All right. Welcome back, everybody. With us today is American Express. Delighted to welcome Christophe Likajic, CFO, back to our conference. Thank you for joining us, Christophe. Good morning, and thank you for having me. It's our pleasure. Maybe we can start with where a lot of the recent investor focus has been recently. More of the macro backdrop, health of the consumer. What are you seeing today from your customer? Are there any notable shifts in customer behavior you're seeing or any categories showing incremental strength or weakness?

I mean, the short answer to that question is that we see strength across the portfolio. For those who heard Steve speak at another conference last week, he said that quarter to date the numbers, like in terms of billing growth, were slightly stronger than Q1. And you might remember that when we talked about Q1, billing growth, I think it was like 9% FX adjusted. And we talked about that was the strongest quarter we had in three years, right? So Q2 so far is actually slightly better than that. So I feel really good about the quarter. Demand for new cards is very strong and tracking very well to our plans. And maybe we'll talk about credit, but the credit numbers remain, you know, very strong. So when we look at the details, either within generations, you know, cohorts, vintages, the message is consistent, and there is really no inflection point that we can see that is noticeable in the portfolio. So a lot of strength.

And what do you think is driving that? And I mean, I think with with higher gas prices and inflation, you know, over time, the premium MX consumer has showed the capacity and the willingness to spend through those higher prices. So, you know, what are you seeing with the higher gas price impact? And if we were to see another supply driven inflation shock, is there any reason to believe this environment would play out differently than what you've historically experienced?

So we've been talking about inflation, I think, for, I mean, since COVID, basically. And I think last year you asked me a very small question about inflation. So my answer is not going to be that different. And it's going to be first that when inflation is like modest as it is now, it's actually slightly accretive to American Express. And the intuition behind that is that revenue, especially discount revenue, but also NII to some extent, they kind of travel a little bit with inflation. And there are many expense lines in the P&L that lag. And so net-net, a bit of inflation, is a net good thing for us. Now, when I say that, I really mean a small level of inflation, right? The problem here or the danger is the second-order impact of inflation onto the economy and what it would mean in terms of unemployment, in terms of potential credit events, FX, interest rates. So that we don't know. But as it is right now, our card members typically can handle that kind of inflation. We have seen, just like everybody, you know, gas spend kind of like increased dramatically as a result of the price changes. But it's not like we are seeing an upsetting decline elsewhere either. So I feel good about where we are. I feel good about our portfolio of consumers and their ability to navigate this situation and handle it without, you know, creating a created event or impacting their spend. So, you know, so far, so good, I would say. We'll see how it evolves, especially, you know, those second-order impact to the economy. But so far, we haven't seen anything like that. Anything to highlight by category? I mean, I know Steve talked about airline checking up. Yeah, airline is doing really well. T&E in general is doing really well, but retail as well. You might remember last quarter we talked about retail spend. You know, luxury spend was up, was it like 18%? Like globally. So it's a big category for us. So, you know, we haven't seen any really inflection points across the portfolio. And as I said before, like in aggregate, the spend is actually slightly better than Q1, which was the best quarter we had in three years.

Okay, great. And maybe just thinking to the balance of the year, you had a really strong first quarter, obviously. It sounds like those things have gotten a little bit better since. Can you maybe just talk about the building blocks to the revenue guide expectation for the year, the 9% to 10%? I think a lot of questions we got post the quarter was, why didn't you anchor to the high end of that guide? Maybe just help us understand that.

We can talk about that. So, you know, if you unpack the building blocks, start with billing. We just, you know, in discount revenue, we just talked about billing and the strength that we are seeing there. Card fee, we have a good line of sight in terms of what's going to happen. We've said that you should expect card fee to moderate, although from a very high growth rate, right, because card fee has been doing, like, really well over the past, you know, six, seven years. And we expect CARFI to pick up in the balance of year. And my expectation is that we're going to be in the high teens in the balance of year. So we have good visibility into that. And in terms of NII, balances have been moderating, as we were expecting as well. But NII growth rate is in double digit, right? And so when you put all of this together, you get to that 9% to 10%. Now, there is something else to factor into our guidance that investors need to factor in as well is that, as you know, we're going to transfer the Amazon and Lowe's portfolio to new issuers. That's going to happen between now and the end of the year. So the impact, so you're going to have like a, you know, you're going to put a bit of downward pressure to some of the metrics. In terms of bill business, the portfolios are not that big. Either call it single-digit downward pressure on the commercial book, which is probably 40% of the total spent at American Express. These portfolios are revolvers and more heavier revolvers. So the impact, there will be a small impact on NII growth. You know, I would say, you know, single digit, low single digit as well. And so that's going to put a bit of downward pressure on revenue. It's not going to impact EPS at all. And all of this was baked into the guidance that we gave at the beginning of the year. So I don't know whether it answers your question, but there is between, I would say, now and the end of the year, a bit of downward pressure as a result of that. But we think we made the right decision here from a profitability standpoint. And as I said, it has like zero impact to earnings per share.

