American Express Company (AXP) — Q2 2023 Earnings Call Transcript

Thank you, Donna, and thank you all for joining today's call. As a reminder, before we begin, today’s discussion contains certain 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 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 earnings materials for the prior periods we discussed. All of this information is available 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 financial performance. After that, we'll move to a Q&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Good morning, everyone. Thanks for joining us today for our second quarter earnings call. This was the sixth consecutive quarter of strong performance since we announced the growth plan in January of 2023. Revenues of $15 billion grew 12% year-over-year and reached a record high for the fifth straight quarter. Earnings per share of $2.89 is also a quarterly record and is also up 12% over last year. Based on our performance through the first half, we are reaffirming our guidance for the year of delivering revenue growth of 15% to 17% and EPS of $11 to $11.40. We also remain focused on achieving our growth plan aspirations of annual revenue growth in excess of 10% and mid-teens EPS growth in 2024 and beyond in a steady-state macro environment. I continue to feel very good about our ability to achieve these long-term aspirations, let me tell you why. As I've said on previous calls and at investor conferences, we have a business model that's differentiated from others in the industry, which gives us some important advantages. Our business model is built largely around a fee-based premium approach, which drives our spend-centric economics and produces a fast-growing stream of subscription-like revenues. Spending is the largest contributor to revenues, whereas lending plays a more modest role in our model. This revenue mix is a key differentiator for us. It all starts with our premium customer base, which is built on our trusted brand. We have a global scale that's unmatched in the industry and leadership positions with a diverse range of high-quality customers. We build long-term relationships through our unique membership model, which we constantly evolve to attract new customers and grow with them over time. Our high spending Card Members attract a wider variety of merchants and business partners, giving our customers importance and even more reasons to stay with us, which fuels a virtuous cycle of growth. Partnerships play an important role in our model. We have a long history of partnering with brands that share our values of banking customers with world-class products and services and who value developing broad-based and long-term relationships with us. Hilton is one of those long-standing partnerships. Our relationship started 70 years ago, when we opened a travel office at a Hilton Hotel in Madrid, then grew into a merchant relationship after we began issuing cards, and then became our first co-brand partner in the ‘90s. The partnership has lasted and grown over time because we evolve together and put our customers at the center of what we do. Today, I'm pleased to announce that we've signed a 10-year extension of our relationship with Hilton, which includes continuing as the exclusive co-brand issuer of Hilton consumer and small business cards in the United States, as well as extensions of our travel and merchant relationships. This extension builds on the strong foundation we've built over the years with Hilton and gives us a long runway to invest in products and services that attract new customers and deepen our relationships with existing ones. It's a great example of the strength of our business model and that it touches virtually all aspects of our business, providing our customers and our partners with exceptional value. Our philosophy of making continuous strategic investments in our business model is what’s driving our growth today, and it's the way we plan to run our business going forward. For our second quarter performance, the power of our differentiated model can be seen in our results. Card Member spending hit another all-time high in the quarter, with U.S. consumers and card members outside the U.S. both up by double digits, which offset some softness in U.S. small business. Millennial and Gen Z consumers continue to be the fastest growing portion of our card member base, with U.S. billings up 21% in the quarter. Of particular note, you'll recall that our International Card business was our fastest growing segment for several years prior to the pandemic, and it's again the fastest growing. We continue to see strong growth in Travel and Entertainment spending, which increased by double digits in the quarter and remains strong across customer categories and geographies. Q2 was a record quarter for restaurant reservations through our Resy platform, and bookings through our consumer travel business reached their highest levels since before the pandemic. We also saw continued strong demand for our premium products in the quarter, with over 70% of the new accounts we acquired on fee-based products and more than 60% of new customer accounts acquired globally coming from Millennials and Gen Zs. While the number of new accounts is important, we pay particular attention to the quality and potential revenues they represent. When you look at the accounts we've acquired over the last year compared to those we acquired over a comparable period pre-pandemic, the overall revenue being generated by these new accounts is up substantially over 2019. Importantly, we continue to be thoughtful about who we grow with and how. Our credit metrics remain best-in-class, supported by the premium nature of our customer base, our robust risk management capabilities, and the thoughtful underwriting actions we take on an ongoing basis that we've discussed with you on these calls over the last several quarters. Before I turn it over to Jeff, I want to take a couple of minutes to talk about our CFO transition. As we announced last month, Jeff will be stepping down as our CFO on August 14, at which time our Deputy CFO, Christophe Le Caillec will become CFO of the company. First, I want to recognize Jeff and thank him for his outstanding tenure as our CFO for the past decade. He's been an invaluable partner and friend to me and to American Express throughout his time at the company. Jeff's insights, strategic acumen and calm focused approach has helped us navigate through numerous challenges, including the unprecedented COVID pandemic, while strengthening the company's overall financial position and the flexibility of our business model. Jeff is a person of exceptional integrity and our company is stronger today because of him. While Jeff will officially be stepping down as CFO in mid-August, he'll be staying on as our Vice Chairman until next March, during which time he will be available to me, Christophe, and our Executive Committee as we work on many of the important matters facing the company. Jeff, I speak for all of us at American Express when I say that it's truly been an honor and a pleasure working with you as our CFO these last 10 years. I also want to welcome Christophe, who has been a trusted partner to our leadership team and a key contributor to our company's growth for 25 years. As our Deputy CFO, Christophe works closely with our Executive Committee to drive our financial strategy and performance. Over his tenure, he has served in finance leadership roles across the company. Christophe has gained a deep knowledge of all aspects of our business and his experience and thoughtful analysis plays a key role in our strategic decision making. I'm sure you all enjoy getting to know him. With that, I'll now turn it over to Jeff for his 85th earnings call as a public company CFO and his 41st and final call as the CFO of American Express.

