American Express Company

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q1 2025 earnings call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, please press star, then 1 on your touchtone phone. You will hear a tone indicating that you have been placed in queue. You may remove yourself from the queue at any time by pressing star, then 2. 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 0. 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, Mr. Kartik Ramachandran. Thank you. Please go ahead.

Thank you, Donna, and thank you all for joining today's call. As a reminder, before we begin, today's discussion contains forward-looking statements about the 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 .AmericanExpress.com. We'll begin today with Steve Squary, chairman and CEO, who will start with some remarks about the company's progress and results. And then Christof LaCayac, chief financial officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q&A session on the results with both Steve and Christof. With that, let me turn it over to Steve.

Thanks, Kote. Good morning and thanks for joining us. We had another strong quarter to start the year. We delivered revenues of $17 billion, up 8% year over year on an FX adjusted basis, or 9% excluding the leap year impact. And we generated net income of $2.6 billion, or $3.64 per share. During the first quarter, our premium customer base continued to spend at healthy levels. Total card member spending grew 6% in the quarter, or 7% excluding the impact of leap year, with spending on goods and services continuing to grow at a faster rate than in 2024. In T&E, while we saw a sequential slowdown in airline billings growth, billings in restaurants and lodging strong in the quarter, and overall T&E growth was in line with the steady levels we saw through most of last year. We also continued to grow our customer base, adding 3.4 million new cards in the quarter. As in past quarters, millennial and Gen Z consumers made up over 60% of new consumer accounts acquired globally in Q1. In addition, card fee growth was up 20% on an FX adjusted basis. Retention continued to be high and our credit performance remained excellent. While it's still very early in the second quarter, through the first week and a half in April, overall spending levels have remained consistent with what we saw in the first quarter in both goods and services and T&E and across all customer segments. Based on the steady spend and credit trends we've seen to date, we're maintaining our full year revenue growth guidance of 8 to 10%, an EPS of $15 to $15.50. While we recognize that uncertainty in the environment has increased, the guidance incorporates the changes that we see in the macroeconomic outlook as of today. As we think about the near future, we have a resilient and differentiated business model that positions us well to navigate a range of economic environments. First and foremost, we have a global premium customer base at scale. In fact, as our customer base has grown over the past several years, it has gotten even more premium. Our card members have high incomes, are loyal, high spending and have excellent credit profiles. And as you know, we underwrite all our card members through the credit cycle. Another key differentiator of our model is our mix of revenues. Well, the combination of spend and fees accounting of 75% of our overall revenue base, which makes us less reliant on lending revenues and less sensitive to credit cycles compared to our competitors. Also, we have significant expense leverage and flexibility that has grown as our scale has increased over the past several years, enabling us to effectively control our costs while continuing to invest for the long term. In addition to the natural hedges and our customer engagement expenses, we have several levers across our marketing and operating expense lines, enabling us to quickly pivot if the environment changes. Looking ahead, we'll need to see how things play out in the coming months. That said, we are operating from a position of strength and we have a set of principles that guide us. Our fundamental objective, as it is with everything we do, is to manage the company for the long term growth for our shareholders. As we do so, we are focused on four core principles. Above all, we'll back our ongoing customers through ongoing enhancements to our products and services, as well as providing support for those who may need it. We'll also back our colleagues so they continue to focus on innovating for our customers and providing a world-class experience that is core to our brand. We'll exercise disciplined expense management using the various levers in our business model and maintain financial flexibility. And we'll continue to invest strategically for the long term in areas that strengthen our foundational capabilities, such as technology, control management, and customer acquisition, as well as capitalizing on opportunities that emerge for expanding our membership model with new and enhanced products, services, and experiences. As we move ahead, we are committed to following these principles and leveraging the advantages of our business model, which makes me confident that we are well positioned for continued growth over the long term. I'll now turn it over to Christophe to provide more color on our first quarter results, and then we'll answer your questions.

