Steven Alan Elder - Senior Vice President, Global Investor Relations Melissa D. Smith - President, Chief Executive Officer & Director Roberto Simon - Chief Financial Officer.

Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc. Ashish Sabadra - Deutsche Bank Securities, Inc. Bob P. Napoli - William Blair & Co. LLC Ramsey El-Assal - Jefferies LLC Timothy Wayne Willi - Wells Fargo Securities LLC Danyal Hussain - Morgan Stanley & Co. LLC Tien-Tsin Huang - JPMorgan Securities LLC Thomas McCrohan - CLSA Americas LLC.

At this time, I would like to welcome everyone to the WEX Second Quarter 2016 Earnings Call. I will now turn the call over to Steve Elder, Senior Vice President of Investor Relations. Please go ahead..

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

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

Adjusted net income for this year's second quarter excludes acquisition and divestiture-related items, stock-based compensation, restructuring costs, foreign currency re-measurement losses, similar adjustments attributed to our non-controlling interest and certain tax-related items.

The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis, as we are unable to predict certain elements that are included in our reported GAAP results including the impact of foreign exchange re-measurement gains or losses due to the uncertainty of market fluctuations.

Please see Exhibit 1 for an explanation and reconciliation of adjusted net income to GAAP net income included in the press release. Beginning with Q3 of this year, we will be excluding the amortization of deferred financing costs.

I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Annual Report on Form 10-K filed with the SEC on February 26, 2016.

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

Good morning, everyone, and thank you for joining us today. We're pleased to announce another strong quarter of performance in 2016. For the second quarter, we exceeded our expectations on both the top and bottom line, driven by continued focus on organic growth across our core verticals and execution against our strategic priorities.

We also closed the Electronic Funds Source or EFS acquisition on July 1, which is the largest transaction in our history. We feel very good about the benefits of this deal and the opportunity it provides us to drive scale and value creation. I'll come back to elaborate on this momentarily.

Despite headwinds there's (02:54) approximately $13.6 million in fuel prices in the quarter, we generated an impressive 9.5% revenue growth, with $233.9 million in revenue. Net income on a GAAP basis was $0.32 per diluted share, and we generated adjusted net income of $1.08 per share.

This quarter's strong performance speaks to WEX's ongoing commitment to our three strategic pillars. We continue to prioritize developing and driving our market-leading offerings. We're investing in our products, and we're seeing dividends from those investments.

In our Domestic Fleet business, in addition to the new EFS products and services, we have rolled out our new Fleet SmartHub app which puts account data in the hands of the customer regardless of where they are and provides real-time messages to drivers when they're breaking company fueling policies.

Our Health business has just completed a major project release which includes paying your health bill using a mobile phone portal customization for partners and supporting Apple Pay.

In addition, as our performance indicates, our focus on accelerating growth across our core verticals drove organic revenue this quarter with very little acquisition activity impacting the results.

By offering superior customer service, maintaining strong relationships with our current accounts and pursuing new business, we've consistently delivered solid organic growth in the fleet space. We've also made progress in modernizing our pricing to better align with the market.

Following favorable pilot tests, we began to roll out our fee programs across our direct fleets which contributed nicely to our growth this quarter. We're also making strides in strengthening our leadership position in travel and are extending our partnerships in Health and Employee Benefit Solutions.

WEX Health came out of the annual enrollment period better than expected and we feel very good about our positioning in the market with our unified offering and flexible platform. Lastly, in addition to expanding our offering, we're focused on capturing efficiencies and scale across the business.

On a global basis, we're scaling our programs in Europe and Asia and are pleased with the expansion we've experienced across verticals and geographies. Our fleet products now extend to 23 countries and the reach of our virtual products continues to grow in Europe and Asia.

We're excited about the pipeline we have in place to fuel (05:21) our organic growth as well as our reach around the world. Before I get into details on the segment information, I'd like to give you an update on the EFS transaction. This represents an exciting milestone in the evolution of our Domestic Fleet business.

EFS has been closed for just shy of one month, but I want to share some insight on what we're seeing in the business. We've been evaluating assets in the OTR space for several years and we ultimately chose to purchase EFS due to its market-leading technology, innovative product set, and growing customer base.

EFS customers include marquee names such as Knight Transportation, Transport America, and Schneider, just to name a few. In fact, Schneider, which is the largest privately held truckload carrier in the nation, signed a long-term agreement with EFS just prior to the acquisition.

We expect to see additional ramp from new signings in the second half of 2016. EFS has a strong track record of customer satisfaction, evidenced by low voluntary attrition rates. On the corporate payment side, our offerings strongly complement each other.

