WEX Inc (WEX) 2012 Q3 法說會逐字稿

Good morning. My name is Lavrielle and I will be your conference operator today. At this time I would like to welcome everyone to the WEX third quarter, 2012 financial results conference call. (Operator Instructions) will and I will be your conference operator today. I would now like to turn the call over to Steve, Chief Financial Officer. Sir, please begin your conference.

Good morning. With me today is our CEO Mike Dubyak. The press release we issued earlier this morning is posted in the Investor Relations section of our website at wexinc.com. A copy of the release has also been included in an 8-K we submitted to the SEC.

As a reminder we will be discussing a non-GAAP metric, specifically adjusted net income during our call. For this year's third quarter adjusted net income excludes non-cash mark-to-market adjustments on our fuel price-related derivative instruments, the amortization of acquired intangible assets and a good will impairment as well as the related tax impacts. Please see Exhibit 1 included in the press release for an explanation and reconciliation of adjusted net income to GAAP net income.

I would also like to remind you that we will discuss 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 factors including those discussed in our press release, most recent Form 10-K and other SEC filings. While we may update forward-looking statements in the future we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

With that I will turn the call over to Mike Dubyak.

Good morning everyone and thanks for joining us. This morning WEX reported third quarter results that were consistent with our expectations. Third quarter revenue increased 6% to $161 million, adjusted net income for the quarter increased 9% to $1.08 per share compared to the prior year.

Adjusted net income in Q3 was impacted by deal and integration related expenses as well as the impact of changes in the Australian tax law. The total impanel of these items was approximately $0.10 per share net of tax. Steve will provide some additional detail on these items in just a few minutes.

Since we last spoke we've been busy executing our long-term growth strategy that focuses on expanding our America's Fleet business organically and inorganically, diversifying our revenue streams and building out our international presence. To that end we had several key developments including our acquisition of Fleet One, which accelerates our over-the-road business and rounds out our vehicle servicing capabilities, our entrance into Latin America through our purchase of a majority interest in UNIK, a Brazilian pay card provider who also provides a freight card product, and further progression in internationalizing our virtual card product.

Based on the advances we made moving from a domestic fleet card provider to an international payment solutions organization, last week we announced the re-branding of Wright Express to WEX, Inc. Our new name and global brand marks the next chapter in our Company's evolution. Since our beginnings as a fleet card provider almost 30 years ago WEX has achieved a leadership position in the corporate payments industry.

Today WEX is a growing international provider of fleet, virtual and pay card solutions with an innovative product suite and a solid operating model. Our Company has strong credibility and our re-branding will help articulate and reinforce our value and equity.

Let me now turn to our results for the quarter. For the third quarter, revenue in the fleet payment segment increased 1% compared to the prior year as we have remained focused on generating new business growth in light of continued softness in our America's existing customer base. We've been very successful on this front and achieved consolidated vehicle growth of 6% over the prior year.

Consolidated payment processing transactions increased by approximately 1.4%. Looking at our America's Fleet business we saw further pressure in our existing customer base or same-store sales which were down 1.4% compared to the third quarter of 2011. We believe this is indicative of the current macro-economic environment despite strong fleet card growth in the quarter.

In light of the sluggish economic environment we continue to concentrate on driving further growth and expansion of our overall product offering. With fleet card growth exceeding our expectations we are on track to realize 500,000 now cards for the full year which would be a very strong year for WEX. As I mentioned a few months ago, we announced the closing of Fleet One.

The Fleet One acquisition in early October, Fleet One further builds upon America's fleet business, a core tenet of our multi-pronged growth strategy. This acquisition provides us with the UNIK opportunity to immediately and materially expand our OTR business in order to more effectively compete in this area of the market which we view as a growth opportunity going forward. Further Fleet One's strong over-the-road business will round out our product capabilities to better serve both our mixed fleets and our co-brand partners who service heavy trucks and also accelerate our acceptance in Canada.

