Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q3 2019 Earnings Call. [Operator Instructions] 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. Rosie Perez. 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 uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's slides and on our reports on file with the SEC. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, as well as the earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com. We'll begin today with Steve Squeri, Chairman and CEO, who will start with some remarks about the company's progress and results. And then Jeff Campbell, CFO, will provide a more detailed review of our financial performance. After that, we'll move to the Q&A session on the results with both Steve and Jeff. With that, let me turn it over to Steve.

Thanks Rosie. Good morning, everyone and thanks for joining us. As you saw in our release earlier today, our third quarter results are a continuation of the consistent steady performance we've been delivering over the last few years. We had strong FX-adjusted revenue growth of 9% in the quarter and our EPS of $2.08 was 11% higher than last year. Consistently high levels of revenue growth we are delivering is the result of the focused approach we've taken in executing our strategy and the strength of our differentiated business model. This was the 9th straight quarter where FX-adjusted revenue growth was 8% or higher. I'm especially pleased that our revenue growth continues to be driven by a well-balanced mix of spend, loans, and fees. Card fee revenues were particularly strong, growing 19% and exceeding $1 billion this quarter for the first time. Nearly 70% of the cards we've acquired this year are fee-based products, providing us recurring subscription-like revenues. The trends we saw in the business remain consistent with an economy that continues to expand, albeit at a more modest pace than last year. Our FX-adjusted proprietary billings grew 7%, led by strong growth in our U.S. and international consumer businesses. We continue to deliver healthy loan growth, and our credit performance remained at industry-leading levels. In fact, better than the expectations we had at the beginning of the year. So, as you can see, even with some uncertainty in the global economic and political environment, our strategy of investing in share, scale, and relevance is enabling us to deliver steady solid results. With that in mind, I'd like to discuss our progress on the three company-wide initiatives I laid out at Investor Day. As a reminder, these cut across all of our strategic imperatives. They are focusing on our…

Well, thank you, Steve and good morning, everyone. It's good to be here today to talk about yet another solid quarter of steady and consistent performance. Let's get right to our summary financials on Slide 3. Third quarter revenues of $11 billion, grew 9% on an FX-adjusted basis, with this growth driven again by a well-balanced mix of spend, lend and fee revenues. We continue to see a spread between our reported revenue growth of 8% and FX-adjusted revenue growth of 9%. Although the U.S. dollar has strengthened recently, the spread between our reported and FX-adjusted revenue growth has lessened slightly relative to Q2. As you recall, the year-over-year strengthening of the U.S. dollar began in the third quarter of last year. Assuming the dollar stays roughly where it is today, you should see reported and FX-adjusted revenue growth levels more similar to each other in the fourth quarter 2019. Our strong topline revenue performance drove net income of $1.8 billion, up 6% from a year ago, and earnings per share was $2.08, representing EPS growth of 11% in the third quarter. This EPS growth was supported by the 4% reduction in our share count enabled by our continued prudent management of the capital generating capabilities of our business model as we returned $5.5 billion in excess capital to shareholders through dividends and share repurchases in the last four quarters. Turning now to the details of our performance, I'll start with billed business, which you see several views of on Slides 4 through 6. Starting on Slide 4, our FX-adjusted total billings growth for the third quarter was 6%. We think it is important, though, to continue to breakout the billings growth between our proprietary and network businesses due to the differing trends as we exit our network business in…

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

[Operator Instructions] Our first question will come from the line of Craig Maurer from Autonomous Research. Go ahead, please.

I have a question on net card fees that basically what I'm trying to get as you showed some acceleration in net card fee growth, cards in the U.S., basic cards-in-force has been largely range-bound throughout the year. So, can net card fees continue to accelerate if cards remain somewhat flattish and should card growth in the U.S. accelerate again or how should we think about that?