The WEX Virtual business has a heavy focus on specialized payment solutions for key industry verticals such as travel. This is complemented by the EFS solution which offers electronic accounts payable to companies, and an integrated payables offering with plastic and T&E capabilities as a direct and white labeled offering.

From a scale perspective, we've already commenced the integration process for EFS by realigning the organization's internal reporting structure. And we'll be launching a variety of integration and migration-related tasks over the coming months.

These include aligning the sales force, go-to-market strategy, relationship management and back office operations between the two companies. The final phase will be integrating technology, which we expect to have completed within three years.

As we've proven in the past, we remain diligent in ensuring a thoughtful and efficient integration process, and we will provide updates as we progress through the milestones of this transition and focus on maximizing synergy, capture and cross-selling opportunities.

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

Now turning to the segment details, our Domestic Fleet business continued its solid track record this quarter. Revenue in the segment was $144 million, growing 6% over last year in spite of the $14 million drag from fuel prices year-over-year.

Although same store sales was negative 4%, our pipeline remains solid and our front-end sales engine continues to perform well. This quarter, we renewed our contract with QuikTrip, as well as several important states in our municipal portfolio. Our pricing modernization efforts will continue to offer incremental benefits to our performance this year.

In our international fleet business, we're excited about our ongoing success, particularly in the rapid geographic expansion, as we deploy our new technology internationally. The new countries include both prepaid and credit offerings operating on our international technology platform in Southeast Asia and Europe.

We've worked with our global partners to understand the in-country complexities, are developing an expertise in rapid country deployments which we believe is important strategically to our expansion. We've also expanded our relationship with Shell with our prepaid card offering in both Europe and Asia.

We're currently live in six countries on the prepaid product and expect several more before the end of the year. This is great progress, and I am pleased with their ability to get this complex technology built into the market for our customers in a relatively short period of time.

In the background, we remain focused on optimizing our assets in Europe, modifying the cost structure to be in better alignment with the portfolio need and ramping inside sales roles while consolidating back-end functions. Our fleet business in Australia and Brazil continue to perform as expected.

I am very pleased with Brazil's performance despite a challenging economic environment. Overall, I'm encouraged by our expanded footprint and strengthened offering in our fleet segment. Our products resonate with the market. Our sales pipeline remains robust, and we're making progress in extending key strategic accounts.

Turning now to our Travel and Corporate Solutions segment, the segment performed in line with our expectations. Revenue growth in the segment was 11%, with purchase volume growth of 14% during the second quarter. This growth continues to be driven primarily by a travel vertical with strong performance in the U.S. and Europe.

We're seeing an increasingly strong rate of growth in Europe and Asia, and some softness in cross-border travel patterns. We continue to prioritize expansion into strategic growth regions while strengthening our relationships with key clients.

We've developed the framework to carry our business forward into Asia which will enable us to capture strong growth in this region. For example, we signed one of the largest OTAs in the region last quarter, and they're in the process of on-boarding business now.

We've also hired additional sales resources in Europe to capitalize on the opportunity that we see here. In some, we're focused on further globalization of our virtual card product and pursuing value-added enhancements for existing product portfolio.

Lastly, Health and Employee Benefit Solutions is performing ahead of expectations, evidenced by revenue growth of 22.5% this quarter. We continue to build our presence in health payments as a provider of industry-leading solutions. The WEX Health team continued to collaborate on winning new accounts.

In fact, we're ramping our implementation resources to meet the demand we're experiencing on-boarding partners. As anticipated, we're also benefiting from cross-selling opportunities across WEX Health.

During the quarter, we were able to expand our relationship with the State of Vermont and are now providing expanded and enhanced premium processing services to Vermont Health Connect subscribers and State of Vermont Medicaid recipients through our cloud-based platform.

As we move forward, we'll focus on building out our distribution base; we'll continue to service our key accounts, capturing organic growth opportunities across our platform. We're excited about the opportunities we see in healthcare and anticipate a long runway for growth in this space.

Overall, I'm very pleased with our performance this quarter and the underlying organic growth, which sets us on a solid path for the remainder of 2016. We are increasing our sales investments in the second half of the year based on the results that we've seen year-to-date.

We'll remain diligent in executing our strategic priorities while driving scale and efficiencies across the portfolio. We remain cautious regarding macro trends that impact our industry. We'll continue diversifying our revenue streams which will help to mitigate the impact of fuel prices on the business.

Our growth engine has proven to be strong over the years. It's becoming even stronger starting with a good organic base and expanding as we further integrate our newly acquired businesses and pursue new business development opportunities.

Our product presence has also strengthened, driven by our capacity to use technology to put control in the hands of our customers, which we believe is the common thread across all of WEX's core products. We feel very good about where we stand at the midyear mark this year.

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

Roberto?.

