American Express Company

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q4 2021 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 touchtone phone. You'll hear an indication you've been placed into queue, and 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 the handset before pressing the numbers. Should you require assistance during the call, please press star, then zero. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations, Ms. Vivian Zhao. Please go ahead.

Thank you, Alan, and thank you all for joining today's call. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainty. 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 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 Squarey, Chairman and CEO, who will start with some remarks about the company's progress and results, and then Jeff Campbell, Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we will move to a Q&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Thanks, Vivian, and good morning, everyone. As you saw in our press release a short while ago, we reported strong quarterly and full-year revenue growth and earnings for 2021, thanks to the efforts of our dedicated and talented colleagues around the globe. We also provided revenue and EPS guidance for 2022, and we announced a new growth plan that resets our longer-term aspirations for revenue and EPS growth to levels that are higher than what we were delivering in the years before the pandemic. I want to spend my time today talking about why these results and our progress over the last few years has me excited about the future and our aspiration to deliver higher levels of sustainable, profitable growth. As we've seen in our results for Q4 and the full year, the capabilities we've built over the past few years by investing in our customers, our brand, and our talent are helping us drive share, scale, and relevance that leads to profitable growth. And we believe that will continue as the global economy continues to improve. Our strong performance across a number of key business metrics helped deliver revenue growth of 30% in the fourth quarter and 17% for the full year. Diluted EPS for the quarter was $2.18 and $10.02 for the full year. In the near term, We expect full year revenue growth to remain at elevated levels, reaching 18 to 20% in 2022, driven by the execution of our growth plan and the recovery tailwinds we anticipate from continued improvement in the macroeconomic environment. We expect EPS of between $9.25 and $9.65 in 2022. As we think about 2023, The continuation of the recovery tailwinds could drive revenue growth in the mid-teens, which in turn should provide a platform for mid-teens EPS growth. Looking further out as we return to a more steady state economic environment, we aspire to achieve revenue growth in excess of 10% and EPS growth in the mid-teens under our new growth plan for 2024 and beyond. We've learned a lot over the past few years that we believe will help us achieve our growth plan aspirations. The business imperatives and strategies we focused on pre-pandemic, the decisions we made when COVID-19 first hit to protect our customers and colleagues, and our pivot early in the recovery cycle to ramp up investments in a number of key areas all proved to be the right moves that have been good for our business. Most importantly, our experience through this period has reinforced our conviction that investing strategically in our customers' brand and talent is absolutely critical to driving high levels of growth. We've seen that play out in the results we delivered throughout 2021. Our fourth quarter performance continued the trends we saw all year in a number of areas that are core to our growth over the long term. Spending growth reached a record quarterly high driven by continued increases in goods and services spending, which was 24% above pre-pandemic levels. Global consumer goods and services spending in the quarter grew 26% versus 2019, and we saw continued robust growth in small business B2B spending, which increased 25% over Q4 2019 levels. Overall T&E spending also continued to improve, reaching 82% of pre-pandemic levels, driven by stronger consumer travel spending. Customer retention and satisfaction continued to be very strong and remained above pre-pandemic levels. For example, retention rates in global consumer are above 98 percent. And for the second year in a row and the 11th time in 15 years, we rank first in J.D. Power's annual credit card satisfaction study of U.S. consumers. Credit performance also continued to be outstanding with key metrics near historical lows and our card members are building loan balances at a modest pace. Customer engagement with our products, services, and capabilities continued at high levels in the quarter, The strong engagement, which is fueled by our ongoing investments in value propositions, marketing, and new digital services, is helping to drive the results I just spoke about in billings and loan growth, as well as customer retention and satisfaction levels. Additionally, our customer-focused innovation strategy, which has driven increases in customer engagement, has continued to attract large numbers of new customers. New card acquisitions reached 2.7 million in Q4 last driven by strong demand for our premium fee-based products, where we saw acquisitions nearly double year over year. In consumer, millennials and Gen Z customers are driving the growth in acquisitions, representing around 60% of the new accounts we acquired globally in 2021. In commercial, Q4 closed out as one of the best years we've ever seen for U.S. SME new account acquisitions. The momentum we generated throughout 2021 further strengthens our resolve to continue our focus on the strategic imperatives we laid out back in 2018, expanding our leadership position in the premium consumer space by providing a differentiated and ever-expanding range of services and lifestyle-focused value propositions, building on our strong leadership position in commercial payments by being the key provider of payments and working capital solutions for small and medium-sized businesses, expanding our merchant network globally to give our card members more places to use their cards, and staying on the leading edge of technology and digital payment solutions to make American Express an essential part of our customers' digital lives. We are entering 2022 in a position of strength, and based on the momentum with which we exited 2021 and the opportunities we see ahead, we feel very good about the future. We believe that continuing our strategy of investing at high levels in our customers' brand and talent as we implement our growth plan will position us well as we seek to achieve our growth aspirations in 2024 and beyond. I'll now turn it over to Jeff to provide more details on our performance for the fourth quarter and our expectations for the future. And after that, we'll take your questions. Thank you, Jeff.

