WEX Inc (WEX) 2013 Q1 法說會逐字稿

Good morning, my name is Kimberly and I will be her conference operator today. At this time but I would like to welcome everyone to the WEX Inc. first quarter 2013 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

(Operator Instructions)

I would now like to turn the call over to your host, Steve Elder, CFO. Please go ahead sir.

Good morning and thank you for joining us. With me today is CEO our Mike Dubyak. In addition our newly appointed President Melissa Smith is also here to answer questions after our prepared remarks. Let me be the first to publicly congratulate Melissa on her promotion to President and eventually CEO.

The earnings press release we issued early 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 8K we submitted to the SEC. As a reminder, we will be discussing a non-GAAP metric, specifically adjusted net income during our call. This year's first-quarter, adjusted net income excludes unrealized losses on fuel price derivatives, amortization of acquired intangible assets, and the write-off of deferred financing costs associated with the extinguishment of debt, and the tax impact of these items. 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, the risk factors identified in our annual report on form 10K filed with the SEC on March 1, 2013. 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.

Earlier today, WEX reported strong results for the first quarter of 2013. Before discussing highlights from the quarter, I would like to touch on the announcement we made this morning regarding WEX's management transition plan, for those who have not seen our press release.

For some time, the Board of Directors and I worked closely together to implement a long-standing succession planning process that will happen in two phases over the next 20 months. Effective immediately, Melissa Smith has been appointed President of WEX. As President, Melissa will be responsible for the day to day operations of WEX on a global basis. I will remain chairman and Chief Executive Officer through the end of this year.

During this transition period, Melissa and I will work closely together to oversee the execution of our strategic initiatives, as well as our strategic planning for 2014 and beyond, which she will develop and manage. As of January 1st, 2014, Melissa will assume the role of Chief Executive Officer in addition to her current role as President and will also assume a seat on the Board of Directors. At that time, I will transition into a newly created role of Executive Chairman.

Executing this succession plan from a position of strength across all facets of our organization provides us with exciting opportunities ahead and strong momentum at our back. Importantly, we also benefit from many years of thoughtful discussion and planning that will ensure a seamless change in leadership and allow the executive management team and the Company at large to maintain focus on executing our long-term strategic plan.

For the past 27 years, I have dedicated myself to building WEX into what it is today, and I will maintain the same level of passion and commitment as we execute our transition plan and continue to grow the Company both in the near and long-term. We feel fortunate to have identified what we believe is the natural successor in Melissa. I have had the distinct pleasure of working closely with her for the past 16 years.

Melissa has a long history at WEX and a proven track record of leadership. She has excelled in various positions of increasing responsibility across all areas of the Company, most recently as President of the Americas, and prior to that as CFO and Head of Operations. Since taking on the role of President of the Americas, Melissa has overseen critical initiatives to expand our Fleet business, generating record card growth while further globalizing our Virtual Card business, which also had a record year in 2012.

Her experience in domain expertise uniquely positions her to continue to drive the company's momentum forward through the execution of our long-term growth strategy. I am excited for the opportunities ahead of us both organically and inorganically in the fleet and Virtual Card business and I'm confident in Melissa's ability to lead WEX into its next chapter of growth. I would like to publicly congratulate her on this significant leadership promotion and opportunity.

With that, let me move on to review our first-quarter results. For the first quarter, both revenue and adjusted net income came in above our guidance range as a result of continued execution on our strategic initiatives. Expanding our US fleet business, diversifying our revenue streams, and further developing our International business. Q1 revenue increased 18% over the prior year to $165 million and adjusted net income increased 8% to $0.98 per share. These results were driven by strong transaction growth and record low credit loss and were also impacted by incremental issuance cost related to our recent bond offering.

Turning to fleet payment segment, we achieved strong revenue growth of 15% during the first quarter driven by solid growth in new vehicles, as well as the acquisition of Fleet One. Consolidated payment processing transactions increased 14% in Q1. Taking Fleet One out of the picture we still saw good growth in our Core Fleet business which exceeded our expectations.

Looking at our Americas Fleet business, excluding Fleet One, we are beginning to see some positive signs in our same-store sales trends, which were up 0.2% over last year. While growth our customer base is modest, this is this second consecutive quarter of improvement in our same-store sales numbers, and the first time it has been positive since Q1, 2011. Coupled with the performance and transaction growth and vehicles, our Americas business continues to expand organically and the pipeline remained strong.