Craig, as you recall, we tend to discourage people a little bit from looking at that gross cards-in-force number because what's really important here is the quality of the cards you have and the quality of the cards you're bringing in. Both Steve and I talked about the fact that 70% of the new card members we're bringing in are on fee-based products. We've talked for a couple of quarters now about bringing in generally more premium oriented mix of card members and that cards-in-force number is also influenced by our periodic efforts, frankly, to go back and cancel some inactive card members. So, we feel tremendously strong about the breadth of the products that are driving card fee growth and I think there is a long runway to continue.

Yes. And I think just to add one other point, I think the other thing that's really important is the recent strategy of consistently refreshing our products is critically important to not only growing card fees, but it's also what we've seen is we see an uptick in spending even from existing cardholders. So again, I think the number is a little bit deceptive, because you've got a clean out and you also have a switch, you've got a lot of upgrades in there as well. So we feel really confident about the strategy we're on.

We'll next go to the line of Bob Napoli from William Blair. Go ahead, please.

A question on your B2B payment strategy. You acquired ACOM Pay during the quarter, and it does automated AP. You have a lot of different partnerships there and so it's an area that massive market TAM, it could move the needle I would think for American Express. Can you update your thoughts on your investments in the B2B payment space in AP and AR automation and if that can move the needle materially for Amex over the long term?

Yes, I think, look, Bob, I think as we've said, and we said this at Investor Day as well, our belief is this is a long-term opportunity. Having said that, we are - we've entered into partnerships with people like bill.com at the real small end of the market. We've done MineralTree and WEX in sort of mid-space, we've done Tradeshift, we've done Ariba. We have now an investment in ACOM to help sort of automate those processes. But one thing I will point out is, while it is a long-term play, most of our spending in an SME segment today is B2B spending and that continues to grow. So we feel really confident about what we're doing, but as I've said before, the integration into the procurement process, it's a tough integration and it takes time and that's why we do these partnerships, that's why we make these investments and that's why we still believe it's a long-term play. But we are seeing value just from a B2B perspective, especially in SME, where the majority of our spending is B2B, not C&E.

Our next question, we'll go to the line of Rick Shane with JPMorgan. Go ahead, please.

Just want to sort of delve into the divergence between acceleration of billed business on an account basis at the consumer level and a deceleration on the commercial business. Historically, has that provided any signal that we should be paying attention to?

No, not necessarily. I think if you look at the last recession, you would have seen sort of the reverse, you would have seen consumer coming down first and then commercial. So, I don't think that is a signal at all. As Jeff pointed out, our consumer business has grown slightly in the U.S. quarter-over-quarter, really strong across all segments as it relates to international, whether it's SME or whether it's consumer, mid-teen double-digit growth. Let me comment on where you may be seeing some softness as we look at the numbers. You've seen a 1% decline as it relates to global. A couple of adjustments in there with maybe some jet fuel or things like that, but you also have to realize, we're coming off a high. It was almost 10% growth in the third quarter of last year. So, to me that's almost stable and when I think about large and global, I haven't been involved with this for real long time, I'm pretty comfortable about that. When you look at our SME in the U.S. and we're about 6% up year-over-year, again, off of a double-digit high. You got to delve into it and when we look at it, we look at sort of three components of that billing. We look at are we continuing to acquire and that has been steady for us, are we losing accounts either from a competitive perspective or from the perspective of losses account to just go out of business and that has been steady, where we're seeing sort of a softening a little bit is in the organic spend. If you think about it from a retail perspective, you would think of same-store sales. But even that, again, we came off a high in the third quarter of last year, and that's still a positive trend. So, what would concern me is if that same account spending had gone down, it is not, it is still in positive territory, albeit, not in the same sort of significant growth that we saw. And to be honest, that was growth that we had not seen before. So, the sustainability of that was questionable on our minds anyway. And so, we feel pretty good about it. And again, as Jeff mentioned, the credit quality, credit quality is still pristine.

We'll next go to the line of Bill Carcache with Nomura Instinet. Go ahead, please.

