American Express' (AXP) Management on Q1 2017 Results - Earnings Call Transcript

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American Express Company (NYSE:AXP) Q1 2017 Earnings Conference Call April 19, 2017 5:00 PM ET

Executives

Toby Willard – Head, Investor Relations

Jeff Campbell – Executive Vice President and Chief Financial Officer

Analysts

Sanjay Sakhrani – KBW

Eric Wasserstrom – Guggenheim Securities

Craig Maurer – Autonomous

Ryan Nash – Goldman Sachs

Jamie Friedman – Susquehanna Financial

Don Fandetti – Citigroup

Bob Napoli – William Blair

David Ho – Deutsche Bank

Rick Shane – JP Morgan

Arren Cyganovich – D.A. Davidson

Jason Harbes – Wells Fargo

Operator

Ladies and gentlemen, thank you for standing by and welcome to the American Express First Quarter 2017 Earnings Call. At this time, all lines are in a listen-only mode. And later, we will conduct a question-and-answer session with instructions being given at that time. [Operator Instructions] And as a reminder, today’s call is being recorded.

I would now like to turn the conference over to our host Mr. Toby Willard. Please go ahead sir.

Toby Willard

Thanks, Gary. Welcome. We appreciate all of you joining us for today’s call. The discussion contains certain forward-looking statements about the Company’s future financial performance and business prospects, which 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 forward-looking statements are set forth within today’s presentation slides and in the Company’s reports on file with the Securities and Exchange Commission.

The discussion today also contains certain non-GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the first quarter 2017 earnings release and presentation slides, as well as the earnings materials for prior periods that maybe discussed, all of which are posted on our website at ir.americanexpress.com. We encourage you to review that information in conjunction with today’s discussion.

Today’s discussion will begin with Jeff Campbell, Executive Vice President and Chief Financial Officer, who will review some key points related to quarter’s results through the series of presentation slides. Once Jeff completes his remarks, we will move to a Q&A session.

With that, let me turn the discussion over to Jeff.

Jeff Campbell

Well. Thanks, Toby, and good afternoon, everyone. We’re off to a solid start to 2017. Our earnings per share for Q1 was $1.34 and we’re encouraged by the momentum we see in our revenue performance. As you know, accelerating revenue growth through capturing opportunities across our diversified business model has been a key priority for us.

In addition, we’re seeing the benefits of our cost reduction efforts and continue to return significant amounts of capital to shareholders through our dividend and share buyback programs. In many ways, our Q1 results show the steady progress we’re making on the range of growth and cost initiatives that we have put in place over the last couple of years and that we reviewed at our Investor Day last month. These initiatives have been supported by the spending that we did over the last two years. We expect that these efforts will all come together to help us produce steady results during 2017 and position us well for the longer-term.

Going forward we remain focused on delivering improvement in EPS as we progress through 2017 and beyond this, we’re equally focused on our strategies to generate sustainable revenue and earnings growth. While it is still early in the year and we have work to do, our first quarter is a positive start to hear.

With that, let me turn to the detailed results, starting with the summary financial performance on Slide 2. Revenue for the first quarter was down 2% reflecting lower discount revenue and net interest income following the Costco portfolio sale in Q2 of last year. When excluding FX and Costco related revenues in the prior year, our adjusted revenue growth accelerated modestly to 7% on a sequential basis. The first quarter also included as expected given the volume growth we’re seeing a greater year-over-year increase in provision and rewards than we experienced in the fourth quarter.

Net income was down 13% versus the prior year first quarter. As we continue to grow over the co-brand exits from 2016. As we move through 2017, we expect net income and EPS to grow due to the benefits from our cost reduction initiatives and the seasonality of revenue. Of course we expect a return to year-over-year net income and EPS growth as we get to the second half of 2017. Earnings per share of $1.34 reflects our net income performance and also the benefits of our strong capital position. Over the last year, we returned $4.1 billion of capital to shareholders through our share repurchase programs, which has resulted in a 6% reduction in average shares. These results brought our ROE for the 12 months ended in March to 25%.

So with that is the summary, let me now turn to a more detailed review of our results starting with billings. You can see on Slide 3 the world wide FX adjusted billings were flat in the quarter versus the prior year. To get a better understanding of the underlying trends on Slide 4 as we have in recent quarters, we show billings growth adjusted for both changes in foreign exchange rates and the impact of Costco. Here you can see that adjusted billings growth accelerated modestly to 8% in the quarter. The acceleration was broad based. As you can see in both the segment view of billings on Slide 5 and the geographical view of billings on Slide 6. Across all of these views, I would point out a number of trends in our billings performance this quarter.

