WEX Inc (WEX) 2007 Q1 法說會逐字稿

Good day and welcome, everyone, to the Wright Express Corporation first quarter 2007 financial results conference call. [OPERATOR INSTRUCTIONS]

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Steve Elder, the Vice President of Investor Relations. Please go ahead, sir.

Good afternoon and thank you for joining us.

With me today is our CEO, Mike Dubyak, and our CFO, Melissa Smith. The press release we issued this afternoon is now posted in the Investor Relations section of our website, at WrightExpress.com.

I'd like to remind you that we'll be discussing a non-GAAP metric -- specifically, adjusted net income -- during our call. Please see Exhibit 1, included in today's press release, for an explanation and reconciliation of adjusted net income to GAAP net income. A copy of the press release has also been submitted as an exhibit to an 8 K we filed with the SEC.

I'd also like to remind you that certain information contained in this call constitutes forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various important factors, including those discussed in today's press release and those factors included in the Form 10 K filed by the company on February 28, 2007 and our other filings with the SEC. While the company may choose to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change. You should not rely on these forward-looking statements as representing our views after today.

With that, I'll turn the call over to our CEO, Mike Dubyak.

Good afternoon, everyone, and thanks for joining us.

This was another solid quarter for Wright Express, with adjusted net income exceeding the top end of our guidance. More importantly, we continued investing in our strategies to increase fleet market penetration, develop new streams of revenue, and drive our long-term growth.

Our business model generated adjusted net income margins in excess of 20 percent this quarter, exceptionally high for the payment processing space. If you look at our future profitability, however, the bulk of our growth will not be coming from margin expansion, but from executing the strategies I mentioned. If you look at our profitability in the quarter, the numbers are more solid than our 3 percent transaction growth would suggest. WEX direct and co-brand, the strongest areas of the business, produced growth in Q1 and also have the strongest margins. In addition, we continue to see excellent growth in MasterCard volume and operating expenses were generally consistent with our plan.

I'll take a few minutes now to talk about the company's strategic and operational initiatives this quarter. Starting with the small fleet market, our new business pipeline in small fleets consists of three channels -- first, the WEX Direct Universal Card line of business, where we control the sales and marketing; second, our private label relationships, which traditionally handle their own sales and marketing, and third, our newest developing channel, distributors.

This was another strong quarter for our WEX direct channel, where the average number of small fleet vehicles using our Universal Card increased 17 percent from the first quarter last year. Our front-end engine continues to perform at the high levels we've come to expect from this part of our organization.

Fuel distributors represent a traditional small fleet opportunity for us. We consider them an emerging channel when it comes to potential growth opportunities. On a strategic level, we've made a significant investment in developing an entirely new front-end approach for this segment. This approach centers on a suite of products designed to provide the specific functionalities that local fuel distributors require to support their commercial fleet customers. They'll be able to choose the exact level of Wright Express service they want, from basic fleet cards to funded, fully managed programs. These will give distributors the flexibility to offer three available levels of acceptance -- private label, private network, and universal.

Up to now, we've been focusing our development efforts on a new program with Pacific Pride, which is one of the country's largest distributor networks. The test program is going well, even though we're still in the pilot phase, more than 5 percent of Pacific Pride's distributors nationwide are testing the new offering and the pipeline is very strong.

Where we did not perform well in small fleets this quarter was in the private label part of our business. In terms of vehicles serviced, private label was down 14 percent from the first quarter of 2006. The entire decrease was attributable to an unusually large cleanup of vehicles in our private label portfolio. This followed the fuel station closings that one private label customer initiated last year. Netting the 14 percent drop in private label against the 17 percent growth in the direct line of business, the number of vehicles in small fleets was down 7 percent from the first quarter of 2006.

As I said on the last conference call, we see the private label business turning around in the second half of 2007. Part of the improvement will be a result of our new 10 year agreement with Exxon Mobil, where the relationship flipped from transaction processing to payment processing in the first quarter. In addition to funding the receivables, we'll be providing Exxon Mobil a full range of services, including marketing, sales through our own inside sales organization, and an outside sales force fully dedicated to growing the Exxon Mobil portfolio.

