American Express Company (AXP) — Q1 2022 Earnings Call Transcript

Thank you, Alan, 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 from these statements are included in today's presentation slides and in our reports filed 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 for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com. We will 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 financial performance. After that, we will move to Q&A on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Thanks, Vivian, and good morning, everyone. Welcome to our first quarter earnings call. At our Investor Day last month, we took you through a detailed discussion of our strategies for driving sustainable growth across our businesses and explained why we are confident we can achieve our growth plan aspirations for 2024 and beyond. Our confidence is based on three interrelated factors: the success of the strategy we've been pursuing over the past several years, which focuses on investing in our brand, customers, value propositions, coverage, technology, and talent to build share, scale, and relevance. The momentum we've been generating through the effective execution of that strategy, and a number of structural shifts in the payment industry that are contributing to our momentum. The strong first quarter results we announced today are tracking in line with our expectations for the full year, despite the uncertain macro environment, and they reinforce our confidence in our ability to achieve our longer-term aspirations. For the quarter, revenues were $11.7 billion, up 29% year-over-year, and earnings per share were $2.73. These results reflect continued momentum in our core business in areas that are critical to sustainable long-term growth, including customer acquisition, engagement, and retention, as well as outstanding credit performance. New proprietary card acquisitions remain at their strong pace, reaching three million this quarter, which continues to be driven by strong demand for our premium fee-based products, particularly among Millennial and Gen Z consumers, and small and medium-sized businesses in the U.S. We had an all-time high in acquisitions of U.S. Consumer Platinum and Gold cards, as well as U.S. business Platinum Cards this quarter. Delta card acquisitions reached an all-time monthly high in March, an indication of the growing demand for travel-related products and services. Regarding customer engagement, we look at a variety of indicators to measure progress. For example, Card Member engagement with our digital capabilities continues to grow with daily active users across the web and mobile, up double digits over last year. We're also seeing strong engagement with the new benefits we added to our consumer Platinum card, particularly among Millennial and Gen Z card members, nearly half of whom have used at least one of the new travel and lifestyle benefits to date. And we continue to see an acceleration in customer engagement with our resi dining platform, including strong double-digit growth over the last quarter in the number of Amex cards on file and the number of restaurants participating in our global dining access program. March was one of resi's best months on record for reservations, up nearly 16% over February. Ultimately, the key metric to gauge customer engagement is spending growth. Overall, bill business grew 35% in Q1 globally year-over-year on an FX-adjusted basis, and we saw our highest volumes ever in March, surpassing our previous highest of December 2021. Spending growth was led by the acceleration of volumes from Millennial and Gen Z consumers, up 56% and SME spending up 30% on an FX-adjusted basis over last year. Goods and services spending continued to accelerate in the quarter, growing 21% on an FX-adjusted basis over last year. Travel and entertainment spending was up 121% globally on an FX-adjusted basis year-over-year, driven by strong growth in consumer travel spending. Customer retention remains at the very high levels I mentioned at Investor Day, an indication of the value our customers continue to place in Amex membership. A major contributor to our success across all of these areas is the ongoing expansion of many partnerships, which go well beyond our large strategic partners like Delta, Hilton, and Amazon. We continue to extend relationships with a variety of companies that are adding differentiated value to our membership model. For example, last week, we announced a new financial advice service with Vanguard, exclusive for our U.S. consumer card members, which brings together Vanguard's digital financial planning and investment management expertise with our industry-leading membership rewards. This is just the latest example of how we're expanding our value propositions beyond our traditional card offerings to meet more of our customers' financial and lifestyle needs. In addition, we're accelerating our focus on fintechs to drive more innovation, including our new partnership with i2c, which will enable fintechs to more seamlessly and quickly issue new products on the American Express network. We also continue to make progress on our ESG initiatives, which are important components of our overall business strategy because we recognize that when our customers, communities, and colleagues thrive, so does our company. On a diversity equity inclusion front, we are more than three-quarters of the way towards our goal of investing $1 billion in a wide range of actions by 2024, including increasing spend with diverse suppliers, providing resources and financial assistance to minority-owned SMEs in the U.S., and maintaining pay equity across genders globally and ethnicities in the U.S. among other efforts. Our DEI progress was cited as one of the key reasons, along with our flexible work policies for our number eight ranking on Fortune's 2022 list of the Best U.S. companies to work for, which was announced last week. This is the third consecutive year we've been in the top 10, which helps us attract and retain talent. And we recently announced a series of initiatives coinciding with Earth Month that are designed to engage our customers, community partners, and colleagues in our climate efforts including the goal of significantly expanding the use of recycled plastic in our card products. These initiatives build on the work we've already done and continue our efforts to reduce our own carbon footprint, including our commitment to net-zero carbon emissions by 2035. In summary, with this solid start to the year and the continued tailwinds we expect from the ongoing recovery from the pandemic, we're reaffirming our full-year guidance of delivering revenue growth in the range of 18% to 20% and earnings per share of between $9.25 and $9.65. Furthermore, we remain confident that successful execution of our strategy will position us well as we seek to achieve our long-term growth plan aspirations of revenue growth in excess of 10% and mid-teens EPS growth in 2024 and beyond. I'll now turn it over to Jeff for a deeper dive on the quarter. Thank you.

