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

Ramsey El-Assal - Jefferies LLC James Schneider - Goldman Sachs & Co. LLC Oscar Turner - SunTrust Robinson Humphrey, Inc. Peter Christiansen - Citigroup Global Markets, Inc. Glenn Greene - Oppenheimer & Co., Inc. David Mark Togut - Evercore ISI Tien-Tsin Huang - JPMorgan Securities LLC Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc.

Robert Paul Napoli - William Blair & Co. LLC.

Good morning. My name is Natalie and I'll be your operator today. At this time I would like to welcome everyone to the WEX First Quarter 2018 Earnings Call. At this time, I'd like to turn the call over to Steve Elder. You may begin your conference..

Thank you Natalie and good morning everyone. With me today is Melissa Smith, our President and CEO; and our CFO Roberto Simon. The press release we issued early this morning and the slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com.

A copy of the release and the slide deck have also been included in 8-Ks we submitted to the SEC. As a reminder, we will be discussing non GAAP metrics, specifically adjusted net income during our call.

Adjusted net income for this year's first quarter excludes unrealized gains on derivative instruments, net foreign currency remeasurement gains, 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 1, 2018 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 will turn the call over to Melissa Smith..

Good morning everyone and thank you for joining us today. I'm pleased to report that we beat our top line guidance for the quarter, building on last year's momentum, while demonstrating the continued success of our products and solutions through all of our lines of business.

In addition, this quarter, we achieved bottom line results well above the upper end of our guidance range. Revenue grew 22% compared to last year's first quarter, reaching $355 billion (sic) [$355 million].

This was the 7th consecutive quarter of double digit revenue growth and another quarter in which all three of our business segments contributed to our growth. Net income on a GAAP basis was $1.12 per diluted share and we generated adjusted net income of $1.81 per diluted share, up 47%.

Contributions from all three of our business segments combined with solid execution and more favorable underlying trends were the catalysts behind our strong performance this quarter. Turning to slide 4.

Executing against our strategic pillars has allowed us to post an outstanding year in 2017 and that momentum has only strengthened more as we moved into the second quarter. I'm particularly pleased with our continued success in delivering organic revenue growth, which in Q1 was 11.5%.

This figure excludes the positive benefit from higher fuel prices and favorable foreign exchange rates, as well as the impact from new revenue recognitions and M&A activity. Our growth has been fueled by the systematic investments we've made in our technology, people and acquisitions over the past few years.

The combination of these efforts has opened up new opportunities for growth, while providing diversification benefits. These results demonstrate that our strategy is working and give us confidence as we move forward and evaluate additional opportunities for growth.

Equally important, our investments have enabled us to extend our leadership in the industry to gain share in the marketplace and build the model that benefits many industries and geographies.

In the first quarter, we capitalized in the large number of new business wins and significant contract renewals with long time partners that we announced last year.

We also continue to deepen our relationships with customers and partners by utilizing our technology to drive superior performance and service, while leveraging the unique expertise of our talented workforce. As a result, we saw high customer retention rates throughout the business, which speaks to the value of the products and services we offer.

The success we had executing our strategy today has provided us with ample opportunity to capture additional share moving forward. Slide 5 highlights our success in the first quarter, including a number of impressive wins and contract renewals.

In Fleet Solutions, revenue growth was 21% from the first quarter of 2017, which was driven by strong business fundamentals and the macro factors I mentioned earlier. We saw strength in all portfolios and signed a significant contract extension with CITGO, while renewing our relationships with Kum & Go and Marathon.

We also signed McLane Foods, a national retail services during Q1. We continue to build on some of the pivotal wins in 2017 such as Chevron and Verizon. The new card program for Chevron is up and running while we continue to work towards transitioning the entire portfolio to WEX. Verizon is fully implemented at this point.

On the international front, our sales and marketing teams are performing at an extremely high level, and we continue to capture new business and additional market share. We signed an agreement during the first quarter with Raízen, which is one of the largest energy companies in Brazil, and a Shell licensee with more than 6,000 locations.

This will be a new program for them. It will take time to ramp up, but we believe it balances the needs of truckers, transporters and merchants in this important market.

Overall, we're exceeding our own expectations for capacity to drive growth in the Fleet segment and are encouraged by our first quarter results, which have established a strong foundation for growth over the remainder of this year and beyond.

In Travel and Corporate Solutions, we saw impressive revenue growth of 40% year-over-year, as well as purchase volume growth of 20%. The revenue growth was driven by significant increases at our largest customers and the continued contribution from the AOC acquisition.