Well, thank you, Steve. Good morning, everyone. It's great to be here to talk about our fourth quarter and full year 2021 results. the ambitious new growth plan that Steve just talked about, and what it all means for 2022 and beyond. You see the growth momentum that Steve just discussed in our summary financials on slide two, with fourth quarter revenues of $12.1 billion up 31%, and full-year revenues of $42.4 billion up 17%, both on an FX-adjusted basis. In understanding our full-year net income of $8.1 billion and earnings per share, $10.02, I would point out that we had around $3.5 billion of significant impacts from items that we do not expect to repeat in the same magnitude going forward, including a $2.5 billion credit reserve release benefit in provision, as well as a few sizable net gains on equity investments. Getting into a more detailed look at our results, let's start with volumes. You'll notice in the several views of volumes on slides three through nine that we continue to show 2021 volume trends on both a year-over-year basis and relative to 2019. There are a few key insights that I would highlight across these slides that strengthen our conviction in the investment strategy we have been focused on to deliver our new growth plan. To start, we saw record levels of spending on our network in both the fourth quarter and full year 2021, with total network volumes and build business volumes both up more than 10 percent relative to 2019 on an FX-adjusted basis in the fourth quarter, as you can see on slide three. This growth in build business, as shown on slides four and five, is being driven by continued momentum in spending on goods and services. which strengthened sequentially and grew 24% versus 2019 in Q4. This momentum is from the strong growth in online and card-not present spending that continued throughout 2021, even as offline spending fully recovered and resumed growth, demonstrating the lasting effect of the behavioral changes we've seen during the pandemic. Importantly, This 24 percent growth versus 2019 in Q4 represents a cumulative growth rate over the past two years that is well above the growth rate we were seeing pre pandemic. In our consumer business our focus on attracting and engaging younger cohorts of card members through expanding our value propositions and digital capabilities is fueling the 50 growth in spending from our millennial and Gen Z customers you see on slide six. And spending from all other age cohorts also showed steady improvement throughout 2021 and exceeded pre-pandemic levels in Q4. Our strategic focus on helping our small and medium-sized enterprise clients run their businesses by expanding the range of products and capabilities that meet their B2B payments and working capital needs is driving the strong SME spending trends you see on slide seven. Global SME spending, particularly B2B spending on goods and services, has been driving the growth of our commercial build business throughout 2021 and reached 25% above pre-pandemic levels in Q4. Now turning to T&E spending, you can see on slide eight that it continues to recover in line with our expectations. with overall T&E spending reaching 82% of 2019 levels in the fourth quarter. We did see some modest impacts from the Omicron variant in T&E spending as the pace of recovery slowed a bit in December. But even with that modest slowdown, U.S. consumer T&E was not only fully recovered in the fourth quarter, but actually grew 8% above 2019 levels. On balance, The T&E trends we have seen throughout 2021 reinforce our view that travel and entertainment spending will eventually fully recover, but at varying paces across customer types and geographies. And we remain focused on maintaining our leadership position in offering differentiated travel and lifestyle benefits to our consumer and commercial customers as they return to travel. Finally, on slide nine, you see that our build business momentum continues to be led by the U.S., where spending improved sequentially throughout 2021 and grew 16 percent above 2019 levels in the fourth quarter. International build business has also shown continued steady, though smaller, improvements, with spending almost fully recovered in Q4. Importantly, though, Growth in goods and services spending continues to be strong both in the U.S. and outside of the U.S. So what do all of these takeaways mean for 2022 and beyond? Most importantly, we expect the strong momentum in goods and services spending to continue given the investments we've made in premium card member engagement, prospect acquisition, value propositions that particularly appeal to our millennial Gen Z and SME customers, growing our coverage, and expanding relationships with key partners. For T&E, we expect that total global consumer and SME T&E spending will be fully recovered by the end of 2022, led by the growth in the U.S. The recovery will be slower, for the international and cross-border components of this spend. We've also long said that large and global corporate T&E spending would be the last to recover across our customer types. So these spending types may represent a steady tailwind in both 22 and 2023 as they gradually recover. Moving on to receivable and loan balances on slide 10, we are seeing good sequential growth in our lending balances, but it is led by spending. And so the portion of our lending balances that are revolving is recovering more slowly. Because our balances are spend-driven, we do expect to continue to see a strong rebound with loan balances surpassing 2019 levels in 2022. But We expect it to take more time for the interest-bearing portion of these balances to rebuild as paydown rates continue to remain elevated due to the liquidity and strength amongst our customer base. Turning next to credit and provision on slides 11 through 13, as you flip through these slides, there are a few key points I'd like you to take away. Most importantly, we continue to see extremely strong credit performance. With card member loans and receivables write-off and delinquency rates remaining around historical lows, as loan balances begin to rebuild more meaningfully, we do expect delinquency and loss rates to slowly move up over time, but we expect them to remain below pre-pandemic levels in 2022. This strong credit performance, combined with continued improvement in the macroeconomic outlook throughout 2021, drove a $1.4 billion provision expense benefit for the full year, as the low write-offs were fully offset by the reserve releases, as shown on slide 12. As you see on slide 13, We ended 2021 with $3.4 billion of reserves representing 3.7% of our loan balances and 0.1% of our card member receivable balances respectively. This is well below the reserve levels we had pre-pandemic given the strong credit performance we've seen. In 2022, we will be growing over the $2.5 billion reserve release benefit we saw in 2021 since I would not expect to see reserve releases of the same magnitude going forward. In fact, depending on credit trends and the pace at which our balance sheet grows, it's possible we may need to build some modest level of reserves. Moving next to revenues on slide 14, total revenues were up 30 percent year-over-year in the fourth quarter, up 17 percent for the full year. This is well above our original expectations for the year, driven by the successful execution of our investment strategy, and it is part of what emboldens us to launch our new growth plan. Before I get into more details about our largest revenue drivers in the next few slides, I would note that other fees and commissions and other revenue were both up year over year in the fourth quarter and for the full year. primarily driven by the uptick in travel-related revenues we began to see in the second half of 2021. These travel-related revenues still remain well below 2019 levels, however, and their complete recovery will likely lag and be a tailwind into 