During the quarter, we had several marquee wins, including the US Department of Agricultural and the State of Maine in addition to several corporate fleet wins. The pipeline remains active with both fleet and partner opportunities setting us up for a solid second half. With respect to Fleet One, we saw solid performance with results coming in above our expectations for the quarter. As far as the integration goes, we remain on track with our plans and continue to make good progress on these initiatives. Once the integration has been completed, we continue to expect that we will increase Fleet One's margins to be in a comparable range with the WEX Fleet business prior to the acquisition.

On the International side of our business, we experience good performance out of WEX Australia Fuel. For the first quarter, total cards increased 10% over the prior year, and we are seeing early signs of success in signing up large fleets versus their traditional small fleet customer base.

Moving onto our other payments segment. Revenue for this segment increased 27% to $39 million in the first quarter as a result of strong performance in our Virtual Payments business, otherwise known as WEX Virtual. Spend volume for WEX Virtual increased 20% to $2.6 billion in Q1, which was largely due to growth in our virtual payment solution for the travel industry. Given the expansion of WEX Virtual into a variety of industries, we have organized this area of our Business along the verticals we serve; such as WEX travel, WEX Health, WEX Insurance, and WEX Education, which you will hear us referred to from time to time.

Since we last spoke, we have made progress in our efforts to broaden the geographic reach of our WEX travel solution aided by our investments in this area. As far as our endeavors to organically grow within Asia Pac we have seen good traction in the countries where we are deploying capital. We are making steady progress in several Southeast Asia countries and if all goes according to schedule; our goal is to establish our Business in several countries later this year.

Concurrently, our Australian team is leading our sales efforts in these countries to optimize our activities in advance of our launch. With respect to Australia, we have a strong pipeline and are in discussions with several of the major online travel agencies that serve as the Asia Pacific region. As a result, we expect to see this business ramp and the second half of the year.

We also grew our WEX Virtual presence within Europe and entered Spain. Leveraging corporate pay, our strategic asset in the UK we signed two large travel partners in Spain; Grupo Transhotel, and Globalia. We continue to have discussions to build the travel pipeline in Europe.

Lastly, we recently expanded our travel solution to Brazil. This product builds on WEX's entrance into this market through Unique and our success in other geographies in virtual payments for the travel industry. We currently have approval to issue with Unique, and will be working to develop our processing capabilities, which is expected in the second half of the year. From here, we will look to leverage our relationships to develop a growing pipeline of opportunities. All in all, we are making great strides and these wins add to our growing portfolio within the travel space.

Moving on to WEX health. Our virtual payment solution for the healthcare vertical, while this area of the business met our expectations during Q1, the conversion of end-users of our first major customer has been slower than expected. We believe the customer base in the pipeline still provide opportunity to expand our offerings going forward and that the healthcare vertical continues to be an exciting area of growth in this segment of our Business.

In terms of our PayCard, we also remain focused on selectively growing this offering. During the quarter, we brought on additional sales reps in this part of our Business. In addition, Unique continues to exceed our expectations and have some exciting opportunities to pursue. Going forward, we are looking to leverage our newly formed relationship with MasterCard in Brazil to broaden our prepaid offering.

In summary, we are pleased with the performance in our fleet and our other payments segments this quarter. We generated good momentum to date and anticipate making further progress as we push forward. Looking ahead, the pipeline remains robust with opportunities across our Business, both organic as well as inorganic, which we believe positions us well to drive growth over the near and long-term.

On the Fleet side, we expect to post similar growth to what we achieved in 2012. In our core US fleet business, while we have seen positive signs emerge for our same-store sales trends, our expectations for same-store sales growth remains muted until we see sustained momentum in the economy. That said, new wins well help to offset some of this pressure and the recent declines in PPG. With regards to our other payment segment, we will continue to invest in this part of our Business to expand our penetration in existing markets and establish a foothold in our various target markets within Asia Pac.

Our advances to date drive greater confidence in our multi-prong strategy to grow our Core Fleet business, diversify our Business, and accelerate our international presence, which we will continue to execute against over the remainder of 2013. Of course, the strategy will also be supplemented by capitalizing on M&A and strategic alliance opportunities as a way to accelerate our growth objectives. To conclude, we believe we are on a solid path and feel good about the investments we are making in our Business as we move ahead with our focus on growth.

And now I will turn the call over to Steve to discuss our financials and guidance. Steve.

Thank you, Mike.

For the first quarter of 2013 we reported total revenue of $165.4 million, an increase of $25 million from the prior year period and above the high end of our guidance rage of $158 million to $165 million. This performance was driven primarily by strong transaction growth in our Fleet business. Net income to common shareholders on a GAAP basis for the first quarter was $28.7 million or $0.73 per diluted share. Our non-GAAP adjusted net income increased to $38.3 million or $0.98 per diluted share. This compares to our guidance range of $0.89 to $0.96 per diluted share, $0.91 per diluted share reported in Q1 last year on an adjusted net income basis.

