WEX Inc (WEX) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the WEX Inc. First Quarter 2017 Earnings Call. (Operator Instructions) Thank you.

Thank you, Tabitha, 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 wexinc.com. A copy of the release has also been included in an 8-K we submitted to the SEC.

As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, during our call. Adjusted net income for this year's first quarter excludes unrealized gains and losses on derivatives, net foreign currency remeasurement gains, acquisition- and divestiture-related items, stock-based compensation, restructuring and other costs, debt issuance cost amortization, similar adjustments attributed to our noncontrolling 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 results.

Please see Exhibit 1 to the press release for an explanation and reconciliation of adjusted net income to GAAP net income. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the Risk Factors identified in our annual report on Form 10-K filed with the SEC on March 6, 2017. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

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

Good morning, everyone, and thank you for joining us today. We're pleased to report a solid start to the year, highlighted by a top line B and bottom line results at the upper end of our guidance range. During the quarter, we generated an impressive 41% growth in revenue to $291 million compared to the first quarter of last year. Net income on a GAAP basis was $0.68 per diluted share, and we generated adjusted net income of $1.23 per share, up 26%. The first quarter has established a foundation that positions us well for the remainder of the year.

Before I go into segment details, I want to highlight what we've done so far to execute against the strategic pillars for 2017 that I introduced last quarter. First and foremost, we're driving organic growth by deepening relationships, achieving new business wins and continuing with our pricing modernization efforts. In Q1, revenue growth was 13%, excluding the EFS acquisition and the positive benefit from fuel prices. We found significant contract renewals with longtime partners and saw high retention rates across all of our segments, both of which speak to the value of the products and services we offer. We generated positive momentum in the marketplace, and we'll continue to capitalize upon our products, sales and marketing skills along with the customer orientation to win additional share.

Secondly, we are leading through superior technology. Developing and implementing innovative technologies enables us to better serve our customers and maintain a competitive positioning. Within WEX Health, we've continued to invest in R&D to further differentiate the platform and build upon the best-in-class mobile capabilities. In Brazil, we're leveraging our proprietary and scalable cloud-based platform to innovate around mobile communications to increase cardholder engagement. In North American fleet, our ClearView technology built upon WEX fast data platform using proprietary algorithms that increase our ability to pinpoint customer misuse in ways. With the recent acquisition of EFS, our technology highly differentiates WEX in the OTR marketplace leading to more integrated solutions and significant new customer acquisition.

As I mentioned last quarter, we have a new CTO on board and looking forward, we'll be taking steps to assess our technology plans, including both platforms and technical infrastructure. Lastly, we'll continue to leverage our investments to create further synergies. I'm pleased with the integration of EFS that is on track with expectations and the business -- and the base business is demonstrating very strong fundamentals. As part of the integration, the EFS accounts -- customer accounts were transitioned to WEX Bank in February and back-office consolidation will be complete in the early part of Q2. Platform consolidation is progressing well and remains on track. We're on schedule to achieve our target of $25 million in synergies. Even in the midst of the integration process, during the first quarter, we had the largest the ramp of revenue associated with the new customers to-date, which will yield dividends going forward.

Turning to the segment details. Our Fleet Solutions revenue was $190.8 million, growing 58% over last year. Fleet payment processing transactions were in line with expectations and up 15% year-over-year. Same-store sales continued to stabilize and were down 2% in the quarter, which is consistent with what we saw in Q4. Organically, payment processing transactions grew 8% in the quarter. We continue to build momentum in our contract renewal as well as new clients. As always, best-in-class customer service remains our priority, which is demonstrated by the longevity of our client relationships. We've had great success in maintaining a high customer retention rate and a consistent track record of renewals. Recent renewals, such as Maverick enterprise fleet management, Speedway, ARI and LeasePlan, contributed to our growth this quarter, and I'm optimistic about the strength of our new business pipeline.

In addition to the many smaller customer signings coming through our sales channel, we recently signed Weatherford waste management and Apria Healthcare. We're working in unison with Chevron and are progressing on activities leading up to the customer conversion to the WEX platform. Chevron is a strong business partner and we're aligned in our intentions to grow their business, while being thoughtful about the experience their customers receive. This is a significant win for us, and we'll be spending the year focusing on implementation. We're collaborating closely with Chevron to work on customer engagement, sales strategy and transitioning account.

While we saw great growth in fleet in Q1, the North American fleet business did experience some pressure compared to our expectations as customers pay their intuitions more timely than they have historically to avoid late fee charges. Additionally, we've experienced higher credit losses due to an increase in card skimming fraud and a slight deterioration in our accounts receivable aging this quarter.