2023, along with international and cross-border travel. Turning to our largest revenue line, discount revenue, on slide 15, you see a growth 36% year-over-year in Q4 and 25% for the full year on an FX-adjusted basis. This growth is primarily driven by the momentum in goods and services spending we saw throughout 2021. Net card fee revenues have grown consistently throughout the pandemic, and for the full year of 2021, we're up 10% year-over-year and up 28% versus 2019. As you can see on slide 16, the resiliency of these subscription-like revenues demonstrates the impact of the investments we've made in our premium value propositions and the continued attractiveness of those value propositions to both prospects and existing customers. As a result, I expect net card fee growth to accelerate from these already high growth rates in 2022. Turning to net interest income on slide 17, you can see that it was up 11% year over year in the fourth quarter. This is the second consecutive quarter of year over year growth as we clearly hit an inflection point in the second half of 2021. The growth in net interest income is slower than the growth in lending AR due to the strong liquidity demonstrated by our customers that I spoke about earlier, which is leading to both our historically low credit costs and to high pay down rates that are driving lower net interest yields and a slower recovery in revolving loan balances. Looking ahead, we expect net interest income to be a tailwind to our revenue growth in 2022 and likely 2023 due to the slower recovery in revolving loan balances. So to sum up on revenues, The successful execution of our investment strategy has driven the revenue recovery momentum you see on slide 18. Looking forward into 2022, we expect to see revenue growth of 18 to 20% driven by the continued strong growth in spend and card fee revenues and the lingering recovery tailwinds from net interest income and travel-related revenues. The revenue momentum we saw in 2021 was clearly accelerated by the investments we made in marketing, value propositions, technology, and people. And those investments show up across the expense lines you see on slide 19. Starting with variable customer engagement expenses at the top of slide 19, there are a few things to think about. Most importantly, the investments we are making in our premium value propositions are resonating with our customers, And this, of course, is driving growth in these expense lines. In addition, over the course of the pandemic, we added some temporary incremental benefits to many of our premium products in an effort we refer to as value injection because our customers were not able to take advantage of many of the travel-related aspects of our value propositions. The costs of this value injection effort generally showed up in the marketing expense lines. Throughout 2021, we gradually wound down the value injection offers as our customers were again engaging more with the travel aspects of our value propositions, as well as with the new rewards and benefits we introduced through recent product refreshes. This is all a good thing in terms of our long-term customer retention and growth prospects. It does, however, mean you see more year-over-year growth in these variable customer engagement costs. Putting all these dynamics together, I'd expect variable customer engagement costs overall to run at around 42% of total revenues in 2022. Moving to the bottom of the slide, operating expenses were just over $11 billion for full year 2021 and in line with 2020. Understanding our OpEx results, however, it's important to point out that we benefited from $767 million in net mark-to-market gains in our Annex Ventures strategic investment portfolio in 2021, and that these gains are reported in the OPEX line. We also increased investments in the critical areas of technology and our talented colleague base in 2021, and expect to continue to grow investments in these areas this year. For 2022, We expect our operating expenses to be a bit over $12 billion, and we see these costs as a key source of leverage relative to our much higher level of revenue growth. Last, our effective tax rate for 2021 was around 25%, and I'd expect a similar effective tax rate in 2022, absent any legislative changes. Turning next to our marketing investments, we are making to build growth momentum. You can see on slide 20 that we invested around $1.6 billion in marketing in the fourth quarter and $5.3 billion for the full year as we continue to ramp up new card acquisitions while winding down our value injection efforts. We acquired 2.7 million new cards, up 54% year over year. Steve emphasized the critical point, however, that in particular we see great demand for our premium fee-based products, with new accounts acquired on these products almost doubling year over year and representing 67% of the new accounts acquired in the quarter. Acquisitions of new U.S. consumer and small business platinum card members were at all-time highs this year, with Q4 being a record quarter of new account acquisitions for both of these refreshed products. Much more importantly, though, than just the total number of cards, we focus internally on the overall level of spend and fee revenue growth we bring on from these new acquisitions. We are pleased to see that the revenues from 2021 acquisitions are trending significantly stronger than what we saw pre-pandemic. Looking forward, We expect to spend around $5 billion in marketing in 2022. Turning next to capital on slide 21, we returned $9 billion of capital to our shareholders in 2021, including common stock repurchases of $7.6 billion and $1.4 billion in common stock dividends on the back of a starting excess capital position and strong earnings generation. As a result, we ended the year with our CEQ1 ratio back within our target range, 10 to 11 percent. In Q1 2022, in another sign of our growing confidence and our growth prospects, we expect to increase our dividend by around 20 percent to 52 cents and to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth. That brings me to our growth plan on slide 22, and then we'll open up the call for your questions. The combination of our pre-pandemic strategies, our learnings from the pandemic, and the strong momentum we have achieved have all come together to embolden us to announce our new growth plan. What does that mean financially? In the nearer term, We expect our revenue growth to be significantly higher than our long-term aspiration due to the range of pandemic recovery tailwinds that I've talked about throughout my remarks, which is why we have given 2022 guidance of 18% to 20% revenue growth. We've also given EPS guidance for 2022 of $9.25 to $9.65. We feel good about this earnings guidance. as the momentum we have built on the revenue side helps us to grow over the number of notable items that benefited our 2021 results that we certainly don't expect to repeat in the same magnitude in 2022, as I discussed at the very beginning of my remarks this morning. Our 2022 guidance does assume an economy that will continue to improve and reflects what we know today about the regulatory and competitive environment. It also assumes that based on current exchange rates, we would not see a significant impact from FX in our reported revenue growth in 2022. In 2023, we expect our revenue growth to remain above our long-term aspirational targets due to the lingering recovery tailwinds, which should create a platform for producing mid-teen DPS growth. Longer term, As we get to a more steady state macro environment, we have an aspiration of delivering revenue growth in excess of 10% and mid-teens EPS growth on a sustainable basis in 2024 and beyond. In closing, we are committed to executing against our new growth plan and we'll be running the company with a focus on achieving our accelerated growth aspirations. With that, I'll turn the call back over to Vivian.

