Steven Alan Elder - WEX, Inc. Melissa D. Smith - WEX, Inc. Roberto Simon - WEX, Inc..

Ramsey El-Assal - Jefferies LLC Oscar Turner - SunTrust Robinson Humphrey, Inc. Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc. Peter Christiansen - Citigroup Global Markets, Inc. (Broker) Robert Paul Napoli - William Blair & Co. LLC Tien-Tsin Huang - JPMorgan Securities LLC Glenn Greene - Oppenheimer & Co., Inc.

Thomas McCrohan - Mizuho Securities USA, Inc..

Good morning. Thank you for standing by. At this time, we'd like to welcome everyone to the WEX Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. It's now my pleasure to turn today's conference over to Steve Elder.

Sir, the floor is yours..

Thank you, Holly, 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 third quarter excludes unrealized gains and losses on derivative instruments, net foreign currency remeasurement gains and losses, non-cash adjustments related to our tax receivable agreement, acquisition-related intangible amortization, other acquisition and divestiture-related items, stock-based compensation, restructuring and other costs, debt restructuring and debt issuance cost amortization, ANI adjustments attributable to non-controlling interests and certain tax-related items.

The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis, as we are unable to predict certain elements that are included in reported GAAP results. Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income to GAAP net income.

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

Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Annual Report on Form 10-K filed with the SEC on March 6, 2017 and subsequent SEC filings.

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..

to drive continued growth, to lead through superior technology, and to leverage investments to optimize synergies. Executing against these pillars has allowed us to post our third consecutive quarter of double-digit revenue growth this year and fifth overall.

The progress made year-to-date is a testament to our ability to gain market share across all three of our core segments by deepening existing relationships, building new partnerships, and delivering high-quality service and innovative technologies to our expanding customer base.

I'm encouraged by our track record of competitive wins and partnership re-signings as we drive growth across our business. New revenue is at an all-time high due to an influx of additional strategic customers and partners.

In Fleet Solutions, we extended our relationship with a federal government under the GSA SmartPay 3 contract with a new 13-year agreement. We also renewed our contract with Sheetz and savings4members. In terms of new business, we signed significant contracts with AutoZone and Verizon, who is one of the largest private fleets in the country.

We're also excited to ramp up our Chevron relationship as we closely coordinate with all relevant parties to ensure for a smoother transition as possible. Although we've experienced delays, we are making progress towards transitioning the portfolio over to our platform.

Internationally, Chevron is going live in Asia, and our new business pipelines are strong in both Asia and Europe. We continued to strengthen our Fleet business in Europe. We have transformed our portfolio and reshaped both the revenue streams and the cost structure to drive profitability.

We're nearing our initial goal and we're in the final phase, which is converting the Esso portfolio on to the WEX platform. We remain well positioned internationally to capture new business and foster organic growth. Overall, our sales and marketing teams are performing very well, and we're capturing additional market share.

In Travel and Corporate Solutions, we saw impressive growth in purchase volume, as we continued to strengthen and refine our relationships with top-tier online travel agencies. This yielded notable international growth, highlighted by a 45% purchase volume increase in Europe.

Similarly, we are accelerating growth in Asia, as our products gained traction and grew rapidly in this emerging market. From a domestic perspective, we experienced continued strength in our corporate payments businesses.

Our record of new business wins and client re-signings continued in the Health and Employee Benefits Solutions segment with another quarter of above-market growth. Our successes include new partner signings, renewals and expansions with such companies as Conduent, Infinisource and Trion MMA.

We also broadened our relationships with one of the industry's leading benefit administration software companies and long-time WEX Health billing partner for several new offerings, including consumer-directed healthcare accounts and COBRA. Remarkably, this was our eighth consecutive quarter of 20% or more revenue growth in our U. S.

Healthcare business. In addition, our Brazilian Benefits business has also continued its impressive growth, with volumes up 41% year-over-year, leading to revenue growth of more than 60%.

We are proud of this quarter's successes, which not only highlight how strongly our products and solutions resonate in the marketplace, but also provide a solid foundation for continued momentum and long-term growth. We also continued to lead through superior technology, our second strategic pillar for 2017.

Being on the leading edge of innovation is embedded in our DNA and has been instrumental in enabling us to secure and retain key strategic partners and customers. In our Fleet business, we continued to enhance and refine our offerings to better serve customers.

This quarter, we added new features to our mobile fleet app, improved the customer portal experience for fleet managers and expanded adoption of our ClearView analytics tool.

The combination of our ClearView product and our new WEX Crossroads (7:54) product, which is a one-card, closed-loop solution for both in-town and truck-stop fueling needs is the primary reason that we won the Verizon business.

In October, we acquired certain assets of AOC Solutions, which has been a key technology provider for our virtual card product offering for many years. Through this acquisition, we gained access to new technology, while making our virtual card offerings more vertically integrated.

In addition, it fits within our long-term strategic product road map, as we look to extend our capabilities in corporate payment solutions. In July, we released new products in our U.S. Healthcare business that added 175 new features and functions to the platform.

