WEX Inc (WEX) 2016 Q1 法說會逐字稿

Good morning, my name is Raquel and I will be your conference operator for today. At this time, I would like to welcome everyone to the WEX first quarter 2016 earnings call. I would now like to turn the call over to Steve Elder, Senior Vice President of Investor Relations.

Thank you, Raquel, and good morning everyone. With me today is Melissa Smith, our President and CEO, and our CFO Roberto Simon. The press release we issued early this morning has been posted to the Investor Relations section of our website at www.WEXInc.com.

A copy of the release, as well as the slide deck summarizing our results has also been included in an 8-K submitted to the SEC. As a reminder, we will be discussing Non-GAAP metrics, specifically adjusted revenue and adjusted net income during our call. Adjusted net income for this year's first quarter excludes acquisition and divestiture related items, stock-based compensation, restructuring charges, changes in unrealized fuel price derivatives, net foreign currency remeasurement gains, adjustments attributed to noncontrolling interest in the tax impact of these items.

Please see Exhibit 1 for an explanation and reconciliation of adjusted revenue to GAAP revenue and adjusted net income to adjusted ANI and Exhibit 2 for an explanation of reconciliation of adjusted net income to cap net income included in the press release. 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 these 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 February 26, 2016. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I will turn the call over to Melissa Smith.

Good morning, everyone, and thank you for joining us today. This morning we are pleased to announce first-quarter results that exceeded our guidance range on both the top and bottom line. We generated $205.9 million in revenue and adjusted net income of $0.97 per share.

I'm most pleased about the underlying momentum we're experiencing despite the volatility in the field price environment. Assuming constant currency, fuel prices, fuel spreads and impacts from the hedge, our revenue would've grown approximately 12% and earnings would have increased approximately 16%. All business segments contributed favorably to our performance, demonstrating solid momentum over the prior year with organic growth across the business being a key driver.

Our focus remains on accelerating growth in our core verticals, scaling opportunities across the organization and driving market-leading efforts globally. We experienced strong underlying growth in our health and benefits segment and we built upon our fleet and travel customer base. Our pipelines are robust as we make our way into the year.

At the same time, we're executing against our plan to modernize our pricing with small fleets in order to align competitively with the market. Our international expansion showed momentum in both Europe and in Asia. As I mentioned on the last call, we've moved from 5 to 17 countries and territories in the last two years with our fleet platform, and we're seeing strong ramp of our European and Asian customer signings and virtual travel.

We feel good about the products we are bringing to market and our ability to help simplify complexities of payment systems through innovative technology, user-friendly tools and industry-leading customer service. Our ClearView analytics offering, Benaissance Technology, and the recent success of our travel product in Brazil are great examples of our expertise in this area. Overall, we feel good about our start to the year and our execution thus far against strategic priorities.

Now let's peel this back a layer, and talk about segment performance, starting with Fleet. One of the exciting ways that we're growing this business is through our ability to harness data insights from a proprietary network. This has been instrumental in meeting the needs of fleets and we're adapting our analytics product to specifically meet the needs of smaller fleets.

Overall growth in this segment, neutralized for PPG and FX, is 8% this quarter, despite pressure on same-store sales of negative 4%. This growth came from transferring a customer from a transaction processing to a payment processing relationship as well as from new business signings and pricing changes with existing smaller fleet customers.

We're also deepening our relationships with existing customers. This quarter we renewed our contracts with Enterprise and Cintas, and we are pleased to have signed the state of Georgia to our ClearView product, among others.

Additionally, we're excited about the new product releases we've had in that space, including the recently introduced fleet smart hub mobile application. This application moves more functionality to the hands of our customers, simplifying and personalizing the overall customer experience.

Additionally, we anticipate that our pricing monetization efforts will continue to offer incremental benefits to our performance this year. Our international fleet business met expectations led by growth in WEX Europe services.

Our presence in Europe is strengthening as we scale and optimize our assets in this important region. We adjusted pricing in this market, continued to execute an operational efficiencies, and grew this portfolio.

I'm also pleased with the performance of our international fleet business outside of Europe. We've achieved strong performance in our fleet business in Brazil, and our products are being well received in the market. In Australia, we're performing as expected and recently signed an agreement to launch a new fuel card program with a major oil company in the region.