Well, thank you, Steve and good morning, everyone. It's good to be here to talk about our second quarter results, which are tracking with the guidance we gave for the full year and reflects steady progress against our long-term growth aspirations. Starting with our summary financials on Slide 2. Our second quarter revenues were $15.1 billion, reaching a record high for the fifth straight quarter, up 13% year-over-year on an FX-adjusted basis. This revenue momentum drove reported net income of $2.2 billion and earnings per share of $2.89, up 12% year-over-year. This does represent a quarterly EPS record for the company and it also reflects the sequential strengthening we expected as we move through the year that I mentioned last quarter. Pretax pre-provision income was $3.9 billion, up 33% versus the same time period last year, reflecting the strong growth momentum in our underlying earnings. So now let's get into a more detailed look at our results, which in our spend-centric business model always begins with a look at volumes, which you see on Slides 3 through 7. In total, you see on Slide 3 that we did reach a new record level for spending on our network this quarter, with total network volumes and billed business up 9% and 8% year-over-year, respectively, on an FX-adjusted basis. Of course, I'd remind you that growth rates were particularly elevated last quarter as we lapped the impact of Omicron in the first quarter of the prior year. We are now seeing the more stable rates that we expect are more representative of the kind of growth rates we will see in the balance of the year. Goods and services spending grew 6% overall in the second quarter. We saw good growth in goods and services spending in U.S. consumer and International Card Services of 8% and 15%, respectively, while this growth rate in U.S. SME continued to slow down a bit further from last quarter. In contrast, we saw very strong growth in Travel and Entertainment spending across geographies and customer types, up 14% overall driven by sustained demand for travel and dining experiences. Looking forward, I would expect this growth rate to remain in the double digits through the rest of this year. Turning to our largest segment, U.S. consumer grew billing strongly at 10% this quarter. Millennial and Gen Z customers continue to drive our highest billed business growth within this segment, with their spending growing 21% year-over-year. You see our highest growth again this quarter in International Card Services with strong growth across both geographies and customer types. Spending from international consumers grew 16%, while spending from international SME and large corporate customers grew 19%. The strength in spending growth from our international consumers and Card Members outside the U.S. offset the continued softness in U.S. SME spending growth that we have been talking about for the past few quarters. Looking at Commercial Services, U.S. SME growth came in at 2% this quarter. Looking forward, we will continue to monitor these spending trends. Our U.S. large and global corporate customers also grew billings 2% in the second quarter; as we've said for many years, these customers, while not a particular growth driver for our business, remain an important foundation for the company's business model. Taking all of this into account, spending volumes are tracking to support our revenue guidance for the year and our long-term aspirations for sustainable growth rates that exceed what we were seeing pre-pandemic. Now moving on to loans and Card Member receivables on Slide 8. We saw good continued sequential growth, as well as year-over-year growth of 15%. Year-over-year growth moderated a bit this quarter as we expected, but remains elevated versus pre-pandemic levels. The interest-bearing portion of our loan and receivable balances continues to grow faster than the overall growth you see as our customers continue to rebuild balances. Importantly, the majority of this revolving loan growth in the U.S. continues to come from our high credit quality existing customers. We also included a disclosure this quarter showing that only 8% of our U.S. Card Member loans and receivables comes from customers with a FICO less than 660. As you then turn to credit and provision on Slides 9 through 11, this high credit quality of our customer base continues to show through in our best-in-class credit performance. Our Card Member loans and receivables write-off and delinquency rates remain below pre-pandemic levels. Delinquency rates remained flat quarter-over-quarter while write-off rates continue to move up a bit this quarter as we expected, as you can see on Slide 9. Going forward, as we've talked about for many quarters now, we continue to expect these delinquency and write-off rates to increase over time, but they are likely to remain below pre-pandemic levels in 2023. Turning now to the accounting for this credit performance on Slide 10. The quarter-over-quarter growth in our loan balances was the primary driver of our $327 million of reserve build. Although there was also a small component from incorporating a slightly worse macroeconomic outlook this quarter relative to last quarter. This