WEX Inc (WEX) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the WEX fourth-quarter 2016 earnings call.

(Operator Instructions)

Thank you. Mr. Steve Elder, Senior Vice President of Investor Relations, you may begin your conference.

Thank you, Tabitha, and good morning, everybody. With me today is Melissa Smith, our President and CEO; and our CFO, Roberto Simon.

The press release we issued earlier this morning is posted in the Investor Relations section of our website at wexinc.com. A copy of the release has also been included in an 8-K that we submitted to the SEC.

As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, during our call. Adjusted net income for this year's fourth quarter excludes unrealized gains and losses on derivative instruments, net foreign currency remeasurement losses, acquisition and divestiture related items. Stock-based compensation, restructuring and other costs, a one-time vendor settlement cost, debt restructuring and amortization of issuance costs, non-cash adjustments related to our tax receivable agreement, similar adjustments attributable 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 reported GAAP earnings. Please see exhibit 1 for an explanation and reconciliation of adjusted net income to GAAP net income included in the press release. The adjustment for the contract renegotiation was new in the fourth quarter.

Finally, 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, and our subsequent filings on Form 10-Q.

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.

Good morning, everyone, and thank for joining us today. We are pleased to report a strong fourth quarter and close of FY16, having delivered top and bottom line results ahead of our guidance.

Our performance was driven by solid execution across our strategic priorities, and positive contributions from all of our segments. We are encouraged by the strength of our organic growth, and our progress in integrating EFS and our ability to expand our product offerings.

In the quarter, we achieved revenue of $291 million and adjusted net income of $1.28 per share. For the full year 2016, revenue increased 19% to $1 billion and adjusted net income per share decreased 6% to $4.62 per share. The impact of lower fuel prices and the relative gains from our hedging program created a swing in adjusted net income of $49.3 million after taxes, which is approximately $1.20 per diluted share. In light of the challenging fuel price trends and macro economic volatility we faced over the past year, we are pleased to have achieved these results.

It's clear that the emphasis we place on providing compelling products with a high standard to customer service is paying off. We had a busy end of the year, closing new business in the pipeline and the signing contract renewals with existing customers.

Our ability to attract significant new business while extending relationships demonstrates the strength of our credibility, brand value, salesforce capabilities and our attractive product offerings. As our results indicate, of a standout year in the 2016, bolstered by strong performance across all lines of business.

Turning now to our segment results. Our Fleet Solutions business continues to perform exceptionally well, with segment revenue growing 41% in the fourth quarter to $192 million. Driven by positive contributions from the acquisition of EFS, solid volume trends and pricing modernization efforts.

Our momentum in Fleet has already carried into the beginning of 2017, as we signed a new agreement with Enterprise Fleet Management in Canada. This partnership will leverage fueling locations in Canada that are now available via EFS, and this win is a testament to both the progress we have made in capturing revenue synergies from EFS during the fourth quarter while enhancing the breadth of our services to our customers and Partners.

We are also extremely pleased with the trajectory of the EFS integration, as well as accelerated sales growth from new large customers. We remain on track to achieve our target of $25 million of synergies, which we expect to fully realize over the next two years.

We have been diligent about evaluating our competitive position within the marketplace, and we continue to realize the benefits of our price modernization efforts after the roll out of a series of program changes. Our pipeline remains strong and we continued to post great wins in the fleet business, including Cox Communications, KLLM, Forward Air, and Premier Transportation to name a few.

Additionally, our government fleet portfolio continued to have strong renewals. We've built upon our relationship with states, and continue to further develop county and city business within these customers.

Our leadership position in Fleet also continues to strengthen as we deepen our strategic partnerships globally. And the international fleet business performed well, and we're encouraged with the progress of they Esso migrations happening outside of the United States.

Australia is progressing as we expected, as is our portfolio in Asia. We are pleased with the success of our platform, and our customers have benefited from its scalability and flexibility as well as the architecture.

I'd like to give you some additional color regarding our most recent wins with major oil companies. In December, we announced a new partnership with Chevron and Texaco in the North American and Canadian markets that will take effect in 2018. We are excited to add these two brands to our commercial fleet card services portfolio, and believe this underscores our commitment to providing clients with innovative payment solutions while maintaining our focus on customer service.

Additionally, as we have already announced, we signed a long-term contract renewal with ExxonMobil in the United States and Imperial oil in Canada. As a result of these contracts, there will be increased expenses this year for conversion activities, salesforce deployment, and increased marketing activities which is typical of new private-label contracts. These contracts set us up to see significant benefits in 2018 and beyond.

Shifting to our travel and corporate payments segment which performed in line with our expectations. In the fourth quarter, this segment generated 12% growth in total revenue, which was primarily attributable to the contribution of EFS.

