WEX Inc (WEX) 2015 Q4 法說會逐字稿

Good morning. My name is Holly, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the WEX Inc fourth-quarter 2015 earnings conference call. I'd now like to turn the call over to Mickey Thomas, Vice President of Investor Relations and Treasurer. Mr. Thomas, please go ahead.

Thank you, Holly, and good morning, everybody. With me today is Melissa Smith, our President and CEO; and our CFO, Steve Elder. 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 that we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, with specifically adjusted net income, during our call. Adjusted net income for this year's fourth quarter excludes changes in unrealized fuel price derivatives, net foreign currency re-measurement losses, amortization of required intangible assets.

Expenses related to stock-based compensation, restructuring expenses, certain acquisition-related expenses, non-cash adjusts related to our tax receivable agreement, adjustments related to our regulatory reserve, adjustments attributable to non-controlling interests, 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 and GAAP net income. For consistency, we've revised adjusted net income for the fourth-quarter 2014 to exclude the impact of the to re-measurement of nonoperating FX gains and losses to conform to the approach that was adopted earlier last year.

I would like to call your attention to a reporting change that you may have noticed in our press release this morning. We will now be reporting through three business segments: Fleet Payment Solutions, which remains on the same basis that we have been reporting; Travel and Corporate Solutions, which includes our travel business and other verticals; and Health and Employee Benefit Solutions, which includes our healthcare and employee-related business. This change enhances transparency and better-aligns our reporting to the way we think about our business as we move forward.

Finally, I would like to remind you that we will be discussing 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 February 26, 2015.

While we may update forward-looking statements in the future, we disclaim any obligations to do. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

With that, I'll turn the call over to Melissa Smith.

Good morning, everyone, and thank you for joining us today. I'm pleased to report solid performance for the fourth quarter, and results that exceeded our guidance range for both the top and bottom line. Our result came from solid execution against our strategic priorities, which are focused on accelerating growth, driving scale and advancing our target investments over the course of 2015.

For the quarter, we achieved revenue of $213 million and adjusted net income of $1.15 per share, both relatively flat over the prior-year period due to lower fuel prices. Our results included a one-time tax benefit relating to a Federal Tax Law modification. Even if you exclude that item, our A&I was comfortably at the top end of our guidance range, despite the fairly pronounced drop in fuel prices.

Net income was negatively impacted by fuel prices in our fleet business in the US and Australia, which was largely offset by favorable fuel price spreads from WEX Europe Services. As a reminder, revenue from WEX Europe Services is based on a spread, which helped provide a natural hedge in the fourth quarter. When fuel prices adjust rapidly, as they did in the fourth quarter, there can be a temporary offset to the impact of domestic fuel price movements. It's important to note that in the future, we would not expect changes in fuel prices and spreads to be as closely aligned as they were in the fourth quarter.

For the full-year 2015, revenue increased 5% to $855 million, and adjusted net income decreased 7% to $4.87 per share. We're particularly pleased to have achieved this performance in light of continued pressure from depressed fuel prices and volatile foreign exchange rates. Assuming constant currency, fuel prices, fuel spreads, and impacts from the hedge, our revenue would have grown approximately 22% and earnings would have increased approximately 17% over 2014.

Recall that in 2014, our adjusted net income included just $0.30 positive benefit for prior-year tax adjustments. WEX Europe Services performed better than planned, both in terms of volume and pricing, offsetting softness in the US fleet business from same-store sales.

We also continued to modernize our overall fee structure to adjust for market changes over the last several years. This has gone very well, with minimal impact to our customer base.

Ultimately, we exit the year with solid fundamentals, an underlying growth engine that continues to win new business, and a portfolio of high-performing products that are both diverse and global. Our targeted investments, Evolution1 and WEX Europe Services, continue to perform above expectations, and are on a very nice trajectory as we start 2016.

We look forward to building on this success with recently announced acquisitions of Benaissance and Electronic Funds Source, or EFS. Benaissance, which closed this past quarter, furthers our reach in healthcare payments, holding on billing capabilities that enable us to better service this increasingly complex market. We also remain excited about the prospects for EFS, which will be our largest acquisition to-date. EFS will round out our product set in the North American fleet market, extending our reach into the mid and large OTR markets, and significantly enhancing the scale of the enterprise.

We continue to anticipate the close of the EFS acquisition, which is making its way through the HSR review process. As expected, the regulators have come back to us with a second request. We're working diligently to provide the appropriate information to them as quickly as possible.

Based on all of these strategic initiatives, we believe the combination of our organic growth, coupled with our strategic investments, including recently announced acquisitions, position us well in the marketplace. Now moving to segment performance, in Fleet, we saw payment processing transactions increase by 7% during the quarter. Year over year, we saw a 10% rise during 2015, due in part to a full year of WEX Europe Services.

Assuming constant currency, fuel prices and fuel spreads, overall revenue growth in the segment would have been 19% for the full year. In domestic fleet, same-store sales declined 3.7%, reflecting similar trends in previous quarters. Oil and gas-related industries posted the largest decline. Payment processing gallons increased 2.6% in the US year over year, and fuel prices were down, on average, 28%.

We executed well in the areas that we have control, including maintaining low attrition rates and achieving a number of encouraging customer wins this quarter, including Sunoco Logistics, the OTR arm of Sunoco. We also signed a consolidated agreement with Element to provide co-branded card services, extending our longstanding relations with GE and PHH.