We have recently signed our second major oil company affinity agreement, in this case, a co brand affinity relationship with Sunoco that deepens our relationship with this major player in the industry. This is Sunoco's first exposure to Wright Express beyond being an accepting merchant, and the program should launch before the end of the second quarter.

We anticipate that our performance in the private label channel will improve in the second half of the year. Exxon Mobil and Esso Canada are ramping, and we have some other large strategic relationships in the pipeline. So private label, which recently has been a drag on transaction volume, should come back and help drive small fleet growth beginning in Q3 and Q4.

Turning now to mid-size and large fleets, growth this quarter was in line with our expectations. The number of vehicles in this category increased 6 percent from the first quarter last year. This reflected solid performance in both the WEX direct and co-brand channels that serve these segments. This was an active quarter for our emerging heavy truck business. As a reminder, the market we've targeted are the private carrier fleets that travel within a local or regional geography and typically come back to home base every night. Out of the 180,000 or so locations that accept our cards, roughly 45,000 plus have diesel pumps and about 7,000 are truck stops, with 99.9 percent Level III enhanced data capture. Wright Express offers the only program that can claim these numbers, so if you're a local grocery store chain that travels regionally, for example, our card can add tremendous value.

For the first quarter, our heavy truck vehicle count was up 20 percent. Acquiring and retaining mid size and large fleets required high levels of product customization and great customer service. We offer both, and we're constantly working to strengthen our value proposition for customers and partner fleets. For example, during the second quarter, we expect to offer the Wright Express Universal Card at Esso stations in Canada. This will help us better meet the requirements of our U.S., Universal Card and co brand fleets, who need Canadian cross-border acceptance. As another example, we recently reached an agreement with one of our major co-brand relationships, LeasePlan, extending the relationship for another three years. We expect to see a continued growth in average vehicles and volume in the mid and large-fleet markets as we move through the remainder of the year.

In terms of our key initiatives, MasterCard had another terrific quarter, with total purchase volume up 43 percent from Q1 last year. Our MasterCard product offers high-level functionality to a middle market tier of customers. The functionality is typical only to larger organizations. As in the past few quarters, the growth in MasterCard came primarily from our rotating card and purchase card programs. We're working to leverage our MasterCard product in related verticals. For example, during the first quarter, we took the product we built for our traditional travel accounts, like Priceline, and introduced it to a large company in the automotive warranty business, which posted purchase volume of roughly $13 million in the quarter. We're currently testing a set of new MasterCard product enhancements in this area and developing additional strategies to align or build a more robust solution.

In a sense, what we're doing in MasterCard to leverage the core technology is exactly what we're doing in our broader strategic initiatives. First, we're working to tap deeper into total fleet spend potential by adding news kinds of functionality to our cards. In other words, we're developing opportunities to gain additional wallet share from our existing customer base. And second, we're working to penetrate new vertical markets that are populated mainly by mid-size businesses we're able to serve so well.

Thinking about it from a long-term perspective, we're engaged in a select number of exciting projects, any one of which has the potential to become the next MasterCard in terms of revenue growth. That is a new opportunity that can take us to the next level in our overall revenue and business model. One of these projects is the distributor program I discussed earlier. Our Drive to the Web initiative is another. In the R&D phase now, Drive to the Web will be fundamental in moving customers to our online products and services. The more we have people using our web products to manage their fleets, the easier it will be to promote some of the strategic projects coming down the line, such as our Telematics offering.

Telematics is part of a broader initiative we call the Data Mart project, aimed at consolidating non fuel-related data and integrating that information as part of the Wright Express fleet offering. As we announced last quarter, Telematics is our initial focus in this area. We've entered into a relationship with Networkcar to introduce Telematics functionality into our fleet products. By combining GPS data with remote vehicle maintenance diagnostics, we can offer a new generation of vehicle-based information services. We've been exploring Telematics with fleets of all sizes, and the initial response has been very encouraging.