Thank you, Jeff. Before we open up the line 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 the line for questions.

Alan? Ladies and gentlemen, if you wish to ask a question, please press 1, then 0 on your touchtone phone. You'll hear a message indicating that you've 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 the handset before pressing any numbers. Our first question comes from Ryan Nash with Goldman Sachs. Please go ahead.

Hey, good morning, everyone. Hey, Ryan.

Good morning, Ryan.

So, you know, it's good to hear about the better than expected 2024 plus long-term aspirations for in excess of 10% revenue growth and mid-teens EPS growth. So, Steve, I was maybe talking, hoping you could maybe just talk about what is allowing you to drive this better structural growth. Is it the investments you're making, the brand resonating more with investors? And what are the key drivers? And, you know, clearly you're investing heavily in the near term. Jeff mentioned higher variable engagement costs. Can you maybe just talk about what should give investors confidence that as we get to 2024, the business is going to be able to drive operating leverage versus, you know, historically a view of, you know, reinvesting a lot into the business. And just lastly, one point of clarification, Jeff, can you just clarify the platform for mid-teens EPS growth? Were you mentioning that you expect mid-teens in 23 or more that it was positioning you well for mid-teens within 24? Thanks.

Well, maybe we'll work backwards. I'll take the last one. I think the language on 2023 is, around EPS growth, Ryan, is meant to make the point that we are certainly, given the tailwinds, going to drive, again, very high revenue growth. And that creates a great platform for steady earnings growth. The caution there is just you still have some volatility in how credit reserves may play out. And so When you think about sort of the total level of earnings in 2022 and 23, I feel pretty confident. Could you have some result that moves reserve releases between one year and another, which skew the actual year over year growth number of it? You might. But I think the core earnings power will be there given the high revenue growth that Steve's going to talk about next.

Yeah, but just to just talk about the operating leverage for a second, too, because you know, when you look at, and Jeff mentioned that we had the sort of the contract to operating expense with the venture gains this year, when you look at that, you will have operating expense leverage growth this particular year, because you're looking at 18 to 20%, you know, revenue growth. And, you know, if you sort of normal, even if you don't normalize it, you're going to have a much higher revenue growth than you will. So we're still going to drive operating expense growth throughout this, throughout our journey. But let me talk to you about what gives me the confidence. And when I look at sort of what we've done over the last four years, where we are now and how we're exiting, what I would sum this up is it's a combination of three things. It is the strategy that we put in place. It is the secular tailwinds that we have and the momentum. And I'm going to start from the back and work my way forward. Look at the momentum. I mean, you've got 30% revenue growth in this particular quarter. You've got 2.7 million cards that we acquired. You've got historically high billings growth. You know, we haven't gotten into this, but we see travel bookings. When we looked at travel bookings in the fourth quarter, it was 24% up over 19. When we look at the first couple of weeks in January, we're 44% up over 19. So we have tremendous momentum entering twenty twenty two. I'll move to the beginning go to the strategy you know we have to be back in twenty eighteen and I made this in my remarks we talked about being the premium card provider and I think the skepticism was for millennials in Gen Z that skepticism from my perspective is over- you know sixty percent of the cards that we acquired are millennials in Gen Z in this quarter seventy five percent of our premium cards were millennials. And then the next strategic imperative was SME. We had, you know, probably the best SME acquisition year that we've ever had. We talked about our ability to be in people's digital lives. We had 31% online spending growth over 2019, and we had 16% online spending growth just over last year. And look at what we've done from a merchant perspective. We're at parity in the U.S., and we added over 7 million merchants last just last year internationally. And then look at the secular tailwinds. I think the pandemic has moved, you know, online spending, you know, forward for three to five years, and we're getting more than our fair share. And then look at our business. We're at 82% of the overall T&E business from 2019. Now, consumers doing really well. In the fourth quarter, we were up 8%. but the rest of it is below, you know, 2019 levels. And so we believe from a T&E perspective, we've got more room to go. You know, when we look at our, as we segment our card members, millennials are, you know, blowing it out. We had over 50% spending from millennials in our Gen and Gen Z increase over both 2019 and 2020. And as we look at, sort of our Gen X is up, and our boomers are not. And our boomers traditionally are the ones that travel and have money, and once we get from pandemic to endemic here, they're going to start traveling again. Jeff talked about modest loan balances. That will grow over time, which is the comment he made about some reserve increases, but we're going to get back to where we were. We look at international consumer. International consumer tends to be a more traveling card member, and that business is flat. And large and global has not come back. And I'll leave you with this on large and global. You know, people are skeptical about business travel because of all the remote workforce. In fact, I think business travel is going to be completely different. And I think as you have more people in more remote locations, they may need to get together three, four, maybe five times a year to come to headquarters or to come to locations where they never had to come to before. And let's face it. we all realize that there's nothing better than sitting in front of your customers. And I just, it just came back from an opportunity at the Amex golf tournament to sit in front of a lot of my customers. So, you know, when we look at these secular tailwinds, that's why we believe it's not only doable, but sustainable as we move forward.

Thanks for taking my questions and apologies for packing so many in there.

Our next question will come from Betsy Grosick with Morgan Stanley.

Hi, good morning.

Morning, Betsy.