Thank you, Steve, and good morning, everyone. In the first quarter, we generated 8%, as I suggested, revenue growth, or 9%, excluding the impact of leap year and earnings per share of $3.64. These results are tracking in line with the guidance we gave for the full year. Key business indicators, such as spend, retention, credit performance, and demand for our premium products continue to be strong and stable in the quarter. While the level of macroeconomic uncertainty has increased, the activity that we see across our customer base is consistent with, and in many cases, better than what we saw in 2024. Turning to build business performance, starting on slide three, I'd remind you that the grow over leap year in 2024 drove about a percentage point drag on -over-year growth rates across segments and spend categories. As we look at spend trends over the next few slides, I'll speak to build business growth rates that are adjusted for leap year, as well as FX. Total build business was up around .5% -over-year. This growth is around a percentage point higher than what we saw for the year 2024. Goods and services spending sustained the uptick we saw in Q4 of last year, continuing to grow at a faster pace than what we saw in 2024. And T&E grew in line with the steady levels we saw for most of last year, reflecting continued strength in restaurant and lodging spending. We did see a deceleration in airline spending relative to 2024 trends. Although spending on front of cabing tickets remained strong, up around 11% in the quarter. As we break down spend trends across our business over the next few slides, there are a few key points I want to highlight. We continued to see solid growth across our affluent U.S. consumer base. We spent up 8%. Millennial and Gen Z customers once again drove our highest build business growth within the segment. Commercial services spend was up 3% versus last year, consistent with the trends we saw in 2024. U.S. S&M spending at wholesale merchants saw modest acceleration in growth over the quarter, possibly reflecting higher purchases in advance of potential price increases. International card services spend was up 14%. The strong growth was seen across geographies, with each of our top five markets growing by double digits. And we continued to see strong demand for an engagement with our products. Turning to lending performance on slide 7, loans and card member receivables increased 7% year over year on an FX adjusted basis. Our premium products continue to be the primary driver of that growth, with our pay over time and co-brand portfolios driving around 80% of growth in card member revolving loans in the first quarter. These products tend to attract high credit worthy customers, supporting our model of growing lending while maintaining best in class credit performance. Turning to slides 8 and 9, our credit performance continues to be very strong. Both delinquency and write-off rates were below pre-pandemic levels and flats to the prior year. The profile of the portfolio has strengthened over the past few years. Looking at our recent acquisitions, the delinquency rate of low-tenure customers defined as those with 24 months or less of tenure is about 30% lower than 2019 levels for U.S. Consumer Court members. This quarter, we had about $1.2 billion of provision expense. This included a slower reserve release, mostly reflecting the strength quality of the portfolio and the macroeconomic outlook as of quarter ends. Turning next to revenue on slide 10, total revenues were up 8% year over year on an FX adjusted basis or 9% excluding leap year. Before we discuss this quarter's trends, I remind you that the strengthening of the U.S. dollar that occurred throughout last year continues to be a headwind to reported revenue growth, although a bit less than we anticipated earlier in the quarter. Also, starting this quarter, we consolidated process revenue within service fees and other revenue. Starting with discount revenue, our largest revenue line was up 5% year over year FX adjusted and is mostly driven by the spend trends I discussed earlier. Net card fees were at record levels and increased 20% FX adjusted as shown on slide 12, reflecting our 27th consecutive quarter of double-digit card fee growth. And we saw strong demand for our products as we acquired 3.4 million new cards in the quarter. The key driver of our strong card growth over the past few years has been the acquisition of new card members on fee-paying products, which accounted for around 70% of new accounts in the quarter. Another important contributor has been our ability to attract customers on higher fee products over time. Over the past three years, the average card fee per new account acquired has increased by around 40%, reflecting strong demand for our premium products and our success in pricing for the increased value we provide customers as we refresh our products. Turning to slide 13, net interest income increased 11% on an FX adjusted basis, growing slightly faster than loans and receivables as we saw increases in net yield versus last year. Turning now to expense performance on slide 15. The VCE to revenue ratio came in at 43% this quarter. Rewards expense grew 16% year over year. As a reminder, this quarter we are growing over the benefit we saw in Q1 of last year from changes to our URR model. In addition, as we mentioned last quarter, some small changes we made to the program that are good for both customers and our overall economics by driving a small increase in the URR in the short term. Now that we have lapped impact from the URR model change last year, we expect rewards to grow more in line with the historical trend for the remainder of this year. As you can see, marketing and OPEX continue to be key sources of expense leverage for our business. And our flexible model is an important advantage that allows us to dial up or down expenses as needed through different economic environments. Let me move to capital on slide 16. Our CET1 ratio was .7% within our 10 to 11% target range. We returned $1.3 billion of capital to shareholders, including $0.6 billion of dividends and $0.7 billion of share repurchases. And this quarter we increased our dividend by 17%. Our differentiated spending feature driven business model generates a strong ROE, which was 34% in the quarter, providing us with very strong capital flexibility. Before we turn to our 2025 guidance, let me talk about the trends we're seeing in recent weeks. As Steve discussed, looking at the first week and a half of April, overall spending trends are consistent with Q1. We are seeing this performance with both T&E and goods and services, as well as across our U.S. consumer, international, and commercial customer segments. Given the environment, we have also seen SME purchases accelerate with wholesale merchants. Additionally, demand for our products is in line with our expectations. This brings me to our 2025 guidance. Given the stability of our performance to date, we are maintaining our guidance of revenue growth of 8 to 10% and earnings per share between 15 and 1550. This guidance incorporates a macroeconomic outlook with a peak weighted average and employment rate of around 5.7%, higher than the outlook as it stood at quarter end. Of course, there are clearly many uncertainties in the macroeconomic environment, but given the balance of factors, we believe this guidance is appropriate. And more importantly, we remain confident and focused on the long-term growth of the company. With that, I will now turn the call back over to Kartik and we will take your questions.

Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator?

Ladies and gentlemen, if you wish to ask a question, please press star, then one on your touchtone phone. You'll hear a tone indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing star, then two. If you're using a speakerphone, please pick up the handset before pressing the numbers. One moment, please, for the first question. Our first question comes from Sanjay Sokhrani of KBW. Please go ahead. Sanjay? Make sure your phone is not on mute.

Sorry, I was on mute. Good morning. Sorry. So, Steve, we've heard a lot about pull forward of spending, and I'm just curious if you guys have seen any indication that that's sort of propping up the spend volumes. And then just sort of along the lines, if we do see some volatility or weakness in spending and revenues, how far do you want to go in terms of sort of protecting earnings? How low does revenues need to go for you to sort of just cut the line in terms of expense reductions?

Thanks. So, look, we really haven't seen any pull forward at all. I think when you look at the entire first quarter, and I think you'd really want to focus in on March and early April, there's really been no pull forward at all. We see a little bit in small business, a little bit in wholesale pull forward, but you're talking a couple of points here. You're not talking about anything significant. So, I don't think that has been a phenomenon. Having said that, it's still early in the game, right? I mean, we're early innings here, and we'll just have to see how it all plays out. But just to be clear, from a consumer perspective, we've seen no pull forward at all. And people continue to book, and we didn't talk about this in the poll, but we had the highest number of travel bookings that we've ever had. And that includes a high in international as well, international bookings from our travel-related services. So, I think that we haven't seen a pull forward. We're seeing our customers act as they have acted in the past. The other two points I'll make, and then I'll get to the revenue one, is that one thing that has not been associated with our card member spending has either been what's happened with the stock market or what's happened with consumer confidence. Our card members may say they don't have any confidence in the economy, but they still continue to spend, and they're not spending off what's in the market. So, those two factors, which I get asked a lot about, are not really factors in our customer spending. I think, look, as we've said before, from a guidance perspective, and I said this at conferences, we believe that at that 8% range, we can make our EPS number. But the other thing that I will say is that I'm not going to pass up good opportunities to invest for the future just to hit a number. I mean, it's not how I've run the company over the last seven years or so. And, as I said, even during COVID, we continue to invest when others might have pulled back. And so, I just want to reinforce, we are running this company for the longer term. If I see a good opportunity, I'm going to continue to invest in it. But I do believe where we are with the macroeconomic situation the way it is, that we can continue to be within our guidance range on both revenue and EPS. As we've said in the past, we have the aspirational goal of 10% revenue. However, we also have said that we can hit our EPS range if revenue goes lower.

Thank you. The next question is coming from Mark DeVries of Deutsche Bank. Please go ahead.

Yeah, thanks. So, if some of these steeper tariffs go through as initially proposed, Steve, can you just talk about which segments of your business you would expect to be under the most pressure? And is there anything you can do from a risk management perspective to get out in front of that?