Purchase volume increased 39% year over year. We maintained our solid position in the domestic markets, and saw favorable trends outside of the US market. Strength in Australia and Europe was offset by some softness and cross-border fees in the North American virtual business.

Our virtual card integration in Latin America is progressing nicely, as is our work with online travel agencies in Asia which we continue to tap into that important region. We have been anticipating changes in this market, and have been taking steps to both enhance our offering while dramatically reshaping our cost structure. We have been very successful in winning business with volumes we estimate to be more than double that of our nearest competitor, which positions us for continued future success.

As part of aggressively managing our cost structure, we have renegotiated contracts with MasterCard and other technology providers. In addition, we renegotiated a contract with a marquee customer in this highly competitive segment. Roberto will provide additional detail on these later in the call.

At the same time, we continued to expand our existing virtual product set into new verticals. We signed Mediabrands, part of the Interpublic Group, expanding our presence in the media vertical. This win demonstrates our continued ability to bring flexibility and innovative technology to the market, while being at the forefront of simplifying and automating complex payment systems in niche markets.

Lastly, we are encouraged by the tremendous progress we're making in our health and employee benefit solutions segment, where revenues rose 55% year over year to $45 million. Our US-based health division is a leader in the HSA market, with 9 of the top 20 HSA providers using our technology, and more HSAs utilizing our technology than any other.

Additionally, our relationship with HSA Bank, a division of Webster Bank, grew well beyond 2 million account holders in 2016. We saw good new sales momentum in Q4 with a very strong enrollment season, and are excited to announce the addition of another top bank as well as Empyrean, and CareSource to our partner portfolio. We continued to invest in this business because of the tremendous long-term growth prospects.

We also saw strong organic growth within our Brazilian benefits business, with more than 100% revenue growth in the fourth quarter of 2016 versus last year. We've made significant progress achieving our strategic objectives for the year, and our underlying organic growth sets us up to carry the momentum into 2017.

I would now like to take a step back and recap the progress we have made over the past year. We made foundation improvements to the business, while continuing to diversify our business and expand our global footprint.

First, this past year represents an important step in the ongoing evolution of our fleet business. Our EFS acquisition has allowed us to strengthen and deepen our position within the North American market. We generated significant organic growth in the midst of depressed fuel prices.

Our focus on providing our customers with a more innovative product set has given us negotiation power and credibility to renew existing contracts while maintaining a strong pipeline. We also strengthened our profile and growth engine abroad, with significant headway being made in Asia in particular. Lastly, I am pleased that we successfully continued with our pricing modernization initiatives to better align with our value proposition.

Second, we further globalized our virtual business. We've protected our position in the core domestic travel market, while opening up high-growth market opportunities abroad that were previously untapped with our entry into key regions in Asia and Latin America. Our corporate solutions offerings are not only much more sophisticated, but also more recognized on a global scale.

Third, we made significant progress over the last year enhancing our growth profile while reducing our risk. Healthcare, for example, has become an increasingly important part of our organization since last year, which has added a very good-long term growth profile to the mix, posting significant growth every quarter in 2016.

Our financial performance in 2016 reflects our commitment to expanding our business through both organic growth and strategic investments, which sets us up well for the year ahead. We're confident that we can sustain this momentum as we increasingly benefit from strong volume growth, contributions from recently announced transactions, as well as our expanding partnership and customer network across the globe.

With that, I will walk through my expectations for 2017. We are entering the year better equipped than ever to handle volatile macro economic drivers with a more robust product set and a better understanding of customer behavior. We've created a good momentum to execute against our three strategic priorities in the upcoming year.

First is driving continued growth. We will focus on market share gains and global expansion, as we make the appropriate investments to grow organically, win new business and extend partnerships in our core markets.

I am excited about our growth engine and fleet. The Chevron win is a testament to our ability to gain share in a competitive marketplace, and this partnership will accelerate our growth in the coming years after we implement important groundwork in 2017.

In addition, we expanded offerings with existing customers like adding Canadian Acceptance to Enterprise and increasing the scope of services for Imperial Oil in Canada as part of the ExxonMobil contract renewal. We have continued to build upon the great foundation as the chosen provider for the four largest online travel agencies in the world in our virtual business, along with building upon the synergy options presented with EFS.

Additionally, our health business will continue to expand our reach in a rapid growing healthcare payments market, and is well positioned long term to take advantage of further growth in consumer directed health payments. Our growth is also diversifying our revenue streams and reducing our fuel-price sensitivity.

Secondly, we will lead through superior technology. Our unrelenting commitment to providing our partners and clients with high-quality service and innovative technology remains a primary focus as we continue to grow the organization and win new business. These tools allow us to be more competitive in both new and existing markets, and better position us for future success.

