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American Express Company (NYSE:AXP)
Q4 2018 Earnings Conference Call
Jan. 17, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American Express fourth qt 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 * then 1 on your touchtone phone. You will hear a tone indicating you've been placed in the queue.

You may remove yourself from the queue at any time by pressing #. If you are using a speakerphone, please pick up the handset before pressing the numbers. Should you require assistance during the call, please press * then 0. 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. Edmond Reese. Please go ahead.

Edmund Reese -- Head of Investor Relations

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 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. Our 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 Squeri, 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 the 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.

Stephen Squeri -- Chairman and Chief Executive Officer

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 continue 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 billings growth was strong, particularly with small and medium-sized businesses and across international regions. We expanded our emerging coverage around the globe adding over one million new locations in the US 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 derive and analyze 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 topline 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 merch and 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 the greatest 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 multi-national corporations and we continue to deliver value in each segment.

We added customized benefits to our business gold and platinum cards. And as you may recall from last quarter's discussion, we've 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 onto our third imperative, we are making great progress toward virtual parity in the US and expanding merchant coverage internationally. We've begun to leverage our 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 cardmembers, 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 JD 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 cardmembers 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 the full year 2019 revenue growth of 8-10% 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.

Jeffrey Campbell -- Chief Financial Officer

Well, thanks, Steve, and good afternoon everyone. Good to be here today to talk about the fourth quarter, what was a great year for American Express, and to lay out our expectations for 2019. I will spend a bit more time this afternoon on our full year trends since it is our year-end and since looking at our business on an annual basis is more in sync with how we manage the business. Let's get right into it with our summary financials on slide three. Starting with our full year results, our revenue exceeded $40 billion for the first time at 40.3 billion and was up 10% on an FX adjusted basis. Fourth quarter revenue was also up 10% on an FX adjusted basis. This is our highest level of annual managed revenue growth in over a decade and we feel very good about the consistency of our revenue growth over the entire course of 2018.

Moving now to net income, we do need to talk for a minute about tax. Our results this quarter contained a number of positive adjustments for some items related to the tax act as well as for some tax audits. In total, these tax items amounted to $496 million in 2018's fourth quarter or $0.58 EPS impact. And of course, as a reminder, in 2017's fourth quarter we booked a $2.6 billion charge due to the passage of the Tax Cut and Jobs Act. If you adjust for all of these tax items, as we have done on slide three, full-year 2018 EPS was $7.33 up 24% including the $1.74 of adjusted EPS in the fourth quarter. This is stronger performance than we initially anticipated for the year and comes along with we also have been able to fund more long-term growth-oriented initiatives than we had originally planned.

This sets us up well for the focus that Steve talked about of sustaining a healthy level of topline growth providing the foundation for steady and consistent double-digit EPS growth. So, let's turn to the details of our performance starting with billed business, which you see several views of on slide four through six. Starting on slide four, we've broken out our billing's growth between AXP proprietary and Global Network Services, our network business. Given the difference in trends right now, we think this is a helpful disclosure. Our proprietary business, which makes up 85% of our total billings and drives most of our financial results, was up 11% for the year and 10% for the fourth quarter on an FX adjusted basis.

The remaining 15% of our overall billings, which come from our network business, GNS, was down 1% for the year and 4% for the fourth quarter on an FX adjusted basis as a result of the ongoing and expected impact of certain regulatory changes. Turning to slide five to look at the billings by customer type for the fourth quarter, I would remind you that our global commercial and global consumer segments are roughly the same sizes representing 41% and 44% of Q4 billings respectively while Global Network Services makes up the remaining 15% of billings. Starting on the left with our small and mid-sized enterprise card members, or SMEs, US SME was up 10% as it has been in every quarter this year. We are a leader in the US SME space and we feel good about the consistently strong billings that we have had for several years in this customer segment. International SME remains our highest growth customer segment with 21% FX adjusted growth in the quarter.

Given the low market penetration we've seen in the top countries where we offer international small business products, we continue to feel good about our long-term growth opportunity in this segment. In the large and global customer segment, we saw 7% growth on an FX adjusted basis in the fourth quarter. As we've been saying for some time, our growth rate in this segment can vary a bit quarter to quarter given the large volumes a few customers can drive. So, while growth is down from 10% in the third quarter, we see our fourth quarter results as stalled.

As an aside, as you know, this segment is heavily T&E oriented and you can see in the earnings tables that our growth overall in US T&E and global airline billings remain strong at 8% on an FX adjusted basis. Moving to US consumer, which made up 32% of the company's billings in the fourth quarter, billings were up 9% in the quarter. Moving to the right, international consumer growth remained in the high teens as it has been all year at 17% on an FX adjusted basis. We continue to have widespread growth in key markets with continued double-digit growth in Japan and Mexico and over 20% growth in both Australia and the UK all on an FX adjusted basis.

Finally, on the far right, as I mentioned earlier Global Network Services was down 4% on an FX adjusted basis driven by the impacts of regulation in the European Union and Australia where we are in the process of exiting our network business over time as a result of changes in the regulatory environment. Although network billings are down in these regions, if you were to exclude the European Union and Australian markets, the remaining portion of GNS was up 7% on an FX adjusted basis. To conclude our billings discussion with slide six, you see that across our proprietary business, there was a modest sequential decline in the growth rates in the fourth quarter.