Well, I mean, look, from a risk management perspective, you know, we're constantly on a daily basis modifying our inputs and modifying our models and looking on that. So, we always like to think we're way out in front of that anyway. But, you know, I think that where you would wind up looking is you would look at small businesses first. I think small businesses, you know, might be the ones that would be impacted, you know, first. And if you think about our consumers, what our consumers tend to do is what they would tend to do is they spend a little bit less, revolve a little bit less. And I'll just take you back to COVID. Remember, we have a really self-liquidating balance sheet, right? And so, our balance sheet's made up a lot of our AR. And as consumers spend a little bit less, that's how they regulate risk. And so, you know, but small businesses, I think small businesses are the ones that we would, you know, pay a lot more attention to just because cost, you know, may not, they could be put in a situation that will not be able to compete effectively in the market. So, we will continue to look at small businesses as this situation evolves. But, rest assured, we're looking at this proactively right now, much like we did pre-COVID in terms of, you know, looking at people's lines, looking at who we bring into the franchise. And what I would say is that if you look at our card base now versus our card base in 2019, it is more premium than it was at that point with higher FICO's. And the other thing that I'll say, because, you know, people will start looking at, you know, millennials and low tenure card members, our millennials and Gen Z's are performing significantly better both from a FICO perspective and from a delinquency perspective than the industry. And secondly, our low tenure card members, their delinquency rates are actually lower than our low tenure card members were back in 2019.

Thank you. The next question is coming from Don Fandetti of Wells Fargo. Please go ahead.

Good morning. Steve, can you talk a little bit about, you know, card refresh and fee growth? I know one of your competitors recently raised fees on co-brand cards. In this environment, do you still feel like you have the ability to sort of grow fees?

I think that, you know, look, we're still committed to doing, you know, refreshes. We've refreshed over 150 products over the last five years or so. You know, we've got a bunch of refreshes, you know, in progress. You know, how many we wind up doing, you know, we'll see how it all plays out. It's more due, I think there's a lot of them in progress. The question becomes how, you know, from a value proposition development, technology development, how they all get through the pipeline this year. But we're still committed to doing refresh. As far as raising fees, we don't raise fees indiscriminately. You raise fees when you add value. And our playbook has been we will raise the fee when we raise value that is even more commensurate than with fees. So as we think about refreshes, what I will tell you is that whatever fee we wind up raising, and look, the reality is we don't do a lot of refreshes without raising the fees, but we also don't do any refreshes without significantly enhancing the value that we put in. So you can rest assured that when someone does a rational calculation of what the fee raise is and what the value is, it becomes an easy decision to continue with the product or even a better decision to get the product at that particular point in time. So that the environment will not impact our fee decisioning with our cards because that fee decision is totally based on value and our card members wind up getting back more than they put in. And one might argue it might even be a better investment at this time than in a good environment.

Thank you. The next question is coming from Rick Shane of JPMorgan. Please go ahead.

Hey guys, thanks for taking my questions this morning. Hey Steve, you talk about investing across the cycle basically as a strategic initiative. I'm curious, tactically, given where we are, where you see opportunities, and I'm curious sort of where you're going to be more aggressive, where you're going to be more defensive. And I did note that the amount of capital you retain from first quarter profits was the highest it's been since COVID. So I'm curious how you're looking at capital offensively, defensively as well. Yeah,

so I'll let Kristoff answer the capital question. I mean, there's always, you know, we look to return about 80% of our earnings to shareholders and you'll notice from quarter to quarter it does swing. And particularly in the first quarter, just go back historically, the first quarter is usually one of our lowest quarters where we do return capital. But the capital that we return this particular quarter was only about 300 million less than we actually returned in the fourth quarter of last year. So it wasn't all that much. They're checking the slides to make sure that my comment was correct there. But, you know, from an investment perspective, you just saw that we just completed the center acquisition. We believe that that's an important acquisition for us for small business and for middle market. And that obviously has some capital implications, you know, especially in the second quarter as we closed it. But, you know, when you look at when you look at our business, and specifically in technology, we're constantly upgrading our technology infrastructure. When I talk about technology infrastructure, I'm not only just talking about the hardware aspects of it, but I'm talking about all the systems that run behind it. And the reality is that, you know, some of these projects go for a couple of years and some of them are months and what have you, but you can't stop the upgrading and the investment from a technology infrastructure because, you know, you anticipate, you know, times may be a little bit tough. It has to continue because, you know, we're running this company for the long term and you and you know, anybody that's ever been involved in this realize you don't stop and start long term projects. The other thing that you don't stop and start is you don't stop and start your refresh strategy. I mean, we have been committed to continually enhancing and developing our products and services over the, you know, over the long term and we're on a, you know, we're on a program that basically says we're going to refresh all of our products and I'll put all in quotes from a three to four year cycle. And so you just can't stop that. If you, you know, if you did, then I think you're doing a disservice to your customers and you're doing a disservice to your shareholders. And this goes back to Sanjay's earlier question about, you know, how much, you know, potentially would you cut to, you know, to make EPS guidance? And, you know, my perspective is, is that, you know, again, we're running it for the longer term and for me to stop a technology project or for me to stop a refresh or an enhancement because I want to make another 20 cents for the year is foolhardy. And it's not something that you would ever, you shouldn't ever expect me to do. So we're looking to make sure that this company continues to become stronger day by day. And you do that by continuing to invest and continuing to stay, you know, true to what your, to what your core principles are.