We announced a number of technology enhancements in 2016, and we expect this pace of activity to accelerate. Equally important as our customer facing analytics and technology is our backend functionality which is also priority. Additionally, our technology speaks to our ability to provide technology and customizable capabilities to meet partner commitments and market needs as evidenced by global findings across various products.

Our acquisition of EFS was also an important step in enhancing the innovation of our product portfolio, which will become even more evident as we move along the integration process. Being at the forefront of innovation has been and will continue to be a priority for our organization, as we differentiate ourselves as an industry-leading player with a robust technology offering. This quarter, we announced the appointment of David Cooper as WEX's Chief Technology Officer, and his expertise will help us spearhead technology efforts at the corporate level as well as ensure we stay ahead of the curve with a respect to innovation.

Lastly, we'll plan to leverage our investments to create further synergies. This is critical to our long-term success as we scale and optimize our assets globally.

We've already made progress in executing against this imperative, as demonstrated by our success with price modernization efforts. The continued integration in synergies coming EFS is top priority this year, as we maximize synergy capture, cross-selling opportunities and efficiencies through the integration progress. As we optimize capital we have deployed over the past year, we will enhance profitability and operate as a more nimble organization.

In summary, we will be disciplined in executing against these three strategic priorities in the coming year to better serve our customers and partners. Our steady organic growth and the ability to capitalize on strategic investment opportunities has us well-positioned in the global marketplace and I look forward to the year ahead. Now I would like to turn the call over to Roberto to discuss our financials in greater detail. Roberto?

Thank you, Melissa. For the fourth quarter of 2016, we reported total revenue of $291 million. This was $213 million a year ago, and above the high end of our guided range of $272 million to $282 million.

Net income on a GAAP basis for this quarter was $5.3 million or $0.12 per diluted share, compared to $20.9 million or $0.54 per diluted share for the same period last year. Our Non-GAAP adjusted net income came in at $55.2 million or $1.28 per diluted share, up from $45.2 million or $1.16 per diluted share.

Fuel prices in Q4 were in line with last year. Keep in mind that we had approximately $2.1 million after taxes in favorable fuel prices spreads a year ago. In addition, Q4 2015 results benefit by a $6.5 million after-tax gain from fuel price hedges. In terms of EPS, this is a swing of approximately $0.20.

For the full year 2016, revenue increased 19% to $1.02 billion from $855 million in 2015. On a GAAP basis, net income in 2016 was $1.48 per diluted share, compared to $2.62 per diluted share in 2015. On a non-GAAP basis, adjusted net income decreased 6% to $4.62 per diluted share.

Fuel prices play a significant role in the declining earnings year over year. The impact of lower fuel prices and the relative gains from our hedging program created a swing in adjusted net income of $49.3 million after taxes, which is approximately $1.20 per diluted share.

As Melissa mentioned, execution across the business has driven positive results across our three segments and we are starting to capture operational efficiencies across the business. Each segment reported double-digit revenue growth in Q4, with fleet and health each over 40%. For the full year, total revenue was up 19% with all segments have double digit despite the strong fuel price headwinds.

Our Fleet segment achieved $192 million in revenue for the quarter, an increase of 41% compared to the prior year. Due to the strength in EFS, which contributed about two-thirds of the total growth, the continuation of our price modernization efforts and our progress internationally.

Our fleet payment processing revenue increased by 13%, coming in at $81.8 million this quarter as compared to $72.6 million in the fourth quarter of 2015. Payment processing transactions increased to $99.7 million, 18% higher than 2015. These increases were primarily due to the acquisition of EFS, and the conversion of customer portfolios to payment processing.

Non-payment processing revenue in the Fleet segment was $111 million, which is up 74% as compared to last year. Over half of the increase was attributable to EFS, with the remainder driven by price modernization efforts. We began to see some evidence of changing customer behaviors to avoid these new fees, and we have a started to closely monitor this behavior as we move forward.

The average domestic fuel price in Q4 was [$2.30] versus $2.29 a year ago. The net payment process and interchange rate for the segment was down 3 basis points sequentially, primarily as a result of the convention of our customer portfolio to payment processing.

Revenue in our travel and corporate solutions segment for the fourth quarter increased 12% or $5.8 million year over year to $53.5 million, primarily as a result of the contribution of EFS. Purchase volumes were $6.4 billion for the quarter, which is up 39% versus prior year. Driven by EFS, strong performance in the US, and significant contributions coming from Australia, Asia, and Brazil.

The net interchange rate for the quarter was 71 basis points versus 74 basis points in Q3. The difference is mainly due to a one-time benefit received in Q3 that we discussed on our last call.

We have a number of moving pieces in this segment, so I will take a moment to comment on them and how they will impact the segment going forward. First, as we noted last quarter, we have a new agreement in place with MasterCard which reduces our revenue by $2 million to $3 million per quarter and significantly reduces our cost. As we said, we expected to pass this core reduction along to our customers and this is now in place.

