WEX Inc (WEX) 2016 Q2 法說會逐字稿

At this time I would like to welcome everyone to the WEX second quarter 2016 earnings call. I will now turn the call over to Steve Elder, Senior Vice President of Investor Relations.

Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our President and CEO, and our CFO, Roberto Simon. The press release we issued earlier this morning has been posted to the investor relations section of our website at www.wexinc.com. A copy of the release has also been included in an 8-K we submitted to the SEC.

As a reminder will be discussing non-GAAP metrics, specifically adjusted net income, during our call. Adjusted net income for this year's second quarter excludes acquisition and divestiture related items, stock-based compensation, restructuring costs, foreign-currency, remeasurement losses, similar adjustments attributed to our non controlling interest, and certain tax related items. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis as we are unable to predict certain elements that are included in our reported GAAP results including the impact of foreign exchange remeasurement gains or losses due to the uncertainty of market fluctuations. Please see Exhibit 1 for an explanation and reconciliation of adjusted net income to GAAP net income included in the press release.

Beginning with Q3 of this year will be excluding the amortization of deferred financing costs. I would also like to remind you that we will discuss forward looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors including those discussed in our press release and the risk factors identified in our annual report on Form 10-K filed with the SEC on February 26, 2016. While we may update forward-looking statements in the future we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

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

Good morning, everyone, and thank you for joining us today.

We are pleased to announce another strong quarter of performance in 2016. For the second quarter we exceeded our expectations and built the top and bottom line, driven by continued focus on organic growth across our core verticals and execution against our strategic priorities. We also closed the Electronic Fund Source or EFS acquisition on July 1 which is the largest transaction in our history. We feel very good about the benefits of the deal, and the opportunity it provides us to drive scale and value creation. I will come back to elaborate on this momentarily.

Despite headwinds of approximately $13.6 million in fuel prices in the quarter we generated an impressive 9.5% revenue growth with $233.9 million in revenue. Net income on a GAAP basis was $0.32 per diluted share and we generated adjusted net income of $1.08 per share. This quarter's strong performance speaks to WEX's ongoing commitment to our three strategic pillars. We continue to prioritize developing and driving our market-leading offerings. We are investing in our products and we're seeing dividends from those investments. In our domestic fleet business, in addition to the new EFS products and services, we have rolled out our new fleet SmartHub app which puts account data in the hands of the customer, regardless of where they are, and provides real-time messages to drivers when they are breaking company fueling policies.

Our health business has just completed a major product release which includes paying your health bill using a mobile phone, portal customization for partners in supporting Apple Pay. In addition as our performance indicates our focus on accelerating growth across our core verticals drove organic revenue this quarter with very little acquisition activity impacting the results.

By offering superior customer service, maintaining strong relationships with our current accounts, and pursuing the business we have consistently delivered solid organic growth in the fleet space. We've also made progress in modernizing our pricing to better align with the market. Following favorable pilot tests we begin to rollout our fee programs across our truck fleets which contributed nicely to our growth this quarter.

We are also making strides in strengthening our leadership position in travel and are extending our partnerships in Health and Employee Benefit Solutions. WEX Health came out of the annual enrollment period better than expected and we feel very good about our positioning in the market with our unified offering and flexible platform.

Lastly, in addition to expanding our offering we are focused on capturing efficiencies and scale across the business. On a global basis we're scaling our programs in Europe and Asia and are pleased with the expansion we've experienced across verticals and geographies. Our fleet products now extend to 23 countries. And the reach of our virtual products continue to grow in Europe and Asia. We're excited about the pipeline we have in place to fuel our organic growth as well as our reach around the world.

Before I get into details on the segment information I would like to give you an update on the EFS transaction. This represents an exciting milestone in the evolution of our domestic fleet business. EFS has been closed for just shy of one month, but I want to share some insight on what we're seeing in the business. We have been evaluating assets in the OTR space for several years and we ultimately chose to purchase EFS due to its market-leading technology, innovative product set, and growing customer base. EFS customers include marquee names such as Knight Transportation, Transport America, and Schneider just to name a few. In fact Schneider, which is the largest privately held truck load carrier in the nation, signed a long-term agreement with EFS just prior to the acquisition. We expect to see additional ramp from new signings in the second half of 2016. EFS has a strong track record of customer satisfaction evidence by low voluntary attrition rates.

On the corporate payments side our offerings strongly complement each other. The WEX virtual business has a heavy focus on specialized payment solutions for key industry verticals such as travel. This is complemented by the EFS solution which offers electronic accounts payable to companies in an integrated payables offering with plastic and T&E capabilities as a direct and white labeled offering.

