WEX Inc (WEX) 2005 Q1 法說會逐字稿

Good day and welcome to the Wright Express Corporation first quarter 2005 earnings results conference call. This call is being recorded. With us today from the Company is the President and Chief Executive Officer, Mr. Mike Dubyak, the Chief financial Officer, Miss Melissa Goodwin, and the Vice President of Investor Relations, Mr. Steve Elder. At this time, I would like to turn the conference over to Mr. Elder. Please go ahead, sir.

Thank you. Good afternoon and thank you for joining us. With me today is our CEO, Mike Dubyak, and our CFO, Melissa Goodwin. We released our first-quarter financial results only a short while ago, so I will begin this, our first quarterly conference call, with a brief summary of the key results and metrics for those who haven't seen them yet. The press release itself is now posted on our Website at WrightExpress.com.

Before we begin I'd like to remind you that we will be making statements about the Company's future results during this call. These statements constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements represent only the Company's views as of today, April 26, 2005, and are based on current expectations in light of the current economic environment. While the Company may choose to update forward-looking statements in the future, we specifically disclaim any duty to do so; therefore, these forward-looking statements should not be relied upon as representing the Company's views as of any later date. Forward-looking statements and projections are inherently subject to significant economic, competitive and other uncertainties and contingencies which are beyond the control of Wright Express. The Company cautions that such statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are specified in the prospectus filed with by the Company on February 16, 2005 in connection with the initial public offering.

In addition, during the call the Company will be using certain non-GAAP financial measures as defined under SEC rules. Where required by these rules, we have provided a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures as exhibits in the press release dated today, April 26. As I mentioned, the release can be found at our Website at WrightExpress.com. A copy has also been submitted as an exhibit to an 8-K with the SEC.

With that said, let's move on to the summary of our Q1 financial results and key performance metrics. During the first quarter the Company's revenues increased 20% to $52.2 million from $43.6 million for the first quarter of 2004. Net loss to common shareholders on a GAAP basis was $18.5 million, or $0.46 per diluted share, compared with net income of 10.4 million, or $0.25 per diluted share for Q1 last year.

The first quarters of 2005 and 2004 are not directly comparable due to factors related to our IPO and the non-cash earnings volatility associated with our fuel price derivative contracts. To provide a more meaningful comparison, exhibit one in today's press release presents adjusted net income for the first quarter of 2005, and exhibit two reports non-GAAP net income for the first quarter of 2004.

Q1 2005 adjusted net income was $11.3 million, or $0.28 per diluted share. This non-GAAP figure excludes an unrealized $34.4 million marked-to-market loss on our derivative contracts before taxes and 14.2 million in nonrecurring charges, also before taxes. These included a non-cash charge of $8.5 million associated with terminating fuel price-related derivative investments at the request of Cendant Corporation, which Cendant repaid. We also recorded a onetime charge of $5.7 million for the conversion of shares of Cendant common stock invested options to Wright Express stock and options.

Turning next to our non-GAAP net income for Q1 of last year, this totaled $8.8 million as compared to reported GAAP net income of 10.4 million. In determining non-GAAP net income for Q1 '04, the major items were the new costs of operating as a public company, as well as financing costs related to the debt we incurred to pay a dividends of $306 million to Cendant prior to the IPO. All told, the Company's adjusted net income for the first quarter of 2005, $11.3 million, represented a 29% increase from the 8.8 million in non-GAAP net income for Q1 '04. As a reminder, both these measures are non GAAP as defined under SEC rules and exhibits one and two present reconciliations to the comparable GAAP measures.

Before I turn the call over to Mike, let me run through the key metrics we will get in evaluating the Company's performance. Average number of vehicles serviced increased 8% from the first quarter of last year to 3.9 million. Total transactions processed increased 7% from the first quarter of 2004 to 52.5 million. Average expenditure for payment processing transaction grew to $39.04, an increase of 22% from the same period last year. Average retail fuel price was a $1.97 per gallon compared with $1.64 for the first quarter a year ago, an increase of 20%. Total MasterCard purchase volume grew to $255.4 million, an increase of 37% from Q1 last year. Note also that we prepaid $20 million on our long-term debt balance during the first quarter of 2005. Going forward, we expect to continue using available cash to pay down our debt. With that as background, I'd like to turn the call over to our CEO, Mike Dubyak.

Thank you, Steve. Hello, everyone, and thanks for joining us this afternoon. We appreciate your interest in Wright Express. I will start with some comments on our business this quarter and our strategy going forward; then Melissa will take you through the financials; and we will open the call for your questions.