reserve build, combined with net write-offs, drove $1.2 billion of provision expense in the second quarter. As you see on Slide 11, we ended the second quarter with $4.7 billion of reserves representing 2.6% of our total loans and Card Member receivables. This reserve remains about 30 basis points below the levels we had pre-pandemic or Day One CECL. We continue to expect this reserve rate to increase a bit as we move through 2023, while also reflecting the continued premiumization of our portfolio. Moving next to revenue on Slide 12. Total revenues were up 13% year-over-year in the second quarter on an FX-adjusted basis. Our largest revenue line, discount revenue grew 8% during Q2, as you can see on Slide 13, driven by the spending trends we discussed earlier. Net card fee revenues were up 22% year-over-year in the second quarter on an FX adjusted basis as you can see on Slide 14. Growth remains quite strong and continues to be driven largely by bringing new accounts onto our fee-paying products. This quarter, we acquired 3 million new cards and the spend, revenue, and credit profiles of these acquisitions continue to look strong relative to what we saw pre-pandemic. Importantly, the acquisition trends you see on Slide 14 in this and recent quarters are consistent with our long-term growth aspirations. Moving on to Slide 15, you can see that net interest income was up 32% year-over-year, driven primarily by the growth in our revolving loan balances. To sum up on revenues on Slide 16, we're seeing broad-based revenue growth across our revenue lines. We're tracking with our expectations. So looking forward, we still expect to see revenue growth within our range of 15% to 17% for the full year of 2023. The revenue momentum we just discussed has been driven by the investments we've made. And those investments show up across the expense lines you see on Slide 17. Starting with variable customer engagement expenses, these costs came in at 42% of total revenues in the second quarter and are tracking with our expectation for them to run at around 43% of total revenues on a full-year basis. On the marketing line, we invested $1.4 billion in the quarter, on track with our expectation to have full-year marketing spend of around $5.5 billion. We remain focused on driving efficiencies so that our marketing dollars grow slower than revenues while continuing to drive the high-quality growth Steve discussed earlier. Moving to the bottom of Slide 17, brings us to operating expenses which were $3.4 billion in the second quarter, also tracking with our expectation for operating expenses to be around $14 billion for the full year. This quarter, you see that, as we expected, we have far less growth in OpEx relative to our high level of revenue growth. And looking forward, we continue to see OpEx as a key source of leverage. Turning next to capital on Slide 18. We returned $1.6 billion of capital to our shareholders in the second quarter, including common stock purchases of $1.1 billion and $446 million in common stock dividends, all on the back of strong earnings generation. Now as you know, this is an off-cycle year for Amex as a CCAR bank. Let me briefly remind you of our capital management approach. We generally increase our dividend roughly in line with earnings and target a 20% to 25% payout ratio. And you saw us do that as we increased our dividend by 15% to $0.60 per share last quarter. We target a CET1 ratio between 10% and 11% and we ended the second quarter in the middle of that range at 10.6%. As we think about the potential finalization of Basel III, I'd remind you that our 10% to 11% CET1 target range is actually well above our current regulatory minimum of 7%. We plan to continue returning to shareholders the excess capital we generate while supporting our balance sheet growth and we don't expect any material near-term changes to our capital management approach, driven by the evolution of these rules. So that then brings us to Slide 19 and the growth plan. To step back for a minute, I joined American Express 10 years ago in 2013 because I was excited about the long-term growth prospects for the company. Today, as I join you from my last earnings call, I'm even more excited about those growth prospects. Steve and I first introduced our new multiyear growth aspirations back in January of 2022. And I would point out that Christophe was in the room for every key decision we made as we developed that plan with the senior business leaders across Amex. Now in July of 2023, we have consistently achieved the aspirations we set out six quarters ago, thanks to the great efforts of our 77,000 colleagues across American Express. So we are reconfirming today our 2023 full-year revenue guidance of 15% to 17% growth with EPS in the range of $11 to $11.40. Our revenue momentum and customer acquisition trends are positioning us well for our growth aspirations this year, in 2024 and beyond. This momentum, combined with this being my 85th consecutive earnings call across three industries without a break, makes this a good time for me to transition the CFO role to Christophe. With that, I'll ask Christophe to say a few words before Steve and I take your questions.