From a scale perspective we have already commenced the integration process for EFS by realigning the organizations internal reporting structure and will be launching a variety of integration and migration related tasks over the coming months. These include aligning the sales force, go-to-market strategy, relationship management, and back-office operations between the two companies. The final phase will be integrating technology which we expect to have completed within three years. As we have proven in the past we will remain diligent in assuring a thoughtful and efficient integration process, and will provide updates as we progress through the milestones of this transition and focus on maximizing synergy capture and cross-selling opportunities.

Roberto will get into more details shortly, but EFS will have a positive but immaterial impact on the earnings in 2016. We continue to anticipate the transaction to be accretive in the first 12 months on adjusted net income basis. In total we estimate synergies of approximately $25 million which will be realized over a three-year period.

Turning to the segment details, our domestic fleet business continued it solid track record this quarter. Revenue in this segment was $144 million growing 6% over last year, in spite of the $14 million drag from fuel prices year-over-year. Although same-store sales was negative 4% our pipeline remains solid and our front end sales engine continues to perform well. This quarter we renewed our contract with QuikTrip, as well as several important states in our municipal portfolio. Our pricing modernization efforts will continue to offer incremental benefits to our performance this year.

In our international fleet business we are excited to better ongoing success, particular in the rapid geographic expansion as we deploy our new technology internationally. The new countries include both prepaid and credit offerings operating on our international technology platform in Southeast Asia and Europe. We have work with our global partners understand the in-country complexities, earned developing an expertise in rapid country deployments which we believe is important strategically to our expansion.

We've also expanded our relationship with Shell with our prepaid card offering in both Europe and Asia. We are currently live in six countries on the prepaid product and expect several more before the end of the year. This is great progress and I'm pleased with their ability to get this complex technology built and into the market for our customers in a relatively short period of time.

In the background we remain focused on optimizing our assets in Europe, modifying the cost structure to be in better alignment with the portfolio needs, and ramping inside sales roles while consolidating back end functions. Our fleet business in Australia and Brazil continue to perform as expected. I'm very pleased with Brazil's performance just by the challenging economic environment. Overall I'm encouraged by our expanded footprint and strengthened offering in our fleet segment. Our products resonate with the market our sales pipeline remains robust and we are making progress in extending key strategic accounts.

Turning now to our Travel and Corporate Solutions segment, the segment performed in line with our expectations. Revenue growth in the segment was 11% with purchase volume growth of 14% during the second quarter. This growth continues to be driven primarily by a travel vertical was strong performance in the US and Europe. We're seeing an increasingly strong rate of growth in Asia, and some softness in cross-border travel patterns. We continue to prioritize expansion into strategic growth regions while strengthening our relationships with key clients.

We developed a framework to carry our business for into Asia which will enable us to capture strong growth in this region. For example we signed one of the largest OTAs in the region last quarter and they are in the process of onboarding business now. We've also hired additional sales resources in Europe to capitalize on the opportunity that we see here. In some we're focused on further globalization of our virtual card product and pursuing value-added enhancements for existing product portfolio.

Lastly, health and employee benefits solutions is performing ahead of expectations, evidenced by revenue growth of 22.5% this quarter. We continue to build a presence in health payments as a provider of industry-leading solutions. The WEX Health team continues to collaborate on winning new accounts. In fact we're in ramping our implementation resources to meet the demand we are experiencing onboarding partners. As anticipated, we are also benefiting from cross-selling opportunities across WEX Health.

During the quarter we are able to expand our relationship with the state of Vermont and are now providing expanded and enhanced premium processing services to Vermont Health Connect subscribers and State of Vermont Medicaid recipients through our cloud-based platform. As we move forward we will focus on building out our distribution base, we will continue to service our key accounts, capturing organic growth opportunities across our platform. We are excited about the opportunities we see in healthcare and anticipate a long runway for growth in this space.

Overall I'm very pleased with the performance this quarter and the underlying organic growth which sets us on a solid path for the remainder of 2016. We are increasing our sales investments in the second half of the year based on the results we have seen year-to-date. We'll remain diligent in executing our strategic priorities while driving scale and efficiencies across the portfolio. We remain cautious regarding macro trends that impact our industry. We will continue diversifying our revenue streams which will help to mitigate the impact of fuel prices on the business.

Our growth engine has proven to be strong over the years and is becoming even stronger starting with a good organic base and expanding as we further integrate our newly acquired businesses and pursue new business development opportunities. Our product presence has also strengthened, driven by our capacity to use technology to put control in the hands of our customers which we believe is the common thread across all of WEX's core products. We feel very good about where we stand at the mid-year mark this year.

Now I'd like to turn off the Roberto Simon, our CFO, for a deeper dive into the financials. Roberto?

Thank you Melissa, and good morning, everyone.