Now for an update on EFS. As we discussed last quarter, the regulators came back to us with a second request. On March 31, 2016, we certified substantial compliance with that second request.

We will continue to work cooperatively with regulators and to be responsive to further inquiries or requests if needed. We would anticipate closing on this transaction within 30 days after receiving approval from the FTC. Overall, the momentum in our core fleet business remains solid both domestically and abroad. We feel very good about our long-term potential in this segment.

Turning now to our travel and corporate solution segment, we generated strong momentum and purchase volume, growing 18% globally during the first quarter. This growth was driven primarily by the growth in the travel vertical, including a strong contribution from Europe where we are now offering our virtual cards in 31 countries.

Brazil also demonstrated very strong performance this quarter. In fact, we're experiencing so much growth with one core customer that we're planning for them to hit the next pricing tier in our contract much sooner than anticipated.

We're also very encouraged by our progress in Asia during the quarter. We signed up Ctrip, one of the largest online travel agencies in the world. This relationship is in the early stages of ramping, and positions us to capture outgoing payments from China and Hong Kong globally.

As we've said before, Asia represents an important region for our long term growth, given its contribution to the global travel market. We are excited by our initial traction in this region and plan to further support globalizing this offering by increasing our field sales team to take advantage of our expanded geographic footprint.

Lastly, our health and employee benefits solution segment is performing ahead of our expectations, delivering 35% growth on a constant currency basis. In April, Evolution1 and Benaissance rebranded to WEX Health, and our unique business now operates as WEX in Brazil.

We experienced great traction and growth in our overall healthcare platform user base. We extended our value proposition within the healthcare space with the Benaissance acquisition. The dialogue I've had with partners reaffirms the value proposition around simplifying the overall reconciliation and billing process within this complicated space.

We are leading the consumer healthcare market with our technology platform, robust account offerings and health payment card business. We are pleased with the progress we've made in integrating Benaissance's operations and are realizing revenue gains from our early sales and marketing efforts. This combination will exceed both our ability to grow and scale in this attractive market.

In Brazil, our benefit business posted strong growth again this quarter, and the local products continue to resonate despite the difficult environment. We are in the process of implementing the contacts business - one of the largest contact centers in Latin America with over 100,000 employees. We remain positive about our prospects in 2016, as we executed against our strategic priorities of driving market-leading offerings globally, accelerating growth in our core verticals, and capturing scale opportunities across the organization.

Even as we anticipate some macroeconomic headwinds to continue, we're starting to see signs of increased tailwinds from just a quarter ago. Our consistent and disciplined focus on these priorities and long-term orientation will strengthen our business, and we remain confident in our ability to achieve strong organic growth across all verticals. As we move through 2016 and beyond, we'll remain focused on our path towards diversification, which has reduced our fuel price exposure as a percentage of revenue, and will continue to mitigate the impact over time.

We'll also pursue our targeted investment strategy, seeking to enhance our organic growth engine by adding functionality across verticals. We are expanding our geographic footprint.

Now I'd like to turn the call over to Roberto Simon, our new CFO who joined WEX in February of this year. Roberto brings significant experience in managing global financial operations, and we're excited to have the benefit of his experience and leadership on our team. Roberto?

Thank you, Melissa. I'm excited to have joined the WEX team, and I look forward to contributing to the growth and success of our Company. With that, I would like to walk you through a more detailed view of our financial results for the quarter.

For the first quarter of 2016, our total revenue was $205.9 million, a 1.8% increase from the prior year period, and above the high end of our guidance range of $190 million to $200 million. Net income on a GAAP basis for the first quarter was $23.1 million, or $0.59 per diluted share, compared to $22.3 million or $0.57 per diluted share for the first quarter last year. Our non-GAAP adjusted income came in at $37.6 million, or $0.97 per diluted share, down from $46.2 million or $1.19 per diluted share for the same period last year, also above the high end of our guidance range for the quarter.