We're also seeing good momentum in the underlying business, as we continue to have success in the marketplace and grow our customer base. We also continue to diligently evaluate our cost structure, as well as implement our ongoing strategic review of pricing in a highly competitive payments marketplace. We adjusted our late fees midyear, and continue to see the benefit of this program.

We plan to continue to make adjustments where we see gaps within the market, and remain competitive. At the same time, we've had early success with our new product offerings, with contract signings for ClearView Analytics, and our FlexCard offering.

Our international fleet business again demonstrated strong performance, driven by WEX Europe Services. In particular I'm pleased by our ability to stabilize and grow the business, which has driven higher volumes across the network. Due to the favorable spreads and cost control, our European fleet business performed better than our expectations in 2015, driven in particular by the fourth quarter. We're leveraging the presence that we've established across Europe to scale our business processes and optimize our assets in this important region.

Our team continues to work diligently on building out the WEX platform in Europe, which is progressing well. We've successfully tested production transactions in a recently launched pilot, and will load a small customer set very soon. The country-by-country conversions are planned to continue throughout 2016.

We're also pleased with the performance of our international fleet business outside of Europe. We acquired the remaining 49% stake of UNIK this year, which enables us to further leverage the business's deep expertise in fleet over-the-road business solutions, and employee benefit products.

The fleet business in Brazil saw increases in payment processes and transactions of 11% for the full year, and revenue growth in local currency of 36%. Australians saw increases in payment processing transactions of 8% in 2015. In Asia, we've now completed the successful rollout of our international fleet platform in Singapore, Guam and Saipan.

Overall, we feel very good about the potential of our fleet business, both domestically and abroad, and encouraged by the growth that we're seeing across our core markets. Our fleet products are now being used in 17 countries and territories, up from 5 countries two years ago. Overall, we feel very good about the long-term opportunities in this segment.

Shifting gears to our Travel and Corporate Solutions segment, I'm pleased by the momentum we're seeing in this business. Overall, this segment generated 7% growth in total revenue globally over last year, increasing to $195.4 million. Recall that approximately 40% of our travel business volume is outside of the United States.

On a constant currency basis, revenue growth for the segment was 15%. This was driven by higher corporate charge card purchase volume, which grew by approximately $2.4 billion or 14% in 2015. These increases were partially offset by a decrease in the virtual card net interchange rate of 5 basis points, due primarily to customer re-negotiations, declines in customer-specific incentives we received, and FX rates.

In Australia, we're progressing well, ramping the Flight Centre deal. We signed an agreement with Hotel Booking Solutions, known as HBSi, and expanded our capacity to settle in two additional currencies during the year, now totaling 21. Asia also demonstrated notable progress this quarter.

The wins we've seen this year serve as evidence of our ability to address the unique needs of the global travel market, where we see the potential for significant long-term growth. We're working on further globalizing our virtual card product and pursuing value-added enhancements to our core service offerings to meet customer needs in this region. We continue to see great traction in that region, recently signing our seventh customer in the last four months across China, Thailand and Indonesia.

Our Health and Employee Benefit Solutions segment also saw solid momentum throughout the year. On a constant currency basis, revenue in this segment increased 75% over 2014, which included the benefit of a full year of Evolution1 and the Benaissance acquisition. This was partially offset by the rapid PayCard divestiture.

Evolution1 signed a new business agreement with People's Bank and Trust-Mart Company. Evolution1 continues to post strong increases in the number of consumers on its platform, and the number of these consumers adopting mobile accounts. We're excited to close the acquisition of Benaissance in the fourth quarter, as this business will enable us to provide a more comprehensive and diversified offering, while widening our network of partners. The integration of Benaissance is well-underway and meeting expectations.

Overall, I'm pleased with the progress we made this year in positioning WEX for the future, as it took significant steps to strengthen our business and enhance our position across our core verticals. We generated solid organic growth, in spite of continued pressure from macroeconomic headwinds, demonstrated disciplined cost control across our business, and made notable progress with our targeted investment strategy.

We'll remain focused on our strategic priorities in 2016, positioning WEX for growth, enhancing our value-added products and service offerings, and driving scale across the entire organization, while continuing to keep a keen eye on cost management. We're excited about the expansion of our global assets and talent base, and we'll continue to work diligently to ensure we are maximizing the efficiency and value of our network.

Let me turn now to our guidance. Looking ahead, we believe our prospects for 2016 are favorable and indicate strong organic growth across our business. However, we also anticipate that the macroeconomic headwinds that affected us in 2015 will continue to have an impact on our results this year. This guidance excludes the impact of the planned EFS acquisition.

For the full-year 2016, we expect revenue in the range of $860 million to $890 million. And adjusted net income in the range of $148 million to $160 million, or $3.80 to $4.10 per diluted share.

For the first quarter, we expect to report revenue in the range of $190 million to $200 million, and adjusted net income in the range of $31 million to $34 million, or $0.80 to $0.88 per diluted share. Please note that these estimates reflect our views as of today and are made on a non-GAAP basis.

I'd like to mention a few important call-outs that provide more context for their expectations in 2016. First, as I mentioned, we anticipate organic growth across our business.

For the full-year 2016, we're assuming a fuel price of $1.97. If we assume a domestic fuel price of $2.55, which was the average for 2015, we would expect approximately a 10% increase in revenue year over year, based on the midpoint of guidance.