For the second quarter of 2016, our total revenue was $233.9 million, a 9.5% increase over the prior year period and above the high end of our guidance range of $216 million to $226 million. Net income on a GAAP basis for the second quarter was $12.6 million, or $0.32 per diluted share compared to $26.5 million, or $0.68 per diluted share for the second quarter last year. Non-GAAP adjusted net income came in above the high-end of our guidance range of $42.1 million, or $1.08 per diluted share, down from $48.3 million, or $1.25 per diluted share, for the same period last year. This decline includes an $8.2 million impact from lower fuel prices in the second quarter of 2016. In addition, 2015 results benefit by a $5.7 million gain from our fuel price hedges.

Our performance this quarter was driven by solid results across all of our core verticals. This was our guidance. The primary drivers behind increasing revenue and earnings, was solid volumes in our fleet business, coupled with the ongoing benefit of pricing modernizations and higher than expected fuel prices. Operating expenses were generally in line with our expectations.

The fleet solution segment achieved $144 million in revenue, an increase of 6%. Fuel prices again play a significant role. The average domestic fuel price in Q2 was $2.29 versus $2.74 in Q2 last year. This decline in fuel price caused revenue to go down by approximately $14 million in the quarter. As a reminder, for a full-year basis each $0.10 change in average domestic fuel prices will increase our [degree of] revenue by approximately $12 million including the volume of EFS.

During the second quarter payment processing transactions increased to 94.2 million, 9% higher than the prior-year period. It was driven primarily by the conversion of our customer to payment processing from transaction processing, as well as continued organic growth. We continue to see softness in same store sales, with a decline similar to the first quarter and we continue to see weakness in our large fleet and the oil and gas industry similar to what we've seen for the past year.

[Payment] processing revenue in the fleet segment increased $17.9 million compared to last year. It was primarily driven by additional price modernization initiatives which continued to shift our offering to better align with the market. As a reminder when revenue and finance fees increases, our exposure to [resultant] fuel prices also increases in dollar terms.

In Travel and Corporate Solution the revenue for the second quarter increased 11% to $53.3 million. Spend volume increased 14% over last year to $5.6 billion for the quarter. Driven by our [last travel cost to] US and European continue ramp up from our business in Asia. Net interchange rate for our [build out] in the second quarter came in at 77 basis points ahead of our expectation due to customer settlement [means]. Other revenue in this segment was impacted some softness in cross-border fees.

For Health and Employee Benefit Solutions, revenue for the second quarter increased 22.5% to $36.6 million, primarily as a result of the continued expansion of WEX Health including the acquisition of Benaissance and the contribution from our Brazil benefits business.

Moving down the income statement for the second quarter total operating expenses in a GAAP basis was $182.3 million. Salary expense for the company was $66.7, up from $59.1 million in Q2 last year. The increase was due to the acquisition of Benaissance as well as some smaller miscellaneous items. Service fees were $43.4 million in the quarter, which is up from $33.9 million in the same quarter last year. This increases includes costs for volume increases in our travel segment, deal related expenses for closing the EFS transaction, and costs for outsourcing much of our back-office technology which is partially offset by other line items.

During the second quarter, credit loss on a consolidated basis totalled $6.4 million, up $2.5 million compared to second quarter last year. Fleet credit loss was 10.2 basis point in the second quarter, which was in the middle of our guidance range compared to a record low 5.3 basis points in the second quarter of 2015. In the travel segment, without the bankruptcy accrued in Europe, we anticipate the total loss will be approximately $2.7 million, including $1.2 million in the second order results. Our operating expense was $1.5 million in the quarter as we continue to benefit from low interest rates in the US.

During the quarter we signed an agreement to transfer ownership of the higher one deposits to another bank. We will be replacing them with broker CDs and money market funds as necessary. This will have an immaterial impact on earnings this year.

On a GAAP basis, the [effective tax] rate for the second quarter was 27.3% compared to 38.4% for the second quarter 2015. On an [ANI] basis, the tax rate was 36.4% compared to 35.8% last year.

As we announced during our last call we no longer have any fuel derivatives outstanding, and based on the current price of oil we do not expect to enter into any new hedges in the near term. However we may enter into further hedges if priced right in the future.

Moving on to the balance sheet we ended the quarter with $317.8 million of cash, up from $218 million as compared to the cash position at the end of last year. The increase was in anticipation of closing the EFS deal. We ended the quarter with a total balance of $1.1 billion in our revolving line of credit, term loan, and notes. Reform for the acquisition of EFS, which occurred on July 1, our [leverage] ratio was approximately 4.7 times as defined in our credit agreement, net of the excess corporate cash as just mentioned.

