WEX Inc (WEX) 2013 Q2 法說會逐字稿

Good morning. My name is Natalie, and I will be your conference operator today. At this time I would like to welcome everyone to the WEX Inc. second quarter2013 conference call. (Operator Instructions).

Thank you. Mr. Steve Elder, CFO, you may begin your conference.

Good morning. With me today is our CEO, Mike Dubyak. We will also be joined by our President, Melissa Smith, who will participate in the Q&A portion of the call. 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 second quarter, adjusted net income excludes unrealized gains on fuel price derivatives, amortization of acquired intangible assets the adjustments attributed to non controlling interests and the tax impact of these items. Please see exhibit one 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 and the risk factors identified in our annual report on Form 10-K, 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 onlyas 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 second quarter of 2013. Revenue came in above our expectations while adjusted net income was at the top end of our guidance range as we accomplished a number of objectives against our long-term vision.

Q2 revenue increased 16% over the prior year to $178 million and adjusted net income increase 5% to $1.05, driven by stronger volumes including the acquisition of Fleet One. Throughout the quarter we executed on our long-term growth initiatives focusing on the expansion of our Americas fleet business while broadening our international footprint and further diversifying our revenue streams. In our Fleet Payment segment we achieved strong Q2 revenue growth of 14% driven by the acquisition of Fleet One. During the quarter we saw increased volumes resulting from vehicles coming online through new customer wins over the past 12 plus months. This success carried through to the second quarter of 2013 as we continued to win new business particularly on the private label side most recently evidenced by the signing of CITGO.

We also saw positive momentum in our same-store sales which were up 0.6% over last year rising for the second consecutive quarter. Our two-fold differentiation of providing enhanced product features and functionality and maintaining long standing customer relationships, has allowed us to effectively manage and grow portfolios. As a result we are consistently seeing interest in the marketplace for WEX and its capability. The integration of the Fleet One business has been a top priority this year and our progress is beginning to achieve intangible results.

Our history, expertise and brand recognition in the fleet space combined with Fleet One's strong relationships in the over the road market have created a collaborative environment that is opening up meaningful opportunities. From a financial perspective results from the business are materializing as expected, and we remain on track to better align and expand Fleet One's margins over the next several years. We are very pleased with the progress of the Fleet One integration and its contribution to our fleet business and we are confident in our ability to meet our targets on this front.

Looking at the international side of our business, we are taking our core capabilities to regions where there are opportunities to reinforce and sell our value proposition. Our history in the Australia market is an example of a geography we have targeted and have seen expansion. In the second quarter we experienced solid performance from the WEX Australia fuel business. We are leveraging our strong relationships with the leasing and oil companies in Australia and developing our pipeline of up market opportunities as well. While our results in this market has tempered some what due to exchange rate headwinds and wavering Australia economy, we are very happy with our position there. And in Europe and Asia-Pac we have increased confidence in our ability to make greater advances in those markets as we differentiate WEX as a provider for maximizing portfolio growth for our channel partners.

As we augment our fleet business, we are also aggressively cultivating our virtual travel product international which helps us to further diversify our revenue streams. While we acknowledge it takes time and capital to lay the ground work to successfully operate in multiple geographies, we believe the long-term benefits far out weigh the cost of our investments as international expansion and diversification remain key components to WEX's growth story. We executed well in our Other Payments segment in the second quarter with revenue increasing 23% to $47 million. WEX Virtual has been the focal point of our Other Payment segment, and we believe there is still extensive opportunity for this product in the future.

In the second quarter we continue to make progress in the globalization of our virtual card. Our WEX Travel solution made stride winning major OTAs in this space including Webjet in Australia and Grupo Transhotel and Globalia in Spain. Our acquisition of CorporatePay in May 2012 played a significant role in these Spanish customer wins providing us with exposure to markets we otherwise would not have access.

Having both our core virtual credit product and CorporatePay's prepay virtual product for the European travel market provides product differentiation which is helping WEX win accounts. The Grupo Transhotel and Globalia signing's are prime examples that demonstrate our expansion strategy by first laying the ground work with opportunities consequently materializing. While these types of interactions don't necessarily show up in the financial's immediately, they are a big part of our strategic thought process to enhance our growth story and the pipeline remains strong in this vertical.

