributed to the 50 basis-point year-over-year increase in net interest yield in the fourth quarter, if you see on the right-hand side of slide seven. So, the combination of loan growth and yield increases drove the 12% growth in net interest income that we delivered this quarter. Ultimately, we are focused on driving profitable revenue growth as the financial outcome of our lending strategy. And so, we are pleased with the stability in net interest income growth that we saw in 2019. Turning next to the credit metrics on slide eight, if you were to take an average for the year to smooth out the quarterly volatility, lending write-off rates were up 22 basis points and charge rates were up 14 basis points on average for the full year. This level of modest write-off rate increases in a business-as-usual environment is consistent with the expectations we have talked about for several years now. And as you can see on the bottom of the slide, delinquency rates have been relatively stable all year and the GCP loss ratio continued to actually be down year-over-year. These trends reflect both, the credit implications of our strategy as well as the relatively stable economy and low unemployment rate. We continue to expect modest increases in our loss rates in 2020, consistent with the trends we've now seen for several years. Importantly, we still do not see anything in our portfolios that would suggest a significant change in the credit environment, both on the consumer and commercial side. In fact, all of these portfolios performed much better in 2019 than we expected at the beginning of the year. This brings us to provision expense, which grew 7% in the fourth quarter and for the full year. The business decisions we made to shift more towards premium products along with tightening things a bit on the risk management side contributed to the loan growth, credit metrics, and provision trends we saw in 2019. Moving forward, while there may be some variability in the monthly turns, we expect relatively steady loan growth in 2020. And as I mentioned a few moments ago from a credit perspective, we expect the kind of modest increases in loss rates year-over-year that we’ve been seeing to continue. As a result of these dynamics, we do expect higher provision expense growth in 2020 than we saw in 2019. While we’re on this subject of provision, yes, let me touch on CECL. As you know, the CECL accounting changes went into effect on January 1, 2020 for us as well as the rest of the industry. In our first-quarter results, we’ll report the implementation or day-one impact, which we estimate will increase credit reserves by about $1.2 billion. The increase will run net of tax through equity with no impact to earnings. I would remind you that a unique aspect of American Express is our charge card portfolio. So, although our card and other lending reserves will go up by approximately $1.7 billion, we will have an offset from the approximately $0.5 billion decrease in charge reserves given the short life of those receivables. Now, as a reminder, this increase will not have a material impact on our capital ratios or our ability to return capital to shareholders, given our 30% plus return on equity in the multi-year phase-in period for regulatory capital purposes. Then, we get to the ongoing or as some would say, the day-two impact of accounting for CECL in our ongoing provision expense starting in the first quarter of 2020. Under our current outlook, we expect a relatively modest increase to our annual 2020 provision expense from the implementation of CECL. More significantly, I too expect that there will be more quarter-to-quarter volatility under CECL compared to the previous methodology, though some of this volatility should net out over the course of the year, making our longstanding focus on annual results rather than quarterly results even more pronounced in 2020. Now, let's get back to our results and turn to revenues on slide 10. FX-adjusted revenue growth was 9% in the fourth quarter and for the full year. The focused execution of our strategy has delivered strong top-line revenue growth of 8% or more for the last 10 quarters on an FX-adjusted basis. This consistent revenue performance has occurred in both, the robust economic environment of 2018 and the somewhat slower growth environment of 2019 and continues to be supported by a well-balanced mix of growth in fees, spend and lend revenues, as you see on slide 11. Net card fees remained the fastest-growing revenue lineup, 17% for the full year and accelerating to 20% in the fourth quarter. We are really pleased by the confidence that our customers placed in our value propositions when they choose to pay the subscription-like fees. And we continue to see that the majority of our new card members, around 70%, are choosing our fee-based products as well. Supported by the continued execution of our product refreshment strategy and our focus on premium value proposition, we expect card fee revenues will remain the fastest-growing revenue line in 2020. We are confident in our ability to maintain strong card fee growth, given the breadth of products that are driving this momentum across geographies and customer segments, as well as the high levels of engagement we see with new and existing card members. These high levels of engagement supported by the progress we've made around coverage continue to drive steady growth in our largest and most important revenue line, discount revenue, which was up 6% for the full year and in the fourth quarter, broadly in line with billings. And net interest income grew at 12% for the full year and in the fourth quarter, driven by the growth in loans and net yield that I mentioned a few moments ago. Looking ahead, I expect net interest income growth to continue to be a bit higher than loan growth, driven by continued benefits from pricing mix as well as the modest tailwind from 2019 rate cuts. Importantly, the portion of our revenue coming from fee and spend revenues remained at 80% for the full year and the fourth quarter, in line with history, and we expect that revenue composition to continue given