Michael E. Thomas - Vice President, Investor Relations and Treasurer Melissa D. Smith - President, Chief Executive Officer & Director Steven Alan Elder - Chief Financial Officer & Senior Vice President.

Ramsey El-Assal - Jefferies LLC Philip Edward Stiller - Citigroup Global Markets, Inc. (Broker) Darrin D. Peller - Barclays Capital, Inc. Tien-tsin Huang - JPMorgan Securities LLC James Schneider - Goldman Sachs Hamza Fodderwala - Susquehanna Financial Group LLLP Tom McCrohan - CLSA Americas LLC Mike J. Grondahl - Piper Jaffray & Co (Broker) Glenn E.

Greene - Oppenheimer & Co., Inc. (Broker) Brian D. Hogan - William Blair & Co. LLC.

Good morning. My name is Dishanta and I will be your conference operator for today. At this time, I would like to welcome everyone to the WEX Third Quarter 2015 Earnings Conference Call. I'd now like to turn the call over to Micky Thomas, Vice President of Investor Relations and Treasurer..

Thank you, operator. Good morning. With me today is Melissa Smith, our President and CEO; and our CFO, Steve Elder. The press release we issued earlier this morning has been posted to the Investor Relations section of our website at www.wexinc.com. A copy of the release has also been included in an 8-K which we submitted to the SEC.

As a reminder, we will be discussing a non-GAAP metric, specifically adjusted net income, during the call.

Adjusted net income for this year's third quarter excludes an unrealized loss on fuel price derivatives, net foreign currency remeasurement gains, amortization of acquired intangible assets, expenses related to stock-based compensation, restructuring charges, certain acquisition-related expenses, non-cash adjustments related to our tax receivable agreement, a discrete charge attributable to our regulatory reserve, adjustments attributable to non-controlling interests, including a change to the redemption value and the tax impact of these items.

For consistency, we have revised adjusted net income for the third quarter 2014 to exclude the impact of remeasurement non-operating FX losses to conform to the approach that was adopted earlier this year. And our full year guidance excludes the impact of these foreign exchange gains and losses, consistent with the guidance previously announced.

Please see Exhibit 1 included in 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 February 26, 2015.

While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa Smith..

Good morning, and thank you for joining us today. Before we jump into the third quarter results, I'd like to take a quick moment to talk about the two recent acquisition announcements.

Our intention is to build upon the success that we've seen to-date in our geographic entry into Europe with the Esso portfolio purchase and our expansion into the healthcare payment space with the purchase of Evolution1.

Both of these acquisitions opened up new markets for WEX, which we anticipate will contribute to the long-term growth profile of the company. By adding in Benaissance, we extended our capabilities further for our healthcare payments business, building on billing capabilities into a market that has an increasing level of complexity.

The largest of the acquisitions, EFS will round out our product set in the North American fleet market by extending our reach into the mid and large OTR markets and significantly enhance the scale of the enterprise.

These acquisitions combined with our underlying growth engine, that is consistently growing our revenue approximately 10% on an organic basis, excluding the effect of FX and fuel prices, lay the foundation for meeting our long-term financial target. The fundamentals of our business remains strong and we operated well during the quarter.

However, our financial results were challenged by a choppy economic environment and historically low fuel prices and, therefore, our results were mixed. During the third quarter 2015, we generated $226 million of revenue, in line with our guidance range. This represents a 2% increase over the prior-year period.

If fuel prices had remained at third quarter 2014 levels, revenue would have been approximately $251 million for the quarter, which would have represented a 13% increase over the prior period. However, adjusted net income came in below our guidance range of $1.29 per share.

While I'm disappointed that A&I did not meet our expectations, the gap is driven by three discrete items that are not related to the operational performance of the business. These items include $0.06 related to the discrete tax items, $0.05 related to unfavorable fuel pricing, and $0.05 attributable to M&A activity.

Excluding the impact of these items, adjusted net income would have been within our guidance range. Our solid operating performance this quarter reflects ongoing execution against our strategic priorities and continued focus on growing, accelerating and scaling the business, both organically and through targeted investments.

Our recently announced acquisitions of Benaissance and EFS aligns to the priorities of our targeted acquisition strategy, creating scale, improving functionality and enhancing our geographic footprint. Importantly, both acquisitions help to diversify our business and reduce our exposure to fuel price sensitivity.

Let me briefly provide more color on these important announcements. On October 15, we announced a definitive agreement to acquire Benaissance, a leading provider of integrated SaaS technologies and services for advanced billing and corporate management within the healthcare market.

The transaction will enable us to provide an expanded and differentiated payment solution, continuing the success we've had with Evolution1, and elevate our position in attractive, high growth healthcare vertical.

We believe this will enhance our addressable market opportunity and increase partner loyalty, while strengthening our overall value proposition and offering to partners. This transaction will also further our reach into the exchange marketplace.

On October 19, we announced a definitive agreement to acquire EFS, a leader in corporate payment solutions for the over-the-road fleets and corporate customers in the U.S. and Canada. EFS' offering complements our existing OTR business by providing entry into the mid and large fleet segment while accelerating our efforts to better serve mix fleets.

The combined company will drive significant scale for our business by offering a best-in-class portfolio of product and service capabilities of serving the full spectrum of fleet customers with a more efficient, comprehensive, and better integrated product offering.

EFS has been winning successfully in their marketplaces and has an adjusted 2015 run rate EBITDA of approximately $90 million. As we mentioned earlier, we anticipate approximately $25 million of synergies realize within these three years.

The product offering and growth profile of the business underscore why we feel that this combination is so attractive. Ultimately, these acquisitions represent an exciting opportunity for WEX that will build on the successes we've had with Evolution1 and WEX Europe Services, both of which continue to perform above expectations.