Thank you, Melissa, and good morning, everyone. For the second quarter of 2016, our total revenue was $233.9 million, a 9.5% increase over the prior year period, and above the high end of our guidance range of $216 million to $226 million.

Net income on a GAAP basis for the second quarter was $12.6 million or $0.32 per diluted share, compared to $26.5 million or $0.68 per diluted share for the second quarter last year.

Non-GAAP adjusted net income came in above the high end of our guidance range of $42.1 million or $1.08 per diluted share, down from $48.3 million or $1.25 per diluted share for the same period last year. This decline includes an $8.2 million impact from lower fuel prices in the second quarter of 2016.

In addition, 2015 results benefit by a $5.7 million gain from our fuel price hedges. Our performance this quarter was driven by solid results across all of our core verticals.

Versus our guidance, the primary drivers we had the increase in revenue and earnings were solid volumes in our fleet business, coupled with the ongoing benefit of pricing modernizations and higher-than-expected fuel prices. Operating expenses were generally in line with our expectations.

The Fleet Solutions segment achieve $144 million in revenue, an increase of 6%. Fuel prices, again, play a significant role. The average domestic fuel price in Q2 was $2.29 versus $2.74 in Q2 last year. This decline in fuel price core revenue to go down by approximately $14 million in the quarter.

As a reminder, for a full year basis, it's $0.10 change in average domestic fuel prices will increase or decrease revenue by approximately $12 million including the volume of EFS. During the second quarter, payment processing transactions increased to $94.2 million, 9% higher than the prior year period.

It was driven primarily by the conversion of a customer to payment processing from transaction processing, as well as continued organic growth. We continue to see softness in same store sales with a decline similar to the first quarter.

And we continue to see weakness in our large fleets and the oil and gas industry similar to what we have seen for the past years. Loan payment processing revenue in the fleet segment increased $17.9 million compared to last year.

It was primarily driven by additional price modernization initiatives which continued to shift our offering to better align with the market. As a reminder, when revenue and – from finance fees increases, our exposure to retail fuel prices also increases in dollar terms.

In Travel and Corporate Solution, revenue for the second quarter increased 11% to $53.3 million. Spend volume increased 14% over last year to $5.6 billion for the quarter, driven by our large level customer in the U.S. and Europe and continue ramp-up from our business in Asia.

Net interchange rate for our virtual card in the second quarter came in at 77 basis points, ahead of our expectation due to customer settlement mix. Other revenue in the segment was impacted by some softness in cross-border fees.

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

Moving down the income statement, for the second quarter, total operating expenses on a GAAP basis were $182.3 million. Salary expense for the company was $66.7 million, up from $59.1 million in Q2 last year. The increase was due to the acquisition of Benaissance as well as some smaller miscellaneous items.

Service fees were $43.4 million in the quarter, which is up from $33.9 million in the same quarter last year. These increases includes cost for volume increases in our Travel segment, deal-related expenses for closing the EFS transaction, and cost for outsourcing much of our back office technology, which is partially offset by other line items.

During the second quarter, credit loss on a consolidated basis totaled $6.4 million, up $2.5 million compared to second quarter last year. Fleet credit loss was 10.2 basis point in the second quarter, which was in the middle of our guidance range compared to a record low 5.3 basis points in the second quarter 2015.

In the Travel segment, we had the bankruptcy occur in Europe. We anticipate the total loss will be approximately $2.7 million including $1.2 million in the second quarter results. Our operating interest expense was $1.5 million in the quarter, as we continued to benefit from low interest rates in the U.S.

During the quarter, we signed an agreement to transfer ownership of the Higher One deposits to another bank. We will be replacing them with broker CDs (19:20) money market funds as necessary. This will have an immaterial impact on earnings this year.

On a GAAP basis, the effective tax rate for the second quarter was 27.3%, compared to 38.4% for the second quarter of 2015. On an ANI basis, the tax rate was 36.4% compared to 35.8% last year. As we announced during our last call, we no longer have any fuel derivatives outstanding.

And based on the current price of oil, we do not expect to enter into any new hedges in the near term. However, we may enter into further hedges if price rise in the future. Moving on to the balance sheet, we ended the quarter with $317.8 million of cash, up from $280 million as compared to the cash position at the end of last year.

The increase was in anticipation of closing the EFS deal. We ended the quarter with a total balance of $1.1 billion on our revolving line of credit, term loan and notes.

Pro forma for the acquisition of EFS, which occur on July 1, our leverage ratio was approximately 4.7 times as defined in our credit agreement, net of the excess corporate cash as just mentioned. We expect to use our future cash flow to reduce our debt balances and de-lever our ratio returns to our target range of 2 to 3 times.