our differentiated spend and fee-centric model. Moving on to expenses. Overall expenses grew 9% in the fourth quarter and for the full year. There are three important items though impacting the quarter here that more or less offset, but are important to understand. First, there were a few positive income tax and other tax-related developments in the quarter that show up in the low effective tax rate as well as in the operating expense line. We then, as we often do, took the opportunity to reinvest the upside we saw relative to our original plans to do two important things for the long-term health of the business. First, we accelerated the funding of some incremental business growth initiatives, similar to what we did in last year's fourth quarter. And second, we accelerated some of the things we are doing to evolve our organizations for the future and improve operating efficiencies. And as a result, we took a restructuring charge in the fourth quarter, which is included in the salary and benefits line in the tables that accompany our earnings release. As I mentioned before, the impact of these three items roughly offset one another. And you see the impacts across OpEx, marketing and business development, and the lower effective tax rates at the bottom of the page. Looking at the full year, our OpEx growth of 8% was also impacted by the litigation-related charge we took in the first quarter of 2019 that I mentioned earlier in my remarks. And as I’ve said previously, some of the investments we are making to deliver continued strong revenue growth, growth in sales force, growth in premium servicing and enhancements in digital capabilities caused us in 2019 to see more growth in operating expenses than we have seen in recent years, or importantly than we expect to see going forward. We have a long track record of generating operating expense leverage by growing OpEx more slowly than revenues. Going forward, we are confident that we have a long runway to continue to do so. Turning now to slide 14 to look at the trend in customer engagement expenses. Overall, customer engagement expenses for the full year grew 10% as a result of our investment strategy. Starting at the bottom, marketing and business development costs were up 10% for the full year due to our continued focus on funding growth initiatives and in part the incremental impact of the 11-year extension of our longstanding partnership with Delta that we signed earlier this year. Moving on to rewards expense, you can see that it grew 8% and was broadly in line with proprietary billed business growth for the full year. And as we continue to evolve our value propositions and see high engagement with our premium benefits, card member services grew 25% for the full year. While there were some adjustments that caused slower growth in card member services in the fourth quarter, we continue to expect this line to be our fastest growing expense category, as it includes the cost of many components of our differentiated value propositions, such as airport lounge access and other travel benefits, which we believe are difficult for others to replicate and help support the strong acquisition and engagement we are seeing on our fee-based products. Going forward, we continue to expect total customer engagement expenses to grow a bit faster than revenues as we continue to invest in share, scale and relevance. Turning to capital on slide 15. We ended the year with a CET1 of 10.7%, near the top of our 10% to 11% target range. During the year, we increased our dividend by 10% and returned $6 billion of capital to our shareholders. This outcome is a testament to the 30%-plus return on equity that our financial model generates, as well as our focus on maintaining capital strength while consistently returning excess capital to our shareholders. As we’ve said, our primary focus is on maintaining our CET1 ratio within our 10% to 11% target range as the governor of our capital distribution plans, and we do not believe that CECL will have a material impact on those plans. To sum up, we feel really good about our steady and consistent performance throughout 2019. Looking ahead, we see a long runway to sustain high levels of revenue growth and double-digit EPS growth in today's economic environment. That brings me to our outlook for 2020. And then, we'll open the call for your questions. Our guidance for 2020 is consistent with our financial growth algorithm. As Steve mentioned at the start of our call, we are introducing our 2020 earnings per share guidance at a range of $8.85 to $9.25. Our guidance does assume an economy that looks somewhat similar to 2019 and reflects what we know today about the regulatory and competitive environment. Consistent with the performance we've been delivering for over two years, this guidance includes revenue growth of 8% to 10% on an FX-adjusted basis. And at current exchange rates, we'd expect a more modest headwind from FX in our reported growth than we saw in 2019. And as I mentioned earlier, we will continue to invest to drive those high levels of revenue growth. And so, we expect customer engagement expenses to grow a bit faster than revenues, again in 2020. And we are committed to generating operating expense leverage by growing our 2020 OpEx at a slower pace than revenues and slower than the pace we saw in 2019. Looking at the drivers of our financial results, there are a few other key planning assumptions I'd highlight. As I mentioned earlier, we expect provision growth to be higher in 2020 than it was in 2019, including a relatively modest increase from CECL. We do expect CECL to drive more volatility quarter-to-quarter. And so, focusing on the full year results will be even more critical in 2020. In addition, we expect that our effective tax rate will be around 21% next year. In summary, we remain focused on sustaining high levels of revenue growth and in today's environment, double-digit EPS growth. As I look at our performance over the past two years and our expectations for 2020, they clearly demonstrate consistent execution against our strategy, as well as our financial growth algorithm.