Our third strategic focus, penetrating markets related to fleets, is currently centered on the contractor vertical. Contractor spend on building materials and supplies is a $400 billion market, two and a half times the size of the fleet markets we currently serve. We're actively exploring this opportunity because more than 10 percent of the fleets we currently serve are contractors, so it's a segment we already know very well.

Wrapping up the business review, we remain on track for a stronger second half of the year. The front end of our business, customer acquisition and activation, is doing well. Although we faced some challenges on the annuity side of our business in the fourth quarter of '06, they have diminished over the past four months.

Looking forward, with stronger performance in private label, we expect improvements in transaction volume as we move through the year. For the longer term, we're continuing to execute on our strategy to capture a larger share of total fleet spend and develop our revenue streams. Our derivative strategy remains in place, with the goal of continuing to minimize the impact of fuel price volatility and enhance earnings stability and visibility. We will continue to see positive results from this strategy as the year unfolds.

In addition to pursuing organic growth, we continue to seek opportunities for alliances, mergers or acquisitions that can accelerate our overall growth and to enhance our strategic position by leveraging our core competencies.

With that, I will turn the call over to Melissa for a review of our financials.

Good afternoon, everyone.

Given the challenging fourth quarter, I'm pleased to start off by announcing that we exceeded the top end of our guidance range for adjusted net income in the first quarter, we showed greater than expected growth in MasterCard spend, and our net payment processing rate in the fleet segment was higher than expected. In addition, we received some favorability from the price of fuel.

The biggest theme in this quarter's financial statements is the impact of the Exxon Mobil contract extension flowing through the financials. It affects several of our line items, transitioning this portfolio to a payment processing relationship, produced the impacts we anticipated, including a net increase in revenue and corresponding increases in credit loss, operating interest expense, and other sales and marketing costs. Overall, the program was slightly more profitable than last year. I'll get into more detail as I walk through the financial statements.

Looking at the big picture, extending our relationship with Exxon Mobil for another 10 years is a major plus for us. As the exclusive provider of Exxon Mobil's fleet card business, we now control the sales and marketing for the largest private label portfolio. We believe this will be an opportunity for long-term growth.

We've been making significant investments in capital and salary costs to enhance our ability to acquire new customers and expand our pipeline for future growth. Mike discussed the reasons why we expect to see stronger growth in the latter part of this year, and these investments are a major factor in that. To fund some of this, we're continuing to drive and focus on productivity in order to enhance and leverage the scale we've built. For example, we've added 19 people in sales and marketing, and only four people in our customer service area compared to this time last year.

Another highlight this quarter was the implementation of our share repurchase program. We aggressively purchased stock during the first quarter and accumulated about 489,000 shares at an average price of slightly less than $29 per share.

With that as a background, let's look at our results for the first quarter.

Net income to common shareholders on a GAAP basis was $8.3 million, or $.20 per diluted share, compared with $11.4 million, or $.28 for Q1 last year. Adjusted net income for the first quarter was $14.8 million, or $.36 per diluted share, compared with $12.3 million, or $.30 per share in the first quarter of 2006. Total revenues for the first quarter increased 11 percent, to $71.8 million, from $64.6 million for the first quarter of last year.

The average number of vehicles serviced was flat at 4.3 million. As we've reported for several quarters, this reflects the continuing effort of the 67,000 non revenue-producing private label vehicles we cleaned out of the portfolio last year. It also reflects the impact of an additional 132,000 vehicles terminated as a result of private label portfolio cleanups. Together, these reduced our vehicle growth by roughly 5 percent.

The total number of transaction processed transactions increased 3 percent from 58.1 million for Q1 last year to 59.9 million transactions. Similar to the last two quarters, our transaction volume was affected by the termination of our contract with UPS and the sale of station locations by our private label partners. These two factors reduced transaction growth by 3 percent, and we built both of these factors into our first quarter guidance.

Another factor was the number of transactions per active vehicle per business day. This was down approximately 1 percent compared to last year. We saw improvement in this metric as the first quarter progressed.