Our international business continues to be an important aspect of our future growth and we are encouraged to see strong volume growth throughout Europe, Asia and Brazil, as our products gain traction in these markets. During the quarter, of note, we signed Alpitour, an Italian tour operator and many small to mid-sized companies.

One of the things I'm most pleased about in this segment is the diversification we've experienced from both a channel and customer perspective. From a channel perspective, we've taken our highly successful direct sales force, which has been historically focused on enterprise level customers like Expedia, and expanded into SMEs in the U.S.

with our payables offering. We've complemented this with financial institution channel partners that use our technology to issue their own $30 billion in virtual card volume.

Through both acquisition and organic growth, we have diversified the customer base of this segment, so that now six of the top 10 customers are in industries outside of our Travel business, and a significant portion of revenue is now coming through channel partners.

The corporate payments space is rapidly growing and we see significant success in capitalizing on our leading position. Lastly, our Health and Employee Benefit Solutions segment performed as expected with revenue growth of 9% over last year. The U.S.

Health business grew revenue by 13% year-over-year, driven by strong enrollment season and the addition and/or renewal of more than 10 key partners. In 2017, we capitalized on a number of significant new wins and renewals that we felt would position us for future growth in 2018.

A prime example of this has been our relationship with Bank of America, which has had a successful 2018 open enrollment period. We're also very pleased with our HSA Bank partnership, which has now surpassed 2.5 million accounts and provides us collectively with ample opportunity as we look ahead.

Overall, we continue to generate positive momentum in the marketplace by capitalizing on the strength of our technology, products and people to win additional market share. We believe our business is more proven and diverse than ever.

We're confident that our existing customer relationships and our strong pipeline of new customers will allow us to continue to drive growth throughout 2018 and beyond. Moving to the bottom of slide 5.

As I've said before, consistently generating and retaining new business is closely tied to our ability to lead through superior products enabled by technology. Within Fleet, we continue to enhance and refine our offerings to better serve customers. We're well known in the market for our premium offering for the large fleet.

We're expanding this leadership position into the small fleet market with a new ClearView analytics tool called Snap. The product is targeted at the small business market and offers a new simplified dashboard that provides a powerful distillation of the most requested information from these busy small business owners and managers.

Snap uses modern data science techniques to actively monitor and analyze field transactions to identify suspicious behaviors and automatically alert managers and drivers to activities that occur outside the norm. This information allows fleets to take corrective action, which can produce immediate savings.

Early tests have shown that a single message can change the negative behavior of 84% of drivers. We've also developed a Driver Dash, which is a mobile payment app for our fleet customers. We're currently piloting it with select customers at ExxonMobil locations and we're in discussions with their accepting merchants to expand the payment network.

Driver Dash uses a thumbprint or facial recognition to authorize transactions. These transactions are more secure. For fleets and small businesses, this eliminates (12:06) numbers which are often forgotten or miskeyed by drivers resulting in transaction being declined at the pump.

In addition to improving the customer experience, this will significantly decrease the number of calls into our contact center, increasing our operational efficiency in the long term.

The ClearView Snap product, along with other products and features being introduced this year, use cloud technology that allows products to be developed quickly and less expensively, allowing us to extend our technology into adjacent markets with greater speed and agility.

In the Travel and Corporate Payments segment, we're developing use cases with blockchain technology. We view blockchain as a potentially useful and even game-changing technology for certain use cases, as it can provide (12:57) additional efficiencies and reduce complexity in complex payment ecosystems.

It is still in the early stages from a commercial use standpoint, but we are optimistic in the long term that this technology can play a role in our products portfolio. We also continue to benefit from the acquisition of the technology provider for our virtual card product offering.

Through this acquisition, we gained access to new technology, while making our virtual card offering more vertically integrated. Our U.S. Health business saw significant technological innovation in 2017 and we continue to build on that progress in the first quarter of 2018. The WEX Cloud continues to be a growth driver and innovator in this space.

In March, we released more than 80 new features and functions to the platform. These improvements span the product roadmap, investments and engagement, account growth and efficiency.

The cutting edge mobile technology that is integrated into the platform led to 1.5 million mobile app logins during January and drove growth in all categories of employers choosing WEX Health Cloud.

We also introduced the administrative dashboard, which brings administrators new summary and detailed dashboard information, as well as drill down capabilities for analysis, which gives our customers a deeper ability to take action on the information. Turning to slide 6.

While we're constantly making our business more efficient and more synergistic, our acquisition model has moved to also include value creation from both the product and customer standpoint. We've seen this for the EFS acquisition and now in the Corporate Payments segment with AOC, which closed in Q4 2017.