Thank you, Jeff. Before we open up the lines for Q&A, I'll ask those in the queue to please limit yourself to just one question. Thanks for your cooperation. And with that, operator, we’ll now open up the line for questions.

Good to see the solid guide for ‘20. Jeff, I wanted to confirm, does the EPS guidance include the negative impact of CECL?

Yes, absolutely. So, when you think about the range we provided this year, Don, I would say, the normal thing is you have to think about a little stronger economy pushing us towards the higher end of the range, while a weaker economy is why the lower end of the range is there, and CECL is the other uncertainty. But absolutely, we are contemplating what I call the relatively modest impact of CECL in there. So, you should go with that as full GAAP guidance.

Are you considering an acceleration in your guidance, especially since we seem to be at a low point in billed business while dealing with some challenging comparisons? Additionally, could you discuss the discount rate, knowing that you are prepared to adjust it as necessary?

Well, I think what I would actually point you to is the remarks Steve started with. We had 10 straight quarters now of revenue growth, which is ultimately what we're focused on, in the 8% to 10% range. And the fourth quarter was another strong quarter of revenue growth. So, actually, when we look at that metric, which ultimately is the end goal of the mixture of everything we're doing with card fees, with pricing, loan growth, the billings, the discount rate, we actually see a lot of stability in the momentum that we’re entering in terms of revenue growth.

Yes. I think the other point is that if you look over these 10 quarters, we've shown that there is an elasticity to our billed business that still continues to drive the high revenue growth. And so, given the high card fees, higher growth in card fees, the consistent performance we’ve had from a net interest income perspective, billings can fluctuate up and down. The other thing I would point out is not all billings are created equally. So, we feel really comfortable with where we wound up and how we ended the year from a billings perspective.

Yes. Thanks. Steve, I have a question for you just on what inning you guys are in, in this kind of product launch and refresh cycle. And I'm assuming given you've done 50 already, but it's pretty late innings. And the reason I'm asking is, as you pointed out, it's been a big contributor to adding new customers, reengaging with existing ones, and presumably been really helpful in generating that strong revenue growth. And if we are in kind of later innings, what are you looking to as kind of the levers to continue to sustain that revenue growth?

Yes. It's interesting to note that I wouldn't compare this to innings but rather to baseball seasons. You have to consider that product refreshes can occur on a three to four-year cycle, meaning we have to start the season all over again. Looking back at the 50 refreshes over the past two years, there are still more opportunities within the existing portfolio. By the time we finish, some of our products will be three and four years old. Therefore, it's important to view this as an ongoing process. Our customer base is constantly evolving, and we aim to attract new customers across all demographics. For instance, before we refreshed Platinum, it was not very appealing to millennials, but now, due to the value and benefits we've added, it has become significantly more attractive. Most of our growth has been driven by millennial interest. Since the refresh, we've seen a 60% increase in Platinum cards compared to before, with over 50% of the new acquisitions coming from millennials. So, rather than thinking of this as an innings game, I see it as a continuous baseball season. There will always be another season with different card products. Our portfolio contains hundreds of card products, so there's still a lot ahead of us.

Hi. I was hoping that you could talk a little bit about the network opportunities outside the U.S. I know you mentioned, Steve, that you’ve essentially achieved parity in the U.S. now. And maybe you could give us a sense, because I know that was a three-year outlook that you gave I think last year. And where are we there? And should we expect acceleration? Thanks.