Overall, we are pleased with our performance across the business. Adjusting for changes in fuel prices, fuel price spreads, impacts from the hedge and our foreign exchange rate, revenue growth in the quarter was 12% and adjusted net income grew 16%. The primary drivers behind the increasing revenue in [abnees] versus our guidance while increasing field revenue, primarily in the fleet segment and cost-containment across the Company.

The fleet solution segment achieved $121.1 million in revenue, a decrease of 6%, mostly driven by lower fuel prices and partially offset by growth in volume and pricing modernization. Assuming cost and currency, fuel prices and fuel spread, overall revenue growth in this segment would have been 8% for the quarter. During the first quarter, payment processing transactions increased to $89.1 million, 8.7% higher than the prior-year period, which was driven primarily by one WEX customer that converted from a transaction processing relationship to a payment processing relationship.

We continue to see headwinds from same-store sales, which Melissa referred to earlier. Other revenue in the fleet segment increased $3.2 million, compared to last year. This increase was driven by additional price modernization initiatives in the small field market, moving our offering into better alignment with the market.

As a reminder, when our revenue went from financing, fees increased our exposure to changes in fuel prices and also increased in dollar terms. In travel and corporate solutions, revenue for the first quarter increased 5% to $45.1 million. Spend volume on our build products increased 18% over last year, to $4.9 billion from the quarter, driven by our [last travel] customer in the US and Europe.

A contract renewal with one of our largest customers and the strength in volume in Q1 produced an interesting change for our [before coming the first quarter to 71 basis points as it pushes several last customer into higher rebate years]. For health and benefit solutions, revenue for the first quarter increased 29% to $39.7 million, primarily as a result of expansion of our WEX Health business and the condition of Benaissance.

Our employee benefits in Brazil demonstrated a strong growth in local currency. These operational success was done by the decline of the real over the past year.

Moving down the income statement for the first quarter, total operating expenses on a GAAP basis were $164.8 million, a $10.8 million increase versus last year. The overall increase was mainly driven by acquisition of Benaissance, and increases in servicing fees and technology leasing costs as a result of the purchase volume growth in the travel and corporate solutions segment. We are undertaking a number of projects to bring further operational efficiencies to these costs.

During the first quarter, [very low] from a consolidated basis totaled $3.9 million, flat to first-quarter last year. Fleet (indiscernible) loss was 9.3 basis points in the first quarter, compared to 6.8 basis points in the first quarter of 2015. Although the load rate is higher than last year, it still reflects a strong portfolio and is better than what we guided to.

Our operating interest expense was $1.4 million in the first quarter, as we continue to benefit from low interest rates in the US. On a GAAP basis, effective tax rate for the first quarter was 36.2%, compared to 42% for the first quarter of 2015. On an ANI basis, the tax rate is 36.4%, compared to 34.5% last year. The increase is due to the discrete item in the prior year that reduced the overall rate.

Turning to our fuel activity program, for the first quarter 2016 we recognized a realized cash gain of $5.7 million before taxes on these instruments, and changes in the mark-to-market volume of $5 million, as all of the contracts have now expired. [Extrapping] in the second quarter, we will no longer have any hedges in place to mitigate our fuel price exposure.

Moving on to the balance sheet, we ended the quarter with $515.3 million of cash, up from $280 million, as compared to the cash position at the end of last year. The increase in the cash balance is due to the seasonality of deposits at the WEX bank.

In terms of capital expenditure, CapEx for the first quarter was approximately $20 million. We ended the quarter with a total balance of $1.1 billion on our revolving line of credit, term loan, and note which is a $6 million increase from the December 31, 2015 balance.

As of March 31, 2016, our levered ratio was three times our 12 month trailing EBITDA, compared to 2.8 times at the end of last year. In anticipation of our pending acquisition of EFS, we expect to use our cash to reduce our debt balance until the deal closes.

Now, our guidance for the second quarter of 2016, and an update on our full-year, reflects our views as of today, and are made on a non-GAAP basis. For the second quarter of 2016, we expect to report revenue in the range of $216 million to $226 million, adjusted net income in the range of $37 million to $40 million, or $0.96 or $1.04 for per diluted share.

