American Express Company

Ladies and gentlemen, thank you for standing by. Welcome to the American Express fourth quarter 2018 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, please press star then 1 on your touchtone phone. You will hear a tone indicating you've been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you are using a speaker phone, please pick up the handset before pressing the numbers. Should you require assistance during the call, please press star, then zero. And 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. Edmund Reese. Please go ahead.

Thank you, Lori. 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 risk 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 fourth quarter 2018 earnings release and presentation slides, as well as the earnings material for prior periods that may be 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 Steve Squarey, Chairman and CEO, who will start the call with some remarks about the company's progress and results. And then Jeff Campbell, Chief Financial Officer, will provide a more detailed review of full year 2018 financial performance. Once Jeff completes his remarks, we'll move to a Q&A session on the financial results with both Steve and Jeff. With that, let me turn it over to Steve.

Thanks, Edmund, and good afternoon, everyone. I feel really good about the company's performance and our position as we start 2019. 2018 was a strong year. The investments we've made continued to strengthen many of the attributes that distinguish American Express from our competitors. The unique breadth of services, benefits, and rewards that we offer are helping us gain share and scale, which we believe drives sustainable top-line growth. We saw continued momentum across the company and throughout the year. Full year FX adjusted revenues grew 10% with the fourth quarter marking the sixth consecutive time revenues grew at least 8%. The total revenue we generated in 2018 was well above our initial expectations and gave us the flexibility to make additional investments in the business each quarter. Our full year EPS of $7.33 after adjusting for tax items was a 24% increase over the prior year. We added 12 million new cards in 2018, and billing's growth was strong, particularly with small and medium-sized businesses and across international regions. We expanded our merchant coverage around the globe, adding over 1 million new locations in the U.S. for the second year in a row and posting double-digit growth internationally. These results demonstrate the advantages that come from our differentiated business model. Our growth was broad-based among consumers and businesses, and it was well-balanced across geographies and business lines. While over 80% of our revenue is coming from discount revenue and fees, we also generated strong loan growth. Our 2018 credit performance was a little better than we expected, and the data we derived and analyzed from all the parties in our integrated payments platform helped us maintain industry-leading write-offs. We have continued to control our operating expenses, which, as you saw throughout the year, provides operating leverage and the flexibility to make investments in our brand, customer benefits, and digital innovation. Our performance strengthens my confidence in our ability to generate and sustain a healthy level of top-line revenue growth, which is the foundation for steady and consistent double-digit EPS growth. Driving our performance was our focus on and investments in the four strategic imperatives that I established in October of 2017. Expanding our leadership in the premium consumer space, building on our strong position in commercial payments, strengthening our global integrated network to provide unique value, and making American Express an essential part of our customers' digital lives. In the premium consumer space, we continue to enhance the range of benefits we provide gold and platinum card members, not just here in the United States, but also in India, Mexico, Hong Kong, Australia, Singapore, and Japan. Our relationship with Delta Airlines continues to grow, and the value we are providing to our mutual customers is a major strength for both of us. Like Delta, the partnerships we expanded with Marriott and Hilton take advantage of the power of our integrated payments model, harnessing the assets across our card, travel, and merchant businesses. Centurion lounges at major airports around the globe continue to provide exclusive value to travelers, and we are planning to add more of them in the year ahead. The 2018 results reinforce our view that card members appreciate the unique benefits and services we provide. They recognize and are willing to pay for value, which provides the foundation for earning even a greater share of their spending and borrowing needs going forward. In commercial payments, we've built a global footprint that provides a terrific competitive advantage. Our relationships range from small neighborhood businesses to the largest multinational corporations, and we continue to deliver value in each segment. We added customized benefits on our business gold and platinum cards. And as you may recall from last quarter's discussion, we formed a strategic partnership with Amazon that includes a new co-branded small business card and gives our mutual customers greater control and line-by-line visibility into their online purchases. We are helping small and medium-sized businesses grow, not just by offering spend capacity, but also with products that meet their working capital needs, help to manage their cash flows, and handle expenses for temporary employees or contractors. The investments we've made in commercial payments are one of the key reasons that small and medium-sized businesses continue to be one of our fastest-growing customer segments worldwide. Moving on to our third imperative, we are making great progress towards virtual parity in the U.S. and expanding merchant coverage internationally. We've begun to leverage that progress with marketing offers that encourage card members to take advantage of the growing number of places where American Express is welcomed. That's good for merchants. It's good for card members. It's good for American Express. The same holds true for our 2018 Small Business Saturday and Shop Small campaigns that drove business to merchants in the UK, Australia, Japan, and the United States. Looking ahead, we are the first foreign company with approval from the People's Bank of China to build a network to process domestic currency transactions. There is still a good deal of work to do, but this has the potential to give us an important first mover advantage. Our fourth imperative, making American Express an essential part of our customers' digital lives, cuts across all lines of business. Here again, our differentiated business model provides unique advantages in a world that is becoming digital at a faster and faster pace. More customers are engaging with us through mobile channels and our app, which placed first in the annual J.D. Power survey, gives us new ways to serve them and deliver offers that leverage our merchant relationships. Later this year, our expanded partnership with PayPal will provide innovative ways for card members to pay online and make P2P transfers. We are experimenting with blockchain, AI, and other technologies, and we are driving innovation through partnerships, acquisitions, and enhancements to our own digital platforms. There are many things that make this business special, and we've been reinforcing that, not just with strategic business investments, but also with the global marketing campaign that we launched in 2018. Our new platform does a terrific job of highlighting the powerful backing of American Express and illustrating why the American Express brand is one of our most important assets. All in all, we have a great deal of progress to report, we are generating momentum, and our investments will continue to focus on the four strategic imperatives. I believe this approach will help us to sustain the strong revenue growth that is at the heart of our financial model. While there are mixed signals in the political and economic environment, based on what we see in the business, we are starting 2019 from a position of strength. We expect full-year 2019 revenue growth of 8% to 10%, and EPS to be between $7.85 and $8.35. I'm excited about the opportunities that lie ahead and our ability to continue to deliver sustainable growth for our shareholders. Now let me turn the call over to Jeff. Well, thanks, Steve, and good afternoon, everyone.