We are very pleased with the result of the financing associated with the purchase of EFS. The new structure includes a seven-year $1.2 billion Term Loan B, a five-year $455 million Term Loan A, and a $470 million five-year revolver. The Term Loan B's price are LIBOR which has a 75 basis point floor plus 350 basis points.

The revolver and the Term A are price at LIBOR plus 325 basis points. Each of the interest rate spread can go down depending upon leverage as it is defined in the credit agreement. The company's $400 million fix rate bonds remain outstanding at 4.75%.

Before we give guidance, I would like to touch briefly on our expectations for the impact of EFS to our financials. First, we expect revenue for the year facing the second half of this year to be approximately $74 million to $78 million. As Melissa mentioned, we expect a positive but immaterial impact to our adjusted net income EPS for the year.

This is due to the timing of the transaction close and the drop in fuel prices since we announced the deal. However, we expect earnings to ramp up in the fourth quarter as we begin to execute on our integration and synergy plans.

Also, we are anticipating a reduction in the cross-border fees as we have seen some softness in these transactions and as we move towards our local issuances strategy. Finally, we are planning to reinvest a portion of the favorability we signed the second quarter into the business across each of our segments. Now, for our guidance.

Note that this expectation reflects our view as of today and are based on a non-GAAP basis with respect to adjusted net income. This guidance is based on exchange rates at the end of the second quarter. Guidance for credit loss and fuel prices excludes EFS.

For the third quarter of 2016, we expect to report revenue in the range of $272 million to $282 million, and adjusted net income in the range of $46 million to $49 million or $1.07 to $1.14 per diluted share. This figure assume normal seasonality trends in the virtual card business, as well as credit losses.

Our third quarter guidance assume that our fleet credit loss will be between 9 basis points and 14 basis points. It also assumes that domestic fuel prices will average $2.22 per gallon.

For the full year, we expect revenue to be in the range of $975 million to $1 billion, and adjusted net income in the range of $171 million to $179 million or $4.17 to $4.37 per diluted share. This also assumes that the fleet credit loss will be between 10 basis points and 15 basis points.

Full year average domestic fuel prices are based on $2.16 a gallon, in line with our prior guidance. The fuel price assumptions for the U.S. are based on the applicable NYMEX future price. We expect our adjusted net income tax rate to be between 36% and 37% for 2016.

We have updated the number of shares for the remainder of the year to approximately 43 million shares outstanding. With that, we will open the line for questions..

The first question comes from Sanjay Sakhrani of KBW..

Good morning. Sorry. I was on mute. Sorry about that.

How are you guys?.

Hi. Good..

Good..

So I had a question on the Fleet Solutions segment. When I look across the revenue lines, those all seem pretty strong relative to our expectations and the margin seem – the yields seemed a lot higher than we anticipated.

Could you just talk about the sustainability of that going forward?.

Yeah. And there's a couple things that are impacting that. There was a re-class that we did into that business from Health, so about $3 million that got re-classed out. So, if you look at the Health segment, it looks – the growth looks a little lower than it really is and it looks a little bit higher than it really is.

So just to kind of keep that in mind. But if you look across the business, there's about $18 million worth of additional revenue that came into the second quarter outside of payment processing revenue. If you strip out that $3 million, there's still $15 million of incremental revenue.

A lot of that, beyond just the organic growth piece, is coming from the pricing modernizations that we're doing. So that work – we talked about being in a test mode and making a number of changes over the last couple of years. We rolled in a lot of those into the second quarter.

So we do think that that's generally sustainable when you remove that re-class out of it just to think of that as a little bit of noise, but if you move that out, we do anticipate they're going to see something continued like that.

The things that might change and that we're still tracking are customer behavior patterns so if we see some changes in their behavior since some of those things are activity based, that could cause it to move a little bit, but largely we're expecting this to look like that....

All right, great. Great. And then just following up on EFS. When we think about the new terms and looking out to next year, adding some of the wins that you mentioned that are ramping up towards the end of the year into next year.

Could you talk about like how you expect EFS to kind of play out next year as far as accretion is concerned?.

Yeah. If you start with this year – and then I'd say we've only owned it now for a month to little bit like having a – present it's been sitting there for nine months that we just get to open and we're very excited. But, as we really get to know it even better, we are more and more excited about the opportunities that we have.

And we've talked about the customer ramps that they have that we're seeing, (27:35) customers that they've already started to implement that haven't fully ramped yet. So they're getting a run rate benefit of that. But also on top of that, customer signings that are signed, but not yet implemented.

So, there's a component that's coming just from implementing and ramping business. There's also the piece that Roberto mentioned in his prepared comments that's around the synergies. So, we started first by looking at the business and making organizational changes.

And as we flow those organizational changes through the rest of the business and look for overlapping costs, we think ratably that $25 million which is going to come out over the next three years, and so we do expect you'll see a build in terms of both of those things coming together..