These figures assume normal seasonality trends in the (indiscernible) business, as well as credit losses. Our second-quarter guidance assumed that our fleet credit loss will be between 7 and 12 basis points, and the domestic fleet prices will be at $2.20 per gallon. For the full-year we expect revenue to be in the range of $879 million to $909 million, an adjusted net income in the range of $158 million to $170 million, or $4.07 to $4.37 per diluted share.

Our guidance is based on exchange rates at the end of the first quarter, and assumed rates for the remainder of the year. This guidance excludes the impact and closing expenses of the EFS acquisition. Our full-year guidance also assumes that the fleet [credit] loss will be between 10 and 15 basis points, and assumed that domestic fuel prices will be $2.14 a gallon.

The fuel price assumption for the US is based on the applicable limit futures price. Additionally, we expect our adjusted net income rate to be between 36% and 37% for 2016. The guidance assumes approximately 39 million shares of [some thing] for the year. With that, we will open the lines for questions.

(pause)

Raquel, if you could open the line for questions now?

(Operator Instructions)

Bob Napoli, William Blair.

Thank you, good morning, and congratulations on this all-around -- trends in the business look very good. First question, on the conversion of a customer from transaction processing to payment processing, where was that at? When was it done? Can you give a feel for how many transactions that represented in the quarter payment processing transactions?

Hi, Bob, it's Melissa. The conversion is something you see is just a normal migration that's happened over time, where we converted a number of transaction processing relationships over to payment processing. That occurred at the beginning of the year, and so you will see that same effect throughout the course of 2016.

So a couple hundred basis points benefit to the payment processing growth rate transactions?

Yes, you can see the total growth -- vehicle growth 3% -- and then when you look at the payment processing growth, you are seeing the increase largely between those two things because of this transition.

Okay. Then you announced -- you said you signed another major oil company in Australia? Is that for payment processing or transaction processing?

The relationship that we have in Australia is -- it is really a -- think of it as an affinity program. So the relationship would be branded with that customer's name, but using their universal network. So, it's payment processing. It will convert to payment processing, but it's a broader relationship than just a traditional private label relationship.

Okay, and then -- (multiple speakers)

-- [start-up] pay -- it's not -- we're not taking over a portfolio.

Okay. My last question before I turn it over -- on the EFS acquisition, have you had any feedback on timing? And then the financing -- when you announced the deal, initially credit spreads -- looking at it as you're a BB-rated company -- credit spreads blew out, which essentially would've wiped out all accretion. Now, credit spreads in the BB market have narrowed dramatically and are actually tighter than they were when you announced the deal.

I'm not sure that's a direct correlation to how you would fund the transaction, but can you give us some thoughts on the accretion of EFS? How the business is doing, when it would close? And on the funding side, are you going to get the benefits of that spread tightening?

You had a bunch of questions in there. Let me talk about -- you asked about accretion. When we announced the deal in October, we said we were assuming an April 1 closing date, and it would be $0.15 to $0.25 accretive.

And we were presuming at that time debt of LIBOR plus 350 basis points, just to recap what we said. As you mentioned, our last call we mentioned the fact that the date was not known, still. I would say that's still true -- that the financing rates had increased significantly, and that the business was also impacted by the drop of fuel prices, although less than we are. Only about 15% of their revenue is impacted by that.

So I think the one thing that's really changed from that -- our last quarter call to now -- is the financing rates, as you mentioned. They're volatile. The last -- we know obviously we're getting updates on a regular basis; our last view was LIBOR plus 400 to 425 basis points. So they're still worse than the original announcement day, but better than the last time we looked at them, and they're really moving all over the place. Some of that will depend on the timing of the transaction.

How was EFS performing?

EFS, I would say, is continuing to win business in the marketplace, and strategically still fits the profile of what we are looking for. And as I said, they are impacted by fuel prices and some of the same macroeconomic trends that we are, but continue to deliver new customers into their pipeline.

Thank you.

Sanjay Sakhrani, KBW.

Thank you, good morning. Maybe you can talk about the health and employee benefit segment, and what drove the outperformance there?

Gosh, Sanjay, it really is -- it's a combination of a couple of things. Obviously, Benaissance is impacting that quarter -- this particular quarter a little bit. It's really the only thing that is inorganic that is affecting the results in the quarter. But there's still over 20% growth when you pull that out.