Leading these innovative features are the employee dashboard, consumer personalization technology tool and a post deductible FSA plan. This release, coupled with our Open Enrollment initiative and upcoming November product release, help support new and existing business opportunities.

While we're constantly making our business more efficient and more synergistic, our most notable example of this has been the acquisition of EFS, which has had and will continue to have a positive impact on our business.

Today, platform consolidation and integration continue to be ahead of schedule, and we remain on track to achieve our $25 million target in synergies. We've completed nearly all of the integration activities, except for the consolidation of the platforms, which is well underway.

Before I turn the call over to Roberto, I'd like to address the impact of the recent hurricanes on our business, which is the topic we received a number of questions about lately. First and foremost, our hearts go out to those impacted by these devastating storms.

From a business perspective, we've seen a similar pattern in previous natural disasters, in which an initial volume dip occurs in the immediate aftermath, which is more than offset in the weeks following, as businesses reopen and rebuilding efforts move into high gear.

During this time, we proactively suspended all late fees for businesses in affected areas for one month, because we felt like that was the right thing to do for our customers. Although we gave up some revenue in the short term due to this policy, we place greater emphasis on fostering long-term relationships.

In addition, we saw a slight impact on the aging of our accounts receivable portfolio that Roberto will discuss later. This is also consistent with our history in similar circumstances.

In summary, I'm very pleased by our performance in the third quarter, highlighted by strong profitable growth and underpinned by solid execution against our strategic objectives. We're encouraged by the contributions of all three of our business segments to our growth engine this year. Our business is more diverse than ever before.

We continue to leverage our core competencies across an evolving and increasingly global marketplace, which will help us build upon our successful track record of competitive wins. As we look to the fourth quarter and year-end, we look forward to a strong close to an already successful year.

I would now like to turn the call over to our CFO, Roberto Simon.

Roberto?.

Thank you, Melissa, and good morning, everyone. For the third quarter of 2017, our total revenue was $324 million, a 13% increase over the prior-year period and above our guidance range of $302 million to $312 million.

Net income on a GAAP basis for the third quarter was $34 million or $0.79 per diluted share, compared to $19.7 million or $0.46 per diluted share for the same quarter last year.

Non-GAAP adjusted net income was $61.5 million or $1.43 per diluted share, up 14% from $1.25 per diluted share for the same period last year, and above the high end of our guidance range. We are very pleased with our strong organic revenue performance across nearly all areas of our business.

On top of that, we experienced tailwinds in FX rates and fuel prices, which also contributed to the strong performance. Due to our solid underlying fundamentals and normalizing macro trends, we are confident in raising our revenue and earnings guidance for Q4.

During the third quarter, the Fleet Solutions segment achieved $212.1 million in revenue, an increase of 15% or $27.3 million compared to the prior year. Payment processing transactions increased to $110 million or 7% versus Q3 last year, which led to a 9% increase in payment processing revenue.

Non-payment processing revenue increased $20.2 million or 20% as compared to last year. Finally, our average domestic fuel price in Q3 was $2.51 versus $2.24 in Q3 last year. We see a number of positive trends across the Fleet segment. We saw solid organic transaction growth, and same-store sales were stable.

As we continue our price modernization program, finance fees increased 23% versus last year, even though we turned off late fee charges in areas affected by the hurricanes for a period of time in the quarter. This is indicative of continued normalization of our customer payment behavior and our very low customer attrition rates.

EFS posted another strong quarter as well, with fleet revenue up 15% compared to last year. We saw solid growth in both volumes and transactions year-over-year. Integration on platform conversion efforts continued to run smoothly, and we remain on track to reach our targeted $25 million in synergies.

Finally, higher fuel prices provided us with $8 million in additional revenue compared to last year, and approximately $2 million versus our guidance net of spread impacts. In Travel and Corporate Solutions, revenue for the third quarter decreased 4% to $61 million.

Total purchase volume reached $8.7 billion, growing 21%, driven by volume growth across all geographies. The net interchange rate for our virtual card in the third quarter was 51 basis points.

As we have previously expected, there was no material change to our net interchange rate in the third quarter compared to the second quarter, and it was in line with our guidance from the beginning of the year. We did see some mix impact on the net interchange rate from a greater percentage of purchase volumes occurring outside of the U.S.

where interchange rate are generally lower. This international volume growth led to strong growth in other revenue for the segment. We have a very positive trend in our revenue diversification in the segment, with revenue growing close to 50% outside of the U.S. Travel business, led by Europe and domestic corporate payments.

For Health and Employee Benefit Solutions, revenue for the third quarter increased 28% to $50.9 million, driven by account growth and spend volume in both the U.S. Healthcare and Brazilian Benefit businesses. As Melissa mentioned, the U.S. saw a strong momentum stemming from a host of new partnerships and cross sales.

The sales pipeline remained robust, and we grew more than 20% year-over-year, with the Bank of America portfolio now fully converted onto our platform.