Integration is targeted to be completed within two years and we expect to realize more than $10 million in run rate and cost synergies by the end of 2018. Beyond the financial synergies, we've been very successful at acquiring pieces of the payment value chain across Corporate Payments and integrating them into our overall offering.

Building of the corporate payable solution we acquired from EFS, we've also added two new technology players with our most recent acquisition; the core technology that powers our virtual card platform and a set of merchant oriented payment technologies to simplify the payments process to the key constituents of the payment value chain.

This speaks to our demonstrated ability to quickly acquire and integrate people and technology, provide greater value to our customers and in expanding our market to almost $2 trillion of spend opportunity. We've only just begun in this space.

Pulling this together, we believe that we continue to increase the sophistication of our products, which more deeply embeds us in the operations of our customers and partners. Our bias to continue to invest and build upon our strong technical base coupled with our enterprising employees is why we are increasingly winning in the marketplace.

Overall, I'm very pleased with our performance in the first quarter of 2018 highlighted by strong profitable growth in all three of our business segments and underpinned by solid execution against our strategic objectives.

I'm also encouraged to see the investments we've made in technology, people and acquisitions over the past few years fueling the growth engine of our company. Our company is more diverse than ever before with a long runway for future growth and value creation.

We have a growing base of long term customers that provide a solid foundation of reoccurring revenue. Adding impressive wins and expanded partnerships in the first quarter on top of this reoccurring revenue base gives us confidence as we look forward in 2018.

Roberto?.

Good morning everyone, and thank you Melissa. As you have heard, we've posted another quarter of outstanding financial performance driven by positive top line growth from each of our core businesses.

Our earnings beat is due to a combination of the outperformance in revenue, steady improvement on fraud losses, as well as positive macroeconomic trend from fuel prices and FX rates. We are extremely pleased with how the year has started. Now let's take a look at our results on slide number 8.

Total revenue for the first quarter was $354.9 million, a 22% increase over the prior year period. Non-GAAP adjusted net income was $78.7 million or $1.81 per diluted share. This is up 47% from $1.23 for the same period last year. We are delighted to report that both of these results are over the high end of the guidance.

As Melissa has just mentioned, slide number 9 shows our strong revenue performance broken down by each of the segments. I would like to point out that 40% revenue growth in our Travel and Corporate Solutions segment where we also saw a strong organic volume increase.

Before we get into the segment results, I would like to take a minute to review the impact of the new revenue recognition standards, which are detailed on slide number 10. As a reminder there is no impact to earnings. Under the new rules, we have two areas we are reclassifying revenue and expenses starting with this quarter.

One, rebates paid to some partners, which historically were netted in revenue are now being shown as an expense under the sales and marketing line. Two, network fees, which have been historically shown as a service fee expense are now being netted in revenue.

These changes will impact the calculation of some of our metrics, our margin in our various segments, which I will highlight for you later in the call. Moving on to segment results, let me direct you to slide 11. The Fleet Solutions segment achieved $230.4 million in revenue, an increase of 21% compared to prior year.

Payment processing revenue and finance fee revenue were up 24% and 20%, respectively. The net interchange rate for this quarter was 127 basis points, which is up 5 basis points from Q1 last year.

It is approximately 6 to 7 basis points higher due to revenue recognition changes, which is offset by the increase of fuel prices, which causes the net interchange rate to decline. Additionally, our average domestic fuel price in Q1 was $2.78 versus $2.40 in 2017. We see a number of positive trends across this segment.

First, we continued to see solid organic transaction growth rates in our larger segment, which is impressive. Second, we continue to maintain our low attrition rates. And third, same-store sales were marginally positive.

Breaking down the Fleet segment, we are happy to report that we experienced a strong double-digit revenue increases in each of the portfolios. This was led by increases in North American Fleet by 21%, Over-the-Road by 22%, and 28% in our European Fleet business.

Finally, in the segment we had $9 million of additional revenue over last year and approximately $3 million when compared to guidance due to higher fuel prices. Both numbers are net of a spread impacts in Europe.

Turning to our Travel and Corporate Solutions segment on slide number 12, we are seeing excellent momentum in this segment and a return to our historically strong revenue growth. Total revenue for the quarter increased 40% to $66.8 million, due primarily to volume growth in North America and the acquisition of AOC.

Total purchase volume, which excludes acquisitions, reached $7.9 billion. This equates to 20% organic growth in volume, stemming from all geographies and includes some benefit from exchange rates. AOC revenue for the quarter was $9.2 million, which was in line with our expectations.