Thank you, Steve, and good morning, everyone. It's great to be here to talk about our first quarter results, which reflect a solid start to 2022 and are tracking in line with the guidance we gave for the full year and with our aspiration to build growth momentum beyond 2022. Starting with our summary financials on slide 2. Most importantly, our first quarter revenues were $11.7 billion, up 31% on an FX-adjusted basis, consistent with the momentum we have built and our longer-term growth aspirations. Our reported first quarter net income was $2.1 billion with earnings per share of $2.73. As you know, year-over-year comparisons of net income have been challenging for the industry over the past two years due to the volatility that the pandemic has caused in credit reserve adjustments. For that reason, we thought it would be a helpful supplemental disclosure this quarter to include our pre-tax pre-provision income. That number was $2.7 billion in the first quarter, up 16% versus the comparable number in 2021, reflecting growth in our core earnings. So now let's get into a little more detailed look at our results, starting with volumes. As you can see in our slides, we have mostly gone back to reporting our volumes on a year-over-year basis, moving away from the comparisons to 2019 that we have done in recent quarters. We think that returning to a focus on year-over-year comparison gives you a better view of the momentum we have built and the momentum we are seeking to maintain as we look towards our longer-term growth objectives. Starting on slide 3. Total network volumes and bill business were both up over 30% year-over-year in the first quarter on an FX adjusted basis, strengthening further from the strong growth rates seen in the past few quarters. And as Steve highlighted, intra-quarter, while Omicron slowed growth in January and early February, we then saw a strong acceleration in March, with that month achieving our highest ever level of monthly bill business. The majority of this high level of growth was driven by the momentum we have built and the number of transactions flowing through our network with only a modest impact from inflation. Now as I talked about at our Investor Day last month and as slide 4 reiterates, the majority of our bill business is spending on goods and services from our consumer and small and medium-sized enterprise customers. And as you can see on slide 5, business service spending remained robust in the first quarter with year-over-year growth reaching 21%, slightly above the 2021 exit rate. This momentum is from strong growth in online and card not present spending that continued in the first quarter even as offline spending growth strengthened, demonstrating the effect of the structural shift in online commerce that we've seen accelerated by the pandemic. And while T&E spending is a smaller portion of our total billings, you see on slide 6 that it is now strongly supporting our growth momentum, with overall T&E spending growing 121% year-over-year. T&E spending did show a dip in January and early February due to the Omicron variant, but spending rebounded tremendously, reflecting pent-up travel demand and essentially reached 2019 levels for the first time since the start of the pandemic in the month of March. And this kind of T&E spending growth has continued right into early April. When you then break these spending trends down across our consumer and commercial businesses, as we begin to do on slide 7, there are a few other key points I'd suggest you take fully. First, our millennial and Gen Z customers continue to drive our highest consumer growth with their spending up 56% year-over-year and spending growth from all other age cohorts increasing as well in the quarter. Also of note, global consumer T&E volumes overall were back above 2019 levels as of the first quarter, led by the growth in the U.S. Second, our commercial businesses' strategic focus on helping SME clients run their businesses continues to drive strong growth in overall SME spending, up 30% in the first quarter with acceleration in growth across both the U.S. and international. While a smaller part of our overall growth is in this segment, I would point out that our large and global corporate clients have begun to show signs of business travel recovery, especially in the latter part of the quarter with a year-over-year growth rate of 42% for the quarter. So overall, we are pleased with the growth momentum we see across the board in our