Our benefit business in Brazil also continued its impressive pace, growing more than 60% in the quarter, which is the fifth consecutive quarter of more than 50% growth, excluding the impact from currency fluctuation. Moving down the income statement, for the third quarter, total company operating expenses on a GAAP basis were $260.3 million.

Salary expense for the company was $92.3 million, up from $76.7 million in Q3 last year. In addition to head count increases to support our high-growth areas, we also had increases as part of bringing certain technology functions back in house from a third-party provider.

Finally, based on our strong results to date, we are increasing our variable compensation estimates for the year. Service fees was $41.2 million in the quarter, which is down $12.2 million compared to the prior year. The majority of the decline is due to closing cost of the EFS acquisition last year that didn't repeat this year.

As previously discussed, we are benefiting from the agreement signed with MasterCard a year ago, which is offsetting some of the interchange pressure we have seen in our Travel segment. This will be the final quarter where we see these favorable comparisons. During the third quarter, credit loss on a consolidated basis totaled $19.6 million.

In the Fleet segment, credit loss was 23.5 basis points of spend volume, which was slightly above the high end of our guidance range. The steps we have taken to reduce losses from fraud have started to pay off. As we anticipated, fraud from card skimming trended down as the quarter progressed.

We are pleased to see positive trends each month during the quarter. The monthly fraud expense from September and October is down around 60% from the high point last quarter. Our new real-time software is now operational and helping to prevent fraudulent transactions.

Turning to regular credit loss, our portfolio remains in good shape, but we were affected by two discrete items. We saw one significant customer in bankruptcy, and we also saw customer in areas impacted by the hurricanes paying more slowly than they normally would.

Because of these factors, we did see an increase in the traditional credit loss this quarter. Without this, we would have been within the guidance range for the quarter. Shifting gears, our operating interest expenses were $7.4 million in the third quarter and in line with our expectations.

We saw an increase in our average operating debt levels in the U. S. as fuel prices increased. Also, interest rates are higher than last year. And finally, volume increases in Brazil contributed to the higher expense. On a GAAP basis, the effective tax rate for the third quarter was 35.4% compared to 24% for the third quarter of 2016.

On an ANI basis, the tax rate was 36% for the third quarter and 37% last year. Moving on to the balance sheet, we ended the quarter with $251 million in cash, up from $191 million as compared to the cash position at the end of last year. At quarter end, we had a total balance of $2.1 billion on our revolving line of credit, term loans and notes.

Our leverage ratio, as defined in our credit agreement, stands at approximately 4.1 times. In conjunction with the closing of the AOC acquisition, we have added $100 million of capacity to our revolving line of credit to provide us with additional liquidity and flexibility.

Based on our guidance and including this acquisition, we expect our leverage ratio to be approximately 4.2 times at the end of the year. During Q3, we closed the repricing of the secured term loans under our existing credit facility.

As I stated in the press release, we anticipate approximately $11 million in interest expense savings on an annualized basis, by reducing the spread on our Term B loan by 75 basis points and on our Term A loan by 50 basis points.

This led to a reduction in financing interest expense in the quarter of more than $2 million, which was offset by fees paid to close the transaction. Now, for our guidance, note that this expectation reflects our views as of today and are made on a non-GAAP basis with respect to adjusted net income.

This guidance is based on exchange rates at the end of the third quarter. For the fourth quarter of 2017, we expect to report revenue in the range of $317 million to $327 million, and adjusted net income in the range of $60 million to $63 million or $1.40 to $1.47 per diluted share.

These figures assume normal seasonality trends in the virtual card business as well as in credit losses. This guidance assumes that our fleet credit loss will be between 19 basis points and 24 basis points. We assume that domestic fuel prices will average $2.53 per gallon. This assumption for the U.S.

is based on the applicable NYMEX future price from this week. We expect our adjusted net income tax rate to be between 36% and 37%. As part of the AOC acquisition, we have included approximately $7 million in revenue with an immaterial impact on earnings.

Finally, we expect Health and Employee Benefits segment revenue growth to slow in Q4 due to an exceptional performance in our Brazil Benefit business last year when it grew more than 100%.

For the full year, we expect revenue to be in the range of $1.24 billion to $1.25 billion, and adjusted net income in the range of $228 million to $231 million or $5.31 to $5.38 per diluted share. EPS guidance is based on approximately 43 million shares outstanding. With that, we will open the lines for questions..

Our first question is going to come from the line of Ramsey El-Assal with Jefferies..

Hi, guys. Thanks for taking my question. I wanted to ask about the fraud and skimming-related issue.

Can you walk us through the technology solution that you sort of implemented, and then talk a little bit about, I guess, A, kind of where we think the level of fraud should come in, in Q4? And then also next year or going forward, should we expect that rate to sort of normalize back to historical levels, or are we always going to be operating at a little bit of a higher elevated level until the EMV transition happens at the fuel pump sometime later?.