We have encounter similar traction in the Asia-Pac countries where we are deploying capital and looking to add growth organically in the OTA market. We are progressing with regulatory approval from several southeast Asia countries while advancing ideas and following our customers in this region. We are excited about the opportunities WEX Travel solutions holds for us in Brazil as well. Our travel offering will build on WEX's entrance in to the Brazil market through unique and our proven success in other geographies with virtual payments for the travel industry.

We currently have approval to issue with unique and are finalizing the technical implementation which will put us on track to begin servicing customers in the second half of this year. From here we will look to leverage our relationships to further develop our growing pipeline of opportunities , overall wins and execution continue to drive our growing portfolio within the travel space.

In addition to geography our virtual card flexibility is transferable to different verticals , such as the healthcare industry an exciting area of opportunity through WEX Health. While this area of the business met our expectations in Q2 conversion of end users continue to be a lengthy process in part due to our channel strategy. We continue to believe this is a potential area of future growth for WEX. In the meantime we are working to establish ourselves in this market and continue to add channel partners.

Most recently we signed [Allegiance] a leader in healthcare and benefit payments to introduce our virtual solution as efficient alternative to Allegiances current payment structure. This further reinforces our belief that healthcare providers are beginning and will continue overtime to adopt our technologies and value adds as we make headway in the healthcare vertical.

Overall we are pleased with the performance of our business in the second quarter. We remain dedicated to our growth strategy of fortifying our Americas fleet business, further diversifying our revenue streams and expanding internationally. In our Americas fleet business our same store sales show modest but positive growth. Our competency in managing private label portfolios is also something that we continue to be recognized for and we are looking to translate that in to global scale opportunities.

In our Other Payment segment we are focused on the globalization of our travel product and vertical expansion of our virtual card product in the U.S. As we have highlighted previously we have specifically targeted Europe, Latin America and Asia-Pac as attractive regions for OTA expansion. We will continue to invest in this part of our business to position WEX for entry and greater penetration within the OTA vertical in these markets.

As we grow and expand the corner stone of our strategy and value proposition is our ability to create, foster and maintain long-term relationships both with customers and channel partners. The value , goodwill and loyalty we create is the foundation for our success and our ability to deliver growth now and in the future. Our progress to date from our second quarter results to our execution across our multi prong growth strategy reflects our balanced growth trajectory which we aim to continue as we enter the back half of 2013.

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

Thank you, Mike. For the second quarter 2013 we reported total revenue of $178.3 million an increase of $25.2 million from the prior year period and above the high end of our guidance range of $170 million to $177 million. This performance was driven primarily by strong payment processing growth in our fleet business including the acquisition of Fleet One versus the prior year. Net income to common shareholders on a GAAP for the second quarter was $42.2 million or $1.08 per diluted share. Our non-GAAP adjusted net income increase to $41.1 million or $1.05 per diluted share. This compares to our guidance of $0.98 to $1.05 per diluted share and $1.00 per diluted share reported in Q2 last year on an adjusted net income basis.

Taking a look at some key performance metrics which include Fleet One. Validated fuel transactions increased 12.1% over the prior year. Consolidated payment processing transactions increased 15.5% over the prior year primarily due to the strong organic growth from our America fleet business and the acquisition of Fleet One. The consolidated net payment processing rate for Q2 2013 was 1.4% which was down 23 basis points versus Q2 2012 and up 1 basis point versus the first quarter of 2013. Similar to last quarter this reduction was primarily due to the lower rate charged by Fleet One on their diesel transactions, which are larger volume transactions given the nature of the vehicle serviced.

Finance fee revenue in the Fleet segment increased $2.1 million compared to Q2 last year due to the addition of Fleet One's factoring business. Excluding the factoring business, our late fee revenue has remained relatively flat as compared to Q2 2012 even though fueling volumes have increased more than 30%. This speaks to the very healthy condition of our portfolio.