I had a follow-up question on your fee-based products. Some innovative fintech players like Square are enjoying some success in targeting the unbanked and underbanked customer segment, for example, with their Cash App and goal of getting customers to use it as their primary bank account through direct deposit. You guys were well ahead of this trend years ago when you identified an opportunity to generate fee-based income in the segment with products like Bluebird and Serve. Can you give us some general color on how you guys are thinking about those products today? Do you still see the growth opportunity there as attractive? How focused are you on growing those products as continued innovation and enhancement of the underlying app, something that you guys are investing in? And just in general, are you seeing some customers use Bluebird and Serve for direct deposit? Thanks.

We're not focused on it at all. In fact, we sold that last year to InComm. That's not a segment that we see as an opportunity for us. We took a run at it and the theory of the case was that you would be able to upgrade those customers into our product - into our traditional product set. The reality is that was a bridge too far to cross. And so we sold off that portfolio of Bluebird, [indiscernible] and Gift Cards to InComm last year. And I think InComm's really happy with that transaction, and we are really happy with that transaction. We do not see that as a growth opportunity for us at all.

Our next question will be from the line of Moshe Orenbuch with Credit Suisse. Go ahead.

Recognizing that credit, no sign of deterioration, in fact, actually is probably improved over the course of the year. Any sense as to how to think about just the impact of CECL on ongoing provisions relative to that kind of 50-ish percent increase on the credit piece as we think about the growth of provisions into next year?

Yes, obviously, Moshe. That's a very fair question that we're still not ready to quantify. I do think the range we've given for the one-time impact, you can sort of do some back of the envelope math off of that, but there are so many complex pieces to CECL. Obviously, CECL will also require us to incorporate into our accounting provision forward-looking economic forecast amongst the over 100 other variables that will be part of the 150-plus customer segments and models that drive this. So directionally, I am very comfortable saying there is some - given our levels of growth, some higher provision expense you would expect in a normal economic environment under CECL. I'm just not ready to give an exact number. I really want to emphasize though what I said in my earlier remarks, which are that from our perspective, this is pure accounting-driven acceleration of losses that ultimately would have run through our financial statements anyway. It has zero impact on real economics. It has zero impact on our view of risk and that is why as we think about 2020, we think we are going to make a series of decisions about what we're willing and what we think is prudent to invest in continuing to drive the business for the long term, and then we'll let the CECL changes to the region fall where they will.

We'll go now to the line of Betsy Graseck with Morgan Stanley. Go ahead, please.

So I just wanted to dig in a little bit, Steve, to the comment that you were making earlier around the opportunity to penetrate your corporate card customers with personal card. And the reason I ask the question is, I would have thought this was something that was well done and already was maxed out but your comments suggest it's not. So I wanted to understand is this - is the go-to-market strategy different and what kind of opportunity set you could get? And then, Jeff, if you could just reiterate the mark-to-market benefit that you had and where we're supposed to strip that out? I'm getting a couple of questions in on exactly where we're supposed to strip that $0.05 out of. Thanks.

Yes. The reality is we really have not focused on penetrating our corporate card base with our personal cards for pretty much forever. We did some test last year. Part of it was a reluctance in our - with our corporate card customers for us to access the base, but the tide has changed. The tide has changed, we've had companies come to us and ask us as they look to bring more value to their employees, can we do that. And so, this is a welcome opportunity for us. So I would say it is absolutely new territory for us. So it's not been maxed out at all. Let's not to say that our corporate card holders do not have personal cards, but it is to say that we never utilized our corporate card distribution opportunities within the corporate card - companies that have our corporate card. So we're excited about the opportunity and think that it's going to provide another opportunity to lift our overall cards.

On the mark-to-market, Betsy, I'll make two points. Just to remind everyone beginning last January, we and all companies began to have to mark-to-market various investments for us that really means the 40 or so investments we have through our Amex Ventures Fund. In general those margins have not been material. This quarter they were a little bit more materially it netted to about $0.05 positive. We see that as an ongoing part of our business. My only reference to the $0.05 in terms of, to use your phrase Betsy not mine stripping out. Was that when I talked about Q4, I made the observation that we feel really good about the – consistent operating performance of the company. And we expect Q4 to look very similar to the first three quarters. So as you think about the pure operating performance of the company in the first three quarters. In Q1, I take the merchant litigation charge out. So that puts you $2 a share. In Q2 it's $2.07 a share and again going back to this operating performance concept in Q3 that takes you to the about $2.03 level. So that's the only context in which I was trying to bring up the $0.05. Thank you for the question.