So I'd say the headline -- they are benefiting from the conversion. It had some pretty significant portfolio conversions that have occurred during the course of the last year -- that you're able to see that now coming through the results.

And as well as -- just continue customer signings, growth in their underlying business. There's really not -- when you strip out Benaissance, it may be a couple of customer portfolios -- it's just underlying organic growth that is happening with that business.

This level of profitability in that business, or revenue growth, is sustainable throughout the year?

I think the benefit of the portfolio migrations is something that will annualize as you get toward the end of the year, unless there's something [similar] that occurs. We talked about it being a high teens growth rate. And I would still say that's -- when we think about the business, we're still thinking about that, in that category, even though it is over that in the first quarter.

Got it. One follow-up question on EFS -- I think on the last call, you did talk about having some other tools around funding the deal to the extent that the capital markets didn't repair themselves, and it seems like capital markets are a little bit better today. Would the combination of those tools, plus the improvement in capital markets, get you back to your original accretion assumptions?

If you look at the market today, it would not get you back to the original model, but it helps mitigate. So we're still exploring -- even more than exploring -- we're still looking at those options as ways of financing the business that's going to be optimal in terms of flexibility of structure as well as rate. But even if you blend alternative structures, we are still higher than the original deal announcement date, right now.

Okay, great. Finally, as far as other potential opportunities, you mentioned the pipeline is pretty robust. Is that the M&A pipeline as well, or just the pipeline of workflow? Thank you.

It's both. If you look across the businesses -- and part of what I like about this quarter is you can actually really see the organic growth coming through in each of the lines of business that we have. And that's driven largely by a lot of work that's going on the front end just to progress business through the pipeline.

So I'd say that it continues to look really good. And as you get into this part of the year, you certainly have much more visibility into what's going to play out towards the end of the year. So we feel good about that.

In terms of the M&A pipeline, there's always going to be big -- there's a lot of opportunity. For us, we're obviously spending our focus delevering the Business, but we will continue to look at M&A opportunities, regardless of what's happening within the marketplace because we want to make sure that we are participating.

Okay, great, thank you.

Ashish Sabadra, Deutsche Bank.

Congrats on the solid results -- just maybe a quick modeling question. The processing rate in the Fleet segment was much higher than I would've expected -- any benefit there? And then on the interchange rate on the Travel Solution -- that was a bit light? So was there any seasonality there -- and how we should think about the processing rate, as well as the interchange rate, for those two segments?

I will take those in reverse. If you look at the Travel segment, the biggest impact that happened with Travel -- we talked about this -- was we had one large customer that signed a new contract in April of last year. So that's anniversarying in.

And at the same time we also had some customers hit higher tier levels, just because the spend volume has been really strong -- stronger than what we anticipated. So we've got the impact of both of those things affecting this quarter.

And they will -- if you're looking for more of a forward view, we think that the impact of that is reflected in this quarter. And that's what you would expect to see as the baseline going forward.

For the processing rate in the Fleet segment -- 1.44%. That was high as well, compared to the first three quarters in 2015. Was there some benefit from spreads there? How should we think about the processing rate going forward?

A piece of that is the hybrid contracts that we have in the business. So as fuel prices have dropped, it makes the rate go up, and a piece of it is just blended mix across the portfolio. So there's nothing really that's novel that's happening.

Okay, thanks for that color. Maybe one final question -- this one's about the guidance. When I look at the guidance rates for the full year -- EPS guidance rates at the mid-point -- that's up $0.27. And when I look back into the fuel price assumption, that has gone up around, I think, $0.17.

Looks like most of the EPS raise came from higher fuel prices? But in the quarter, you also beat the quarter by like $0.13 in EPS. So I was just wondering -- the fiscal-year guidance raise -- is that just some more conservatism baked into it?

Sanjay, hi, this is Roberto. At the top of our range, EPS guidance, if you remember, was $4.10 in February. We have move it, you are correct, to $4.37 for the full-year 2016.

As you also said, domestic [PPG] for February was $1.97, and now we are raising it to $2.14. We are maintaining in the 2016 [meet for] guidance, the revenue is about 10% growth and 20% on earnings, assuming constant currencies and also the matched fuel prices and no impact on hedging.