In addition, the combination will create greater scale by combining Fleet One's and WEX's local fleet and private label business which includes Fleet One's cost plus network. While we are still in the early stages of the integration process we are already beginning to see potential revenue synergies in the form of fruitful conversations with Fleet's and co-brand partners as a result of this transaction.

With an enhanced portfolio of solutions we are now in a position to more strongly respond to all of our customer vehicle card needs. In order to manage the integration of Fleet One we immediately put in place a joint integration team. The team is responsible for setting the integration strategy, driving the process and making the key decisions. George Hogan, CIO of WEX is leading the team working collaboratively with senior management of Fleet One.

That said both companies are working closely together through the integration process to ensure a smooth transition. Over the coming months we'll be addressing a variety of integration related tasks. For example, we will adopt those practices and policies from each company that make the most sense for the combined business over the long run. We plan to execute the integration in a very thoughtful, deliberate manner to ensure that it does not interrupt Fleet One's growth while optimizing synergies between our companies.

Looking internationally WEX Australia fuel has remained a steady performer with results continuing to meet our expectations. For the third quarter payment processing transactions increased 3% over the prior year, total cards increased 10% and we remain diligent in working to drive further growth here by targeting large fleets.

Moving on to our Other Payment Solutions segment we continue to expand this segment which includes virtual cards and pay cards. Diversifying our revenue streams is a critical component of our growth strategy and we have made a lot of progress on this front both organically and inorganically. For the third quarter revenue in the Other Payments segment grew 24% over the prior year mainly due to the strong performance of our virtual charge card product. Spend growth remained very healthy increasing 32% over the prior year and was driven by online travel and to a lesser degree contributions from Corporate Pay.

We have finished testing and have begun process PaySpan transactions. While we do not expect to see meaningful volume until next year we continue to believe it has the potential to become a meaningful contributor to our Other Payment Solutions segment longer term. Given this expectation we would be disappointed if we are processing less than $1 billion in transactions in 2013. Once PaySpan has been fully implemented we expect to have better visibility.

In terms of our activities overseas, in Europe we have implemented one of the previously signed OTAs. By 2013 we expect both of them to be fully up and running at which time we anticipate them making more of a contribution to our business. With respect to CorporatePay we will be leveraging the platform across Europe as well as conducting a deeper exploration on the opportunities in other international markets. In Australia we have begun processing OTA transactions with Webjet which we signed last quarter. With a cornerstone client in this region we plan to build the pipeline to further grow the business.

We have made significant headway in creating WEX's first really global product solution a virtual card for the travel sector. Based on the due diligence we have conducted to date we see tremendous opportunity to grow our virtual card business in new markets and geographies and will be looking to aggressively expand this product in the coming years. In order to support this future growth we plan to make greater upfront investments next year to establish a broader international foundation to build upon.

Overall, we remain confident that we will experience strong growth for our virtual card product and continue to expect spend growth to be in the 30% to 40% range for 2012 which includes contributions from CorporatePay. In addition to our virtual card we also see a lot of potential for our PayCard offering. Which is a B2B prepaid solution.

Prepaid pay cards are a rapidly growing segment of the payments market and WEX plays in a specialized niche in the US. WEX offers businesses an alternative to paper checks for their employees with the employer reloading funds onto the employee pay cards. Given our target markets and our customer base in our fleet segment we believe our PayCard product is a highly complementary offering to our existing business and to the Fleet One business.

Most recently we have expanded our international footprint into Latin America through a majority equity position in UNIK, a leading pay card provider in Brazil. We are excited about this venture for several reasons. First, as a large and growing economy we believe Brazil is a very attractive market. Second, we see significant opportunity in working with UNIK in leveraging its strong management team and growing product set.

The UNIK team is driven and motivated to grow the business and we plan to leverage this partnership to establish and validate a long-term growth plan in the region. Lastly, we envision synergy for extending our prepaid PayCard presence in Brazilian and expanding into the fleet market which has been established.