Okay, great. No, that answers it perfectly. One aspect of the MX story that's also evolved quite a bit over the last decade has been your consistent reinvestment into the value proposition of your card products. You refreshed Platinum last year. You did Gold and Delta before that. You did a little mini one, it looks like, on Delta recently. Maybe you want to talk more about that. But what's next on the roadmap, and how do you think about the long-term runway for sustaining that robust card fee growth over the long run?

Yeah, I think my marketing colleagues would kill me if I were to reveal, you know, what they're working on. So I'm not going to do that. But here's what I've got to say. First, as you hinted, those value propositions are not, you know, like we want to keep them alive. To your point on Delta, we just refreshed the product last year, but we just announced that you would get a free second check back. On the gold card, which was also part of their recent refresh, we just updated a little bit the value proposition, and we are incorporating the Hertz status, like five-star status at Hertz. So what we're trying to do is just keep these value propositions alive. So it's not like you refresh the product and then it's frozen for two, three, four, five years. It's really something that we keep alive to keep the demand, to keep the excitement. And we keep as well discussing with partners to enhance the value proposition of the products. So that's either an important factor here. The second important factor is that if you take a step back, behind the refreshes, more importantly than the refreshes, what matters is the constant innovation. And what we want is our marketing colleagues to bring new news to the market. I just talked about a few in the car space, but we do the same thing in Resi or Talk. We do the same thing in Travel. You know, we just, you know, issued like a new travel app. So there is a constant flow of innovation. And so you should not think only about the product refreshes. It's like step function changes in the value prepositions. And so we're very kind of like aware of that. And when Steve became CEO, it's definitely something that he introduced. It was that cadence of new news that is generating demand, that is generating engagement, that is generating differentiation vis-a-vis the competitors, that has been the engine towards the revenue acceleration, and we're keeping that alive. And, of course, they're going to be like some product refreshes, but I'm not going to reveal those here, as you can imagine.

I was curious if the soft refreshes you do, are those planned well in advance when you do the initial rollout or are you reacting to what you're seeing in the data or on the ground in the engagement?

Yeah, I mean, it's like in the case of Delta, it's a function of like we constantly talk to Delta. They have some needs, we have some needs, and just like we figure out how to keep the product alive and dynamic. So I'm not going to say that two years ago we knew that we would do this, But two years ago, we knew that we would keep the product value proposition alive and we would be on the lookout for enhancements and, you know, the dynamic value proposition. It makes sense.

And the other, I think, big thing that is on investors' minds and a new product launch you have coming of sorts, it's going to be one of your next major growth pillars, you hope, the Integrated Expense Management Platform Launcher Center. What are the advantages that solution will have relative to the fintechs and other large card issuers out there? And how do you maybe define success for this initiative once you launch it?

So let me take a step back and tell you what the vision here is. And this value proposition is really targeted at what we call middle market. So it's not really the small businesses. It's not the large and global businesses. This is very much the middle market where we've seen the pressure recently on the back of those fintechs, as you said. So our approach to this, the vision, and how we think we're going to win in that space is by combining in the same ecosystem great products with high spend capacity, like no preset spend limit, great value proposition. Think about, for instance, the recent product that we just issued, Graphite, which, by the way, is doing really well. So we want to combine a great product. We want to add to that an attractive expense management value proposition, and I'll come back to it in a minute. And the third element, if you want, of this ecosystem is their servicing, which matters a lot to middle market customers where they want to dispute transactions. They want to kind of like, you know, have details about transactions. So our, if you want, vision for this segment is just to combine those three. i'm not sure that expense management alone is going to be the solution and so anyway our bet is just we combine those three and we we're just going to bank on this specifically about expense management we are a few weeks away from really seeing the details of that it's just going to be the first version of our expense management solution that you know is built of the center technology. It will be limited initially, and you should expect between now and the balance of the year that we're going to extend it to a bigger population. You should expect as well that we're just going to improve that value proposition over time. We very much, as usual at American Express, we're very much playing a long game here, and we think that service, no preset spend limit, attractive value proposition and expense management is just going to win the game it's certainly going to take us a bit of time to kind of like get that value proposition on expense management you know at par but you know I believe that we're going to get there and more importantly I believe that our card members understand that and in terms of like what we're going to look at as usual we're going to look at the metrics around engagement, right? But what's important here is just to understand that the deployment of this capability will take time. It's not like, you know, overnight that, you know, you can implement this, you just need to hook it up to their ERP systems, and, you know, it takes time. And so we've been working on it for the better part of the last, you know, 12 to 18 months, and we are a few weeks away from really seeing it, and it's very exciting. And separate from that, But you might recall as well that the commercial segment is a massive year for the commercial segment. We're going to release as much as eight different products this year.