Turning to the over-the-road fleet business. EFS continues to exceed our deal model expectations. Similar to our local North American fleet business, EFS is renewing contracts while successfully competing for new accounts. We signed a new private label processing agreement with Pilot Flying J, which was formerly managed in-house. This is indicative of the trust that merchants have with our superior technology and with WEX represent their brand in the marketplace. This quarter, we signed a new agreement with NFI, Star Fleet and Land Air to implement EFS' fuel card. In fact, new implementations were up 50% over last year.

We also announced that we renewed Knight Transportation. This win is a testament to EFS' unique technology and payment automation platform. We continue to scale our business and optimize our assets in Europe, where volume and fuel price improvements contributed to a successful first quarter. Of strategic importance, we took over a declining portfolio and have been able to grow volume, while dramatically altering the cost structure and overall profitability. This demonstrates our ability to grow portfolio within the European market, similar to what we experienced in other markets. The consolidation of administrative functions is ongoing and should be completed this year.

Our International Fleet performance was strong outside of Europe as well with our Asia Pacific business seeing significant growth year-over-year due to the Esso business in Asia. Looking forward, we continue to see interest from oil companies in both Asia and Europe, but as I've said before, these are often long-term plays, and we'll keep you posted on our progress.

Overall, I'm very pleased with the progress we're making during the quarter in our Fleet segment.

Let's now turn to our Travel and Corporate Solutions segment, which performed better than expected. Revenue grew 6% during the first quarter and purchase volume increased 35% during the quarter. Excluding the contribution from EFS, organic purchase volume growth was more than 20% in the quarter. As a reminder, we have a number of changes impacting the business that we outlined last quarter: First, we've restructured our agreement with MasterCard, which impacts comparability as our new contract has significantly reduced costs, but also reduced revenue. In addition, we've renegotiated customer agreements, all of which we noted would have an impact to our net interchange rate. We'll vertically hit upon this in further detail later.

Volume growth from our large travel customers helped drive result, highlighting the importance of high-profile partners in our international markets. Our efforts to scale our travel business internationally are evidenced by our more recent expansion in Singapore. And we've become increasingly competitive in the markets we serve. Although Asia is a relatively new market for us, our products and value proposition resonate with our customers there as demonstrated by our recent wins, such as Lotus Travel, Profit Travel, Sincere Travel and Carlos Wagonlit, Singapore.

In Europe, we continue to see strong reception to our products and have recently signed UVET, a global business travel company. We underwent a successful ROC process with European-based Odigo in Q1, resulting in a 3-year contract renewal. In total, markets outside of the U.S. contributed more than $250 million in incremental volumes compared to last year, and we expect us future growth in the future.

We're also pursuing other verticals within Travel and Corporate solutions. The purchase volume growth of EFS was 83% compared to last year, driven by new customer wins and an accounts payable solution, which is in many industries. We also continue to cross-sell our virtual card offering into our fleet business with new customers, like the State of Arkansas and sgfleet in Australia, allowing for additional purchases.

Lastly, Health and Employee Benefit Solutions grew 33% this quarter, entirely through organic growth. We're seeing strong growth in Brazil, our benefits business, and similar to last quarter, revenues grew over 60% versus the first quarter of 2016, excluding the impact of FX. Brazil continues to be an attractive and active market for us and we're investing in our sales capabilities in this region.

Turning to our U.S. Health business. We like the tailwinds we see in this marketplace, as there is a growing shift towards consumer-directed health care accounts. Our health business has market-leading technology platform, which can be utilized in a multi-tenant way, increasing the amount of offerings to their partners and to the marketplace. Our portfolio of accounts is diversified through FSA, HSA and other account types, and our account growth is outpacing the marketplace. We saw our largest and most successful enrollment season to-date, which contributed to our organic growth this quarter. Spend volume year-over-year increased by over 23% this quarter as on-boarding and overall use of it scaled throughout our partner base. We experienced continued strength in all partner types and signed a number of key wins this quarter, including Bravo Wellness, provides wellness reward cards to Capitol BlueCross and 16 new partner and cross-selling sign-ups. We now power approximately 2/3 of the top 100 HSA in healthcare mobile account applications. Our market share continues to grow as our products resonate within the market.

Our recent products released focused on partner enhancements, designed to provide both new features for enhanced usability and cost savings for partners. These include updates to the employer dashboard, which gives partner unique insights into customer behavior and consumer-directed health care accounts, all from user-friendly graphs and reports. Additionally, we added data analytics enhancements, which will help employers benchmark their performance and offerings. We continue to drive innovation and are committed to enhancing our products and services with a focus on simplifying the customer experience. The tailwinds that have been behind WEX's consumer-directed health care products are still intact, and consumer-driven solutions continue to be the answer to the challenge of increasing health care cost and complexity. WEX is well-positioned to help our partners continue to grow and will continue to lead the consumer healthcare market with our technology platform, robust account offerings and health payment card business. I look forward to growing and scaling in this attractive market.