What I would tell you also is that there are a lot of puts and takes, and that the majority of the EPS increase is due to changing domestic fuel prices, as you mentioned. But we have a portion of the first quarter [profitability], and so more that is more anticipated contraction in the spreads and volume in the US.

Thanks for the color, Roberto, and again, congrats.

Thank you.

James Schneider, Goldman Sachs.

Good morning, thanks for taking my question. Just wanted to get more color, and I apologize if I missed it before. Can you comment on, numerically, what the same-store sales number was in Fleet in the quarter? And related to that, have you seen any kind of recovery in the transportation or energy subsectors where you've seen weakness for couple of quarters now?

Yes, same-store sales were down 4%. It's actually a little bit worse sequentially than it was in the fourth quarter. And I would say similar trends, though, when you really get into it -- it's largely driven by oil and gas, a little bit more affected by large fleets than smaller fleets. Transportation -- actually still down.

And in construction -- is a little bit softer this quarter than it has been. So if there was a standout from quarter to quarter, construction is probably it. It's not quite as strong as it had been in the previous couple of quarters.

That's helpful, thanks. Maybe as a quick follow-up, related to the Travel segment and the gap that someone else referred to before, in terms of purchase volume and the effective rates you're seeing -- is there any reason to believe that gap, or that discontinuity, wouldn't continue in terms of lower rates on the travel side of things? Any way that we should be thinking about what the normalized rate would be as we get through the end of this year and into 2017?

I would think of this as the normalized rate. So what we reported in the first quarter is something you would see as the baseline as you go through the year.

The pieces that affect the rate are mixed. As transactions occur geographically, there's obviously significant differences on rates. But there's also typically corresponding differences in rebates. While it has an impact, it's not as large as you might think. The other thing that affects it is customer blend, and as a customer hits their different spend levels, then that can affect the overall rate.

Generally, I think that you're going to see a little bit of a downtick in Q2 and Q3 because there's just a seasonal mix to travel. But you shouldn't see the same type of decline you saw from Q4 to Q1. Again, think of this -- what we're reporting this quarter -- as more of the baseline going forward.

Thank you very much.

Glenn Greene, Oppenheimer.

Thanks, good morning. I will also drill down a little bit on the corporate section, maybe the more positive one. If we could give a little bit of color on the 18% volume growth? If there's any way to parse that -- domestic, international -- the drivers and the sustainability? It sounds like there's been some nice new wins internationally, both Europe and Asia, but maybe just some color on that 18% volume growth, for starters.

Not to get too customer specific, the larger customers in our portfolio had some pretty significant spend volume increases. And that's a piece of it. And that travel happens everywhere. It's truly global.

And then we've had a customer ramping in Europe. It's more than one, but the one that's notable enough that it's actually affecting the volume mix. That's a trend that we are expecting to continue as well.

As I mentioned, the win with Ctrip, which we're really excited about, is still in the very early stages and it's kind of too early to know what the ramp is going to look like. But it's a customer we're obviously really excited about having into the mix and could affect the future results.

Okay, and on the travel side, thinking about that 9% payment processing transactions. I wonder if there's a high way -- high-level way of reconciling from -- I'm thinking negative 4% same-store decline, you've got the transition of the client to a payment processing relationship. There's probably some net sales benefits in there, but how do we bridge the gap from that negative 4% same-store to the 9% positive?

The 9% positive is payment processing transactions. I would bridge it more -- if you look at the total transaction number, it's probably a better bridge. And then you add the negative 4% to that to think about how we're actually growing organically.

Okay, and maybe a quick update on Esso trends and your profitability expectations or timing?

That's what -- we still believe it's going to be breakeven this year. On an operating income basis, and we're progressing well on that front. The key pieces to that, that we've talked about, are continue to grow the portfolio, making sure that the pricing is set at market. And then working on operational efficiencies, and the team in Europe is doing a great job of progressing on all of those fronts. I'd say it's very much on track, if not ahead of where we expected it to be.

Okay, great, thank you.

Ramsey El-Assal, Jefferies.