I'd now like to provide more detail on our results for the quarter. In Fleet Payment Solutions, we saw payment processing transactions increase by 11% relative to the prior-year period. In domestic fleet, organic growth was impacted by a decline in same-store sales of approximately 2.7%, which was in line with last quarter.

The two biggest contributors to this decline were in the oil and gas industry and our large fleets. That said, the same-store sales trend masked the very good momentum that we're seeing in the underlying business, as we continue to have success in the marketplace and grow our portfolio. Payment processing gallons grew 3.4% in the U.S.

year-over-year, reflecting strong growth in new customer wins in spite of the drop in same-store sales. We maintained low attrition rates and have achieved a number of encouraging customer wins this quarter. These include five agreements signed for our new FlexCard product with CITGO, Kum & Go, MAPCO, Sheetz and CSI.

Our international fleet business again demonstrated strong performance driven by WEX Europe Services, which continues to exceed expectations. In particular, I'm pleased with our ability to stabilize and grow the business, which has resulted in higher volumes across the network.

We're leveraging the presence that we have established across Europe to scale our business processes and optimize our assets in this important region. Our team continues to work diligently on building out the WEX platform in Europe, which is progressing well.

We launched in pilot mode by successfully testing production transactions from a low to small customer set by year-end. The country-by-country conversions are planned for 2016. We also experienced strong performance in our fleet business in Brazil and Australia.

In Brazil, we reported a 20% increase in payment processing transactions over the prior-year period.

In spite of the challenging economy, we continue to perform well and are excited to have acquired the remaining 49% stake in UNIK, which enable us to further leverage the deep expertise in fleet over-the-road business solution and employee benefit products.

Australia also posted strong results, including a 9% increase in payment processing transactions over the prior-year period. It was a good quarter for new fleet wins including our signing with ORIX, a large Australian fleet leasing company.

Overall, we feel very good about the potential of our fleet business both domestically and abroad, and are encouraged by the growth we're seeing across our core markets. Shifting over to our Other Payment segment, I am pleased by the momentum we are seeing across our travel, healthcare and employee businesses.

Overall, this segment generated 18% growth in spend volume globally over last year, increasing spend to $6.5 billion. This was driven primarily from growth in the travel vertical and from Evolution1. In travel, volume increased 15% over the prior-year period.

We remain focused on expanding relationships with existing partners and on-boarding new customers during the quarter. We're focused on further globalizing our virtual card product and pursuing value added enhancements to our core service offerings to meet the needs of our customers in high growth markets.

For example, this quarter, we launched a new debit card solution for airline payments targeted at European online travel agents and tour operators. We also entered into a strategic partnership with Universal Air Travel Plan or UATP, an airline-owned payment network to provide the WEX Virtual card solution to the entire UATP network.

Delta Airlines will be the launch UATP issuer, and will utilize our solution for expanded card acceptance for hotel and car rental purchases. Finally, we entered into a partnership with Grasp Technologies to launch GraspPAY, a unique product that seamlessly integrates virtual cards into the travel management companies existing booking flow.

Turning to our business in Asia, we've signed our first five virtual contracts or in the early stages of building market entry plans for the region, but are encouraged by these new signings as they illustrate the strength of our virtual card offering, and more importantly our ability to address the unique needs of the global travel market, particularly in Asia, where we see the potential for significant long-term growth.

Evolution1 had another solid quarter and continues to exceed expectations. We signed a new business with TASQ, PNC Bank and Medica, extending our strong customer network.

Evolution1 remains a fundamental component of our strategy to accelerate organic growth within the attractive consumer driven healthcare vertical, consistently delivering innovations that elevate our market position.

We remain excited about the opportunities Evolution1 affords us in healthcare and see a long run rate for continued growth, particularly as we close our acquisition of Benaissance and begin to integrating the business.

Looking ahead, we remain focused on our strategic priorities for the remainder of 2015, positioning WEX for growth, enhancing our value-added products and service offerings and driving scale across the entire organization. We're excited about the expansion of our global assets and talent base.

We'll continue to work diligently and to ensure that we are maximizing the efficiency and value of our network. As we continue to position WEX for accelerated growth, we're focusing on identifying, pursuing opportunities to drive scale across the organization in order to deliver top line growth and profitability.

We'll leverage our repeatable business model as we believe our success in executing very complex transactions, as well as our proven ability to grow portfolios, set us apart as a corporate payments leader. Overall, I'm pleased with the headway we've made in executing against our strategic priorities this quarter.

We took significant steps to strengthen our business and enhance our position across our core verticals. We generated solid organic growth, in spite of continued pressure from macroeconomic headwinds, including fuel prices and foreign exchange rates.

I'm encouraged by the results demonstrated by both Evolution1 and WEX Europe Services and I'm looking forward to the momentum that will come from the acquisitions of Benaissance and EFS. We exited the third quarter, having strengthened our business, while enhancing our position across our core and emerging verticals.

We continue to win competitively in the domestic fleet business and add new clients to the portfolio. We're successfully globalizing our virtual card offering, we foresee accelerating momentum through our recently announced acquisitions and are pleased with the solid performance of the investments we have made.

Our global reach in expanding network of customers and partners and corporate payments expertise continues to position us well for sustainable growth and profitability long-term. I'll turn the call over to Steve to discuss our financials and guidance.

Steve?.

Thank you, Melissa. For the third quarter of 2015, we reported total revenue of $226 million, a 2% increase from the prior-year period and in line with our guidance range.

Net income attributable to common shareholders on a GAAP basis for the third quarter was $32.2 million, or $0.83 per diluted share, compared with $74.4 million, or $1.91 per diluted share, for the same period last year.

Our non-GAAP adjusted net income was $49.9 million, or $1.29 per diluted share, down from $66.2 million, or $1.70 per diluted share for the same period last year. As Melissa had mentioned, the adjusted net income per share reported for this quarter was impacted by three discrete items, which caused us to fall outside of our guidance range.