spending volumes, which is tracking in line with our expectations for both the year and for our long-term expectations. As you then move to receivable and loan balances on slide 9, you see that our growth momentum has brought our ending loan balances roughly back to pre-pandemic levels in this quarter. As I said at Investor Day, the interest-bearing portion of our loan balances also continues to increase quarter-over-quarter, but is still below 2019 levels as pay down rates remain elevated due to the liquidity and strength amongst our customer base. This liquidity and strength is also, of course, evident as you turn to credit and provision on slides 10 through 12, as we continue to see extremely strong credit performance. Card Member loans and receivables write-off and delinquency rates remain well below pre-pandemic levels and in line with our expectations, but they did tick up a bit this quarter. As you then turn to the accounting for this credit performance, you will see that this quarter, we released a large part of the remaining credit reserves we built to capture the significant uncertainty of the pandemic. While there clearly is still plenty of uncertainty today related to the current geopolitical and inflationary environment, we believe that our CECL models are better able to capture our expected credit risk related to these uncertainties to determine the appropriate level of reserves required. Our strong credit performance combined with the adjustment to our reserves drove a $33 million provision expense benefit for the first quarter as the low write-offs were fully offset by the net reserve release as shown on slide 11. As you see on slide 12, we ended the first quarter with $3.1 billion of reserves, representing 3.3% of our loan balances and 0.1% of our card member receivable balances, respectively. This is well below the reserve levels we had pre-pandemic, given the strong credit performance we've seen. Going forward, as loan balances, especially the interest-bearing portion of loan balances, build more meaningfully, we expect delinquency and loss rates to continue to slowly move up over time, but remain below pre-pandemic levels this year. We would also expect to end the year with a higher level of reserves on our balance sheet than where we ended this quarter, although there could be some quarterly volatility in reserve adjustments throughout the year. As we move to revenue on slide 13, I do need to explain some changes we've made to our revenue reporting before moving on to results. As a reminder, we began reporting processed volumes in the first quarter of last year to better differentiate between volume on cards we issue versus those in which we play more of a network role. For added transparency, we now have moved all of the revenues associated with these volumes out of discount revenue, other fees and commissions, other revenue and combined them into a newly created line called Processed Revenue, which you can match up against our processed volumes. We have also consolidated the remaining balances from other fees and commissions and other revenue into one line named Service Fees and Other Revenue with the largest components of this line item being service fees earned from merchants like those generated by our loyalty coalition business; and foreign currency-related revenues, such as FX conversion fees. This revenue line was up strong with 42% growth year-over-year in the first quarter, as you will see on the next slide. This growth was primarily driven by the uptick we have seen in travel-related revenues. With these changes out of the way, let's move to our actual revenue performance beginning on slide 14. Total revenues were up 29% year-over-year in the first quarter with broad-based revenue growth across all lines. Our largest revenue line, discount revenue grew 38% year-over-year in Q1 on an FX adjusted basis, as you can see on slide 15. This growth was driven by both our sustained growth in goods and services spending and continued recovery of T&E spending. Net card fee revenues were up 16% year-over-year in the first quarter on an FX-adjusted basis, with growth reaccelerating versus the 10% to 11% growth rate seen in 2021 as you can see on slide 16. This growth is largely driven by bringing new accounts onto our fee-paying products as a result of the investments we've made in our premium value propositions and the continued attractiveness of those value propositions to both prospects and existing customers. This