American Express Company

Gentlemen, thank you for standing by. Welcome to the American Express Q2 2020 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question, please press 1, then 0 on your touch-tone phone. You will hear a message indicating you have been placed in queue. You may remove yourself from the queue at any time by pressing 1, then 0 again. If you are using a speakerphone, please pick up your handset before pressing the numbers. Should you require assistance during the call, please press star, then zero. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Ms. Vivian Zhou. Please go ahead.

Thank you, Alan. Thank you all for joining today's call. As a reminder, before we begin, today's discussion contains four 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 these are posted on our website at ir.americanexpress.com. We will begin today with Steve Squary, Chairman and CEO, 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 second quarter financial performance. After that, we will move to a Q&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Thanks, Vivian. Hello, everybody, and thanks for joining us on the call this morning. I hope everyone is safe and well and your families are the same. Let me just jump in. While overall results for the quarter clearly show the effects of COVID-19 pandemic on our business, Jeff and I will dive into our performance on a more granular level to give you a clearer picture of what's going on. When we last got together on April 24th, the global economy was basically in a free fall. And we had no way of knowing if the declines we were seeing in our billings would continue. We now realize that mid-April was when we hit the trough in terms of second quarter spending declines. As we sit here today, there is still much uncertainty about the economic environment, as reopenings have stalled in a number of geographies, and the status of government support programs remains unclear. Nevertheless, I can give you a better sense of where we are and how the COVID-19 crisis has been affecting us to date. Spending volumes overall have been improving gradually since April, when they were down about 40% year over year, to a decline of about 20% in mid-July. Non-T&E spending has been recovering at a faster pace than T&E categories, and our small business customers have been the most resilient through the period. We've not seen an increase in our total customer attrition levels from prior years. With regards to credit, we feel good about our risk management capabilities and the progress we've made with the financial relief programs we rolled out to support our customers as they navigate unexpected financial challenges during these unprecedented times. We remain confident in our ability to effectively manage credit risk to achieve the best outcomes for both our customers and our shareholders. All in all, I feel good about how we're managing through this period. Despite the significant impacts of the COVID-19 pandemic had on our business, we were profitable in the quarter, and we have very strong capital and liquidity position, and we paid our dividends to our shareholders. Importantly, our customers continue to be engaged with our products and services, and I'm confident that our strategy of focusing on what we can control in the short term while continuing to invest in areas that are key to our growth over the long term will put us in a position of strength when this crisis ends. Similar to the first quarter, Jeff will discuss how the current climate is affecting various elements of our financial results, and I'll give a little more color on what we're doing to manage the company through the present crisis, while positioning ourselves to take advantage of the growth opportunities ahead. As a reminder, in Q1, we introduced four key priorities for 2020, supporting our colleagues in winning as a team, protecting our customers and our brand, structuring the company for growth in the future, and staying financially strong. We've made good progress against this framework, and we'll continue to use it as a guide through the rest of the year. I'll go through each of these priorities and give you some highlights of our progress. In terms of our first priority, supporting our colleagues and winning as a team, we've been operating on a fully remote basis globally since mid-March. Our frontline colleagues have continued to deliver outstanding customer service, and our historically strong customer satisfaction levels have improved globally on a year-over-year basis. More recently, like many other global companies, we're taking a slow and cautious approach to returning to our offices, and we're implementing comprehensive safety protocols as our buildings reopen. I also want to spend a minute talking about the recent incidents of deadly violence against the black community and the subsequent demands for actions to combat systematic racism. Like many others, we're taking a hard look at our own practices across our business and developing a comprehensive plan to strengthen diversity and inclusion within the company, while also increasing our support to black-owned businesses and the black community outside of American Express. As a first step, we made $3 million in grants in 2020 to several nonprofits that support the black community. And as part of our recently launched Shop Small initiative, we've pledged $10 million over the next four years to fund a coalition with the U.S. Chamber of Commerce Foundation, bringing together the U.S. black chambers to provide grants to black-owned small businesses. We view this as just the beginning of a multifaceted, multi-year commitment to do our part to address issues of inequality and to promote social justice. Our next priority is protecting our customers and our brand. To ensure our future success, it's critical that we continue providing a reliable, world-class experience to help our customers manage through these extraordinary times. In recognition of our customers' evolving needs in this environment, we've enhanced our value propositions on many of our consumer and small business products, including adjusting our rewards programs and added limited time