Taking a look at some of the key performance metrics, which include Fleet One, consolidated fuel transactions increased 10.6% over the prior year. Consolidated payment processing transactions increased 13.5% over the prior year, primarily due to the acquisition of Fleet One as well as strong organic growth from our America's Fleet business.

Consolidated net processing rate for Q1 2013 was 1.38%, which was down 26 basis points versus Q1 2012 and two basis points versus the fourth quarter of 2012. Similar to Q4, 2012, this reduction was primarily due to the lower rate charged by Fleet One on their diesel transactions, which are bigger transactions given the nature of the vehicle serviced.

Finance fee revenue in the Fleet segment increased $2.1 million as compared to Q1 last year. As a percentage of total dollars of fuel purchased, it was approximately 11% lower than last year, reflecting the healthy condition of our portfolio. The growth in Fleet One's factoring business also contributed to the increase in revenue.

In the other payment segment, revenue for the first quarter increased 27% or $8.4 million year-over-year to $39.3 million as a result of continued strong performance in the online travel vertical with our Virtual Card product. We also continued to see good gains from rapid PayCard, CorporatePay, and Unique. With respect to our WEX Virtual product, spend volume increased $445 million over last year, or 20% to $2.6 billion for the quarter.

The net interchange rate for our virtual payment solution in Q1, was 96 basis points, up 6 basis points year-over-year and up 2 basis points sequentially. The increase was primarily due to the customer specific incentives we received from MasterCard, and we expect to have the benefit of these incentives through the end of 2013.

Moving down the income statement, for the first quarter, total operating expenses on a GAAP basis were $104.8 million, a $22.7 million increase versus last year. The majority of which was related to salary costs and service fees. Overall, the major driver of expense growth was increased investments to support future growth in our Business, and the three acquisitions we completed in 2012. Salary and other personnel costs for Q1 were $40.1 million compared with $28.7 million in Q1 last year. The increase was predominantly due to our acquisitions of Fleet One, Unique, and CorporatePay. Service fees were up $3.5 million over the prior year to $23.8 million and was driven by the 20% increase in spend volumes and WEX virtual payments.

During the first quarter, we saw excellent performance in our credit losses, which on a consolidated basis totaled $3.8 million in Q1. This compares to $5 million in Q1 last year. Consolidated charge-offs in the quarter were $6 million, while recoveries of amounts previously charged off for $1.4 million. Consolidated domestic fleet credit loss was six basis points in Q1 compared to seven basis points in the prior year period. Our operating interest expense was $1.1 million in Q1, as we continued to benefit from low interest rates in addition to savings resulting from the higher one deposits.

The effective tax rate on a GAAP basis for Q1 was 36.8% compared to 36.9% in the first quarter of 2012. Our adjusted net income tax rate this quarter was 36.4% compared to 35.9% for Q1 a year ago. The slight increase is due to a greater percentage of profits coming in the US with the Fleet One deal as well as the change in Australian tax law we have discussed with you previously. For the full-year, we expect our A & I tax rate to be approximately 36.5%.

Turning to our derivatives program, for the first quarter of 2013, we recognized a realized cash loss of $1.9 million before taxes on these instruments and an unrealized loss of $5.9 million, we concluded the quarter with a net derivative liability of $7.6 million. For the second quarter of 2013, we have locked in at a price range of $3.44 to $3.50 per gallon. For the full-year, the average price locked in is $3.43 to $3.49 per gallon.

Moving over to the balance sheet, we ended the quarter with $350 million of cash, up from $198 million at year-end. The increase is due to higher financing debt as well as operating debt balances. This is due in part to the seasonal impact from Higher One and cash on hand at the corporate level due to the bond offering which we completed in January. During the first quarter, we also repurchased approximately $240,000 shares of shock for approximately $18 million to offset dilution leading to equity awards vesting this year.

In terms of capital expenditures, CapEx for the first quarter was $5.6 million, we continue to expect our CapEx for the full year to be in the range of $40 million to $45 million, which includes approximately $15 million related to the consolidation of data centers as we combine our operations with Fleet One. Are financing debt balance increased $75 million in Q1, and we ended the quarter with a total balance of $696 million on our revolving line of credit, term loan, and notes. This increase in our debt balances is offset by an increase in cash at the parent level.

As of March 31, our leverage ratio was 2.2 times our 12 month showing EBITDA, compared 2.0 times at the end of Q1 last year, with a slight increase driven by our higher successful bond offering in Q1. Regarding our capital allocation strategy, our primary objective remains to reinvest in our Business and drive future growth, coupled with acquisitions, and strategic alliances as a way to supplement these gross objectives.