We will move on to the line of Mark DeVries with Barclays. Go ahead.

I don't imagine you've gotten this question in a while just given how strong your revenue growth has been and it sounds like you're pretty confident. And the outlook for 2020 as well around revenue growth, but I have been getting some questions from investors asking how much room you guys have to control and further growth of OpEx should revenue growth. So Steve, I guess is the guy who is responsible for getting those OpEx under control when revenue is weak and mentioned here in your comments – on thoughts there?

Yes I mean, look I think if you look at sort of how we've controlled OpEx over the last eight years. I think it was an aggregate growth probably about 6% or so. As we look at it as we've sort of changed philosophy a little bit to look at, high revenue growth. It made sense to not walk away from some of these OpEx opportunities that we had. As Jeff said, I don't think this is a consistent playbook that we're going to run, but I have all the confidence in the world in our ability to control to control OpEx. We're still providing operating leverage when you think about sort of nine to five here, which is what we've done. The problem is when you're growing revenue at four and you're growing revenue of five if you want that leverage, you got to grow OpEx at about one. So the Delta is really – relatively similar to what we've been doing. And we're looking good investment opportunities, but you're right. I was known as the OpEx guy here for – a lot of years and still am. I still drive people crazy about it. And I will continue to do that, but we're not going to make any foolish decisions. And I believe that we still have operating leverage opportunities as it relates to OpEx and revenue.

We have a question from the line of David Togut with Evercore ISI. Go ahead.

David, you there.

David?

Please check your mute feature on your phone.

All right.

We will move on to the line of Chris Donat with Sandler & O'Neill.

I had a question about marketing spend – as I think about this year and even last year you had some elevated marketing spend with the brand refresh in 2018 that's built into 2019. And then you had the Delta agreement, which also led to the 200 million of elevated spending. And then you got all these product refreshes. I'm just wondering as we think about 2020 do you come up against some easier comps on spending or are there things in the pipeline that will likely absorb marketing spend in 2020. Just think about how to compare 2020 to 2019?

Yes in many ways Chris, I think the examples you cite are wonderful illustration of why a few years ago. We began to encourage people to focus on broadly what we call our customer engagement costs, right. Because we pull different levers at different times in the rewards category or to your point, in the traditional marketing category around brand spending or and spending we do in the payments department partner area with Delta. And at other times we use to put resources into Card Member services. So the trends in anyone of those lines may vary a little bit from year-to-year or from quarter-to-quarter. The broad group of all of them however, is what we're using to drive high levels of revenue growth. And we've been very consistent for some years now Chris. In saying, we do expect that collectively those costs are going to grow a little bit faster than revenue. But that's what's going to enable us to drive in today's environment 8% to 10% revenue growth. It's why the OpEx leverage Steve just talked about is so important to help mitigate that margin compression, you get from customer engagement because OpEx to grow more slowly than our revenues. You combine that with our strong balance sheet and that's how we have a model that is consistently producing double-digit EPS.

Our next question will be from the line of [Dominic Gabriel] with Oppenheimer. Go ahead please.

Hey, thanks so much for taking my question. Look, the diversity of the revenue growth is really strong. For sure, and I think one thing that is taking some investors by surprise is not only the fee for card or the NIM expanding this quarter. But to some extent, but really the discount rate has been on quite a nice trajectory. And I know that you talked about not managing to the discount rate. But your strategy has shown at least over the last number of quarters that the discount rate is moving up as well and that's a nice benefit as well. Can you just talk about what you've lapped and what's going into the discount rate expanding just as a natural piece of the puzzle here? Thanks so much.