Yes. From an outside-the-U.S. perspective, we're still behind where we are in the U.S. We've set a goal to increase our international coverage by 20% over three years, as discussed during investor day. While I won’t provide specific metrics, we have made progress and are on track to meet that growth target. Our strategy is focused, targeting key cities where our card members travel and where we have significant card bases. We're also collaborating with our network partners in markets where we don’t have proprietary businesses to enhance our growth. Additionally, we have ongoing efforts in China. Our license has been accepted, and we're awaiting final approval, expecting to launch the network this year. This will not only boost coverage in China but also increase the number of cards on the network by engaging with Chinese banks, as these travelers frequently visit various European and Asian cities, thereby driving demand and enhancing coverage. Our commitment endures, and we continue to invest in these areas. Regarding the U.S., as I mentioned earlier, it remains a dynamic landscape. We need to keep signing merchants to start business relationships and continue our efforts to foster warm acceptance. By warm acceptance, we mean putting decals on the doors of merchants. We have placed over 1 million decals in the U.S. this year alone. This requires educating both merchants and our card members about card acceptance. While we've made progress in terms of technical acceptance, additional work is needed regarding warm acceptance and ensuring our card members recognize that there is coverage available. You can expect significant efforts in these areas moving forward.

Good morning. Thank you, Steve, Jeff, and Rosie. I appreciate it. Your competitors have been making significant acquisitions, such as Visa acquiring Plaid, MasterCard with several acquisitions, and PayPal buying Honey. American Express has also made some interesting tuck-in acquisitions. My first question is whether there are concerns about some of these acquisitions from a competitive standpoint, like the Visa-Plaid deal. Additionally, it seems there are numerous opportunities for American Express to leverage your brand and network given all the innovation in fintech and software. Are there specific areas you would like to focus on or invest more in, such as security or others?

Look, I mean, we're not getting into obviously specific acquisitions. But, what you've seen our focus over the last sort of 24 months has really been from some of our digital capabilities, whether that be Mezi or Resy or Cake and obviously, LoungeBuddy and we did Acompany. And so, what we're trying to do is build out the organic footprint that we have with our existing card members, we're trying to engage with them more digitally. And look, I think that our competitors, Visa, MasterCard, PayPal - PayPal is really a partner, more than a competitor. When you look at what they're doing, they're doing things that are smart for them. They're run by really smart people and they've got their strategies. And their main focus is connectivity and bringing more and more different types of transactions across those rails. And I think the acquisitions that they've done to build out from a network perspective are smart acquisitions for them. When we look at what we're trying to do from a card member and merchant perspective, we feel really comfortable with what we've done. And I think, just looking at the Plaid acquisition, which I think is a good acquisition by Visa, it allows them to provide connectivity from their bank partners into fintechs. In fact, we use Plaid today. We have an investment in Plaid. And we'll make a little bit on that as well. And so, that's a more sensible acquisition for them than it would be for us, not only from an economic perspective, but certainly from a strategic perspective, and I think just a customer perspective. So, we look at everything. We have our own target list of things that we want to do and things that quite honestly just don't make sense for us. We're positioned with our model.

You mentioned that you've been consistently achieving revenue growth between 8% and 10% for several quarters, particularly throughout 2019. As we move into 2020, you've noted a potential slowdown in net interest income. Are there any other factors you are considering to drive accelerated growth from this point?

Well, Moshe, we have observed stability in revenue growth, achieving 8 to 10 percent over the past ten quarters, and we are optimistic about maintaining that target in 2020. In terms of acceleration, card fee growth has been our fastest growing revenue line, which actually accelerated in the fourth quarter. For the reasons Steve outlined, we are confident that we can sustain this growth in card fees. Additionally, a significant amount of next year's card fees is already on our balance sheet, awaiting amortization, which supports our outlook. Regarding net interest income, it has remained steady sequentially, even though our booked loan growth rate has moderated slightly due to being more cautious with promotional offers. This has resulted in an increasing yield while net interest income growth has remained relatively flat. Therefore, we view the 2020 revenue guidance as a continuation of the trend we've sustained for the past two and a half years. We feel positive about the stability in the economy, our credit performance, and the strong condition of the U.S. consumer.

Thanks. Good morning. Sounds like the guidance ranges are more related to execution than anything else. But, last year, Jeff, you guys have talked about a scenario where there was macroeconomic weakening. To the extent that there was any weakness, how should we think about this guidance, especially on the EPS side? Thanks.

Well, look, I think the results we posted, Sanjay, in 2019 demonstrate that we've got a model that produced steady results in the really robust economic environment of 2018 and continued to produce those same results in the more modest growth environment in 2019. So, there is clearly a range of economic outcomes around where we are, where our model is flexible enough or resistant enough to change. I'll go back to the card fee point I just made to Moshe where our card fee growth is actually pretty resilient in different economic environments. So, we feel good about our guidance across any reasonable range of economic outcomes than anyone is forecasting right now. Now, there is a sudden dramatic shift upwards or downwards. That's the kind of thing that it would take to probably cause us to move off that range.