I just wanted to dig in a little bit more on some of the opportunities that you were discussing. When I sit from my seat, I'm wondering what type of penetration do you think you have in the U.S. you know, millennial and Gen Z. The numbers you just quoted were very impressive, but I'm wondering, do you feel you're at 90% of that market or 10%? Give us a sense as to how you're thinking about that. And in addition, on the SME side, where you're the clear leader, where's the room for you to run? Is it by increasing the product set, i.e., you know, the revolving line of credit that you recently announced, or is it more in acquiring new customers? And really the question is, What's the TAM, and what percentage of that TAM do you think you have right now in the various customer sets? Thanks.

So let me start, and Jeff can sort of jump in. Look, from a millennial perspective, I don't know exactly where we are, but what I can tell you is we're not at the 90%. I'd be closer to the 10 than the 90, but millennials and Gen Z. So I think there's a lot of opportunity and a lot of runway, and And maybe in Investor Day, we'll try and give you some guidance on that. And we'll do a little bit of work on that. From an SME perspective, look, we are, that's right, we are the clear leader from an SME perspective. And I think when you look at the opportunity set, what we've said from an SME perspective is we want to be the total working capital provider. And so you look at what we've done. What we've done is we've gone out there and now we've created, with the acquisition of Cabbage, we've created our We have the checking account, we have the debit card. The checking account is important because that's where all the flows of money come in and go out. From a card perspective, we've always been in great shape. From a Revolve perspective on the card, we don't have the same share that we've had. And so we'll push a little bit more on that Revolve, obviously on working capital loans and some of the other term loans we'll be pushing on as well. So we think when you put that together holistically, we have a lot of room for growth from an SME perspective, not only in the U.S., but in international where we leverage our international, you know, corporate card business and our position from a small consumer perspective to go after it. So we think both of those areas are still very, very ripe to grow.

Our next question will come from Mihir Bhatia with Bank of America. Go ahead, please. Sure.

Good morning, and thank you for taking my question. I just wanted to ask, maybe we can talk a little bit more about variable expenses. Specifically, what I'm wondering is just, your guide actually seems to imply a little bit of operating leverage in that line item for next year, which, you know, just compared to this year. And I'm wondering, what is driving that? Maybe you can give a little bit more color on the internal lines within that, you know, the three different line items in there.

You know, Mahir, I didn't get the very first part of your question. I'm sorry.

I'm saying your guidance of 42% as a percent of revenue is like lower than 2021, right? So I was just trying to understand maybe a little bit more which line items. Is it the business development line or services? What would be driving that?

Yeah, okay. I'm sorry. So there's a few things to think about when you think about that 42%. Remember, to start with, We started giving you this percentage because it was an easy way in a very volatile time during the pandemic to help people think about all three of these lines. As you think about next year, I'd point out a number of our revenue lines are recovering more slowly. We talked about net interest income. We talked about other fees and commissions and other revenues because a lot of that's travel related. So in many ways, because Bend has come back more robustly because we are seeing great engagement from our customers with both our reward programs and our many card member services. Those engagement behaviors are causing those costs to come back more quickly than 100% of the revenues are coming back. So really, in many ways, one of the reasons we're very bullish about both 22 and 23 is revenue growth being above our long term aspiration is because you have this steady recovery as the other revenues recover. The other thing I'd point out here is that back to Steve's comment on learnings from the pandemic and the investments we have made in our value propositions are clearly paying off when you look at our revenue growth, when you look at our acquisition results and when you look at our retention. And so Boy, I would say it is a learning for us from the pandemic that investing as you see in that 42% is the right thing to do to create a great platform for long-term growth for the company.

Our next question will come from Bill Karkachi with Wolf Research. Thanks.

Good morning, Steve and Jeff.

Morning, Bill. Hey, Bill.

So Amex was one of the few financials, if not the only, to not cut its dividend during the global financial crisis. Steve, how important to you is sustainability of the dividend? Did that factor into your decision to increase it by 10%? And I guess what do you view as an optimal level for your dividend payout?

Well, what I'd say, Bill, is the dividend is important to us. It's important to many of our shareholders. And the fact that we're raising it for the first time since 2019 is a sign that, in our view, it's time to be on the offense again and feel confident about our growth. All that said, we have a longstanding policy of having a payout that is around 20% to 25% on the dividend. With the tremendous growth in earnings this year and what we expect next year in 22, we've fallen a little bit behind that, and so we're catching up really to that level. But that's what shareholders should expect going forward. So the dividend will grow over time as our earnings grow, but you're not going to see it grow incrementally as a payout percentage.

But I think going back to the financial crisis bill, it was important to show the stability – and, you know, just the resilience of the company during that time. And that was an important signal to our shareholders, I believe. And it just, you know, it showed our commitment to it. So that's about it.

Our next question will come from Chris Donat with Piper Sandler. Please go ahead.

Jeff.

Hey, can you hear me? Now we can. Now we can.

Mr. Donat, we seem to have some trouble with your line. If you could please pick up your handset, check your mute feature. I'm sorry, we've lost Mr. Donat's line. We'll go next to Moshe Orenbach with Credit Suisse. Great, thanks.

I just wanted to kind of focus a little bit on the cost side. I mean, you did, you know, the revenue guide's very strong, clearly, and probably $2 billion to $3 billion above where consensus expectations were for 2022. But the only, you know, the high end of the EPS guidance is kind of where consensus is. So it sort of implies, I guess, between credit and costs, you know, roughly $3 billion more in there. Is there a way to kind of think about, you know, which the big categories are? Because, you know, so that we can have a better idea of how that, you know, how that operating leverage post that, you know, kind of comes through.