As we've said previously, we suspended purchasing under the fuel derivatives program, as we believe the risk-reward tradeoff is not balanced at this time. We're targeted to be 20% hedged during the first quarter of 2016, but we're not hedged thereafter. As our volumes increase and our revenue earned from financing fees also increases, our exposure to changes in retail fuel prices also increase in dollar terms.

As a result, with each $0.10 move in fuel prices, results in approximately a 16% change in our adjusted net income from our US fleet business on a full year. This explains the bulk of the pressure on our adjusted net income for 2016. Assuming constant currency fuel prices, fuel spreads and no impact from our hedge from 2015 to 2016, the midpoint of our guidance range for adjusted net income would increase approximately 20%.

Our strategy has and will continue to include actions that diversify our business and reduce fuel-price sensitivity. As we've said previously, we regularly evaluate the potential benefit of hedging fuel-price-sensitive earnings, and may commence purchasing of hedges at a later date. Further, our acquisition strategy, along with organic growth outside of the domestic fleet business, is working to diversify our overall portfolio, shifting a greater portion of our revenue towards businesses without fuel-price exposure.

In addition, we're assuming a modest increase in fleet credit loss to be between 10 to 15 basis points. We assume WEX Europe Services will be breakeven on an operating basis for the year, driven largely by our strategic pricing initiatives, while we further optimize the portfolio. We'll continue making the investments necessary to scale and grow this business, as we build our presence in this important region.

Now I'd like to turn the call over to Steve to discuss our financials in greater detail. Steve?

Thank you, Melissa. For the fourth quarter of 2015, we reported total revenue of $213 million, relatively flat over the prior-year period, and above the high-end of our guidance range of $198 million to $207 million. Net earnings attributed to common shareholders on a GAAP basis for the fourth quarter were $20.9 million or $0.54 per diluted share compared with $47.9 million or $1.23 per diluted share for the fourth quarter last year.

Our non-GAAP adjusted net income came in at $44.7 million or $1.15 per diluted share, up from $44.3 million or $1.14 per diluted share for the same period last year. For the full-year 2015, revenue increased 5% to $854.6 million from $817.6 million in 2014. On a GAAP basis, net earnings attributable to common shareholders in 2015 were $2.62 per diluted share compared to $5.18 per diluted share in 2014. On an adjusted basis, net income decreased 7% to $4.87 per diluted share, from $5.25 per diluted share in 2014.

As Melissa mentioned, our results this quarter were impacted by ongoing softness in fuel pricing. Although we partially hedged against domestic fuel price fluctuations on an earnings basis throughout 2015, our revenue was still affected by the ongoing fuel price decline. As a result, even with our solid transaction growth, our fee payment processing revenue declined, coming in at $73 million this quarter compared to $83.3 million in the fourth quarter of 2014.

For the quarter, consolidated payment processing transactions increased to $84.8 million, 7% higher than 2014. The increase in transactions was primarily attributed to WEX Europe Services, as well as organic growth in the business. The net interchange rate in the Fleet segment this quarter is up 8 basis points sequentially over Q3, and 9 basis points over Q4 last year. The increase was due to favorable spreads at WEX Europe Services, as well as the decline in domestic fuel prices.

We continue to be very pleased with the performance of WEX Europe Services. We know there is still work remaining to transfer the portfolio to our systems and operate it more efficiently, and we've made tremendous progress to-date.

Finance fee revenue in the Fleet segment increased $1.9 million compared to Q4 last year, despite the significant drop in fuel prices. This increase was driven by the impact from weight fee changes made in 2015.

Revenue in our Travel and Corporate Solutions segment for the fourth quarter increased 6% or $2.5 million year over year to $47.7 million, primarily as a result of continued strong growth in our purchase volume. These volumes increased 13% over last year to $4.6 billion for the quarter, driven by solid growth in our OTA customers. The net interchange rate in Q4 was 80 basis points, which is up 4 basis points sequentially, due to the impacts of seasonality on our customer mix and changes in customer-specific incentives we received.

For Health and Employee Benefit Solutions, total revenue in the fourth quarter increased 1% year over year to $30.7 million. Growth in the Health business was very strong, and included the Benaissance acquisition, but was offset by the divestiture of the rapid PayCard business and foreign exchange impacts, primarily from our business in Brazil.

Moving down the income statement, for the fourth quarter, total operating expenses on a GAAP basis were $163 million, a $13 million increase versus the same period last year. Salary and other personnel costs for Q4 were approximately $60 million compared with roughly $58 million in Q4 last year. The increase is primarily due to an increase in headcount related to the acquisition of WEX Europe Services, partially offset by lower stock compensation expense.

Additionally, service fees were up $6.2 million from the prior year, at $37.9 million. The increase is due to expenses from WEX Europe Services operations, which began in December 2014, as well as volume-related increases in our travel business.

During the fourth quarter, credit loss on a consolidated basis totaled $8.3 million. This compares to $9 million in Q4 last year. Fleet credit loss was 15.7 basis points in Q4 compared to 13.7 basis points in Q4 2014.

The fourth quarter of 2015, we saw an increase in delinquency rates, which led us to increase our required reserve. The increase in delinquency trend was broad-based. We did not see any particular customer or industry as the cause.