In the GCS segment, we continue to see strong growth in the small business and middle market customer segments. Adjusted volumes in the U.S. grew at 11% in the quarter and outside the U.S. volume growth accelerated. In the large and global GCS customer segment spending volumes were up a bit as compared to last year. As we have said for a while now we would expect that this will remain a slower growth segment absent an uptick in travel and entertainment spending by larger corporations, which we have not yet seen.

The U.S. consumer segment growth rate was consistent with Q4 2016. We are pleased with the impact of the initial changes we made last October in our U.S. consumer platinum product. It’s too early to comment on the most recent changes to the product as they just took effect at the end of the first quarter. In the international consumer and network services segment the billings growth rate improved sequentially to 8% on an FX adjusted basis.

Looking at the two parts of the segment, volumes from proprietary cards grew at 11%, reflecting continued strength in several international markets. In GNS, the FX adjusted growth improved from 4% in Q4 to 6% in Q1, as we saw sequential improvements in all of EMEA, JAPA and LACC. GNS plays an important role in strengthening our global network. I would remind you though that going forward as we previously discussed we do expect pressure on GNS volumes due to the changing regulatory environment specifically in the EU, Australia and China. Given the lower margins we are in GNS however, this will have a less bottom line impact.

Moving to international in total, you can see on Slide 6 that our billings growth rates remained strong. As we saw our fourth consecutive quarter of double-digit in FX adjusted terms growth and overall international accelerated to 13% FX adjusted growth. The improvement in international is broad-based, with strength in both our corporate and consumer businesses. As we look at a few key markets for example we see continued strong FX adjusted growth in the UK up 17%, in Mexico of 15% and in Japan also up 15%.

Finally I would briefly note a couple of calendar impacts to growth rates in the quarter. As I mentioned at Investor Day, the leap day in February 2016 negatively impacts growth rates this quarter by about 1%. Offsetting that somewhat we did see a benefit in March is the Easter holiday mood from Q1 last year to Q2 this year. In many international markets there is an extended holiday around Easter, which impacts volumes. Stepping back we are encouraged by the momentum we see in the adjusted billings growth rate. The improvement is coming across our segments globally and reflects returns on the investments we have made over the last couple of years. We still have work to do. And the competitive environment especially in U.S. consumer remains intense, but we are focused on driving more volume onto our network from our wide range of growth opportunities.

Turning now to our worldwide lending performance on Slide 7, our total loans were up 12% versus the prior year on an FX adjusted basis, slightly below the growth rate we saw in the fourth quarter of last year. As we have for several years now, we continue to grow U.S. loans faster than the industry, driven primarily by our success in growing loans from existing customers.

During the first quarter, more than 50% of the growth in U.S. consumer loans came from existing customers, consistent with the trend we described at our Investor Day. As we look forward, we believe that we can continue to grow loans above the industry rate given our unique growth opportunities, while maintaining best in class credit performance.

Looking at the right hand side of the slide, you can see that net interest yield has been steadily expanding and rose again sequentially in Q1 to 10.3%. Yields typically widen in the first quarter due to seasonality. But the steady trend we are seeing is driven by the impact of a number of factors, including a shift in mix to non-cobrand customers, who are more likely to revolve, less revolving loans at introductory rates.

Some specific pricing actions, and of course a benefit from increases in bench mark interest rates without an offsetting change to our personal savings deposit rate. We do expect deposit rates will move up overtime, but we remains to be seeing when that change will occur and how much rates will increase.

Before turning to provision, let me touch on our credit metrics. Delinquency in last metrics across our lending in charge card portfolios continued to be very strong. And the worldwide loan portfolio, you can see that the delinquency rate was flat to Q4 and loss rates increased slightly both sequentially and year-over-year.

The modest increase and lending loss rates versus the prior year is in line with our expectations and consistent with our view, the loss rates would begin to increase due to the seasoning of the new accounts and the shift towards non-cobrand products, which have a slightly higher right of way rate, but also generate greater yield. And this quarter’s lending results reflect that dynamic.

The combination of continued strong loan and receivable growth and modestly higher year-over-year loss rates, including in certain charge card segments, has caused our provision, as expected to grow well above the growth rate in loans as you can see on Slide 9. As we look forward to the balance of the year, we expect that provision will continue to grow faster than loans, a trend that is fully contemplated in our earnings expectations.

Turning to our revenue performance on Slide 10. FX adjusted revenues were down 2%, when we adjust for both FX and Costco related revenues to get at the underlying trend, revenue grew at 7%. I will say that adjusted revenue growth in the quarter outperformed our own internal expectation as in the month of March billings and revenue both came in above our plans.