Yeah. Good morning, this is Roberto. Let me provide you first some color which is important to understand the full picture. First of all, there is nothing to be alarmed, especially, because as we said, fraud is coming down as we expected. Our portfolio remains in good shape, and we don't see (24:00) at this point.

Our credit loss for fraud was within the guidance range, and our credit loss is slightly off because the two items that we discussed. And as I also said, hurricanes had impacted a bit our numbers in this quarter.

As we look into Q4, we expect the fleet credit loss, as I said, to be in the range of 19 basis points to 24 basis points, which is just slightly elevated from historical norms. But you can see that the fraud is still higher than the past. We are in regular norms. And I'll give you a reference. Last year Q4 2016, we closed at 18.3 basis points.

When you think about looking into 2018, obviously, our regular credit loss, we don't expect any changes, as I said, because we don't see any major changes in our trends or macroeconomics. But obviously, the fraud losses, they will continue to trend down quarter-over-quarter.

But if you recall from previous conversations, the historical levels of fraud were very, very small. So we will see the trend coming down, but obviously not as low as historical dates..

Okay. That's helpful. Thanks. And then I wanted to ask about the Chevron implementation timeline. That portfolio still has not changed hands, I believe.

And is there – I noticed you didn't give any kind of guidance in terms of a quarter that it might be falling in, is there an expectation that that's certainly going to hit in 2018 or what is taking time there in terms of getting that deal kind of consummated?.

Yeah. I would say this is a particularly complicated transaction in part because you've got three parties involved, which makes it just more that you have to work through.

And in terms of timing, we had said last call that we expected to start the conversion in Q2 and then complete that in Q3 and to begin the actual signing of new accounts on January 1. So we would say still signing of new accounts, bringing on this new business occur in January 1 as it's regularly planned.

The rest of it is really dependent on how the conversion plays out from a timing perspective, some of which we have control over, some of which we don't.

And so we continue to work closely with Chevron around making sure that this is as smooth as it possibly can, and we want to be very considerate of the customers at the end of the day if they are ever going to go through this conversion, but just to recognize the fact that we don't have total control around the timing..

Okay. Yeah. Last one from me is just a little bit of commentary, if you don't mind, on your pricing, kind of strategy and outlook. I think that the result this quarter was encouraging, and especially in the context of hurricane and not being able to maybe charge late fees that you might have in those geographies.

Is pricing – A, have your customers kind of adapted to your kind of incremental pricing actions, is their behavior productive in terms of them – the payment behavior, and should we still see pricing as this kind of ongoing lever in the business, or are we on a trajectory where it's late innings, early innings in terms of your availability to take price?.

Yeah. And you're starting to talk about specifically the North American Fleet business, where we made a bunch of changes to the small fleet portfolio where we recognized the fact that we were really quite far out of market. And so we made a bunch of pretty significant changes in that piece of the portfolio.

And across the globe in each part of the business, we have mechanisms in place to make sure that what we're doing is competitive. We're making tweaks constantly, we're making tweaks in our European portfolio as well and have this year. And we will continue to do that across each of them.

So we think of it more as just kind of business as usual for us now. And in terms of the impact on our customers, we also made a bunch of enhancement to our products at the same time as we made changes to the fleets, which allowed them to do things like pay us online easier than they have in the past. And so we thought of this as a combination.

And as a result, we've seen really very little impact from a customer attrition standpoint, where our attrition rates are still, in that North American fleet portfolio, less than 3% on – of voluntary attrition. So we feel like we did a good job in a way that we actually rolled out the changes and communicated that with the customer base.

And so, I'd say, so far so good and we'll continue to make tweaks across our business where we think it's appropriate..

Great. Thanks for taking my questions..

Our next question is going to come from the line of Oscar Turner with SunTrust. Sir, your line is open..

Sorry, I was on mute. Good morning..

Good morning..

My question is on the Travel segment.

Just following the AOC deal, how much of the revenue there is from general B2B payment business? And how you think about growth in that business over time?.

The revenue from the business is coming from – as we mentioned, it's coming from a bunch of different businesses. It's all business related, primarily other banks.

And we think about – the reason why we did the acquisitions primarily around the technology, we like the – the vertical integration, what that allowed us to do both from an innovation perspective and from a cost perspective, it allows us to really scale up that part of the business more effectively.

It also gives us new tools that we intended to build in the corporate payment arena. So instead of building there ourselves, we were able to leverage that.

So the rationale behind this was more around the technology, what we do with the technology, the synergies that we can create around the integration, and from a customer-facing perspective, what we can do in the marketplace with this.

But we have had conversations with the people that are using the product now, and we feel good about continuing to service their needs and build relationships in the marketplace, and think of this as a channel that we haven't had in the past..

Okay. Good. And then, you talked about signing AutoZone and Verizon in Fleet.

Can you just talk about just the process of signing those customers, and were those competitive takeaways?.

Yes. Pretty much anything we do in the market is going to be a competitive takeaway.