Sounds great. Well, we look forward to that release in the coming weeks. Thinking about expenses, investors often ask us about that. And there's a lot of scrutiny of that. And I think you've consistently framed that elevated investment as really a deliberate choice to sustain the long-term growth algorithm while maintaining strong returns. So you did exactly that last quarter, I think. You accelerated the marketing and tech spend. What do you think are the most attractive opportunities as you sort of sit here today and increase that spend or make the decision to increase it? And how do you balance that offensive investment with maintaining some of the expense and return discipline?

Yeah, it's a great question. So let me take you through how we think about it. First, like, just defining the word investment. So here we're talking about the upfront cost to acquire Nucon members, which shows up on the marketing line. Like, investors need to be clear that when we talk about this marketing line, like six point something billion dollars, The lion's share of this is the cost of acquiring new card members. It's not like advertising or TV advertising or sponsorship. It is the acquisition of card member and the upfront cost associated with that. The second big category of investment is like tech development. And in that, you have developing like a new app, like the travel app that we released recently, or improving the card app, for instance, which, by the way, was awarded the number one ranking by J.D. Power recently. Or it's just like work that we do to replatform large global platforms that we have at American Express, like the authorization system. But what we do here is just like calibrate this based on the opportunities and the returns. so let me bring you back to their card acquisition we've talked a lot about the fact that every single acquisition initiative and you're talking about billions and billions and billions of dollars spread across many products channels month we have an ROI and that ROI like there's an incredible level of discipline around what the return is going to be and part of my job and the job of the finance team is to make sure that the most attractive investment, the one that yield the highest returns, will always get funded no matter what. So there is a constant ROI calculation projection to make sure that we know very well where the biggest initiatives are. So by the time you kind of like go down that list, you're talking about the marginal return on the marginal loss, say, $50 million. This is where we need to make a decision around what do we do? Do we spend this last $50 million or do we let it drop to the EPS? And there we make a judgment call based on the return and based on the promise that we made as well to investors to grow earnings per share in the mid-teens, right? And so we balance it out. But the crux of the science here is to make sure that that tension between the two metrics, like drop it to the bottom line to increase the EPS or reinvest it, is actually done with a marginal investment that has the lowest yield from, you know, the available, you know, bucket of ideas that we have. And so it's super important to understand that. And it has worked like really well when you look at over the past, I would say 10 years, we've been able to grow a lot the company while generating a return on equity in that 30%, 35%. I think last quarter we were at 35%, which tells you that that marginal investment is still super attractive. The other thing that I would say, because sometimes I also get the question about the impact of competition on how much you're deciding to invest. You know, it doesn't play a big role. When we start at the beginning of the year, we look at all the opportunities that we have. And one of the most exciting part of American Express is that there's a lot of opportunities to invest and generate a yield that will support our 30%, 35% ROE, which makes it super compelling. And so last quarter, as you just said, we felt good about the first quarter. We have good line of sight in terms of what to expect in the balance of year. And we said, you know, given the opportunities that we have in front of us, it is right to kind of like invest more to support the growth of the company to deploy more capital that will yield the kind of like amazing return that you see, right? That's how the machine works, and that's how the science works. And it's working, like, really well.

And one aspect of the business from investing for growth is investing in high-quality customers, a premium consumer, a premium product. So I think most understand that kind of story of resilience associated with the Amex consumer or customer. Credit has been clearly a differentiator for Amex. What are your views on credit from here as you kind of continue down that path of investing in the premium product and consumer?