This includes $0.06 related to discrete tax-related items, $0.05 attributable to M&A activity and $0.05 attributable to lower fuel prices. Although we had made an assumption for lower fuel prices in our guidance, the retail price dropped significantly faster in August and September than our guidance contemplated.

Also, as we have continued to prioritize the diversification of our business, our recently announced acquisitions will help lessen our exposure to commodity fuel prices. To put this in perspective, our exposure to fluctuations in fuel prices was approximately 40% prior to our acquisition of Evolution1.

We expect this to decrease to approximately 25% to 30% when the acquisition of EFS is completed. Our adjusted net income this quarter also excludes a $2.3 million reserve for a potential regulatory penalty related to WEX Bank's BIN sponsorship of Higher One.

The matter pertains to an allegation for the period of May 2012 to December 2013 that Higher One and WEX Bank provided inadequate disclosure around certain fees related to Higher One's OneAccount. WEX Bank has already taken steps to comply with the relevant regulatory standards.

Although the allegation includes the potential for restitution to deposit holders of approximately $31 million, we expect to be indemnified by Higher One. The ultimate costs could be less than this amount if the bank successfully contests the proposed restitution calculation or if the FDIC agrees to modify the amount of restitution.

The indemnification obligation extends to any restitution the bank may be ultimately required to pay, but does not include the amount of any civil money penalty.

Due to the receipt of the proposed order, the company has recorded a liability for the proposed amount of financial restitution and a corresponding asset for the contractual indemnification of $31 million respectively. We will keep you updated on this pending matter. Moving on to the operations.

In the Fleet segment, total revenue was $141 million, which is down 3% versus last year, primarily attributable to lower fuel prices and foreign exchange rates, and partially offset by WEX Europe Services. Payment processing transactions increased to $89.6 million, 11% higher than the prior-year period.

The increase in transactions was the result of the acquisition of WEX Europe Services as well as organic growth. For the quarter, our Fleet Payment processing revenue came in at $80 million or 14% below the prior-year period. The decline in revenue was driven by fuel prices that were approximately 28% lower versus last year.

Our net payment processing rate increased 1 basis point when compared to the prior-year period, also due to the lower fuel prices. During the quarter, we implemented changes to our customer late fees in line with our previous discussions. As a result, finance fee income was up 15% versus last year despite the lower fuel prices.

Through WEX Europe Services, we remained focused on growing the Esso portfolio in Europe and improving our profitability. As a reminder, revenue in our European Fleet business is based on a spread, which results in less retail fuel price sensitivity in this market.

Our sales and marketing teams in Europe continue to make great strides winning new business, and at the same time we are working to make our operations more efficient and we'll spend the remainder of this year testing our new technology platform. We continue to expect WEX Europe Services will at least break even next year on an operating basis.

In the Other Payment segment, revenue for the third quarter increased 10% or $7.7 million year-over-year to $85.4 million. Spend volume increased 18% over last year to $6.5 billion for the quarter. The net interchange rate during the quarter was 81 basis points, down 3 basis points sequentially and 2 basis points year-over-year.

These decreases are due to the mix of business being seasonally skewed towards our large travel customers and the renewal of the Expedia contract that we announced last quarter.

Moving down the income statement, for the third quarter, total operating expenses on a GAAP basis were $158 million, a $39 million increase versus last year, which included a gain on a divesture of $27 million.

Salary and other personnel costs for Q3 were $57 million compared with $55 million in Q3 last year, up primarily due to the acquisitions of Evolution1 and WEX Europe Services. Service fees were up $2.9 million from the prior year at $36.9 million due to virtual volumes and M&A expenses.

While at the high end of our guidance range, credit loss was in line with our expectations for the quarter totaling $6.6 million on a consolidated basis. This compares to $7.3 million in the third quarter last year. Total charge-offs in the quarter were approximately $5.6 million.

Fleet credit loss was 10.6 basis points in Q3 compared to 10.4 basis points in Q3 2014. We saw a slight softening of our portfolio aging in August, which pushed the expense towards the high side of our guidance. Our operating interest expense was $1.5 million in Q3 as we continued to benefit from low interest rates in the U.S.

The effective tax rate on a GAAP basis for this quarter was 42.4% compared to 25.1% for the third quarter of 2014. Our adjusted net income tax rate this quarter was 40.6%, compared to 23% a year ago. Both periods contained discrete tax items driving the effective tax rate to deviate from our typical effective tax rate.

Last year, we completed a strategic tax review, recording about $12 million of tax benefit as a result. This year, we have a number of discrete tax items that are increasing the rate in Q3, but are not expected to have a material impact on the rate going forward. Note that we expect our adjusted net income tax rate for Q4 to be approximately 36%.

Turning to our fuel derivatives program. For the third quarter of 2015, we recognized a realized cash gain of $11 million before taxes on these instruments. We also recognized an unrealized loss of $3 million due to the change in market value of the outstanding fuel derivatives. We concluded the quarter with a net derivative asset of $13 million.

For the fourth quarter of 2015, the average price locked in is $3.33 to $3.39 per gallon. As we have previously discussed, we have suspended purchasing under the fuel derivatives program as we believe the risk reward trade-offs is not balanced at this time.

Q3 represented the last quarter we were hedged at the 60% targeted levels, and we have partial hedges in place for the fourth quarter of 2015 and first quarter of 2016. We will continue to monitor the market and evaluate our alternatives going forward.

Moving over to the balance sheet, we ended the quarter with $534 million of cash, up from $285 million at the end of last year, due to the seasonality of deposits at our bank. In terms of capital expenditures, total spending for the third quarter was approximately $19 million.

As our track record demonstrates, we've maintained a very disciplined and focused approach to capital allocation since we went public. We ended the quarter with a total balance of $1.1 billion on our revolving line of credit, term loan and notes, which is down $192 million from the beginning of the year.