offers and statement credits in categories that are relevant for today. such as wireless groceries, streaming services, business essentials, and food delivery. Early results from these enhancements are encouraging. As I mentioned, we haven't seen an increase in total customer attrition levels over prior years. In addition, we're seeing increased card member engagement in several of the new categories where we've added value, including streaming and wireless services. We're also building on our commitment to help small businesses around the world as they struggle to recover from the COVID-19 pandemic. Last month, we announced our largest ever global shop small campaign, which includes a commitment of over $200 million over the next three months to help jumpstart spending at small merchants in over a dozen countries globally. Finally, we've had very good results in helping our customers who have required financial assistance during the pandemic. Nearly three-quarters of those in our short-term pandemic relief programs have successfully exited the program and are now current and paying their bills. Many of those needing more time have chosen to enter one of our enhanced longer-term relief programs, which provide additional flexibility in paying balances over time. These longer-term programs are now operating in 20 countries around the world. Our third priority is to structure the company for growth in the future. COVID-19 has had a major impact on the way we live and work, and some of the changes may last for some time, if not permanently. As we begin to see what shape the new normal will take, our focus remains on our customers. as we look to deepen our relationships and take advantage of the opportunities that will help us grow our customer base going forward. In our consumer business, we'll continue to enhance our value propositions to offer features, benefits, and experiences that are particularly relevant to our customers' changing needs. I'm not going to go into specifics now, but you will see us continue to refresh our current products and launch new ones, focusing on categories that build upon and add to our traditional T&A offer. On the commercial side, we're seeing a significant increase in demand for our automated B2B payment solutions as more customers look for efficient, secure ways to pay suppliers and manage their businesses remotely in this environment. We continue to introduce a range of new B2B payment solutions for businesses of all sizes, such as last week's launch of American Express 1AP for middle market companies. Our first proprietary accounts payable automation offering which is built on a technology of last year's ACOM pay acquisition. Going forward, we expect to see the trend toward digitizing the B2B payments process to continue, and we will continue to invest in these capabilities. For our merchant partners, we're hoping to meet their growing desire, along with consumers, for clean payments by raising our contactless transaction thresholds in 60 countries around the world. Throughout this period, we're continuing to look for more ways to embed American Express into our customers' digital lives. To facilitate the increasing number of online transactions, earlier this month we announced, along with other major payment networks, that we'll begin technical preparations for the international expansion of Click2Pay, a simple and secure digital checkout solution. We also continue to look for opportunities to extend our mutually beneficial strategic partnerships, such as the renewal of our longstanding relationship with British Airways that was announced this morning, as well as the extension of our agreement with Marriott during the second quarter. Turning to internal changes, we expect to see an increase in the number of colleagues working from home going forward, which will influence how much real estate we need over the longer term. In the second quarter, we made decisions to accelerate the exit of surplus office space in several countries, and we're assessing our long-term real estate strategy for a post-COVID world. Finally, as I'm sure you all saw, we recently announced that American Express became the first foreign payments network to be licensed to clear local currency transactions in mainland China. This historic milestone is many years in the making and represents an important step forward in our long-term growth strategy, as well as in the overall development of the payments industry in China. Our fourth priority is to remain financially strong. During the second quarter, we substantially increased our liquidity to record levels, and we further strengthened our capital position with capital ratios that are well above our targets and regulatory requirements. These robust capital and liquidity levels will enable us to continue operating through this uncertain period from a position of strength. Looking ahead, no one can tell how the COVID-19 pandemic will evolve or what its impacts will be on the global economy. So we will continue to focus on what we can control, backing our customers, colleagues, and communities, maintaining a tight rein on expenses, while seizing opportunities to invest in initiatives that will enable our long-term growth and remaining very transparent in with all of our key constituents about the trends we're seeing and how they are affecting our business. That's a quick roundup of the progress we've made on the four priorities I laid out last quarter. These last few months have been extremely difficult for everyone, and I anticipate we'll continue to face great challenges and uncertainty in the days ahead. While we can't predict the future, I feel good about how we are managing through the crisis, and I remain confident that we are positioning the company to emerge from this period even stronger. This is how we've weathered crisis time and time again over our 170-year history, focusing on what we can control in the short term while positioning our company for the long term and always believing in our customers, in the power of our brand, and in the resiliency and strength of our people. I'll now turn it over to Jeff. Well, thank you, Steve, and good morning, everyone.