Hi, I wanted to ask you about your sensitivity to fuel prices. I just want to make sure I'm understanding what you told us last quarter correctly. What I'm getting at is -- is that sensitivity going to increase now later in the year as all of your hedges have rolled off? The last bit of them rolled off in the first quarter. Or was that $0.16 impact on the -- move in the price of fuel -- was that presuming -- that was already factoring in that (technical difficulty) were going to roll off that full-year kind of -- impact was valid for the full year?

We had said that on $0.10 of fuel price movement would translate into $0.16 of EPS. That was unhedged, so the underlying presumption is you're looking at the Business unhedged.

We also had said that's domestic US only. And so the pieces that affect fuel price movements -- you still can get some movement in Australia; you just can't translate it to the NYMEX. And in addition to that, in Europe you've got the counter to that with -- you've got movement in spreads.

And then so in this quarter, when we're giving an update on guidance, Roberto talked about the fact that we're expecting fuel prices to go from $1.97, which we gave on the last call, to $2.14, based on the NYMEX curve on the full year. So you're getting the benefit of that, but we're also getting -- we're anticipating that's going to have some effect on fuel price spreads in Europe. That's where we're kind of buffering those two things together when we're looking at our full-year guidance number.

Okay, perfect. On the -- moving the customer from the transaction processing relationship to the payment processing relationship, how typical of a transition is that? I'm trying to figure out whether your processing relationships represent a pipeline that eventually converts over to the -- or rather your transaction processing relationship is a pipeline that converts over to payment processing? Or is this more of a one-off thing and it's not necessarily a natural progression for your customers?

I think that has been a trend in the US. We have signed -- when you think about transaction processing, for us, it's largely -- it's just a technology play where people are outsourcing the technology. And over time, we tend to build confidence in the fact that they can move from just the technology to some of the other areas of expertise that we have around -- the whole host of products from a credit perspective all the way up to -- in some cases, we're doing sales. We're doing that more and more, where we're actually the front end for a lot of the oil companies, because we have an inherent competency in that area.

So I would say that it has been a trend we've seen over the years. And it is something that we -- when we look at a business, we're interested in doing the whole host of services. And obviously from our perspective, the relationship is deeper when you're doing more than just processing the transaction.

Okay. Lastly, on Europe, you mentioned you took some price there? Did you see the market in Europe as being underpriced relative to where it could be? In other words, if there was WEX-like operators who are running those fuel portfolios in Europe, would there be a large opportunity to take price, across the board?

I don't know that I would generalize; I think in this case, that was true. It depends largely on the portfolio and how it's been managed historically. It's something that we were able to do, and it was part of how we thought about the portfolio. It was a piece of how -- when we talked about moving it to operating margin breakeven, it was a piece of the plan in doing that all along.

Okay, and then really quickly -- any word on Europe RFPs? Any movement on outsourcing? Seems like those RFPs have been ongoing for quite some time.

I put that in the longer-term category in my mind. There's nothing really new to talk about. There's still RFPs that are in process and kind of making their way through the path.

Got it, okay, thanks a lot.

Daniel Hussain, Morgan Stanley.

Good morning, Melissa, Roberto and Steve. I wanted to follow up on an earlier question on take rate in the Fleet segment. Melissa, you mentioned that there is some offset as fuel prices fall, that you get some other revenue support on the take rate. But last year we had an even bigger year-over-year headwind, and we didn't really see that much of a benefit.

So I'm wondering if you could just walk us through what's different this quarter? Is it that you've crossed some threshold, so you're more protected as you approach [some floor] level on fuel prices?

I think it has more to do with the -- the mix isn't really the right word -- but some of the contract renewals that we've gone through, that mix of moving one other portfolio into -- from that transaction processing relationship to payment processing relationship. All of those things are coming together that are affecting the rate in this quarter. So it's not really anything that's new other than a normal process that we're going through and renegotiating with our customer base.

Got it. Maybe a high-level question on the Travel segment -- can you remind us where you are in terms of penetration of online travel? In the past you've talked about a TAM -- I think it was $60 billion or $70 billion in volume. Just an update on how big that TAM is, considering how fast the industry has been growing?