In the Other Payment segment revenue for the second quarter increased 23% or $8.9 million year-over-year to $47.2 million as result of continued strong performance and expansion in the online travel vertical with our virtual card product. We also continue to see good gain from rapid! PayCard , CorporatePay and unique. With respect to our virtual card spend volume increased 13% over last year to $3.2 billion for the quarter. The net interchange rate for our virtual card in Q2 was 99 basis points up 9 basis points year-over-year and up 3 basis points sequentially. Increase over the prior year was primarily due to customer specific incentives we received which will continue through 2013.

Moving down the income statement. For the second quarter total operating expenses on a GAAP basis were $111.2 million a $21 million increase versus last year. The majority of this increase was related to salary cost and service fees as the result of our recent acquisitions and increased investments to support future growth in our business. Salary and other personnel costs for Q2 were $40.6 million compared with $30 million in Q2 last year. The increase was predominately due to our acquisition of Fleet One, unique and CorporatePay last year. Service fees were up $1.8 million over the prior year to $26.6 million and was primarily driven by processing cost related to the 13% increase in spend volume in our virtual payment solution.

During the second quarter we again saw excellent performance in our credit losses, which on a consolidated basis total $4.9 million in Q2. This compares to $4.2 million in Q2 last year. Consolidated charge-offs in the quarter were $6.6 million while recoveries of amounts previously charged-off were $1.7 million. Consolidated free credit loss was 8 basis points in Q2 and was relatively flat compared with the prior year reflecting the strong condition of our portfolio.

Our operating interest expense was $1.1 million dollars in Q2 as we continued to benefit from low interest rates in addition to savings resulting from the Higher One deposits. The average net interest rate on these deposit was (Inaudible)in the quarter. During the second quarter we recognized a $1 million non operating loss on foreign currency transactions compared to a $472,000 loss in the prior year due to the strengthening of the U.S. dollar.

The effective tax rate on a GAAP basis for Q2 was 37.5% compared to 66.5% in the second quarter 2012 which included a charge of approximately $31 million due to the impact of tax legislation in Australia. Our adjusted net income tax rate this quarter was 37.2% compared to 36.3% for Q2 a year ago. The increase in the tax rate was due primarily to foreign exchange rate impact resulting from the strengthening U.S. dollar which we expect to continue for the remainder of the year. For the full year we expect our A&I tax rate to be approximately 36.8%, which is up slightly from our prior guidance.

Turning to our derivatives program, for the second quarter of 2013 we recognized a realized cash loss of $1.2 million before taxes on these instruments and an unrealized gain of $9.8 million. We concluded the quarter with a net derivative asset of $2.2 million. The third quarter 2013 we have locked in at a price range of $3.47 to $3.53 per gallon. For the fourth quarter the average price locked in is $3.36 to $3.42 per gallon.

Moving over to the balance sheet, we ended the quarter with $300 million of cash down from $350 million at the end of the first quarter. The decrease in cash was driven by a seasonal decrease in deposits from Higher One. In terms of capital expenditures CapEx for the second quarter was $7.5 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 a significant portion of which will be spent in Q3.

Our financing debt balance decrease $3.8 million in Q2 reflecting a quarterly payment required by our term loan. We ended the quarter with a total balance of $693 million on our revolving line of credit, term loan and notes. As of June 30th our leverage ratio was 2.2 times our 12-month trailing EBITDA compared to 1.2 times at the end of Q2 last year, with the increase driven by our acquisitions last year. Regarding our capital allocation strategy, our primary objective are to reinvest in core fleet business, expand our international reach and establish our presence in a diversified set of revenue streams at the same time we are focused on M&A and joint ventures abroad to increase our international exposure and develop our foothold in new verticals that provide diversified revenue sources.

Now for our guidance for the third quarter 2013 and the full year which reflect our view as of today and are made on a non-GAAP basis. Overall we expect to build upon the positive momentum from first half of 2013. We are updating our guidance to reflect a projected increase in fuel prices and the recent decline foreign exchange rates.

For the third quarter 2013 we expect to report revenue in the range of $186 million to $193 million and adjusted net income in the range of $45 million to $48 million or $1.16 to $1.23 per diluted share. These figures assume normal seasonality trends in the virtual card and prepaid business as well as credit losses. Our third quarter guidance assumes that fleet credit loss will be between 8 basis points and 13 basis points and that fuel prices will be $3.74 per gallon.