Now, for our guidance for the second quarter of 2013 and the full-year, which reflects our views as of today and are made on a non-GAAP basis. Overal,l we expect to build upon the positive momentum in Q1. However, we are updating our guidance to reflect the recent decline in fuel prices and foreign exchange rates, in addition to the impact to our Business from the proposed US MasterCard merchant litigation settlement.

For the second quarter of 2013, we expect to report revenue in the range of $170 million to $177 million and adjusted net income in the range of $38 million to $41 million or $0.98 to $1.05 per diluted share. These figures assume normal seasonality trends in the virtual card and prepaid businesses, as well as credit losses. Our second-quarter guidance assumes that domestic fleet credit loss will be between 8 and 13 basis points and that domestic fuel prices will be $3.58 per gallon. For the full-year 2013, we expect revenue in the range of $716 million to $736 million, and adjusted net income in the range of $164 million to $170 million, or $4.20 to $4.35 per diluted share.

Our annual guidance continues to assume $5 million to $6 million of integration costs associated with the Fleet One acquisition and an incremental $15 million in interest expense compared to 2012 as a result of our bond offering. In addition, our guidance continues to assume a significant level of investments related to WEX's virtual payments, to expand into new geographies, as well as the expense of additional sales reps for Unique, rapid PayCard, and CorporatePay.

Our full year guidance also assumes that domestic fleet credit losses will be between 9 and 14 basis points and assumes that domestic fuel prices will now be $3.49 per gallon versus our prior expectation of $3.65 per gallon. The fuel price assumptions for the US are based on the applicable NYMEX futures price. We are also assuming that exchange rates will remain in the range of the current spot rates, which are generally down from our last guidance.

Last week, given the higher likelihood that the pending merchant litigation settlement will be implemented, we are now incorporated into our guidance the negative impact to our interchange rate, which we expect to be 10 basis points for an eight month period beginning in August, or $0.07 per share in 2013. Our guidance does not reflect the impact of any further stock repurchases that may occur in 2013. Now, we will be happy to take your questions.

Kimberly, please proceed with the Q&A session.

(Operator Instructions)

Your first question comes from the line of Julio Quinteros.

Hi, it is actually Roman Leal in for Julio. Two questions. First, on the Other Payment Solutions and specifically with your international efforts. How would you characterize the timing of revenue impact there? I think that you mentioned that some of the opportunities should be ramping up in the second half, but also you will be launching in more geographies in the second half as well. Perhaps we get an initial revenue impact in 2013, but really, the goal is to expand the distribution and press in so that the real or significant revenue impact comes in 2014?

That is pretty much the case. Clearly, there is going to be revenue in 2013. Some of the Australian business that we have, some of the business in Europe will start to ramp in the second half of this year, and we will start to see that revenue. But I think to see that mature and also to see some of the other countries we are working on, we talked about even UNIK in Brazil, we have the right now to issue a MasterCard, we have got to stand up if you will, or put in place the processing capabilities, so we will see some of that fruition of revenue come through next year. It really is the investments are being made this year, seeing some of the revenue come through this year. But, really, talking about 2014 is where we'll really see the ramp in the increase.

So when you track this to your plan and see whether it meets or exceeds your expectations, for '13, it is really a question of how many partners you can land and clients you can land for kind of second half of the year?

Well it's a two-part strategy. It is how many partners can we bring on within some of the countries that we're basically trying to be able to issue and process, but we're also looking at those countries where our current international customers need us to also have presence in those markets. I think that we will look at both of those in terms of revenue capabilities and growth in the future from our existing customers as well as the new customers we are signing if that makes sense within country.

That makes sense. The last one is on the potential cost synergies from Fleet One, can you remind us what the timing would be like? Is that mostly a '14 event, or is that going to carry out over the next two or three years?

Well, I think that was our plan. We're actually able to see some of those synergies sooner. Actually, we're seeing more opportunities than we initially anticipated. We're starting to see the operating efficiencies, the platform, consolidation capabilities that are helping us. We're even seeing more opportunities on the revenue side than we anticipated. I think that we're going to see a lot of this hit in 2013, as well as we will see a lot of it in 2014.

Great. Thanks.

Phil Stiller.

Hi guys. First, I just wanted to congratulate Mike and Melissa on their new roles and good luck. First question, just following up on the prior question on Fleet One. I guess, what was the first, what was the revenue contribution from Fleet One in the quarter, and then as we think about these synergies, how much is reflected in the guidance? Mike, you just alluded to expecting to see some this year, but it does not seem there is a significant pickup in the margin reflected in the guidance.