Second, we will obviously have the contribution of EFS on the corporate payments side. The first half of the year will show strong volume growth rates until well after closing of the acquisition. However, they are also growing at a good pace organically.

Third, as Melissa just mentioned, late in Q4, we negotiated our contract with one of our large [OPA] partners with an effective date of January 2017. The renew agreement calls for an increase in the rebates we provide to them, which will impact reported revenue. Finally, we have also negotiated a contract with one of our technology providers which will drive incremental savings in 2018 and beyond.

In summary, all of these changes taken together would essentially be neutral to overall profitability. However, due to the timing differences in their execution and a significant one-time benefit reported in Q3, there will be some pressure in 2017. We believe these changes position us well going forward.

For health and employee benefit solution, total revenue for the fourth quarter increased 55% year over year to $45.1 million. Growth in the segment was very strong, driven by solid organic growth of new and existing partners as well as the inclusion of [Venesense].

Recall that we completed this acquisition in November 2015. Additionally, our benefits business in Brazil also made significant contributions to the segment results, followed by solid organic growth in this largely untapped market.

Now moving down the income statement. For the fourth quarter, total operating expenses on a GAAP basis were $243 million, up $80 million versus the same period last year. Approximately half of the increase were related to EFS acquisition, including around $20 million of additional amortization costs.

Salary and other personal costs for Q4 were approximately $80 million, compared to roughly $60 million last year. Over half of this increase relates to EFS, and the remainder was due to investment our healthcare segment and normal operation of growth.

During the fourth quarter, credit loss on a consolidated basis totaled $13.5 million. This compared to $8.3 million in Q4 last year.

Fleet credit loss was 18.3 basis points, compared to 15.7 basis points last year. The total consolidated increase was attributable to several factors, including the acquisition of EFS, [resists] that come to a specific travel customers, a small increase in fraud and accrual for our factor in business and a deterioration in the roll rate in the fleet portfolio. At this point, we do not have any signs that the roll rate deterioration will continue through 2017.

Our operating interest expense was $6.9 million during the quarter, versus $1.2 million during the same period last year. The average interest rate based on our [bond] deposit was just under 1%. As a reminder, several hundred million dollars of deposits were refinanced at higher rates due to termination of the Higher One deposit program, which puts some pressure as we move into 2017.

Additionally, our very strong growth in Brazil required financing of additional receivables. There effective tax rate on a GAAP basis for this quarter was 65.2%, compared to 38.9% for the same period last year. Our Non-GAAP adjusted net income tax rate this quarter was 37%, compared to 32% a year ago. The 2015 tax rate was unusually low due to a change in federal tax regulations.

Moving onto the balance sheet. We ended the quarter with $191 million of cash, down from $280 million at the end of the fourth quarter last year. The reduction in cash is primarily as a result of the termination of the Higher One deposit programs at our bank. We ended the year with a total balance of $2 billion on our revolving line of credit, term loan and notes, which is up $935 million from the beginning of the year.

As we expected, our level of ratio decreased to 4.5 times our 12-months trailing EBITDA, as it is defining our credit agreement. We will continue to use free cash to reduce our leverage, and expect leverage to come down by half a turn in 2017.

In November 2016, we entered into interest up internal rate swaps covering approximately $800 million of floating debt. As of year end, the market value of those swaps is approximately $30 million.

Now for our guidance. Please note that this estimate reflect our views as of today, and are made on a non-GAAP basis with respect to adjusted net income. The guidance is also based on exchange rates at the end of the fourth quarter.

For the full year 2017, we expect revenue in the range of $1.15 billion to $1.19 billion, and adjusted net income in the range of $220 million to $237 million or $5.10 to $5.50 per diluted share. For the first quarter, we expect revenue in the range of $275 million to $285 million, and adjusted net income in the range of $50 million to $53 million or $1.16 to $1.24 per diluted share. These figures assume normal seasonality trends.

Our full-year guidance assumes a domestic fuel price of $2.44 and for the first quarter $2.43, both based on the NYMEX future curve. We estimate fleet [segment] and credit loss to be between 10 and 15 basis points, both for the first-quarter and full-year guidance.

We expect our adjusted net income tax rate for the full year to be between 36% to 37%, assuming there are no significant tax rule changes. Our full-year guidance assumes approximately 43 million shares outstanding.

At the beginning of the year, there are a number of assumptions that go into providing this guidance and I would like to expand on some of the puts and takes going into 2017. Over the past few months, we have announced new or renew contract with both Chevron and ExxonMobil which will require some up front investment in 2017. That said, these new 10-year contracts will provide significant benefits to the Company.