For the full year 2013 we expect revenue in the range of $718 million to $728 million and adjusted net income in the range of $167 million to $171 million or $4.27 to $4.37 per diluted share. Our guidance continues to assume a significant investment related to our virtual card product to expand into new geographies. As part of this strategy, we have started to move existing customer volume over to our new (Inaudible) and settling capabilities in European currencies. This will provide benefits to our OTA customers by minimizing their fees related to cross boarder transactions.

Additionally this will reduce our cross board revenue and not have any impact on earnings. Our full year guidance also assume that fleet credit loss will be between 8 basis points and 11 basis points. And assumes that domestic fuel prices will now be $3.69 per gallon versus our prior expectation of $3.49 per gallon. The fuel price assumptions for the U.S. are based on the applicable NYMEX futures price.

Given our success to date on our international expansion efforts, the proportion of our business sensitive to changes in foreign exchange rates has grown. Our guidance also assumes that exchange rates will remain in the range of the current (Inaudible) rates, which in the case of Australia and Brazil where we have the most exposure are down significantly from our last guidance.

Lastly, we continue to include the negative impact to our business as a result of the pending merchant litigation settlement into our guidance. We expect the impact to be 10 basis points for an eight months period which began on July 29 resulting in approximate $0.07 per share decrease in earnings. Our guidance does not reflect the impact of any further stock repurchases that may occur in 2013.

Now we would be happy to take your questions. Natalie, please proceed with the Q&A session.

(Operator Instructions). Your first question comes from the line of Julio Quinteros.

Hi , it is Roman in for Julio. First question on the competitive environment. It seems like you are seeing a pretty healthy pipeline out there. You mentioned it was both international and domestic in terms of potential partnerships. Just curious does this include Europe, and how healthy is the European pipeline given we know there are a lot of major oils out there considering moving some of their private labels carts, off-sourcing that? Any update there or any positive developments there?

Nothing that I can report specifically. I think we have been very consistent working with the European international law companies on leveraging our brand and value proposition. We probably both would say that time lines have been a little frustrating on getting to some decision. But we are very optimistic about future opportunities even to the point we believe there is opportunity for them to outsource more of the value chain then they were looking at say a few years ago when we were starting on this path.

So we feel good about taking over more of the value proposition which means more direct control of the customer, higher levels of revenue opportunities and being able to bring to bear our value proposition. So nothing to report specifically, but again optimistic about our chances in the future.

Okay. And I guess there is two quarters in the row now where same store sales are positive. Just curious is this tracking in line with your expectations or a little bit ahead of that? How does this compare with your internal forecast and what kind of same store sales projections are you embedding in your second half guidance? Thanks.

We are pretty much assuming it will be in this range of flat to slightly up. We don't see anything on the economy that is going to change it dramatically, but we do as you see the economy bumping along in a positive range. So that is what we are assuming. Steve could be more specific but I think we are pretty much in that range of 0.5% positive to flat or something. The one thing I will mention that was interesting, the numbers aren't that dramatic but of the five regions we saw three regions that were positive which I think is the first time we have seen three regions positive in six to eight quarters. And the other two regions, the midwest and the west, that were down were down less than 0.5%. So you are starting to see across the country at least a more rateable and even recovery which was positive news for us.

Your next comes from the line of Sanjay Sakhrani.

Thank you. First question was on the other payments solution purchase volume. It seems like the growth was a little bit weaker than what we were thinking. Are there any specific call outs for this quarter and then maybe you could help us, Steve, with the trajectory going forward? And then second as far as inorganic expansion of the fleet business, are their opportunities out there and which geographies perhaps you were looking at and maybe you could just characterize whether or not it is over the road type stuff or smaller vehicle? Thanks.

On the first one I would say that we still feel good about our 20% growth rate in the other payment solutions and even in the virtual side. We talked about 23% revenue growth overall. We saw actually greater than 20% revenue on the virtual card itself. So quarter-to-quarter sometimes the spend numbers can move around a little bit, but we look at the expansion opportunities. Steve mentioned in Europe able to work with some of our customers to put them on a new issuing strategy to get rid of cross border fees. So we look at that as being a positive for us as we start to move these opportunities around the globe. We have been very specific on the wins. When you talk about Australia even the Webjet, they are the largest Australian online travel company that we signed. We have others in the pipeline. In Europe we feel good about what we have done in Spain so far, others in the pipeline there that we are comfortable that will come to fruition over time.