We are pleased with the momentum in our adjusted revenue growth rate. And we are encouraged to begin the year bit above the full year range, we’ve provided at Investor Day of 5% to 6% adjusted revenue growth.

Looking at the components of revenue in more detail. Discount revenue declined by 3%, but increased by 6% on an adjusted basis. The discount rate in the quarter was 2.45% up 1 basis point year-over-year, due to lower rate volumes coming of the network more than offsetting the impact from merchant negotiations mix and the continued rollout of OptBlue in the U.S.

Well the discount rate increased year-over-year, the ratio of discount revenue to build business declined by 4 basis points, which I welcome back to in just a minute. Net card fees grew by 7% in the quarter, reflecting continued strength in our premium U.S. portfolios including Platinum, Gold and Delta, as well as growth in key international markets like Japan and Australia.

The Platinum fee increases we announced in March are not yet impacting the results as the fee increase for existing customers does not go into effect until September. Other fees and commissions grew 5% in the quarter, while other revenue declined by 16%. Other revenue growth is impacted by the sale of a small business, which provided back office systems to run third party loyalty programs, during December 2016. Net interest income is down 5% due to lower average loans, but increased 15% on an adjusted basis driven by the 12% growth in adjusted loans in the higher net interest yield that I mentioned previously.

Coming back now to the ratio, discount revenue to build business on Slide 12. You can see that this ratio was down 4 basis points versus the prior year, while the reported discount rate was up one basis point. The decline in the ratio, discount revenue to billings this quarter is driven by a shift in billings mix towards GNS and higher incentive payments to cobrand and corporate card partners as the volumes in those categories accelerate.

Turning now to our total expenses on Slide 13. Our expenses were 1% higher than the prior year during the first quarter, though I’d note that performance trends varied across the different expense lines. At Investor Day, we highlighted that are spending on card member engagement is reflected across marketing and promotion, rewards and Card Member services expenses. And I’ll discuss the changes in those P&L lines on the following slide.

Moving to operating expenses, total operating costs during the quarter were down 3% versus the prior year. I’d remind you that in the prior year operating expenses were impacted by $127 million gain from the JetBlue portfolio sale and an $84 million restructuring charge. We continue to make progress on our cost reduction initiatives and believe that we are on track to remove $1 billion in the company’s cost based on a run rate basis by the end of 2017.

As we highlighted at Investor Day, we expect the year-over-year decline in operating expenses to be larger as we exit 2017 than what we saw in Q1. Our effective tax rate during the quarter was 31.9%, which is below our full year 2017 expectation of 33% to 34%. The Q1 tax rate benefited from some discrete tax items, we continue to believe that our full year rate will be more in line with our 33% to 34% expectation.

Moving to the summary of our Card Member engagement spending on Slide 14, total engagement spending in Q1 was $2.8 billion or 4% higher than the prior year. Looking at the components of that spending as expected, M&P was down 4% versus the prior year. These results are consistent with our comments at Investor Day about anticipating a reduction in our M&P spending versus 2016 levels. We continue to focus on improving the efficiency of our marketing spend by using our scale to consistently drive cost savings from our ongoing marketing operations.

We also continue to shift our focus towards existing card members and increase our use of digital channels both of which can add efficiencies. With all these efforts, despite a lower level of marketing spend, we acquired more new cards during the first quarter than we did during Q4, including 1.7 million cards across our U.S. issuing businesses and 2.6 million on a worldwide basis.

Over 60% of the Global Consumer cards we acquired in the quarter came through digital channel. And digital is particularly important as you know, for acquiring new millennial card members. And going forward, we continue to anticipate that full year 2017 M&P will be lower than 2016 and more similar to the full year 2015 levels. I’d note however, that the ultimate level of marketing expenses will be influenced by our financial performance and the opportunities present in the marketplace.

Moving to rewards, consistent with our Investor Day expectations, rewards expense was up 6% despite a small decline in proprietary billing volumes versus the prior year. Adjusting for the Costco cobrand volumes in the prior year, rewards expense would have increased in the quarter by 20%, while adjusted proprietary billings grew by 6%.

This growth in rewards resulted in a ratio of rewards cost to proprietary billings of 87 basis points. The greater year-over-year increase in reward expense during the quarter reflects the impact of the enhancements to our U.S. platinum products that we implemented at the beginning of Q4 2016, as well as continued strong growth our Delta co-brand portfolio.

Cost of card member services increased 14%, reflecting higher engagement levels across our premium travel services including airport lounge access and co-brand benefits such as First Bag Free on Delta. As we highlighted in Investor Day, this is an area where we can offer differentiated benefits and we’ll continue to invest as evidenced by the rollout of the new Uber benefits on our platinum cards a few weeks ago.