We expect to use our future cash flow to reduce our debt balances and delever ratio returns to our target range of 2 to 3 times. We are very pleased with the result of the financial associated with the purchase of EFS. The new structure includes a seven-year $1.2 billion term loan B, a five-year $455 million term loan A and a $470 million five year revolver. The term loan B's price at LIBOR with has a 75 basis point floor plus 350 basis points. The revolver and the term A are priced at LIBOR plus 325 basis points. Each of the interest rate spreads can go down depending upon leverage as it is defined in the credit agreement. The company's [$400 million] fixed rate bonds remain outstanding at 4.75%.

Before we give guidance, I would like to touch briefly on our expectations for the impact of EFS to our financials. First we spend revenue for the year facing the second half of this year to be approximately $74 million to $78 million. As Melissa mentioned, we expect a positive but immaterial impact to our adjusted net income EPS for the year. This is due to the timing of the transaction close and the drop in fuel prices since we announced the deal.

However we expect earnings to ramp up in the fourth quarter as we begin to execute on our integration and synergy plans. Also we are anticipating a reduction in the cross-border fees as we have seen some softness in these transactions, and as we move towards a local issuance strategy. Finally we are planning to reinvest a portion of the favorability we saw in the second quarter into the business across each of our segments.

Now for our guidance. Note the business expectation reflects our business of today and are based an a non-GAAP basis with respect to adjusted net income. This guidance is based on exchange rates at the end of the second quarter. Guidance for credit loss and fuel prices excludes EFS. For the third quarter of 2016 we expect to report revenue in the range of $272 million to $282 million, and adjusted net income in the range of $46 million to $49 million, or $1.07 to $1.14 per diluted share.

These figures assume normal seasonality trends in the [B12] card business, as well as credit losses. Our third-quarter guidance assumed that our fleet credit loss will be between 9 and 14 basis points. It also assumes that domestic fuel prices will average $2.22 per gallon. For the full year expect revenue to be in the range of $975 million-$1 billion, and adjusted net income in the range of $171 million to $179 million, or $4.17 to $4.37 per diluted share. This also assumes that the fleet credit loss will be between 10 and 15 basis points. Full-year average domestic fuel prices are based on $2.16 per gallon in line with our prior guidance.

The fuel price assumptions for the US are based on the applicable NYMEX future price. We expect our adjusted net income tax rate to be between 36% and 37% for 2016. We have updated the number of shares for the remainder of the year to approximately 43 million shares outstanding. With that, will open the line for questions.

(Operator Instructions)

Sanjay Sakhrani, Keefe, Bruyette & Woods, Inc.

Good morning. Sorry I was on mute. Sorry about that. How are you guys?

Hello, good.

I had a question on the fleet solution segment when I look across the revenue lines, those all seem pretty strong relative to our expectations in the margins -- the yields seemed a lot higher than we anticipated. Could you just talk about the sustainability of that going forward?

There are a couple of things that are impacting that with a reclassed that we did into that business from helps, they got $300 million that got reclassed out, so if you look at the health segment the growth looks a little lower than it really is and it looks a little bit higher than it really is. So just kind of keep that in mind.

But if you look across the business there is about $18 million worth of additional revenues that came into the second quarter outside of payment processing revenue. If you strip out that $3 million there is still $15 million of incremental revenue. A lot of that beyond just the organic growth pieces coming from the pricing modernization that we're doing.

So that work -- and we talked about being in a test mode and the making a number of changes over the last couple of years, we rolled in a lot of those into the second quarter so we do think that that is generally sustainable. If we remove that reclass out of it just a think about it just as a little bit of noise, but if you move that out, we do anticipate they are going to see something continue like that.

The things that might change in that we are still tracking our customer behavior patterns if we see some changes in behavior set some of those these are activity based that could cause it to move a little bit. But largely we're expecting it to look like that.

All right. Great. And then just following up on EFS. When we think about the new terms and looking out to next year, adding some of the wins that you mentioned that are ramping up towards the end of the year into next year, could you talk about like how you expect EFS to kind of play out next year as far as accretion is concerned?

Yes if you start with this year, and I would say we have only owned it now for a month, to a little bit like having a present that has been sitting there for nine months that we just got to open and we are very excited. But as we really get to know it even better we are more excited about the opportunities that we have.

And we talked about the customer ramps that they had that we're seeing, built on customers that they have already started to implement that haven't fully ramped yet so they're getting a run rate benefit of that. But also on top of that customer signings that are signed but not yet implemented so there is a component that is coming just from implementing and ramping business.

There is also the piece that Roberto mentioned in his prepared comments with around the synergies so we started first by looking at the business and making organizational changes. And as we flow those organizational changes through the rest of the business and look for overlapping costs we think rateably that $25 million is going to come out over the next three years and so we do expect you will see a build in terms of both of those things coming together.

Okay. Great. Is there any specific revenue -- I'm sorry earnings accretion number that you might be able to guide us towards yet?

