The American Express Q3 2023 Earnings Call began with a reminder about forward-looking statements and non-GAAP financial measures. Chairman and CEO Steve Squeri discussed the company's progress and results, followed by a more detailed review of financial performance by CFO Christophe Le Caillec. The quarter marked the company's seventh consecutive quarter of strong performance and sixth consecutive quarter of record revenues, reaching $15.4 billion, a 13% increase from the previous year.

The company has achieved a new quarterly record for earnings per share, and remains confident in their ability to achieve full year revenue and EPS growth. This confidence is based on various factors, including their unique membership model, strategic investments, and differentiated business model. In the third quarter, there was strong card member spending, particularly from millennials and Gen Z consumers. Fee-based products were in high demand, and customer satisfaction remains high.

American Express has been rated the top credit card company for customer satisfaction by J.D. Power for the fourth year in a row and continues to have strong credit metrics. They attribute their success to their investments in innovating their value propositions, such as acquiring Resy and offering exclusive lifestyle experiences and sponsorships. These efforts have led to significant growth in reservations on the Resy platform and increased engagement with Card Members and prospects. American Express recently announced a new sponsorship with Formula 1 in the Americas.

The sponsorship of Formula 1 racing is the company's first new sports vertical in over 10 years and is a great opportunity to tap into the growing popularity of the sport. The company regularly refreshes and adds value to its products globally, tailored to the interests and spending patterns of customers in each market. This strategy helps attract new customers, retain current ones, and add more merchants and partners. The company will continue to invest for growth and add value to its membership model, leveraging its business model for a competitive advantage. The third quarter saw record revenue and EPS, and the company remains focused on driving profitable revenue growth.

The company's strong growth has been driven by their disciplined use of resources and sustainable growth drivers. In the third quarter, revenues reached a record high and net income and earnings per share grew significantly. This was due to a 7% increase in billed business, driven by 6% growth in goods and services spending and sustained double-digit growth in travel and entertainment spending. Total network volumes also grew by 6%.

In the third quarter, the company saw strong growth in process volume, which includes volumes from cards and alternative payment solutions. This makes up a small portion of the company's total revenue. In terms of spending trends, US consumer and international card services saw the highest growth, while US SME and large corporate customers saw slower growth. The company remains focused on attracting and retaining premium Card Members, including millennial and Gen Z customers.

The company's spending growth from US consumers and Card Members outside of the US is offsetting the softness in commercial services. Overall, the company's spending volumes are on track to support their revenue guidance for the full year and their long-term growth aspirations. There has been a 15% year-over-year growth in loans and Card Member receivables, with over 70% coming from tenured customers. The company's credit performance remains strong, with write-offs and delinquency rates remaining below pre-pandemic levels. However, the company expects these rates to increase over time. A $321 million reserve bill was driven by a modest increase in delinquency rates, resulting in $1.2 billion of provision expense in the third quarter. The company ended the quarter with $5 billion in reserves, representing 2.7% of their total loans and Card Member receivables.

The reserve rate for the third quarter remained below pre-pandemic levels, but is expected to increase slightly in the coming months. Total revenues increased by 13% year-over-year, with discount revenue and net card fee revenues driving the growth. The company acquired 2.9 million new cards and their spend, revenue, and credit profiles are strong. Net interest income also saw a significant increase, driven by growth in revolving loan balances. Overall, the company is experiencing strong revenue momentum across all revenue lines and expects revenue growth to be around 15% for the full year. Variable customer engagement expenses are expected to make up around 42% of total revenues for the full year.

In the third quarter, the company invested $1.2 billion in marketing and expects to have a total marketing spend of $5.5 billion for the full year. They are confident in their acquisition engine and plan to increase marketing spend in the future. Operating expenses were $3.7 billion, and the company expects full year expenses to be around $14.5 billion. They view marketing and operating expenses as key sources of leverage. The company also returned $1.7 billion in capital to shareholders and targets a CET1 ratio between 10% to 11%. They ended the quarter with a CET1 ratio of 10.7% and believe there are opportunities for improvements in the Basel III proposal.

The company's regulators have raised concerns about applying new rules, but the company plans to continue returning excess capital to shareholders while supporting balanced growth. The company expects revenue growth of 15%, with variable Card Member engagement expenses at 42% and marketing spending at $5.5 billion. Operating expenses are expected to be $14.5 billion, slightly higher than expected due to investments. Earnings per share guidance remains between $11.00 and $11.40. The company remains committed to achieving sustainable revenue and EPS growth. The company's IR team will have a new leader, Kartik Ramachandran, and the previous leader, Kerri Bernstein, will become Corporate Treasurer.