Thank you, Jeff, and good morning, everyone. I'm excited to continue the strong legacy of performance that Steve and Jeff have delivered. I look forward to spending time with many of you on the call in the coming months. With that, I'll turn the call back over to Kerri to open up the call for your questions.

Thank you, Christophe. 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.

Thanks. Good morning and congratulations Jeff. You've had quite a run at American Express. It's been very beneficial throughout your time, and I'm sure you will continue to excel in your remaining role. Christophe, I look forward to collaborating with you. My first question is about billed business growth. There has been a lot of noise over the last couple of years and even this year. Jeff, you mentioned stabilization going forward and expecting that. Can you explain what gives you confidence in that stabilization? We're still slightly above trend in terms of growth, so what do you need in the second half to meet your revenue growth guidance?

So gosh, I guess I don't particularly Sanjay see as above trend. What gives us confidence is looking at what has actually happened in our business over the course of this year. In the first quarter, you were clearly lapping Omicron. And that was, in some ways, I think, the last of the pandemic-driven noise in our results. As you got into the second quarter, we have seen stabilization across geographies at a level that I would suggest is actually consistent with being in a pretty low growth economy. What you're hearing from us is, with the kind of volume growth that you see this quarter, which we think has stabilized, which we think will continue, that is consistent with both the guidance we provided for this year as well as with our longer-term growth aspirations. I would point out that at some point, the economy is likely to get stronger, but even with the economy in its current kind of low growth state, the volume growth that we're seeing now allows us to achieve what we have been committing to for six quarters.