Breaking down the top line, total revenue in the fleet segment of our business grew 10 percent from Q1 of last year to $66.9 million. Payment processing revenue in our fleet segment was up 14 percent, at $49.6 million, compared with $43.6 million in Q1 last year. The number of payment processing transactions was 50.6 million, up 16 percent from 43.5 million in the first quarter of 2006. Approximately 11 percent of this increase was due to the conversion of Exxon Mobil to a payment processing relationship at the end of last year.

The average retail fuel price for Q1 of 2007 was up slightly to $2.43 per gallon, from $2.41 for the first quarter last year. As a result, the average expenditure per payment processing transaction was up about 1 percent, to $49.32 from $48.63 a year ago. The net payment processing rate was down sequentially to 1.99 percent, primarily due to the Exxon Mobil portfolio conversion. However, it was slightly better than we had planned due to a more favorable pricing environment than we had expected.

Our total transaction processing revenue was down 17 percent from Q1 of last year, to $3.5 million, again reflecting the Exxon Mobil conversion, the number of transaction processing transactions was down 36 percent to 9.4 million, increasing the average rate earned 28 percent, to $.37 per transaction.

Echoing Mike's comments, this was another great year for our MasterCard business. Total purchase volume was up 43 percent from Q1 of last year, to $385 million. The MasterCard segment contributed $4.9 million in total revenue in Q1, compared with $3.6 million a year ago, which is an increase of 39 percent.

Turning now to operating expenses, the total for Q1 was $44.9 million, compared with $35.7 million in the first quarter last year. The major factors increasing expenses were operating interest and credit loss. In both cases, the majority of this increase related to the conversion of Exxon Mobil. On a total basis, including both fleet and MasterCard, credit loss was up by $2.3 million from last year, to $6.3 million. In the fleet-related business, credit loss as a percentage of total payment processing expenditures was 23.3 basis points this quarter, compared with 16.1 basis points in Q1 last year. The Exxon Mobil portfolio is made up of small fleets which historically have higher loss rates than larger fleets; therefore it increased our blended rate for the quarter. If [inaudible] portfolio, we were above the mid-point over historical range and last year's results.

Our credit loss was also affected by increased charge-offs in the first quarter of 2007. These higher charge-offs are attributable to historically high fuel prices in the summer of 2006. In our MasterCard segment, total credit loss expense in the quarter was approximately $455,000.

We have talked the past two quarters about reserves related to one specific customer. There were no changes in the reserve for this customer for the first quarter of this year and we do not expect any resolution in the near future, but continue to feel positive about the overall health of our portfolio.

Operating interest expense for the first quarter of 2007 was up by $2.3 million from Q1 a year ago, to $6.9 million. As in the past several quarters, the increase reflects higher interest rates and higher average debt levels. The higher average debt levels are attributable to the purchase of the Exxon Mobil portfolio and the increase in payment processing transactions.

We also saw an increase this quarter in salaries and other personnel expenses of $1.8 million from Q1 last year. Throughout 2006, we added costs primarily to the sales and information technology areas to support growth in our existing business and to facilitate new product offerings. This includes nine sales professionals, dedicated to the Exxon Mobil program during the first quarter of 2007.

Our effective tax rate on a GAAP basis was 36.3 percent in the first quarter, compared with 35.9 percent for the first quarter of 2006. Our adjusted net income tax rate was 37.5 percent, compared with 35.9 percent for Q1 last year. We expect our 2007 adjusted net income tax rate to remain between 37 and 38 percent. The increase from last year was is due primarily to a change in the mix of earnings between legal entities, which resulted in higher effective state tax rates.

Now for a quick update on our derivatives program. During the first quarter, we recognized a realized loss of $99,000 before taxes on these instruments, and an unrealized loss of $10.6 million. Our Q1 reported results included approximately $.015 of additional earnings per share for the difference between additional revenue received in a cash settlement with our counter party. As a reminder, in '05 and '06, we effectively hedged 100 percent of our earnings exposure to changes in fuel prices, and in 2007, we have hedged approximately 90 percent. At this point, we've also completed nearly all our purchases for 2008. The weighted average price range we've locked in for 2007 is $2.33 to $2.40 a gallon, compared with a high of $1.95 for 2006. The prices for 2008 are even higher than 2007.