So maybe to, to add a bit of color on capital, there's not a lot to add as a matter of fact, because you covered most of it. But as you know, Rick, the governor here is our CT one ratio. That is what will define the amount of, of share repo that we're going to do. And, you know, we target between 10 and 11. We're a little bit on the high side at 10.7%. But you shouldn't read anything in that. And if you look at over time, we've been at 10.8, 10.5. So we ended up a little bit on the high side at the end of the quarter. And that's it. But we distributed exactly the amount that we are in our plans in terms of capital. I will mention though, that this is the first quarter where we, we, you know, we increase the dividend by 17%.

Thank you. The next question is coming from Erica Najarian of UBS. Please go ahead.

Hi, thank you. I just wanted to confirm, you know, the 8 to 10% revenue guide, you said something is effective that now takes into account a .7% unemployment rate. I just wanted to confirm that, A, you feel like you can generate, you know, 8 to 10% revenue growth, even in light of, you know, an unemployment rate that we haven't seen in a while. And to that end, I think, Steve, you mentioned that the stock market really didn't impact spend. I'd be curious to understand since your data is so good in terms of how spend progressed January through March, particularly in your affluent consumer segment. You know, as you had mentioned in the last call that January is off to a strong start. And then, you know, just wondering whether or not the resilience had sort of carried through, even though we had all the headline risk in stock market volatility in March.

Yeah, so I'll give you a little color on, you know, on the spending here. The reality is, January, February, and March pretty much looked exactly the same. You know, point two here, point two there. And, you know, the first 11, 12 days in April are slightly stronger than that. So, it has been consistent. There has been really no movement, really upward down. The only thing I would say is that, you know, when you looked at, you know, small business, you did see a little bit of a tick up as we moved into the end of March. But I'm talking minor, you know, half a point or something like that. And then you saw a little bit of a pickup in the first 11 days. But we'll see how all that plays out. And I think April will be an interesting month because, yeah, you have Easter. And traditionally, you know, you don't have as much corporate spend, you may not have as much small business spend, retail spend, so forth and so on. So, we'll see how April plays out. And last year, Easter was, I think, at the end of, at the end of March. As far as unemployment, look, we have 5.7, incorporated on our macro. I think, for us, when we look, when we really look at unemployment, it's really more white collar unemployment that is more of a driver of potentially spending than it is total overall unemployment because of how our card base tends to skew. So, you know, we watch that, we'll watch that very carefully. But we feel really comfortable with the unemployment, even though the unemployment level that we have in our outlook is higher than it's been, we feel comfortable with holding the guide at this particular, you know, at this particular point in time. So, you know, obviously there'll be more to come as the months go by. But right now, from a spend perspective, very consistent. And we feel comfortable with the, I mean, we feel comfortable with the unemployment level as far as our guidance goes.

Let me, maybe Erika, give you a bit more color in terms of how think about that 5.7. You know, we thought it would be useful to investors, to analysts, to share with you how we've been thinking about their credit reserve. And as you know, we run multiple scenarios. The math is very complicated. It's, you know, lifetime losses. So, the 5.7 represents their, the peak in employment rate, or, you know, for the purpose of this reserve calculation. So, it doesn't mean that we are anticipating that tomorrow, you know, unemployment will jump to 5.7 and we'll stay there for the balance of the year. Right. You have to think about it in the context of the CSOL calculation.

Thank you. The next question is coming from Jeff Aleson of Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking my questions. Steve, I know that millennial and Gen Z cohort continues to be a source of strength for AMEX. You're calling out continued 60% plus of acquisitions, the better FICO and DQs versus industry and your spend growth is running higher there. But just curious, are you noticing any sort of under the hood issues with that group from things like, you know, student loan repayment starting, you know, there's been some reporting of some servicing issues for that group with the repayment starting. And I'm just wondering if there's any stats you can give on maybe spend per card or account for that cohort, just given that it's represented so much of your account growth so far. Thanks.