Yes and as you know and I always say this, I really don't focus on the discount rate all that much. Yes it's been, it's been consistent. It's a little bit up, but I think you've got a couple of things going on. I mean you've got there some strategic and renegotiations that we lapped there was activity in Europe. There was activity in Australia, in any given quarter, there is a mix of business and so all those things contribute. What I really focused in on is that consistent discount revenue growth. And if you want to project this out – reality is, is that as you expand into B2B, you're not going to have the same kind of discount rate in B2B. But again there, what I'd like to focus on is what the margin is right and so, if you look at a lower discount rate. You’ll also look at lower rewards cost and things like that. And so, ultimately what we really focused in is the margin between the discount rate and the costs that go along with those billings. But we're really pleased with the way discount revenue has gone. And when all the numbers come in the discount rate is – it’s flattish to up and that's okay, too.

We'll go to the line of James Friedman with Susquehanna for your question. Go ahead please.

I just wanted to ask Jeff with regard to the GNS Slide 6 up 3% adjusted. I think you made – in your prepared remarks you said that we were lapping that in 2020. It might be, this might be over meaning like the tough compares. Is 3% what we should be thinking about as kind of the new norm when we contact business?

Yes, so couple of questions or couple of comments James first. Remember in many ways the most important aspect of our GNS network these days is driving coverage in 170 or so countries around the globe. And we rely on a network of great partners to do that for us in many countries and that's priority one. Second thing is that not all GNS billings at the same. In general, as you know, the financial contribution from GNS itself is more modest than its billing contribution. That contribution also varies a lot from country-to-country and we have a few large countries to drive a whole lot of billings, much more modest economics and those billings can be a little bit volatile quarter-to-quarter. So I don't – I wouldn't take the 3% as a mark of what you will consistently see once we finish lapping, Europe and Australia. I think you'll see it probably trend back up a little bit from there. But the most important thing to keep in mind is the GNS network around the globe is really about coverage.

We have a question in queue from the line of Jason Kupferberg with Bank of America. Go ahead please.

And Jeff just wanted to put a finer point on your EPS math there, because I know you didn't formally narrow the full year EPS range. But it sounds like you're pointing us to around two or three or so for Q4, which I think would get us to around 819 or so for the full year. So I just wanted to clarify that. And then do you think that we've troughed in terms of large enterprise volume growth, just the down one this quarter. I know there were some moving parts there but...

Let me make a few comments on guidance, maybe including philosophy, Jason. And Steve, you can comment on the large and global customers. Look our philosophy, which we have tried to be true to this year as we come out at the beginning of the year and we tell you here is our expectation for the full year and we give you some color around that. And then our expectation is, as we report our results each quarter we're going to tell you if something is happened so dramatically that it takes us out of that original range. But beyond that, we're just going to give you some color about how things are going. We also really want to emphasize that we are running the company for the long term. We're certainly not running it to produce quarter-by-quarter results, but we will be true to our annual kinds of earnings commitments. So, that's just I think important background. As to the specific math, look, I think, Jason, due to your math, I'm not going to confirm or not confirm your specific math, but I think I was trying to be very clear that our operating performance has been really consistent across the first three quarters. You can measure that at $2 a share, $2.07 a share, probably two or three for this quarter and we expect the fourth quarter to look, something like that.

As far as global and large accounts, global and large accounts in 2018 had a really terrific, terrific year. And so going into this year, our expectations weren't the same expectations as they were last year. As we think about sort of planning forward, I would think about sort of the 0% range for the fourth quarter for global and large accounts. And then I think it gets back to historical levels for us, which is anywhere between 1% and 4%. I think it's just because a lot of that is T&E. As we start to penetrate more into the B2B space, then I think you'll see that go up, but as I've said, traditionally I met with CFOs and so forth they are not driving to move their T&E spend up what you're looking for us to do is actually to help them manage their T&E spend down. And so it's a very interesting business in that our value proposition is, we help you manage your cost down. And we do that through benchmarking. We do that through helping them negotiate and we do that by providing insights and so it's an interesting business where the retained count - to retain accounts you actually help them shrink a little bit. And so, then you need to go get some more account. So we're very comfortable with sort of the traditional levels, I think what you saw last year was just people getting out a lot more including ourselves actually and just spending a little bit more on T&E, but I think it's fair to think about this in sort of the 0% to 3% range going forward.