More broadly speaking we still see opportunities for M&A and strategic alliances, are still active in this arena in all areas of our business. Expanding our business internationally also continues to be at the top of our agenda.

In conclusion we're pleased with our performance this quarter and the new growth platforms we have established. With the resilient business model we feel good about the health of the business as we close out 2012 and head into next year. Though there is uncertainty with respect to the outlook for the broader economic environment, we plan to continue investing in our business to support future expansion.

The combination of market opportunity and WEX's growing position as a comprehensive integrated business partner for fleet, virtual, and pay card solutions establishes a solid and differentiated underpinning for long-term growth. This growth will be supported by our multi-prong strategy of expanding our core fleet business, further diversifying our revenue streams and extending our international presence.

I will now turn the call over to Steve who will review our detailed financial results and updated guidance for 2012. Steve.

Thank you, Mike. For the third quarter of 2012 we reported total revenue of $161 million, an increase of $9.1 million or 6% from the prior-year period and slightly above the high-end of our guidance range of $153 million to $158 million. Actual results were higher than our guidance primarily because of fuel prices and the acquisition of UNIK in the quarter.

Net income to common shareholders on a GAAP basis for the third quarter was $14.3 million or $0.37 per diluted share.

Our non-GAAP adjusted net income increased to $42 million or $1.08 dollars per diluted share, an increase of 9% from Q3 last year.

Adjusted net income included a few items that impacted our results which were not accounted for in our guidance. The first was an additional $2.1 million or approximately $0.4 per share in deal and integration costs including the related tax impact. The second was a retroactive tax law change in Australia which caused a catch-up entry of approximately $0.6 per share of additional expense.

During the quarter we executed an investment in the Brazilian company UNIK which consisted of a capital infusion of $22 million with a potential earn-out liability which is dependent on their performance for the remainder of the year. Presently we have estimated the earn-out liability to be $1 million. Our investment has been treated as a controlling interest and accordingly all the assets, liabilities, and revenues of UNIK are included on our consolidated financial statements. A portion of UNIK's net income that we will recognize in our financial statements will be equal to our 51% ownership position.

In terms of some key performance metrics for the third quarter, total fuel transactions increased 0.8% over the prior year. Payment processing transactions increased 1.4% in total. All-in-all we believe these metrics are reflective of the sluggish economic environment as illustrated by our existing customer base for same-store sales.

The net payment processing rate for Q3 2012 was 1.62%, which was down 2 basis points versus Q3, 2011 and 1 basis point versus the second quarter of 2012.

Finance fee revenue in the fleet segment decreased $187,000 compared to Q3 last year. As a percentage of total dollars of fuel purchased it was approximately 3% lower than last year. In the Other Payment segment revenues for the third quarter increased 24% or $8.3 million year-over-year to $43.1 million. This segment now represents 27% of our total revenue.

Revenue growth in the segment continues to be predominantly driven by our virtual charge card product and the online travel vertical with contributions also coming from CorporatePay and rapid! PayCard. Spend volume on our virtual charge card product increased $777 million over last year or 32% to $3.2 billion for the quarter.

This is our first quarter of more than $3 billion in spend. To put this into perspective this quarter spend was more than our annual volume as recently as 2009. The net interchange rate on our virtual charge card product for Q3 was 90 basis points, down 9 basis points year-over-year with no change sequentially.

Similar to what we described last quarter this was primarily due to a reduction in customer specific incentives received from MasterCard. Moving down the income statement total operating expenses on a GAAP basis for the third quarter were $109.7 million, a $23.1 million increase versus last year. The majority of which was related to salary and other personnel costs, service fees and amortization expense.

Salary and other personnel costs for Q3 were $28.8 million compared with $27.4 million in Q3 of last year. The increase was driven primarily by additional headcount as a result of our UNIK and CorporatePay acquisitions.

Service fees were up $8.2 million over the prior year to $29 million. The increase this quarter was primarily related to the 32% increase in volume on our virtual charge card product.