You will recall that beginning with our investor day last March, we noted that spending from our existing customers showed an additional increase beginning in Q4 '17 and becoming much more evident in Q1 '18. This occurred across geographies and across customer segments. We attributed it to an increase in confidence within our customer base in the US and around the globe. As we got to the end of 2018, we began to lap that step up. So, while we continue to see strong billings growth from existing customers and Q4 '18, we did see some sequential deceleration in the growth rate due to this lapping. So overall, we continue to feel good about the breadth of the momentum we see throughout our business.

Turning next to loan performance on slide seven. Total loan growth was 13% in the fourth quarter. We've said all year we continue to be focused on driving growth with our existing customers. And about 60% of our growth in lending again came from existing customers this quarter. The Hilton portfolio acquisition that we completed earlier this year, is again contributing about 120 basis points to growth this quarter. And I would remind you that we will lap the portfolio acquisition at the end of January. On the right-hand side of slide seven, you see that net interest yield was 10.7%, an increase of 20 basis points over the prior year. Since for some time we've been saying that these increases were gonna moderate, we are pleased to see this outcome. The increase was driven by a number of mix and pricing impacts as well as by the fact that we're continuing to grow our online personal savings program, which helps moderate our funding costs in a rising rate environment.

In fact, our online personal savings program had higher than expected growth, 24%, in Q4. Turning next to credit metrics on slide eight. Starting with lending on the left, you can see that the lending write-off rate was 2% up 20 basis points from the prior year. On a sequential basis, we were down slightly, and we've continued to come in better than our expectations throughout the year. On the right side, you can see similar metrics on our charge portfolio. The charge write-off rate, excluding GCP, was 1.4% in the fourth quarter down 10 basis points from a year ago and down on a sequential basis. I'd remind you though that there is typically more quarterly volatility in these charge rates due to seasonality.

More broadly as we look at the fourth quarter, we do not see anything in our portfolio that would suggest a significant change in the credit environment. We continue to feel good about our ability to capture lending share from existing customers while retaining best in class credit metrics. These best in class metrics led to the $954 million in provision in the fourth quarter that you see on slide nine. As you know, the accounting provision is complex, which drives some significant quarterly volatility at times. This makes looking at provision growth on a full year basis more meaningful and for the full year 2018, our provision was up 21%. This is a better outcome than we originally anticipated as the provision growth reflects better than expected credit performance, somewhat offset by there also being slightly higher loan growth than we originally expected.

Turning now to revenues on slide 10, FX adjusted revenue growth was 10% for the full year as well as the fourth quarter. As Steve mentioned, this represents the sixth straight quarter of revenue growth of at least 8% driven by steady growth from a well-balanced mix of spending late fees and lending. The portion of our revenue coming from discount revenue and fees remained above 80% for the full year and the fourth quarter. I would also point out that the FX impact to our growth rates in the fourth quarter was larger than in Q3 given the strengthening of the US dollar against the major currencies in which we operate. For those of you interested, I would remind you that we share our exposure to top currencies in the appendix of the earnings slides.

Moving to slide 11, you see the components of our total revenue. Discount revenue was up 8% for the year and 7% in the quarter both on a reported basis, which I'll come back to on the next slide. Net card fees growth was up 11% for the year and accelerated to 14% in the fourth quarter. We feel especially good about the breadth of products that drive our net card fees. The increased engagement that we see with new and existing customers gives us confidence in our ability to maintain strong growth in this line. In fact, in recent months we have added value and priced for that value on card products around the world, including our gold cards in the US and UK as well as platinum in Hong Kong, Mexico, and India. Net interest income was strong all year and up 17% in the fourth quarter driven primarily by the growth in loans and net yield that I mentioned a few moments ago.

Turning now to slide 12 to cover the largest component of our revenue, discount revenue. On the right, you see that we achieved discount revenue growth of at least 8% on an FX adjusted basis in all four quarters of 2018. We feel really good about our performance. And as you've heard, Steve and I say many times, we are focused on driving discount revenue growth, not on the average discount rate. This type of discount revenue growth reflects our ability to optimize our integrated business model and our pricing flexibility. We may selectively adjust the discount rate on certain types of transactions, which impacts the average discount rate. But ultimately, we are doing things that drive profitable economics and discount revenue growth. So, while you can see on the left that our average discount rate was down just one basis point to 2.36% for Q4, well I'll say that going forward our focus will continue to be on driving discount revenue growth not the average discount rate.

Turning now to expenses on slide 13. Let me first point you to operating expenses, which were flat in 2018 even with strong billings growth. A key part of our differentiated business model is our ability to drive operating leverage and our performance in 2018 clearly demonstrates that benefit and we feel confident in our ability to continue to generate operating leverage going forward. This operating leverage is a key component of our financial model as it helps mitigate the margin compression we are seeing as we invest in our customer engagement costs, which you can see on slide 14 and which were up 14% on a full year basis.

Starting at the bottom with marketing and business development, I'll remind you that this line has two components. Our traditional marketing and promotion expenses as well as payments we make to certain partners, primarily corporate clients, GNS partner banks, and co-brand partners. While partner payments drove higher Q4 expenses, full-year marketing and business development was up 13% reflective of our commitment to invest for the long-term. Moving up to rewards expense on a full year basis, we were up 12%, roughly in line with proprietary billings. Continuing on to card member services, we were up 28% for 2018. As we've said throughout the year, we expect this line to be our fastest growing expense category as it includes many components of our differentiated value propositions, which we believe are difficult for others to replicate, such as airport lounge access and other travel benefits.