Thanks. Well, Moshe, I will admit you were fading in and out a little bit, so I'm going to take a shot at what I think you just asked. You know, I think when you look at our 2022 EPS guidance, I actually, the first one I would make would be to point people back to the revenue guidance, right? So we're all about growth and growing our revenues another 18 to 20% on top of the 30% growth that we just showed in the fourth quarter, we think is creating the kind of scaled platform that is the best platform for creating value in the longterm for our shareholders. Second point I'd make when you think about 2022, uh earnings is as i said at the beginning of my remarks you had around three and a half billion dollars of pre-tax items in the 2021 earnings that i don't expect to repeat so two and a half billion dollars of credit reserve releases i think we're closer to a steady state state position on that another billion dollars on mark to market gains on both our fintech portfolio and our global business travel joint venture and so We look at our 2022 earnings guidance and see ourselves growing over that $3.5 billion while making the investments that Steve talked about in customers, brand, and colleagues to drive 18% to 20% revenue growth. Boy, and we feel really good about that outcome, and we think it creates a great platform for long-term sustainable growth.

Yeah, I mean, look, simplistically... take the $3.5 billion off to $10.02, call it $6.50, call it $6.70. So we see it going from that number to $9.20 to $9.65. And as we've always said, we thought we'd be at the top end of the range of our 2020 plan. And the guidance that we've given uses the top end of our range as the bottom end of our range. So- We think it's, from a pure operating perspective, I think it's a lot of operating EPS in 2022. You guys can decide whether you believe that or not, but the numbers are the numbers.

We'll once again go back to the line of Chris Donat with Piper Sandler. Please go ahead.

Hi, can you hear me this time? We can, very clearly. Okay, that's a good, better thing. I just wanted to ask around discount rate, if that factors in as one of the tailwinds you expect going forward as we think about the mix of your T&E businesses and the discount rates there and also with GNS and even online. Do you pick up any tailwinds from expected mix shift in business with the recovery?

Probably not. I mean, because goods and services are growing so dramatically. You know, our traditional mix of business was 70-30, 70%, you know, percent goods and services and 30% T&E. And, you know, we may wind up being at a steady state of 80-20. And so, you know, obviously as T&E does come back and we're at 82% of where we were in 2019, you know, that's a positive to the overall discount rate. But, you know, goods and services tends to be a little bit lower. But look, at the end of the day, we're driving discount revenue here. And And that's what we're focused on. And so we're very happy with the goods and services growth, and particularly the online. And what I would point out is not only is online growing, but offline is growing as well. And it's growing tremendously over 2020. But when you look at it over 2019, I mean, even offline retail for us is up over 12%. You know, you've got a combination of online retail up 31% over 19, and you've got offline up 12%. So we feel really good about how our card members are using the products.

We'll go to the line of Bob Napoli for our next question with William Blair. Go ahead.

Thank you, and good morning. Hey, Bob. Good morning, Steve. Good morning, Jeff. So one of your competitors, a large bank, I guess, targeted lower returns because of the need for tech investment to compete against, I guess, fintechs. But what is your thought on what kind of investment do you have built in? How do you feel about the American Express tech stack and the need to invest? And I guess as it relates to maybe blockchain and cryptocurrency, potential disruptors to payment rails and buy now, pay later as a disruptor to credit cards.

Well, that's a lot, Bob. Sorry. Look, I think, you know, and you and I have talked about this before. You know, look, we've continued to invest in our technology stack over time. And as you know, I used to run technology many years ago. And we've been committed to, you know, constantly refreshing our tech stack and making those investments. And this year is no other. And it's not – you know, it's not any more than it's been in years past. I mean, from a tech development perspective, I would say we're flattish as we think about, you know, 2022, you know, up a little bit here or there. And from a tech operations perspective, you keep taking advantage of scale and a reduced cost. And then, of course, you then pivot more money into cyber because that's constantly where you overall invest. Look, as far as buy now, pay later, and again, I've made these comments many, many times. I do not believe this is targeted at our customers. Look, we have Pay It Planet, and Pay It Planet is, we believe in offering our customers the opportunity to be as flexible with their payments as possible. And it gives you the ability to pick your installments and pay it over time and you know, we've had some increasing usage here, but it's not a major driver of our growth. And, you know, if you look at, you know, the other types of buy now, pay later, the pay in four, geez, you know, the reality is the charge card is almost a pay in four because by the time you pay your, on average, your charge card off or your credit card on a non-revolved basis, you could be at 45 days anyway. So, and when we've looked at So to buy now, pay later, and that target audience, it tends to be lower FICO, it tends to be debit card users, and it tends to be utilized potentially as an acquisition tool. And that's just not how we play our game. So I'm not at all concerned with buy now, pay later. I think there's some successful companies out there that are driving some revenue and are driving a lot of volume through buy now, pay later. But again, we look at it as an option with our, you know, Pay It Planet. And the nice part about Pay It Planet is it's not at the point of sale because you can do it to any transaction. It doesn't just have to be at the point of sale where not everybody has a buy now, pay later feature. So that's that. As far as cryptocurrency goes... You know, look, we watch cryptocurrencies, and you guys have heard me talk about this. We think about the spectrum of digital currencies. We think about crypto. We think about, you know, stable coins. We think about, you know, central bank digital currency. And, you know, at this particular point in time, we view more cryptocurrency as an asset class. I mean, you've just seen... you know, Bitcoin go from $68,000 a coin to $34,000 a coin. You know, currencies that you use in the payment space, that's a hard thing to utilize that way. So, and as far as blockchain, look, we've got investments in blockchain companies. We constantly look at blockchain and figure out, you know, are there use cases for us? So, you know, and as far as stablecoins, and NFTs and things like that. We're partnering with, obviously, the NBA and Topshop. And we'll look at ways to get involved. But as I've said, we're probably not going to offer a crypto card. It doesn't mean we wouldn't use MR as a redemption option. And I've said many times, it's a digital currency in itself. So we keep our eye on it. We keep our eye on buy now, pay later in case that tide changes. We keep our eye on cryptocurrency in case it becomes you know, more stable, but right now I don't see it as a medium term threat to our business.