Phil, it's Steve. I would say that the contribution from Fleet One in the quarter was pretty much the same as it was in the fourth quarter. It was a little bit seasonal around the turn of the calendar year, so that things slow down a little bit there. Very similar to what we have here. The revenue and profit contribution from them was pretty consistent with the fourth quarter. In terms of the synergies and what we expect this year, I would say that the integration costs that we are putting in to getting those synergies are offsetting. If not more than offsetting, what we expect to realize this year. Right now, you're not going to see it in the full year numbers for this year, but you should see it as we turned into next year.

What is the full year integration cost expectation for this year?

Between $5 million and $6 million.

Okay. And then moving to the Other Payment segment. It seems like PaySpan has been a little slower than you've expected. I was just wondering if you guys could comment as to why you think that is and what your expectations are for this year for that program.

Yes. I would say that first of all, we're still very bullish on PaySpan, and we're bullish on the relationship we have. I think the reality is as we have been a little cautious talking, this is new space but it is a space that's rapidly evolving, so we like the space long term. We even have others in the pipeline. We're not new to moving in to new spaces, but we sometimes realize it takes longer than you expect. We still fell very bullish about the health care program overall. We prefer not to keep focusing on PaySpan since we are looking at others and that space. But we are continuing to work with them. They still have control over what they're doing with their customers, and there is still a great opportunity here.

Okay. And then last question from me. Any update on the M&A pipeline? Are you guys still somewhat hesitant in your term, given the number of acquisitions you have made over the past year, or is there still a lot of activity out there?

No. We still have opportunities in the pipeline. There are a couple that we are working on, without getting into details, everything from small tuck-ins to help us in some markets as well as even looking at some larger opportunities, but still early to comment on.

Okay. Great. Congratulations again.

Thank you.

Sanjay Sakhrani.

Thank you very much. I'm just going to follow up on the theme of some of these growth opportunities coming in 2014. I was just wondering what is coming in, in 2013 maybe in the second half? You guys talked about some marquee wins in the fleet business in the press release. I think you one Marathons private-label portfolio. I was just wondering if you could just talk about that and how much of that is captured in your thoughts for the year? Thanks.

There is the private-label business that we have talked about. I talked about some of the fleet wins. So, if you add up the US Department of Agriculture, that is almost 50,000 vehicles, you add the State of Maine. You add some of the other ones that we have signed, we fill very bullish about them. That's all built in. We do have, as we said, some of the growth coming from the international virtual card program that is already in our numbers that's coming through in the second half of the year. We are continuing to see growth out of our current customers in the second half of the year, even ramping a little bit. From all aspects of our business, we typically see the second half of the year being more a contributor to our overall results than the first half of the year and that is proving out this year as well.

Maybe if we could just back up a little bit and just think about big picture, what top-line growth and bottom-line growth expectations you have? It seems like from what my recollection, kind of high single-digits, top line, mid-teens, bottom line last year it was a little bit below. This year, it's seemingly kind of below. Could you just talk about what your expectations are from 2014 onwards?

I think that is still pretty well in line, Sanjay. I think the goal in the more mature fleet business, if you will, here the US, is a mid-single digit number on the revenue side. And then the virtual payment side, still 20%-plus growth rates on the revenue side there. There is scale in the business. We'll say that we try and reinvest a lot of that scale to keep the growth rates up year after year. But sometimes we can expand margins as well, so that would translate into something a little bit higher year than the 8% to 10% growth rate that those two things would kind of blend to.

I guess what's suppressing it over the short run is these investment you are making?

Yes, over the short run, if you look year-over-year, it's really the three acquisitions that we made. Two of them were somewhat smaller and really not at any kind of scale point, so their margins were a little bit lower. Fleet One was is a bigger one. At the time we made the acquisition we said that their margins were a little bit lower than ours but that we would bring that up over time with the synergies in terms of the integration. On a net income basis, you've also got the impact of the bond offering that we did this year as well. All of those things contribute.

Okay. Great. Thank you very much.

Greg Smith.

Hi. Good morning. Just back to PaySpan on the healthcare side. Is there a specific reason it is ramping a little slower? Is interchange proving a hurdle or any other color, Mike you could give us?

No. As I said, they've got their pipeline. We have definitely put in place some salespeople to help them, but they are still driving their priorities of who they are going after first; they're still bullish. I'd say we're still a little cautious just until we see more. But I still feel very good about this. I think I even said on the last call, it is not a matter of feeling good about the overall opportunity and the potential, but we've got to be careful on the timing.