Overall, we've had a very strong quarter, highlighted by organic growth in all 3 business segments. While our fleet segments often receives the most attention, our other 2 core verticals have proven to be a major asset to our brand and demonstrate the ongoing diversification of our organization. The continued success in travel and in health has grown our global footprint, while reducing our exposure to commodity pricing. Our foundation is to use technology to develop innovative solutions with a bias towards creating a strong customer and partner experience. We focus on organic growth, and we've been able to supplement that growth and increase our addressable market through strategic investments. As a result, our segments embody our vision for the company and validate our ability to execute against our strategic pillars -- and strategic in 2017 is shaping up to be a good year.

Our performance this quarter is tracking well against our 2017 strategic objective. As we look towards the second quarter, we'll continue to build upon the momentum generated in each of our core verticals.

I'd now like to turn the call over to our CFO, Roberto Simon. Roberto?

Thank you, Melissa, and good morning, everyone. For the first quarter of 2017, our total revenue was $291.4 million, a 41% increase over the prior year period and above the high-end of our guidance range of $275 million to $285 million. Net income on a GAAP basis for the first quarter was $29.4 million or $0.68 per diluted share compared to $23.1 million or $0.59 per diluted share for the first quarter last year. Non-GAAP adjusted net income was $52.9 million or $1.23 per diluted share, up 26% from $0.98 per diluted share for the same period last year and at the high-end of our guidance range of $1.16 to $1.24. We're pleased with the results as we grew organically, expanded into key markets and regions and saw strong performance across all segments. We're also confident in the new business wins that Melissa just spoke about and our sales pipeline, which further contributes to our future growth. The Fleet Solutions segment achieved $190.8 million in revenue, an increase of 58% or $70 million compared to the prior year. Contributing factors to this quarter's growth includes the ongoing contribution of EFS, higher fuel prices, the benefits of our price modernization and favorable volumes.

During the quarter, payment processing transactions increased to $102.8 million or 15% as compared to prior year. Nonpayment processing revenue in the Fleet segment increased $45.8 million as compared to last year, due to the benefits from our price modernization efforts and contributions from EFS. The average domestic fuel price in Q1 was $2.40 versus $1.97 in Q1 last year. Fuel prices were favorable compared to last year though they fell slightly short of our expectations. The increase in fuel prices contributed approximately $50 million to revenue growth when compared to last year.

EFS, again, had a strong quarter, which was in line with our guidance and contributed slightly more than half of the revenue growth in the segment. We remain on track with our synergy plans and continue to believe that we will meet the target set for the transaction. We also continue to gain share in the market reinforcing the reasons for completing the acquisition. Our pricing modernization efforts continue to produce positive results, but as we noted last quarter, we are seeing customer improve their own time payments and therefore, avoid finance fees. These, again, play out during the quarter and finance fee revenue becoming below expectation for the quarter, though it contributed more than $10 million in incremental revenue compared to last year, when excluding EFS. However, we more than made up for the difference for the quarter and have fully reflected the expected change in our guidance.

Last quarter, we spoke about the ExxonMobil renewal and the Chevron win. The addition of card related to Chevron are already in our respective numbers and will remain steady for the remainder of the year, while the card related to Chevron will be weighted towards the second half. In Travel and Corporate Solutions, revenue for the first quarter increased 6% to $47.7 million. It was driven primarily by the inclusion of EFS as well as volume growth from our large travel customers. Purchase volume in the segment was $6.6 billion, which is an increase of 35% over the prior year. The organic growth rate in purchase volume remain well over 20% for the quarter. The net interchange rate for our virtual card in the first quarter was 53 basis points, which was in line with our guidance provided on the last call. As we spoke, this was down due to the renewal of our large travel customer that became effective in January 2017. The volume growth in the travel exceeded our expectations for the quarter and is one of the reasons that we feel comfortable raising our revenue guidance for the year.

For Health and Employment Benefit Solutions, revenue for the first quarter increased 33% to $52.8 million, resulting from a strong organic growth in both the U.S. and Brazil. Our U.S. Health business had its largest and most successful enrollment season ever, setting the table for another very good year. Spend volume on WEX Scout increased 23% over last year, led by longtime our new enterprise partners. Our win covered more than 24 million lives.