quarter, we acquired three million new cards, with acquisitions of U.S. consumer and U.S. business Platinum Card members reaching record highs, as Steve noted earlier, demonstrating great demand for our products, especially our premium fee-based products. Moving on to net interest income. On slide 17, you will see that it surpassed 2019 levels for the first time this quarter, mainly driven by lower interest expenses, in part due to our increased mix of deposits, which is generally our lowest cost funding source, particularly in today's rising rate environment. First quarter year-over-year net interest income growth of 20%, while very strong, remains slower than the growth in our lending AR, as revolving loan balances continue to rebuild, and so we expect net interest income to be a pandemic recovery tailwind to our revenue growth in 2022. To sum up, on revenues on slide 18, we're tracking well against our expectations. And looking forward, we still expect to see revenue growth of 18% to 20% for the full year of 2022. So all of the revenue momentum we just discussed was driven by the investments we've been making in marketing, value propositions, coverage, technology, and talent. And those investments show up across the expense lines you see on slide 19. Starting with variable customer engagement expenses, the strong spending growth and customer engagement that Steve discussed earlier is driving the growth in these expenses lines. In total, these costs came in at 41% of total revenues for the first quarter and are tracking in line with our expectations for variable customer engagement costs to right around 42% of total revenues for the full year. On the marketing line, we invested $1.2 billion in the first quarter, on track with our expectation to spend around $5 billion in 2022. We feel really good about the strong momentum of our new card acquisitions, as I talked about earlier. And more importantly, about the revenues from those acquisitions, which is trending significantly higher than what we saw pre-pandemic. We continue to see great demand for our products across a wide range of attractive investment opportunities, even beyond those we are currently funding. Moving to the bottom of slide 19. Operating expenses were $3.1 billion in the first quarter, tracking with our expectation to spend a bit over $12 billion for the full year. While OpEx was up 26% year-over-year this quarter, it is important to note that we were growing over a benefit of $384 million in net mark-to-market gains in our Amex Ventures strategic investment portfolio from the first quarter of last year, including in the OpEx line. I would point out that, what I said earlier that, inflation is having some modest positive impact on volumes, it is also putting some pressure on our operating expenses, but we'll have to wait to see how material any impact might be for the full year. In any event, I still expect to have far less growth in OpEx compared to revenues and see these costs as a key source of leverage. Turning next to capital, on slide 20, we returned $1.9 billion of capital to our shareholders in the first quarter, including common stock repurchases of $1.5 billion and $394 million in common stock dividends, on the back of strong earnings generation. Our CET1 ratio was 10.4% at the end of the first quarter, within our target range of 10% to 11%. We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth. That brings me to our growth plan on slide 21, and then we'll open up the call for your questions. For the full year 2022, we are reaffirming our guidance of having revenue growth of 18% to 20% and earnings per share between $9.25 and $9.65. We continue to expect the amount of our volumes, revenues, and core earnings to sequentially strengthen throughout the year, driven in part by our pandemic recovery tailwinds. As I mentioned earlier, there's clearly uncertainty as it relates to the current geopolitical and inflationary environment. As we sit here today, despite that uncertainty, the combination of our investments, successful execution of our strategy, and a number of structural shifts have all come together to deliver our strong first quarter results and build growth momentum. We remain committed to executing against our new growth plan and running the company with a focus on achieving our aspiration of delivering revenue growth in excess of 10% and mid-teens EPS growth on a sustainable basis in 2024 and beyond. With that, I'll turn the call back over to Vivian.