As far as the quarter is concerned, it's obvious that going public would be a key milestone for Wright Express. But looking beyond that, Q1 was another quarter of strong revenue growth, even excluding the impact of higher fuel prices.

Steve has already walked you through the major revenue drivers. We produced solid year-over-year increases in the number of transactions processed, the number of fleet vehicles serviced and MasterCard purchased volume. We also posted an increase in average spend per transaction due in large part to higher fuel prices.

The primary strategy driving this growth covers all three fleet categories -- large, medium and small. In the large and medium fleet markets, we continue to compete aggressively and successfully. During the first quarter we had significant customer wins, including DHL, Frito-Lay, and Asplin Tree.

Unlike the larger fleet segments, small fleets are relatively underpenetrated, and we're making excellent progress towards our goal of gaining share in this market. This was a strong part of our business growth in Q1. Total vehicles serviced in the small fleet market increased 11% over the prior year.

In the private carrier segment of the heavy truck market, we're continuing to expand our marketing and sales initiatives. The result was strong growth in both diesel fuel sales and a 36% increase in the number of heavy trucks (technical difficulty).

We are also working to increase average spend per vehicle by expanding the Wright Express Service Network, which targets vehicle maintenance expenditures. We have been expanding the number of sites on the service network and are now increasing our marketing efforts in this area. We have built our reputation by being very successful in helping fleets improve their efficiency in fuel purchasing, so applying the same value added to their vehicle maintenance expenses is the next logical step. Over the past two years, we have established service network relationships with a number of major nationwide maintenance chains including Sears, Goodyear, Safelite (ph) and Jiffy Lube. And we will continue to add new relationships and acceptance.

Investors often ask me to explain what differentiates Wright Express from competitors and from conventional charge of credit card companies. I will anticipate that question and say that it's primarily the fact that we operate a closed network, encompassing both fuel and maintenance, that offers fleets an enhanced level of management information, convenience, control and reporting.

We continually strive to provide fleets with two major advantages. The first is greater security of control capability at the point of sale. The second is operational empowerment -- a combination of purchase control, report customization and vehicle monitoring that we can deliver because of our powerful e-commerce tools.

In our view, we lead the industry in terms of our overall service offering and our ability to provide customers with leading-edge information management tools that enable them to custom manage and access information on demand.

Looking ahead, we're working to further enhance our e-commerce capabilities and make our business model even more scalable and adaptable to the ever-changing needs of our customers and partners. At the core of this effort is an upgraded technology platform, and we successfully completed the first portfolio conversion on the new platform during the first quarter. From a strategic perspective, what we're working to do is capitalize on the scalability and flexibility of our infrastructure to accelerate our growth and improve free cash flow.

Before I trespass any further into Melissa's territory, let me now turn the call over to Melissa.

Thank you, Mike. Hello and good afternoon, everyone. As Steve said, total revenues for the first quarter of 2005 increased 20% to $52.2 million from 43.6 million for Q1 last year. Breaking that down, payment processing revenue grew 23% year-over-year to $34.8 million. This increase reflected not only the 8% increase in the number of transactions to 37.4 million, but also growth in the average expenditure per transaction which increased to $39.04 from $31.89 for Q1 of 2004.

The increase in the average expenditure was primarily driven by a 20% increase in the retail price of fuel and an increase in the average number of gallons purchased per transaction from 19.4 to 19.8. As Mike mentioned, we experienced strong growth in the private carrier heavy truck market. Net growth was reflected in the higher average number of gallons purchased. In addition, our diversification efforts have produced and continued gains, highlighted by our MasterCard products. MasterCard contributed $2.4 million to payment processing revenue in Q1 compared to 1.6 million a year ago.

Turning to transaction processing revenue, Q1 revenues decreased 23% from the first quarter last year to $4.1 million. This decrease is due solely to changes in the fee structure for the MasterCard stored value program. Last year, $1.6 million of MasterCard revenue was included in transaction processing revenue. This has shifted to the other revenue line. Excluding MasterCard, transaction processing revenue for Q1 of 2005 actually increased 11%. This growth was driven by a 5% increase in the number of transactions to 15.1 million and a 6% increase in the average fee charged.