Consumer spending in the U.S. is currently up by 10%, and travel and entertainment remain very robust. Travel bookings for dates more than a month away are exceeding pre-pandemic levels, as well as surpassing both last year and 2019. International markets are recovering strongly and are the fastest growing segment of our business. It's worth noting that there was some residual impact from Omicron this quarter due to spending last year being shifted from the first to the second quarter, following a significant sequential increase last year. We're pleased with record billings as these are essential for achieving our growth plans. Despite being in a low-growth economy, we are actively acquiring new Card Members, and our demographics are shifting to include more Millennials and Gen Z, which we believe will be advantageous as the economy improves and spending increases. We feel very confident moving forward.

Hey. Good morning, everyone.

Good morning, Ryan.

Jeff, it's been a pleasure working with you and best of luck in the future and Christophe, I'm looking forward to working with you in the future. Maybe to drill down into two areas that were highlighted on the call. First, commercial, obviously, we've seen a big slowdown there to 2% year-over-year growth. Steve, maybe just talk about what's driving the slowdown and what do we need to see for a reacceleration? And maybe just drill a little bit further on T&E in terms of your confidence. Like it seems like sequentially, it may have slowed a little bit, but I think the point that year-over-year growth rates are still strong. So can you maybe just talk about what you see as the key drivers of that remaining in double digits? Thanks.

From a travel and entertainment perspective, we are observing record growth similar to what Delta has reported. We have visibility on future bookings, and when we analyze consumer travel and entertainment, particularly in restaurants, we see significant growth. Restaurant bookings, which represent our largest segment in travel and entertainment, increased by 15%. People are resuming travel, and the data from our restaurant activity and consumer travel indicates a strong outlook. In terms of small business and corporate travel, larger corporate travel is gradually recovering. It currently constitutes about 5% of our total business—though a crucial segment, it is smaller. The initial challenge remains getting employees back to offices, followed by encouraging travel for meetings. We are noticing a decline in quick domestic trips or short international visits. While we continue to work on retaining our existing customers and attracting new ones, this segment is expected to recover more slowly compared to consumer travel. Regarding small business growth, while it has decelerated, this is not unique to us but a trend seen across the industry. Small businesses experienced rapid growth previously, but that has now slowed. We are focusing on acquiring new small business clients and addressing their needs, including lending and deposits. As they are ready to grow again, we will be prepared to support them responsibly. While we would prefer our small business segment to grow at a pace similar to that of our consumer segment, we recognize that cycles exist, and there is currently a slight industry-wide slowdown. However, as noted before, after a slowdown, recovery usually follows, and we will be ready for it.

Hi. Good morning.

Hi, Betsy.

And Jeff, all the best. It's been great working with you and Christophe looking forward to meeting you and working with you as well. I did just want to make sure I understood the guide on the revenue outlook here because what I'm hearing, and tell me where I'm wrong. What I'm hearing is that, billed business growth you're anticipating something similar to what you generated this quarter on a year-on-year basis for the second half of this year, and that's a little bit of a slower pace obviously than the revenue guide of 15% to 17%. Clearly, Q1 was very strong, well above that. So I'm just trying to understand if the other lines in revenue are going to more than make up for that, i.e., net interest income. Maybe you could speak to that a little bit or some of the other fee lines that drive your outlook for the 15% to 17% for the full year revenue guide? Thanks.

So I think it's an important question, Betsy. But if you really just look at this quarter, the thing I would point out is you do have some unusual noise in the service fees and other revenue line when you look at our Slide 12 in the slide deck. Because in the prior year, we had a complicated litigation settlement that drove some unusual movement in that line. What we're really saying is that we are in a low growth economy, but it is consistent with the objectives reset if you maintain the volume growth that we have, and then combine it with the kind of consistent high growth in net card fees that you've seen right through the pandemic, which grew 21% this quarter. If you combine it with the fact that you still have customers rebuilding balances a little bit on the net interest income side. And you take the noise out on the service fee and other revenue side, you then easily get to a number that is very consistent in the back half of the year, with what we've guided for the full year.

