American Express Company

Ladies and gentlemen, thank you for standing by. Welcome to the American Express Q2 2019 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're using a speakerphone, please pick up the handset before pressing the numbers. Should you require assistance during the conference call, please press star, then zero. As a reminder, today's call is being recorded. I would now like to turn the conference call over to your host, Head of Investor Relations, Ms. Rosie Perez. Please go ahead.

Thank you, Alan. Good morning. Appreciate all of you joining us for today's call. The discussion today 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 SEC. The discussion today also contains certain non-GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the second quarter 2019 earnings release and presentation slides, as well as the earnings materials 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 Squeary, 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 our second quarter 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, Rosie. Good morning, everyone, and thanks for joining us. As our second quarter results showed, we continue to build on the broad-based momentum we entered the year with. FX adjusted revenue growth in the quarter accelerated to 10%, and earnings per share of $2.07 was 13% higher than last year. I feel good about these results, as well as the breadth and consistency of our performance. This is the eighth straight quarter we posted FX adjusted revenue growth of 8% or better. and our growth continues to be driven by a well-balanced mix of spending, fees, and loans spread across geographies and customer segments. We continue to see solid trends in card member spending led by consumers. This spending is occurring against the backdrop of an economy that is growing at a steady but more modest pace relative to 2018. FX adjusted proprietary billings grew 8% on a consolidated basis, and loan growth remained strong with over 60% of that growth coming from existing customers. Credit continued to perform at industry-leading levels, driven by the premium nature of our customer base, our strong risk management capabilities, and the opportunity we have to increase our share of our customers' lending wallets. The consistent growth we're seeing speaks to the strength of our differentiated business model and the success of our focus on our four strategic imperatives – It's been a busy first half of the year, and I thought it would be good to take a step back and reflect on some of the progress we're making in each of our priority areas. In the consumer space, we're continuing our disciplined approach globally to upgrade our premium card products, enhancing our unique value propositions and pricing for the additional value that we're delivering to our card members. In the second quarter, we launched new or refreshed platinum cards in the U.K., Italy, Finland, Norway, and Sweden, And in early July, we launched an enhanced platinum card in Germany. We also made several additional enhancements to the gold card in the U.S. And earlier in the year, we launched a new suite of co-branded Marriott Bonvoy cards. In each case, we're leveraging our differentiated business model to offer unique benefits, services, and experiences to our card members in categories such as travel, dining, and access to popular events and experiences. These are some of the aspects of our products that are more difficult for others to replicate, and they're the ones that our card members most value and are willing to pay for. In fact, nearly 70% of the new consumer cards we acquired this quarter carry an annual fee, and card fee revenue grew 17% year-over-year and accelerated sequentially quarter-over-quarter. In addition, we're seeing strong results in attracting next-generation consumers to the franchise. With our most recent U.S. consumer product refreshes, more than 50% of our new card members are millennials or Gen Zers. I believe we have a long runway to continue this growth. Turning to commercial payments, scaling our B2B payment offerings is one of our key growth strategies. Expanding our network of strategic partnerships is a key enabler here, and we're making great progress. Our commercial customers increasingly want payments integrated into their secure-to-pay infrastructure. and we're developing a range of solutions which do that for businesses of all sizes and complexities. For example, we're partnering with providers like Amazon Business, TradeShift, and most recently SAP Ariba to help large and global companies track and reconcile payments within their ERP systems. For our larger SME customers who are looking for ways to increase efficiency and cash flow, we're working with companies like Wax and Mineral Tree on payment solutions that integrate into their accounting and procurement systems. And for our small business customers, we're offering an AP automation solution with Bill.com that makes it easier for them to pay their suppliers using our cards. Our objective is to provide payment capabilities and financing solutions that help our customers manage and grow their businesses. We want them to view American Express as an essential partner, whether they're a single proprietorship or a Fortune 500 company. We're still in the relatively early stages of this journey, but we're making good progress in building out our B2B offerings. and we'll continue to invest in this area going forward. Moving on to our third imperative of strengthening our global integrated network, we're on track to achieve our goal of virtual parity coverage in the U.S. by year-end. We're also making good progress on expanding merchant coverage internationally and building our network in China. In the second quarter, we announced that card members can now tap and pay with their contactless-enabled American Express cards or digital wallets for subway and bus rides in New York City as part of the MTA's new pilot program. This is just another example of the vast array of opportunities in the payment space, as contactless will convert more cash transactions to mobile and plastic. Once consumers have experienced the speed, convenience, and security of contactless payments in public transit, they're more likely to tap and pay at other establishments, such as quick service restaurants, retailers, and more. We'll continue to expand our contactless capabilities in the U.S. and internationally, both through third-party mobile providers and through the issuance of contactless-enabled cards. We're also working with merchants to expand contactless acceptance in order to give our card members more options for easy and efficient ways to pay. Our fourth imperative, making American Express an essential part of our customers' digital lives, cuts across all of our lines of business. We know that our card members spend much of their time online, particularly on their mobile devices. We want to help them manage more aspects of their lives by integrating more content, capabilities, experiences, and benefits into all of the ways we interact digitally with them. We're making good progress on this front, and to accelerate our efforts, we've acquired a number of digital companies over the past 18 months, including Mezzi, Lounge Buddy, Cake Technologies, Pocket Concierge, and our newest acquisition, Rezzy, the U.S. restaurant booking and management platform, which we announced in May. These acquisitions, along with new digital features and content we're continually building in-house, will enable our card members to do more with their American Express membership directly from their mobile device, whether it's getting a recommendation for a new restaurant, finding tickets to popular events, reserving a spot at the nearest airport lounge, redeeming rewards points for a wide variety of merchandise and experiences, saving money at some of their favorite merchants, or booking travel. Today, our card members are engaging with our app more frequently and on a wider range of activities in addition to performing traditional transactions like checking their spending and paying their bills. We expect this to increase as we work to integrate more new capabilities and benefits. In summary, I feel good about the quarter, and I like where we stand at the halfway point of the year. Our strategy of investing in share, scale, and relevance and leveraging the power of our differentiated business model is paying off across the enterprise. This strategy is driving growth in spending, lending, customer acquisitions, and engagement across businesses and geographies. Our results give us confidence that we're on the right track for delivering on our goal of consistent revenue and earnings growth. As we look ahead, we're reaffirming our guidance for the full year of delivering revenue in the 8% to 10% range and adjusted earnings per share between 785 and 835. Now I'd like to turn it over to Jeff for a detailed discussion about our second quarter results, and then we'll be happy to take your questions.