Brazil, we feel good about what we are doing there. We said by the end of the year we will be able, through unique, to be able to start issuing our virtual card, which means to some of our current customer as well as new OTAs in that marketplace. Healthcare is meeting our expectation, maybe slower than we anticipated going into the year, but still feel confident about healthcare playing a role in our overall virtual card growth over time. We still feel good even though you saw the spend go down a little bit, but overall revenue on virtual was still over 20%.

(Inaudible).

The acquisition side, the other part of the question. Clearly, fleet is a big piece of what we will be looking at both domestically and internationally. I think internationally it would still be the areas of Asia-Pac and Europe and possibly Latin America. It could be on the heavy truck side, it could be on as we classify the local side. If there are good strategic opportunities that meet our strategic lens we will be aggressive going after those opportunities and we see some of those in our pipeline today.

Okay. Just to follow-up on that first question's response. Looking ahead we should expect 20% growth in purchase volumes for the remainder of the year?

I would say in revenue that is where we would stake it and say we feel comfortable with our 20% growth rate in the future.

Okay, great. Thank you.

Your next question comes from the line of Phil Stiller.

Hi, thanks for taking my question. Just following-up on the Other Payments division. The interchange rate stepped up a little more than we thought in the quarter as well it seems like you are getting more customer incentives. Is that sustainable through the course of the year, and then, Steve, perhaps you could clarify what the interchange assumption is for the remainder of the given the step down we will have with the litigation settlement?

The main reason for the increase over last year is the incentives that we are getting and we do believe that is essentially sustainable through the year. When you look at the impact that the merchant litigation settlement will have on our interchange rate 10 basis points is the number, it will apply to about two-thirds of our total volumes. So you will see a 6 basis or 7 basis points impact for that. So you will see that coming through in the next couple of quarters so it will step down a little bit.

Okay. And then on the full year guidance, the math suggestion, based on my math, that margins the overall operating margins for the Company should be roughly similar in the second half of the year relative to the first half; is that right? And why shouldn't we see better numbers in the second half of the year given all the investments you made in the early part of this year?

I think the margins will be relatively similar to the first half of the year in the second half of the year. I think the investments that we have been making have been pretty ratable through the year, and you will see them continue through the end of this year. We will hopefully pick up some revenue from the virtual card product as we expand it international, but I don't think it will be very significant certainly in the first quarter or two by any means. Those things will pay off over time, and we are very confident in those paybacks but it is not a real quick hit in the second half of the year.

Okay. Last question for me, Fleet One what was the revenue and transaction contribution in the quarter and then any updates on your thoughts for integration costs or synergies this year?

I would say on the first part of your question, Phil, we have not broken out the specifics around Fleet One. I would say the run rates we gave back at the time of the acquisition in the $60 million annually kind of range for revenue is still in the ballpark. Obviously they are growing some, but it is still in the ballpark. In terms of the integration costs we have said for the year $5 million to $6 million is the total. I would say we are probably turning towards the lower end of that range right now, but no real change in the forward guidance.

Great, thanks.

(Operator Instructions). Your next question comes from the line of Bob Napoli.

Thank you. Just on the payment transaction growth was a little bit better, payment processing transaction growth, than what we were looking for. I was trying to get to an organic number, I know you had the same store sales of six-tenths. If you took out Fleet One, what was the organic growth?

It is Melissa. I will answer that one. The organic growth of the business, and what we are trying to do is talk a little bit more about revenue growth. And if you look at the last five years, we have grown on average 13%. The fleet business this last year has been growing at an accelerated rate because of Fleet One and we do expect that to be growing less than 13% over time. It will be buffeted based on when we do portfolio ads, which we expect we are going to do, as Mike said, on a global basis and then acquisitions. But it has been for us a single-digit grower if you strip all of that out but it will move up into double digits over time based on some of these other factors.

Okay. So you are get mid single-digit, if you took out Fleet One, it was mid single-digit transaction growth?