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

Thanks. Good morning. Obviously, the T&E rebound is happening at a brisk pace despite some of these lingering concerns on COVID cases and economic weakness. Jeff, you mentioned large corporate also that recently saw a strong rebound recently. Could you talk about how much of the volume rebound is being driven by unit demand versus sort of inflationary pressures? And how worried are you or your corporate clients about some of these issues like supply chain constraints and the economic concerns? Thanks.

Let me start, and Jeff can maybe add some detail as well. This isn’t being driven by inflation; just try to book a flight. Airline prices may be slightly higher, but overall business transactions are increasing. We saw billings rise by 35%, which isn’t all due to inflation as we don’t have that level of inflation. In terms of travel, it’s important to note that people haven’t been traveling for about two years, resulting in significant pent-up demand. Our global consumer bookings increased by approximately 38%, and in the U.S., they were up 48% compared to 2019, not last year. People are eager to travel, and that’s what's driving this growth. The T&E number of 121% is impressive, but it’s essential to put it into perspective; it reflects an increase over last year, not over 2019. While consumers are returning, we are not fully back to previous levels. Large corporations are also seeing this trend, as people want to gather with colleagues and meet clients. Conferences are resuming, and within our company, we’re reuniting our senior management team and holding sales meetings because people haven't seen each other in a long time. Customers are reopening their offices, and as for COVID, we are starting to learn to coexist with it. It's clear now that COVID isn't going away; we'll have to manage it like we do with the flu and other viruses. People will inevitably get colds and other illnesses. However, the world is opening up again, and there’s excitement about getting out and exploring, both for businesses and consumers.

The only thing I would briefly add, Sanjay, is when you think about travel and entertainment spend, some of that increase is not so much inflation as it is a return to people buying more front-of-airplane or high-end hotel or high-end restaurant oriented. Some of that is the business travel rebound where your average business travel purchase is, of course, much higher than the average consumer purchase. The other comment I'd make going forward is there's certainly lots of uncertainty in the world. But when you look at everything we see in our actual results and business, you just can't really see any sign of weakness that that's causing as of today.

Good morning Steve and Jeff.

Good morning, Mihir.

Good morning.

Thank you for taking my question. A lot has changed since guidance was initially set. And I am curious if you could maybe just talk about how your plans for the year have been evolving since they were established? Are there areas that made sense to lean into now versus what you had thought coming into the year versus maybe pulling back in others? Like I guess I'm just trying to understand the flexibility in the model, particularly on the expense side in terms of as things change, what's changing under the hood even as you maintain guidance? Maybe just give us a flavor of that? Thank you.

I believe we have shown significant flexibility during the pandemic, particularly regarding our marketing expenses. As consumer and business travel decreased, we effectively managed our card member services. We have control over certain aspects like this. Regarding our guidance, we are confident in our projection of $9.25 to $9.65. Importantly, we are focused on our daily efforts to align with our growth goals for 2024, aiming for sustainable revenue growth of 10% and mid-teens EPS. This approach has been effective for us. When it comes to investment opportunities, we have a variety of promising options available. It's crucial to act on card acquisition opportunities quickly, as they can be fleeting. We will continue to enhance shareholder value by investing in and growing the business for the medium and long term, a strategy that has proven successful for us. Currently, I see better investment opportunities than at the start of the year, even compared to our initial plans. While these investments may take time to yield returns, they will position us well for 2023 and 2024. We are optimistic about our guidance and the strategic investments we are making and will keep making.

The only sort of simple financial summary I'd put to that here – when we gave the guidance for our revenue ambitions, they are quite ambitious, we feel really good about the momentum we built, but we have more investment opportunities, as I said in my remarks, than we probably anticipated, and maybe a little bit of pressure on costs from inflation. So all of those things, I think, position us really well to build momentum towards our long-term target of sustainable over 10% revenue growth.

Good morning.

Good morning. Good morning, John.

So given the expected Fed moves to cool the economy and tame inflation, what degree of slowing in network volumes or build business volumes, let's go with do you incorporate in your outlook? And then on the T&E side, I know you indicated, it's up nicely and continues in April. How do you view this trend being as the Fed tightens and the economy cools through the year?

The general comment, I would make, John, as you know, we don't have in-house economists. So we tend to say, we should run the economy and run our guide based on the macroeconomic consensus, which is not for there to be a recession, and the Fed will say that they are certainly focused on bringing inflation down without causing a recession. So that's what's built into our guidance, and that's how we're running the company. I think as Steve pointed out earlier, we have clearly demonstrated over the last couple of years our ability to manage the company in a very agile way and react to a scenario that's different than what I just described. But in terms of our base level of planning, I don't think it's our role to second guess that general macroeconomic consensus.

Hi. Good morning.

Hi, Betsy.

Hi, Betsy.