Turning now to Slide 15 and touching on capital. We continue to use our strong balance sheet position to return a significant amount of capital to shareholders. Over the last nine quarters, we have returned a 101% of the capital we have generated. I think this shows the commitment we have over time to leveraging our business model and capital position steadily create shareholder value.

Now we of course just completed our submission for the 2017 CCAR process earlier this month. And as I’m sure you all aware the process continues to revolve each year. We remain confident in the strength of our business model and our ability to drive shareholder value to capital returns. Now of course, we also use capital to support business building activities such as growth and our loan balances, potential M&A activity.

In addition to returning capital through dividends and share buybacks. I’d also remind you that our capital plan for the upcoming year will be dependent upon the Fed review and we expect to hear back from them about our submission in June.

Step in back, over the past several years we have embarked on a serious of initiatives to reposition the company drive sustainable revenue growth. Those efforts which we covered in Investor Day, include, amongst others, focusing on further penetrating commercial payments by leveraging our small business and middle market assets on our global commercial segments, driving more organic growth through expanded engagement with existing customers, better leveraging our digital and big data capabilities for new customer acquisition and other targeting, growing our merchant network and pursuing lending expansion opportunities. These action for targeted to provide a mix of returns over the short, medium and longer-term.

While the impact from those efforts, we’ll play out over time. We are encouraged with the trend that we have seen in our business metrics and revenue growth over the past several quarters and believe that these initiatives are driving real momentum. As we look out to the balance of the year, we believe that our outlook for the full year 2017 EPS to be between $5.60 and $5.80 remains appropriate. As we discussed at Investor Day we anticipate that EPS will grow through the year and as we have in the past, we will continue to balance delivering earnings to the bottom-line and investing for the moderate to long-term. We do believe that our 2017 plans appropriately balance shorter-term profitability with the steps we need to take to generate sustainable revenue and earnings growth over the longer-term.

With that, let me turn it back over to Toby and we’ll move to Q&A.

Toby Willard

Thanks, Jeff. 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 the line for questions. Gary?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from Sanjay Sakhrani from KBW. Please go ahead.

Sanjay Sakhrani

Thanks and good results. I guess I’m just making sure that the EPS outperformance in the first quarter relative to what you articulate at the Analyst Day was really a result of revenue outperformance as you mentioned Jeff. And I guess when we think about the difference between the $5.60 versus the $5.80 in your range, is the difference how much you’d spend on investments?

Jeff Campbell

Well. Couple comments Sanjay and thank you for the question. You are correct that relative to our expectations early in large at Investor Day. What surprised us frankly in the month of March was how strong the revenue performance came in. And so that is the main driver of why our EPS for the quarter ended up being a little bit stronger than I would have expected back in that first week of March.

On the margins I’d also point out that we had a few tax discrete items, you’re always working on various tax audit settlements and things like that, that are a little bit hard to time, and so those came in and out at a couple pennies as well, although over the course of the year that number is not particularly material. In terms of our guidance for the year, I guess I’d come back to what I said in my earlier remarks. Sanjay we feel really good about the start we’re off to, but, gosh, it’s only one quarter and we have a lot of work to do as we go through the years.

Certainly we are encouraged by the revenue performance. And I would say based on the first quarter, I’d certainly think it’s much likelier that we will be at the higher end of the revenue range that I talked about in Investor Day which was for adjusted revenue growth to be at 5% to 6%. But we like a little bit more time pass before we convert that into what that might be for EPS. I would just include by saying we certainly feel very confident in the $5.60 to $5.80 EPS guidance range that we have reconfirmed again today.

Sanjay Sakhrani

Thank you.

Jeff Campbell

Great. Thanks, Sanjay.

Operator

Thank you. And now to line of Eric Wasserstrom from Guggenheim Securities. Please go ahead.

Eric Wasserstrom

Thanks very much. Just to follow-up on that on Sanjay’s line of questioning. You’ve in the past articulated in a various scenarios for revenue growth translating into a – to certain levels of earnings growth. And so given that you’re now accelerating towards the high end of your range, which is really quite impressive, given the competitive environment. How do we conceptualize the relationship between revenue growth and operating leverage as it relates to the earnings outlook?

Jeff Campbell

Well. You are right Eric. That we have a pretty simple financial model we like to talk about, which all starts with taking advantage of the range of revenue growth opportunities we have and to the extent we can get good revenue growth, the fixed cost nature of our business allows us to get pretty steady operating expense leverage. And the fact that we’re not overly capital intensive in our business allows us to use our capital strength to add a little bit more to EPS growth. It’s pretty simple model, but it all starts with the revenue growth line.