A little better than that, yes.

Okay. And that is from an adding new customers obviously.

Yes.

I'm sorry. Go ahead.

That is okay. We have had a significant amount of success just growing the business organically bringing not just the portfolio wins that we have been announcing but bringing in new fleet business and you are seeing the accumulation of that in our transactions growth.

The number of vehicle was down for the second quarter in a row. It doesn't make sense relative to the positive trends on transactions. Is that just clean up of inactive vehicles in your reporting 7.4 million versus 7.5 million last quarter, 7.6 million at year end?

That is exactly what it is, Bob. We have started in the last few months of cleaning out accounts that had not been used in several years so we are taking those out.

How does July look? Do you feel like the economy is getting a little better, or do you think it is just stable but no signs of improving. If you could give a little color on July and your thoughts, broadly, on the overall economic environment in the U.S.?

I would say that July looks, nothing robust. There is nothing happening that says it is going to spur up any further. I think as I talked about same store sales we are forecasting that to be flat to positive for the rest of year. Quite frankly same store sales were down a little bit in July, but one month in a quarter doesn't make a quarter. We are not seeing anything robust in July but we are not seeing anything materially different.

Okay. And then in Brazil unique looking at your minority interest piece looked like it had a pretty good quarter. What is going on with unique? What kind of growth are you getting there and what products are growing?

Unique is another double-digit grower, and it is growing in part because of their payroll card product they have within Brazil. They have also expanding in the freight car marketplace so they have seen some volume from that business although small. There have been some regulatory changes in Brazil that made that particularly attractive to enter at this point in time. And then they are out there building a pipeline for the virtual card product in travel. So they are facilitating the process to become, as Mike said, the issuer, and we expect them to be able to both issue and settle in Brazil towards the later part of this year. So if you look at the places that we as a business corporately are in, unique is ultimately moving down that path.

Okay. And then just on your new business efforts in the U.S. You announced a number of important wins. What does the pipeline look like, and how would you break that out between small companies, midsize companies, large companies? Are you more focused on one area than another?

No, we are hitting all parts of the market. You do not hear us talk about some of the small customer wins because they are names you won't recognize but if you look at the business that we are adding to rapid! PayCard a lot of those are actually relatively small businesses. Our inside sales group on the fleet side is continuing to add smaller fleets. We do that through the channel relationships that we have as well through the private label relationships and some of the (Inaudible) relationships, so really covering all aspects of the marketplace.

Thank you.

Your next question comes from the line of Tien-tsin Huang.

Hi good morning. Steve, I just wanted to make sure I got the ups and downs right on the guidance revision. What is changing exactly, how much of the change is coming from spot fuel versus FX versus any change to your non fuel expectations?

Clearly we reforecast every quarter and there is lots of ups and downs, but the two pieces that really matter are the ones you just talked about. So for the full year our fuel price jump $0.20 from $3.49 to $3.69, and kind of the rule of thumb we have given you in the past that would add about $0.10 of EPS. Offsetting that is the foreign exchange rates, so like I said our biggest exposures are in Australia and Brazil. Those currency are both down about 12% since our last guidance including a bit of a tax rate impact in there as well that is about $0.07 negative to our EPS. So those two things net out to about $0.03 positive at the top end we added $0.02, so there was a penny of other stuff, but those are the two big moving pieces.

Okay. Nothing else too unusual beyond that. On a go forward basis, Steve, is there a sensitivity or rule of thumb that we can use on FX to the bigger currencies?

The biggest one would be the Australia dollar. We haven't given out specific numbers out there, but we can work the ballpark something in the future is how I would leave it at that. We expect that currency to remain in the range where it currently is if not weaken a little bit further even.

That makes sense. I ask because I am assuming you do have some expenses as well to offset obviously the revenue side, so I was just trying to understand the flow-through.

Absolutely. I would say from a margin perspective the Australia fuel business is pretty similar to the U.S., it is a high margin place.

Got it. Two more quick ones. I heard Sanjay's questions around the spend around MasterCard and virtual. Was the difference in the volume related to some of the weaker eTravel trends that we have observed from some of the public names? Sorry if you said that already, Mike, just trying to clarify.