Although the loss rate is higher than last year, it still reflects a strong portfolio, and the loss rate remains within historical norms. Our operating interest expense was $1.2 million during the quarter, as we continued to benefit from low interest rates in the US. This compares to $1.7 million during the same period last year.

The effective tax rate on a GAAP basis for Q4 is 38.9% compared to 40.4% in the fourth quarter of 2014. Our adjusted net income tax rate this quarter was 32% compared to 37.5% for Q4 a year ago. As Melissa discussed, this quarter was favorably impacted by a Federal Tax Regulatory change. For 2016, we expect the tax rate to be between 36% and 37%.

Turning to our fuel derivatives program, for the fourth quarter of 2015, we recognized a realized cash gain of $9.6 million before taxes on these instruments, and an unrealized loss of $8.4 million. We concluded the quarter with a net derivative asset of $5 million. In the first quarter of 2016, we are approximately 20% hedged, and we are not currently hedged beyond the first quarter.

Moving over to the balance sleet, we ended the quarter with $280 million of cash, down from $534 million at the end of the third quarter of 2015. The decrease in cash was driven by the seasonality of certain deposits at our bank. In terms of capital expenditures, CapEx for the fourth quarter was approximately $16 million. Our total CapEx for the full year was $63 million.

We ended the year with a total balance of $1.1 billion on our revolving line of credit, term loan and notes, which is down $232 million from the beginning of the year. As of December 31, our leverage ratio was 2.8 times our 12-month trailing EBITDA compared to 3.6 times at the end of Q4 last year. In anticipation of our pending acquisition of EFS, we expect to continue to use our cash to reduce debt balances until the deal closes.

And now I'll turn it back to Melissa.

Thank you, Steve.

Our financial performance in 2015 reflects our commitment to expanding our business through both organic growth and strategic acquisitions. We've continued to make the investments needed to expand into high-growth verticals, while strengthening our presence in core markets. Despite the FX and fuel-price headwinds, we're confident that we can sustain our momentum into 2016, as we increasingly benefit from strong volume growth, contributions from recently announced transactions, as well as higher contributions from our expanding partnership network across the globe.

And now we'll take your questions.

(Operator Instructions)

Your first question will come from the line of Bob Napoli with William Blair.

Thank you, good morning. Confusing times, I guess. The fourth quarter, your revenue looked fine, your earnings looked fine, your guidance for revenue looked fine -- right in line with what we expected. But your earnings guidance is below -- knowing it's a very confusing time, it just seemed to us.

Now you're saying that Europe is doing better than expected. I thought maybe you had a continued loss in Europe. But the expenses seem higher. I know you put in there, Melissa, or Steve, that you -- constant everything, it's 20% earnings growth.

Am I missing something on the expense side, or are there additional investments you're making? Will Europe continue to lose money versus -- I think you said it's going to break even this year. So what are we missing on the expense side?

Yes, I would say that, just to kind of reiterate some of the points I made when I gave out the guidance assumption, we do presume that WEX Europe Services will be operating breakeven. There is a pretty sizable impact between the loss of the hedge from year to year and from fuel prices.

So the decline in fuel prices felt in the US, and then outside of the US, which are typically more stable, but you're seeing such a large drop in fuel prices, that it has a little bit of impact also outside of the United States. So I had said before, a $0.10 change in fuel prices has about a 16% change in earnings, I'm sorry, a $0.16 change in A&I EPS. I think that's probably the biggest driver.

So the change in fuel prices is having a pretty pronounced impact, from a drop-through perspective. It's about $1.65 when you compile the fuel-price spreads, the loss of the hedge, and then fuel price changes, it's about $1.65 impact from year to year. So that's really a pretty dramatic change.

So underneath that, you're seeing really strong both organic growth, and then really strong performance for the acquisitions we've had. There's a little bit of a loss of pick-up, I guess, if you will, between 2015 and 2016, because WEX Europe Services outperformed during 2015. That has a little bit of impact too, but we're still presuming that it's going to be operating income breakeven.

Okay. Just one last question -- I'm sure there are a lot of questions. But the $0.10 to $0.16 -- I thought historically, that $0.10 was $0.11. We can go over that offline. But maybe you can tell me what you're looking for, for organic growth.

One of the areas that stood out this quarter, besides organic growth, for 2016, the healthcare business. And there are a lot of puts and takes. What is Evolution1 growing at, and what do you expect it to grow at in 2016? So in organic growth overall. And then I'd like to know what Evolution1 is growing at, without acquisitions?

Organic growth overall, we said that if you strip out the impact of PPG and fuel prices, if you look from 2015 to 2016 midpoint guidance, that we're seeing about 10% growth at the midpoint. So we've said all along that we think we're going to continue to grow the business organically at about that 10% growth rate. And we still believe that to be true.

That's what we saw really in the fourth quarter. And so business is coming, and that's a combination of growth in transaction volume in the US, even though it's a little bit more muted than normal, because of what's happening with same-store sales.

We're continuing to see some pricing benefits in the US fleet market. We're seeing growth in all of the other markets, that we think will continue. We had 8% transaction growth in Australia, and 11% transaction growth in Brazil. So we're thinking you're going to continue to see transaction volume growth. And plus, just the continued benefit of the improvement of the portfolio that's happening in WEX Europe Services.