Our benefits business in Brazil continued its impressive growth base, more than doubling versus the prior year, which includes the benefit of approximately 40% from foreign exchange rates. We are seeing more demand for our payroll advanced product due to an increase in activation with our customer base. Additionally, customers are repaying the borrowed funds over more installments, which increases our revenue.

Moving down the income statement. For the first quarter, total company operating expenses on a GAAP basis were $230.6 million. Salary expense for the company was $83.6 million, up from $63.4 million in Q1 last year. The increase was primarily due to the acquisition of EFS. We also had increases for normal growth in the business and continued investment in our Health and Benefit segment. Service fee was $36.8 million in the quarter, which is flat compared to the same quarter last year. Despite a strong volume growth in the Travel segment, the addition of EFS and the outsourcing of our back-office IT operations, the growth rate of service fee is scaled down by this operability from our new agreement with MasterCard that went into effect in September of 2016. As we mentioned on our last quarter call, we should continue to see favorability for at least the next 2 quarters. During the first quarter, credit loss on a consolidated basis totaled $12.2 million, up $8.3 million compared to the first quarter last year. In the Fleet segment, credit loss was 17.8 basis points of the spend volume, which was above the high-end of our guidance range compared to 9.3 basis points in the first quarter of 2016. The increase in credit loss was due to a number of factors: first, fuel prices this quarter were approximately 20% higher than Q1 2016; second, the addition of EFS increased the expense compared to last year; third, because the fee changes we have made over the past 12 months, we're seeing more late fees being charge-offs; finally, we're seeing higher incidences of fraud and a slight deterioration in accounts receivable aging.

Over the past few months, we have seen a spike in card skimming, which historically has not been a significant expense for us. We're implementing a new fraud detection software during Q2, which should help mitigate the activity going forward. Additionally, we have started and implemented a stricter velocity limit, which limits the ability to make unauthorized purchases.

Our operating interest expense was $4.9 million in the quarter. As previously mentioned, our agreement with Higher One ended during Q4 of 2016. And as a result, Q1 saw an increase in operating interest expense as we replaced those deposits at current market rates. We also had increases for higher fuel prices, EFS balances and normal volume increases.

Finally, the strong performance in the Brazil business increased our accounts receivable balances. On a GAAP basis, the effective tax rate for the first quarter was 33.3% compared to 36.2% for the first quarter of 2016. On an ANI basis, the tax rate was 36.4% for both the first quarter of 2017 and 2016.

Moving on to the balance sheet. We ended the quarter with $204 million of cash, up from $190.9 million as compared to the cash position at the end of last year. We ended the quarter with a total balance of $2.2 billion on our revolving line of credit, term loan and notes. Our leverage ratio as defined in our credit agreement stands at approximately 4.6x. By year-end, we expect our leverage ratio to be approximately 4x, in line with our expectations when we announced the EFS acquisitions and as we mentioned on our last call.

Our debt and leverage ratio increased slightly during the quarter, which was caused by the transfer of EFS customer accounts and deposits to the WEX Bank, expected seasonal increases in our debt as well as growth in our Travel business.

Now for our guidance. Note that these expectations reflect our view as of today and are made on a non-GAAP basis with respect to adjusted net income. This guidance is based on exchange rates at the end of the first quarter. For the full year, we expect revenue to be in the range of $1.165 billion to $1.205 billion and adjusted net income in the range of $221 million to $237 million, or $5.15 to $5.50 per diluted share. The revised full year guidance reflects the confidence we have in all 3 segments of the business despite pressure on finance fee revenue, the increase in credit loss and higher interest rates. This also assumes that the fleet credit loss will be between 10 and 15 basis points, although, towards the higher end of the range. Domestic fuel prices will average $2.44 per gallon and the fuel price assumptions for the U.S. are based on the applicable NYMEX future price from last week. We expect our adjusted net income tax rate to be between 36% and 37% for 2017. EPS guidance is based on approximately 43 million shares outstanding.

For the second quarter of 2017, we expect to report revenue in the range of $286 to $296 million, and adjusted net income in the range of $51 million to $54 million or $1.19 to $1.26 per diluted share. These figures assume normal seasonality trends in virtual card business as well as credit losses. This guidance assumes that our fleet credit loss will be between 11 and 16 basis points. It also assumes that domestic fuel price will average $2.45 per gallon.

With that, we will open the lines for questions.

(Operator Instructions) The first question comes from the line of Sanjay Sakhrani with KBW.

It's actually Chas Tyson on for Sanjay. I just want to go back to the comments you made about pricing and the pricing modernization efforts. You noted that consumers are continuing to react to that. Can you talk about how we should expect that to trend going forward and what growth we should expect to see in that particular line and in the fleet?