Okay. Great.

I mean, is there any specific revenue – I'm sorry, earnings accretion number that you might be able to guide us towards yet?.

Not yet. I'd say, it's still early. We are learning where the pieces are going to come from and we've gone through and obviously done detailed builds around the synergy components, but we're filling that out. And so, we'll give more insight into 2017 as we get closer and we give guidance for 2017..

All right. Great. Thank you..

Our next question comes from Ashish Sabadra of Deutsche Bank..

Hi. Good results from the quarter. My question was around the 3Q guidance. The 3Q guidance on the EPS side was a bit soft compared to what we were expecting. I was just wondering are there any puts and takes there..

Are you talking the full year guidance?.

No, I was....

We can't hear you very well..

Oh, sorry about that.

No, I was specifically talking about the third quarter guidance, the EPS guidance for the third quarter came in a bit soft compared to what we were expecting, just wondering any puts or takes in that?.

Yes. Well, let me picture this for you in a summarized way. First thing, you saw that we beat expectations in the second quarter. And on the other side as well, our – the fuel prices are coming as expected. So, on those areas, we do not see a material change from what we have in the previous range.

What I would say to you is that as we move, and Melissa has talked about that, we have owned EFS for almost a month right now. And this is – we are saying that for the full year – the remainder of the year, the numbers are going to be positive.

But obviously, as I mentioned on the call, we're going to be ramping up positive results, especially as we enter 2014. Because as you can understand in the third quarter, we're just taking the business and we progress on the integration on the synergies, we're going to see the results coming in the fourth quarter.

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

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

I was just wondering if you can give some more color around what's driving these new wins. I thought OTR business is normally a low-mid single digit growth business.

What is driving this 40% growth and how should we think about the growth going forward?.

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

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

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

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

And again, there is a piece that's related to fleet, there's a piece that's related to their corporate payments arena and they've seen some really strong growth on both of them. Corporate payments is coming off a much smaller base. So, on a percentage basis, it seems an oversized growth..

Thanks for that color..

(33:02) our forward view, when we – when we announced this, we talked about this being a high-single digit grower over time. So, as we – we did kind of a longer-term view, that has been how we had initially looked at this business. I think that they have the potential of doing something beyond that from what we're seeing so far..

No, that's great. Thanks for that color. And maybe one final question on the fuel sensitivity, that $0.10 change in fuel prices having a $12 million impact on revenues.

Is that slightly higher than the prior estimate? And what does it mean for the EPS? Is it still $0.16?.

What I would say to you is that we haven't (33:44) included in this new number obviously the EFS, which has around a $100,000 impact. So, we go from the $11 million to $12 million. In terms of the EPS, there's a very material change from what we were guiding before..

Okay. Thanks..

The next question – the next question comes from Bob Napoli of William Blair..

Thank you and good morning. Just on your modernization, your pricing modernization, I mean, it still looks to us like the – your – your fee income and it's well below still even the testing that you're doing, while it's up a lot from where you were, it still seems like it's well below where your biggest competitor is.

What are your thoughts around continued modernization or – and what part of your base – customer base and how – what percentage of your customer base are you implementing those – that pricing modernization? I would imagine it's primarily with small to mid-sized companies..

That's right, Bob. So, the piece of the portfolio, when I talk about pricing modernization, it is related to small fleets in the United States. And so it's a section of our overall portfolio. And that's when you look at our larger fleets, we're typically the premium offering in the marketplace, and that's because of the functionality that we offer.

We think that, that is worth the premium that people are paying. When you get into the smaller fleet marketplace, we just hadn't really changed the pricing that we had in the marketplace for quite some time even though if you look at kind of externally, there were a number of changes being made to move these more to the fleet.

And so the changes that we've made have been really just updating that. And what we're trying to balance as – as we do this, we care a lot about brand.

We care a lot about the brand of our partners too that we're doing business with, and so we're balancing their desires as well in the marketplace to make sure that their customers are satisfied, that they're continuing to do business and fuel within their locations at the same time as making change to the prices.

And that's the balance that we've been going through. We feel really good about the balance that we're at right now, but we're continuing to test and getting more sophisticated as we do that testing.

And so far, we've seen very little impact to overall attrition rates, and I think that's a positive and the fact that we've been very thoughtful about how we're going to approach this.

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

Is this may be a third of your customer base in the U.S.?.

It's not even – in the U.S., that's probably about right in the U.S. Yes..

Then the interchange rate on your Travel business went from 70 bps to 77 bps quarter-over-quarter.

What drove the increase and what should we be thinking about as far as an interchange rate in not only the balance of the year but over the next few years?.