If you go into the other segments, we saw 15% revenue growth on the virtual business, which includes our travel business. If you make it constant currency, we're expecting to see the similar type of trend as you go into 2016. The business in Brazil is performing really well on a constant currency basis, but obviously it's getting impacted by what's happening to their local currency.

The healthcare business, we had said that would be a high-teen grower, and that business has been growing at about that rate. It was actually faster than that in the fourth quarter.

Just to follow up on that, Bob, in the Health and Employee segment that we split out, there's several pieces in there. So Evolution1 is definitely the biggest piece of it. But there's also a good portion of the business in Brazil at UNIK, in there. So there's an FX impact that's going through there.

The prior-year number also included a business that we divested, rapid PayCard. So when you strip out the FX and the rapid PayCard impacts, you're looking at something in the range of a 30% growth rate in that segment.

That's for Evolution. That's without -- that's organic?

Yes, in Q4.

Yes.

Okay, thank you.

And your next question will come from the line of Ramsey El-Assal with Jefferies.

Hi, guys. I was wondering if you could give a little more color on your same-store sales metric? You mentioned it deteriorated a little bit. I think it was about 2.7% in each of the last two quarters, or I think you said 3.7%. Can you give us a little color there? Are your seeing any incremental verticals impacted, or is this still really kind of an energy-related story?

Predominantly, the big headline is what's happening in energy. That's down 30% quarter over quarter. So that's certainly the most dramatic, although that's a relatively small part of our portfolio. It's just because it's such a big number that's moving the total.

We're also seeing that transportation is down about 5%. But some of the areas we've looked at as kind of leading indicators that at least we've thought about, from an economic perspective. Construction is still up. And so the things that are more consumer-facing seem to still be performing well.

The things that are either oil and gas-related or kind of that's being affected by oil and gas, are where we're seeing more of an impact. And that was more pronounced in the Southwest region, you know, as an example, was down almost 9% year over year in aggregate, if you look at that region.

Okay, thank you. On the EFS transaction, there's no -- you had mentioned there's no update in your expectations around timing there. It's just working its way through the review process. I guess, could you update us on that process, and whether there are any wrinkles to call out in the second request you got? Or whether it's sort of, from your perspective, kind of business as usual?

Then also could you comment on any changes in your expectations of accretion from that deal, given, you know, some potentially tougher financing environment that has evolved maybe since you announced?

Yes, so the transaction is making its way through what I would call is a normal process, and so we're responding to data requests. The response from our customers has been positive, and so we feel very good about the transaction. The business itself continues to win business in the marketplace.

So from just an overall strategic perspective, it's still firing on all their engines, and we feel good about the business itself. And so this is really just a process of making it through the regulatory approval. And in terms of -- we excluded the transaction from guidance because, if you start thinking about the things that affect it, the timing is really up in the air.

The financing market, I would call volatile right now, and we still have quite a bit of time before we'll likely close the transaction. The timing of the synergies will play out depending, again, on when this actually comes together. And so -- and we felt like there were a number of moving parts here that we didn't want to start nailing or updating the guidance we'd already given. And then obviously, the business has got a little bit of negative impact for fuel prices, because about 15% of their revenue is impacted by fuel prices.

Okay. Last one for me is, standing up your tech platform in Europe, will we see your costs come down at some point? Will there be sort of a drop-off in investment in Europe and your effective accretion from that EFS deal come up at some point, when that technology gets kind of stood up? Or is it something where it's more of a -- you know, the costs there will be sort of more ongoing and kind of gradually stabilize and recover?

Ramsey, I don't think you're going to see a big pop one particular day or quarter, when the costs suddenly change. Certainly getting the portfolio onto our platform is going to be a significant event. And that will bring tremendous value and functionality to the European marketplace that isn't there today. And it will certainly be, you know, a cheaper platform than the outsource providers that we're currently using.

I would also say that it will probably take some time to wind those costs out of the business. And just as importantly is the operations behind it as well -- you know, just how we're trying to shape that business and put it into our own systems and processes. The work behind the scenes on that will be just as important as the platform side as well.

So we're still expecting a very good year out of WEX Europe Services. As we said, they had a much better year than we believed, partially aided in the fourth quarter by those fuel spreads. But they're doing all the right things to run that business well. They're driving volumes in the marketplace, they're servicing their customers very well. And we're taking all the right steps to reduce our cost base and shape that business the way we want it to operate.

Okay, great, guys. That's all for me. Thank you.

Your next question will come from the line of Ashish Sabadra with Deutsche Bank.

Hi. Just had a quick follow-up on the prior question around the EFS acquisition. I think when you announced the acquisition, you talked about the combined pro forma leverage being around 4.4 times. You highlighted that with the fuel prices, that could be higher. I was wondering if there's a way for to us think about where it could end up, with the fuel prices the way they've been acting?

Then a second follow-up to that would be just on the funding cost. Is there a way for us to think about the sensitivity to the funding cost? Back-of-the-envelope seems to suggest that a 100-basis point move in interest would have a $0.20 impact on the EPS accretion. I was just wondering if that's in the right ballpark?

Ashish, I'd say a couple things. First, on the leverage, our forward guidance for 2016 is obviously down somewhat from the 2015 levels, and so our EBITDA will come down as well. I think the actual leverage at the time of the transaction is going to depend heavily on when it actually closes. And so that's the biggest wild card that I'm not sure we could predict.