Thanks, guys. Good morning. So, I just wanted to start on the enterprise commercial side. I know it’s still only 9% of billings. But, I think last quarter, we were expecting maybe a little bit of an uptick. We got instead a little bit of a downtick there on a constant currency basis. So, I was just wondering, I know last quarter you had a couple of specific customers that were callouts as driving some of the softness, were those continuing to be headwinds in Q4 and was there more of a malaise in corporate T&E? Do you still think we get back to low-single-digit growth in 2020? And then, just on a quick side note, can you size that restructuring charge for us in the quarter? Thank you.

So, let me quickly do the facts on the two, and then Steve will probably add a little bit of color. On the large and global, I guess we look at it and we say, sequentially it’s about the same as it was last quarter. Yes, you do have the same two large customers where there are some things unique to those customers going on. But, look, we’ve said for a long time, this isn’t a growth segment for us. This is big companies doing T&E. It's an important part of the franchise. So, we're not frankly particularly overly focused on that rate. We’re focused on other parts of commercial. On the restructuring charge, the point I would make to everyone is, this just an example of what we've done for many, many years, which is we had some very good developments on the tax side. We use that to accelerate some spending around a range of growth initiatives. We see some of that in the marketing line, some of that in some of the other customer engagement lines. And yes, we did take a restructuring charge; it’s a little bit more than $100 million. Look, we've been growing expenses, we've added over 5,000 colleagues in the last year. We will continue to grow expenses in 2020. Frankly, we're going to continue that to add colleagues. But, we got to make sure we have the right people in the right place so that we can continue as we have for many, many years to scale our Company as we grow our volumes.

As for restructuring, Jeff covered most of that. From a company standpoint, not many businesses are looking to increase their travel and entertainment expenses, which means there isn't much organic growth. A few companies are cutting back or facing losses, which reflects in our numbers. Travel and entertainment represent 9% of our overall billings, but its impact on profit is significantly less. This segment is crucial for our business because it helps us leverage our scale and infrastructure to support our middle market and small businesses. We feel comfortable with our current billing situation. While it would be ideal for this segment to grow, any increase won't greatly affect profitability, highlighting that not all billings are equally profitable. I expect to see this stagnation trend continue into next year. We, too, are not aiming to expand our travel and entertainment expenses. I wouldn’t want to push my team to find ways to increase T&E. Although, I would enjoy discussing that with many of my customers. Companies are reviewing their travel and expenses, opting for more video conferencing, and reducing travel, which is evident in the numbers.

Look, given the maturity of the business and it's really impressive to see your U.S. consumer business, which is a third of your business growing at the rate that it is. I'm curious to sort of understand what you think is driving that. Is there an increase in discretionary spending among your legacy customers, or when cite particularly the growth of millennials in the portfolio is the ramp in their spending?

The interesting aspect of our business is that it's likely not mature yet. One reason for this is that following the financial crisis, many, especially banks, heavily entered this sector because it continues to expand. The consumer market in the U.S. shows consistent growth, around 8% year after year, and I anticipate this trend will persist. When we assess our business from a maturity standpoint, it encompasses a mix of new customers and same store sales, along with organic spending. We are successfully attracting new customers to our franchise, especially millennials, who now make up more than half of our new acquisitions. Our partnerships are also helping us reach additional customers. Therefore, I don't perceive our business as mature; in fact, I believe the card industry still has significant potential for growth. Technological advancements, like contactless payment methods, are facilitating more small transactions, such as those at vending machines and in transit systems, including New York City's tap-and-go options. We view our business as having room for expansion with both new and existing customers, as we currently capture less than half of their spending. As we noted earlier, we only hold about 23% of their lending share, indicating substantial upside potential in this sector.

International consumer and international SME continue to be your fastest growth businesses. And particularly, you've called out strength in the UK and the European Continent. Given the regulatory changes with Payment Services Directive 2 in Europe and the UK, Visa and MasterCard have both acquired fast ACH trails, both to address PSD2, consumer ACH payments, and also to complement their B2B payment capability. So, my question really is, does fast ACH need to play a role in American Express' future? And if so, where would you have an interest geographically, potentially to acquire fast ACH rails?