I wanted to explore the loan growth and card fee growth a bit more. As you mentioned, there is still potential for loan growth. Could you clarify if the net interest income is expected to accelerate while loan growth levels off, or what your perspective is on that? Additionally, I noticed that card fees increased significantly this quarter; how does that fit into the overall picture? Thank you.

Card fees have increased as we continue to add more cards to our portfolio. Approximately 68% of the consumer cards we acquired were fee-based cards, which is still slightly below our pre-pandemic levels. Most of our growth in card fees is driven by the new cards we are acquiring, alongside some increases in fees that will be realized over time. We are optimistic about our position regarding card fees. Regarding overall loan growth, prior to the pandemic, we were expanding slightly faster than the industry. We have a smaller share of our card members' loan wallets compared to their spending wallets. Our intention is to grow carefully while aiming to return to previous growth levels. Currently, we are growing faster than the industry, but we need to increase our balances. I'll let Jeff provide more details.

I would just emphasize the financial location, Steve, of what you just said, which is we are now growing those lending balances faster than the industry, and we absolutely expect that to continue. So, there's a lot of runway for growth on the lending side. Because of quarters like we just had with a record level of new U.S. platinum and Gold Cards on the consumer side and a record level of U.S. business Platinums, I'd expect net car fee growth to probably accelerate even further from where it is.

Hi. So, you've clearly navigated the pandemic exceptionally well and your acceleration in investment spending couldn't have been better timed, as evidenced by your customer acquisition growth. But as you look ahead from here, I wanted to follow up on some of your earlier comments. Are you at all concerned over the risk that the Fed may be forced to actually push the economy into recession to payment inflation? Does that give you any pause to be growing aggressively into that? I mean everything looks great now, but just would love to hear your thoughts a bit more on how about that risk? And maybe if you could help us understand how you think the Amex customer base would perform in that kind of environment?

Well, as I said earlier, we are always, in terms of our guidance, planning for macroeconomic consensus, while also making sure we're thinking about other possibilities. And certainly, Bill, is just one example. We are doing work today and making adjustments on the risk management side as we think about what the impact is of sustained levels of inflation at its current level on different aspects of our customer base because we want to make sure we're positioned from a risk perspective for that. Although that is not the macroeconomic consensus. years, again, our ability to be agile and manage through a downturn, should that happen. And we're trying to strike all those same balances right now.

Yes, thanks. Steve, I think in your prepared comments, you alluded to both the new partnership with Vanguard and also some really strong activity out of resi. Could you just help us think through how kind of those two initiatives will really impact the topline?

Well, I think the way you got to think about both of these is we are constantly and continuously adding more benefits and more services to the card. When you look at both of those partnerships, they do not have top line growth. What they do, however, is they, in our mind, drive more engagement, drive more retention, and give people more reason to want to be with the card. Now I'll just talk about resi for a second. Resi is not only a vehicle for giving our card members access to restaurant reservations and card members do get access to the global dining program, but it's also a card acquisition vehicle as well, because resi is an open platform. And so, resi was all about where our card members spend their money and how we can integrate more with restaurants, and connect our card members, and really take advantage of our closed-loop in a different way, not just for payments, but for the reservation piece, which leads to payments. When you look at the partnerships that we have that are Sort of around the core of the card, and I’m not talking about the Delta co-brand partnerships and so forth. But when you look at the other things that we do add on, what we're constantly adding to our products are more services, better access, and more experiences so that you continue to build the value propositions in different and more sustainable ways. Vanguard is an example of offering an investment service opportunity for card members that want to take advantage of it that combines Vanguard's digital adviser service, with the personal adviser service and puts an NMR component into it. And so, we'll continue to look at other lifestyle, financial and travel, and entertainment services that just add to the overall underlying value of our card products.

Hey, good morning, Steve. Good morning, Jeff.

Hey, Ryan.

Hi, Ryan.

So, Steve, you talked about the investment opportunities looking better, and then, Jeff, you talked about the potential to build reserves. So I'm assuming you're talking about reserve dollars. And do you think we're at the bottom on the reserve rate? And also, despite recession fears, credit continues to outperform expectations. And if we do continue to see better credit, Steve, how are you thinking about the potential to lean further into opportunities to continue to acquire cards and move towards your aspirational targets for 2024?