The net interchange rate in the segment for the quarter was 56 basis points, which was up 3.6 basis points from Q1 last year. This includes approximately 4 basis points for the revenue recognition changes. The increase was more than we expected because of volume mix from customers impacted by revenue recognition changes I just mentioned.

Moving on to slide 13, for Health and Employee Benefit Solutions, revenue for the quarter increased 9%. Revenue growth in the U.S. Health business was 13%, which was in line with expectations. Following a good enrollment season, the number of SaaS accounts was up 26% in Q1 and the sales pipeline remains strong.

To give you some more color, since we entered this segment, we have seen more than 20% growth annually. We continue to believe that the fundamentals are in place for a high-teens growth trajectory over the long-term. Let me point out on slide number 14 that we have a new presentation of the operating expense section in our income statements.

We have moved to our functional presentation, which is designed to provide better visibility and is more comparable to our peer group. Let me walk you through some key updates. For the quarter, total company operating expenses on a GAAP basis were $276.5 million. Total cost of service expense was $134.9 million, up from $116.4 million in Q1 last year.

Breaking down the line items in this category, processing cost increased primarily due to the AOC acquisition and as a result of bringing certain technology functions in-house.

Service fees were $12.3 million in the quarter, down $5.3 million compared to prior year, primarily due to the reclassification of network fees as part of the revenue recognition changes. Turning to credit losses, I am pleased to report another consecutive quarter of positive news.

During the first quarter, credit loss on a consolidated basis totaled $14 million and we have returned to our historically low levels. In the Fleet segment, credit loss was 12.5 basis points of spend volume, which is in line with our guidance. For the quarter, fraud-related losses represented 2.8 basis points.

We are very confident that fraud losses are continuing to decline, thanks to the controls we have put in place. Excluding fraud, Fleet credit losses declined to 9.7 basis points, which is significantly better than the same period last year. Finally, our operating interest expense was $8.5 million in the quarter.

This is in line with our expectations and was up $3.6 million compared to 2017, due to higher interest rates on fuel prices. As you recall, with higher fuel prices, operating debt levels in the U.S. increased as well. We have also taken steps to reduce the size of our balance sheet and deposits at our bank are down compared to year-end.

Pulling these all together, gross margin on a GAAP basis was 61.9%, representing a 1.9% increase from last year. We were able to expand our business margins while continue to invest in the business and, at the same time, delivering new products and services to the market.

Our SG&A, depreciation and amortization expenses were $141.6 million in the quarter, which is up $27.4 million compared to last year. Most of the increase was due to the changes from the revenue recognition guidance mentioned earlier which is recorded under the sales and marketing expense line.

Additionally, the G&A expense line includes increases for our debt repricing, stock compensation, AOC acquisition and a charge related to insourcing IT functions.

Moving to slide number 15 to talk about taxes, following last year's Tax Act, on a GAAP basis, the effective tax rate for the first quarter this year was 24% compared to 33.3% for the first quarter of 2017. On an ANI basis, the tax rate was 26.3% for the quarter and 36.4% for Q1 last year.

Looking now to the balance sheet on slide number 16, we ended the quarter with $373 million in cash, down from $508 million as compared to the cash position at the end of last year. The reduction in cash balances was mainly at our bank (28:20) which was used to reduce deposit levels.

At quarter-end, we had a total balance of $2.2 billion on our revolving line of credit, term loans and notes. Our leverage ratio, as defined in our credit agreement, stands at approximately 3.6 times, down from 4.6 times a year ago. In January 2018, we completed another re-pricing for our Term B loan, reducing the spread another 50 basis points.

Based on the year-end debt levels, this will save the company approximately $6 million in 2018. We also saw significant unrealized gains on the interest rate hedges we placed on our debt. The market value of these hedges now stands at $27.7 million.

The combination of reducing spreads and locking in fixed rates has mitigated a large portion of our exposure to rising interest rates. Moving on to guidance on slide 17.

Coming off our very positive first quarter and looking forward into 2018, we continue to anticipate better performance from our business, margin acceleration and driving scale through solid execution.

This, coupled with lower credit loss from fraud and fuel price tailwinds, gives us a high degree of confidence in raising revenue and adjusted net income guidance. For the full year, we expect revenue to be in the range of $1.435 billion to $1.475 billion and adjusted net income in the range of $337 million to $355 million.