Sure, this is Melissa. I'd say, just going back, when we started looking at pricing modernization, what we wanted to do is make sure that we implemented fees that put us in better alignment in with market and particularly in the small fleet segment of the U.S. marketplace. And we made a number of changes and included in that changes was the change to late fees for our universal product. And you see those reflected in the run rate of the portfolio. And from a behavioral change perspective, what we saw was just a slight trend towards making a payment sooner than what we have seen historically. So Roberto mentioned the fact that what we have seen in the first quarter is what we're reflecting in our guidance for the full year. So it is a similar trend and similar behavior or similar growth. And we implemented those changes in the second quarter of -- towards the end of the second quarter of last year.

Great. And this is Sanjay, sorry, Could you just talk about the Pilot J relationship? Maybe just the size and scope and the timing that you expect to bring them on?

Yes. We're excited about this. What we're doing with Pilot Flying J is similar to what EFS does in the Canadian marketplace with lot of the major roles up there where the private label processor, but in addition to that, we do a whole host of other services. And so we just announced the contract working through the details of what the implementation will look like. But we think it's good and also it has to be under the fact that they want to work with us in the marketplace and that allows us to think of things that we can do collectively that would make that unique.

Your next question comes from the line of Tim Willi with Wells Fargo.

A couple of modeling questions. Roberto, first in the Corporate and Travel, the other revenue, I guess, is a little bit larger than I would've expected. Is there anything there unique? Or just related to sort of all the changes you've had with MasterCard and contract renewals?

If you remember when we talked last quarter, the new contract renewal with one of our largest OTAs, what we count is an impact on our processing revenue. But at the same time, what we have going forward is higher revenue based on the spend volume outside of the U.S. So what you will see going forward is that these are the revenue depending on the mix between domestic and international volume will have some fluctuations.

Okay. Great. Thank you for clarifying that. And the other question I had around modeling. I know you touched on this. I got pulled away from the call for a second. So I apologize. But with Flying J, with Chevron, lots of new pieces of business coming on, again, could you just sort of repeat or sort of how we think about the investment flows through the course of 2017 as you start to get ready for those contracts and sort of as the springboard for 2018 when you start to actually bring the revenue on it and stand those up?

Yes. So the first thing is, as I said, so ExxonMobil expenses are already in our Q1 and are going to continue now for the remainder of the year. In the case of Chevron, and as I said, this ramping cost will be towards the second half of the year. And obviously, all these contracts wins, as Melissa mentioned, and the growth we are experiencing in the health business, we are ramping up expenses in this segment as we move into Q2 and then, therefore, also in Q3 and Q4.

Great. And then I just had one last one, sort of around, I guess, the macro and the same-store. So I guess, as you pointed out, sort of some stabilization, I guess, in the year-over-year growth rate at minus 2. Any kind of color or sense as to how you guys perceive, I guess, the economy and the possibility that, that same-store begins to show improvements? Obviously, you see lots and lots of granular data versus -- we just get sort of these macro numbers around GDP and stuff like that. But do you have any optimism or sense that the way the comps set up, any other data you see that it's possible that the same-store number had moved towards a flat line of not even positive, if we keep sort of the economic trajectory we're seeing?

Yes, if you look at the places that were soft, there was more softness around transportation. Construction looks flat to slightly positive, and I was looking at the construction in a way to think more about the consumer parts of the economy. And having that be slightly positive, I think, is a good time. In terms of whether or not we think that, that's going to slip to something positive, we think that there is always going to be a little bit of a natural drag in same-store same-store sales because of fuel efficiency. As vehicles are getting moved into the marketplace, they are more and more efficient. So having it be at that negative 2% isn't that far off. We would normally plan for it to be about flat. So you take the economic growth and you net it against fuel efficiency and you expect same-store sales to be generally flat in a normal month. So we're not that far off from that. So I think, we're saying positive movement in this, and we've seen that the last couple of quarters, I think, that makes us slightly positive on what we're seeing in the economy right now.

Your next question comes from the line of Jim Snyder with Goldman Sachs.

I was wondering if you could maybe just kind of touching your earlier comments on the deals in Europe and Asia that you're involved with, Melissa. Can you maybe just give us a sense of how many European RFPs specifically are out there that you're currently involved in, in bids on? And maybe just kind of give us any kind of color you can on the relative size of some of those deals? And then, whether you expect any of them to be decided one way or the other before the end of this year?