Due to higher fuel prices at the end of the quarter, our accounts receivable balance net of reserves for credit loss increased this quarter to $912 million, from $802 million at the end of Q4, nearly all of this offset by increases in our accounts payable and operating debt.

Our financing debt balance increased by about $14 million, to approximately $164 million at the end of the quarter, $12 million of which was normal fluctuations in daily cash flow. We concluded the first quarter with a leverage ratio of approximately 1.5 times.

I'll conclude with some major assumptions and our financial guidance for the second quarter of 2007 and for the full year.

Looking forward in our business, we have started the process of refinancing our senior credit facility and we anticipate that we'll be entering into a new, five-year agreement in the second quarter. When the facility closes, we expect to see a reduction in our interest rate of about 50 basis points compared to our current facility. Included in the guidance I'm about to give is an estimated $1.2 million, or $.03 per share, non cash charge, net of taxes, to write off previously capitalized costs on our existing facility.

CapEx for the year will be between $16 and $18 million. The increase in our prior guidance relates to a capital lease of $3 million we entered into during Q1, so there will be no overall change to our anticipated cash flow for the year.

Transactions per vehicle returned to historical levels in the latter part of the first quarter. Given current conditions in the marketplace, we're expecting this trend to continue for the remainder of the year. Credit losses historically are higher in the fourth and first quarters of the year. Given the higher numbers in Q1, our models are forecasting credit losses in the fleet segment for the full year near the midpoint of our historical range of 11 to 22 basis points of loss, including the addition of the Exxon Mobil portfolio.

Finally, we have not included any upside for potential future share repurchases.

Let me remind you that our forecasts for these periods are valid only as of today, and are made on a non-GAAP basis that excludes the impact of non cash mark-to-market adjustments on the company's fuel price-related derivative instruments. Fuel price assumptions are based on the applicable NYMEX futures price.

In the second quarter of 2007, we expect to report revenues in the range of $78 to $83 million. This is based on an average retail fuel price of $2.81 per gallon. For the full year 2007, we now expect revenues ranging from $315 to $325 million, based on an average retail fuel price of $2.63 per gallon.

As for earnings, for Q2 of 2007, we expect to report net income in the range of $16 to $17 million, or earnings per diluted share of $.38 to $.41. This includes the $.03 non cash charge, and excludes unrealized gains or losses on derivative instruments. For the full year 2007, we now expect to report net income in the range of $69 to $74 million, or earnings per diluted share of $1.68 o $1.78 on approximately 41 million shares outstanding. Again, this includes the $.03 non cash charge, and excluded unrealized gain or loss on derivative instruments.

With that, we'll be happy to take your questions.

Operator, you can proceed with Q&A now.

Thank you. [OPERATOR INSTRUCTIONS]

We'll take our first question from Tien-Tsin Huang, with J.P. Morgan.

Hi. Thanks. Good afternoon.

I had a question, I guess, for Melissa. Can you give us more detail on what drove the -- I guess, the upside surprise in your discount, or I guess your net payment processing rate in the quarter, and is that sustainable?

Well, what I just said was that we saw a better price environment than what we had anticipated, so we saw a small amount of favorability compared to what we had originally projected. And that's something that -- and if you look at it through the course of the year, and we've said that the biggest impact was certainly going to be on Exxon Mobil conversion and it will continue to see pressure at the high end of the market, with our larger fleets, on a go forward basis. But the Exxon Mobil conversion was the most significant impact.

So that's not completely cycled through the first quarter results?

No. That will be cycled through the first quarter results.

Okay.

You'll see -- it should be a nominalized amount in the first quarter, and so that anything going forward should be pricing changes that you're going to see on a regular basis that occur throughout the year.

Okay, so more like [inaudible]. Okay.