You heard us talk a lot at Investor Day in early March about how focus we are in the objective of getting to a sustainable 6% revenue growth rate and when you look at the business model we have – we can achieve that, we certainly are then confident we can get to EPS growth of more than 10% steadily. What I would say, this is 1 quarter. We feel really good about the quarter end.

Certainly in 2017 I’d remained you that when you think about prior year including a big game on a couple portfolio sales as well as happy year of earnings from that partnership that, we no longer have. Our EPS growth if you consider those things in 2017 is of course quite high way, way, way above the more than 10% level and that’s because we are getting an unusual amount of operating expense leverage because of our efforts to take $1 billion out of cost structure. And because as we built into our guidance and as we’re off to a good start on we have pretty good revenue growth in the projections we have for 2017. So what all that translates into 2018 and beyond we’ll have to see, but I think we feel pretty positive about the start we’re off to this year.

Eric Wasserstrom

Great. Thanks very much.

Jeff Campbell

Thank you.

Operator

Thank you. And now to line of Craig Maurer from Autonomous. Please go ahead

Craig Maurer

Yes. Hi, thanks. Looking to ask a question on a less glamorous subject. Could you comment on where attrition has been running and how that’s trended over the last 12 months? The new account growth is very impressive, and I just was hoping to balance it with the other side of the equation.

Jeff Campbell

Sure thanks for the question. As you have heard us talk about probably in multiple forms, when you look across our geographies and our customer segments, our attrition rates are modest and actually remarkably stable. They just don’t move that much. I think it’s certainly got a lot of attention when we talked about the fact for a few weeks last year in the U.S. consumer premium segment, when you look that Platinum cards you had a very modest uptick in attrition that quickly came back down. But all of these numbers for attrition across all of our businesses are in the low single digits on an annualized basis.

So we really haven’t seen any change when I look across the different business and the different geographies Craig, in those numbers and to finish of the Platinum story while we saw that one little blip for few weeks, in fact we ended 2016 with more Platinum Card Members in the U.S than we’ve ever had in more spending on the Platinum Card that we’ve ever had in a year.

So we are always focused on providing great value to our customers we very much try to target our value propositions at customers who want to build long-term relationships with the company. That’s what we’re all about. And right now we don’t see any signs of any change in our ability to do that. So thank you for the question.

Craig Maurer

Thanks Jeff.

Operator

Thank you and now at line of Ryan Nash from Goldman Sachs. Please go ahead.

Ryan Nash

Hi, good evening Jeff. I was wondering if I can ask a question on rewards. They were up 20% year-over-year I believe last quarter you talk about something closer to 13%. Is this really just a ramping up of the cost associated with the updated Platinum Card value proposition? Are you still expect to rewards to grow at that pace? Or given the changes that you made, are you now expecting them to grow faster? Thanks.

Jeff Campbell

So couple things. It’s a good question Ryan. We – if you go back probably a year you heard us first day at our Investor day in 2016 that when you just think acknowledge the reality of the competitive environment mostly in the U.S. consumer segment. We said at the time we expected to our rewards cost to grow a little faster than billings. In fact if you look at most of 2015 and 2016 they really weren’t there were growing roughly in line with billings. But our expectation for some time has been that you would in select cases, see us change some value propositions.

In early October of last year, we did make some more significant value proposition changes in both the business and consumer platinum products in the U.S. We’re pleased with the early results on both of those. But that step up is what drove our rewards costs up in Q4 of 2016, I’d say you saw probably the full effect, because you probably in quite get the full effect in Q4. In this quarter and so you will continue to see that ballpark level of year-over-year increase until we’re done lapping those changes as you get to the last quarter of 2017.

All that said, I would remind everyone, we feel good, as a general matter, about our value propositions today. And I think the mere fact that we had another really strong quarter of acquiring new Card Members is a demonstration that across the range of geographies and customer segments and products that we have, we think we have very competitive value propositions when you look at both what Doug Buckminster referred to in our Investor Day as the sort of real – a table stakes elements of the product, which are about rewards and pricing as well as the experiential value that we work very hard to uniquely offer given the range of unique strengths we have.

So I would expect to see, in some, the rewards cost continue to grow for the next couple of quarters. It is mostly Platinum, although there’s also some really nice growth we’re seeing in a few of our cobrand relationships like Delta that also pushed the number up a little bit. But it’s mostly Platinum, and we should be done lapping it as we get to the end of the year.

Operator

Thank you and now to the line of Jamie Friedman from Susquehanna Financial. Please go ahead.