On an EPS basis, we expect ANI to be in the range of $7.75 to $8.15 per diluted share. For the second quarter, we expect to report revenue in the range of $357 million to $367 million and adjusted net income in the range of $85 million to $90 million. On an EPS basis, we expect adjusted net income to be between $1.96 and $2.06 per diluted share.

Let me walk you through the assumptions for our guidance. Domestic fuel prices, we leveraged (31:06) $2.90 per gallon in the second quarter and $2.80 per gallon for the full year. The assumption for the U.S. is based on the NYMEX futures price from this week. Exchange rates are based as of the end of April.

We assume our Fleet credit loss will be between 10 and 15 basis points for the quarter and 11 to 16 basis points for the full year. This includes 2 to 3 basis points related to fraud, which is a reduction from our prior guidance. Our adjusted net income tax rate is expected to be between 25% and 27% for the full year.

And finally, we are assuming there are approximately 43.5 million shares outstanding. Before we open the line for questions, I will turn the call over to Steve..

Thank you, everybody. It's been a great quarter and we're very happy to share these results with you. Natalie, let's open the line for questions now..

Certainly. Our first question comes from the line of Ramsey El-Assal of Jefferies. The line is open..

...for taking my question. I wanted to revisit the large positive spread between the Travel segment volumes and revenues. If you were to strip out AOC, FX and the accounting change, I'm just trying to gauge how much of that improved kind of revenue conversion there is organic versus those factors..

So, this is Roberto. Good morning. As you recall, I just said that around $9 million is related to AOC and we also have a small tailwinds on FX. So, if you strip those two pieces, which are around $10 million, you can get to the number pretty quickly.

So, half of it is due to AOC and tailwinds and all the rest is obviously the great performance from the Travel segment..

Great. That's very helpful. Thank you.

And given where fuel prices are now, up quite a bit year-over-year, what is your sort of evolving philosophy on rolling back into the hedges in order to kind of normalize out your earnings relative to fuel?.

I'll start and Roberto can add on here. But we exited the hedges a few years ago, and you're right, it was around when fuel prices were starting to drop because we just didn't see the upside being worth the downside.

I think, as we've stayed out of the marketplace and we've (33:52) our position more and when we do look backs over time, we know that we've paid out more than we've taken in even though we were hedging over a relatively long period of time. So, our position has really moved to less likely to reenter the market.

I think the other point for us is that the business is much more diverse than it was. When we first went public, about 70% of our revenue was exposed to fuel prices and that was really the impetus for us, starting the hedging program and now that's down closer to 20%. And so, as the business has evolved, we just don't think it's important to do now..

Okay. That's fair. And then last quick one for me. I saw Roberto mentioned that same-store sales was marginally positive, which seem to be a little bit of a deceleration, if I recall correctly, versus last quarter.

Is there any commentary there or any color? I'm not sure if I have that right actually, but is there any just general commentary along same-store sales, what's – what are the healthier verticals versus the unhealthier verticals?.

Yeah, you're right. It was up a couple of percent, rounded up a couple of percent last quarter and now it's flat for this quarter. I don't know that I would say there's anything that really stands out other than mining and gas – oil and gas is probably the biggest thing to point from quarter to quarter that we're seeing less.

It's flat in this quarter where it was continuing to grow the previous quarter. But other than that, you're talking about really relatively minor changes across the board. And if you look across the different SIC codes, they are almost universally flat. There's nothing that really stands out as particularly positive or negative this quarter..

Okay, great. Thanks so much for taking my questions..

And our next question comes from the line of James Schneider of Goldman Sachs. Your line is open..

Good morning. Thanks for taking my question. I was wondering maybe if you can kind of touch on the opportunity for additional fleet wins, you see, organic wins over the coming year? And can you specifically talk on the potential from the U.S.

Postal Service contract and any other federal contracts that may have been held by your competitors in the past?.

Yeah. When we look at our pipeline, we'll sit down and look across what's happening in the different sales channels, the way we're investing money and that's how we decide to make capital allocation choices or reallocate capital. If you look at our fleet pipelines right now, it is a very predictable part of our business.

And I say that in the respect that our salespeople are doing an excellent job of just progressing business through the pipelines, and then, once they're signed, moving them into an implementation phase. And so, we feel confident around what we have in the pipe. In terms of things that are oversize, we talked about the U.S.

Postal Service last time, as we have been awarded the SmartPay 3 contract with them that allows us to bid in other processes. We've done the in-person presentations, and so we're in the process of kind of waiting and it's not clear definitive data of when we would know one way or another.

So, we're hopeful for that, but it's – we're not the only one that are participating in that process. There are a number of other agencies that are involved in that as well. So Postal Service is the biggest one that's not with us that is of note. And beyond that, we talked about the private label wins. Chevron was the one we announced last year.