Turning last now to capital on slide 15. We ended the year with a CET1 ratio of 11%, which is at the top end of our 10-11% target range. During the year, we were really pleased that we were able to increase our CET1 ratio by 200 basis points in just four quarters, completely recovering from the impact of the $2.6 billion tax act charge that we took last year. We did this while increasing our dividend by 11% and while also resuming our share buyback program in the third quarter. This is a great outcome and a testament to the high ROEs that are our financial model generates. Looking forward, while there is some uncertainty around what this year's CCAR process will look like, we feel that being at the top of our 10-11% target range positions us well for this year's process.

And so, in summary, we feel really good about the momentum we built in 2018 with strong growth across our geographies, customer segments, and revenue drivers. As Steve said, we are introducing our 2019 earnings per share guide into the range of $7.85 to $8.35, which assumes revenue growth of 8-10% in line with the last six quarters. This outlook is based on what we know today about the economic, regulatory, and competitive environment. To state the obvious, there is some uncertainty about potential changes in the external environment. I would also add that we can have some volatility from quarter to quarter and what we are focused on is achieving the annual earnings guidance that we have provided today. Looking at the drivers of our financial results, there are a few other key planning assumptions I would highlight.

First, full year provision growth is expected to be less than 30%. We expect loan growth to be at a level similar to 2018 as we capture to share with our existing customers. And from a credit perspective, we expect lending write-off rates and delinquencies to remain below the industry average, although we do expect continued modest increases due to seasoning as we've seen for some years now. Second, our best estimate of the effective tax rate is around 22%. Also, as a reminder, EPS outlook is subject to the impact of any other contingencies. As we close out 2018, we feel good about the business and our focus on sustaining strong revenue momentum. As we have said, driving 8-10% revenue growth does require investment and as you saw in 2018, we are committed to investing to drive share, scale, and relevance. We look forward to providing more insight into our strategic opportunities in 2019 areas of focus during our investor day in March. With that, let me turn it back over to Edmund to begin the Q&A.

Questions and Answers:

Edmund Reese -- Head of Investor Relations

Thank you, 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 up the line for questions. Operator?

Operator

And ladies and gentlemen, if you would like to ask a question, please press * then 1 on your touchtone phone. You'll hear a tone indicating you've been placed in the queue. You may remove yourself from the queue at any time by pressing #. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, press * then 1 at this time. And one moment for the first question.

And our first question comes from Don Fandetti with Wells Fargo. Please go ahead.

Don Fandetti -- Wells Fargo -- Analyst

Jeff, so, a question about the proprietary billed business moderation and growth rate. I hear you on the tougher comps but is there also sort of moderation and momentum just given what's going on globally? Or are you saying you're not really seeing any impact? And then, as you sort of think into January and Feb, is there anything you want to call out to us just given all the fears out in the market on the uncertainty?

Jeffrey Campbell -- Chief Financial Officer

I think as I've said, Don, we've been talking for almost a year now about what we saw happen later in 2017. And we said at the time while we'd been doing lots of things to drive more organic growth in our business, there is a noticeable step up in the middle of Q4 of '17 that we couldn't tie directly to things we were doing. That's sustained itself but there's a fairly simple lapping issue as you get into Q4 and get passed that. Obviously, there's a lot going on in the external environment but when we look at the trend we saw in Q4, it ties pretty strongly to what I just described.

Look, it's early in January. We tend not to comment on results during interim periods or over a couple of weeks but the fact that we exited the full year with the momentum we had, the fact that we'd been providing guidance today for revenue growth of 8-10% for 2019, I think Don gives you a pretty good sense that we feel really good about all the things that we see within our business. As for the external environment, well, we'll have to see how 2019 turns out.

Operator

Our next question from Sanjay Sakhrani with KBW. Please go ahead.

Sanjay Sakhrani -- KBW -- Analyst

Thanks. I guess a follow-up question to what Don had and maybe more related to the guidance. So, when we think about the revenue guidance, is that assuming some continued moderation in the billed business expectation given the tougher comps as you moved into this year, Jeff? And then, on the EPS guidance range; how conceivable is it that you get to the low-end of that range on the revenue expectations that you've given? Is it in an adverse scenario from an economic standpoint or is there something else in terms of investment that you're indicating? Thanks.

Jeffrey Campbell -- Chief Financial Officer

Two good questions. So, let me start and spiel out a little color. On the revenue side, yes, clearly, we feel good about the overall momentum that we're exiting in 2018 with. A couple of revenue headwinds we've been talking about for a while are you're lapping the Hilton portfolio. And you're getting a little moderation at our net interest yield, but we feel really good about our ability to sustain strong revenue growth. On the EPS side, I think you're asking a good question, Sanjay.

And the point I would make is look, there's a little bit of uncertainty in the outside environment right now so in a world where 2019 turns out to look something like 2018 in terms of the economy, you should expect this to be at the mid to upper end of the range, and the lower end of the range is there when you think about things happening in the equity markets, the government is shut down right now. A little bit of uncertainty so sure, if the economy weakens a little bit, that's about the lower end of that range.

Stephen Squeri -- Chairman and Chief Executive Officer

The only thing I'll add is; look, we feel really good about the growth algorithm that we've been communicating, which is we're really focused on growing topline revenue growth and to do that, we will continue to make those investments that enhance our integrated model, enhance our differentiated business model and continue to make us unique. So, I feel really good about 8-10% revenue growth guidance coming off six quarters in a row of 8% or plus revenue growth. The EPS range is as Jeff described it. It's there to provide a little bit of downside if, in fact, things don't continue as we saw in '18. And it's to provide the upside so that if we continue to have a year like we had this year where just to bring everybody back it was 690 to 730 guidance at the beginning of the year and we came in at 733, which we feel is a great year for us. So, there's not much more to it than that.