Yeah. And I think he's a great example of the model, right? It's a great example of the three-legged stool. We've got card fee growth that is very, very strong. I mean, it's the third straight quarter we've had a 20% card fee plus growth. We're benefiting a little bit from net interest income. As Jeff said, there's noise in the services fee and other revenue, and that will shift. But yeah, we feel comfortable with billings around where we are today to make that revenue guidance because of the three tiers of the revenue that we have. That's what gives us confidence.

Thanks for taking my question. Hey, Jeff. I often say this in these circumstances, a little bit tongue in cheek that we're going to miss you more than you're going to miss us, but I think that's absolutely true here. It's been a pleasure working with you over the years, and Christophe, we're looking forward to getting to know you as well. I do, Betsy really pulled on the thread that I'm interested in pursuing as well, but would love to sort of think about this a little bit more. When we looked at the deceleration of top line in the second quarter, if revenue stays on that trajectory for the second half of the year, it sort of puts you at the low end of your top line guidance. It sounds like there's a little bit of noise that gives you some confidence, but I'm curious, fundamentally, do you think we will see some acceleration in the back half to sort of offset any potential risk if you just look at the trend line?

We remain confident that we will stay within the 15% to 17% range, and there isn't much else to add beyond that. While there is some deceleration in billings, we achieved a record quarter with over $420 billion in billings. We are very confident in the 15% to 17% range and will see where we ultimately land within that range, which is why we provide these ranges.

Thank you very much, Jeff, for your assistance, and good luck to you. Christophe, welcome; I look forward to meeting you. I would like to hear your thoughts on the trend toward credit normalization. As you evaluate your portfolio, what should we anticipate for your goals in 2024? The second half of 2023 is largely determined, but as we consider the outlook for 2024 and beyond, what are your insights?

Well, I think the most important point to make there, Bob, is that we have a portfolio today that is more premium and stronger than what we had in 2019 and Day One CECL. That is why we added the additional disclosure this quarter around the small percentage of our portfolio that is in a challenged FICO band where you do see challenges, and that's the FICO band below 660. We feel very good about where we are from a credit perspective in this environment. When you look sequentially, you actually saw delinquencies remain flat. There is complexity in the CECL calculation when you try to do comparisons across companies. I did make the observation that the way and with the timing of how we do ours, we incorporated a slightly worse economic outlook this quarter than we did last quarter. But at core, we feel really good about the product choices, the acquisition choices, and the risk management choices we've made, which leave us confident that we will be better this year on credit metrics than what we were in 2019. Absent some dramatic change in the economy, I think we feel good about what that means for 2024.

Good morning. Jeff, it's great to meet you amidst this challenging situation. I really appreciate all your assistance over the years and I'm looking forward to connecting with Christophe soon. I have two questions. First, I'd like to explore the SME area further. Could you clarify if there's a significant difference in growth when comparing the overall figures to those based solely on existing business activities, excluding new business additions? Secondly, have you noticed any substantial changes in credit vintages? We've come across data indicating a notable decline in recent consumer loan vintages, so I wanted to inquire about that. Thank you.

So for the second question first, the answer is, no. It's really not big, Jeff, do you want to....

Well, with the only color I'd remind you, over the course of the past year, Craig, we have talked about the fact that we have consistently made some adjustments from a risk management perspective. That is part of why, as Steve says, we don't see any change from an earnings perspective.

As far as line of sight into SME, I mean, the way to think about it is organic is probably flat. You obviously have businesses that go out of business. You have a little bit of sort of same-stores that go away, but the acquisition is still relatively strong. Think about organic as having a neutral impact, think about attrition because attrition has a negative impact, but no different than what we've seen over the last few years. Acquisition in there. I think the biggest difference is really organic. And what you saw through the pandemic is, you saw small business continue to add and add and add. Small businesses use a card to run their entire business. There was a lot of buying ahead from a goods and services perspective, from an inventory perspective. We'll have to watch it really closely in terms of have they finally gotten to sort of full stock and what have you. That’s the way to think about those three components: organic, basically flat, acquisition up, and attrition pretty much stable.