Not yet I would say. It's still early, we are learning where the pieces are going to come from and we have gone through and obviously done detailed builds around the synergy components. But we are feeling that out, so we will get more insight into 2017 as we get closer and we give guidance for 2017.

All right. Great. Thank you.

Ashish Sabadra, Deutsche Bank

Hello good results in the quarter.

My question was around the 3Q guidance. The 3Q guidance on the EPS side was a bit soft compared to what we were expecting. I was just wondering are there any important dates there?

Are you talking the full-year guidance? We can't hear you very well.

Sorry about that, I was specifically talking about the third quarter guidance, the EPS guidance for the third quarter came in a bit soft compared to what we were expecting. Just wondering any important dates on that?

Well let me put this for you in a summarized way. First thing you saw that we meet expectations in the second quarter and on the other side as well the fuel prices had come in as expected. So on those areas we do not see a material change from what we have in the previous range.

What I would say to you is that as we move -- and Melissa has talked about that -- you know, we have only had EFS for almost a month right now, and we're saying that for the full year the remainder of the year, the numbers are going to be positive. But obviously as I mentioned on the call we are going to be ramping up positive results especially as we enter [2014] because as you can understand in the third quarter, we're just taking the business and as we progress on the integration and synergies we're going to see the results coming into fourth quarter.

The rest of the moving pieces are in line except also what I mentioned to you that we have these credit loss in the travel business which will have a small impact as well in the third quarter.

Yes, thanks for that color. Just a quick follow-up question on the EFS. Melissa you talked about the new customer wins and the customer backlog, and the 8-K provided a lot more details around $26.5 million of incremental EBITDA which is expected to come from these new customers.

I was just wondering if you can give some more color around what is driving these new wins. I thought OTR business was normally a low single-digit growth business. What is driving this 40% growth and how should we think about the growth going forward?

In terms of what is driving it, it's really coming in a couple of buckets. The first are customers that they sign, and in this case is not just fleet customers, it's also corporate payment customers.

So they've signed -- they've started to ramp but they haven't experienced the full run rate of that, because if you look month-to-month the business is growing. So you're getting benefit of that growth stacking up each month. So that's the first category.

The second category is around customers that have been signed, but are going through and implementation period for EFS on the fleet side. Part of why the products are well received in the marketplace is because it's the level of integration that they have.

That integration is great from a customer perspective because it allows them to do things in a much more seamless way and increases the amount of flexibility and functionality that they had. But there's a process that people have to go through in order to do that implementation. And so that's what is driving that piece of the backlog.

Again there is a piece that's related to fleet, there is a piece that's related to the corporate payments arena and their seems to be some really strong growth on both of them. Corporate payments that is coming off a much smaller base, so on a percentage basis it seems oversize growth.

As far as our forward view, when we announced this we talked about this being a high single-digit grower over time, so as we did kind of a longer-term view that has been how we had initially looked at this business. I think that they have the potential of doing something beyond that from what we're seeing so far.

That's great. Thanks for that color.

Maybe one final question on the fuel sensitivity, that $0.10 change in fuel prices having a $12 million impact on revenues. Is that slightly higher than the prior estimate, and what does it mean for the EPS? Is still $0.16?

What I would say to you is we haven't included in this new number obviously the EFS which has around $100,000 impact. So we go from the $11 million to $12 million. In terms of the EPS there is a very material change from where we were guiding before.

Okay. Thanks.

Bob Napoli, William Blair & Company

Thank you and good morning.

Just on your modernization, your pricing modernization, it still looks to us like your fee income and it's well below still even the testing that you are doing. Well it's up a lot from where you were. It still seems like it's well below where your biggest competitor is.

What are your thoughts around continued modernization or -- and what part of your base, customer base and what percentage of your customer base are you implementing that pricing modernization? I would imagine it's primarily a small to midsize companies?

That's right. So the piece of the portfolio when I talk about pricing modernization it is related to small fleet in the United States, and so it's a section of our overall portfolio and that's when you look at our larger fleet.

We are typically the premium offering in the marketplace and that's because of the functionality that we offer. We think that that is worth the premium that people are paying.

If you get into the smaller fleet marketplace we haven't really change the pricing that we had in the marketplace for quite some time, even though if you look at kind of externally there were a number of changes being made to move fees more to the fleet. And so the changes that we have made have been really just updating that.

And what we're trying to balance as we do this, we care a lot about brand and we care a lot about the brand of our partners too that we are doing business with. And so we're balancing their desires as well in the marketplace to make sure that their customers are satisfied, and that they are continuing to do business and fuel within their location. At the same time as making changes to the prices and that is a balance that we have been going through.

We feel really good about the balance that we are at right now but we are continuing to test and getting more sophisticated as we do that testing. And so far we have seen very little impact to our overall attrition rates and I think that's a positive and the fact that we've been very thoughtful about how we for approach this.