All else being equal, if we were talking about an April 1 close like we were three months ago, leverage would be slightly higher, but not tremendously higher, because it's a backward-working metric in part, as well. So it's going to be probably somewhat higher at the close, but not significantly.

In terms of the price, I think as Melissa said, the spreads on the type of debt we're looking at have been kind of volatile. We're a BB-rated institution, and you can kind of look at the BB index and see how it's moved since we first announced in October. We do still have some time, obviously, before this deal will close. And so we'll, you know, be getting whatever the market rates are at the time we actually place the debt.

I'd also say that, in this interim period of time while we're working through the process, you know, we have a committed financing in place, which is what we quoted to you last time, last quarter. But we're also working to improve upon that through structure, as best we can, and hopefully mitigate some of the impacts around the changes in the spreads.

Okay, that's very helpful, thanks for that color. Just a quick one on the payment processing rate. You mentioned there was some benefit from the WEX fuel spread, as well as lower fuel prices. How should we think about the payment processing rate in the Fleet Solutions going forward? Is 1.46, is that much more normal going forward?

I think what you're going to see is a relatively flat rate, you know, just kind of in general. So every year we talk about a little bit of pressure from customers renewing, and rebates, and those kinds of things. But with declining fuel prices, you're going to have a little bit of offset there. So it should be, you know -- but taking out the spread piece of that, you know, which was several million dollars, you know, it should be relatively flat.

Okay, that's helpful. And just quickly on that Element renewal and follow-up to your earlier comment around renewal, is there any significant impact from Element? Or, as you said, it will mostly be offset by lower fuel prices?

No, I would say that it was a regular contract renewal process that we went through with them, and we've reflected that in the guidance.

Okay, thanks a lot.

Your next question will come from the line of Jim Schneider with Goldman Sachs.

Good morning. Thanks for taking my question. I was wondering if you could just address your assumptions regarding the travel business in 2016? Do you still expect to kind of maintain that mid-teens growth rate on a constant currency basis? Or do you think that we're going to see some softness there, given what's happening in the overall travel volume situation?

I would say, so far, we're still seeing it being in that mid-teens area. And you know, clearly, we're paying attention to what's happening overall within the travel market. But we've had some really good contract signings. We're getting benefit of that, as well as what's happening with the existing customer base in that portfolio. Part of why we give a guidance range is just in case you see fluctuations in any of the businesses, including that one.

Thanks, that's helpful. And then just a quick follow-up on the earlier question related to same-store sales. Any of these you believe that we've just kind of seen the bottom there, in terms of the incremental down-tick, from a same store or sales basis?

Do you think there's any evidence that you can point to that suggests that we're kind of at the bottom there or we could potentially recover? And do you think that by the time you get into the end of the year, that you're assuming in your guidance kind of a flattening or slight improvement in those verticals?

Yes, I would say in our guidance, we assumed they are going to similar trends than what we've seen the last couple quarters, relatively similar trends for the year. That's based on not having any better knowledge of what's driving this. It could obviously get either better or worse.

One thing I would say is, some of the things getting impacted, like the mining and fuel industry, it's becoming a much smaller and smaller part of the business each quarter, as you're seeing some pretty significant movements. And so that in itself should help mute some of the impact.

Understand. Thank you.

Your next question will come from the line of Darrin Peller with Barclays.

Hi, guys. Look, I just wanted to touch a little bit further on the expense management you guys can have. I mean, obviously in an environment like this, which, it's kind of tough to say how long these macro factors last, what kind of room there could be for you guys further to cut if you need to, on the expense side. And just maybe give a little more color on the incremental or decremental margins across the businesses a little more, just so we understand, you know, maybe for every X percent of revenue or either direction, what could happen?

On our cost base, I'd say that we've been pretty rigorous throughout 2015 in particular, and expect to be into 2016.

Sure.

So obviously, our cost base is largely fixed. So that's why we're trying to make sure that we're being careful in hiring. And if you look back over the hiring that we've done, it's been pretty selective, geared more towards sales and marketing-type of heads. So we're seeing some pretty good leverage across the business. And you saw that actually drop through, if you start looking at the earnings impact to 2015, if you exclude kind of the macro factors.

I said we had 17% growth, and that excluded the $0.30 we had of prior tax adjustments in 2014. And so there's clearly strong leverage in the business. And as we look into 2016, we're continuing those efforts. We're also going through very rigorous contract re-negotiations, you know, where we have leverage in the marketplace. So we're looking across the whole expense base to try to find as many levers as we can. And

I would say our mentality going into this is, while we have a view of likely improving fuel prices over time, we are trying to make sure that we think of this as potentially the new norm. And we want to make sure that we're adjusting the business to the extent possible accordingly. Yet at the same time, we're seeing tremendous growth across the portfolio, and we're literally winning business across each of our segments and across each of the markets that we're in.

So we're trying to make sure that we're all being balanced about continuing to invest for things that are going to cause future benefit. I don't know, Steve, you want to comment any more?

I think the point around the fuel business is that it's a really high incremental margin business, and that's a great thing. When it turns the other way, against you, though, on the fuel price, that's a really high incremental piece, too, just going the wrong way for us. So certainly in the fuel business, you get, you know, very high incremental margins. It's a little less so in the other two segments, but it's still a business with great profit margins overall.

All right, guys, that's helpful. I appreciate it, thanks.