And then how much -- there's a distinction between merchant model and agent model, one of them being more addressable to use. So, maybe an update on where that split is today, and overall what your penetration is today? Thanks.

There's about $70 billion worth of spend, if you look at US, Europe, Asia PAC and LatAm. So we're about 28% of that, so if you kind of do the math on our spend, comparatively.

You asked about the merchant model versus agency model, so we're playing heavily in the merchant model, which is where we get involved in making the payment on behalf of the online travel agency, as opposed to the consumer making the payment directly to the hotel. And typically, the spend volume is roughly half and half. I haven't seen anything that's really updated that, nor have we seen trends that would make me think that's changed much.

I guess by that logic then, is your penetration of the merchant market 56%?

Yes. Mathematically, that's probably right.

Okay, thank you.

Tom McCrohan, CLSA.

Melissa, I guess before the big drop in fuel prices, you had talked about long-term expectations for EPS growth, I think about 20%? I'm just wondering how you're thinking about that now?

Yes, we had set long-term growth targets of revenue 10% to 15%, and earnings 15% to 20%. And we actually, with the exception of fuel prices, I'd say we've largely been on track with that.

When we think about the Business over the longer term, part of what we've been trying to do is diversify the Business away from the fuel price exposure. We thought hedging was an okay strategy for a shorter period of time. But over the longer term, the intention was to increase the other parts of the Business in areas that we thought we had expertise that would also reduce that exposure.

And so I would still stand by the numbers, as we think about the Business on a longer-term basis that we're seeing that represent in the quarter. If you take out the impact of fuel prices and FX, we grew 12% top line and 16% on an ANI basis, again, adjusted for fuel prices and FX. Underlying the Business, you're still seeing that level of strength.

We've gotten to the point where we're starting to see fuel prices, hopefully, lift again. But regardless of whether that happens or not, we're making sure that we're gearing the Business on a longer-term basis so that there isn't as much sensitivity longer term to fuel prices.

Okay. Just trying to make sure I could characterize the increase in guidance correctly? It looks like most, if not all, of the increase was due to expectations for higher fuel assumptions. That seems to kind of square with the sensitivity, the $0.10 to $0.16.

So, raising guidance about $0.27, and your fuel price assumption went from $1.97 to $2.14, so that kind of squares with the EPS increase. It doesn't really seem to bake in any of the positive trends and outperformance you're seeing in healthcare, the Ctrip win in Asia. I'm just making sure I'm thinking about the change to guidance -- was it all attributable to fuel or not?

You were right in using the US calculation, but as a contra to what we're picking up in the US. You're saying that $0.27 is largely based on the fuel price changes happening in US fuel prices. We're expecting to see some contraction in spreads in Europe. So we're buffering some of the expectations we're going to have in fuel prices, because what typically happens is you get a little bit of an offset to that.

And at the same time, we're pushing through the piece of favorability we saw in the first quarter that wasn't timing related. There's a little bit that was timing, but the majority of it, we actually are including in increasing the guidance.

You asked about Ctrip, and I think it's kind of early for us in that stage to really know what that's going to ramp to be. Something like that, we typically are anticipating a ramp of new signings when we give out guidance. Something that's larger like that, and unpredictable -- we won't necessarily factor in until we have better insight into what that's going to look like.

Okay. Last question -- to understand the guidance relative to the new disclosures in Exhibit 1, which strip out the noise from FX and fuel prices. So, on a normalized basis as per the methodology you're using in that new Exhibit -- the FX and PPG effect -- what would guidance -- how do you normalize your full-year guidance for those two factors?

If you were to normalize -- Roberto had said this earlier -- but if you normalize for those factors, the mid-point of our revenue guidance is a little bit more than 10% and mid-point of our earnings guidance is a little ahead of 20%. It's a little bit better than what we had said on the last call, but pretty comparable.

Okay, thank you.

This concludes the question-and-answer session for today. Steve Elder, the floor is yours for any closing remarks.

Thank you, Raquel, and thank you, everyone, for joining us this quarter. We look forward to talking to you next quarter.

Thank you, ladies and gentlemen. This concludes the WEX first-quarter 2016 earnings conference call. You may now disconnect.