In addition, we had $2.9 million in expenses related to the operations of companies acquired during the year as well as the related deal costs. For the fourth quarter we expect to incur an additional $4.4 million of deal related and integration costs associated with the Fleet One acquisition which we have included in our Q4 guidance.

Credit losses continued their strong performance in the third quarter. In total credit loss was $5.6 million in Q3 compared with $8.7 million for the same period last year.

Total charge offs in the quarter were $5.2 million while recoveries of amounts previously charged off were $1.1 million. Domestic fleet credit loss was 11.1 basis points in Q3 compared to 17 basis points in the prior-year period. Our operating interest expense was $1.2 million in Q3.

We continued to benefit from low interest rates in addition to the savings we are realizing from our Higher One deposits. The average interest rate on our deposits this quarter was 40 basis points. The effective tax rate for Q3 on a GAAP basis was 59.3% compared to 35.3% in the third quarter of 2011. Our adjusted net income tax rate this quarter was 39.5% compared to 35.8% for Q3 a year ago.

During the third quarter the Australian began enacted retroactive legislation which changed their transfer pricing rules in the area of allowable debt levels. This tax law change which we foreshadowed on our Q2 call resulted in a charge of $2.4 million in the third quarter. We expect our A&I tax rate to be between 35.5% and 36% for Q4.

During the third quarter we also recorded a non-cash impairment charge in the amount of $16.2 million to write-down the goodwill related to our prepaid gift card business in Australia. As we have discussed previously, the retail sector in Australia has been challenged as the Australian dollar has been strong relative to the American dollar. As a result consumers are purchasing goods online rather than purchasing prepaid gift cards which is having an impact on this part of our business.

In addition, we have seen increased competitive pressure which is also having an effect on the performance of this business and we expect this softness to continue. From a revenue contribution perspective the gift card business is approximately 1% of our overall business.

Turning to our derivatives program for the third quarter of 2012 we recognized a realized cash loss of $1.2 million before taxes on these instruments and an unrealized loss of $12.8 million. We concluded the quarter with a net derivative liability of $1.8 million. In September we announced that we would be modifying our hedging program as part of a regular review of the hedging strategy and in light of recent corporate acquisitions.

As we previously communicated to you, our goal is to target hedging 60% of our fuel price related earnings exposure in North America. Although we expected to implement this in Q3 of 2013, with the acquisition of Fleet One we will essentially be adopting this policy immediately. For the fourth quarter of 2012 we have locked in at a price range of $3.45 to 3.51 dollars per gallon.

Moving now to the balance sheet we ended the quarter with over $400 million of cash, which is due to the seasonal nature of the Higher One program. We expect this balance to come down through the fall as students withdraw funds. As we previously stated, given the growth we've experienced in our payment offerings and the related fluctuations in our daily cash needs, we plan to maintain greater levels of liquidity at our bank subsidiary than we have historically.

In terms of capital expenditures CapEx for the third quarter was $5.9 million. For the full year we expect CapEx to be in the range of $28 million. Our financing debt balance decreased $20.7 million in Q3 including the purchase of the majority interest in UNIK.

We ended the quarter with a total balance of $300 million on our revolving line of credit and term loan. As of September 30th our leverage ratio was 1.1 times EBITDA compared to 1 point -- excuse me -- 1.1 times EBITDA compared to 1.5 times at the end of the Q3 last year.

Pro forma for the acquisition of Fleet One leverage at the end of Q3 would have been 2.2. As far as future capital allocation, our primary objective remains to look at acquisitions as a way to further our growth objectives followed by paying down debt. Now for our guidance for the remainder of 2012 which reflects our views as of today and is made on a non-GAAP basis. For the fourth quarter of 2012 which will be the first quarter including the results of Fleet One we expect to report revenue in the range of $162 million to $169 million and adjusted net income in the range of $39 million to $42 million or $1.01 to $1.08 per diluted share. These figures assume normal seasonality trends in the corporate purchase card as well as credit losses.