And I'll highlight – and I talked a little bit about Verizon, but it was largely – the win that was positioned is around the idea that we're now able to use the assets that we have from our EFS acquisition and what we were doing historically in North American Fleet and combine them to the customer.

And so from their perspective, what they were able to look at was a product that has one closed-loop network that goes through both the traditional truck stops and also into what we would consider the historical retail arena. So they have this one packaged product that they can use one card on.

They also really like the data analytics tools that we've rolled out, our ClearView technology. What that allows them to do is look at information in a much more targeted way and easier to actions upon the information that they're getting.

And so that, bundled together with some of the broader relationships that we have in the marketplace with merchants, we believe is what made this more compelling for them. And so we think of that as a good example of where we've been able to really build upon what we did.

We talk a lot about the $25 million worth of synergies that we're pulling out of EFS. But I think the real win for us is that the way that we've been able to combine the different pieces of the business and accelerate our growth. Roberto talked about 15% growth within EFS, that's EFS specifically, so the historical EFS Fleet business.

And on top of that, the corporate payments business grew 30%. And if you package EFS with what we've done historically in the Over the Road arena, which includes our old Fleet One business, the growth was 18%. So all of these things are organic and are really – as a result of being able to pull some really great pieces together..

Right. Congrats. Sounds like that business is running pretty strong. And then I guess last question, just a clarifying question, is around fraud losses.

I guess, what were the fraud losses in 3Q? What are the trends in October as far as basis points go? And then what fraud losses are implied in the 4Q guidance?.

So this is Roberto. Let me start with the Q3 numbers. When we talked last quarter, we gave directionally a 50-50 percentage split between regular credit loss and fraud losses on the credit loss. And we came in slightly better. So the fraud piece was slightly below the 50% as we anticipated.

And as we move into Q4, this trend is continuing down, as we also expected. You had a third question, which was....

Oh, yeah. My third question was just around what is the fraud loss guidance for 4Q in terms of basis points..

Yes. So we provided a credit loss guidance of 19 to 24 basis points. And as I said in the previous question, also from a historical rates as a reference, last year we had 18.3 basis points. Obviously, if you add the fraud losses, that is slightly higher than they were in the historical rates.

We don't have any difference from – or anything different from a trend point of view on the regular credit loss..

Okay, great. Thanks a lot..

Our next question will come from the line of Sanjay Sakhrani with KBW..

Thank you. Good morning. I guess I wanted to just dig in a little bit on the hurricane impact. I was hoping maybe you could give us a little bit more specific data around the impacts on revenues specifically as we look at transaction volumes, as well as some of the fee waivers you had.

I mean, do you have any more specifics around that?.

What we said is, we turned off late fees in the affected areas for a month. In the grand scheme of things, you're not talking about something that's going to move the number. It's maybe $0.5 million; it's not a big number. And so we think about doing the right thing.

A lot of things that we'll do around the times of a hurricane hitting and it's really more a protocol for us at this point in time. We will turn off late fees in the affected areas. We'll particularly consider it around emergency response vehicles, which are – we have a number of them that do business with us – and making sure that they have access.

We give tools out to customers so that they can see where fuel is actually located, because that tends to be an issue around a hurricane. And so, there's a number of steps that we take. We also have historically seen a little bit of a blip in our aging, because people have difficulty getting back online and making payments.

And I would say, all of those things are things that we saw happen in this set of hurricanes. It's unusual to have a couple kind of stacked together like we did, but the pattern that we've seen is similar. None of those things individually are material. But they all have a little bit of an incremental hit to the quarter..

Any impact on transactions?.

Not typically, because we see a slowdown around the hurricanes, but you see a little bit of an offset afterwards. And so not much of an impact at all. If you think of it over a period of time, if it happened precisely at the end of a quarter, it might impact the quarter..

Okay. And, I guess, when we think about just expenses in general, I know there has been a lot of investments also occurring. As we look ahead, I mean, should we expect more operating leverage on a go-forward basis? And then I had question maybe to tag on to that.

You mentioned most of the Esso portfolio conversions sort of now on its way to be completed, can we just maybe think about the revenue? Is there any revenue or expense impact on a go-forward basis by virtue of that?.

I'll answer the last one. I think Roberto will answer the leverage question. But the asset portfolio, there is an expense pickup related to that. So we've talked all along about the different things we were doing to improve the profitability of that portfolio.

And we've done a number of things over the last several years which really had some pretty major restructuring moves around consolidation of resources. And then, we knew the last piece was the re-platforming.

We've been frankly winning lots of business that's in – particularly in the Asian marketplace, and so we've been pretty focused on implementing customers in that marketplace. We have this window that we think that we can migrate and start doing the migration in Europe.

And what that will allow us to do is get off from the transition service agreement that we have in place, and that does affect our scalability. It also then allows us to do more with the product once we get on our own platform..

Okay..

Sanjay, this is Roberto to answer your question on expenses. What I would say to you is that in the last, I would say, four to five quarters, every quarter we have been improving our margins on the bottom line. It's a key focus for us.