Hey. Thank you. Thanks for taking my questions. You guys highlighted that it is now six quarters since you introduced the structural increase in your long-term plan to double-digit revenue growth and mid-teens EPS growth. A lot has happened in the last six quarters. We're kind of finally returning to normal after the pandemic. So can you just highlight when you look at the underlying business drivers required to sustain that model on an ongoing basis, what is sort of doing better than you expected? Maybe where do you need to make some adjustments, et cetera? Just kind of comment on how that strategy and your thoughts about that has evolved as you look forward now coming back into a more normalized economy? Thank you.

I think it's important to return to our strategic priorities, which focus on premium consumers, small businesses, and coverage. Looking at international, it has rebounded faster than we anticipated within our three-year plan. Millennials are performing better than expected in terms of both acquisition and spending, while baby boomers have been slower to return, becoming a smaller segment of our business over time. There's potential for growth in the corporate space. Small business started out strong last year but has become somewhat muted, though we expect it to pick up. We initially approached our plan with a slower economic outlook, so it’s encouraging that we’ve achieved this in a slow growth environment while maintaining strong credit quality. Additionally, we've made significant coverage gains, particularly internationally, where our team has excelled. Our long-term partnerships, such as with Delta and Marriott, remain strong. Though things didn't unfold exactly as we expected, the flexibility in our model has allowed us to adapt. We had an exceptional start to 2022, with revenue growth surpassing our initial projections. We originally expected a growth rate of 17% to 19% and adjusted it to 19% to 21%, ultimately achieving 25%. We're performing better than our long-term expectations, and the guidance of 15% to 17% we provided at the beginning of this year is based on earlier projections. We’re growing from a larger base, which is why I feel optimistic about our trajectory. It’s crucial for us to remain focused on our priorities, and our team has done well in this regard. It's worth noting that this is a strong industry to be part of, especially given our unique approach across card fees, billings, and net interest income, setting us apart from our competitors.

Thanks. Your marketing expense pulled back a bit this quarter. You still have high customer acquisitions. How are you thinking about marketing expenses going into the second half of the year and kind of quarter-to-date update in terms of your growth rates for billed business?

We're not going to do a quarter-to-date update on billed business. We're kind of 20 days in. So there's no real change. But in terms of marketing, the only thing that's important to know is that we said we'd spend about $5.5 billion on marketing. That's our plan to continue to do that. How it winds up moving from quarter-to-quarter, I think we're probably $100 million from last year or something like this in this particular quarter. But that all depends on the programs we're running and the timing and everything else. A week here, a week there can make a big difference when you're spending $1.4 billion. So the bottom line is, we are committed to going after all great opportunities that are out there and we believe we’ll wind up spending about $5.5 billion from a marketing perspective. Just to remind everybody that the marketing spend for us is predominantly customer acquisition, right? It's not kind of TV and print; it's customer incentives and affiliate fees, so it can vary a bit from quarter-to-quarter.

Hey, great. Thanks so much for the question. I was just wondering, when you think about your aspirational revenue target, has the thought process on the contribution to growth from net card fees to total revenue changed over time where it's potentially providing more of a boost towards that target versus the past versus discount revenue? Thanks, guys.

No, look, I think one of the big differentiators for us is that card fee, I mean you think about that as subscription revenue and we're really pleased with that. But no, I mean, it's in the ballpark of what we thought it was going to be as we put together our aspirations. I mean, and so when you look at this, the 20% three quarters in a row is a big number. Another thing I'd point out during the pandemic, it was growing in double digits. It's a big contributor and has a higher growth rate than discount revenue would, but it's pretty much in line with where we thought we were going to be.