Our fourth quarter guidance assumes that domestic fuel prices will be $3.65 per gallon and that domestic fleet credit loss will be between 10 basis points and 15 basis points. The full year 2012 we now expect revenue in the range of $616 million to $623 million and adjusted net income in the range of $156 million to $159 million or $3.99 to $4.05 per diluted share. Our full year guidance assumes that domestic fuel prices will be $3.73 per gallon and that domestic fleet credit loss will be between 9 basis points and 11 basis points.

As a reminder the fuel price assumptions for the US are based on the applicable NYMEX futures price which play not reflects the actual prices during the quarter. We are also assuming that the Australian dollar remains at a premium to the US Dollar in the range of $1.03. Also as I said earlier, Q4 earnings includes $4.4 million in integration and deal costs that were not included in our previous guidance.

And now we will be happy to take your questions. Operator, please proceed with the Q&A session.

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Sanjay Sakhrani.

Hi, this is Steven Kwok filling in for Sanjay. Thanks for taking my question. The first question I have was could you talk a little bit more about PaySpan and how the accounts there are trending and what's the experience so far?

Yes. I think that we clearly have some more insight, but we still don't have complete insight because we're in the very early stages of doing transactions with them. We've worked with them, they have given us what they see as their pipeline. Some of those are signed deals some of those are prospects. They have what they think is their normal case or best -- normal case and then they have a best case. So I think we're still a little cautious until we have more visibility. That's why we're saying we still are looking at the -- the $1 billion in spend next year is still where we're just placing ourselves until we have more visibility on a longer term basis.

Okay. And then for my second question I was just looking at the guidance provision. I was wondering how much of the revenue change is related to Fleet One? If you break that out. And then second part was regards to the EPS revision is that -- does that part of it due to the $0.10 charge that was included -- that was not included in the third quarter's earnings for the adjusted EPS? Thanks.

Yes, Steven. The Fleet One as we disclosed when we announced the acquisition they're in the call it $14 million to $15 million per quarter range in terms of revenue. I think it was $56 million for the trailing 12-months ended in June. So you can plug that into your model for the fourth quarter. In terms of the EPS absolutely that $0.10 that we recognized and disclosed in the third quarter is clearly carrying through into the fourth quarter as well as additional deal and integration costs related to primarily to Fleet One but also somewhat to UNIK, the acquisition in Brazil as well.

Got it and my final question was regard to the Australian tax law change, does that have any impact on the future tax rate going forward?

It will have a small impact, Steven. It's -- it's relatively small. Like I said that -- the $2.4 million that we recognized this quarter essentially goes back to when we first purchased the company a couple years ago so you've got a number of quarters that are involved in that $2.4 million charge. So it's a couple hundred thousand dollars a quarter so it's not a huge number.

We closed on them in September of 2010.

Right.

Great. Thanks for taking my questions.

You're welcome.

Your next question comes from the line of Mike Grondahl with Piper Jaffray.

Yes. Thank you guys. Could you just talk a little bit about your core business and any signs you're seeing there of a pickup or -- or maybe what you're watching to see when we do gets a pickup?

Yes. As you know, we think our fleet business -- our fleet card business probably more reflects what's going on with the general economy and we didn't see a lot of change from last quarter to this quarter. We're slightly down as we said about 1.4% on same-store sales. There's no change geographically by region it's still the southwest is still the only one showing positive change. All the rest are slightly down to -- the northeast is down almost 4%. As we look at SIC codes you've got some that are up like construction and manufacturing and mining but you have those that are down, public administration has been down for a while, retail trade was down for us. Business Services were down and transportation was down, which typically we see that being maybe a forecast of the future trends on the economy so it's about the same, though. It'sjust sluggish, tepid. It's not moving in any direction. There's nothing that's telling us it's going to change until I think there is more certainty in the market which I think a lot of people are seeing.

Okay and then maybe just a follow-up on PaySpan. Any mile stones or -- or anything that you guys are looking to get more color on what next year is going to look like?