Bob, this is Roberto. What is important to keep in mind in is the first, we have talked extensively about the contract signings we have had in the segment and the impact this have on our interchange rate. And obviously, this has no change.

Second, we also talk last quarter about our few customer meeting higher rebate tiers levels which obviously has an impact and a fluctuation in the interchange rate. And finally, in this quarter, we have saw the spend levels of the same customer come down a bit.

So, we had a small benefit in our interchange rate as we have aligned our year-to-date rebates to our best estimate and new tiers. Going forward, we would expect the rate to be around the average of the first two quarters of this year..

Great. And then just my last question on the balance sheet and the – Melissa, you talked in the press release about inorganic, as you look at inorganic growth opportunities.

And what are your thoughts on leverage and it'd seem that based on historical leverage levels that you're maxed out for the time being, but are you thinking differently around the balance sheet and your thoughts around inorganic?.

I'd say I'm incredibly thoughtful of where we are in terms of our leverage position right now. We're continuing to look at opportunities. But as we're looking at those opportunities and mindful of the fact that we do have more leverage and as we're prioritizing, we're balancing those two things.

So, whether the opportunities worth (39:18) coming into the marketplace, whether we want to make sure that we're building relationship with over time and then delevering the business. And our primary focus certainly is around delevering right now..

Thank you..

The next question comes from Ramsey El-Assal with Jefferies..

Hi, guys. Following up on Bob's next to last question.

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

So part of it, what we were interested in in the asset was just their ability to innovate. And what we're – one of the things we're excited about is the fact that they're rolling out new business intelligence toolkits, which just gives their customers greater visibility into indexed information off of the EFS index.

And we see that as an opportunity to create value in terms of creating economic value. And also potentially leveraging that across to our Fleet One portfolio. So, we do believe you're going to see some changes that are coming based on the work that they've done to-date to bring new products into the marketplace..

Okay.

But not necessarily pricing specifically, but just sort of cross-sell of new – of their solutions into your base basically?.

there'll be a combination of just making sure that we look across the business and think about it in terms of making sure that there are standards. Now, that will happen over time..

Okay..

The more immediate piece that's coming is relating to the new products that they're bringing into the market..

Got it. Okay. And could you give us a little color as you usually do on the same-store sales metrics? You mentioned about a 4% decline which is about consistent, it feels like with the last couple of quarters.

Is there any kind of – can you drill down a little bit for us in terms of the verticals that are performing better or worse than expected or is it just basically same old, same old?.

It is pretty consistent. The oil and gas continues to really get hit hard. It's down over 30% year-over-year. So, the base is getting smaller, but the numbers are big enough that it still affects the total. That's the biggest thing that's getting affected. The larger fleet profile seems to get hit a little bit more than the rest of the profile.

I think Roberto had mentioned that. Also construction's down a little bit; manufacturing is down a little bit and transportation is down a little bit. So, this time, it does seem like there are more positives.

So, it's not like you look across the board and you see everything looking negative, but there's a couple of really pretty big negatives (42:36) by oil and gas. And when you look at it from a regional viewpoint, it's the southwest region that's getting hit the hardest which I think is again consistent with what we've seen the last several quarters..

Okay. Lastly from me, any word on the Europe RFPs? I think your competitor mentioned on a conference appearance inter-quarter that there may be one of the RFPs kicking around in Europe potentially coming to a head at some point soon.

Has your view there evolved at all? And I guess also, do you think that your leverage level or your ability to get those deals done now that you just closed on EFS, is there any incremental change there in your view that you're competitive with those types of offers?.

Yeah, we continue to get great feedback on the products that we have in the marketplace. I think that our ability to grow portfolios is important still, not just in the U.S., but outside the U.S. And so – and we do feel like we're well positioned.

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

And your current leverage level post EFS, these are not terribly capital intensive deals. I understand.

No change there in your perception of your – maybe the perception of the other side's ability that you can get the deal done and...?.

No. A lot of the transactions are structured in a way that wouldn't be like what we did with Exxon, and I think that that was kind of an unusual transaction in the way that we went to market with them.

It often – people start with wanting to replace the technology and they kind of move up the value chain over time, which is consistent with what we've seen in the United States, and so it's a way that build trust and to take on more responsibility. So, I don't envision our leverage as a blocking point for us in Europe..

Okay, great. That's all for me. Thank you..

The next question comes from James Schneider of Goldman Sachs..

Hello?.

Jim?.

Jim?.

Operator, why don't you move to the next question?.

The next question comes from Tim Willi of Wells Fargo..

Hi, thanks, and good morning. Couple of questions. I think, Melissa, you referenced in the sort of the Corporate and then Travel some commentary around softness in cross-border. And I know that flowed into the earlier discussion about the yield, et cetera.