Kartik, a finance lead in the US consumer business, has been with the company for 11 years. Kerri will now open the call for questions. The operator will limit questions to one per person. Sanjay Sakhrani of KBW asks about the macro backdrop and its impact on spending. Steve responds that Delta's changes have had no impact on card spending or acquisition. The US and international consumer markets remain strong.

In the paragraph, the speaker discusses the company's recent financial performance, highlighting strong growth in US consumer spending and international card services. They also mention the high quality of their card members and their ability to manage the business in a steady macro environment. They anticipate double-digit revenue growth next year and may focus on lending to achieve this. The speaker also addresses the need for billing growth to improve in order to drive this growth.

Steve Squeri and Christophe Le Caillec discuss American Express' revenue growth model, which includes billing, card fees, and lending. They are confident in their current billings growth and attribute their fee revenue to new card acquisition. They have invested $5.5 billion this year and plan to increase that next year. They also mention that their lending book is better than it was in 2019 and they have a premium customer base that they are targeting for lending growth.

The speaker is discussing the company's efforts to strengthen their relationship with their customers and increase their share of their customers' revolving needs. They also address the slow growth in their small business sector, attributing it to a recent cycle of inventory fluctuations. However, they remain optimistic about the potential for growth in this area and see it as a significant opportunity for the company. The next question from an analyst asks for more details on the small business sector and the speaker reiterates their positive outlook on it.

Rick Shane congratulates Kerri and Christophe on their work and asks about a possible increase in the reserve rate. Christophe explains that this is due to a normalization process and that there is no cause for concern. The next question from Don Fandetti asks about the Basel III endgame and the potential impact on buybacks. Christophe summarizes the complicated rules and states that the bank generates strong capital and ROE.

The second element of the starting point is that the regulatory capital is at 7%, but the target is 10% to 11%. This buffer could be consumed by the Basel III rules. However, there are questions about the applicability of these rules to businesses like ours, and we are actively engaged with regulators to figure out the best course of action. In terms of spending and account growth, average spending per card is flattening out while account growth is slowing. This could be due to timing, and there are no issues with attrition or Delta. The company plans to increase marketing next quarter to hit $5.5 billion.

The speaker discusses the company's commitment to marketing and the potential for increased spending in the next quarter. They also address the open banking rule and its potential impact on the company, citing the lack of significant impact in the UK. They also mention the possibility of reducing operational risk by treating rewards expense as a contra revenue.

The company is offering a membership model product that has many benefits and is not threatened by open banking. They are discussing with regulators about the Basel III regulations and how it will affect their business. The percentage of card member rewards as a portion of billed business has decreased this quarter due to lower variable card member engagement expenses.

Amex is constantly evaluating their value proposition and pricing strategy to ensure it is compelling in the marketplace. They are also adding new redemption partners which can impact their weighted average cost per point. The ratio of rewards to revenue was lower in the current quarter but is expected to improve for the full year. Amex sees their rewards program as a key driver of growth and will continue to invest in it. They also have partnerships with various companies that contribute to their value proposition. Amex's credit performance has been strong compared to their peers and they are optimistic about net charge-offs in the future.

Christophe Le Caillec discusses the recent vintages and credit performance for the company, stating that the starting point for their credit decisions is the quality of their products and their ability to attract premium Card Members. He also mentions that the company is focused on the premiumness of their portfolio and that 70% of new Card Members are joining on a fee-paying product. The credit performance gap between American Express and its competitors is increasing. In response to a question about the net interest yield on card member loans, Le Caillec explains that it saw a substantial improvement in the quarter, attributing it to the company's focus on quality and the ability to attract premium customers.

The speaker discusses the trend of the yield and card fees in the coming quarters. They mention that the main driver of the small increase in the yield is the revolve rate, and that most of the growth in revolving balances is coming from tenured Card Members. They also mention that they have good visibility on card fees due to their amortization process and expect the growth rate to moderate in the next few quarters. However, they note that this moderation will still result in strong double-digit growth.

The speaker discusses the growth of non-card products, such as loans and receivables, which have reached over $10 billion. They mention that this is a small piece of their overall strategy and that they aim to provide a variety of working capital options for small business customers.

The speaker discusses the Kabbage acquisition and how it allowed them to offer a variety of products and services to small businesses and consumers. They have been careful in their approach to expanding their product offerings in order to retain customers and prevent them from going to competitors. The call has now ended and a webcast replay will be available on the Investor Relations website.

This summary was generated with AI and may contain some inaccuracies.