Yes. I think it's that they have signed some of their accounts, which gives us first of all confidence that they're signing accounts. They have prospects. It's a matter of I think us seeing that those prospects turned into signed accounts so that we know that the numbers against those prospects are real. So we're just being cautious until we see some of that play out. They're very confident, but we're just going to be careful until we actually see those signings take place and people are signing up for those spend numbers.

Okay. Thank you.

You're welcome.

(Operator Instructions). Your next question comes from the line of Roman Leal with Goldman Sachs.

Great. Thanks for taking my questions and I apologize I was jumping back and forth here. Did you walk through the thought process on the changes to the -- the hedging program? I'm just curious given the recent acquisition you probably have more net exposure there. Just curious to see the logic behind that.

Well, I think the logic is that fundamentally at this point we're not changing the fact that we think that we need to be hedging at some level. As our exposure to fuel prices have decreased over time and our other business which Other Payment Solutions are now 27% of our business we're just saying how much do we think we have to hedge? And we have done a lot of analysis on looking at it and we decided to reduce the exposure.

I think all Steve was saying is we used to be at 80% of our earnings exposure and we were going to reduce that to 60%, but that would have been more in the future but by adding in Fleet One, that puts even some of the current quarters and the first couple of quarters in next year now in that 60% range. So the decision was it to move it down to 60% and not have as much hedged as we have in the past and all Fleet One did was put us there quicker in terms of waiting until the future.

So you're basically there right at the 60% range. That's helpful. And then for your Other Payment Solutions any -- either you have some visibility (inaudible) but some visibility into new channels there internationally and domestically. What do you think volume growth could look like in 2013?

We haven't given out any guidance yet on that so I think we're probably going to wait to do our budgets and have all that in place. Clearly it's something we feel good about with what we're doing with CorporatePay in the UK. We think UNIK can help us a little bit to help get more of a presence in the Latin American markets to help us with our virtual card product.

We have talked about Webjet in Australia, we think there's other opportunities in other parts of Asia-Pac. It's an area we're going to invest in. We think there's great growth opportunities to go beyond if you will North American and OTA partners -- in-country OTA partners. So it's a -- it's something we're bullish on but we haven't given any guidance yet against it.

Understood. Great. Thanks a lot for the answers.

Your next question comes from the line of Bob Napoli with William Blair.

Thank you. Just wanted to be clear on the fourth quarter guidance. Included in that guidance are deal integration costs of $0.07 and that's it or is there any -- you said there was some carry over of the $0.10 or...

Yes, Bob this is Steve. The $0.10 from the third quarter, the Australian tax law change which was retroactive, that's obviously impacting our full year number and the deal and integration costs related to the two acquisitions we completed in the third quarter, all those are obviously affecting our full year number as well. In addition, the $4.4 million that you referenced for the -- for the fourth quarter which is also additional deal and integration costs, primarily for Fleet One.

Okay. (multiple speakers)

So that's another addition.

So and you're right. That is about $0.07 of EPS.

And then for 2013 are you expecting many -- much more in the way of integration costs?

There will be some. Yes. Absolutely. We'll call those out specifically as we -- as we get into the year.

Okay. And then just your 6% vehicle growth -- that's pretty solid. The same store sales being down. What is the utilization rate of those vehicles ? Are you getting nice vehicle growth but are a lot of those -- I mean are you getting paid for all the vehicles -- something for the vehicles that you have listed as under management or what percentage of those are idle? How do we look at that vehicle growth and then try to drive it to revenue growth?

Yes. There is a lot of different numbers that can affect it, Bob. I think what we look as is activation rates which can vary by partner if it's private label versus co-brands versus on the WEX program by size of fleet, but our activation rates are actually up year-over-year. So you have more vehicles, the active vehicles are up which says something is going on to bring it down and that means that the utilization is lower so the transactions per active vehicle have to be down in that case, which is driving the lower same-store sales numbers.

Okay. And then Fleet One the operating margins on Fleet One can you give a little color of what those operating margins were at Fleet One compared to -- were they a little bit above your margins or in line with your margins?