We expect operational performance of EFS to continue to be strong, and we're on track with our previously aligned synergy targets and we're making good progress against implementing the customer backlog that existed when we completed the acquisition. We will continue to have the benefit of [prime] organization changes made last year, which will boost growth rates during the first half of the year.

Additionally, we expect to implement some targeted changes in the second half. However, as I mentioned before, we are monitoring customer behavior changes as a result of these new fees.

We assume WEX Europe Services will be making a positive contribution to our adjusted operating income, driven largely by the benefits of the changes we have made over the past two years including pricing and back office consolidation. In our travel and corporate payments segment, there a number of moving pieces that I already described earlier and we believe they will provide us long-term benefits. In the health and employee benefits segment, we continue to expect growth rates in the high teens after another very successful enrollment season and continue strong performance in Brazil.

Finally, interest rates are raising. Our guidance assumes an increasing LIBOR of 40 to 65 basis points over the 2016 rates on our floating [intra-rate] rate debt. As a reminder, we currently have approximately $800 million of floating-rate debt after taking into account the interest rate schedules we executed last November.

In addition, to date, there are approximately $1.1 billion in deposits with differing maturities, which will slightly delay the impact of the higher rates. And now, we will take your questions.

(Operator Instructions)

Sanjay Sakhrani, KBW.

This is actually Steven Kwok filling in for Sanjay. Thanks for taking my question.

The first one is around the price modernization that you talked about, and some of your customers you are seeing trying to avoid the fees. Can you talk about that a little bit and provide some color around that? Thanks.

Sure. I'll start and Roberto may want to add on to that.

What we have experienced over the last year has been, actually over the last couple of years, has been a pattern of when we make some changes to fees. Typically, in a shorter period of time, the customers react to that and they curb their behavior. And then eventually what we find is that they typically go back to whatever behavior they had historically. And what we are seeing in this first quarter is a little more of a sharper change in terms of having people pay more timely. And so it's just something that we are watching a little bit more than we have in the past, because it's a little bit more oversized. But I don't want to overstate it; it's not a significantly different change but it is a little different than what we have seen historically.

What I will add also is that we have factored this in our analysis and guidance. And I would like to remind you as well that on the other side, obviously, the reduced risk of credit losses associated now with those timely payments and the reduced borrowing needs will offset some of these potential impacts.

Got it, thanks. And as a followup, when we look at the travel and corporate segment, how much of the benefit came from EFS on both the revenue side and then on the purchase line side?

So what I would say to you is, we just said on the earnings call that the majority of the revenue growth, it was coming from EFS. So if you look at the numbers, it's around $5 million for the quarter. Volume wise it will be around $0.5 billion.

And from a volume perspective, volume is still -- it's growing across the board. So a piece of it is coming from the EFS acquisition, but there's also continued strong growth in the underlying portfolio.

Great. And when we look into 2017, how should we think the volume growth should trend? Should it be at comparable levels that we've seen in the fourth quarter?

So I would say to you that we expect to continue the volume growth consistently with the 2016 rates. Bear in mind that in 2016, we have to overlap EFS, but for the first half you should expect this volume growth.

Okay, great. Thanks for taking my questions.

Glenn Greene, Oppenheimer.

Maybe, Melissa, you could talk about Chevron a little bit more. In terms of the timing, I would say it's an 2018 benefit. But do you expect it to be fully converted by the end of 2017? Any way to frame the order of magnitude benefit of it? We know what the loss was on the other side, but maybe just a little bit more color on Chevron; and probably more importantly, why do you think you want it?

Yes, we are obviously really excited to be doing business with Chevron. These relationships are built over a number of years, and so we have engaged with them for quite some time. They went through a very exhaustive process. And as you might imagine, with any of the major oil companies, they go through this. They are going through their procurement department with a number of things that they are looking for. And in their conversation that they had with me, the things that stood out as to why we won, they were very focused on growing their portfolio. And I think they felt that they had a lot of confidence walking away that we were going to be a good partner to be able to grow their portfolio with them. They also were very interested in how we interact with our customers, and how we think about their brand in the marketplace. And so that was a big part of the narrative that we had with them was around specifics of what we could do together to create the growth trajectory that they're looking for, in the way that they wanted to grow their business. And so we're excited.

We talked about 2017 as being an investment year, which is normal across all of our private-label contracts, regardless of what line of business they are in. We typically go through a period of time when we have to go through data migration, and also then ramping up just resources to work on the account, including sales and marketing resources. And so 2017 will be an investment period of time, but then going into 2018 it's going to be meaningfully accretive to our business in 2018 and then for the 10 years following.