Sanjay Sakhrani -- KBW -- Analyst

Can I just ask a follow-up? I'm so sorry. Sorry, alright, fine.

Stephen Squeri -- Chairman and Chief Executive Officer

No, go ahead, we're teasing you.

Sanjay Sakhrani -- KBW -- Analyst

Just the 8-10, like in that moderating scenario, is it conceivable to hit the 8-10 or would it come below that? Is I guess my question because that's tied to the --

Jeffrey Campbell -- Chief Financial Officer

Well, Sanjay, now you're getting into hypotheticals. Look, we feel really good about our revenue momentum and we can hit 8-10 in an environment that weakens a little bit. If it weakens more than a little bit, if it weakens a whole lot, it's gonna get harder. Look, I'm not gonna speculate about particular levels.

Operator

And we'll go next to Ken Bruce with Bank of America Merrill Lynch. Please go ahead.

Ken Bruce -- Bank of America Merrill Lynch -- Analyst

Thanks, good evening. I don't think you want to start breaking your own rules two callers into the Q&A, it could get you into some trouble. So, look, you've had a number of great quarters. Momentum had been accelerating, this is the first quarter that we've seen some decelerations. I'm interested in terms of when you look at the business in the quarter, was it just the tough comps or was there a change in the confidence interval within the customers that kinda peeled off some of that spending and to the degree that that continues, does that mean you have to essentially lean harder into the lending sending of the equation, which is clearly outperforming the rest of the business at the moment?

Jeffrey Campbell -- Chief Financial Officer

Let me just start by pointing out that our revenue growth was 10% in the fourth quarter which is what it was for the full year, which is the same as it was in the third quarter. So, from a revenue perspective, which is the end goal here, I wouldn't call it a deceleration. Now, yes, volume's decelerated a little bit because of the step up in organic growth from a year ago, which if you just think about the math here -- unless you get a further step up this year, which we didn't see, as you lap that you're gonna see the modest deceleration.

Stephen Squeri -- Chairman and Chief Executive Officer

Here's what I would say; and you know, quarters drive me a little bit crazy. You look at the whole year and it was 733. From an earnings perspective -- and 10% -- revenue was really steady for us. And I think what's really important as a management team, we're managing for the year. You have arbitrary cut-offs which happen to quarter. But we're really trying to manage for the entire year. We're managing those investments across the entire continuum and the reality is, when we see good investment opportunities, we will make those investment opportunities because they're good for our shareholders and the medium and long-term. So, we feel great about 2018 and we feel good about the momentum that we have going into 2019.

Ken Bruce -- Bank of America Merrill Lynch -- Analyst

And just in terms of leaning into credit?

Jeffrey Campbell -- Chief Financial Officer

I'm sorry, what's the -- I'm not, sorry --

Stephen Squeri -- Chairman and Chief Executive Officer

Meaning it's a credit to I guess either drive revenue, Ken?

Ken Bruce -- Bank of America Merrill Lynch -- Analyst

That's correct, yes.

Jeffrey Campbell -- Chief Financial Officer

The portion of our revenues that come from net interest income was 19% for all four quarters of 2018. And in fact, our lending growth slowed a little bit in Q4 because, as you've heard us say, we don't set particular lending targets. We're focused on the overall customer relationship, part of that is capturing more of our existing customers borrowing. There's no leaning more into lending here. You didn't see it and it's the fourth quarter and you won't see it in 2019, no.

Ken Bruce -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you. I'll let you get back onto your rule [inaudible].

Operator

Our next question from Chris Donat with Sandler O'Neill, please go ahead.

Chris Donat -- Sandler O'Neill -- Analyst

Hi, just wanted to ask one more related to the cadence of spending. Just because, particularly on the consumer side, economists have debated for years whether or not there's a wealth effect with stock markets and consumer spending and it seems like we've seen some evidence out of some high-end retailers of slower spending in December. But Jeff, just to be clear when you're talking about the lapping effect, that has nothing to do with any slowdown in year-on-year activity, particularly on the consumer side from the billed business. It's just the effect of what happened in December 2017, right?

Jeffrey Campbell -- Chief Financial Officer

Yeah, I guess I'd say two things. Correct. And so, it'd be -- had spending fallen off in Q4, you would've seen an even bigger decline. All of that said, let's acknowledge that the equity market volatility if you want to talk about the wealth effect, was in the last ten days of the year, which is kinda rounding for our quarter. People aren't particularly focused on shopping between Christmas and New Years anyway. I'm not sure we have a great long period to test your theory. Clearly, we feel good about the momentum we have entering 2019 and we feel good about the guidance we gave, which assumes that spending will stay reasonably strong.

Chris Donat -- Sandler O'Neill -- Analyst

Okay, thanks very much.

Operator

Thanks. We go next to Mark DeVries with Barclays. Please go ahead.

Mark DeVries -- Barclays -- Analyst

Yeah, thanks. It seems like one of the main reasons why you saw no deceleration in revenue growth despite the slowing in billed business was that acceleration -- Jeff, that you highlighted in the net card fees line. And I heard you say part of that's due to the fact that you've been pricing for increases in value props, but you've been doing that for the last couple of years. I'm just trying to understand what caused the acceleration this quarter and kind of how sustainable is that growth going forward?