And while we are doing new business relative to Chevron and that is going well. We still have to go through the portfolio conversion there and we continue to look at new portfolios that we can bring on to the business in the U.S. and outside the U.S..

That's helpful. Thanks. And then maybe – this is a follow-up. Can you address the current outlook in Europe and the opportunity for outsourcing? I know this has been something that's been on a bit of a long burn, but I'm just kind of curious whether anything is shifting or accelerating there at all..

Yeah, I think in that marketplace, no, as I've said for a while, I think we've had more immediate success in Asia and we're going through the portfolio conversion processes and starting through implementation with a number of clients in that marketplace right now. And so, we're pretty busy with that part of our business.

In Europe, I don't think there's anything that's new. I think that people who are continuing to look at in-house products that they have and comparing that into the cost and effort of outsourcing, and so that continues to be a relatively small slow part of our growth right now.

But if you look at the growth in other parts of the world, we feel much, more strongly about it right now..

Great, thank you very much..

And our next question comes from the line of Oscar Turner of SunTrust. Your line is open..

Good morning. Thanks for taking my questions..

Good morning..

So, first question is on Travel, which looks like it drove a lot of the growth upside this quarter. You mentioned the volume increases in Travel were driven by larger customers.

Just wondering, was this volume from competitors or additional volume that these companies outsourced? And then, do you expect that level of volume growth to continue?.

It's a combination of all of the above of what you said. We start with the foundation of customers that are growing, and so we've seen growth as their businesses have grown. We also are still relatively under-penetrated in a lot of those accounts.

So, even they're growing the businesses, we're seeing the opportunity to really to increase the percentage of the business that we have within each of those particularly large customers, and then the third part is competitive wins..

Okay. Thanks. And then, I guess, sticking on the same segment, I was wondering if you can talk about the go-to-market strategy in B2B in the non-Travel verticals following the AOC integration. There's been a lot of talk that banks are increasingly looking to leverage virtual cards.

Just wondering if WEX is planning to utilize the bank channel as it grows that business, or is there a longer-term plan to focus more on going direct?.

So, it's one of the interesting things about how that part of our business has evolved. And if you look at our Fleet business it's multi-channel.

And I think we've had that converged this last quarter in our Travel and Corporate Payments business where through a combination of some of the deals that we've signed over the last few years which were channel partners as they have grown and also the addition of AOC, we now look at a business that is multi-channel and I think that fits well with who we are.

And we like the idea that we are working with financial institutions to partner with them, as well as working directly. And we think that that in this marketplace is an attractive way to go into the marketplace because of just the sheer size, talking about even when we've segmented down the marketplace and I think we've been pretty conservative.

We're looking at $2 trillion worth of spend opportunity. And so, we think that having many avenues to go after that spend is a really good place to be in.

And with the financial institutions we're doing business with, and that part of the business, they've got about $30 billion worth of spend that's going through our technology on top of the $30 billion that we had going through last year.

So, just from a size and scale and ability to communicate the technical strength and operational strength, I think it's just compounded right now..

Okay. Thanks..

And our next question comes from the line of Pete Christiansen from Citi. Your line is open..

Thank you. Good morning. I actually want to follow-up on that question on the go-to-market. I know you say, you're just starting out in this area and I'd also throw in the SMB opportunity in the Fleet side.

But do you see yourself investing more in direct sales force as this is an investment area that needs to occur to bring up your distribution versus, I guess, other competitors out there?.

I think our initial view right now is that, we like going into this marketplace with channel partners. We think it's a good way to leverage the position that we have. And so, we're not viewing this as a place that we're going to ramp up significant amount of internal people to work on that. It's our initial view based on the work we've done so far.

If we get into this and we think about our sales functions fairly dynamically, so if we get into it and we find that we're getting more success in some of the smaller markets than we had anticipated, that view could change.

I'd say the same thing in the Fleet marketplace, we have been ramping up our investment in some of those down-market channels as we have found different ways to market and say one of our most successful ways to market in that down-market channel with Fleet is in digital, that's been a place we've made investments and seen really great returns.

Let's start with that, but beyond digital in terms of our inbound and outbound sales force, we've added people there and that's a place we will continue to add as we see the returns continue to look the way they do right now..

Great. And then, just as a follow-up, in the Health side, I know there was pull ahead last quarter on the account servicing side with the BofA implementation.