Okay. And then, more nuance, but on the travel side, the yield: it looked like it was in line adjusted -- in line relative to the third quarter adjusted for the couple items you called out. How should we think about it for 2017, given the MasterCard renewal, or the MasterCard change of the contract and the OTA renewal? How much pressure should we expect on that interchange rate?

So this is Roberto, I will take the call.

Let me start now mentioning that obviously, the first thing is we no longer will have the benefit from MasterCard on our revenue side. And excluding this, our revenue for the segment should be essentially flat. I also mentioned that we have on a quarterly basis $2 million to $3 million on the net revenue impact. Also, I will highlight to you that these changes mentioned will put pressure on our net interchange of approximately 15 to 20 basis points in this segment. Finally, what I want to remind as well is, it's a very high-margin segment and will continue to be so.

There's a number of things, and we talked about very specifically in this line of business because we've a lot of moving parts. We knew that this business was going to be evolving for us, and so we went after some pretty significant price changes. And some of those things, like the MasterCard contract, a little bit of that's geography, that's how it gets reclassified in the future. So it makes the revenue look even more depressed when you look at it comparatively. So we're trying to be very prescriptive around what the impacts are going to make.

The other thing also I would say to you is, as Melissa mentioned on the call, the timing of how we have implemented those contracts has a small impact in 2017. But if you look at the overall changes, the business is still very profitable and we have been able not to act in the contracts at different time.

And what are the cost measures you have taken to adjust for the revenue pressure?

The two biggest things were renegotiating the MasterCard agreement, which we did earlier in 2016; and then also making changes to the underlying technology contracts that we have in that part of the business. And so, pretty aggressively going after and renegotiating some of the vendor agreements that we have, as well as, we're always going to be cautious of the internal cost structure that we have in hiring.

Okay, great. Thank you.

Tom McCrohan, CLSA.

I was wondering if you could provide the total aggregate revenue and adjusted net income contribution from EFS in 2016? And what we should be thinking about for 2017?

What we had said at the beginning of the transaction is that we expected it to contribute roughly $80 million worth of revenue this year, recognizing that it's a half a year of revenue. And we have also said that it's done slightly better than we had expected. So from a revenue perspective, it's come in strong and contributed more than we expected. And I would say that's setting us up well as we go into 2017 in terms of making sure that we're getting both the revenue growth as well as the accretion that we had anticipated.

So is there an adjusted net income contribution for 2016 that you could provide us with?

What I will say to you is, 2016 for EFS has been accretive already with just the first six months. And that going into 2017, we have both -- we are on track with the synergies, we are on track with the customer backlog implementation, as well as Melissa said we're winning new customers into the marketplace. So overall, obviously for 2017 we should see the numbers even better than 2016. But we're very pleased that during 2016 already the business was accretive for us.

Okay, great. Thank you.

And then, on the net processing rate in Fleet, it sounds like you gave us some good color for corporate and travel. What should we be modeling for 2017 for the net processing rate in the Fleet segment?

What I would say to you is, in the last know now that we overlapped two quarters of EFS and the [effeco] was $1.26 in Q3 and $1.23 in Q4, you should be expecting those numbers going forward. Obviously considering that the fuel prices don't change dramatically.

Okay, great. Thank you for taking the questions.

Jim Schneider, Goldman Sachs.

Thanks for taking my question.

I apologize if I missed it before, but can you maybe talk about the same-store sales trends you are seeing right now, and whether you're seeing a substantial uptick from what you saw a couple quarters ago? And what you expect over the course of the year?

Sure. It's Melissa.

So same-store sales, if you look at the fourth quarter, it was actually only down 2%. So it's a little bit better than what we had seen in the rest of the year. I think some of that is, if you look at the segment that we were getting hit the hardest on related to oil and gas, and that's becoming a smaller part of the business and so some of that is just a lapping effect. But on the positive side, there was actually growth in the construction trades, which had dropped to a negative number over the first even couple of quarters. And so I think that's a good sign if you look at the overall economy. Many of the other SIC codes were negative, but you're starting to see a few of them go into the positive category. And in terms of how we thought about it when we put together 2017, we look at that as being a slight headwind for us as we factored in guidance for 2017, similar to what we would've experienced in this last quarter.

That's helpful, thanks.

And then you mentioned increased cost relative to implementation on both Chevron and Exxon, if I am not mistaken. But what are the costs related to Exxon? Is there any new programs, given that you already had the costs given the [orientment] of the customer?

Yes, so we actually did add an extended relationship with Exxon so that we're doing more services in Canada with them. In addition to that, we have agreed to ramp up our investment in sales and marketing in the relationship with them because of what we see is a good opportunity in the marketplace based on the history of what we have. So whenever we do that, you have a year that you have an investment associated with that, but we typically see a pretty quick return.

And then very quickly, can you maybe talk about the accretion you'd expect roughly for the Esso Europe contracts for this year relative to, I think you maybe just recently broke even on that?