At the end of the third quarter 2015, our leverage ratio stood at 2.9 times EBITDA. Upon close of the EFS transaction, our leverage ratio will increase to approximately 4.2 times EBITDA with pro forma debt of approximately $2.2 billion, assuming a close on April 1, 2016.

Given the high cash flow generative nature of both WEX and EFS, we expect to deleverage rapidly at a half to three quarters of a churn per year. Now for our guidance for the fourth quarter of 2015 and full year, which reflects our views as of today and are made on a non-GAAP basis.

As we discussed earlier, our guidance excludes the impact of foreign currency remeasurement gains and losses and related hedges. In addition, we are expecting the softness in our same-store sales to continue through the remainder of the year.

For the fourth quarter of 2015, we expect to report revenue in the range of $198 million to $207 million, and adjusted net income in the range of $39 million to $42 million, or $1.02 to $1.09 per diluted share. These figures assume normal seasonality trends in the virtual card business as well as credit losses.

Our fourth quarter guidance assumes that fleet credit loss will be between 10 basis points and 15 basis points, and that domestic fuel prices will average $2.39 per gallon.

For the full year 2015, we expect to report revenue in the range of $840 million to $849 million, and adjusted net income in the range of $184 million to $187 million, or $4.74 per diluted share to $4.81 per diluted share. These figures assume normal seasonality trends in the virtual card business as well as credit losses.

Our full year guidance also assumes that fleet credit loss will be between 8 basis points and 10 basis points and that domestic fuel prices will average $2.58 per gallon. The fuel price assumption for the U.S. is based on the applicable NYMEX futures price.

Additionally, we expect our adjusted net income tax rate to be near 36% for the fourth quarter 2015 and total capital expenditures for the year to be approximately $65 million to $70 million. Our guidance assumes approximately 39 million shares outstanding for the year. Dishanta, at this time, please open the lines for questions..

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

Hi, guys. I was wondering if you could walk us through sort of the – there is a lot of moving parts this quarter obviously. But for your guidance revision for the full year, can you sort of breakout the component drivers there? I understand fuel prices have deteriorated. There is some other things going on in the business.

What drove the sort of full year guide down?.

Ramsey, when you look at the – just kind of the top end of our guidance for Q4 versus what we implied last quarter, you get a drop of about $0.15 in EPS. Most of that change, almost all of that change is just a continuation of a couple of the trends that we saw in Q3.

So, macro factors like fuel prices and foreign exchange rates contribute a little more than half of that decrease, about $0.08 per share. And, we're also planning on about $0.04 per share, which we're kind of classifying as like pre-integration work for the EFS acquisition.

And so then you're left with, call it, $1 million or so of just kind of other movements within the business. So, the big factors really are the macro fuel price in FX and then some of the assumptions we're making on integration work related to EFS..

Okay. Got it. Got it. So, the third quarter – those factors that caused the miss in third quarter are flowing through and there is just some incremental continuation of the trends and some deal related cost et cetera. Okay. Got it. Also, I wanted to ask you about your Other Payment segment.

The volume growth rates and the revenue growth rates there have decelerated sequentially. I was just wondering if there is any commentary that you can give us in terms of parsing out maybe Evolution1's performance.

I know you talked about, I know you gave us some metrics around the virtual card segment, but I was just wondering if you could kind of go little deeper on the Other Payment segment and talk about some of the dynamics this quarter?.

So, if you parse out Evolution1 and remember, there was – we closed the acquisition in the third quarter last year. So, it's not a full quarter of activity last year. Evolution1 actually grew spend volume by about 48% and again, temper that with a little bit of non-comparability due to the timing at the close of the acquisition.

And the virtual card business, which again is – in this quarter is about 85% travel related and 15% other stuff, that grew about 15%, $5.8 billion of the $6.5 billion in total.

In terms of the growth rate, I'd say the travel stuff is actually pretty well in line with where it was before and what you've probably seen is a deceleration in the Evolution1 side because of the comparability, right. We didn't have it at all in the second quarter of last year..

Okay. Great. And just one other quick question.

Did you guys ever give us any kind of qualitative or quantitative direction on Benaissance and potential for – how that will impact 2016?.

We actually said that it would be slightly accretive. So just overall....

Slightly accretive..

We think that is a long-term growth play for us in the marketplace and it's not going to have a significant impact from a financial perspective in the next year..

Just in terms of revenue, I mean, you're talking $20 million, $25 million business, right, so it's fairly low..

Okay. Great. Thanks a lot. That's all from me..

Your next question comes from the line of Bill Filler with Citi..

Hi, guys. Thanks for taking my question. Just to dig deeper on the guidance. It seems like the lower fuel prices take out $8 million or $9 million. So it seems like there is a little bit more that came off the high end of the range. Just wondering if you guys could provide some more color on the top line guidance change? Thanks..

Yeah. So, for Q4, I mean, you're right. If you're talking about full year, that $8 million or $9 million I think is what you came up with, that would be pretty well in line. Foreign exchange rates took another $3 million, $4 million.

And then you are kind of left with, call it, $4 million of kind of other movements within the business both in the third quarter and the fourth quarter combined. So again, it's mostly those macro factors that are moving the revenue guidance..

Okay. So, I guess, from your guys' perspective, the transaction activity in Fleet and Other Payments was consistent with your prior expectations.

Is that right?.

Generally speaking, it's actually in the results came in, if you look at all the other factors from a revenue perspective within Q3 and what we're projecting forward, there's some give or takes.

As Steve said, some things came in a little higher and some things came in a little lower, but generally, it actually came in pretty close to what we expected..

Okay. And then, I mean, in terms of the expenses, so you had some M&A related costs in the third quarter. It sounds like some integration work in the fourth quarter. I guess, I mean, mostly you talked about setting this business up for margin expansion.