But how should we think about year-over-year growth in SaaS accounts matching, I guess, year-over-year growth in account servicing revenue throughout the rest of the year? Should that correlate better as we – for the next couple of quarters?.

We're starting to show that metrics, because we thought it was more representative of the total portfolio. And we – if you recall, last quarter, we noted that we had one customer that we're bringing their – some of their services in-house, some of the BPO type of services in-house.

And so, when you look at this quarter, the reason why you saw a little bit of a disconnect between the 13% revenue and the account servicing growth was because of that. If you adjust it for that, it would have been about 20% revenue growth within the Healthcare business in the quarter.

So, I'd say, we're getting closer in terms of the correlation between the accounts and the revenue..

Thank you. Very helpful..

And your next question comes from the line of Glenn Greene of Oppenheimer. Your line is open..

If you can maybe, there's a pretty significant increase in the guidance for the year, I'm sure part of that's fuel prices.

But could you sort of parse the $0.45 increase in the EPS guide, and maybe give a little bit more color by segment?.

Of course, let me walk you through all the pieces. You're right. We increased revenue $35 million at midpoint and EPS – $0.45 of EPS. What I would say to you a few things. Number one, we've got a very strong Q1. For the midpoint we were $0.11 better than we guided.

Second, obviously, we are expecting to continue great performance on the remainder of the year, so for the next three quarters. And equal important is something that I mentioned during the call that this outperformance is going to drive margin expansion and scale.

And at the end, obviously, with the tailwind on fuel prices, which are driving approximately 50% of that improvement you come together with all the pieces. So, we feel very positive on the new guidance and combined now with the Q1 result and looking forward into the remainder of the year..

Okay. And then, maybe Melissa, if you could just update us on the enrollment season, now that you're through it.

And I'm kind of thinking about it in terms of new wins and also retention?.

Yes, sure. The enrollment season was positive for us and positive for of our partners overall. We just had this week our annual Partner Conference, which was attended by over 650 people in the marketplace.

And so, they got the chance to talk collectively about the products that are rolling out and what's happening in the marketplace, and so there's still tremendous momentum.

And if you look at what sits in our pipelines and I'd say the Healthcare business is in some ways akin to other parts of the company where a lot of what they're bringing in for new partner wins are small midsized partners. And then, they'll have in their pipeline some of the large ones that can offset that.

They look pretty similar now to where they've looked all along in terms of the size and scope of what they have going through their portfolio. And similarly, if you look at what happens with their enrollment season, I think it was very positive and consistent with what we expected..

Okay. Thank you..

And our next question comes from the line of David Togut of Evercore. Your line is open..

Thank you. Congrats on the strong results..

Thank you..

With the leverage ratio now down to 3.6 times, what additional services would you like to add to the WEX team and flywheel that you show in the presentation, either through acquisition or organically?.

Well, the flywheel that we showed you are what we have, and what we're doing internally, and we mentioned this on the technology side, is we're building micro services around that to connect the pieces together more overtly. So that's shielded in the background to a customer, so it's just presented to them from an API perspective.

So, from an acquisition standpoint, we don't feel like we need something to complete that wheelhouse. When we think about where we want to invest dollars, we continue to be looking at areas that either expand us geographically, give us scale in the markets that we're in or give us product extension.

And when you get into product extension in Corporate Payments, it gets like in a pretty big land. But we are interested in areas that can continue to build off what we have as a base as opposed to putting something that's totally new and different into the portfolio..

Understood. Are there – you're in the largest corporate payment markets between fuel, travel and others.

Mastercard, for example, has been a leader in corporate payments with the virtual payment technology, are you working with them as they go into new end markets?.

So, we work with both Mastercard and Visa in our business. And we will also operate in a closed loop fashion too. So, I mean, think about all three of those as being tools for us as we enter into either new parts of the ecosystem or in terms of going there on our own.

So, yes, long answer to your question, but yes, we're working with a number of different parties who are also interested in the B2B space because of the size of it..

Understood. And then, just a quick final question. You gave some commentary earlier on same store sales being flat and you called out some of the reasons for that. I'm just trying to reconcile, the U.S. trucking market is probably as tight as it's been in many years.

Should we think about the trucking market as being the main driver of same store sales or are there other main factors we should be thinking about?.

Yeah. If you look across our portfolio, think of the trucking part of the market is a piece of the portfolio but because we end up doing business with pretty much any type of business, you end up with a pretty diverse portfolio.

In fact, the biggest place of – if there is a concentration, it's more in the construction trades because you get into the smaller businesses that are driving vehicles as part of what they do for a living. And that is also relatively flat.