But what I would say to you also more importantly is that we are seeing these underlying trends in the business where we are growing every quarter very nicely from an organic point of view, and we will keep investing in the areas where we feel comfortable where we can deliver more revenue.

The other thing you need to consider is the credit loss plus fraud losses. If you exclude that piece, the remainder of the business, that not from the credit loss. Our revenue is really growing significantly much better and higher than the expense side. But again, as – and this is something that we want to continue doing.

If we see the opportunity to keep investing in the high-growth areas, we're going to continue doing so because we see momentum in the business from an organic point of view..

And just one final clarifying question on a point you made, Roberto, on the fraud cost and sort of the outlook into next year.

I mean, should we assume we go from like double digits to mid-single digits on a steady state basis if everything goes well, is that a fair range to assume?.

You're talking, specifically, on the fraud side?.

Yes, I'm sorry, the fraud cost..

Yes, absolutely. I mean, as we said we are very confident on what we said last quarter. We are within the range in Q3. The guidance for Q4 is as we planned and is in line with our expectations. And obviously, as we move into next year, it's a fair statement to consider those numbers..

So, just to add a little bit of color on that. The things that we're doing right now, Roberto talked about it that we had said last call we would implement the new technology. The new technology is in place. We also said that there would be a burn down period or burn-in period.

It will take a period of times for us to really adjust the rules in place, which is where we are now. So we are in the process of making adjustments to the real-time logic of the tool, and I think we'll learn a lot more through that process in the next couple of months. And what we've seen so far is this reduction by month in losses.

We saw that every month this last quarter just by making a number of changes outside of the technology, now we are able to couple that with the technology, which is really the last piece that we were missing..

And to (41:19) on what Melissa said and because of the system implementation, you should expect first half of next year slightly fraud losses than in the second half as we have fine-tuned the system. But from a full year point of view, your expectations are correct..

All right. Thank you very much..

Your next question will come from the line of Peter Christiansen with Citi..

Good morning, guys. Thanks for taking my call.

I'm sorry, if I missed this, but Roberto, can you just tell us what organic growth was, excluding fuel and also what same-store sales were for the quarter?.

Yes, same-store sales were flat in the quarter, and our organic growth is over 9% this quarter overall, when you exclude the fuel prices and FX. If you include all-in-all together, we are almost 13% growth..

Great, thank you. And, I guess, last quarter you talked about as it relates to the fraud issue, there were specific regions where you saw heightened activity, and I know that you are implementing systemwide changes.

But have you seen this activity kind of spread into other geographic regions?.

There's been a little bit of a spread into Arizona and California. And just to kind of differentiate there's two pieces where point of comprise occur and then where is that, with what plastic fraud is then occurring. The point of compromise were the ones that we talked about Texas and Florida, being emphasis points and that's still true.

But California and Arizona have kind of made to the list as well. But the card's being used everywhere because they're being skimmed and duplicated..

Is there any way that you can implement changes that more of those transactions can happen in store instead of at the pump, is that a potential patch in the near-term?.

Look, we actually have been working with our merchants very closely and we've announced a number of changes that includes the merchants. Some of them has been limits that we've implemented. We also shut down locations that we considered to be a high-risk location, and we have in certain times pushed people into stores.

For us there is a balance between making sure that the product works for our customers and is convenient but at the same time that we're protective of where the loss is going to be. And so we're using all of those tools to mitigate activities. So, yes, I guess it's – the answer to that is yes, that's something that we will do.

We don't do it across the board, but we do it where we think its higher risk..

That makes sense. And then, I guess, finally, your market share gains have been pretty impressive. It looks like so far this year, you've added 500,000 vehicles to your portfolio. And I know you've called out AutoZone and Verizon, and a couple of other wins in recent quarters.

But can you give us a sense of what kind of mix of fleets this is? Is this more – these wins are they more enterprise level or are you seeing also some smaller fleet wins as well?.

It's really a combination. If you look at our North American Fleet business, our front end is bringing on about 20% more in new revenue this year than they did last year, and that's excluding Chevron. That's just we're thinking of the traditional sales forces, which includes both an inside sales force for brand fuel sales fore and outside sales.

And so we're bringing on more business that's small in nature as well as some of these large named accounts. And to credit of the sales teams that are out there and we talked about the growth we're seeing with EFS and the growth we're seeing in all the other areas of our business.

But I think it comes down to really good – making sure the products are particularly effective, and across the globe we're really good at managing sales pipelines, having really great sales people that are delivering on the promises in the marketplace. And that's really has just come together this year..

Thank you. Very helpful..

Our next question is going to come from the line of Robert Napoli with William Blair..

Thank you. Good morning. Question first on the Travel segment. I mean, you're still getting very impressive growth and some very big numbers in payment volume growth. Obviously, you had the reduction this year in the interchange rate.

Looking into 2018 and 2019, as you think about that business a little longer term, what type of payment volume growth can you get and what type of diminution would you expect in the interchange piece?.