Let me address questions one and three while Jeff will handle question two. We continue to identify promising opportunities, and as they arise, we will keep investing in them. It’s crucial to understand that we are making these investments throughout the economic cycle. As we evaluate our return on investments, we feel optimistic about the prospects we see. The opportunities are emerging for a few reasons. First, the premium card market is growing, particularly with Gen Z entering the workforce and Millennials, who are now maturing, still showing interest in our products. This expanding customer base is creating more opportunities. In the past, we would start new customers on fee-free cards, many of which weren't as distinct as others. While we offer better service, the true value comes from our fee products. Savvy consumers and small business owners can extract significantly more value from these products than the fees they incur. Our partnerships help enhance the value for our cardholders, creating a beneficial situation for the cardholders, the partners, and our company. Furthermore, the increase in small business formations represents a structural shift we are leveraging. If credit performance improves, we will continue to release reserves and take advantage of emerging opportunities. We are focused on medium to long-term growth and it would be unwise for me to overlook significant investment opportunities that could yield long-term benefits. This year, we have committed to achieving 18% to 20% revenue growth based on our 2019 revenue figures, which is unprecedented for us. This growth directly reflects our commitment to investing in our cardholders and our brand, without avoiding strong investment opportunities.

Well, to come back on the credit side, maybe just to clarify my remarks. So when you look at the credit reserves, we closed the first quarter with, I would expect the dollar level of those reserves to be higher by the time we get to the end of the year, because I very much expect our AR balances to grow. Whether the reserve rate grows is much less clear, and it's probably more going to be a function of where economic forecasts go. Could the reserve rate go lower? Well, I don't think our delinquencies and write-offs are going to go lower. So the only thing just mechanically that could cause the reserve rates to go down would be a dramatic improvement in the balanced economic outlook, which probably would mean all the uncertainties in the world go away. So if magically that were to happen, I suppose it's mechanically possible to reserve rank lower, but I would have to say that's pretty unlikely sitting here.

Good morning guys. Thanks for taking my question.

Good morning, Meng.

On the competitive environment, I mean we've seen a competitor coming with the new Fab offering and the premium travel space is always top. But that doesn't seem to be stopping you guys much, if at all. I'm just wondering, can you quantify sort of the market share that you guys have taken? And also speak to any potential headwinds you're keeping your eye on in the landscape currently? Thank you.

This is a competitive environment, especially in the U.S. consumer market, and it always has been. Companies like Capital One and JPMorgan are enhancing their premium offerings, and we will keep focusing on adding value to our products to remain a top choice for our customers. We've achieved record acquisitions, but competition remains strong. We also recognize that competition exists in the U.S. small business sector, which is equally competitive. We monitor the competition closely, aiming to understand our customers' needs and adapt our products and services accordingly. It's not enough to just launch a product and wait; we are continually enhancing our offerings. For instance, we improved the Platinum Card by adding the Walmart Plus benefit after its recent refresh. We operate under the assumption that competition is fierce and high-quality, which has proven to be a successful mindset for managing our business.

The one thing, Steve, I'd add is I take people back to your discussion at Investor Day about what you call the virtual recycle, which is the faster we can continue to grow our premium customer base, the more we're all so successful in attracting partners who want access to that base and help fund and further improve the value proposition. That's one of the most important ways we operate in a very competitive.

Good morning. Thanks for taking my question.

Good morning Chris.

I just wanted to double check on the net card fees and the year-on-year growth there and the acceleration in the growth. So a bit of that being a function of new additions, but also fee changes. Should we expect a similar year-on-year trajectory for the next four quarters as you recognize some of that revenue over time, or is this a onetime kind of bump?

No, it's a good question, Chris. As I pointed out earlier, and as I think I showed in a chart at Investor Day, most of the growth in net card fees comes from attracting more customers to high fee-paying products, rather than from specific price increases, although we do adjust prices slightly when we add value. Considering the rate at which we've been bringing in new premium card members, we had a record first quarter for U.S. Platinum Gold on the consumer side and business Platinum. This gives me a strong confidence that the 16% growth rate is likely to accelerate further as we build on our acquisition momentum. As you may recall, the accounting for fees involves amortizing them over 12 months from when they are paid, which creates a fairly predictable effect.