Looking at our other sources of revenue, which include account servicing, finance fees and other revenue, the total for Q1 was $13.3 million, up 32% from 10.1 million a year ago. As I just said, approximately half of this increase is due to the shift in revenue on the stored value program. Note that our other revenue trends tend to be a little but higher in the first quarter, reflecting the seasonality in the stored value MasterCard program.

In terms of operating expenses, our results this quarter bear out the point Mike made regarding operating leverage and scalability of our business model. Our long-term plans called for revenue to grow at a faster rate than operating expenses, and our results in this quarter were consistent with that plan. During the fourth quarter of 2005 -- I'm sorry -- during the first quarter of 2005, costs related to the IPO and expenses we have taken on as a new public company added a fair amount of noise to the financial statements. I'd like to walk you through these expenses so we can provide an apples to apples comparison between the first quarter of 2005 and the comparable period last year.

On a GAAP basis, total expenses were $36.9 million in Q1 of 2005 compared to 26.5 million in Q1 last year. Looking at the details, the salary and other personnel line includes a $5.7 million non-recurring charge for conversion of restricted stock units, options and cash. For Q1 of 2004, operating expenses do not include approximately $1.7 million net of tax of expenses incurred this past quarter primarily related to interest and incremental public company costs, as broken down in exhibit Q in the press release.

Among the more significant reasons for the increase in operating expenses was the $1.1 million in higher operating interest expense due to higher operating debt levels and average interest rates. In addition, salaries for additional employees, sales commissions and bonuses increased operating expenses by approximately $80,000.

Since we are done starting through some of the extraneous items, let's focus on our actual operating results. Our adjusted net income margin for the quarter was 21.7% compared to 19.9% a year ago on a non-GAAP basis. Our margins were obviously aided by the rising price of fuel as well as gains in productivity within the business. For example, transactions per FTE increased 4% during the first quarter.

Our provision for credit losses was $2.9 million in Q1 of 2005, an increase of 12% from the 2.6 million for Q1 last year. This quarter, credit losses as a percentage of the total payment processing expenditures in the fleet-related business declined from 21.2 basis points in 2004 to 16.8 basis points in 2005. We believe the results of the first quarter are indicative of a full year performance level. Our accounts receivable continue to be paid within 30 days.

Our depreciation and amortization totaled $2 million for the first quarter of 2005, a decrease of 7% from 2.1 million in Q1 last year. As Mike mentioned, we recently converted our first strategic relationship onto a new technology platform which will result in an increase in depreciation in future quarters. Our effective tax rate on a GAAP basis, which has remained relatively constant over the past year, was 38.8% and 38.9% for the first quarters of 2005 and 2004, respectively.

Adjusted net income was 11.3 million in Q1 of 2005, a 29% increase compared with non-GAAP net income for the year-earlier period adjusted to make the two periods comparable. Today's news release contains a detailed explanation of these charges and expenses, as well as tables that reconcile the non-GAAP adjusted net income to the corresponding GAAP net income figure.

In the first quarter of 2005, we decided that in light of our new bank indebtedness -- incurred to pay a special dividend to Cendant prior to the IPO -- and the fluctuations in fuel prices, it would make sense for us to enter into a derivative instrument to minimize the impact of fuel price volatility on our cash flow. We, therefore, purchased a series of puts and call options from a major investment bank, representing approximately 9% of our forecasted exposure to fuel prices through December 2006. These contracts mitigate the effect of fuel prices to the extent that retail fuel prices fall below approximately $1.88 per gallon or rise above approximately $1.95 per gallon. Going forward, the non-cash marked-to-market adjustments will continue and may vary significantly from quarter-to-quarter.

For example on April 18, the day when GAAP prices were at their lowest since March, our unrealized loss would have been $22 million. If the quarter had ended that day, we would have booked a 12 million gain. As a result, the Company's quarterly GAAP net income may be prone to significant fluctuations and may not necessarily properly reflect operating results for that particular quarter.

Before I get into the financing items, I want to note that our derivative instruments can also generate realized gains and losses even after offsetting revenues. These gains and losses result from the mismatch between changes in wholesale and retail fuel prices during any given quarter. The mismatch was particularly wide in Q1 because of the very sharp spike in wholesale fuel prices that occurred in March, and wasn't reflected on the retail end until it's fairly late in the quarter. As a result, along with the unrealized loss I just outlined, we incurred a realized cash loss of $1.4 million before taxes in Q1. This was offset by $70,000 in higher revenue resulting in a pretax cash loss of $700,000 for the quarter. We believe that over the life of these contracts, the derivative instruments will benefit the Company's cash flow and provide economic stability, regardless of interim fuel price movements.