How should we think about 2016? I know you're not prepared to give guidance at this point, but should we view some of these costs as one-time or will some of these costs flow into 2016, understanding also that we have a fairly significant flip in the Esso business for 2016 as well?.

Yeah. So just to give you a little color on, and as you said this is not guidance. But the costs that we're incurring right now, I would put into the categories is one-time. The cost we incurred in the quarter were legal costs largely associated with the transactions. And Steve talked about the pre-integration work.

It kind of continued down that and it's work we're going to do in advance of the actual integration. Going into 2016, you kind of lay out the different pieces. One of the things that's obviously top of people's mind are fuel prices and it's part of what we're doing from an acquisition perspective is to create more of a buffer around that.

But as we go into 2016, obviously we're on hedge for that period of time. So there will be an impact associated with that depending on what actually ultimately happens with fuel prices.

But then on the positive side, we'll end up with the benefit of the acquisitions rolling into the business, and we've talked about the accretion we expect from that, and primarily FX would obviously be the leading component of adding an accretion.

We also get a little bit of a benefit for purchasing the other half of UNIK and, as I said, Benaissance will be slightly positive. We'll have WES rolling into a new period as you go into next year. So we've been in this period of time of really making rapid changes to the overall portfolio, both in terms of revenue.

We're very proud of the fact that we're growing that portfolio. I think that's important for our customers in that marketplace. Yet at the same time, we're looking at the overall cost structure of that business, and those changes are going to affect 2016. We view that as a positive year-over-year.

And then in the backdrop of that, we've just got an organic growth engine that's continuing to deliver very consistently. And so you won't have the fuel price overhang in terms of the revenue comparison year-over-year hopefully.

Or if you do, it hopefully is positive, but that will actually give more transparency around the actual organic growth of the business. And then the last factor is really what's going to happen to FX. It's been a negative headwind for us this year. And we'll see our view of that as you get closer to the end of the year..

Okay. That's helpful. A lot of puts and takes going on. Maybe one last one then. I think last quarter you guys talked about kind of an organic constant currency revenue growth number for 2Q. I didn't hear it for this quarter.

Can you guys provide, I guess, the currency impacts on the top line for the quarter? And maybe also size some of the divestitures that you made and how that impact the revenue during the third quarter? Thanks..

Yeah. So the number that you talked about, last quarter we quoted 10% Q2, this quarter it was 9-and-change, like 9.5% in the third quarter. So, compared to last year, the revenue was down about $10 million for FX rates, and then fuel prices were into the – well into the $20 millions – almost $30 million of fuel price impacts compared to last year.

So, the adjusting for those things as well as the two acquisitions, two divestitures that kind of gets you in the 9.5% range..

Great. Thanks..

Your next question comes from Darrin Peller with Barclays..

Thanks, guys. The 1.38%, or the almost 1.4% net interchange rate in the payment processing was pretty good. Just can you give us some color on what drove that, given it's been ticking down for the past few quarters? And then I just have a follow-up question on the net interchange rate on the Other Payment side..

One of the things we announced last quarter is that we'd extended our relationship with Expedia, which has had an impact on the comparability of that number. You can see that factoring in, which I'd say is the biggest factor..

That's on the Other Payment side. On the fuel side, I'd say it's just kind of stabilizing. Fuel prices have gone down a little bit, which helps bring that rate up just a touch as well. And really nothing aside from mix is really changing in there. We're very stable with the rates that we're getting from the merchants.

The rebates I'd say are only really changing to the extent we win business. So that's a good thing, so that's just leveling off is how I'd phrase it..

Okay. All right.

So, I guess, back to the Other Payment side for a moment, there's nothing else from – other than Expedia, nothing else from mix or any other re-signed contracts?.

No. Nothing significant at all..

Okay. And then just one quick follow-up on the Esso side. I mean, I know you guys mentioned breaking even on that next year. You've obviously been making a substantial amount of investment in the platform.

Any progress with other major oil brands at this point in time?.

I would say we feel really good about how we're positioned from a product perspective. Every time that we show the product and the underlying technology, it is incredibly well received, and the market is active. So you've heard me say for a while, I think of this as kind of longer-term life of the business.

But the investments we're making are actually resonating within the marketplace, and I think that's a very positive sign for us..

Yeah.

And is it too far-fetched to assume that we would see other announcements within the next like year to year-and-a-half, or is it just that much longer of a sales cycle?.

No. I don't think that that's far-fetched. You're getting year-and- a-half is quite a bit of time still. But I think that that's certainly possible..

Okay. All right, guys. Thanks very much..

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

Hi, great. Thanks. You guys gave a lot of good disclosure already.

I'm just curious just on the hedges, if you were to strike the hedge today, what would that look like?.

I assume, you mean next year, Tien-tsin?.

Yeah. Sorry, looking out, exactly. Thanks..

It would be plus or minus a few pennies, it'd be right around $2.50 a gallon..

Got you. So $2.50 is sort of a good assumption. Thanks. And then just the softness in the same-store. I know you talked about that for a couple quarters now.

But just curious just thinking about the correlation of that to credit losses ahead, is it reasonable to think that maybe we could see a little bit of a tick up in credit loss or not necessarily based on history?.

It's interesting, there's not always a direct correlation as you might think..

Okay..

Although it's certainly something we're paying attention to, particularly with the SIC codes. Now, if you look at it across the market, we're tracking about half a dozen – I'm sorry, two dozen SIC codes and about half of them are negative and about half of them are positive.

So you've got this interesting market right now where you've got industries like obviously oil and gas that's getting hit pretty hard. But we're also seeing softness in same-store sales in our larger fleet customers, which are typically more resilient on – and in terms of credit loss.

And so in the places where you typically might see more softness like the construction trades are actually looking good in terms of same-store sales.

So, I wouldn't say that we're making a direct correlation between what we're seeing in same-store sales and what we anticipate in credit loss, but we're certainly paying attention to what we're seeing overall in the economy and being thoughtful about that in terms of how we approach our credit procedures..