I just can't resist adding, Dominick, for something that grew in double digits all through the pandemic has had really high growth rates last year; it is going to continue to grow to be an ever bigger part of our revenue mix. I think that is a key strength of the company. It really ties customers and engages customers with us and the product and is a critical part of the overall model.

Yeah. And just one other thing, because Jeff just sort of reminded me as he said that. When we talked about this tenth plus year double-digit growth during the pandemic, it really speaks to how we think about our customers over the long term, because if we had not invested in our customers during the pandemic, you would not have seen that double-digit growth. It was really important to embrace those customers. It would have been easier to drop more money to the bottom line rather than to put more money into our customers, but that's not how we run the company. We were thinking much more from a long-term perspective. By really investing in the value proposition because, as you all remember, those value propositions were challenged during the pandemic, it really helped us cement those relationships, which kept those fees going but also dropped normal attrition. So I think it speaks to the membership model because this card fee is a decision that our members make to join the franchise. That's really important because it means they see value in the product. They see ongoing value in the product. It's our job and we’ll continue to do this to insert more value into the product, and that's what keeps this going. Consistent refreshing of our products is really, really important to our strategy.

Yeah. Congratulations, Jeff and Christophe. Jeff, I want to clarify on the Basel comments. Are you saying that you won't have to run at a higher CET1 than your target of 10% to 11%? I know there was some concern around fees being looked at differently. I wonder if you can clarify that?

Don, you were cutting out a little bit, but I think you're asking about the CET1 target and Basel III. The point I was trying to make is you need to remember a few things here. Our 10% to 11% CET1 target is more driven by our own view and rating agency views versus the regulatory constraints, our regulatory minimum has long been only 7%. That's the first point. The second point to remember is, we have a return on equity of over 30%. Our ability to quickly replenish capital whenever we need to, without taking a more than brief pause from share repurchase is very high. Third, I know there's been a lot of attention paid to different iterations of Basel, particularly around ops risk. I guess I'd also remind people, ops risk is only one component. There are other components that probably have some positive impacts and some negative impacts on us. The devil is in the details here. My overarching message is we don't see it as a material event because it’s certainly a possible outcome that there's no change in our target and even a modest change in our target with a 30% plus ROE is not going to have any material impact on share repurchase, or the trajectory of our EPS growth that we've laid out in the growth plan.

Thank you for taking my questions and good morning. First off, congratulations, Jeff. Thank you for all your help and welcome, Christophe. I look forward to getting to know and working with you. I wanted to switch gears a little bit and talk about the process revenues of the network partnerships, which I think refers to the old GNS business. It seems there's been some recent momentum in signing new partners. This quarter, we actually saw the launch of the Square Card and processed volumes grew faster than billed business. I was wondering if you could discuss that business further. Has there been an internal change? Are you focusing more on that segment? What’s driving that momentum? Thank you.

No, I don't think anything has changed. It's always been something that we have been focused on. To switch or to get a partner to come onto the network is a big deal. There are technical hurdles to wind up crossing. The GNS team is consistently looking for new partners. Think about our overall model as operating around 29 proprietary countries. All the rest of the markets that we operate around the world are GNS markets, either just from a card acceptance perspective or from both a card acceptance and a card issuing perspective. There's been a lot of work going on with GNS over the years to get more and more coverage. When you look at our improvements in coverage, so much of that's been driven by our GNS partners. Just to remind you that everything that we're doing in China really comes under the heading of GNS because we're in there just as a network. We don't acquire merchants. We don't issue cards. We have a joint venture and that's a GNS relationship. Our launch of our card with Square has been in the pipeline for a long time, but if you aren't in cards or if you're issuing Visa MasterCard, it's different to take up to our systems to get priority within your own system. We've been working hard at this for a lot of years. The Square One has a little bit more headlines because it's a U.S. partnership, but the team has been working hard all across Asia, South America, and Africa to get more coverage and to get more cards issued. While you may see it a little bit more, I can tell you the team has been working really hard at this for many years.

Great. And 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. Donna, back to you.