We haven't seen anything. And, you know, just take you back to we'll just throw a couple of statistics out. When you look at spend growth for that cohort for the quarter, it was up about 15% in the US consumer business and it's representing about 35% of our overall spend. When you look at it internationally, it actually was up 22% in the quarter. So millennial and Gen Z is even a larger contributor internationally. I'll take you back to investor day, where we talked about how they continue to grow year to year. And so we're still seeing that the thing I will point out is that our our millennial, you know, not every millennial, not every Gen Z have our card. You know, as I think I mentioned a little bit earlier, you know, their delinquency rate that we're seeing is, you know, a lot less than what the industry sees, the FICO is a lot higher. And a lot of them tend to be more, you know, lower tenure as they come into the as they commit to the franchise. And that delinquency rate is better than it was back pre COVID. So, you know, we don't disclose, you know, the actual card account billings on it. And, you know, we did disclose it as we did that last at the investor day. And, you know, maybe we'll do that at another point in time. But today, I'm not I'm not going to share that because I don't have it at my fingertips either.

So maybe what I can add to those, if you're looking for numbers, their millennial and Gen Z combined spend about 20% less than the older generation. So they do spend a bit less, they revolve a bit less as well. The other data point that we have shared in the past as well that echoes what Steve just said is that at acquisition, the average FICO of this cohort is 750. So very strong, very strong.

Thank you. The next question is coming from Craig Moore of FTPartners. Please go ahead.

Yeah, thanks. Appreciate you taking the questions. I wanted to go back to something you said earlier. You know, our investors are spending time hardening their books for what is expected to be a significant change in the economy over the next sort of nine to 12 months. So you had mentioned FICO scores, consumer confidence, wealth effect, you know, not to not to channel John Wick, but the boogie man of the last recession was FICO creep and, you know, was FICO creep and companies getting caught thinking they were making better loans. Plus, you know, with consumer confidence falling and the wealth effect, especially how that might impact the younger cohorts, you know, maybe you can talk about what you're basing your view on that, that consumer confidence and wealth effect won't impact spend. And sorry not sneak this in, but could you also let us know what percentage of SMB build business is related to e-commerce businesses? Thanks.

Yeah, I don't have your the sneak in. I can't answer because I don't have that at my fingertips here either, but I guess that will become potentially more important as time goes on. And so we'll look into that. You know, Craig, as far as, you know, what we're basing it on in terms of the wealth effect and consumer confidence history, you know, the history of our card holders, I mean, it just, you know, I've been here for 40 years and, you know, been through, you know, 9-11, financial crisis, COVID and everything else. And the reality is, is that, you know, that has not been sort of the determining driver from a credit crunch perspective for us. So, and again, look, I think, you know, we'll continue to look at FICO scores. And I think it has been, you know, we've said this, and I think the industry has said this, there has been a, you know, an acceleration probably in some of the FICO scores, but it's not the only thing we look at. It's an easy metric to talk about, but certainly that's not what was in our, it's not within our models, the only thing in our models. There's a lot more in our models that go into making credit decisions, but, you know, look, we look at historically at what our card base has done and what has impacted our card base. And I would say that, you know, white collar unemployment from a credit perspective has probably been our John Wick, if you will, then more than anything else.

So, I'll add just one thing, Craig. You know, if you put, if you take a step back away from FICO and you look at say delinquency rate, as you would expect, the variability from a credit standpoint is, you know, higher with the low tenure card members. And therefore, you know, we are looking, and that's why we, you know, you might prepare a remark and share this new data for you guys to get an appreciation in terms of how we're thinking about that credit risk. If you look at the low tenure card members, so those who've been with us less than two years, and you look at their delinquency rate today for that, for those balances versus what it was for this same group of customers back in 2019, the delinquency rate of 30% lower, right? So, that reflects a lot of things, including the skew that we saw in the previous five, six years, in terms of acquiring premium card members and managing the book very, very carefully. So, delinquency rate is just, you know, it's a good metric to look at, and that looks much better than where we were either pre-COVID. And at that time, we were already best in the industry.

Thank you. The next question is coming from Chris Kennedy of William Blair. Please go ahead.

Good morning. Thanks for taking the question. Steve, you mentioned the acquisition of Center that comes after a string of other deals, whether it's Cabbage, Nipendo, others. Can you just talk about that journey and kind of give a state of the union on the SME technology investments, and then how can that translate into better organic spend over time? Thank you.