Yes. Actually I'm going to start with the marketplace in Asia because I -- we were experiencing what we were finding in that marketplace is that it moves faster. It's just more fluid. And I would say, more broadly, to just fleet that experienced so far on the travel side of the business. So as we're looking at our pipeline, that's the place that we've had focus and we feel really good about on a shorter-term basis. On the European marketplace, we continue to -- it's not just responding to RFPs and that is being proactive in the marketplace, in talking to a bunch of different customers of different size. So you've got, obviously, the majors that are out there. But in the U.S., we process for a number of mid-type customers as well. And so we've been in the marketplace and active for a while. I've said for years that, that market moves slower and that's certainly been our experience. Since we've been in the marketplace, I'd say that's not different now. So there's a number of prospects that are active in the pipeline. Their sizes are all over the place. But in terms of how we think about the marketplace, we think that we'll see more momentum in the short term in Asia. And then, we think of Europe as being a longer to apply.

That's helpful. And then maybe, just in terms of the overall kind of margin profile on op margin line, as you move throughout the year, can you maybe just give us a sense of to what extent you expect to hold the line on nonvariable costs? And maybe, just kind of talk a little bit about -- I believe, you referenced the Chevron cost ramping in the back half of this year. So are there any beneficial offsets to that and just how you think about OpEx profile, generally?

So this is Roberto. What I would say to you is -- Q1 results were strong. And when you look at our full year guidance, we are increasing revenue and slightly our EPS. There are a number of factors influencing and to consider in why revenue is growing more and EPS is a bit -- is growing less than expected. But what I would say to you is, we have, as I mentioned before, you have -- on the second half of the year, you have Chevron core ramping up. In Q1, we had, as I said, credit loss that was higher than anticipated. And although it's going to start going down in the future quarters, you're going to still see on a full year basis more expense than we had initially estimated. Finally, what I also said to you is our Travel and segment solution is performing better than we expected and our Health segment as well. And we are taking advantage of that to also continue ramping cost and investing in the business to continue gaining market share.

Your next question comes from the line of Bob Napoli with William Blair.

Just, you said, Melissa, the -- you had the largest ramp from new customers that you've ever had in the first quarter and you suddenly announced a number of key wins. What is driving -- has there been an acceleration in new wins? And why -- why is that? And can you give any color on the revenue from the new wins that you are on-boarding?

The reference I was making was within the EFS business. And there's definitely been an acceleration in new revenue implementation. They had a great pipeline. We knew that when we purchased the business. There is a period of time from when they take the pipeline and actually, go through the implementation because of the level of integration that they have with their customers. But they've got great momentum. And I would say we're seeing that across many parts of our business. And the momentum ties to the product. So I talked about a bunch of pieces of technology that we've got in the marketplace, but I'd say that's resonating in each of our markets. In Brazil, you've got this huge ramp in revenue and some of that's because of the new functionalities that we've deployed on a mobile basis to the customers there that have triggered more activation and in the U.S., the ClearView product I talked about is getting lots of momentum in the marketplace. People are very interested in what it can do, and that's contributing to some of the wins that we're seeing here in North American fleet. And I would say the same thing with EFS, and their momentum is really built off on the underlying technology, the capabilities they bring into the marketplace, and the enablement of customizing to their customers. And so, even though that we're seeing, and I talked earlier about negative same-store sales in Transportation, they are able to offset that into new customer wins. And we liked what we saw when we bought the business, but we see even more momentum since we bought it, and the ability to combine the assets of what we had here at WEX prior and what we're adding on to EFS is pretty powerful.

So when you think about the growth rate, I guess, for the fuel card business in the U.S., is it over the next few years? Is it -- as you get into next year, 2018, generally, we think about the U.S. business as mid to upper single-digit growth business. Is it better than that?

I would say that when we think about the total business, we're looking at the 10% to 15% revenue growth. And the fleet business is -- is a contributor to that. We try to target everything to be at least in that range as we think about the marketplace and it doesn't mean we hit every quarter. But that's our intention, and we feel like we've got a lot of capability. We've got really great prospects to make that happen.

And then just -- a question just on the guidance. The fuel price that you used too is the same as it was last quarter, but it seems like oil prices have come down. So surprised by using the same number. Just wondered what your thoughts were around that? And then, just finally, on the first quarter, you had higher credit losses, lower fee income, but still outperformed. What were the major areas that are exceeding your expectation to offset those weaker items?

Bob, this is Roberto. With fuel prices -- as you know, in the last, I would say, 2 to 4 weeks, I mean, fuel prices got being very volatile. And we have been down to [2 35] and up to -- almost [2 50]. So we took the position of the NYMEX curve of last week, and it came to be [2 44], which is a coincident value with what we had in the full year guidance. So we keep close monitoring the fuel prices, but as I said, I mean, they have been very volatile in the past 2 to 4 weeks, and it's difficult to predict now what is going to be trending. Your second question was related to service fees, is that correct?