Jamie Friedman

Hi, thanks, Jeff. I just want to ask you it’s on slide 16 of the appendix. If you don’t have it in front of you, I don’t want to disorient you. But the question is the spending per Card Member did decline to $3,297 this quarter. And I was just wondering if you could just give us some context. In fairness, when you look at it, it does look seasonal. But any context that you can give – if you don’t have that in front of you, that’s fine. But is that $3,297, is that a good or bad number? Should that be going up or down? The context of that will be helpful. Thanks, Jeff.

Jeff Campbell

I’ll admit I’m paging through, James, to be exact with the numbers. But I guess, I’d make a few comments. First off, remember, when you look at average spend year-over-year, the sale of the Costco cobrand has caused some dislocations attempt to on a year-over-year basis actually go in the other direction. Because the average spend per card was a little lower. When you look sequentially in – Toby just handed me this.

Toby Willard

Yes, so if you look – now I don’t have the page in front of me. So you see that when you look year-over-year at the 7% increase. When you go sequentially by quarter, you are correct that in Q4, most of us, and I put myself in this camp, tend to spend a little bit more in Q4 given the holiday season than you do in other times of the year. So I don’t particularly see anything in the sequential change that should be particularly meaningful. I think the more significant thing is to look at the year-over-year change where you’re taking the seasonality out. You do see it up a little bit, although, as I said, that is aided somewhat by the shift in the mix of cards because of the sale of the Costco cobrand portfolio.

Jamie Friedman

Got it. Thanks for the help.

Jeff Campbell

Thank you Jamie

Operator

Thank you and now to line of Don Fandetti from Citigroup. Please go ahead.

Don Fandetti

Yes Jeff I wanted to just shift gears to cobrands, briefly. I think you have the Hilton deal that might be coming up. Can you talk about when that renews and size it and also how you view sort of an airline hotel deal versus the retail deal?

Jeff Campbell

Well I think Don as I’m sure you expect me to say, we really value all of our cobrand partners, and I would put Hilton in that category. And you didn’t ask, but it’s probably on your mind. I would put SPG in that category, and we work really hard everyday to create value for our card members, for our partners and for our shareholders.

Beyond that, I can’t comment on specific contract terms for what might be the ultimate outcome of Marriott as they think about what to do with the 2 cobrands that are now offered to both Marriott Rewards and SPG Card Members or what Hilton might choose to do as it thinks about its current 2 cobrand partners. What I would say is that to the distinction you made, we do think that there are certain types of cobrand partners who are interested in building value, and business together.

Cobrand partners who are focused on some of the travel and entertainment oriented strings that we have I would remind you that we run a big consumer travel agency and we have a joint venture to run a big business travel agency and we have a long, long, long, long way to see of being very strong in attracting a customer base that is very travel oriented.

And so we do think that allows us to bring some unique strengths to travel oriented cobrand, that’s quite frankly, probably are at there in certain retail cobrands or often a retailer as we talked about on and off over the last couple of years. And often, the retailer is really after, in many ways, a payment vehicle that will allow their customers to do some level of borrowing.

And while, as you know, one of our strategic initiatives is trying to capture more of our own customer borrowing behaviours as a general matter, we remain a Spend-Centric oriented company and we’re less likely to be real focused on a real competitive on products where the economics are really driven 100% by lending.

So we’ll have to see where things like Marriott and Hilton goal going forward, but we’re focused everyday and providing value to those partners.

Don Fandetti

Thanks, Jeff.

Operator

Thank you. And now to line of Bob Napoli from William Blair. Please go ahead.

Bob Napoli

Thank you. Good afternoon. So Jeff 7% growth – revenue growth in the quarter and March was the strongest and you had the leap year FX. So I guess that would suggest that there’s a possibility that you could have some accelerating – an acceleration in revenue growth. And I know you’re reiterating 5% to 6% and really to 1 quarter. But looking at the trend it seems like you might be able to go above the high end of that range.

And then partly affecting that it’s kind of I mean I’ve covered this company a long time the international business seems to have more momentum than I’ve – I can remember. The spend growth accelerating each of the last three quarters. Is that helping to drive that acceleration or why is international? I mean you’re still just scratching the surface of the potential. Why is international? Is it just more investment there? So sorry, it’s kind of two questions but related.

Jeff Campbell

Well. Thanks for the question Bob. Certainly we are encouraged as I said by the momentum we see across our billings growth, our loan growth and our revenue growth. It is early in the year right and I guess I make just a few balancing comment. Yes, March given stronger than we expected in certainly revenue growth even stronger than we expected. We do a little bit of rounding I will point out to simplify in the slide if you go calculate the precise number, you will see that our Q4 revenue growth rate on an adjusted basis was about 6.4% and in Q1 was 6.6%. So it does around 6% to 7%, but you have to put it into a little perspective. Leap day certainly hurt us in Q1.