Okay, good. One more – it is helpful. One more just on Benaissance, just is it costly to integrate that with Evolution1? Is that – have you sized that for us? Thank you..

No, we don't think that it is costly and the business from a product perspective, we think is going to be just a natural extension of what Evolution1 has been doing in the marketplace. They've already been partnering with Benaissance and have had success in that market.

So, there'll be some ordinary course work that we do, but we don't envision this to be a significant cost..

Okay. Great. Thank you..

Your next question comes from Jim Schneider with Goldman Sachs..

Good morning. Thanks for taking my question. Regarding the same-store sales trends, I think down 2.7%, I think last quarter they were in the same kind of ballpark.

Can you maybe highlight whether that's extended or that weakness is extended to any other verticals other than the kind of trucking and energy segments you cited last quarter? And I guess do you see any signs that – or any prospects of that kind of recovering in the near term or you think it's going to be weakness for another couple quarters to come?.

Jim, I'd say, I mean, we just called out, the two areas that really contributed the 2.7% this quarter were the large fleets and the oil and gas industry. If you take those two things out, everybody else was basically flat.

So, last quarter, we talked about manufacturing was weak in Q2 and we did see that one get somewhat better, but it's still down about 4%. I think it was 7% last quarter. And the other one we called out last quarter was transportation down about 3%. That was actually pretty flat this quarter.

And as Melissa just mentioned, construction was actually pretty solid at almost 3% positive. In terms of where it goes in the future, I think we really correlate that to where the economy is headed. And so, I just got a crystal ball to tell us where the economy's going, we'll tell you where the same-store sales are going..

Fair enough. And then just a clarification.

Regarding the Esso accretion statements, Steve that you made about turning positive or accretive in 2016, is that a full year statement? And if so, does that kind of imply that you would see still some losses in the first half offset by gains in the back half?.

It is a full year assumption. So, I don't think we're going to sit here and predict that there will be less certain day next year that we turn the quarter and now we're suddenly positive. I mean, I think with fuel margins that can go up and down, you can get some variability in there. Obviously, credit losses could have some variability as well.

So, it's clearly our expectation to be at least breakeven next year on an operating basis out there. It could go up and down in the first half of the year, it could go up and down in the second half of the year with some of that variability, but the expectation is still at least breakeven next year..

Okay. Thank you..

Your next question comes from Meghna Ladha with Susquehanna..

Hi. This is Hamza Fodderwala in for Meghna Ladha. Thanks for taking my question.

Just a follow-up on the same-store sales growth, could you maybe break out what your overall same-store sales growth was this quarter and then also, specifically in some of your main verticals like mining, transportation and manufacturing?.

So, same-store sales were actually negative 2.7% in the – our U.S. fleet market..

Okay..

The big categories – you're talking about our large fleets team down, mining was also down pretty significantly year-over-year. And, I can go through a lot of detail, but there – if I look at kind of the bigger categories, transportation was down a little and construction was one of the bigger ops, up 3%.

So, you've got a – just a bunch of gives and takes, about half of them are positive and about half of them are negative. Construction because its – there is a decent correlation between that and our business is probably the biggest positive driver..

Okay. Okay.

And then just a follow-up, given some of the consolidation of fleet payments based over the past year, how should we think about the pricing environment, in general? And maybe could you elaborate on some of the pricing initiatives that you're thinking about as you get ready to close the EFS transaction next year?.

Sure. Pricing is something that we think about and we spent a lot of time obviously thinking about the last couple of years, how to make sure that we're priced competitively and consistent with the value propositions that we have in the marketplace.

And we've made a number of tweaks just to bring the two things in alignment in their marketplace and we've seen some of the benefit of that rolling through our business in 2015.

Just as a kind of a philosophy that's been just a philosophy of ours is make sure that we're thinking about that on a periodic basis and that we're being thoughtful about the correlation of those two things of value proposition and the pricing in the marketplace and where that stands competitively.

And when we think about competitively, we think about across a wide spectrum of competitors in the marketplace, including third-party (46:46) and including new entrants into the marketplace. And so, it's a very broad view that we take when we think about that.

And I would say that that's been true across the board and that will be true for us on a go-forward basis and regardless of what's happening with any particular competitor..

Okay.

And then just lastly, do you see any lift in your transaction growth generally in periods of lower fuel prices just – and if not why is that the case?.

I would say that the absolute dollar level of fuel prices doesn't really impact our customer base directly.

If you think of yourself as a small business person, say you're a plumber, an electrician, or something like that, it doesn't matter whether the price of fuel was $2 or $4 a gallon, you're going to go to the job sites and calls that you have to operate your business.

If that weakness or strength in the pressure fuel translates more broadly into the general economy, then you can have more of a secondary impact and we've seen that before, but even going back a few years, if you go back to Hurricane Katrina, we had a spike in fuel prices, pretty severe one, but we saw no impact on our customer buying behavior, because the economy was still strong and they still had work to do and jobs sites to go to.

So, and it works in reverse as well, right. I don't think that the same-store sales is correlated to fuel prices or just because price is lower, our businesses aren't going to drive more, they're going to drive what they need to do to operate their business..

Okay. Thank you. That's it for me..

Your next question comes from Tom McCrohan with CLSA..

Hi, everyone. I got a couple of questions.

The first one on Higher One, I just want to make sure that those deposits are benefiting your operating interest expense line today, is that right?.

That's correct, Tom..

Great.

And can you remind us the amount of funding that you're getting from Higher One?.

Yeah, it's really quite variable and seasonal right. We're talking about students getting financial aid. So, actually September quarter is really from a reporting perspective our high point of the year, as students go back to school in September, they got a lot of financial aid and they haven't had too much to spend it yet.