Yeah, I think, look, what we've been on a journey here is to build more capabilities up for our SME customers. And if you look at it, one of the things that we've said is we wanted to increase our relevance with our SME customers. And, you know, Cabbage, you know, has become the platform where we want our SMEs to live within that platform. Obviously, you have the ability to to look at your card information, to do cash flow analysis, to have a checking account, to apply for loans. When you look at 1AP and Nipendo, that's really all about automating the B2B piece of it. And then I think one of the things that was missing for us, and we were doing this through partnerships, but it became apparent it needed to be more core to us overall, is the expense management piece. You know, we already have the travel piece with our travel service. And so what we're doing is we're constantly building out, you know, the offerings that we have for our small businesses. You know, how that affects organic spend, you know, we'll have to see. But I think what it does, it will certainly help from a retention perspective and an acquisition perspective as well. I think from an organic perspective, the more we can utilize 1AP and Nipendo, the more we can get a B2B, B2B, more B2B payments in there through that channel. But, you know, we're on a journey. And now it all needs to continue to be knitted together. Obviously, Center is not integrated into the Cabbage solution, but that's that you're to the Cabbage platform. But ultimately, what you will do is you will have one ecosystem where all of these things live. And I think that will, you know, that'll help drive more retention, more acquisition, and, you know, potentially more, you know, more organic spending. I mean, organic spending, you know, traditionally is more of, you know, how they're running their businesses. And we saw, you know, pre-COVID, or just during COVID, how all that organic spend went down. And then we will have to see how that plays out. But we're excited about Center. And, you know, we're excited about the suite of capabilities that we've built out from an SME perspective now.

Thank you. The next question is coming from Terry Ma of Barclays. Please go ahead.

Hi. Thank you. Good morning. Maybe to just follow up on your comments around the refresh strategy. You know, you called out about 35 to 50 planned product refreshes for this year, last quarter. I get that you want to invest in the long term, and you don't want to stop the refresh strategy. But just given that there's so much macro uncertainty, and maybe potential uncertainty around the ROI of those refreshes, do you kind of adjust or delay some of those until there's more clarity? And what does that mean for your marketing budget for the year? Thank you.

Yeah. So at the moment, no changes to the marketing budget at all. I don't think, you know, the refresh itself, when you're looking at the refresh, I think that, as I said before, we haven't stopped refreshes in the face of, you know, even the pandemic. I mean, you know, we were working through our platinum refresh at that particular point, and, you know, at that green at that particular point in time, and also working on others, you know, behind the scenes, because, you know, as I've said before, refreshes don't happen overnight. You know, years ago, we got a lot of credit for reacting to the chase sapphire, but, you know, it's something that we started nine to 10 months ago. So, no, we're not going to stop the refresh strategy. I don't think that from an ROI perspective, there is, there will be, there would be what I would say, a reason to do that. You know, as we go to acquire cards, you know, we look at, you know, where the credit box is at that particular point in time. So, you know, we'll see. That's a, you know, these refreshes happen over a period of time. So, it's hard to stop them once they're in progress. And I think we have a lot of confidence once they're done to put them out into the marketplace.

Thank you. The next question is coming from Gasgala of MCH. Please go ahead.

Hey, good morning, Steve. Good morning, Christophe. I wanted to ask around restaurants. It seems like a lot of the work done there has been key in winning Gen Z Millennial Share versus other premium value props available in North America. How do you think about enhancing the value proposition there? And similar vein, if you talk about other categories or maybe your experiential differentiation where you're not really competing on the rewards, but more like the, you know, services could further help capture that Gen Z Millennial base.