Yes. So let me give you, according to 2016, we already had a positive operating income for the [west] portfolio. And as I said during the call, for 2017, we're going to continue having improvements both from the back office consolidation and some pricing modernization, and we're going to have as well for 2017 this positive trend on the margin side. What you also have to think is obviously, as we move ahead for the future, one of the things that's important is that this is a -- the margins should be like a private-label portfolio.

Thank you.

Ramsey El-Assal, Jefferies.

I was wondering if you could help us understand how you are feeling about your organic growth profile in 2017 and beyond? Where does it stand now? I know you set out some long-term targets that included organic growth and acquired growth, but just curious at your updated views.

Yes, we feel great about our organic growth. If you look at 2016, if you exclude the impact of FX and fuel prices, we grew 13% organically. So, really strong year in 2016 that sets us up well going into 2017. And we talked about the fact we're going to have some geography issues within the virtual business, which will have a little bit of a softening impact of that going into 2017. But across the rest of the business, we've got really good trajectory and bringing in volume in every part of our business. We are continuing to get benefits from the pricing changes that we have made, not just within Fleet domestically, but what we're doing internationally; and we have got some great contract signings that are ramping into the business. So we feel good about the overall organic growth of the business.

Okay, terrific.

And then on the pricing, and specifically regarding the late fee that you increased that you started to roll in, in 2016, how should we think about where you are in that? As I recall, there's a direct implementation and then you go back to ground and test and then there's an indirect customer implementation. And I know you had mentioned there was some -- you are monitoring your customers' reaction to the increase. But where are we at in the cycle? Should we expect a continued tailwind from that going into the beginning of next year? Or is it largely through? Or how should we think about that?

So I'd say that we went through and effected our portfolios, the ones we directly control, and that's the portfolio that we have been monitoring. We are also then engaging in conversations with some of our partners. And I think ultimately we want to make sure that we are doing and making changes with our partners that are conducive to how they want their brand to be perceived in the marketplace as well. So it's a balancing act and a conversation that we have with them. But I think actually more importantly is we have set ourselves up more systematically to think about pricing.

We changed the underlying infrastructure to think about pricing in a much more strategic and systemized level so that we do anticipate we're going to have further benefit. We do think that you've got this big pop of some of the changes that we have made, and will continue to get some tailwinds as that annualizes this year. But if we do our longer-range planning, and as we have thought about the numbers we gave out for 2017, we do anticipate continued benefit from further pricing modernization over the next several years.

What I will add is for you is (inaudible) what Melissa said, that we especially on the first half because of the tailwind of 2016, we should expect higher growth rates on the fees. And then as we move to the second half, we will have these more tailor-made changes and be more systematic on how we do those new price increases.

Okay. Last one for me is the perfunctory any news on Europe question that you get every quarter.

Europe is interesting. We talked a little more about Asia this time, because as we think about our international platform, we have had some really great success and winning business in the Asia marketplace. Europe, I have said all along, it's a long play. And it certainly has been rolling out that way this year, and so we still feel good about the market. We still think of it as a long-term play for us, and we feel really good about the prospects that we have in that pipeline. But I would say more broadly it's been just Europe that we have, also within Asia.

Let me ask it in a slightly different way, very quickly: is the pipeline of outsourcing opportunities in Europe changing at all? Is it increasing, in other words? Are there new opportunities that are -- are there visibility to new opportunities? Or is it really just a static set of deals that you have been looking at for quite some time and you're waiting for those to ripen up?

I think the really big ones are more known and just are taking time to, as you say, ripen. If you look at within our US portfolio, we have a number of private-label contracts that aren't just major oils. And so that part is less static, and as we're in the marketplace and developing the pipelines that we have. And again, that's also true as you get outside of Europe into some of the other markets that some of the mid-size oil companies too are also prospects for us.

Fantastic. Thanks for taking my questions.

Bob Napoli, William Blair.

Just the first question, on the range of EPS for next year, $5.10 to $5.50? Which are the biggest swing factors that you are watching that would bring you to either the low end or the high end? Obviously, oil prices I think -- excluding oil prices or foreign currency, because I don't think you put that into there.

Bob, good morning, this is Roberto.

So I would say to you, there is a couple of things. Number one, interest rates, because we have been seeing now in the last few months there is a lot of volatility on the interest rates. We have factored, as I said, 40 to 65 basis points on our guidance, so depending on how the strength, higher or lower, there could be some impact there. The second thing is how quick we can implement and ramp up the resources now with Chevron and ExxonMobil that they may give us some benefit earlier than we expect. That's another area where we should be focused. And finally, being cautious on the credit loss guidance, which is between the [13] and 15 basis points range. We had a good starting of the first, call it six weeks, but it's an area also to watch for 2017.