Jeffrey Campbell -- Chief Financial Officer

On net card fees itself, we feel really good about the modest acceleration. I think it was 11% for the year and then 14% in the quarter. And what gives us confidence, Mark, in that it's not a product or two products. We have a long multi-year playbook of history here around the world, across our many different products, across consumer and commercial of every few years you refresh the product, you increase the fee, you add more value through consumers so they think it's a great value, and we think we can keep running that playbook well into the future and that that number will stay very strong. I would point out the discount revenue growth though in dollars still kinda dwarfs that card fee in terms of offsetting the rest.

Stephen Squeri -- Chairman and Chief Executive Officer

The other thing that I would say, Mark, is what's really important is that continued investment in value propositions. You just can't take a fee for the sake of taking a fee. And what we've really tried to do whether it's an investment in lounges or in other aspects of the value proposition just not within the US but across geographies and across business lines, is to continue to put more value into those cards, value beyond rewards value. And that enables us to provide unique value to card members and also to be able to price for that value. And that's what's really important.

Mark DeVries -- Barclays -- Analyst

Okay, I got it. Thank you.

Operator

And we'll go next to Moshe Orenbuch with Credit Suisse. Your line is open.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great, thanks. I guess I just wanted to kinda think about -- come back to the entire kinda revenue discussion and maybe offer a defense of the quarterly framework because we are looking at rates of change and the rates of change do kinda vary during the year and that the one that -- you're gonna start '19 pretty much at the rate of change that you exited '18.

As I look at it, you did 10% revenue growth, but you've got slower growth in assets, as you pointed out tougher comps on the margin, and tougher comps in the earlier part of the year in spending. I just was wondering whether you think about the Tax Cut and Jobs Act and wealthier people's withholdings kinda having an impact on their ability to spend in '19. Kinda the ability to achieve that high-end of the guidance range.

Stephen Squeri -- Chairman and Chief Executive Officer

I'll give you a little color and I'll ask Jeff to jump in. I think one of the things that if you look at this year, which was a great year for us, was cards acquired. And we invested a lot more money this year and then we probably thought we would invest at the beginning of the year. Our belief is, while we are growing over higher revenue growth numbers and surely you may not have sort of actually the -- obviously, the tax cut that you had going into this year. The investments that we made this year across multiple geographies, across multiple lines of businesses, to acquire cardmembers, to provide cardmember treatments, to enhance those value propositions, we believe that will continue to help us drive the revenue growth.

Not to mention, the tremendous investment that we continue to make in coverage. Not only in the United States, but on a global basis. And that's why discount revenue is so high for us. We believe that investment that we made this year, the additional cardmembers that we have, and the treatments that we're providing to our cardmembers, will provide that continued momentum from a revenue perspective.

Jeffrey Campbell -- Chief Financial Officer

The only thing I'd add just thinking about the pure financial model is 50% of our revenue is still discount revenue. And it shouldn't escape notice if you look at slide 12 of the slide deck that we are getting further and further from some of the things that we've been talking about for the last few years that have been pulling the discount rate down. The OptBlue program, regulation in the EU and Australia, some have strategic alliances.

For our largest revenue line, we're actually entering 2019, might argue, with more momentum than we've had in a while because discount revenue is the simple function of volume and discount rate. Card fees were actually entering with more momentum as we talked about in response to Mark than we've had in some time. So, on the 80% of our revenue that I think is probably most valued by our shareholders, the fee-based revenues, I see us as having really good momentum. And we'll bring that interest income along with it.

Moshe Orenbuch -- Credit Suisse -- Analyst

Thanks very much.

Operator

We have a question from Craig Maurer with Autonomous Research. Please go ahead.

Craig Maurer -- Autonomous Research -- Analyst

Yeah, hi, good evening. Thanks. So first, just curious on the expansion of merchants in the US. Obviously, a strong number. Are you seeing help from the rise in ISVs who are typically offering a flat price for all networks that I imagine is adding to the momentum that OptBlue is generating? And secondly, if you could just help us think about growth rates in professional services and the occupancy lines because they both were materially higher than I was thinking in the fourth quarter, thanks.

Stephen Squeri -- Chairman and Chief Executive Officer

Craig, if you look at -- so the ISVs -- I mean, that -- the OptBlue program is embedded within. The objective with OptBlue was to take away any sort of argument or issue in terms of operational or pricing that you might have from accepting American Express if you were a smaller merchant. And when the program first started out, the traditional processes were in some cases offering different rates. The reality is now you're seeing -- not only traditional process, ISVs and so forth -- you're seeing aggregators, you're seeing them offer bundle rates, so it becomes a no brainer decision for a merchant to accept all cards.

And so, when we started out with this program, it has now reached -- so that strategically what exactly we wanted to have happened, which is to take the rate conversation off the table. And I think that's it. But that is -- that was the essence of OptBlue. Having it embedded in every acquirer, every aggregator that exists in the United States is what's driving that momentum. We used to think about it as feet on the street. It's obviously not as much feet on the street anymore but that's what's driving us and will drive us to, as we say, virtual parity coverage by the end of 2019.

 Jeffrey Campbell -- Chief Financial Officer

On your other question, Craig. I remind everyone that our OpEx was flat for the year and essentially flat for the quarter. There's a little bit of P&L geography at work here. These are not the greatest names for these two lines as we've talked about in the past. Our professional services expense includes, ironically, some of what Steve was just talking about. So, some of the fees that we paid to merchant acquirers actually run through that line and we've evolved the P&L geography of some of those things and that caused a little increase in that line, along with some of the things we're spending on technology.