Okay. Steve, where is the visibility come on the merchant settlement, starting in August? Is that date set in stone? I just can't recall anybody else coming out and putting this in there guidance. So where is your visibility on the August start date for that?

We've seen that reported July 29, the start of the implementation date. It is pretty will published from what we're seeing.

Okay. Great. Just one last question. The service fee expenses were a lot lighter than what we were expecting. It just seems like the growth slowed there -- this is on the expense side -- and was there any change, was there anything in different mix, or contract terms, or anything that caused that expense to maybe be a little lower going forward?

I am assuming that you are looking at it sequentially from Q4, but my guess is --

And year-over-year.

Year-over-year, well --

Both.

Sequentially it was the expenses related to the acquisition of Fleet One, some investment banker fees, and lawyers, and accountants, and all those kinds of folks. Year-over-year, it's mainly driven by the acquisitions. I wouldn't say there is anything unusual in there at all. It was right in line with what we planned on it to be for the year.

Okay. Thank you.

Bob Napoli.

Thank you. Good morning. I missed the beginning of the call, and congratulations to Melissa, but I would still like to understand the structure, and Mike, are you retiring at the end of the year? I mean, Executive Chairman is a title of somebody who is going to be actively involved, and how long -- is that a title until the end of the year? What's the role play and what is your plan as far as being involved with WEX?

The plan has a couple of steps to it. As of today, Melissa takes over the President title for WEX. Basically, the international operations, which have been reporting into me, and then the Americas which have been reporting into me all of that goes under her. She will have David Maxsimic who has been driving the international side of our business reporting now into her. That's the biggest change on her side. I still have my key reports; Steve, and legal, and HR, and strategy, and M&A, so as CEO, I will still be driving that side. Melissa and I working closely on making sure we are driving our strategy for this year. And then, as of the beginning of next year, January 1, she will take on the CEO title. So she will then be President and CEO of WEX. We talked about the fact that the plan is she would then also become part of the Board. I will become Executive Chair for all of 2014, and at the end of 2014, will no longer be Executive Chair. Then, it is really just up to myself and the Board of what happens next. But, that is the plan at this point at least through 2014.

Okay. Thank you. That is helpful. Just on a numbers question. The payroll expense in the quarter was higher than what we were looking for. I am just not sure if that's just a run rate number or if there were integration costs in there.

I think that you can think of it as a run rate number. If you look, compared to last year, we got a $11 million, $12 million increase over last year. Most of that is from the acquisitions that we completed in the last year. If you look at it sequentially, you have actually picked up a couple of extra weeks of payroll from Fleet One, since we didn't close the deal until mid-October. Sequentially, again, some of the payroll taxes --

Right.

Again, FTE plan was what we expected it to be. Maybe even a few people light, but it was pretty much inline with what we had thought it was going to be.

On the M&A front, I'm just trying do you understand how organizationally, you're ramped up to -- I guess one of your competitors, you have a nice property in Australia, it seems like it's performing well. One of your competitors made two acquisitions in that region, which would seem like if you already had a platform like those would be really good incremental acquisitions for WEX. I am sure you were aware of the transactions. But why, are you staffed to manage the M&A process, or just strategically your strategy on an M&A front isn't as aggressive as your main competitors. I was just trying to understand why deals that would fit a platform that fit you well would have gone to your competitor, and they have an army of bankers on their payroll. If you are under-armed, on the competitive front on a relative basis.

We are staffed. I mean, I have said in the past, we keep adding to our bench strength. We have done that across our business from legal to finance, to Melissa's team to Max's team, so we're still very active on the M&A route. We know those businesses down there. We know of CardLink. We've had a lot of meetings, a lot of discussions, know them very well since we have an operation in New Zealand. With our operation in Australia, we definitely know about that company. We felt very good about our business in Australia to be our driving force in that part of Asia Pac. It wasn't a matter of us just not looking at it or considering it in terms of just having a lot of discussions over time.

On the other acquisition in Australia, the fact is besides the relationship they'll have with GE, there is like 30,000 vehicles on the non-GE business. The biggest asset that was being sold was their network of acceptance. We spent a lot of money with buying our Australian business that already had that acceptance. To pay money for another accepting network that we wouldn't use because it is duplicative, didn't make any sense. It wasn't a good use of our cash. Just looking at the opportunities, it is not a matter of saying we couldn't take them on, it was a matter of does it make sense or not.

The increased incremental investments that you pointed out, into your guidance on the fourth-quarter call, how much of that, how do we track -- I guess what we would like to be able to track, if we could, is those investment dollars and then those returns on the investment dollars. In some fashion. How could you guide us to help try to do that?