You see, to a lesser extent, we got a bump again in kind of the January February timeframe. On average for the year, we're probably looking at about $400 million worth of deposits. When you look at it over the course of the year, but it can range from low of say $250 million to $300 million to a high of $800-ish million..

And your total funding requirement, it kind of tracks a lot of fuel expenditures, I guess. So....

Yeah..

...what percentage of your funding do you think Higher One is?.

Right now, our bank deposit base is, I'll call it $1.2 billion or so. So, maybe a third of the total deposit base is with Higher One today..

Okay..

And just – I don't have any worries about if these deposits go away, the market is very robust for us to be able to raise deposits pretty rapidly should we need to..

Right.

These are free though, right, for the most part or how (50:16) cost?.

Essentially the relationship is, we're the deposit holder, we're the issuer on the cards that the students use to access the funds.

Any of the fee income generated and any of the direct expenses with operating that is kind of pass-through to Higher One and we hold the deposits for essentially effectively at this point at least with low interest rate environment, no cost to us..

Okay. Great.

A couple of quick questions on virtual card, Steve, so that I thought I heard you say in the prepared remarks, maybe it was you Melissa that the volume growth in Evolution1 this quarter was 48% and OTA was 15%, is that right?.

48% and 15%, yeah..

Yeah..

All right.

What was the volume growth of Evolution1 when you acquired them?.

We said that it was a high double-digit grower, high-teens grower..

It's in the acceleration, just all execution of new clients?.

The one thing Steve said is that we didn't own them for the full period of last year, so you're getting some benefit just of comparability every year-over-year..

That's great..

We are seeing them grow at about that same rate as what we'd anticipated. So that high-teen growth rate is....

Okay..

... what we're anticipating for this year..

And then, the 15% growth in OTA this quarter, how has that trended last few quarters, has that been steady at 15% decelerating, accelerating?.

It's pretty steady, I would say overall, I mean, you're getting some noise in there from foreign exchange rates, because 35% to 40% of the volume is outside of the U.S. So, the 15% is probably up a point or two sequentially from first to second quarter, but I'd attribute that mostly to foreign exchange rates..

Okay. And last question on the volumes.

Was there any noise in Q3 of last year in the volumes if you take away Evolution1, was there any other noise in that quarter, one timers?.

On the virtual side?.

Yeah, yeah.

Just volume-specific question, so was there any noise in volumes? No?.

No..

No, it would be pretty rare for us to get the volume-specific anomalies in that business..

Okay. That's all I had. Thank you..

Your next question comes from Mike Grondahl with Piper Jaffray..

Yeah. Thanks for taking my questions.

On the fee increases that you made, were those late fees and can you kind of just give us an example of the fee went from X to Y? And then secondly on the financing that you're going to do for EFS, are you planning on fixed rate refinancing or variable? How do you sort of envision that next spring?.

So, I'll respond, the financing fee was a piece of the changes that we made. We looked across the kind of spectrum of how we were priced and made some modifications. And we've been doing that over the course of the last couple of years. But financing fee was probably the biggest leverage point though.

And as we had looked at that, we were pretty far right at the marketplace and so we made changes in terms of the rate in a minimum and that's what's coming through in the calculations..

And, Mike, in terms of the debt, if you will, for the EFS acquisition, we've got a firm commitment from a group of banks that that's a total of $2.1 billion commitment. So the bonds that we currently have outstanding would be in addition to that. So it consists of a $350 million revolving line of credit, floating LIBOR-based plus 275 basis points.

And then, the majority of it – one point almost $8 billion is a term loan B and that is also floating rate. So it's LIBOR plus 350 basis points, but LIBOR has a 75 basis points floor built into it, so no lower than 4.75.

I would say also that this is the – they are subject to flex terms as well that could add up to as much as a couple of hundred basis points depending on what the market conditions are when we actually put the debt in place.

And I guess the other thing I'd say is, what we have right now is a firm commitment that's basically offloading rate debt and we can look at the desirability of fixing some of that as well just through a financial instrument to fix LIBOR..

Got it. And then, Steve, if you could just clarify, a prior question asked you about Higher One, and I think you felt comfortable with that financing source. But I think you mentioned, if you had to go elsewhere for financing that that was readily available in the market.

Is it readily available at the same prices for the same cost?.

It's tough to beat essentially non-interest bearing deposit. So, the short answer is, no, right. There would be an impact on the price there. It's small. Our CDs are – we're probably paying something like 50 basis points today. So, it's not a crippling impact, but it's – like I said, it's tough to beat zero..

Got you. Okay, hey. Thank you..

The next question comes from Glenn Greene with Oppenheimer..

Thanks. Good morning.

A couple of clarifications on prior questions, but Steve could you just clarify what was the constant currency volume growth in the OTA business?.

We quoted the total volume at 15%. So, you're probably looking at a couple of percentage points of impacts from foreign exchange rates coming down..

So, very similar to last quarter..

Yeah..

And then going back and forth, on the E1 volume growth of 48%, but what was the apples-to-apples if you had it in both periods for the full quarter?.

I don't have that information in front of me, Glenn, sorry..

Okay. And then....

We expect growing....

Yeah..

If we look at the full year forecast of that, we expect it to be growing this as we had expected it to. And we're thinking about more in terms of revenue growth in that the high teens..

High teens, okay.

And then, Melissa, you sort of were helpful giving the puts and takes for 2016, but at this point, could you sort of clarify what the drag for WEX Europe is this year and also the conversely hedging gains on the fuel that's baked into this year's guidance?.

Sure. So, the hedging gains that are based in this year's guidance is about $40 million in a rough order of magnitude. So, you're essentially this year capturing about half of the revenue loss that we had related to fuel prices. And next year, we talked about moving to a breakeven level.

We've been saying that there is roughly about $10 million negative impact with WEX, to the business this year. So it's a pretty big swing also..

And then the final one about the UATP, which you talked about, it was pretty interesting.