Similarly, I remind people that the line called occupancy and equipment expense, not very intuitively includes, among other things, are amortization of software cost. And as the company converts to the agile method of development like any call leading edge technology companies are that's causing us to evolve some of the ways that we amortize those costs and capitalize them. And that caused to spike this quarter. Again, though, I bring you back to OpEx overall because a lot of this is where we tend to put the dollars is flat and that's what we're focused on.

Operator

We'll go to John Hecht with Jefferies. Please go ahead.

John Hecht -- Jefferies -- Analyst

Thanks, Steve and Jeff. As we entered this year, I think the expectations were for some modest compression to discount rate and it largely held fairly stable. Jeff, you mentioned the effects of OptBlue. You have largely taken hold within that realm. Should we be thinking about a relatively stable discount rate this year within your guidance or is there any other factors to think about?

Jeffrey Campbell -- Chief Financial Officer

Well, I'd come back, John, to what I said in my script. Which is, remember, we are most focused on driving discount revenue. And at times, we make decisions that impact the average discount rate that drives discount revenue. So, yes, this quarter where we only were down one basis point; that's because we're not seeing that much year-over-year impact anymore from any of OptBlue or EU or Australia regulation or some of the big strategic deals we cut awhile back.

So, that's what happened in Q4. That tells you where the current trend is. We're gonna get out of the business of providing forward guidance still on the average discount rate because we want the flexibility to if something comes up in the world that causes us to want to do something that might drive that average down that drives discount revenue, that's what we're gonna do. That is our focus, is the steady kinda discount revenue growth that you saw all through 2018.

John Hecht -- Jefferies -- Analyst

Appreciate the color, thanks.

Operator

We'll go to David Togut with Evercore ISI. Please go ahead.

David Togut -- Evercore ISI -- Analyst

Thank you. Following up on the earlier question. Visa and Mastercard recently offered to reduce by as much as 40% their interregional interchange rates into the European Union at the request of the European Commission. Can you help us think about how you're gonna price your product in Europe both in terms of the proprietary business and through GNS in light of these changes by Visa and Mastercard?

Stephen Squeri -- Chairman and Chief Executive Officer

When you look at the rules that are in the EU, we're viewed as a three-party system and Visa/Mastercard are viewed as a four-party system. To keep our three-party status, we have unwound our GNS business. So, there is no pricing on our GNS business. In addition to that, because we are a three-party system, we don't have the same interchange caps that exist for Visa/Mastercard. So, what they did was brought their inbound traffic down to their in-market interchange rates. And what our inbound and our local rates are the same. And remember, that's the interchange caps. There are network fees, there are acquirer fees, and those fees have actually probably expanded from a merchant perspective over time if you look and sorta look into it in detail.

Look, we price the value, we make sure that we have the appropriate premium. We have seen, as Jeff said, we saw some pressure in our discount rates. Not only in Australia but in Europe as a result of competitors bringing their rate down because when there is regulation like that, your value doesn't go up. The spread that you have. And as we've said many times on these calls, we still have a premium. Outside the United States, our discount rate is still a premium and provide a premium product and premium value and will continue to do that. Whereas in the united states, we're pretty much at parity on an aggregate basis. That's the European story.

Operator

Our next question from Bob Napoli with William Blair, please go ahead.

Brian Hogan -- William Blair -- Analyst

It's actually Brian Hogan filling in for Bob Napoli. Question is on the focus on China actually and your strategy there. Why did you get the license that had a Visa and Mastercard? And then describe your relationship with LianLian and what's your plan to do there going forward? How big of an opportunity is it in your mind via the --

Stephen Squeri -- Chairman and Chief Executive Officer

I can't answer why we got it over Visa/Mastercard. That's a question for the Chinese government. But look, we have pre-approval. We are working with LianLian, who we've worked with for many years. We've worked with them in the pre-paid business and in a lot of other aspects. And from our perspective, working with a partner that understands the market and working with a partner like that allows us to reduce risk and increase the speed to market for us. And look, we think over the longer term it's a good opportunity for us.

But in the shorter term, we have to get full approval, we have to build out the network. So, this is not a 2019-2020 impact to our business. It's an everchanging political and regulatory environment and we'll just see how big this could possibly be. But we're very excited about being the only ones with the pre-approval. We're excited about our partnership with LianLian and we're excited about the possibility here of working with many banks in China to issue cards and have them ride in our domestic network in China over the medium to long-term.

Brian Hogan -- William Blair -- Analyst

Did you have to give up any technology for that or rights around that?

Stephen Squeri -- Chairman and Chief Executive Officer

Sorry, could you say that again?

Brian Hogan -- William Blair -- Analyst

Like, the technology sharing. I mean, obviously, that's under a lot of scrutinies with the tight tariffs. Did you have to give up any technology rights?

Stephen Squeri -- Chairman and Chief Executive Officer

No. I mean, we're talking about really routing transactions. And this is not the most sophisticated technology in the world. We're not talking about our credit algorithms, we're not talking about our fraud algorithms. In fact, we are not issuing cards in China. So, the best way to look at it is, we will look exactly like a Visa/Mastercard looks in the United States and in other markets. That's how we'll look in China. We are not a merchant acquirer, we are not a card issuer, we are truly a network.

And the technology involved in the network is obviously transaction routing and some network fraud detection and things like that. I don't want to underestimate the network technology. But certainly not as sophisticated as the technology that needs to exist to make the credit underwriting decisions that we make to make the no pre-set spending limits that we do to acquire customers and things like that. That's not what we're doing and that's not any of the technology that we will be sharing or plan to share.