Could you just maybe – any additional thoughts and color on that topic? Anything that you think might have been related to Brexit versus the unfortunate rash of terrorist attacks, just sort of how you think about that, the trajectory of it and how you guys are monitoring it..

Yeah. And actually there's two pieces to cross-border. One is what we saw in the quarter, which we think had to do more with travel patterns than from what we're seeing. And I don't think that we could comment of whether that's because of terrorist activity or if that's because of Brexit or something else.

But we are seeing a little bit of a change in behavior. And what that means to us is when people are moving from within where we're issuing to another country, those cross-border fees aren't there, and so it's a little bit of a revenue impact to us.

And the other part of the commentary was around going to local bins (47:05) which is something we've been doing over a number of years. And so – and from a trend perspective, we've been moving customers into local bins (47:10) because there's a number of benefits to the customer.

And as we do that, you would naturally see some of this cross-border fees erode. So, you get both of those two things coming together. And so, we just wanted to make sure that we highlighted it..

Okay. And then, can I ask again on fleet. Just in general of Southeast Asia. I know there is a lot of focus on North America and Europe.

But I guess as you sort of been around that market now for a while, counting Australia sort of that part of the world, how do you think about growing that part of the franchise versus may be how you went about (47:51) in Europe? Well, it'd have to be a different type strategy? Could it very much follow that playbook of just sort of a left out of an existing program or just some big RFPs.

Just any kind of color there. Just out of curiosity of how you think about that growth opportunity and sort of the playbook..

Yeah. We're finding some markets are more fragmented. And it's so – when we talk about country expansion, that's in part because of that fragmentation. That's why it's important that we can move from country to country to get the scale.

We are seeing interest with private label relationships and that's what happened with us with both Exxon who now does business with us within Southeast Asia and with Shell where we're doing the prepaid offering for them in Europe and parts of Asia.

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

I put fleet (49:03) in Asia, still as kind of longer-term growth to play because I do think we'll build business there, but because the – it's coming a little bit more fragmented, it's going to take some time for it to accumulate. And it's something that's going to be meaningful for us.

But still, it's – they're nice wins and they're accumulating into something that's going to be a nice business for us..

Okay, great. And I just had one last question.

In terms of the Higher One deposits and the shift in the funding mix, can you just sort of frame how we should think about the difference between the Higher One deposits and going back to the wholesale CD market? I just haven't had chance to do that yet this morning, but just any general commentary as we sort of think about beyond 2016 and sort of modeling out the cost of working capital there?.

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

60 (50:14)..

50? 50 basis points. About 50 basis points..

Okay. So, about 50 bps. Great. That's all I have. Thanks so much..

The next question comes from Danyal Hussain of Morgan Stanley..

Hi. Good morning. Thanks for taking the question.

Could you just – a couple more questions for pricing, but could you just walk us through when in the quarter you've more broadly rolled out the changes, so whether we had a full quarter of impact? And then two, whether – what the right, I guess, run rate is? It seems like you're maybe about $10 million, maybe you just clarify that?.

So, we actually implemented the changes in July. So, we are getting not necessarily a full impact but pretty close to a full impact. We are continuing to test and roll out additional changes though. So, in our view this isn't done. It's something that's going to continue to happen over a period of time.

As we continue to test and learn, we'll implement further changes..

Got it. And then, I guess if you look at guidance, how much you raised it, you're adding it looks like $76 million from EFS.

Could you call out or quantify how much incremental you're expecting from pricing?.

It was actually included in our last sort of guidance. So when we – so we got a little bit more in the quarter than we had expected, but that had to do more with timing than anything else. So from a – and if you look at guidance to guidance, there is a little bit that we've got in Q2 that we're adding into the full year number.

But I would say generally, it's pretty consistent with what we had anticipated as we went into the year and particularly as we gave guidance last quarter..

Okay. Perfect. And then maybe just quick on your Travel, the volume growth.

Could you quantify ex-FX growth?.

Danyal, in this period is immaterial, the FX impact..

Got it. Thank you very much..

The next question is from Tien-Tsin Huang of JPMorgan..

Thanks. Good morning. On the EFS, the synergy, the $25 million. I think you said it would be ratable. Just wanted to make sure that I heard that correctly.

And there is a way to quantify the timing and the magnitude of the reinvestment required to get through the phases of the synergies?.

So, your first question around ratable, yeah, I would think of it as a third, a third, a third, roughly is what we're envisioning right now. In terms of the reinvestment, I think you're referring to the fact we said that we are reinvesting across the number of our businesses for the second half of the year..

Yep..

We're talking about something in the order of 4% to 5%. It's not a huge number, but it's enough when you start to talk about the things that are affecting the year. And Roberto talked about the bankruptcy loss that we have, the beat (53:45) that we have, the investments that we're making, they all kind of net out.