Turning now to financing activity. In connection with our IPO and the special dividend to our former parent, we placed a $350 million senior credit facility. As of the end of the quarter, the balance in the term note was $200 million after the prepayment of $20 million and the balance in the line of credit was $50 million, with an additional $33.8 million in letters of credit used to secure our derivative instruments. We are currently paying LIBOR-plus 175 basis points on the outstanding amount and a 37.5 basis point fee on the unused portion of the line of credit. These rates will drop as our leverage ratio drops.

The strong cash flows generated by our business are expected to enable us to pay down this debt well in advance of its due date. Given the cash flow scenario, we expect our leverage ratio to go down overtime as we repay our existing credit facilities. This month we entered into a swap agreement to fix the interest rate on approximately 60% of our financing debt in the next 24 months. This agreement will qualify for cash flow accounting; therefore, changes in the market value of the instrument will flow through the balance sheet as other comprehensive income.

Take a quick look at our balance sheet. Total assets were 1.2 billion at March 31, 2005. They consisted mainly of a $517 million in accounts receivable, net of reserve for credit loss, and 495 million in deferred income taxes arising from our tax receivable agreement with Cendant.

Total liabilities were 1.2 billion, consisting primarily of 245 million in accounts payable, 485 billion in total debt and $415 million payable to Cendant under the tax receivable agreement.

Turning no to our guidance, let me remind you that our forecasts for the second quarter and full-year 2005 are valid only as of today and are made on a non GAAP basis that excludes the impact of non-cash marked-to-market adjustments on the Company's fuel price-related derivative instruments. The fuel price assumptions are based on the applicable NYMEX futures curve. Our estimates are as follows.

Looking first at the top-line, for the second quarter of 2005 we expected to report revenue in the range of 55 million to 58 million. This is based on an assumed nationwide average fuel price of $2.25 per gallon. For the full-year 2005, we expect to report revenue in the range of 220 million to $225 million. This is based on an assumed nationwide average retail fuel price of $2.15 per gallon.

Turning to earnings, for the second quarter of 2005 we expect to report net income before unrealized gains or losses on derivatives contracts in the range of 10 million to $11 million, our earnings per diluted share in the range of $0.25 to $0.27 based on approximately 41 million shares outstanding. For the full-year 2005, we expect to report net income before unrealized gains or loss on derivative contracts in the non recurring charges for the first quarter in the range of 44 million to $46 million; our earnings per diluted share in the range of $1.08 to $1.13 based on approximately 41 million shares outstanding.

I would now like to turn the call back over to Mike Dubyak.

I just want to take this time to thank all of the associates of Wright Express for their dedication and great efforts in making our first quarter a successful one. This concludes our prepared remarks. Steve, Melissa and I will now be happy to take your questions. Audrey, you can proceed with the Q&A now.

(OPERATOR INSTRUCTIONS). Tien-tsin Huang, JP Morgan.

Thanks for all the disclosure. I think, Mike, maybe you can help us a little bit. How should we think about the impact of higher gas prices in general on organic fleet card usage, and I guess separately on credit loss rates. It looks like, obviously, what did it impact at all in the first quarter? And based on the guidance -- but just generally speaking, how should we think about that based on your historical experience?

We're looking closely at trends like average transactions per active vehicle. That would give us some trend as the higher prices are causing some impact to fleet usage. So far we're not seeing it. March was holding steady. If we do a run rate on average for April it is still holding steady. So that is something we would be watching. On the bad debt side, in the past, we have seen some impact on the smaller fleets. When prices do escalate, there could be some impact on the bad debt. But, so far, again, we're not seeing that in terms of our trends on bad debt and charge-offs.

One of the things that is beneficial about our business models, and talk about it being pretty predictable and pretty recurring since we are where our customers are commercial customers, we see that business as being pretty stable. Because Mike said, it tends to be more just general economic conditions that we're watching for that would affect our business model that's affecting kind of the commercial industry in general, not necessarily specifically the price of gas.

Overall, can we expect the gallons per transaction metric to still continue to trend higher in the balance of the year? I'm just trying to get a better feel for how we should balance the growth from the heavy truck segment versus the (indiscernible) fleets.

Well, the smaller fleet do not bring it down. They average pretty much what a medium-size or larger fleet that is typically gasoline powered or medium truck, if you well, in terms of GDW gross vehicle weights. But, the heavy truck growth -- we see that continuing. So, it will have an impact in terms of increasing the average transaction size.