And credit, I'm glad you're asking the question because the numbers, the credit numbers have been so good for American Express that a lot of investors have lost sight in terms of like how difficult it is to achieve a 1.3 delinquency rate consistently every quarter for the last 10 quarters and a write-off rate that is in the 2% range. And when I hear our competitors talk about their credit metrics and being very comfortable But for us, it would be really bad if we were in that range. This talks about two things. One is, of course, the quality of our underwriting ecosystem, whether it's data, model, talent. But the biggest differentiator is the positive selection that we generate in our portfolio. Like, we create value preposition that you see expense in the VCE that actually attract card members that value this value preposition, like lounges, for instance, and therefore that typically have a much better credit profile. And so it's super important to understand that because we build products, experiences, to actually generate this positive selection. And that's why putting downward pressure on all our credit metrics. So it's a marketing solution if you want. The second thing that I want to say on this is this. When, you know, post-COVID, we talked about accelerating the revenue growth, there was some skepticism, especially around the fact that investors were skeptical about our ability to do so while maintaining a very strong credit performance. I remember a lot of questions about, but you're going to underwrite a lot of young customers. Like, who are those customers that don't have a cart today that will have one tomorrow? And when you see, like, three years later, we have added, you know, between, like, 22 and 25, I don't know, like, something like $20 billion of revenue. and the EPS is like 50% bigger and the credit metrics have been incredibly strong and stable. And actually the distance between us and our competitors has increased. As we positive select, many of them negative select. And I think the impact of that, and that's super important for investors as well, is that one day there will be a credit event. One day there will be a downturn. At that moment, you're going to see the impact of everything that I just said, right? You can have the intuition for what that is when you look at the CIGAR results, which I guess will come up soon, like at the end of the month, I think. Where, you know, like over the last, you know, at least five years, you look at American Express, their resilience through the cycle is amazingly strong. And that's what you get as well when you invest in American Express, right? You're not only getting a fast-growing business with a very strong ROE. What you're getting is also a business that is incredibly resilient through the cycle.

That's great. And maybe if we could switch to AI, I think obviously there's the revenue-generating potential associated with it, and there's the efficiency aspect of it. I maybe wanted to just hone in on the efficiency aspect for a little bit. But you've consistently highlighted operating leverage created through technology investments, and AI is becoming a much larger focus area as part of that. Has AI yet played a role in driving some of this OPEX efficiency you've been able to generate? And is there maybe a framework we should be thinking about in terms of how you think AI could impact that over the next several years?

So if you are an American Express and if you know American Express well, You know that when it comes to operating expenses, there is constant, constant pressure. Like every single leader in that space knows that part of the definition of success for her and for him is actually to figure out a way to make those OPEX dollars work harder, which means process more volume, initiate more cards, handle more disputes, process more accounting entries, whatever that is, everybody has an objective in terms of efficiency. AI is coming as a wonderful technology to automate many of those things. Many colleagues already have developed custom chat GBT to accelerate their work. The impact of that is just going to be very small because it's very hard for me as a CFO to grab that efficiency, like people use that efficiency on something else. But there are major initiatives, some that we've been public on, some we've not been public on, that are actually going to yield a ton of efficiency. We have deployed coding solutions across our 11,000 coders that are yielding a ton of efficiency. In some cases, we get to 30%. In the case of the travel agents, we have equipped them with AI solutions that speed up our ability to handle the requests from customers. So it delights the customer. It delights the colleague who is on the phone. And what it does is shortens the conversation, which means that the same colleague can process more calls during his or her day. and where we've seen a ton of efficiency as well because we started on this journey like 16 years ago was on the credit and fraud where we've been using AI solutions. But there's a lot more to come, right? We've been working really hard in automation for years. The next tranche of automation is going to be that one. And I would be remiss if I were not talking about the work we're doing in marketing where generating new content with AI has turned out to be very efficient, and it allows us to actually personalize those offers in a way that we were not able to do it in a profitable way in the past. So there's a ton of activities around AI and finding efficiencies across the company, and it will contribute to that operating leverage that we've been generating consistently for the past 20 years.

And related to that, Steve, in his letter and recent calls, has spent a lot of time discussing agentic commerce. I think he's characterized as more on the on-deck circle than even in the first inning. But I think you have some structural advantages in place in this new world, potentially. So I guess, how does the closed-loop ecosystem in your proprietary data set strengthen your positioning there? and how are you thinking about the impact of development in this space in the coming years?