And then it sounds like on the charge-off front, everything is relatively normal. How should we think about the one client loss that you are -- or the risky customer that you've been talking about? What's the -- what's driving your level of comfort there?

Well, I think the position really hasn't changed. You know, more time has gone on; the business continues to operate. We're still, you know, working to negotiations with that customer and in legal proceedings with them, and that's going to take some time to work through. So we believe at this point in time that our reserve that we put up at the end of last year was fairly stated, and we don't know -- have any more information to change that.

Okay.

And Mike, maybe the expansion into the contractor market -- it sounds pretty compelling. Would that be a MasterCard product, or a proprietary card?

Yeah, we're in the research phase at this point, so MasterCard could be one of the options. There may be some other ideas and options that we're looking at and we're researching right now. So all of this is still early in the test, but it does make sense for us to enter that market, we believe, but we're not finalized exactly with how we're going to go to market with a full-blown strategy.

Gotcha. Okay.

And then, I think, just one quick housekeeping -- share count at the end of the quarter?

39,936,725

Got it. Thanks so much.

We'll take our next question from Pat Burton with Citigroup.

Hi. Thank you.

My question relates to the 3 percent transaction growth number. How much of that was depressed by the UPS loss that you mentioned?

The transaction growth? Well, we said the transaction growth, combined with the termination of the -- or shutdown in some of the locations -- decreased it by 3 percent combined.

With UPS.

With UPS.

With UPS combined, okay.

And if we go into the recovery in the second half of the year of private label, is that because the newer contracts are ramping up and the older ones have fallen off? I'm just trying to get at what gives you confidence it'll pick up in the second half.

Yeah.

Pat, I think what's giving us confidence is that we saw the program last year have some of the impacts on cards going away for different reasons -- station closings, whatever. But what we see now is now that we're in control of the sales and marketing on the program, we've already seen a significant increase in applications in the first quarter versus the fourth quarter of last year, so we feel good about the fact that we have control over that. We're starting to ramp with our sales organization being in place, both with some inside sales reps, outside sales reps. And on the Imperial Oil or Esso Canada, also there we're doing marketing and even their apps are up first quarter over fourth quarter.

So with all of that being said, we see the trends now going in the right direction after they were going in the wrong direction, if you will, last year, and that gives us the confidence that by the second quarter -- I should say, the second half -- of this year, that we'll start to see greater growth in private label since Exxon Mobil and IOL are our two largest private label programs.

Thank you.

We'll go next to Greg Smith, with Merrill Lynch.

Yeah, hi.

Is the interchange rate on your commercial card -- did that go up in April by any chance?

Did the interchange rate on our commercial card go up?

Yeah, since that's controlled by MasterCard, correct.

Oh, I'm sorry, on our MasterCard product.

Yeah.

No, we didn't see any increase there.

Okay, so no change.

No change.

Okay.

And then, do you have a good idea where you guys could roll out your next hedge, what the current range approximately would be if you were to do that today?

Yeah, as of yesterday it was around 255 was the blended rate.

Okay. Thank you.

And then the issue you mentioned, Melissa, on the charge-offs being a little bit higher due to sort of the flow-through of some higher fuel prices in the middle of last year, is that just something that came to an end, do you think, now, or is that going to play into next quarter possibly? How do we sort of get comfort with that?

Yeah.

The fuel prices were elevated through the summer months and into August of last year, and then you could start seeing them drop off pretty ratably from that point on. So what we believe we're seeing is the impact of that rolling through the charge-offs at those higher prices, so we do believe that that's going to change rapidly in the second quarter.

Okay.

And then just any update on the service network? I don't think you guys talked about that at all.

Yeah.

We've talked about that we've put some new controls in place and products in place. Again, it's only on the Wright Express Universal Card today. Again, we're starting with a low base but we did see a 32 percent increase year-over-year, quarter over -- you know, first quarter over last first quarter. And we'll start to introduce that product and program; the private labels will start to roll out their acceptance of their cards at some of the service network merchants, in the second half of this year.

Okay.