I will say outside the U.S. and particularly in our business segment Easter going to April probably helped us a little bit and then yes, we feel really good about the momentum we had built over international. So you will see some modest win, so as you get later end of the year first regulatory reasons they talk is going to impact the network business. I’ll have a bigger billings impact in revenue or profit impact. We’d some small revenue impact.

So we’re driving management team on getting to is much revenue growth as we can get to. We are really pleased with the start we’re off to. As I did say earlier it does certainly maybe we should be at the higher end of that 5% to 6% range when I talked about yesterday for the year per adjusted revenue growth. I just think we’d like to see a little bit more time pass and a little bit more performance before we move beyond that number. So thank you for the comments.

Bob Napoli

Thank you.

Operator

Thank you. And now to line of David Ho from Deutsche Bank. Please go ahead.

David Ho

I appreciate the comments on March. Just curious there’s been a lot of debate on the disconnect between the rising consumer confidence in the U.S. and not translating to overall kind of consumer spend they obviously you’re seeing in certain areas. Your T&E billings for the U.S. are still down year-over-year, but certainly trends are looking better. How much you think upside do you believe based on your new rewards propositions in some of these service-oriented categories travel and entertainment, would you capture kind of in the next cycle if it were to play out. Obviously it’s not really in your numbers and your guidance so far.

Jeff Campbell

Yes. Well, there’s probably a couple questions there David. The first thing I’d say is that through March 31 as we look at our result it’s hard for us to see anything that suggestive of a material uptick in consumer confidence or consumer or commercial spending. Well, we have been gaining momentum as we look at the many different areas gaining momentum. We can see a change that we have made and how we’re running the business and what value propositions we’re offering, et cetera, that seems to be what is driving the change as opposed to us getting the benefit of just in generally stronger economic environment.

So certainly we are as hopeful as anyone that there in fact is stronger economic growth to come in the future. I just can’t say I’d see any evidence of it right now in our results. And so your comment on T&E certainly one aspect of the changes we’ve announced in the U.S. to our platinum products is to position them both for the consumer and small business segment as being the go to products for the premium travel oriented card member. And we do think that positions us even better than we already are for positions us to be in a good spot to benefit from any increase in consumer spending or commercial spending in those areas.

As I say that I would remind you that I think we still consider in going to that latest round of changes as a very, very strong player in the T&E segment. And I think that is the Company’s heritage it remains a tremendous strength of the company. Certainly we have brought in our offerings tremendously over the last couple of decades, but that T&E strength we do think continues and the latest moves we made are just the latest step in ensuring that we don’t lose that positioning. So we’ll have to see. I certainly hope that we see an uptick in spending I just can’t say we’ve seen it. Yes, so thank you David for the question.

Jeff Campbell

Think you.

Operator

Thank you. [Operator Instructions] And now to line of Rick Shane from JP Morgan. Please go ahead.

Rick Shane

Thanks for taking my question Jeff. Just curious I mean it’s been observed to strengthen the international business you talked about the decline. You’ve pointed to some anomalies related to the tax rate. I am curious if one of the things that we’re seeing here is the greater contribution from your international businesses on the tax rate and given potential tax reform something everybody should be thinking about.

Jeff Campbell

What – you are correct if you just think about the U.S. with the co-brand portfolio sales and really steady nice growth in international. You are correct that we’re generating a little bit more of our earnings outside the U.S. and that does have a positive impact on our tax run rate. And that’s actually why even for the year before any of the discrete items that came in this quarter we gave slightly lower guidance for the tax run rate than what you’ve seen in the prior year results.

Tax reform – we’ll have to see, as you’ve heard us say in other forms due to the nature of our business we have a pretty darn high effective tax rate and if you dig through the details of our financial statements, you will realize we pretty much pay that full tax rate in cash to the U.S. So we are a very, very significant tax payer. So any lowering of corporate rates in the U.S. we are likely to be a significant winner on because we’re not a particular beneficiary of any of the very and many things that help other organizations back to pay lower rates. So we’ll have to see, certainly we’re not running the company counting on any changes in the tax area, but it would be a great thing if it were to happen.

Rick Shane

Hey, Jeff and just a follow up on that, given that you talk about the tax rate coming back up a little bit through the remainder of the year not to read too much into the first quarter tax rate. Does that suggest that you think that the business mix is going to shift a little bit? Is there an implication there that we should be considering.