I think in the quarter, we obviously set out the plan. We have obviously been a little shy about sharing exactly the details of those plans.

Sure.

We are tracking through the milestones specifically around the virtual card, it is all around getting we will call it regulatory compliance, but essentially approval from the central banks of the various countries to issue. We will need to go through a process with MasterCard, in our case, to get their approval to extend our licenses, and then we have to get processing systems in place, and people in place to answer the phones when they ring, those kinds of things. I'd say, we are tracking along in our milestones and we feel very good about where we are. In terms of the actual dollars spent in the quarter, it was pretty close to what we had planned on in the quarter. We are feeling pretty good about our position there.

Thank you.

Tom McCrohan.

Hi. Let me echo my congratulations on your successful tenure as CEO and creating so much shareholder value over the years, and Melissa congratulations to you as well as you transition to your new role.

Thank you.

Thank you.

In the absolute dollars in investment spending to globalize the online travel offering, you said this quarter, Steve, it was in line with what you expected. Did the total dollar amount that you expect to spend this year, is it consistent with what you thought when you provided guidance back in February, or has it changed at all?

It has come down a tad, but not materially different.

Okay. And so the real change this quarter, again, was just this expectation that your interchange rate will somehow be impacted by this pending merchant litigation. Would you kind of rank order that being the primary reason the guidance came down again?

If you look at guidance in total for the year, it came down $0.15 at the top end and we shrank the range a little bit. I would put fuel prices and the $0.07 that we talked about for the merchant litigation settlement, those are basically equal. The fuel prices maybe even a penny more. And then, foreign exchange rates didn't help us any. If that had been the only thing that changed, we probably wouldn't have changed guidance. It is a negative impact, but that's relatively small. Really the two big pieces are the forward curve, the NYMEX futures price on gasoline prices came down significantly. Based on our guidance, we dropped the price $0.16 for the full year, but that includes a little bit of higher prices in the first quarter. Even more over the last three quarters of the year. That was equally as important as the litigation settlement.

Got it. And then just a final question on the OTA market. You've talked about these six markets previously that you wanted to enter. Can you give us a rundown of which of the six markets you expect to be up and running by the end of this year? And Spain, I don't think was on the initial list. Congratulations to Spain. Can you give us a rundown of the six markets; where you stand with each of them and, which one do you expect to get into by the end of the year? Thanks.

I think we always talked about Europe, so I think the good news is now we have the ability in Europe to issue our travel product in Spain, France, and the UK as I said, so that's positive. Brazil has been one, so I think it's positive news that we can now issue a virtual MasterCard in Brazil, still work to be done just getting the processing side in place. Australia has been one that we have been focusing on, so we are seeing really strong response from the market down there, signing people, or having people in the pipeline that look ready to sign. And then, we talked about Hong Kong, Singapore, and Thailand, and all I can say is we have got to go through regulatory hurdles. But we feel good about that.

At this point, our goal is to have all three of those online by the end of the year. But something could delay. You are working with a government in a foreign entity, but we are moving very aggressively. We're there on the ground working with them. And, at this point, we're bullish that we can make that goal work, which will be good both for our international customers to use those countries, but then also start to actually have people eventually later this year, next year, looking at online travel within those countries as well. By the way, Brazil has been rated one of the top online travel countries in the future. So, we like the fact that we can put in place our online travel for some of our international customers but also start to look at soliciting business within Brazil.

(inaudible)

We couldn't -- you were a little muted.

In Australia, I thought that you already had an online travel customer signed up.

We do. We have a couple signed up. We have talked about Webjets, so there is business already going through in Australia. That is part of our ramp later in the year as we've talked about. But we're even signing more and we have more in the pipeline that we're confident that we have a strong opportunity of signing as well.

So out of the six markets, three of them you already have the regulatory and licensing approvals and processing with the exception of Brazil, which you're working on now. Is that the way to think about it?

Yes.

Great, all right, so then how in terms of modeling volume, growth in the OTA segment, which was 20% this quarter, we have gotten so accustomed to that growing so fast. How should we be thinking about how these three markets that you're in now impacting the growth rates for the rest of the year?

Tom, I think that we would stick with the 20% or a little bit higher growth rates in the purchase volumes.

Got it. That is all I had. Thank you very much.

Tien-Tsin Huang, JPMorgan.

Hi. Thanks. Congratulations to Melissa and Mike as well, from me. Succession is always important, so good to get that. So I wanted to ask, a lot of good questions have been asked already. The credit losses were a lot better than what we had modeled again. I know that's a lot of product of what you guys have been putting in place. It seems like the guidance is still pretty wide. I get given the uncertainty, but it seems like the low end is the right place to be. What could push it higher beyond obviously big change in the cycle. It just seems like with what you were calling out, that the low end seems to be the right place to be. Is that fair?