Our next question will come from Aaron Saganovich with Citi. Go ahead.

Thanks. I was wondering if we could talk a little bit about your capital return plans for next year. Obviously, a nice increase in the dividend, but you're at your CET1 target or within the range now. at 10.5%. Where do you think buybacks go from here, particularly since you're starting to grow your receivable balances by a decent amount?

Well, you know, we're pretty committed to staying within that 10 to 11% range on the CET1 ratio when I talked earlier about, you know, the dividend will go up steadily as our earnings go up. The thing to keep in mind, though, is that we pretty uniquely also generate returns on equity. in recent years in excess of 30%. So we produce a tremendous amount of capital each year, far more than we need to support the growth in our very spend-centric business model and the balance sheet that results from that. So you'll continue to see a steady level of share repurchase from us each quarter, consistent with that kind of earnings generation and that kind of ROE and staying within our 10% to 11% range. Clearly, though, the big catch-up has been the last two quarters where you saw what I will call above-trend levels of share repurchase to get us right back down to that target range.

We'll go next to Rick Shane with JP Morgan. Go ahead.

Thanks, guys, for taking my questions this morning. Thank you. Look, one of the things that's come up repeatedly is the strength of the millennial Gen Z growth. When you look towards your revenue growth guidance, how much is embedded related to the sort of life cycle of a younger consumer and the growth that you would expect there? How does that play out over time?

Well, I think when you see us very uncharacteristically, Rick, talking about long-term aspirations in 24 and beyond, a key part of that aspiration is looking at the demographics of who we're bringing in and thinking about the lifetime value of card members, right? We are a business with extremely high retention rates relative to almost any other business you could think about. And when we acquire customers, we are thinking about the lifetime value of those customers. That's one of the things that contributes to the excitement that Steve started to call off with when we think about the longer-term growth prospects of the demographic that we are increasingly bringing into the company.

We'll go to the line of Mark DeVries with Barclays. Go ahead.

Yeah, thanks. And this may be somewhat related. question to what Rick just asked. As I look at the 2024 aspirational growth plan, it looks like you're almost back to a pre-financial crisis growth algorithm with a pretty healthy spread between revenue growth and EPS growth as opposed to the years prior to the pandemic where there's a much tighter spread. Is that a fair observation? If so, what's different? Are you Expecting more operating leverage? Is this higher return business you're bringing on? Kind of what's behind that?

Well, maybe I'll start, Steve. And so, you know, first, Mark, I think I'd remind everyone what we at the time referred to as our financial growth algorithm pre-pandemic, which we very successfully executed on for 10 straight quarters until the pandemic interrupted, was to have revenue growth in the 8% to 10% range and double-digit EPS growth. So we have much bolder ambitions now to be in excess of 10% on the revenue growth side and mid.

This is AT&T. We've lost your voice line. If you could check your mute feature. We've lost the host connection. If you could please check your mute feature, please. Ladies and gentlemen, please stand by.

They have lost the connection.

You are back on.

Oh, we are? Yes.

Are we back, Alan? Yes, you are connected. Okay. We have no idea why we lost the connection, which is a little unnerving. Had I just started, Alan?

You had gotten into a little bit. I'm not sure exactly how far you got.

Why don't you start again? Okay. Sorry. So I apologize, everyone. Not quite sure where the tech problem is. We're sitting in our office in the tower in New York. So pre-pandemic, we were at 8% to 10% revenue growth. Double-digit EPS growth like clockwork. We executed on that for 10 straight quarters until the pandemic interrupted. We see ourselves having a much bolder aspiration now in excess of 10% revenue growth, mid-teens EPS growth, and that's going to come after a 22 and 23 at higher levels than that in terms of revenue growth. And that kind of revenue growth gives us a tremendous platform for scale, for relevance, and for getting steady leverage on the marketing line and on the OPEX line because, boy, you don't need to grow marketing and OPEX at anywhere near those kind of rates. So that's the math. Maybe you want to comment.

Yeah, no, I would just say, you know, look, we've been on, you know, you mentioned pre-financial crisis. And yes, you know, pre-financial crisis, there were years where we were in excess of 10% revenue growth. And then post-financial crisis, game change post financial crisis, not only from a competitive perspective, but from a regulatory perspective. And then we're more mid, you know, mid single digits sort of revenue growth. But the other thing I'd say is we're a much larger company right now as well. And so when you start to think about 2024 and you think about revenue growth, you're looking at excessive $6 billion per year in revenue growth. So You know, I think when you start to look at those numbers and put those in perspective and contrast those to, you know, pre and post financial crisis, they are quite different. But as I said, we have, you know, all the faith in our strategy in a, look, in a highly competitive environment. But if you think about what's moving us as I started this call with, what's moving us right now to even higher revenue growth in the next two years is the fact that we've got some catch up to do with our core business in the areas that I mentioned in terms of T&E and in loan growth and in large and global and certainly in international. And then as we move and get to a more steady state, that's where this, again, just this reliance of the strategy that we've implemented And, you know, as Rick just mentioned and Jeff answered the question, in terms of the lifetime value and the focus on millennials and Gen Z and whatever the next generation is going to be after this, you know, that's going to be a key to our strategy as we expand the universe of card members from a premium perspective. So, you know, you'll see how it all plays out, but we are very, very confident.