The only other thing I would add to that is, when we go to into any year, because we're growing our business organically, we always have a bogey in there of how much we have to ramp for new business. So that's something that can cause a swing in any particular year. Typically, the majority of the revenue is booked but you still have this variability that enters into, based on what you have for open business. And so some of that depends on timing of when it ramps, which sometimes you control and sometimes you don't 100% control it.

Okay. And then just on the healthcare and employee benefits segment. You said Brazil was up over 100%. Is that constant currency? What was it constant currency? How much was the revenue out of Brazil, now that it's growing and becoming a lot more material? And what do you expect that segment to grow at, by piece?

Bob, let me answer for you.

So both revenue ex-FX or with the currency was over 100%. So we had a very good quarter. We have been ramping up since, I would say, Q3, as revenue started growing significantly faster, and it has accelerated in Q4. But it's both with considering FX rates and the [efacto] rates too.

Okay. And then the amount of revenue from Brazil when the expected continued in the fourth quarter? And your thoughts on the growth of --?

What I will say to you is that we expect a high growth from Brazil; I would say probably a bit more than on the high teens. That's directionally where we should expect. From a quarter revenue point of view, we have around -- in a full year it's around $20 million.

Okay. And then, just last question on your expectations by segment over the medium to long term for organic growth rates for Fleet? Travel and corporate benefits? And then the health and employee benefit business?

Roberto gave a few of those numbers, and I always hesitate to give you very specific numbers

Just a range, longer term.

But we have said in the West Health business, organically we're still saying that it's a high-teen growth rate business. And in the Fleet business, we have seen growth, double-digit growth, and I would say that business, as it gets ultimately more mature, it's typically more of a single-digit grower. But we have been able to show much more growth in that. We feel pretty good about that trajectory we're on in Fleet. And then on the corporate payment side of the business, 2017 will be a little bit of an unusual year for us, but if you look at the longer-term growth trajectory we are still seeing spend volume growth in the high teens if not higher in that business.

Great, thank you. Appreciate it.

Tien-tsin Huang, JPMorgan.

I was just curious, Melissa, how would you characterize or size your new sales bookings performance in 2016? And what are your thoughts on 2017?

I feel great about 2016. And I think part of why I feel so strongly about 2016 is that it was coming literally from every part of the business and all over the world. And so the pipeline development was very strong. I feel like people stayed really disciplined and focused. Some of the wins, I think, we're never going to talk about because they are smaller in size that are just being generated deep in the organization. But we also had some really big marquee names that we added on in 2016. So feel really good about that. And I would say going into 2017, I feel equally bullish that we have a number of really great prospects in that pipeline and we will continue to stay disciplined. We have got a great sales force globally that have been just knocking it down, as well as the relationship management groups that we have that have been doing contract renewals.

Okay. It sounds like you can replenish it; that's great. Just a quick followup: the taking the tech piece in-house, the charge seemed quite high. Is that indicative of the savings to come from initiating that move in-house?

Let me tell you that the expense that you are talking about pertains to a resolution and clarification of a past obligation and an extension of an agreement with a long-term technology partner. I also said on the call that we should see savings from 2018 and beyond, so directionally you can get that 2017 between some internal and this partner we're going to be more or less on the same pace.

Okay. All right. Thank you.

Tim Willi, Wells Fargo.

Thanks, and good morning. I apologize, I hopped on a bit late.

But I was wondering if you could just talk a bit about the competitive dynamics you see in the over-the-road marketplace, just in terms of either downstream efforts to more of the mom-and-pop world, or just any additional opportunities you are seeing now that you're going to EFS? I know you guys have talked about some benefits of owning a bank that you can bring to that franchise and how that's all played out. Any thoughts you have?

Yes, so we talked about a number of contract wins that we had specifically in the over-the-road marketplace. I would say that the market conditions are similar; that it's a competitive marketplace. So there are contract takeaways that we're winning in that space, and part of why we win is the underlying technology. The part that made EFS particularly attractive, among many things, was the underlying technology, the flexibility of the systems that they have; and so their ability to meet market needs and appear to be highly customizable to the customer set has been attractive in the marketplace. And so we feel like we have really good momentum there. And then as you mentioned, the ability to combine that with our bank and lending capability that we have is really great when you get into some of the smaller accounts, which is where we historically had played. So there has been really good momentum, and I think the combining of the EFS business along with our Fleet One historical brand has been a good momentum shift for us.

Great, that's all I had. Everything else had been answered. Thanks very much.

We have reached the time for our allotted questions, I'll turn it back over to the presenters for closing remarks.

Just want to say thank you, guys, for joining us again this quarter, and we'll look forward to speaking with you next quarter.

Thank you. That concludes today's conference call. You may now disconnect.