Could you give a little bit more color on that and is it potentially a meaningful volume driver to the OTA business going into 2016?.

Yeah. We're excited about it. It just kind of contextually UATP has processes for the airline something rough order of about $12 billion worth of spend. And typically, what you see for hotel and car rental roughly equals that amount. So when you think about this is – it's like potentially $12 billion worth of spend.

We're in the very early stages and so it was like they kind of say going into it. It's a big potential market opportunity, but we will learn a lot as we go through this rollout with Delta to see really what the take rate is.

But what we're providing to the airline is they issue the UATP card is the ability to integrate other purchases into one billing. And so, it's a advantage to their customer set and we're able to do it in a way that's (59:03).

So we think that this is going to be a good product offering in the marketplace but we will learn a lot more about what the actual revenue opportunity is as we roll out Delta..

All right, great. Thank you very much..

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

This is actually Brian Hogan filling in for Bob. So, thanks for taking questions. Esso, I guess you mentioned breakeven and covered that in 2016.

But I was kind of curious what is your kind of outlook on revenues? I think you were talking call it $32 million, $35 million-ish for 2015, and it's like what kind of growth do you expect?.

So, we had said that after we purchased the portfolio, there were a number of things that were different than what we had expected. And in aggregate, that has resulted in more revenue. And so it kind of go through them. The volume in the portfolio was bigger than what we expected when we brought it over.

We've been able to actually grow the portfolio, and we've grown it very successfully in terms of also placing it well within the local marketplace. And so those have been additive. So when I talk about the business doing better than expected, it's really been on the revenue side.

And then in terms of earnings, we also said that we took on more cost than we had anticipated, and that that's going to be a process in order to change the ultimate cost structure. So I'd say revenue was higher than that number that we had originally quoted.

As Steve said, the revenue will fluctuate based on spreads, and so think of the portfolio as a single-digit grower normally, but you're going to see some volatility in terms of the revenue based on what's happening with spreads in the local environment. And so all those things we're going to have to factor in when we give guidance out next year..

Okay. Thanks for that.

The increase in the late fees and kind of monetization of your fees, have you received any pushback? Is that kind of the driver of some of the softness in the credit in August or do have any more room to raise prices? You kind of talked about it earlier, but where are you at in the increasing fee game?.

Yeah. So actually let me try and clarify. We track very closely both customer satisfaction and attrition rates, and those would be the indicators really of whether or not we're doing something that's making our customers dissatisfied. And both of those have been very strong for us.

So we haven't seen a deterioration in our attrition rates, nor have we seen really any meaningful impact on overall customer satisfaction. So that's something that's clearly important to how we think about our position in the marketplace.

What is impacting the overall credit loss is more just softness that we experienced within the ageing, as Steve said, at the portfolio, particularly in the month of August, and so that can roll through in what we experience with a little bit of elevation in our credit losses.

But if you look at our overall credit losses for this year, we're anticipating is a very low number still. So I wouldn't make any type of correlation between those two things.

And in terms of future opportunity, I would say we have more of just a normal course now as we think about where we're situating ourselves in the marketplace and making sure that that's in line with the value propositions, and it's part of what we're going to be evaluating when we think about 2016..

Okay. The vehicles – it's a kind of very minor question here. But I mean, they went from 9.8 million in 2Q to 9.7 million, usually it goes up not down. Just kind of curious what's going on..

Yeah. That's just related to the transaction we did when we sold Pacific Pride just kind of the tail to that transaction. So it's just I would put it in the category of just cleaning up related to that, and there's nothing to do with the underlying growth of the business.

And you can see that translating into the fact we saw actual gallon growth in their business..

Right. And so a kind of a bigger picture strategic question deals with leverage and M&A pipeline. There's a lot of opportunities out there, especially in healthcare. It seems rapidly growing space.

And, I guess, what is your thoughts on future M&A, especially considering you have this EFS and Benaissance coming on, your leverage going up to 4.2, which is the highest you've – I guess we have on record at least. And you've mentioned that your cash flow is very strong and you delevered 0.5 turn to 0.75 turn.

Is that your focus is to deleverage initially and then M&A later or do you need to raise more capital or would you raise capital at the right price?.

Yeah. So I would suggest kind of bringing up a level. We were very thoughtful about the combination of acquisitions that we did. And part of what we liked about adding in Benaissance was about growth. As we looked at – and I would argue the other half of UNIK, even though Brazil is a tough market right now, we've actually had good success in Brazil.

So we think both of those in the growth category. With EFS, we're able to actually do something that we think is good for our customers because we're really running out our product set, but it also creates significant scale.

And whenever we actually set back and modeled scenarios of how we could deploy capital, the consistent theme with EFS, you actually increase the level of cash flow generation just because of the scale of the business and that actually ultimately feeds your ability to do a lot more.

So as we think about other opportunities in the marketplace and further acquisitions, we're actually going to be able to – from a cash flow generation from that business do things that will also feed into some of the top line growth initiatives that we're interested in.

So we think of EFS as actually being additive on a bit of a longer-term basis to our ability to do other acquisitions. And in terms of the pipeline, we'll continue to look and be active in the marketplace, but I would say our primary focus in the short term will be delevering.

That being said, it's going to continue to be an active market and we will make sure that we're playing in that..

Okay. Thanks, Melissa. The one last question is Element Financial has acquired a bunch of the leasing fleets.

Have you had any discussions with them or any change on their behavior?.

Element has been a great partner with us. As I would say, it's GE, and so we have a good relationship with both entities. As they go through their integration process, we have enjoyed working with them as we would any of our other partners. I would say, no significant change in behavior..

At this time, there are no further questions. I'd turn the call back over to Micky for closing remarks..

Thank you for joining us today. That concludes our call. Good bye, now..

Thank you, ladies and gentlemen. This concludes today's call. You may now disconnect..