Yes. From a consumer standpoint, we view fast payments as potentially taking away some debit and ACH usage, as well as checks. We are currently testing an open banking model that allows some non-customers to pay directly from their bank accounts, which could present an opportunity for us. However, I don't foresee this significantly affecting the growth of credit and charge. Fast payments, particularly in B2B contexts, could play a significant role, and I've mentioned this before in discussions. We believe we can achieve necessary outcomes with our existing network and pricing flexibility. I'm not limited by interchange fees; I can set transaction prices. An advantage we have in Europe is being part of a three-party system rather than a four-party one, which allows us to maintain direct relationships with cardholders and merchants, enabling us to achieve our goals without needing to acquire companies like Vocalink or Earthport. Nonetheless, fast ACH will indeed have a role in procurement. However, I’ve indicated previously that it won't solve everything since many payments still occur within 60 to 90 days. The larger opportunity lies in integrating the payment process with procurement workflows, effectively connecting procure-to-pay systems. This integration is complex and time-consuming, which is why we partner with firms like SAP and Ariba. Organizations are more concerned with merging these processes than with expedient vendor payments. My priority is not to pay a vendor in 20 minutes but to effectively integrate the two systems. While acquisitions like those made by Visa and MasterCard are notable, I believe we can achieve similar outcomes using our existing capabilities.

So, Steve, I wanted to follow up on the previous questions. I wanted to ask about the large and global corporate again. I know it's a bit tricky, but looking at the appendix regarding the volumes from T&E, it actually grew 6%. That seems good and consistent with previous trends. However, I understand that not all T&E is categorized under large and corporate. So, could you provide any context on how T&E could grow while large and global was down?

Yes. When considering our consumer travel business, it's important to note the growth we've experienced in small business international and consumer international. The small business international segment is not yet as developed as small businesses in the United States. Historically, small businesses in the U.S. started with travel and entertainment cards which then evolved into business-to-business cards, affecting our volume mix. In terms of travel and entertainment outside the U.S., small business international tends to have a higher percentage of travel and entertainment spending on those cards. Additionally, our consumer business is expanding significantly internationally, and this segment also has a more travel and entertainment focus compared to retail.

The only math point I would add is, in our tables that stat is the U.S. stat but it just goes to the point that the large and global segment is a small part of our total billing. So, the T&E trends get dwarfed in terms of the global company by what consumers and small business are doing.

Steve, I would like to ask a question regarding the long-term history of your card fee strategy. A few years ago, there was minimal growth or only low single-digit growth in card fees. I'm curious if you believe the changes are more about Amex’s strategy or the consumers’ interest in fee-based cards.

Our approach has shifted over the past few years, which is evident if you look back at our product refresh initiatives. Previously, we didn't prioritize refreshing products, making it difficult to increase fees. Adding value is essential for justifying fee increases. Without adding value, we can't elevate fees. We've fundamentally changed our business strategy, emphasizing greater coverage, a targeted international strategy, and a strong focus on card refreshment. Card refreshment is not solely about fees; it's aimed at encouraging spending, which leads to revolving that spending. Therefore, the primary goal is to enhance engagement, with fees naturally increasing as we add value.

Yes. Thanks for squeezing me in. I wanted to get a little clarity on your thoughts for billed business growth trends in 2020. With comps getting easier and we're starting to lap some of the issues in corporate and certainly GNS, could we see an inflection point in 2020 where billed business growth starts to reaccelerate? And just a housekeeping item. Are there going to be any unique quarterly trends in marketing spend this year due to the 2020 Olympics? Thanks.

The short answer to your question, Craig, is no. The Olympics is indeed an important event from many angles, and we have a great franchise in Japan benefiting from the Prime Minister's incentives aimed at boosting card usage. While this is positive for us, it’s not substantial enough to impact our global results significantly. Regarding the inflection point in billed business, I would refer back to what Steve and I discussed earlier about our revenue momentum, which has remained stable for the last 10 quarters. This stability is due to our diverse revenue sources and our careful approach to card fees and risk pricing in our lending portfolio. We are optimistic about the trends in billed business, but more crucially, we are focused on the ongoing stability in revenue, which supports our guidance for another year of 8% to 10% revenue growth. This guidance does not rely on a substantial increase in billed business. If that occurs, it would be a bonus, but it is not a fundamental part of our planning assumption for the guidance provided.

With that, we'll bring the call to an end. Thank you, Steve. Thank you, Jeff. Thank you again for joining the call and for your continued interest in American Express. As usual, the IR team will be available for any follow-up questions. And we look forward to seeing you at our investor day, which will be held on March 17th here at 9 a.m.