Hey, guys. Thanks, and I appreciate you taking my question. I'd love to understand the really strong first quarter results in context of maintaining 2022 guidance in your previous comments about sequential growth throughout the year. Obviously, there's going to be some normalization of provision expense, but I am wondering what this says about operating leverage and efficiency ratio given your accelerating top line?

Well, I think that the very careful word that I inserted, Rick, when we talked about sequential growth was in what we're calling core earnings, which is why we included that pre-tax pre-provision net income number on the first page, because credit reserves are going to bounce over the place. Although in terms of dollars, I would credit reserves at the end of the year, assuming AR continues to grow as we expect to be a little bit higher. I absolutely do expect pre-tax pre-provision net income to be a little bit stronger each quarter as you go through the year. I don't expect that necessarily of GAAP earnings per share because we just had really, we pulled forward in many ways a good sized credit reserve release into Q1 that drove your GAAP EPS up to $2.70. Clearly, I do not expect sequential growth of that number if you just do the simple math. That's pretty obvious given our EPS guidance. The other point I'd come back to is we feel really good about the revenue momentum, but boy, Steve, I think has made it very clear our focus on pursuing good investment opportunities when they arise. And so we're very comfortable with the EPS guidance we've given for the year.

Good morning. Thanks for taking my questions.

Hi, Lisa.

I was hoping to dig in a little bit on the New Card acquisition with proprietary cards in force at 72.8 million. It was up 6% year-on-year. I was just peeking back at the model. We haven't seen a quarter up 6% since back in 2018. So can you just talk a little bit about what's driving that acceleration in card acquisition? And specifically, is that temporary like the return of the Delta co-brand growth, or is it more that you're just seeing a higher ROI on some of your card addition marketing spending?

Yes, I believe we are experiencing a higher return on investment from our card acquisition spending. There is an expanding pool, not only among consumers but also among small businesses. The demographic of millennials and Gen Z is increasing, and there are more small businesses emerging. Reflecting on my earlier comments, we were able to bring in more cards than anticipated during the first quarter, and we see further opportunities ahead. We will continue to invest in growing our card base. It's important to note that we are not solely focused on increasing the number of cards; many of these cards are generating fees. Additionally, I want to emphasize that 60% of the consumer cards we acquired were from millennials, which has increased from 50% pre-pandemic. Thus, we have a larger market to tap into among millennials, Gen Z, and small businesses. Currently, we are optimistic about card growth. Over the last few quarters, we’ve consistently seen quarter-to-quarter growth in cards. While the first quarter last year did not have significant growth relative to others, we experienced continuous improvement each quarter. We are pleased with the outcomes from this quarter. As for the next quarter, I cannot predict with certainty if we will achieve another 6% growth.

Yes. In SME, I noticed Capital One is marketing a no limit, small business card. I was just curious, I know that's part of your secret sauce. Obviously, if you thought that was material. And then lastly, on fintech, I know you have partnerships with Bill.com and Coupa. But do they represent a threat in any way to your business?

I'm sorry, just one other point. Retention has greatly improved over the last couple of years. If you think of your base as having a leak, that leak has gotten much smaller, which is important. Regarding fintechs, there are opportunities for us, and our existing partnership with I2C in Latin America will make it easier to onboard fintechs that wish to offer American Express. Many fintechs don't handle their own processing; they usually partner with others for that. Our collaboration with I2C, now on a global scale, will allow us to engage more effectively. I see this as an opportunity rather than a threat. As for your initial question about Capital One's no limit card, I'm not familiar with what "no limit" specifically entails, and we’ll have to see how that develops. Capital One is a strong competitor with a track record of success, and they’re pioneers in this area. We'll observe how it unfolds. We take them seriously, just as we do with others. Looking at our first-quarter results, we experienced a 30% growth in the small business segment, and we feel optimistic about small business moving forward.

And a record quarter for business Platinum acquisition.

Great. 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. Alan, back to you.