At the time of the purchase their operating margins were a actually a little bit below ours and we think with the synergies that we'll recognize on the deal over time they'll become more in line with our margins.

Okay.

That won't happen (inaudible) but through the integration process over a period of time we think we can raise them.

Yes. Because you've pointed out in the past that your core business has incremental margins of close to 80%. One would think you could get maybe some -- over a couple years some real synergies on the margin line with Fleet One.

We clearly expect to, yes.

Okay. And then what is the growth rate right now of Fleet One? I mean I think they have been growing mid-single digits or mid- to upper-single-digit. Do you think that can continue?

You know, it's actually a little bit better than that, especially when you include fuel prices historically it's been up closer to 20%. Now, a lot of that is due to the -- their exposure to fuel price and how those have been rising.

Right.

But when you exclude that it is a double-digit number that they have they've been growing and we expect we'll be able to continue that.

Okay. And then you've made -- you've done a number of deals and changing your name and all it's become a more complicated company. Do you have the management infrastructure, do you need to add to that management infrastructure, are we -- when you have had tremendous execution over the years are we at risk with all these different acquisitions that you have made that -- that there -- and how do you feel confident you're going to be able to manage this?

Yes. There's no doubt that one of the things that we have to make sure is execution risk is optimized and we started well over a year ago, actually it was probably in the first to second quarter of last year saying if we're going to be an international company, if we're going to look at doing more acquisitions we've got to look at things differently and we have set up a organization that's not just not a North American functional organization. We now have a corporate group. We have -- Melissa has her America's group, David Maxsimic has his international group. We have embedded within both groups people that are long-term focused if it's research and marketing and innovation and new ideas versus day to day tactical short-term focused.

Do we still need more bench strength? Yes. Do we want to hopefully acquire with some of these acquisitions good bench strength? Yes. We think we have that in all three of our recent acquisitions. UNIK has a strong management team. Fleet One has a strong management team. CorporatePay has a strong management team.

But it is something, Bob, we look at on a regular basis. We know we have to keep adding to it, but we have been ahead of it. It's not like we sat back and now we're looking to become an international global company. We've already got the structure set up. I've got my corporate group, as I said Melissa has her group, David has his group.

Okay. And then in line with that I know you've had a pretty well thought out global acquisition strategy and targets. Do you still have a pipeline of opportunities that you feel comfortable going after even after the deals you've recently completed?

The answer is yes. I can say that there's no large deal the size of Fleet One in the pipeline, but there are some others that make sense for us to still follow that three-prong strategy either helping us with the North American fleet business, our diversification strategy, or even looking at international opportunities. I think we'll be smart about it. I don't think we want to overload the business, but it is something as I said we knew a while ago we were going to be gearing towards and if the right strategic acquisition is there, we still want to be able to use that to accelerate some of these growth platforms.

Thanks. And last question on the health care market with PaySpan and looking at that huge opportunity but it seems to me that there is more noise about electronic payments in the health care sector and I'm seeing more discussion broadly, recently. Are you looking at other opportunities and -- outside of PaySpan and do you have a pipeline of potential customers or do you need to see PaySpan work before you would take on additional clients? I would imagine that the -- that you would have other health care payment companies looking at this product.

Absolutely. So we have a pipeline. We have been working this for a while just as we've been working the insurance industry and working the travel industry and even saying now we want to work the travel industry on a global basis, but in at least the US we have a pipeline of other providers that can also supply our virtual card as a payment mechanism and we will continue to pursue that. So PaySpan clearly offers us a light house account that says our virtual product is real it can work in that space. We think all of that should work for us long-term on the pipeline and the prospects we have.

Thank you.

Your next question comes from the line of Phil Stiller with Citigroup.

Hi, guys. Thanks for taking my questions. I was just wondering if you could disclose what the revenue contribution was from UNIK this quarter and what you guys are expecting from that going forwards?