And then when you add EFS in the mix, which was – what you're seeing play out in our guidance..

I see. And then just on the – you mentioned the bankruptcy, looks like your credit loss assumption is still the same though for the year.

Given that bankruptcy, I'm assuming that most of that is cleaned up, but given delinquency trends, is it likely to see – or we likely to see sort of stable credit losses from here, or could we actually see it tick up with some leakage from the bankruptcies and whatever else you see?.

Tien, what I would say to you is you are right. We have maintained the guidance as it was. And although we have got this bankruptcy as a one-time event, on other areas, we are seeing improvement as well. So, all in all, we don't see a major impact for the full year..

Okay..

And when we gave the credit loss range, that's for the fleet business alone. So, it doesn't reflect the Travel part..

Right. Right. Right. Good point. Understood. Just last one. Just the cross-border. I know that was asked a bunch already, but did you quantify the weakness you're contemplating in the third quarter specifically? I mean, the trend is not surprising.

We've heard this from some of the other cross-border processors, but just curious if we can maybe quantify that to some degree..

We have not quantified it. It's included overall in our expectations for the next couple of quarters, but we didn't put a number next to it..

Okay. Fair enough. Thanks as always..

Our next question comes from Tom McCrohan of CLSA..

Hi. Did you give out the same-store sales growth in fleet? Sorry, if I missed that..

It's – in the U.S., it's negative 4%..

All right. That was kind of consistent with last quarter..

It is. Yeah, it looks pretty consistent..

Yeah. Okay. And then, based on the disclosures on normalizing the currency in fuel. I think last quarter you said 12% revenue growth, 16% EPS growth. So, I calculate for this quarter, 16% revenue growth adjusted for those items, but can't seem to get to a comparable EPS figure.

What would be the comparable EPS growth figure?.

Yes, we – actually we gave you the table in there for revenue, and I think you're getting something closer to 17%, so close. On the earnings side, we've tried to give all that information, it's about 22%..

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

So, we neutralized it for fuel. So, it's – the acceleration is coming in part because of the pricing modernization we had, a little bit higher growth in revenue on our Travel business because we had – we had a couple of one-time things coming through in last quarter.

And so you had an acceleration which was more because last quarter is a little bit of an anomaly on the Travel side. And I would say that those are really the kind of the bigger things that are moving sequentially..

So, Melissa, if you assume neutralized for fuel, neutralized for currency going forward, is there anything that will prohibit you from growing at these neutralized pro forma growth rates in next several quarters?.

But we also had the benefit of EFS in there when you look at the revenue growth. And so, it's going to be – it's going to affect the results. And when we've given out guidance range in terms of – at least longer-term guidance, we've talked about revenue guidance of 10% to 15%.

And we're obviously coming a little higher than that when you exclude the impact of fuel prices right now. I think some of that have to do with the pricing work which we do think will have – it's going to have some carry effects for a period of time for us. But I'm thoughtful about the fact that's not going to carry us forever..

Yeah. Yeah..

But it is something that we do think it's going to contribute to the business for a number of periods to come..

Okay. Yeah, so, I guess the only thing about the quarter I'm trying to reconcile with is sequentially Q1, Q2, you had improvements in those two metrics which seemed to be there for a reason to say once we kind of get through and lap all these headwinds from macro fuel, the growth rate's going to be better obviously, the one's you're posting.

So, you had a Q1, Q2 acceleration, but the top end of your guidance, you didn't change despite the fact that you kind of tweaked up a little bit the fuel price assumption. So, I'm just struggling – we're trying to make that bridge between this type of growth and the lack of like raising the high end of our EPS guidance.

So, is there a simple answer to that that you could provide?.

Yes. If you start on the revenue side, which I think is where you're beginning with, that you would see similar – so you'd take the top end of our revenue guidance last time, you add in the $78 million which is the top end of EFS, and the second quarter fee, we are adding in some incremental revenue associated with what we're seeing with trends.

And so, I would say we are factoring it in. When you get into their earnings on top end, the two things that are offsetting some of the favorability that we are seeing are very intentional investments that we're making in the second half of the year.

We're just – we're seeing really great results in a number of places in our business since we're putting some money back into that. And then the underlying bankruptcy that Roberto referred to, and the piece which we took in the second quarter, the piece we know that we're going to take in the third quarter.

So, those things are really just affecting our – what we're doing at the top end. We did move up the bottom end of the range. And it kind of reflects the fact that we're seeing that momentum. But we held the top end of the range because of a couple of things.

One of which was intentional and one of which we just know it's going to happen in the third quarter..

Okay. Okay. Fair enough. Thank you..

Are there any closing remarks?.

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

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