The business is growing faster than what we had anticipated this year. And so to start with that, it's part of – we talk about the last few quarters, we're doing just a little bit better across each of those areas of the business than we expected (46:59).

And so we think about the growth of the business, and some of that is from penetration of the existing online travel agencies, but it's also the diversification of growth that we're seeing in the corporate payments arena, that grew 30%. Growth we're seeing outside the United States, as Roberto talked about in the aggregate of being 50%.

And so when you look at the future, I think this year was exceptional year than what we are seeing from a volume perspective.

But we talked about this in the past, you're seeing somewhere between 10% and 20% has been a more normal range for us, and it's kind of moved around depending on what's happening, particularly, with some of the larger customers in that mix..

And then on the interchange, so, I know it's – the question essentially are we going to see this growth start to fall through to the bottom line; A, into revenue; and B, into profit growth for that segment to faster profit growth?.

So, we had a really big adjustment as you know this year..

Right..

We've done a lot on the cost side related to that, and a piece of how we thought about the AOC acquisition with vertical integration we talked for the last month around the fact that this has been a focus of ours even predating the repricing it. And that's because we know that this marketplace is highly competitive, and will continue to be so.

And so we're focused on really two big things in this part of the business. We're focused on making sure that we're creating scale in this organization, and that we are doing that through reinforcing some of the technology that we have in place.

And then, the second part for us is on the innovation side, is making sure that we continue to deliver products that are differentiated in the marketplace that allow us to continue to charge premiums in the marketplace.

And so those are two strategic areas of focus for us to make sure that we can continue to see more of a close association between (49:18) volume growth and revenue growth. Knowing that there's always going to be some tensions in the two – in this business because it is highly competitive..

And Bob, I will add to, what Melissa just said, to reinforce that the business in these three quarters of the year, our operating margins both in dollars in percentage are going up.

So despite some revenue pressure, as Melissa said, we're working cost and in other areas, and overall the business from a profitability point of view is improving both in dollars and percentage..

No, the margins have been impressive despite the decline in the interchange rates.

What is the other revenue in that segment, the $10 million that's up 60% year-over-year in the quarter, $10 million in the quarter?.

Yes, I'll talk a bit briefly. The way we have structured our international volume, those companies, you get a lower interchange rate. But on the other side, you get basis points in what we call cross international borders fees. So we look it as a total revenue.

But from a revenue point of view, you see the reduction in the processing revenue, and then you get the upside on the other revenue. But overall we look at a net basis..

Okay. And then just quickly on AOC. I mean, I didn't see that acquisition announced. It looks like you paid about $100 million for that acquisition.

And what do you expect out of that business for next year? What's revenue and is it profitable, and how do you think about that longer term? So why wasn't it announced? Is it $100 million? And what do you look forward for next year?.

Yeah, you are on the ballpark on the price. And from a revenue point of view, you can estimate that range between $30 million and $40 million, aligned with our Q4 results. As I said, we have $7 million for Q4. We closed in October, so directionally the $30 million to $40 million in revenue is what you can estimate.

From an earnings point of view, I will say the same; it's going to be accretive from day one. But obviously, it's a smaller transaction, so it's going to have an immaterial impact to our EPS..

Okay. Thank you very much. Appreciate it..

Our next question will come from the line of Tien-Tsin Huang with JPMorgan..

Thank you. Good morning.

Just wanted to ask on pricing on the contract side, both new deals and renewals, I guess, on Fleet and Travel, any change there?.

I actually don't think that there really is much that is new in the marketplace. Everywhere we do business, there's competition. There's different competitors in different markets. But generally speaking, we're able to charge a premium in the marketplace because what we're doing is differentiated. And we've been able to wrap in some long-term wins.

We talked about the GSA contract being a 13-year win. But most of the private label signings that we've had this year – and we've had a number of them – have been 10-year contracts.

And so it's a good way for us to mutually lock in a partner for a long period of time, so we can think about how we build the business with them strategically over a long haul. But I don't think there's anything really remarkable that I would note, either positively or negatively, from a pricing perspective..

All right, good to hear.

And then the customer bankruptcy, sorry if I missed it, was that in the EFS business?.

Yes, that was in the EFS business..

Okay. But that's at this point been sized and whatnot. And then okay, just last one just on Health and Benefits, just the volume outlook. Fourth quarter, maybe quick look at next year. I know obviously Brazil has got a very high growth rate, you mentioned the tough fourth quarter comps.

So any more detail there?.

Yeah, the only thing I would say to you is we wanted to highlight, I mean, we have had three impressive quarters and, obviously, last year also we had a great growth in the Brazil business, although it's the smallest piece of the segment. Last year we had an impressive quarter because of some products that we put on the marketplace.

And, therefore, for Q4 this year, we are going to see a small slowdown in terms of growth. But there's nothing to be alarmed, and the business is in good shape as we move into next year..

Got it. Thank you..

Our next question will come from the line of Glenn Greene with Oppenheimer..