And over time I think you could expect that it will continue to work this and we will continue to work this increasingly sophisticated manner because what we're finding is customer behavior patterns are unique to different type of segments within the marketplace and we are refining those segments all the time.

Is this just maybe a third of your customer base in the US?

It's not even -- well, in the US is probably about right in the US. Yes.

Then the interchange rate on your travel business went from 70 BIPS to 77 quarter-over-quarter. What drove the increase, and what should we be thinking about as far as an interchange rate in not only the balance of the year but over the next few years?

This is Roberto. What is important to keep in mind in the first, we have talked extensively about the contractors signings we have had in this segment and the impact this has on our interchange rate and obviously this has not changed.

Second we also talked last quarter about our [few] customers meeting higher rebate tier levels, which obviously has an impact on the fluctuation in the interchange rate. And finally in this quarter we have saw different levels of the same customers come down a little bit so we have a small benefit in our interchange rate as we have outlined our year-to-date rebates to our best estimate (inaudible). Going forward we would expect the rate to be around the evidence of the first two quarters of this year.

Great. Then I guess my last question. On the balance sheet and Melissa you talked in the press release about inorganic as you look at inorganic growth opportunities. What are your thoughts on leverage, and it would seem that based on historical leverage levels that you are maxed out for the time being, but are you thinking differently around the balance sheet and your thoughts around inorganic?

I'm incredibly thoughtful of where we are in terms of where we are on our overall leverage position right now. We continue to look at opportunities and we're looking at those opportunities in mindful of the fact that we do have more leverage and we are reprioritizing we're balancing those two things. What are the opportunities, what is coming into the marketplace, what do we want to make sure that we're building relationships with over time and then delivering the business. Our primary focus certainly is around delivering right now.

All right. Thank you.

Ramsey El-Assal, Jefferies

Hey guys.

Following up on Bob's next to last question, is there any incremental pricing opportunity at EFS? Is there any kind of pricing rationalization there to be done? I know it sounds like it was a pretty well-run business but is that something which you see as an incremental opportunity to your existing pricing strategy?

The price of what we were interested in in the asset was their ability to innovate and one of the things we're excited about is the fact that they are rolling out new business intelligence toolkits, which just gives their customers greater visibility into index information offered to them and EFS index. And we see that as an opportunity to create value in terms of creating economic value. And also potentially leveraging that across our fleet one portfolio. We do believe you're going to see some changes that are coming based on the work that they have done to date to bring new products into the marketplace.

Okay but not necessarily pricing specifically, but just sort of cross sell of their solution into your base basically?

There will be a combination of making sure that we look across the business and think about it in terms of making sure that they are standards and that will happen over time.

Okay.

The more immediate piece this coming is relating to the new products that they are bringing into the market.

Got it. And could you give us a little color as you usually do on the same store sales metrics. You mention about a 4% decline which is about consistent, it feels like with the last couple of quarters. Is there any kind of -- can you drill down a little bit for us in the terms of the verticals that are performing that are worse than expected or is it just basically the same old same old?

It is pretty consistent that oil and gas continue really get hit hard and is down over 30% year-over-year, so the base is getting smaller but the numbers are big enough that it still affects the total. That's the biggest thing that is getting affected.

The larger fleet profile seems to get hit a little more than the rest of the profile, I think Roberto had mentioned that. Also construction is down a little bit, manufacturing is down a little bit, and transportation is down a little bit.

So this time it does seem like there are more positives so it's not like you look across the board and you see everything looking negative. But there's a couple of really pretty big negatives oil and gas. And we get look at it from a regional viewpoint, it's the Southwest region that is getting hit the hardest which I think again is consistent with what we've seen the last several quarters.

Okay. Lastly for me any word on the Europe RFPs. I think your competitor mentioned on a conference appearance in the quarter that there might be one of the RFPs kicking around in Europe potentially coming to a head at some point soon. Has your view there evolved at all?

And I guess also do you think that your leverage level or your ability to get those deals done now that you just closed on EFS are there any incremental change there in your view that you are competitive with those types of offer?

We continue to get great feedback on the products that we have in the marketplace and I think that our ability to grow portfolios is important still, not just in the US but outside the US. So we do feel like we are well-positioned. T

he timing of these things, I'm always a little bit more skeptical around how long it takes to go through them because they tend to get elongated from the intended timelines. There are things that are in process we are participating in those processes and we're feeling good at this point in time about the perspective outcome.

In your current leverage level post EFS, these are not terribly capital intensive deals, I understand, no change there in your perception of your -- or perception of the other sides ability that you can get the deal done and --

No, I -- a lot of the transactions are structured in a way that wouldn't be like what we did with Exxon. I think that was kind of an unusual transaction in the way that we went to market with them. It often -- people start with wanting to replace the technology in the kind of move up the value chain over time which is consistent with what we have seen in the United States and so related to build trust and take on more responsibility so I don't envision our leverages as a blocking point for us in Europe.