Lastly, Melissa, maybe can you give us the terms on the swap in terms of the rate. I think you gave us a duration of 24 months.

Sure. There's actually two contracts. And there's going to be an 8-K filed on it today to give you specifics. The rate on average is 3.85%. And it's for a period of 24 months. The amount that we have hedged is declining overtime and (indiscernible) matching with that 60% of approximate to the total financing debt we have outstanding.

It sounds like you are packing a little bit of a carrier there in the midterm, after we got 8.5.

The 3.85, we view as beneficial to us over the long-term (multiple speakers) that contract.

Greg Smith, Merrill Lynch.

The loss rates I think you said were 16 basis points. Can you remind us, Melissa, what you guys are reserving on every transaction?

Actually, the reserve methodology that we go through is very specific. It's not really based on each individual transaction. We go through at the end of each month, and certainly at the end of each quarter, a detailed buildup throughout our portfolio based on our charge-off experience to the last several months. And based on that experience, we estimate what the total amount of allowance needs today. And then we do one final last point of view to look at anything that we know of that is happening from a general economic viewpoint or any specific reserves that we are aware of. And that is what drives our allowance.

That helps. Can you remind us what you guys have in the way of upcoming renewals this year that you are focused on, contract renewals?

Sure. I think Mike is going to talk about that.

We have -- I think we talked a little bit on the roadshow. We have locked in a number of long-term strategic alliance partners -- actually six or seven in the last six months. We have come to terms with three of our private-label strategic alliance partners. So, we are just finalizing agreements at this point. We have one co-brand partner that we feel sometime this year we'll be renegotiating with them on both terms of the contract and length of the contract. So, that is the only one really right now that is outstanding on a strategic alliance basis.

Lastly, any thoughts about hedging fuel prices beyond 2006? How are you guys thinking about that?

I think basically it's something we're going to consider and work with our Board on a plan and a policy.

(OPERATOR INSTRUCTIONS)? Paul Bartolai, CS First Boston.

Following up on the renewals, can you also just talk about the pipeline of new business and how that is shaping up?

We, I think -- in the first quarter we had strong growth in all of our size markets -- large, mid-size and small. So, that was very indicative. Even in the large market we said we're competing aggressively and successfully. We had a 5% growth. We are growing in all three of our lines of business or marketing channels -- co-brand, private-label and WEX. And our pipeline looks very strong from looking at the sales organization from top to bottom -- larger fleet, mid-size and small fleet.

Looking at your guidance for the full year, can you give us some of the key metrics that you guys are using to come up with that forecast? Maybe transaction growth and a couple of metrics like that beyond fuel prices.

I think actually the guidance that we provided is the amount of detail we intend to go into at this point.

David Trossman, Wachovia Securities.

I'm interested in a little detail on the MasterCard purchase volume that grew 37% year-over-year. Can you remind us of the context of where that has been over the last six months? Is that a tick up? And is that increased volume from your core customers using the cards or coming out of some of the lodging stuff that you do?

If you look at that growth -- and I'm sure you are aware, David, that a lot of that growth is coming from the stored value program they have that is a seasonal program. So, we're seeing growth within that product line, as well as growth overall within each of the individual products that we offer. We have a stored value product. We have a rotating card product. (indiscernible) purchasing a (indiscernible) product. And we're seeing growth in each of those areas.

So, on an absolute dollar basis, that volume goes down seasonally but the year-over-year growth you expect to stay up in that 30% range?

Definitely above 20.

Fair enough. Thanks.

(OPERATOR INSTRUCTIONS). Tony Gleason, Neuberger Berman.

Could you give us the corresponding free cash flow number in line with the $1.08, $1.13 guidance that you outlined?

We actually hadn't provided free cash flow guidance. I can tell you generally speaking from a free cash flow standpoint, the cash flow from our operations -- and this is a general statement, because the movement of the price of gas from quarter to quarter will affect it -- but generally it should be above our net income level. I should say our adjusted net income level, if you take out the impact of the derivative.

About 15 to 20% higher?

It's going to depend really on what is going on with our funding of our accounts receivable portfolio. (multiple speakers) pattern of the price of gas I wouldn't want to be that specific.

Cane you talk about the marked-to-market impact on the second quarter, and how that will manifest itself with your assumption of $2.25 gas or 2.25 fuel price, average price?