Operator

We have a question from Betsy Graseck with Morgan Stanley. Please go ahead.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi, good evening. I just had a couple of questions. One, we talked a bit about revenue growth in the expenses in the quarter. And I understand that software amortization costs are in the OpEx which is gonna grow over time. I'm just wondering if the expense ratio that you presented this quarter has got any kind of likely non-recurring items or is this a level that you think over time you're gonna be building toward or should we expect that you'll be driving a little bit more efficiencies as we go into next year?

Jeffrey Campbell -- Chief Financial Officer

We feel really good, Betsy, about having our overall operating expenses; within it, there are some things moving on geography but if you look at it overall, it's flat year-over-year, it has been flat for several years. In fact, if you take a seven or eight-year view, it's only up to a couple of percents. Not a decayer, I mean, it's only up a couple percent. So, we have a long track record of building upon the nature of our business model to every year get operating leverage. We see a long, long runway to continue to do that.

Betsy Graseck -- Morgan Stanley -- Analyst

Can you just talk a little bit about whether or not the Marriott data breach, the Starwood data breach, had any impact and was there anything that you're planning on doing going forward to work with partners on that potential risk? Maybe if you could just let us know based on the tax that event that happened this quarter if there's any change to the outlook in tax going forward or not? Thanks.

Stephen Squeri -- Chairman and Chief Executive Officer

Look, as far as the Marriott data breach, and I think Arnie Sorenson and his team have done I think a good job communicating not only to us but communicating with the general public as well. A lot of that was from the Starwood data that existed in their reservation in their old reservation system years and years ago. And so, when you look at those -- if that card data was breached and there were some cards that most of the data was encrypted, we saw no appreciable spike in fraud at all.

And probably we would have seen it three or four years ago because that's apparently when some of the breaches occurred. We saw nothing from that at all in our numbers. Look, this is something that is with us this day, it's why we're trying to move as many transactions as we can to tokens. And so that you take the pan out of the equation, but the reality is, is that this was not a breach that impacted us at all. And as far as -- I think Jeff gave guidance on our tax rate for next year of 22% so that's that.

Operator

We have a question from Eric Wasserstrom with UBS. Please go ahead.

Eric Wasserstrom -- UBS -- Analyst

Thanks very much. Hello. Just maybe to follow-up on some of the many questions that have been asked about the billed business trend. As you've covered, there's a bit of deceleration there but that pace of deceleration is a bit more than the similar pace of deceleration in some of the marketing and acquisition-related costs. And I'm wondering if that in any way addresses or raises the issue of the efficacy of those acquisitions.

Jeffrey Campbell -- Chief Financial Officer

Well, the short answer is no. Remember, we just had a tremendous year for new cardmember acquisition. And one of the things you've heard all of me, Steve, Doug Buckminster in particular talk about in various forms is the tremendous gains in new cardmember acquisition that we're getting every year as we move to a more and more digital message and gain sophistication. So, we feel really good about all of those trends. We are investing in value propositions.

So, when you look overall at what we call our cardmember engagement costs, those costs are growing faster than revenue. They did in 2017, they did in 2018, and I expect them to do so again in 2019 and that's why the operating expense leverage that we just talked about with Betsy is a really important offset to that. And that's really the financial model we're running here.

Eric Wasserstrom -- UBS -- Analyst

And remind me, just follow-up on the capital commentary. Jeff, you talked about having a strong CET1 into this year's CCAR. Obviously, the other thing that's going on this year is running the CECL accounting and parallel in anticipation of the implementation next year. And I'm sure it's early to ask for an expectation but as you're contemplating CECL, is that gonna have any influence on your appetite for capital management actions this year?

Jeffrey Campbell -- Chief Financial Officer

I think you need me to make about three hypothetical assumptions there, Eric. 1.) about what this year's CCAR process looks like. 2.), about what CECL does for us, and 3.) about how the fed is gonna react. Look, I think the short answer is CECL is not gonna impact how we manage our CCAR process in this calendar year in all likelihood. We are looking working through CECL. I think for our credit cards, our results are liable to not be dissimilar to what you see at other banks, for charge cards the numbers will clearly be lower.

The Fed has said they will give people three years to adapt to whatever the capital impact was and something I think you need to keep in mind for us relative to others is nobody else has the kinda ROE that we have, right? We added 200 basis points to our CET1 ratio in four quarters this year through a variety of efforts. What that means is even in the worst possible scenario of how the Fed thinks about the capital implications of CECL, for us particularly over a three-year period, it is not gonna be a particularly significant barrier and I don't see it having any impact this year.

Operator

We'll go to Chris Brendler with Buckingham. Please go ahead.

Chris Brendler -- Buckingham Research -- Analyst

Hi, thanks for taking my question. Just wanted to maybe follow-up a little bit on the discount rate and some of the improvements you're seeing there. It feels like those pressures that are coming from Europe and regulation as well as OptBlue seemingly moderating a little bit. But the performance this quarter actually seemed to be even better than the normal rate of deceleration you've seen in the gross discount rate.

And also, noticed the net discount rate after some of the cashback other costs that go through actually ticked up year-over-year basis points. So, is that some sort of mix issue that's helping that read down a little bit? Does that play a key role in your 2019 revenue guidance at this discount rate compression we've seen in the last couple of years, maybe moderating significantly? Thanks.

Jeffrey Campbell -- Chief Financial Officer

Chris, I really wouldn't call out anything we haven't talked about, which is we are getting further from some of the things that I've been bit. Putting undue pressure -- you're correct that mix, instream mix, geographic mix, always plays a little bit of a role here in the discount rate. But in some ways, I'll go back to some of the comments I made in response to motion. We think we're going into 2019 with great momentum around discount revenue and that of course by far is our most important revenue driver. And that's momentum on the volume side, and frankly, it's momentum in terms of our relationships with merchants and where the discount rate is.