Jeff Campbell

It’s really just a math, Rick, if you take the size of the settlements that drove the discrete items in Q1. In a single quarter they were an up to drag your tax rate out of our 33% to 34% range. If you take – if we don’t have other settlements, which I generally don’t build them into my forward-looking comments because they’re harder to forecast.

Over the course of a full year, they are quite enough to pull you out of your range. They certainly would – what I would expect will pull us to the lower end of that range, but not necessarily –there’s no differential assumption I’m making about mix.

Rick Shane

Great, thank you.

Jeff Campbell

Thanks, Rick.

Operator

Thank you. And out of line of Arren Cyganovich from D.A. Davidson. Please go ahead.

Arren Cyganovich

Thanks. I was surprised at the strength of the net interest yield. You mentioned that there are some seasonal benefit in the first quarter, just curious is, if you think that current mix shift that you’re getting also is the benefit will continue in maybe just your thoughts on the future trajectory of that net interest yield for the card loan business.

Jeff Campbell

Well, you’re correct, Arren. There is a seasonal element. But as I mentioned earlier, there’s really quite a number of other factors that have helped us steadily drive the net interest yield up including some pricing actions we’ve taken, including the fact that with the funding mix we have right now personal – the personal savings rates we have on our deposits haven’t really moved.

So in fact, the Fed interest rates increases so far have been in a positive for the company. Including the mix of customers moving to one where there’s a little bit more revolve, which of course helps the yield. And then we also and this is a benefit that will a bit over time. You’re helped a little bit right now, because we had in our efforts to win back cobrand card members over the last year or two. We had a number of people who were on introductory or promotional offers you were flipping into paying regular rates now. And that’s helping with the rate up a little bit right now.

So a lot of factors there. The seasonality base a little bit and the one time impact from winning back some of the cobrand card members will save it bit over time. But all the other things, we think will hold and we think this continues more broadly to be an area, where there is a long, long runway for steady growth in net interest income, right.

And where we’ve been growing our loans by having over 50% of the increase come from existing customers or those are people we know we understand the risk profile is further cementing the broad customer relationship we have with them. So we feel really good about what we’re doing here.

Arren Cyganovich

Thank you.

Jeff Campbell

Okay, we’ll take one more question, thanks.

Operator

All right. And that comes from the line of Jason Harbes from Wells Fargo. Please go ahead.

Jason Harbes

Hey guys, thank you for squeezing me on here. So most of my questions were asked and answered already. But I did just want to follow up on a comment you made Jeff about some of the initiatives you’re taking to attract millennials on a platform. Perhaps you can elaborate a little bit on what you’re doing within the context of a reason New York Times article on a topic.

Jeff Campbell

Well. Jason I appreciate the question. I think first off, it’s important to maybe that’ll set a little bit of the facts. So if you look at last year in our global consumer business – get to B2B in a minute, but in our global consumer business over 55% new customers brought in [indiscernible] And in fact that number was up about 16% at versus the prior year. If you look at the rolling of applications and new card members who are coming to mobile channels as you would expect. Almost half of those new applicants and card are millennials.

If you look at the things we do as a company in the digital sphere, we talk a lot about how the unique nature of our closed loop network allows us to be particularly adept at working with company in the social media, digital and payments field. We really feel like we have been at the forefront of how you bring those three worlds of digital, social media and payments together. In the partnerships, we’ve done with Airbnb with Twitter with Facebook – with Facebook to have an annex spot. When you look at our pay with points program, which is broader than anyone else’s in the industry, it is disproportionately used by our millennial customers.

So we feel really good about our track record of attracting millennials to the franchise. We feel really good about the range of things we do using our unique assets to appeal to millennials. The last thing I’d say though, whether you’re a millennial or a baby boomer or in any cohort. We are however about building long-term customer relationships. And we build products, we build value propositions, we build service experiences that are trying to attract and retain people who are about long-term relationship, not necessarily people who are looking for the latest great thing and they’re going to swap out of it six months.

So, look you can never do enough in this area, so we’re focused every day I’m trying to do better. But I think our track record with millennial strong. And I think our ability to leverage our unique assets is strong. So I appreciate the question, but we feel pretty good about what we’re doing so.

Toby Willard

All right. Great. Gary, thanks very much that wraps it up for us.

Operator

All right, thank you. And ladies and gentlemen that does conclude our conference for today. Today’s call will be available for replay after 8:00 PM Eastern Time today through midnight April 26, 2017, and the access AT&T replay system at any time by dialing 1-800-475-6701, and entering the access code of 421089. International participants may dial 320-365-3844 and again 800-475-6701 for domestic and the access code of 421089. And that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.

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