Thanks. Good morning. I actually wanted to follow up on Bob Napoli's question on the Travel side. It sounds like some of the newer areas of the Travel business are really accelerating, like the international; I think you called out 45% Europe growth, and you called out the corporate payments, I think, 30%.

Could you sort of parse the components of Travel now, sort of thinking domestic, international, corporate payments, whatever it may be, and what's kind of the volume growth in domestic as well?.

Yes. Actually, if you look across the business, the volume growth in the domestic business is strong as well. And so you're starting to see some increased diversification as the other pieces are growing faster. But the base business is still growing. And so there's not much of a mix change overall.

It's – still about 85% of the spend that was happening was initiated in the U.S. in 2016 and it's about 80% of the spend is in the U.S. in 2017. And so, there's a slow change where we're getting more diversification outside the United States just because of the growth we've seen.

And as we're building upon that, just to kind of we talked about it last quarter the fact we got an E-Money license in Europe. And what that allows us to do is really expand (55:41) into Europe, into other regions we haven't been able to operate in. And so we had really good success in that market as well as the market in Asia.

And we've been adding some resources that we've been fairly cautious (55:57) through that migration, and now that we've gone live with the license we have the ability to ramp up there, and more diversification..

So it sounds like you think there's a good sustainable, sort of nice accelerating growth trajectory in Europe for a while now?.

Yeah, I would say outside of the United States that there is a great growth opportunity for us. And we're seeing that. And as we've added salespeople, we've seen the benefits of that. And so yeah, we think that is a market that we can continue to add in. We think Asia, again, is a big market we can add into.

But the North American originated business; most of those are global accounts that happen to be located in North America. We think, over the longer term, we have considerable opportunity there as well..

Okay.

And then on the healthcare side, maybe just sort of a broad outlook on the upcoming enrollment season, which I know is obviously key for the 2018 trajectory? And then maybe just sort of thinking through the growth between the SaaS and the interchange parts of that business, what are the dynamics there?.

Yeah, that part of the business, I should say they are heads down, ready to go into enrollment season. They're very focused on the next release. So they will do another product release into the marketplace leading up into enrollment season. They've added a number of partners. A lot of those partners are TPA, third-party administrators.

But they're also entering the marketplace through new channels. I talked about benefit admin, but really benefit admin is just a – it's a new co-branded channel entering into the marketplace. So, I think they are, particularly, creative around looking at ways that they can distribute the product into the marketplace.

Retention has been really good this year. So, we feel like this is going to be a strong enrollment season, and they're focused on just getting ready for it. There's a lot of work that happens in a short period of time for them..

Okay. Thank you..

And our final question for the day will come from the line of Tom McCrohan with Mizuho..

Hey. Thanks for squeezing me in at the end of the call. Appreciate it. I had a quick question – two quick questions. On the Fleet side, it sounds like the addition of EFS has given you the ability to have a more robust value proposition for some larger corporate customers, and that helped to some extent win Verizon.

So I'm trying to get a sense for how differentiated that offering is? Is this unique to WEX, this closed loop cards that helped with Verizon? And what is the pipeline on that side of the business for that offering?.

Yeah. I think that when we looked at the acquisitions, we were hopeful about the revenue synergies associated with that that we really modeled it based on what we saw were expense synergies. And the more that we've learned about the business, the more excited we've been around what we can do collectively.

Verizon is a good example of that but we've talked about Enterprise in Canada. There's been a number of places where we've been able to take what EFS has done and what they have for capabilities and really join that together with the traditional WEX portfolios.

And so yes, it's called Crossroads, this particular product that we're talking about, which enables us to put together the closed-loop network at both what EFS has had historically with the WEX product. And that is something that we are actively in the marketplace going after prospects with.

And we do think that that's just another tool for us, that's going to be important for people who care about having mixed fleets. It's part of what we like about EFS. We saw in our new prospects more and more customers that had mixed fleets, which means that they have some over-the-road trucks combined with light vehicles.

And so we're just seeing more and more of that. And what we've been thinking about it as a collective as opposed to thinking about them as individual pieces. So we do think this is going to have the momentum for us..

Great. And just one outlook type of question. It looks like you have really good momentum in across the businesses right now and growing organically in low double digits; and this excludes the fraud, which seems to be a transitory issue to your folks. This quarter, you would have grown bottom line over 20%.

It's still like mid-teens growth, but the fraud was really kind of drag on EPS growth.

So going into next year, assuming these trends are sustainable on the low double-digit growth in the top line, is there any reason why it wouldn't have a sustained acceleration in EPS growth going into next year?.

So, we have said that our long-term range revenue growth is 10% to 15%, and earnings growth is 15% to 20%. There's always going to be some give or takes that happens in the course of any given period that those have been our long-range targets..

Great. Thank you..

Thank you. I'd now like turn the call over to Mr. Elder for closing comments..

Just thank you all for joining us this morning, and we look forward to speaking to you again next quarter..

Once again, we would like to thank you for participating on today's WEX third quarter 2017 earnings conference call. You may now disconnect..