We'll go next to the line of Don Fandetti with Wells Fargo. Go ahead please.

So I wanted to dig in a little bit on the small business, year-over-year spend growth rate, I mean, there's a couple of factors, obviously, you've got potentially like weaker or more caution on the core business front. But I assume you're still getting that secular penetration, I want to know if that's still happening at the same rate. And then also your position in small business is remarkably higher than your peers. Is there any change in competition, are you holding share or is this all just sort of normal caution and tougher comps. And then lastly around that same thing, when does B2B kick in as the small businesses automated accounts payable accounts receivable. I think you had said you get a 42% uplift in spend as that happens. I mean is it just so early in that process. What we see in 2020, 2021? Thank you.

Yes. So, Don. The last question first, I think it's still early in the process. You know, automating, automating that spend and what you do with someone like ACOM or what you do with some of the other providers, these are interfaces to whatever sort of accounts receivable procurement systems that they have and it's not always their priority to do that. So that takes a little bit of time. So you'll see a little bit uptick in 2020, 2021, so forth and so on. Look, I think that - let's just talk about sort of secular penetration. I think we are still acquiring counts and we don't look at so much of accounts as we look at acquired bill business. We're acquiring billed business at pretty much the same rate we've been acquiring it. As I mentioned before, we're not losing accounts at any higher level or lower level than we've had probably for the last eight quarters. We're pretty consistent on that. As far as our overall position in the market, I think it's really, really consistent and hasn't really changed. I think I'll point you back to what I said before, I think the downturn that we've seen in our growth rate here is really around what we would call organic. And not that it's not growing, it's just not growing fast enough or is not growing at the same rate it did last year when it had a lot of momentum, especially from the Tax Act. Having said all that, there is more competition in this space, than we've seen in a long, long time because much like banks found after sort of the great recession that the consumer credit card business was an attractive area banks have now found that this area is attractive as well. Having said that, if you added the next five largest issuers up in the small business space, I have the same refrain that I've had for the last two years we're bigger than them all put together. So we're really comfortable where we are, we don't see anything from a competitive perspective that is any different other than it keeps to step up the competition. But, and we continue to add to our rate of products, whether it's working capital terms, whether it's merchant financing, cross border and obviously the continued enhancements to our small business products. So we still feel really good about where we are in this small business perspective.

Our final question will come from the line of Sanjay Sakhrani with KBW. Go ahead please.

Maybe just to follow up with some of the lines of questioning previously. When you guys think about your comfort in delivering the high levels of revenue growth next year, which I assume is within the range of what we saw in 2019, how possible is it to hit those numbers with some more moderation and build business volumes? Is your level of comfort because you feel like some of the investments you've made will sustain that type of build business growth or do you expect the high levels of fee income growth will persist. Given the Delta fees, come on in 2020. Any color would be helpful. Thanks.

Yes, I mean look, I think you know when you're making - here's the issue right, so many investments that you make this year don't pay off this year, they pay off as it goes next year. And so you've hit the nail on the head. When you think about sort of what we've done from a delta perspective when you think about the cards that we've acquired, when you think about some of the investments that we've made in some of the digital properties. When you think about sort of the consistent high discount revenue that we've had, yes, even would to tick down in billings that still will be positive and yet our fee revenue due to our continued maniacal focus on Card refreshes. The other thing I would point out is that this is a growth story globally. This is not a growth story just in the United States. And so when you think about 14% billings growth in consumer internationally, 18% SME growth even a tick or two down there is not really going to hurt you all that much and we've been pretty consistent from an SME and consumer perspective. So I think when you think about the three-legged stool that we have from a revenue perspective of fees, interest income and discount revenue, we feel really comfortable, and that's why, as Jeff said in his sort of at the end of his remarks in this same economic environment we feel good about 8 to 10. Look the billings issue weren't exactly what we had projected and look where we are from a revenue perspective. So, yes, our comfort level is there.

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

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