And your next question will come from the line of Sanjay Sakhrani with KBW.

Yes, (inaudible).

Sir, your line is open.

Sanjay, are you there? Operator, maybe we can look back to Sanjay in a few minutes.

Hello?

Sanjay, are you there?

I am here. Hello?

Go ahead with your question, Sanjay.

Okay, you can you hear me?

We can.

All right, sorry about that. Want to go back to a question Bob had about the sensitivity to the fuel price, and just that $0.11 to EPS versus the current $0.16. Am I understanding that right? Are there other stuff involved, like spreads that you guys were talking about in Europe, that are affecting that sensitivity relative to the past? And as we look forward, how will that sensitivity look to earnings? Thanks.

So Sanjay, I think more recently we've been talking about a $0.12 or $0.13 change in EPS for a $0.10 change in fuel prices. And we're obviously -- we're updating that number now to $0.16 for this year. And that's in the US. The change or the increase is really just a couple factors. It's volume growth that we're seeing from organic new sales, which is very normal.

It's also increases due to late fees that we've made. You know, in the last quarter, as an example, late fees were up 10%, even though fuel prices were down 28%, right? So it gives you an indication of the magnitude of the changes that we've made there. And I'd also say, you know, it's certainly not a perfect measure by any means. It depends on interest rates. It depends on loss rates. It depends on the spreads, as you mentioned, in Europe.

So, you know, it can move around and there can be some variability there. But I think the important thing is that the fees that we're charging and what we're earning in the marketplace, we're competitive, and it's commensurate with the level of service that we're providing.

And so when we look out to the subsequent year, you guys talk about being hedged approximately 20% this year. So if all else is equal, do you still have -- on fuel prices, that is -- is there still a headwind as it relates to some of the spreads, and obviously the hedge?

So we're 20% hedged for the first quarter of 2016. And (multiple speakers)

Okay, I'm sorry.

So you can call it 5% on the year. So you know, I think that's the first piece. You know, the spreads can move around. And they helped us as fuel prices were going down, they offset a little bit of weakness that we had in the US. And at some point, fuel prices will go back up someday, and it will probably turn around and hurt us a little bit there, as they come back up. They can move it around a little bit.

Okay. And then final question, just on the EFS acquisition. I guess, rough sense of timing, I know you guys were thinking April 1. Now you've got a little bit more questions being asked. I mean is there an assumption that this probably won't close this year, which is why you've taken it out? Or are you still hoping for sometime this year, in terms of a closing date?

We had picked April 1 as kind of just an arbitrary date, because we had to have a date. And I wouldn't say that, that's relative to what's happening, going through process right now. And the only reason why we're not including anything at this point is, it's just uncertain what the date will be. We're, to a large degree, at the mercy of the SEC, as you go through this process. And so it's hard to imagine it not working through this year, just based on the timelines of what's typical. But we just don't know exactly what date that would be in this year.

Okay, thank you.

Your next question will come from the line of Daniel Hussein with Morgan Stanley.

Hi, thanks for taking the question. I was wondering if you could just talk a little bit more broadly about either the assumptions you're using in your guidance, or maybe your approach to providing guidance, just given how much turbulence there's been? And specifically, whether you're baking in more conservativism this year than you may have in prior years? Thanks.

I'll start, and you might want to fill in here. I'd say, we're trying to be consistent around the pieces of things that we have talked about for a little bit now, is that we expect the business to continue to grow organically. And we're presuming somewhere around a 10% organic growth rate. And at the midpoint of our guidance, if you look at it from a -- you strip out the impact of fuel prices, is about 10% growth. And so I would say that's pretty consistent with what we've been saying all along.

In terms of impact to earnings, we're really just -- when you strip out the impact of fuel prices, we're seeing continued leverage of the organic growth in business. And we think you're going to get continued leverage out of WEX Europe Services. And so it's a little bit of each in there, that are included in our guidance, that, one of the negatives that we had year over year, were the increase in private losses.

That's really our best assumption, based on what we know in the marketplace right now. And so I'd say that we're trying to be as transparent as we can of the assumptions that we include in guidance, knowing that there are a number of moving parts right now in the market.

Danny, I'd just add that, I wouldn't ever character the guidance as conservative. I think we kind of look at all the moving pieces, and there's a lot of them -- certainly more at the beginning of the year than there were at the end of the year. And we're trying to take our best stab at where those things are going to land, and give you a reasonable range to work with.

Okay, I got it. And then I wanted to clarify the earlier question on payment processing rate. So it sounds like there was benefit from the spread, and just from lower fuel prices. But I guess, looking back over the past few quarters, you didn't see too much of a benefit from just the lower prices. So if you attribute it all to this spread, I think it works out to maybe $6 million of benefit. I guess, does that sound right?

Then in the first quarter, are you expecting something similar? Or did you also have a tougher comp last year in the first quarter? Thanks.

So I think the spread was certainly the biggest factor in that number, and we're up eight basis points sequentially. You know, I think something like five or six of those basis points was due to the spreads. And so you've got a couple of basis points in there. Year over year, you had a fairly significant decline in fuel prices, and even quarter to quarter, it was fairly significant Q3 to Q4. So that definitely did help the rate. I think you probably just annualize some other signings that kind of made the rebate pressures, you know, from a comparative standpoint, lessen.

Okay, thank you.

Your next question will come from the line of Tien-tsin Huang with JPMorgan.