Yes. There was a small contribution. As you know, we've got a controlling interest in the business so we consolidate in 100% of their revenues and expenses, and then there is a non-controlling interest at the end of the income statement which pulls out the portion not attributable to us. So in the quarter what you see is just a little bit over a million dollars worth of revenue related to UNIK that's in the revenue line and like I said it was a very, very small impact to earnings overall.

Okay. And it seems like if you exclude the benefit that you guys got from fuel prices which is probably in the $7 million to $8 million range and this acquisition that you would probably be at the low end of your guidance range. Is that right? And perhaps you could talk about what caused you to go toward that low end.

I would say -- I wouldn't characterize it that way. I would say our previous guidance range the top end was $1.15. If you take the $0.06 for the Australian taxes an the $0.04 in deal and integration costs that weren't included including the tax impact on some of those that gets you to $1.18 so $0.3 over the top end.

That $0.3 is essentially the fuel prices so operationally from a volume perspective we were very close. All of our revenue metrics I would say were very close to what with we expected and deal costs aside our operational expenses were very much in line with what we thought and a little bit favorable.

Okay. Yes. I was referring to the revenue guidance. But I guess we can follow up after. Going forward from Fleet One, do you guys have an EPS accretion target? It seems like you're digesting some deal integrations costs this quarter and next quarter but how are you guys thinking about it contributing to EPS next year?

I would say that we're expecting it be a positive contributor when you take out the -- the one-time costs associated with the integration that's going to happen. Like I said, it's a very profitable business on a stand-alone basis. We think we can improve on upon that as well over time.

Do you guys think you could get the margins -- the contribution margins from that over your corporate margins?

I think it's too early to say exactly where they will end up but certainly there are synergies in the acquisition that we believe we'll realize and that will at least bring those more in line with our existing margins.

Okay. And then just lastly in the hedging program so just for clarity we should assume that you're roughly 60% hedged for the fourth quarter and the first quarters of next year based on the additional volume of Fleet One, is that right?

So yes. We are slightly below that I would say for the fourth quarter as we said last quarter with the very low interest rates and the very low loss rates we were slightly below our previously 80% target so when you layer on Fleet One that's going to bring us a little bit less than the 60%. But going forward from the fourth quarter into next year, yes, we're right around that 60% target.

What other impacts should we be looking at in terms of the payment processing transaction growth or gallons per transaction in terms of how Fleet One is going to impact it, or even fuel prices which I am assume l that it there is a higher mix of diesel in their business.

Yes. There's clearly a higher mix of diesel fuel which has a higher retail price so in our guidance it actually is probably a penny or two higher in the quarter if we -- than if we had not had Fleet One because of that mix. Every single one of those operating metrics that we disclosed for the fleet segment is going to be impacted. They have a couple hundred thousand active vehicles which bring on the transactions and those are bigger transactions certainly in the over-the-road side than what we're accustomed to. So all of those metrics are going to change over time.

Okay. Thanks, guys.

Your next question comes from the line of Leonard DeProspo with Janney

Good morning and thank you for taking my question. I just wanted to ask one question regarding growth trends in the fleet segment. If you could possibly break out by month what those growth rates were in the third quarter or even into October so far, just to get a trend on where that's heading. That's it.

Yes, we can. There's no doubt that in the third quarter they got progressively worse, not a lot of change, but they got progressively worse. So far in October we're seeing it getting better, but still slightly negative. So, if the trend continues, you see it getting worse all three months, and then October actually better than September.

That's in our same-store sales and some of that is affected by business days as well, so September was a little bit off compared to the prior year, but there was actually one more business day in September of last year so you'd expect to see that a little bit down, and we'll recover that essentially in October. But even when you adjust for all that the same-store sales as Mike was referring to did get a little bit worse each month through the quarter.

Thank you.

I would now like to turn the call back over to management for any closing remarks.

Okay, thank you for joining us once again this quarter and we look forward to speaking with you again next quarter.

This does conclude today's conference call. You may now disconnect your lines.