Okay. Great. That's all for me. Thank you.

James Schneider, Goldman Sachs

Hello

Jim?

Jim?

Operator why don't you move to the next question

Tim Willi, Wells Fargo

Thanks and good morning.

Couple of questions, I think Melissa you referenced in the sort of the corporate travel some commentary around softness in cross border and that flowed into the earlier discussion about the yield and etc. Can you just maybe -- any additional thoughts and color on that topic anything that you think might of been related to Brexit versus the unfortunate rash of terrorist attacks just sort of how you think about that. The trajectory of it and how you have been monitoring it?

There are two pieces to cross-border. One is what we saw in the quarter which we think had to do more with travel patterns than from what we're seeing. And I don't think that we could comment on whether that is because of terrorist activity or if that is because of, you know, Brexit or something else. But we are seeing a little bit of a change in behavior.

And what that means us is when people are moving from within where we are issuing to another country this cross-border fees aren't there so it's a little bit of a revenue impact to us. And the other part of the commentary was around going to a local bins which is something we have been doing over a number of years and so from a trends perspective we have been moving customers into local bins because there are a number of benefits to the customer. And as you do that you would naturally see some of the cross-border fees erode. So you got both of those two things coming together and so we just wanted to make sure that we highlighted it.

Okay and then can I have something on fleet -- just in general of Southeast Asia. I know there is a lot of focus on North America and Europe, but I guess as you have sort of been around that market now for a while counting Australia sort of that part of the world, how do you think about growing that part of the franchise versus maybe how you went about as so in Europe.

Will it have to be a different type of strategy, could it very much follow that play-book of just sort of a lift out of an existing program or some big RFPs? Just any kind of color there, just out of curiosity of how we think about that growth opportunity in the play-book?

What we're finding is the markets are more fragmented so when we talk about country expansion is in part because of that fragmentation so that's what is important that we can move from country to country to give some scale. We are seeing interest with private label relationships and that's what has happened with us with both Exxon who now does business with us within Southeast Asia and with Shell we're doing a prepaid offering for them in Europe and parts of Asia.

But we're also seeing interest with just regular private label customers who want us to do traditional processing and outsourcing arrangements. So there clearly is interest in the market and we see that coming through our pipelines. We do see opportunities there.

I put fleet in Asia still kind of a longer-term growth because I do think we will build business there but because of its coming a little more fragmented it will take some time for it to accumulate into something that is going to be meaningful for us. But still it's nice wins and they are accumulating into something that's going to be a nice business for us.

Okay. Great. And I do have one last question. In terms higher one deposits in the shift in the funding mix, can you just sort of frame how we should think about the difference between the higher one deposits and going back to wholesale CD market. I just haven't had a chance to do that yet this morning. Any general commentaries as we sort of think about beyond 2016 and sort of modeling out the cost of working capital there.

So, it really actually doesn't have a significant impact if you're talking about a basis point spread of like 50.

50.

50 basis points.

So about 50 BIPS. Great. That's all I had. Thanks so much.

Daniel Hussain, Morgan Stanley

Hi, good morning and thanks for taking the question.

Just a couple more questions on pricing. Could you walk us through when in the quarter you'll more broadly foldout the changes so whether we had a full quarter of impact? And then two, whether -- with what the right run rate is it seems like it may be about $10 million maybe just to clarify that?

So we actually implemented the changes in July so we're getting not necessarily a full impact that pretty close to a full impact. We are continuing to test and rollout additional changes though. So, and if our view this isn't done it is something that will continue to happen over a period of time as we continue to test and learn we will implement further changes.

Got it. I guess if you look at guidance, how much you raised eight you are adding it looks like 76 million from EFS, could you call out or quantify how much incremental you are expecting from pricing.

It was actually included in our last set of guidance, so we got a little bit more in the quarter than we had expected but that had to do more with timing than anything else so if you look at guidance-to-guidance there is a little bit we got in Q2 that we are adding into the full-year number. But I would say generally that's pretty consistent with what we had anticipated as we went into the year and particularly as we gave guidance out last quarter.

Okay and maybe just a quick one on your travel -- the volume growth. Could you quantify the FX growth?

Daniel, in this period it is immaterial.

Got it. Thank you very much.

Tien-Tsin Huang, JPMorgan

Thanks, good morning.

On the EFS synergies the $25 million, I think you said it will be rateable. I just wanted to make sure that I heard that correctly. Is there way to quantify the timing and magnitude of the reinvestments acquired to get through the phases of the synergies?