Hi, thanks, good morning. Just on the credit loss side, I know the assumption is for it to tick a little bit higher. Just elaborate on what you're seeing in a little bit more detail, maybe even geographically? Because I'm trying to remember in some of the international regions, where you have fully insured economics and underwriting risk.

So Tien-tsin, we do have economic risks, I'd say, across Europe, in Australia, and to a lesser extent, but certainly still there, in Brazil. So we do have economic risk in most of the regions we operate in. That said, the vast majority of the losses are here in the US. And they're basically small businesses that just, you know, stop paying their bills, and we can't get ahold of them, we can't find them.

You know, there was nothing in the quarter that would suggest anything is out of control. Even though the delinquency rates trended a little bit higher for us in the fourth quarter, that's actually fairly typical. But it certainly did cause us to increase our reserve a little bit in the fourth quarter as well.

When you dive into the delinquencies a little bit, as I said briefly at least, there was no real industry or customer or geography or anything that we noticed, that was really -- you can point your finger to and say that was the cause. It was fairly broad-based, and so we reflected that obviously in our reserve, but also in our expectations going forward.

Okay, thanks for that, Steve. And then so WEX Europe, I guess, if we look out, I mean, is there a lot of cost opportunity there? I think Darrin asked you about what you can do to cut costs, and I heard you talk about evaluating costs as well. But is that more of a WEX Europe comment, or is it broader than that?

I would say, well, two different things. Specific to WEX Europe Services, the cost base there is evolving, to the extent we have been going through an ongoing effort in order to make sure that we were streamlining the cost base. Because we really just picked up what Esso had in the [MobileExxon] transaction. So that's a work in progress.

The question earlier was specific to the platform. So I'd say there's two pieces of it. One is just around making sure that we're streamlining the business from just a business process perspective, and thinking about being in the right geography, and all of that, that you would normally do.

Then the second part of that is around the re-platforming. And each of those things are in progress, and we expect both of them to have an impact over the margins over the longer term. So we said next year will be breakeven, and that we intend to ultimately move that to a similar margin, to what we'd see in the US on a private label basis. And so, those are all ongoing efforts, and some of them more shorter term, and some of them will take a little bit of time.

Understood. Thanks for the update.

And your next question will come from the line of Tim Willi with Wells Fargo.

Thanks. Good morning. Just had two quick questions. First -- actually both surround the Health and Employee line. Can you just remind us of the timing of the rapid Pay divestiture, just as we sort of think about the sequential modeling of that business, and when that headwind from the divestiture is removed from sort of the optics of the growth rate of that division?

Yes, it was January of last year that we sold the business, so the fourth quarter is largely the last quarter that you'll see any impacts.

Okay, so we're good there. Then just going back to that division overall, so 30% organic growth in 4Q. As you think about that business through 2016, and probably what should be a very nice organic growth rate, and probably out even into 2017, is it a division where we should expect to see margins expanding and helping to drive this story? Or are you still going to be in a pretty heavy investment mode around that division, where we're not going to necessarily see a lot of margin, but despite a pretty attractive top line?

I would split that. But the business in Brazil is scaling rapidly, so they're actually showing pretty good margin growth across that enterprise. So even though they're seeing significant revenue growth, they've been able to show pretty significant scale. In the healthcare business, we are actually making sure that we're spending money and investing in that business. There's a balance. We're looking at some margin improvement, but not significant margin improvement, over the next couple of years.

Tim, I just want to add one thing. We did have about six weeks worth of revenue from Benaissance in the fourth quarter, in that Health and Employee segment. There was a little bit of activity in there that was not quite organic in that 30%, but it was pretty small in the overall scheme of things.

Okay. And then I just wanted to clarify something, going back to the EFS and the debt, and make sure I understand some of your comments correctly. So you've got the financing committed, and I think a couple of the questions around the cost, you don't think it will be materially higher than when you announced the deal. Did I understand that correctly? I mean obviously, it might be a little bit higher, and there's a lot of moving pieces. But did you say, like, not really significantly higher than your original assumptions?

I would say the first part is, yes, we have committed financing in place. So there's really no question around the financing availability for us. The BB index, which is where we're rated, has moved -- I'd call it more than a small amount since October. I think we still have a little bit of time on our side to lock the numbers in, and hopefully they can improve. And we're spending some time to, you know, look at potentially better structures than what the committed financing has in place.

So to the extent we can improve upon that, we still have all the commitment in place -- and again, no worries about the availability of funds. But to the extent we can improve upon it, we're going to try and do that in the meantime.

So I guess I'd ask -- I just think it's an important issue right now for people, where the debt markets are at or have been. Would it be a material increase versus when you announced the deal and thought about the price and the potential accretion? Or is it modest if you just sort of said -- if you look at the last week or two of the markets, you know, it wouldn't be that material versus when we announced the deal -- or it would be?

I'd say, if you go back to October when we first announced the deal and put the committed financing in place, the BB index has moved somewhere around 1 percentage point to 1.5 percentage points higher in the quarter.

Okay, perfect. That's all I had. Thanks very much.

Okay.

And at this time, I'll turn the conference call back over to Mickey Thomas for closing remarks.

Okay, that concludes our call. Thank you all for joining us. Good-bye now.

Once again, we'd like to thank you for your participation on today's conference call. You may now disconnect.