He didn't say that specifically but that definitely factors into some of volume that you are seeing ,the growth in volume from period to period.

Okay. We will just keep watching that. It sounds like it was explainable but secularly still good. The last one for anyone the (Inaudible) proposed legislation. It seems like that could be good for deal pipeline down the road. I don't know, Mike, if your prior comments had any of that in your thinking as well, but any implications you can call out from that, that would be great. That is all I had. Thanks.

You are talking about some of the interchange rules in the EC?

The caps and the rules I know it does not apply to commercial cards but I guess surcharging will come in, banks may come under pressure. It felt like given all the complexity maybe that might drive some outsourcing opportunities, but tell me if I am way off base.

No, I think it is true. And I think also if you think about the CorporatePay product some of reason they stood that product up which is a prepaid virtual card was because some of low cost carrier airlines were surcharging for credit virtual or credit payments and the prepay plays a nice strategy in that market place. So having both a credit and a prepaid product as I said in my remarks has played heavily in our wins with Globalia and Grupo so we think there would be trends that we could take advantage of in that marketplace even if there are some caps on interchange you are right it does not affect what we see ,the corporate side. But I still think it gives us opportunities to find expansion with some of these online travel virtual opportunities.

Good to know. Thanks for the update.

Your next question comes from the line of Tom McCrohan.

Hi, thanks for taking the question. Just a follow-up to Tien-tsin's question. The online travel product is that viewed as a four-party network in the eyes of the new European commission ruling?

I'm not sure.

Okay. And then just to wrap up on the guidance and the outlook with the online travel and the prospects for healthcare, can you rank order them? Like which one is going to be more impactful near time, is it going to be the online travel, globalization effort or kind of building on healthcare?

They are both actually going to be significant opportunities we believe. We have a lot more track record in the online travel space. But ifyou look at the size of the market , it is about $72 billion worth of spend just in the OTA marketplace on a global basis. Since we only have about 12% market share and we just recently completing our ability to issue and settle, Steve talked about, within Europe but we can also do that now inThailand, Singapore, Malaysia soon it will include Hong Kong, Brazil, so we are rapidly increasing our global capabilities in that marketplace. So just in terms of the more experience we have at a proven model we would talk about travel.

But then more broadly on healthcare, it is a huge market it is a $2.8 trillion market. We think about $800 billion of that is addressable. And it has characteristics that is similar to the travel payment ecosystem, so large (Inaudible) payees, current payment mechanisms are inefficient and large card acceptance. So while that is going slowly and we would still say it is still a bit in the test phase to prove the consent out there, we feel very bullish about the long-term opportunity there.

And we have many more wins with our partners adding a new partner and then adding significant business into the relationship that we have with PaySpan. So both of those things we think are good opportunities for us going forward.

And on the online travel concept has already proven out it is just a matter of execution. It sounds like healthcare you (Inaudible) market still v early innings as far as proving the concept out. Can you talk a little bit about that? It seems like there is a lot of inefficiency and what are you seeing out there in terms of feedback you are getting as far as proving the concept out?

Yes. I think that to us the proof, and we have said this before, is we are going to market there through these channel partners, so the experience that we have had working with PaySpan which we think is a really synergistic partnership is that they are finding interest and adoption and in fact when they are adding business they are seeing a pretty high level of adoption with those customer that they are adding. While it has been slower than what we had originally anticipated, I think that is similar to experience we have had when we are going to market through other channels.

If you reflect back because they have more direct control of that relationship. There is interest in the market and we think our combined product set is meeting that need. Whether that is going to be as big in terms of total revenue as we are seeing with online travel that is the part I would say we are proven out still just the size of the opportunity.

When do you think you will have more of a conviction on the revenue potential from the healthcare? Mid next year, earlier next year is there any kind of sense for that?

I think we are seeing a lot more just within the last quarter. And the conversation we are having with our partners is really to get a lot more experience through the end of this year. So I would say yes by mid next year should give us a pretty good indicator.

Okay. Thanks, Melissa.

Thank you.

At this time we have no further questions.

Just want to say thanks to everyone for joining us once again this quarter, and we look forward to speaking with you next quarter.

Ladies and gentlemen, this does concludes today's conference call. You may now disconnect.