Well, no, the first quarter you beat our expectations, but you had higher -- you had some things that missed like higher credit losses and lower late fee income. So what is the main -- what are the main things -- looks like the payment processing transactions may be, but what were the main things that outperformed your expectation?

So in Q1, and I say, number one, on the traveler space, we have more volume than we anticipated. We grew over 20% organic and 35% when you include now all the Travel segment. So we beat expectations there. Our U.S. Health business also outperformed our expectations and our Brazil business as well. So all of these made up a good quarter in terms of revenue. On the other side, I think, I outlined well the biggest expense higher than anticipated in our Q1, which was the credit loss and I outlined all the reasons why. We expect this credit loss expense to start going down in Q2 better than Q1. I mean, I guided 11 to 16 basis points when we closed the quarter almost at 18. And then we expect the second half of the year with a credit loss continue going down.

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

I wanted to just ask on the credit loss component. Can you break out how much of that is due to the card skimming versus some of the other cyclical factors you called out?

Yes. What I would say to you is that, obviously, we didn't expect these credit losses and we would have booked the high-end of our guidance range. And the other thing I would say to you is that historically, our fraud of this time was not a significant expense to us. So there's too many factors to say, which one was higher than the other. I mean, every piece contributed not to this credit loss increase. What I would say to you, specifically, on the fraud, we are working diligently, implementing, as I said, a new detection software that is already in place in Q2. And as I said, as well as start implementing a stricter velocity limits so that we can limit the unauthorized purchases.

Right. Okay. So the software upgrade, it sounds like that's pretty easy and quick fix and we should -- is it -- we'll see the performance improves pretty quickly? Is the result to that?

What I would say to you is we put it in effect in place early in Q2. And we are going to see -- I mean, we expect, obviously. That's why we are investing the money to see the fraud going down. If it is going to go faster or slower, we're going to be seeing in the next couple of weeks -- in a few weeks.

And more broadly what I'd say is that if you think about it from a trend perspective, there's been migration over to chip and PIN that there's going to be a lag that's happening at the field locations with Max, right? And so this is something that we want to make sure that we're investing in because it could become more of a trend. It's actually been fairly isolated behavior. And so, we -- Roberto talked about velocity controls, one of the things that we have already embedded in the program, the ability to create a lot of different controls around spending. And so part of what we did pretty quickly was to increase those velocity controls. So we had to work that through with both the merchants and with our customers before we did that. So it took us a little bit of time to work our way through that. That's another thing that we've seen immediate benefit from is just really adopting some of the control features that are designed in the product even more aggressively in the markets where we've seen some of the behavior.

All right. Thanks for that. That's useful. Just a quick final question. Just that the better repayment performance because the fleets are avoiding fees. Sort of a similar question. Is that cyclical? Are fleets more mindful of savings there? Or is that just a natural byproduct of the changes you guys have made?

I think that what we typically see is that their behavior is more akin to what they've done historically and a little bit of the timing of when payment cycles end. So depending on when you get to bill that affects payment behavior and -- but that's fairly predictable and then we can see that play out over the course of the year. What we think happened this time is that people are moving towards making payments more current, which is a good thing. There's other savings for us and that happens, so that's positive. And we're planning as if that's a trend and the only caveat, I'd say, is there's still some seasonality quarter-to-quarter based, again, on when the timing of bills goes out that we reflected in the future quarters of the year.

Your next question comes from the line of Ramsey El-Assal with Jefferies.

Guys, I wanted to ask you about the net interchange in the Travel business. What is the long-term view of this metric? Is this kind of a new baseline that we have here? I mean, will this line continue to compress over the long term? Or do you expect some stability at some point?

This is Roberto. I will start saying that we gave a really specific guidance last quarter on where we expected the net interchange rate to be for this year. And we were right in the middle of that range in Q1. For the remainder of this year, I would say that we are not expecting any big changes. So we can always have some movement, as I said before, based on the customer mix and the geographical mix. But I repeat, I mean, we do not expect any big changes for the remainder of 2017.

Okay. And over the longer term, let's say, over the next 3 years, 5 years, is there a point at which renegotiation of contracts in this line will simply -- they're just not enough left in order to compress the line further? I mean, is the long-term view that this continues to kind of compress for every renewal cycle? Or is it just more like you reach a point where it sort of stabilizes?