Chris Brendler -- Buckingham Research -- Analyst

Just to clarify, does the regulation stuff -- these contracts given it was merchants, is that still an ongoing headwind that you're offsetting with some of the momenta or has that started to moderate a little bit as you've successful after a couple years of low interchange rates in Europe and Australia, gotten to a new normal? Appreciate it, Jeff, thanks.

Jeffrey Campbell -- Chief Financial Officer

I think we've first started about the impact -- talking about the impact of European regulation 2-3 years ago. And we said at the time, we're in no hurry to get to a new steady state but we're certainly getting closer to it. I will say Australia moved much more quickly. And so, Australia we're probably well through the process as we enter 2019. So yes, that's exactly what we're saying is that not that there was never an impact but that we're just getting past the majority of the biggest piece of it.

Operator

And our next question from Bill Carcache with Nomura, please go ahead.

Bill Carcache -- Nomura -- Analyst

Thank you. Steve and Jeff, I had a follow-up on your EPS guidance. It seems that with a revenue growth starting point of at least 8% and layering in capital return, which by our math you guys can reduce the share count by about 3.5% in 2019 at the current share price assuming you maintain an 11% CET1. And then, factoring in tailwinds from provision expense declining and converging with loan growth as you guys expect.

And then finally, some expense leverage that you guys also feel good about. You put all those pieces together, that suggests that this is a very conservative EPS guidance range that you guys have given and that you'll be positioned to raise the low-end of that range as we progress through the year. Am I thinking about that the right way?

Stephen Squeri -- Chairman and Chief Executive Officer

That's a lot of thinking. Look, as we look at this, what's really important for us is that we continue to invest to drive topline revenue growth. And we have, in our plan right now, investments that we think will drive the appropriate consistent double-digit EPS growth. And strong revenue growth. But we also do not have in our plan a lot of investments that we could continue to make. And so, if the revenue grows even higher or to the higher end of the range, I will continue to make those investments that will continue to generate scale and more share and more relevancy which will continue to pay off in the medium to long-term. I think what's really important Bill is that we start with the growth algorithm, which is not starting with EPS and working down to revenue but starting with revenue and generating an EPS number for us.

I want to make this company bigger, more relevant, and even more scalable than we are today, and that's gonna mean more cards, more coverage, and more investment. And so, where we are right now, is to be quite honest, is as far as I think I can take the investment plan without causing you guys to look at this and say, are we not making enough money? But we do have plenty of great investment opportunities that we will take advantage of if we get some more momentum in the economy and even drive revenue higher. And you'll see us make even more investments.

Operator

And our last question will come from the line of Dom Gabriel with Oppenheimer. Please go ahead.

Dom Gabriel -- Oppenheimer -- Analyst

Most were taking my question. Can you just quickly talk about what you're hearing from USC, it was about their expectations for commercial spending and how that may have changed over the last few months for '19?

Stephen Squeri -- Chairman and Chief Executive Officer

Look, the conversations that not only we're hearing from CEOs -- that I'm hearing from CEOs -- but more importantly, what my corporate sales organization is hearing from the people that are authorizing purchases and purchasing, is there's not a pullback. When you start to look at large corporate and large global corporate and we have pretty good insight into that -- and I'm not just talking about from a T&E perspective, I'm just talking from aggregate spending. And that includes travel as well, but we don't see any pullback on the horizon.

I have a lot of opportunities to spend with the number of CEOs, the reality is, is that they're not contemplating a pullback. And so, if the people that are spending the money are not contemplating a pullback, that gives me great confidence, especially from a commercial perspective because if they pullback it then dribbles down to middle market companies and small businesses and obviously then to consumers, but we don't see that happening. And I haven't heard any of that conversation. In fact, I've heard just the opposite from purchasing managers how are making those decisions.

Edmund Reese -- Head of Investor Relations

So, with that, we'll bring the call to an end. Thank you, Steve. And thank you, Jeff. As you may have seen in our press release, we will be hosting an investor day on March 13th. We look forward to seeing many of you then. Thank you for joining tonight'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.

Operator

Thank you. And ladies and gentlemen, this conference call will be made available for digitized replay. That begins at 8:00 p.m. eastern time today running until January 24th at midnight, eastern. You may access the AT&T teleconference replay system by dialing 1-800-475-6701 and enter replay access code 458156. International participants may dial 1-320-365-3844 with the access code 458156. And that will conclude our teleconference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.

Duration: 71 minutes

Call participants:

Edmund Reese -- Head of Investor Relations

Stephen Squeri -- Chairman and Chief Executive Officer

Jeffrey Campbell -- Chief Financial Officer

Don Fandetti -- Wells Fargo -- Analyst

Sanjay Sakhrani -- KBW -- Analyst

Ken Bruce -- Bank of America Merrill Lynch -- Analyst

Chris Donat -- Sandler O'Neill -- Analyst

Mark DeVries -- Barclays -- Analyst

Moshe Orenbuch -- Credit Suisse -- Analyst

Craig Maurer -- Autonomous Research -- Analyst

John Hecht -- Jefferies -- Analyst

David Togut -- Evercore ISI -- Analyst

Brian Hogan -- William Blair -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Eric Wasserstrom -- UBS -- Analyst

Chris Brendler -- Buckingham Research -- Analyst

Bill Carcache -- Nomura -- Analyst

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