And then lastly, just wondering maybe why you're not raising guidance at this point. You beat the quarter; you're saying you're not seeing the economic weakness anymore. Was it just kind of a slower start to the year on the private label side, or are you just being conservative because we're only in the first quarter?

Well, not only the first quarter but also, you know, when we looked at guidance, we looked at a number of different factors combined and decided to essentially keep the range the way that we had put it out last quarter. The only adjustment we made was that $.03 non cash charge.

Okay. Thank you.

And we'll go next to Robert Dodd, with Morgan Keegan.

Hi, guys.

Can you give -- what's the relative cleanliness of the card base that you've got right now? I mean, you know, have you cleaned out such that you can, or your private label partners can, all, you know, all the inactive accounts or is there still an issue there?

I think, every year, Robert, there's some cleanup of some inactive cards. I think last year was unusual. We had, earlier in the year, a private label relationship that had converted over from another program, and all of that came over with a lot of inactive cards that got cleaned up. Then we talked about the station closings, which we can't say for certain, but our understanding is, hopefully, the bulk of that is done and hopefully there's not going to be a lot more of that in the future.

So it was a little unusual, knowing a couple of those things were unusual items that don't typically happen. But there's always some cleanup, but not to that magnitude.

Okay.

And then on the, you know, the private label partnerships you've got here, you know, with nine dedicated sales people in the Exxon pipeline, I mean, you've already said there's been something of a pickup in applications. I mean, what's it in response to? I mean, have you got the marketing materials? Have those gone out? Is it outgoing phone calls? I mean, can you give us an idea what's driving it?

Yeah.

For the inside sales, which we do have some inside salespeople that'll be supporting the Exxon Mobil marketing and sales, that is primarily direct mail. And then the outside sales force will get some leads from that for larger fleets, but they'll also have a prospect database that we provide to them so they'll be able to call on fleets directly, make appointments. So that's what we're seeing the pickup on in terms of both the inside and the outside, with that direct mail that really started to hit in the first quarter of this year.

Okay. Thanks a lot.

And we'll go next to Abhi Gami, with Bank of America.

Hi, thanks.

How much is in your EPS guidance for next quarter for any kind of [inaudible] match?

It's very hard for us to predict going forward in the future, so it's not something that we're able to specifically calculate, going that far out.

Okay.

So based on where it was [inaudible] today, you're not making any assumptions that it remains at levels though -- there's nothing in the guidance?

There's nothing material in the guidance.

Okay. Great.

Also, maybe a little more esoteric, but how advanced is your rollout of the [inaudible] 2.0 technology, [inaudible] to kind of enable some of your other product rollouts?

Yeah.

We're basically at good critical mass. Not where we'd like to see it to really unveil some of the newer products that we hope to unveil later this year. But that's the most flavor I can give on that right now, Abhi.

Okay.

But, so I understand, it's at the point now where it does enable other products to be rolled out?

Yes and, quite frankly, some of the private labels can already take advantage of that spec because they may have rolled it out specifically on the WEX Universal Card. We're just waiting for one more network to basically deploy the spec, and then we think we've got critical mass to do more of the product upgrades.

Great.

And on the MasterCard interchange rate, it dipped just a little bit from the levels of last year. Is this sort of the level we should expect for the remainder of the year?

Well, the rate is impacted in the first quarter just on the blended mix and the type of customers that we show increased spend on. And so, yeah, generally speaking, it's pretty consistent. I wouldn't say -- it's not identical, but generally we expect to see a similar mix throughout the year.

And then one more quick question on credit loss.

You have now -- you're pursuing the small fleet market more aggressively and you've seen your loss rates pick up a little bit. What gives you confidence to say you'll come into the middle of the historical range when it sounds like your mix of small fleets would be at the -- maybe, you know, at the higher end of your historical range?

Well if you look, even, in the last several years, you can see some pretty significant volatility in any particular quarter. You've seen that in the results that we've reported, so when we actually estimate out, we're looking at what we were predicting for charge-offs over the next few months and we predict those to be reduced pretty ratably going forward in the future and a lot of that just simply has to do with the price of fuel, at the point that people were fueling.

Okay.