I think it's fairly somewhere in between. If you look at the longer-term cycle, the interchange revenue, in general, has been -- we look at our rates, we typically do see some compression upon renewal. But there is a point that in most parts of our business, when you get to the point where that hit a saturation spot, you start getting into some of the other fees also to the customer because at the end of the day, we think of it as a value exchange. They need to be able to get value out of the products that we're offering, and there is clear demonstration of the value that you can quantify. And at the same time, we have to stay competitive to the trends that are happening in the marketplace. And those are the 2 factors that kind of bound where our pricing is. And so in this case, I think, there will continue to be some competitive pressure, which is what we see generally across all of our markets. We compete on product. Other people come in and compete on price. And so, we have to be conscious of that. We had to make sure our cost structure is set up with that in mind. But there is a limit to where that will go. And at the end of the day, we can show some tremendous cost savings to our partners and efficiencies that we don't think other people can bring to the market.

Okay. A somewhat similar question on pricing, which puts a little bit off of tangent, the prior question. Anything you have seen with customer reaction to what you've done change your -- again, long-term view. Not necessary we're talking about guidance this year, but long-term view about pricing being a -- kind of a recurring tailwind in the model going forward?

When we went through and we made our pricing modernization changes, we looked at the broader marketplace and where fees were. And we approached the market with a thoughtful way of being highly transparent about changes that we're going to make, presenting them in a bill in a way that was easy for our customer to understand. We largely focused on fees that were avoidable based on their behavior. And so all of those things have translated into a very sticky still experience for the customers and it's clear that they've noticed that we've made changes. But we've left -- lost less than 3% voluntary attrition, even throughout this process of making changes. So I think what we've learned so far is that how we approach the customer, making sure that we're doing it in a thoughtful way. And at the end of the day, the things we do think about is making sure that there is value to that customer by the products that we have in the marketplace. And so there's nothing in what we've learned in our approach that would make us change what we want to do in the future, and we're very much about testing too. If we're going to go make a change to something we think it's bigger, we typically will test it in the marketplace, see the reaction to that before we go through an implementation cycle, which makes us move a little bit faster -- I mean, slower, sorry, in implementation, but I think, it's part of why we've seen such a reaction from our customers in terms of making sure that we just have retained the customers. So a long answer to -- I don't think it really changes our long-term approach. And in some of the pricing discussions that we've had affecting partners, that's something that we've had very direct conversations with our partners about and that needs to be factored into a mix because we represent their brands. We want to make sure what we do in the marketplace is consistent with what they would want us to do.

Your next question comes from the line of Danyal Hussain with Morgan Stanley.

Just on travel, you said, I think, volumes were better than you'd expected. Can you just talk about what's driving that specifically, and whether that's -- is that just organic growth from your large OTA partners? And then how sustainable that sort of 20-plus percent organic growth looks like going forward?

It's actually a combination across the portfolio. It's coming from the major travel customers, but it's also coming -- and I talked about $250 million worth of incremental spend outside the United States. So we're seeing ramp in Asia and growth in other parts of the world. And that -- so all those pieces are coming together and to the overperformance that we saw in the first quarter.

Okay. And then on the higher retention that you just gave some commentary on sort of voluntary attrition on being less than 3%. But could you talk about that number more broadly, and why retention has sort of trended more positively? And is anything to do with this sort of business, stability and formation and so forth?

Yes. And that number I was talking about specifically is fleet in the United States, which has been the place that we're focusing on in the previous commentary on pricing. And I would say that, that's actually been really consistent, if you really look back over the last 10 years. The voluntary attrition rates for us have been generally under 3%, often 2%. And it's one of the measures that we look at amongst many others when we are thinking about customer satisfaction. So we look at customer satisfaction, we look at Net Promoter Scores, we look at ultimately, at attrition if we think people need to talk with their fleet. And so at the end of the day, for doing things in a way that is reflective of what a customer expects, then we'll see that play out in voluntary attrition.

Your next question comes from the line of David Togut with Evercore ISI.

I apologize if someone asked this before. I was joining late from another call. Can you talk about the European business, particularly the outlook for new deals in Europe? There has been, I think, some talk over the last few quarters that there are couple of big deals in the pipeline. Any update on timing would be appreciated.

Yes. So what I said about this was that when we think about the marketplace we think about it more broadly than Europe. We've had really good experience so far in Asia. And we think of Asia as a marketplace that moves more quickly. And we have items in the pipeline that are more active in that marketplace in a short-term manner. In Europe, we've been hitting the marketplace for a while, and we do have a price line of various sized transactions, some big, some smaller. But we still think of that marketplace as playing out more slowly. And so that's not something that's new. That's been our experience in that market for a number of years. So it really isn't a lot new that we would say from last quarter of about what's happening. We feel still very confident about the long-term prospects we have in both those marketplaces, but they move at different speeds.

Ladies and gentleman, that does conclude the call for today. We thank you for your participation and ask that you please disconnect.