Your first question around rateable, yes I would think of it as a third, a third, a third roughly is what we're envisioning right now. In terms of reinvestment, I think you are referring to the fact that we said we're reinvesting across a number of our businesses for the second half of the year. When talking about something in the order of $0.04 to $0.05 so is not a huge number but it's enough when you start to talk about the things that are affecting the year. Roberto talked about the bankruptcy loss that we have, the beat that we have, the investments that we're making and they all kind of net out and when you add EFS into the mix which is what you see play out in our guidance.

I see. And just on the -- you mentioned the bankruptcy, it looks like credits loss assumption is still the same for the year given that bankruptcy, I'm assuming that most of that is cleaned up, but given delinquency trends is it likely to see -- are we likely to see sort of stable credit losses from here or could we actually see it pick up with some leakage from the bankruptcies and whatever else you see.

What I would say to you is you are right we take the guidance as it was and you know although we have got this bankruptcy as a one-time event we are seeing improvement as well. So all in all we are not seeing a major impact for the full year.

And when we gave the credit loss range that is for the ( Indiscernible ) alone so it doesn't reflect the travel loss.

Right. Good point. Understood. Just last one just cross-border, I know you were asked a bunch already, but did you quantify the weakness you're contemplating in the third quarter specifically? Then the trend is not surprising, we've heard this from some of the other cross-border processors but just curious if we can quantify that to some degree?

We have not quantified it and it is included overall in our expectations for the next couple of quarters. But we did not put a number next to it.

Fair enough. Thanks as always.

Tom McCrohan, CLSA

Hello, did you give out the same store sales growth in fleet? Sorry if I missed that.

In the US it's negative 4%.

All right that was kind of consistent with last quarter.

Yes it looks pretty consistent.

Yes okay. Then based on the disclosures on normalizing for currency and fuel, I think last quarter you said 12% revenue growth, 16% EPS growth. I calculate for this quarter 16% revenue growth adjusted for those items but I can't seem to get to a comparable EPS figure. What would be the comparable EPS growth figure?

Actually we gave you the table in there for revenue and I think you're getting something closer to 17%.

Okay.

So close. On the earnings side we tried to get all that information and it's about 22%.

And how much of that acceleration is from fuel versus other factors?

So we neutralized it for fuel, so the acceleration is coming in part because the pricing modernization we had a little bit higher growth in revenue on our travel business because we had a couple as one-time things coming through in last quarter and we see sudden acceleration which is more because last quarter is little bit of an anomaly on the travel side. I would say that those are really the kind of bigger things that are moving sequentially.

So, Melissa if you assume neutralizing fuel and neutralize currency going forward, is there anything that would prohibit you from growing at these neutralize performance growth rates in the next several quarters?

We also had the benefit of EFS in there when you look at the revenue growth. So is going to be -- its going to affect the result and when we have given out guidance range in terms of at least longer-term guidance we talked about revenue guidance of 10% to 15%. And we are obviously coming in a little hotter than that when you exclude impact of fuel prices right now.

I think some of that has to do with the pricing work which we do think we will have -- is going to have some carry effect for a period of time for us. I'm thoughtful about the fact that is not going to carry us forever. Contribute to the business for a number of periods to come.

Okay. That's the only thing about the quarter I'm trying to reconcile with is, sequentially Q1-Q2 you had improvements in those two metrics which seem to be there for a reason to say once we get through and lap the headwinds from macro fuel the growth rate is going to be better obviously than what you're posting. So you had a Q1-Q2 acceleration but the top end of your guidance you didn't change despite the fact that you tweaked up a little bit the fuel price assumption. So I'm struggling with try to make that bridge between this type of growth and that lack of raising the high-end of your EPS guidance. Is there a simple answer to that that you could provide?

Yes if you start on the revenue side, which I think it's were you are beginning with, you would see similar -- if you take the top end of our revenue guidance last time and you add in the $78 million which the top end of EFS in the second quarter we are adding in some incremental revenue associated with what we're seeing with trends and so I would say we are factoring it.

When you get into the earnings top end, the two things that are offsetting some of the favorability that we're seeing are very intentional investments that we are making in the second half the year which we're seeing really great results in a number of places in our business so we are putting some money back into that and then the underlying bankruptcy that Roberto referred to in the piece that we took in the second piece that piece we never going to taking the third quarter.

Yep.

Those things are really just affecting what we're doing at the top end. We did move up the bottom end of the range to reflect the fact that we're seeing that momentum. But we held the top end of the range because of a couple of things. One of which was intentional and one of which we know what's going to happen in the third quarter.

Okay. Fair enough. Thank you.

Any closing remarks?

I think we just want to say thank you everyone for joining us today and we look forward to speaking with you again next quarter.

Thank you this concludes the call. You may now disconnect.