I would always stick by my guidance, Tien-Tsin. We've got a range in there for a reason. Things can change on you. One of my favorite examples is a few years ago we had a cement company in Denver that was current with us right up until the day they filed bankruptcy and that cost us several hundred thousand dollars in a quarter. Those things kind of happen. The roll rate methodology that we use is pretty sensitive to the timing of when people make their payments. Single days can matter when you're looking at the end of the month. We have always said if there's one place in the income statement that is going to be volatile, that is probably it, so we do like to have a little bit of space there.

Yes. We have been overly conservative too. It sounds like really it's just those one off bankruptcies and surprises that will do it. Given the role rates, there is nothing to call up.

No. It is been very good. The role rates have been very great. The agings, still very current portfolio. Things have gone very well. Bankruptcies have been pretty low. Recoveries have actually outperformed a little bit. Everything is going in the right direction. It is hard to believe it could get much better.

No. That's great. Just, for Mike, I get this question a lot, so I figured I'd ask it on the public call. Can you compare and contrast for us the healthcare market versus the OTA market as it relates to virtual card? I know they are different, direct and indirect competitors, and ticket sizes are a lot different, and the velocity of the transaction is a lot different. What can you tell us there? As it relates to the virtual card?

I think it's just that the most important thing to us is it's a new market. Again, we are used to going into new markets. I think that we're finding that it is not going to ramp as quickly as we'd like but it's still a market we see great opportunity in. Depending on their customer base, they can have very large ticket numbers as well, so they kind of cover the gamut. They also cover the gamut with smaller customers that they work with, the TPAs versus a very large commercial customers they work with. You are seeing different types of customers within the segment, within the partnerships that we are working with, and you will see different spend numbers, but also very large spend numbers as well as covering the gamut on small to large.

Right. So distribution is different as well. Is that a too simple statement to make that the distribution in how you actually access the endpoints is a lot more challenging on the health care side?

Yes, that's true I think it is more distributive. I can't answer how many, but with all of the doctors' offices, pharmacies, hospitals, so the distribution is not as concentrated, like you would have in the hotel industry.

Yes. Understood. It is complicated, but I know that it is new, and obviously, very large. I am just trying to get a better understanding of the outlook. I appreciate it. That is all I got.

Mike Grondahl.

Thanks for taking my questions. Could you just highlight for us how many salespeople you hired in the first quarter and in what areas? What your outlook for the year is, total hiring of salespeople?

Yes. In the first quarter, we hired somewhere in the range of 20 people in the sales and marketing group. It is spread across all the businesses and across all of the various entities that we have acquired. I think over the course of the year, we're going to continue to hire. There is probably an equal number, probably another 20-odd folks that we'll add to that group as we go through the year.

Okay. Great. Thank you.

Final question, Mark Best.

Thanks a lot for taking my call. I just wanted to circle back to the MasterCard net interchange rate year-over-year in the first quarter, it was up 6 basis points. Then, in the last half of the year, we're going to get a 10 basis point improvement or a decrease as well. Can you talk me through the puts and takes and specifically why in Q1 we had the interchange benefit?

The biggest driver of that was the, we get customer specific incentives that we flow through revenue. Those incentives are kind of on a contract cycle basis. As contracts come up for renewal, or if they are new, we are typically incentive based upon incremental purchase volumes. When somebody renews a contract it looks like a new customer to us essentially, for the purposes of those incentives. We are just going through a period where we are getting a little bit more benefit this year than we did last year from those incentives.

Should we expect that 6 basis point improvement year-over-year to flow through each quarter?

Yes. Those incentives, being the major piece of it, those will essentially continue through this calendar year.

Okay. Is there any interchange impact from PaySpan?

From PaySpan? It's obviously going to depend on their volume right? If they become a bigger piece of the volume, I think their net rate is not a lot different than any other large customer, so you shouldn't really see much of an impact from them.

All right, great. And then in fleet can you quantify vehicle attrition for me?

Attrition was still really low --

The voluntary was like right at 2%.

Okay. Great. That's all I've got for you. Thank you very much.

Thank you.

Thank you.

Thank you. That was our final question. I would now like to turn the call back over to Mr. Elder for any closing remarks.

We just thank everyone for joining again this quarter and we'll look forward to speaking with you next quarter.

Thank you. That does conclude today's WEX Inc. first-quarter 2013 conference financial results conference call. You may now disconnect.