If you look at the second quarter, what you're going to end up seeing is the marked-to-market going into a realized loss in the second quarter, which will offset the revenue upside that we're getting within that period. Right now, that loss is in the range of 3 to $6 million, to give you some kind of a range around it.

So, the actual price that you're assuming is outside of that band that you had hedged on, right?

Exactly. So, the upper end of the collar for us is $1.95. And since we're looking at an average price of $2.25, we would be settling with our third-party on that GAAP between those two. We will receive a higher revenue associated with that and settle through the realized loss.

Is it a one-to-one realized gain/loss there? I would have thought you would make more money on that scenario?

It's hedged -- the way that we have hedged is to protect 90% of our fuel price-sensitive revenue stream. So, all things being equal, you would see a match of that. But as I said earlier, the hedge is based of the wholesale market price, so there is some type of a change between wholesale and retail. And there actually is traditionally a two, three-week lag between those two. That could cause a timing difference either to our favor, in the instance that you'd see declining prices who could work against us as we signed last said last quarter. Over the life of the contract, and we've got 21 months left over, we think that that's going to give us far greater surety from a cash flow perspective. But, you could see a little bit of noise in interim periods.

So, you're more likely to benefit from a decline than an increase from this level?

Yes. Exactly, from a cash basis.

Pat Burton, Smith Barney.

My question actually relates to the fundamental business. Could you just give us an update on pricing trends or changes in the competitive environment? Thanks.

Sure. I think we talked on the roadshow that in the large fleet marketplace we have seen pressure there. It really hasn't changed in terms of what we anticipated it to be. We see BP. We talked about them on a universal card basis coming out sometime this year. We anticipate that will happen and put more pressure. But, again, that is all built into our guidance and what we have been looking at as what our pricing scenarios will look like for 2005. And yet in the down market, we have seen even our accounts servicing fees actually go up. So, again, that's why the focus on the down-market even though we have seen pressure in the upper market. But all that pressure has been anticipated. That's at least an overview of what we are seeing in the fleet car market place today.

I have a follow-up, Mike. I know you have some leverage from the Cendant dividend, but is there any potential for acquisitions in time to be added on, either using their stock or perhaps that debt capacity you paid off during the quarter? Thanks.

There's no doubt that we have got strong cash flow. Our first priority, though, is to delever and pay down the debt. And then I think in time -- at the right appropriate time, we will look at and consider acquisitions.

(indiscernible) with SuttonBrook.

Could you break down what your actual percentage earned or standard fee was on your payment processing transaction for Q1, and how that comped to Q1 '04?

We actually haven't disclosed anywhere the percentage fee, on average. I can tell you generally speaking (indiscernible) when we filed the Q also, there's a few things that are affecting it from period to period. We have some contracts that are fixed-fee contracts. So, that -- as the price of gas goes up, mixed percentage a little bit compressed. And as Mike said just a moment ago, we have given out some rebates to lock people into long-term strategic contracts. So, there's a little bit of compression from period to period.

I guess the same would hold true for your transaction processing?

No, the transaction processing fee was actually seen from period-to-period, the 6% increase in the fee on average.

Andrew Bond (ph), Millennium Partners.

Can you clarify again on the hedging for the second quarter -- I thought you said that if prices stay at $2.25 there would be a 3 to $6 million realized loss on the hedge?

I'm talking -- give you a rough order of magnitude. Clearly it's a volatile market, so those numbers could change. But, presuming the price of gas held at $2.25, then we would be, again, over the range of our collar, which means that we would be earning higher payment processing revenue and we would end up settling the piece over the upper-end of the collar which approximates $1.95 with our third party. And that would translate into a realized loss.

But, every quarter there's a portion of the hedge that is realized and matches off against that quarter's revenues?

Yes. As long as we are outside of the range of the collar. If you are within the $1.88 to $1.95, then that would not occur. So, presuming you're outside of the edge.

But, it's not like there's a fixed volume of gas that you have hedged that expires at the end of 2006, and that at the end of 2006 if gas -- if prices have returned to the same price where you started the contract, then no money changes hands over the life of the contract?

Each contract will expire monthly. So, you do as you progress through this -- after you have hit the month, that part is gone and you move into the next month's contract.

Jason Miller, Miller Asset Management.

My question has already been answered.

There appear to be no further questions at this time. I will turn things back over to Mr. Mike Dubyak.

Thanks again, everyone. We appreciate your interest in Wright Express. This concludes our call. Have a good evening, everyone. Thank you.

That does conclude today's conference. Thank you for your participation.