Our next question will come from Lisa Ellis with Moffitt Nathanson.

Terrific. Thanks for squeezing me in. I had a question about the investment plan supporting that 2024 outlook and beyond. Can you talk about the role of M&A, tuck-in M&A, or I guess I'm thinking more broadly about adjacent areas that you're focused on investing in as you build towards, you know, that kind of, you know, two, three year out plan? I'm thinking about things like Cabbage and Resi, like you've done in the past.

Yeah, so I think, Lisa, I think the way to think about this is, look, there's no singular investment target that we are looking at, but I think you've hit the nail on the head. We look at adjacencies that make sense. And, you know, as we think about the strategies for the product, I mean, as we move into, You know, as we moved into a broader definition of how we were going to serve SMEs, the Cabbage platform made all the sense in the world. Look, you had three choices there. You could have tried to build it, you could buy it, or you could try and partner with it. And so, you know, it was an opportune time and, you know, we were able to buy it. And that's how we're replatforming our SME base. When you think about, you know, what we've done from a consumer perspective, you know, and Rezzy's a good example of that. is that, you know, it's an extension of our overall travelness of the product and an investment in Resi giving access to you know, our card members to dining. And it's also a great acquisition tool for customers because Resi is not an Amex-only product. It has some Amex-only offers for our customers. So as we continue to build out the strategy, we will make those determinations, whether it makes sense for us to build it ourselves, partner or buy it, and we'll tuck those things in if and when they make sense and if the, you know, if the overall price is right. So That's how we'll think about it. But, you know, I just bring you back to the four strategic imperatives that we have, which is continuing to be the best premium card provider for consumer, looking at being that working capital provider for SME, becoming even more digital to our customers, and adding more and more merchants. And as things make sense along that strategic continuum, we will act if appropriate.

Our next question will come from Don Fandetti with Wells Fargo.

Hey, good morning. Good to see the mid-teens EPS. I don't know. Can you guys hear me? Yep. Yeah, we got it, Don. Okay, great. Good to see the mid-teens growth, 24 and beyond. I mean, I think we all sort of think of low double digits, so good to see. I guess, Steve, could you dig in a little bit on this January and December Omicron slowdown and maybe just talk about Did you see a dip? What kind of dip? And has it stabilized? Just to give us some comfort on where they are.

For us, I think the biggest leading indicator for us of what's going on is how people want to travel. Because as we know, people have shopped online. We haven't seen much of a slowdown from a goods and services perspective. What really is the delineating factor is, are people out and about? And we talked about the fourth quarter as being 24% up from a travel bookings perspective. However, the last few weeks of December, we did see a slowdown in terms of some of our travel bookings as people got, and rightfully so, a little omicron nervous. But the first two weeks in January, our travel bookings are up 44% over 2019. So what that tells me is, you know, people are ready to get out and get out and about again. And, you know, we'll see when Omicron peaks and when we get the next variant. But I think society is learning how to deal with this. And, you know, as Ed Bastian said on his earnings call, I think we'll ultimately move from pandemic to endemic and, you know, we'll learn how to deal with this. So we really haven't seen a slowdown in our buildings at all. In fact, we've seen an acceleration in travel bookings. So that gives us, you know, a lot of, you know, a lot of confidence. The other thing I would say, though, is that Remember, from a consumer perspective, we're back. I mean, from a T&E perspective, we were up 8% over 2019 from a consumer perspective in the fourth quarter, and we anticipate that moving further north.

Our final question will come from Sanjay Sakrani with KBW.

Thanks. Good morning. I hate to ask the aspirational guidance or long-term aspirational question again, but If we think about sort of the long-term revenue algorithm, right, is there anything that you're seeing inside your customer base, whether it be higher unit economics on the new accounts or evolving makeshift from different businesses that's going to drive that above-average revenue growth relative to history? I guess it'd be good, and maybe this is an investor day thing, it'd be good to just understand sort of what the key drivers will be as we look out, whether it be the baseline for economics, growth versus share shift versus the different segments, right, like B2B, et cetera? I don't know if that's an open-ended question, but I'm just curious. Yeah, I got it.

All right, you're helping us a little bit with our outline for Investor Day. Thank you. But, you know, look, I think, you know, one of the things that people don't take into account when they're thinking about, you know, future revenue growth is retention of card members. You know, one of the big drivers of our growth has been the fact that, gee, it's a lot easier when you can keep on to your card members who are with you and who are spending and so forth. And retention of card members is at an all-time high. The other thing that's driving this is obviously this shift, you know, from a goods and services perspective. I mean, look, we grew, we had more billings in 2021 than we had in the history of the company. And we're at 82%. our overall T&E billings in 2019 and you know theoretically we're known as a T&E product right so I think you know we'll talk about this but I think there are a number of things I think it's retention I think you know as Jeff mentioned before in response to Rick's question the lifetime value of card members obviously getting card members earlier in in their in their life you're going to keep them longer especially if you have the retention rates that we have and We'll continue from an SME perspective to evolve our product set and therefore evolve our revenues. And, you know, we'll continue to bring loan balances back to, you know, we were above average industry growth from a loan balances perspective, and we think we'll get back there. So, look, we'll give you some more insight on that, but I think those, you know, sort of from a high-level perspective, those are the things that give us all the confidence in the world.

With that, we will bring the call to an end. Thank you again for joining today's call and for your continued interest in American Express. The IR team will be available for any follow-up questions. Alan, back to you.

Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at 866-207-1041 or area code 4029700847. The access code is 4117520 after 1 p.m. Eastern time today, January 25th through midnight February 1st. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.