With fuel starting to pick up once again, is it kind of safe to assume if it stays at these sort of levels through December once again, that a year from now we'll be seeing similar sort of behavior in charge-offs?

You'll see potentially an impact based on that, yeah. So when -- talking in terms of basis points, that factors some of that into it, obviously. You know, as the price of gas goes up, then we give you basis points and it increases the expense.

Is there anything you can do on your end to improve the credit quality of the portfolio?

I think we feel like we actually spend a lot of time trying to make sure we're maximizing -- extending credit to the maximum number of people without taking undue risk. And based on outside evaluations of people when they've come in and looked at our portfolio, I think we feel actually pretty confident about the way that we have built those processes.

Okay.

Which doesn't mean that they can't be improved. I think every quarter we learn something new and we make adjustments.

Great. Thanks very much.

Sure.

[OPERATOR INSTRUCTIONS] We'll go next to Paul Bartolai, with Credit Suisse.

Thanks. Good afternoon.

First question, Mike, you know, the transactions per vehicle with the existing customers bounced back pretty nicely. Any sense, you know, having seen what happened, of maybe what caused the problem in the first place and what gives you confidence that we won't see a similar recurrence given, you know, some of the issues we're seeing in the economy and with the transportation sector?

Yeah.

I think, Paul, all we can say is, you know, we saw what we did in the fourth quarter. We actually talked to a lot of those fleets directly that had their business down, but all we can do is then just wait to see what the statistics tell us and the trends tell us, and the first quarter, as we said, it was only down 1 percent versus the 4 percent in the fourth quarter.

So having said that, we feel confident at this point to say that, going forward, that should not have an impact overall on our transaction growth.

And if you were at the 1 percent for the quarter, is it safe to assume in March and April it was closer to flattish, kind of where you've been historically?

It still bounces around so, you know, it's hard to look at any one month. I think between the two months, one month was probably pretty good, one month still was bouncing up a little bit. But you've got to look at it, I think, on a longer-term basis. That's why we kind of said in the four months we feel overall that it's diminishing.

Okay, great.

And then, you know, as we look at the second half, I mean, with the easier comp and some of the stuff going on with private label, should we expect to exit the year closer to kind of the 8 to 10 percent transaction growth that you guys have posted historically?

Well, I think all we can say at this point is we feel very good that a number of the things we've talked about today -- private label really kind of turning around from declining on apps, increasing on apps; we see strength in the co-brand marketplace with, you know, we had some nice wins in the first quarter that are going to start to pay dividends later in the year. We signed this new contract with LeasePlan; they're being very aggressive now with us. Their pipeline's full. We had some nice wins on the WEX program. State of Indiana, we won; that'll be rolling out mid-year. We won back a state where another processor could not do tax exemptions, so we'll start to see that impact in the second and third quarter.

So we feel good about the pipeline; what we're seeing across all the lines of business. So all I can say is we see strength in the second half of the year.

Okay, great.

Then last question, just on the use of cash. I mean, you guys, you were pretty active with the share buybacks in 1Q and generated some pretty strong free cash flow, with the debt refinancing, does that make you more apt to look at share repurchases versus paying back debt or -- just curious as to your thoughts on use of cash.

When we did the refinancing, it was more just about getting economic benefit and the fact that the market changed since we went public and we've had a chance to prove ourselves, and so we get lower rates.

We've said before we want to keep that leverage ratio in that 1.5 to 2 times area, so I think it gives us still the flexibility in order make sure that we can do that on a regular basis.

That's great. Thank you.

It appears there are no further questions. At this time, I'd like to turn the conference back over to Mr. Dubyak for any closing remarks.

I just have one clarification point, actually, before we do that. The actual share number we gave out was for April 26, 2007, which is actually what's getting reported in the Q that gets filed tonight, so just to make sure that was clear. Mike?

Yep.

Thank you, Gwen, and thanks everyone for listening. We look forward to speaking with you again next quarter. This concludes our call. Have a great evening.

Thank you, everyone. That does conclude today's conference. You may now disconnect.