Well, millennials in Gen Z spending way more in restaurants from a transaction perspective than any other cohort that we have. And if you just look at the refresh strategy, look at what we did with gold. I mean, you know, gold could have been renamed the restaurant card, you know, between the rewards accelerator, the Rezzi credit, and the global dining, you know, collection. I think, look, you go back to the acquisition of Rezzi, you go back to the acquisition of Topp, you look at Rome, all three of those things are really targeted at, you know, sort of trying to build a moat around a restaurant, around a restaurant industry, not only from a card member perspective, but also from a restaurant perspective. I mean, it is a microcosm of our closed loop, right? When you think about what we've done with Rezzi and Topp, and then as we integrate the Rome capabilities in, it's a closed loop within a card, and it's appealing to our restaurant customers, and it's also appealing to our card members, and especially millennials in Gen Z. You know, look, we'll look for other verticals where that makes sense. You know, look, one would argue that the other verticals where it does make sense with our travel businesses is also with them, you know, with lodging and with airline, right? I mean, if you think about it, you know, look at the Platinum card and being able to book through Platinum travel services, it's another example of a closed loop within, and when you look at the Platinum card value proposition, you know, with fine hotels and resorts, it is really a way to provide value, especially to our, you know, younger customers. I mean, you know, when you book a fine hotel and resort, the value proposition area is pretty good, right? I mean, it's early check-in, late check-out, upgrades, free breakfast, $100 credit. So, that's another example of where we're connecting our card members with our partners from a hotel perspective, and obviously we've been doing that with airlines for years. So, I think when you think about millennials in Gen Z, I think leaning in in those areas for them are pretty critical, and the Gold Card relaunch is a really good example of really leaning in to the transaction, you know, affection that they have for dining and for all things that are dining.

Thank you. The next question is coming from Rob Wildhack of Autonomous Research. Please go ahead.

Good morning, guys. I wanted to follow up a little bit more on the SMB technology side with Cabbage, Center, etc. Steve, I think you mentioned eventually having one ecosystem. Could you speak to the integration effort there, how all these platforms come together, how that looks for the end customer today, and then when do you expect you can go to market with the full expanded inclusive of Center? Thanks.

Well, we just closed on Center yesterday, so, you know, that's, it'll happen over time here, but if you look at, if you're an SME customer, you go on to the Cabbage platform, you can reach MICA, which is if you're a card holder, and a lot of our card holders just do business right now with us through the app anyway, but pre-app, it was through my card account, and so as you go through Cabbage, you can access my card account, you can apply for the loan, you can access your transaction checking account, so that's pretty much there at this point. What the next step is, is to really then as we, you know, as we integrate Center on in, is to link that right in. I don't have an exact time on that. You know, as a bank holding company, there are certain hardening that we need to do, let's say that around the Center, around the Center product, and so we're going to do that, but part of all of that will be integrating it, integrating it on into that platform, but again, just to remind everybody, we closed on yesterday.

Thank you. Our final question today is coming from Mihir Bhatia of Bank of America. Please go ahead.

Hi, good morning, and thank you for taking my question. Steven, Christophe, you're striking a pretty confident tone on the call today about the outlook in a variety of macro environments. I think you've also talked before about being more confident in achieving the mid-teen ZPS versus maybe some noise in -over-year revenue, so I just wanted to go back to where we started the Q&A, where Sanjay started the Q&A. Can you just talk a little bit more about the cost structure and the potential for cost optimization if things get choppy? I understand there's rewards, costs, and things like that that naturally get lower, but big picture, just talk a little bit about the expense flex in the model as you continue to invest. Thanks.

Yeah, I mean, here's what you can expect. I mean, obviously, you've got the story as it relates to rewards and as it relates to sort of -of-card member services. As spending goes down, those go down. From a technology perspective, we're not going to veer off our technology plan. I mean, it just doesn't make any sense to stop and start from a technology perspective. Our marketing budget is a lot bigger than it ever has been, and in an environment of uncertainty, you would raise the threshold. You may not have as much line of sight into the credit box as you'd have to have, and so there's a tremendous amount of expense flexibility within that line and there's expense flexibility within our OPEX line as well. But what we will not do, as I said earlier, and I started it this way, we're not going to just cut expenses to make the EPS number if we see good opportunities for growth. And one of the things that we did during COVID was we really ratcheted back on acquisition tremendously because we didn't have good line of sight into credit-worthy cardholders. But what we did do is we pivoted a large percentage of that money and added incremental value to our value propositions at that particular point in time, which the end result of that was twofold. Number one, it led to higher retention for us and it led to more stickiness in terms of where we actually made those value proposition investments. And so, you know, we'll play the whole thing out, but again, quarter to quarter, year to year, it's about really investing for the long term here and making the right longer term decisions, but there is flex in the model as it relates to marketing and as it relates to OPEX.

Okay. 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. Operator, back to you.

Ladies and gentlemen, the webcast replay will be available on our investor relations website at .AmericanExpress.com shortly after the call. You can also access a digital replay of the call at -660-6853 or -612-7415. Access code 1375-2401 after 1 p.m. Eastern time on April 17th through April 24th. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.