I think Steve said, like, we were built for this moment. Like, the closed-loop network is perfect for Gentic. I'm going to give you two examples. The first one is fraud and fraud detection, fraud prevention. We're doing so much better than the other networks. It's not like our fraud performance and its public data is like a third of what you see on the competitive network. This is a function of data. This is a function of closed loop. This is a function of, like, knowing really well the merchant, knowing really well the card member. And this is a function of investing in that technology for years. In a GenTech, you know that because more is going to rely on computers, there's going to be, like, a lot of fraud attempt. Like, any, like, and we've seen it, right? When we put, like, a genetic solution, like, in, you know, the dining companion, it's incredible how immediately there are people who are just trying to break the code, right? So, there's just going to be, like, a lot of fraud attempt. You're better off being with us than being with someone. It's just going to add a fraud rate. There's, like, 3x our fraud rate. The second example that I'm going to give you, and it's something that we announced as well, is like we want to be able to back not only customers but also merchants in the case that the agent makes a mistake. You know, the challenge of a gente commerce is that there is a new player, an agent, and the agent will sometimes get things wrong. It's inevitable, right, especially at the beginning. And what we've done is introduce this new service called Agent Purchase Protection, where because we are, again, in direct relationship with a merchant and the con member, and we have the data from the agent, we can actually facilitate the issue when there is one. Like, dispute management is a big service at American Express, and we want to extend that to agents when they make mistakes. So I don't know if agente commerce is going to take off. I've yet to find someone who has, like, trusted an agent for a complex purchase. But if that takes off, I think we have structural advantages that will play to American Express.

That's great. That's great. And maybe as we think about the regulatory agenda out there, the capital rules were re-proposed, and I think the comment period is ending soon. So maybe just any sort of thoughts or updates from your end on the benefits of AMX and how you're thinking about that.

Yeah, we spoke a little bit about it during the Q1 call, and we said that investors should expect a benefit that is somewhere in between a small upside and neutral. And the reason why we say this is, you know, like, first, this new proposal is much better than the previous one. and I'm encouraged to see that. But there are still things to define in this proposal, which makes us hedge with a wrench. There are also other changes coming up in tailoring. I don't know exactly the timing of that, but probably between now and the end of the year. And with this concept of ERBA versus RSA that is linked to the category you are in, And given our situation, we really want to see what's going on in tailoring before we have a more – and we see the final rules in terms of Basel before we have a more definitive quantification of the impact. But when we run scenarios around what might happen, what could happen, we kind of like narrow it down all the time to that slightly positive to neutral. So from an investor standpoint, if you take a step back, it's not going to have a big impact to us. You know, I just said we generate very strong returns. We have a very strong repo program. We're committed to managing the CET1 to a range of 10% to 11%. So you should not expect any material change to our capital management practice in the near term. That's the key message, I would say.

And maybe just as a wrap-up question for you, Christophe, as you look across the franchise today, What opportunities are you most excited about over the next, you know, three to five years? Any areas you think that investors may be underappreciating in terms of the strength or the optionality of your business model?

Yeah, I mean, what I'm the most excited about is first when I look at the TAM, how strong it is, how fast it's growing. I'm sure you're familiar with the stat that the top 10% by income distribution in the U.S. represent like 50% of the consumer spend. Like, we speak to these people every day. And when I combine that, you know, very attractive, you know, addressable market with the fact that we have the solution. Like, we have a model, and we have 75 or almost 80,000 colleagues who know exactly what they need to do to execute on. You know, I was telling you about the marketing cadence of innovation, the role that we play in terms of rank. Like, we know exactly what to do, and everybody does focus on execution to generate what we are targeting every year, which is, you know, 10% plus in terms of revenue growth and mid-teens EPS. And we have, you know, kind of like the solution. We have the algorithm to tap into this TAM and generate these amazing returns. And if you look at the track record that we have over the past, you know, three, four, five years, we've been delivering on that. So I feel really good about where we are. I feel that we're investing a lot. We're investing more and more because the company is growing incredibly fast. I was telling you that over the last three years, between 22 and 25, we went from $52 billion to $72 billion of revenue. So that's like $20 billion of incremental revenue that we added. And importantly, to your previous question, this revenue was generated in the premium space with customers who are incredibly resilient through the cycle, and you see all our credit metrics. So we feel really good about doing more of that and continuing innovating in the way we have innovated over the past years. And we think that in the long run, it is going to be like a very successful value story.

All right. Great. I think we're about out of time. Thank you Christoph for joining us. Appreciate it. Thank you.