So, I wouldn't say that there has been always a correlator between what you're seeing and transportation to what we're seeing more broadly across the portfolio. I don't know that I'd make anything out of what we have seen. The last couple of quarters have been a little bit stronger. But you're talking about just down slightly..

Understood. Thanks so much..

And our next question comes from the line of Tien-Tsin Huang of JPMorgan. Your line is open..

I also want to ask on – just on the renewals and the deal activity you talked about, any change in terms, pricing? Just curious because it does seem like there's been a lot of activity recently..

In terms of pricing on renewals, there is nothing that's of note that's different. I think there is always a little bit of pressure when you're renewing, and that's been true in the life of the company. But we've also over the last few years found new sources of revenue too.

So, as we see repricing come in as a little bit of a negative, we've also found areas that we can bring value in different ways that has largely offset that..

Okay..

The only thing I will add on the net interest rate, we mentioned it during the call, if you exclude the rev-rec changes and the fuel prices that obviously have increased, confirms what Melissa just said, that pricing-wise we are almost even quarter-over-quarter..

Okay. Good. And then on the fraud side, sort of back to your historical levels, better fraud performance given your upgrades there.

Does that change your risk appetite in anyway and maybe how you might price overall?.

I don't think that fraud doesn't really change our view on pricing. I think it's just as we look at credit, we think about credit in terms of overall risk return. So, as we watch what's happening within that total portfolio, it's something that we think about. At the end of the day, if you really think you're going to take a loss, you wouldn't do it.

So, it's really that – kind of that – most of the time you spend is on that fringe of where is the right line in order to make an extension, and that gets into much more in the small business category of things. So, I'd say that we're getting more sophisticated about how we think around pricing for risk.

And that's been something that we've been working on in the background for a while. But I wouldn't go so far as to say that that means that we're going to – that we would extend credit right now to others based on what we're seeing in the credit portfolio or have that affect price kind of really big macro level.

But I'd say, yes, on the fringes, that's true..

Right. No, you answered it well. I asked it poorly. Thanks, Melissa. Just last one on the Brazil Benefits side, any update there? I caught the U.S. piece up 13%, just I maybe missed the Brazil update..

Yeah. So, Brazil, when we look at it holistically – or we step back and – it's a business that is 7 times the size of when we invested in it. So, it's grown really dramatically in the period of time we've owned it. It's also one of the more volatile parts of the company.

And I'd say that last couple of quarters, the volatility is around customer behavior, and so, what we're seeing in the Benefits business specifically is that customers are taking longer to spend money, which means it's affecting our revenue per customer. So, that's down in the Benefits segment.

And at the same time in the other segments, we're seeing acceleration. So, we're seeing volume increases within Travel. We talked about the Raízen signing that we had, as well as the work that we've done in the Travel business, and we've seen acceleration in both of those parts of the business.

So, overall, if you look at it, it's not growing at the rate it has over the last couple of years, but the biggest change you're seeing is in just that Benefit segment that's getting consolidated within the Health business. We think that that's a shift that's happening.

We're doing a lot within that business to realign based on what we're seeing in shifts in customer behavior, which is something that the team there has been really good at doing over the last several years. And so, we're still really bullish around the business over a long-term..

The only thing I will add on to Melissa's comment is thanks to the growth on the other two segments both in Fleet and Travel, where they are growing more than double digits. The overall Brazil business is still positive, which is good. So, we have been capitalizing on some of the investments done in the past two years.

But at the same time the overall business in Brazil is still growing..

All right. Great. Thanks to you all. Good quarter..

Thanks..

And our next question comes from the line of Sanjay Sakhrani of KBW. Your line is open..

Hello?.

When we think about – perhaps if you could expand upon the use cases? And is there something that you would look to develop internally or are there perhaps properties that's out there that can help accelerate that in this area?.

So, I missed the beginning – so, I think your question is about blockchain, is that right?.

Yeah. Around blockchain. And you mentioned that it was a game-changing technology.

Just was wondering what are the use cases that you guys are looking at and something that you can develop internally or can the pace be accelerated through an acquisition?.

Yes. So, we have a group of people that work internally on some of the long term technology trends, and I'd say, blockchain is one of them. So, there's a number of others too. The use cases that we're working on are places where we think you can insert a private ledger.

So, think of this private blockchain that is going to – the benefits of blockchain, speed, efficiency, transparency, security, all those things come together. And so, we have a number of those use cases. Logistics, probably the one that comes to mind, is something that is relevant.

And also, as we think about this, we're looking at ways that we can add blockchain into the arsenal that we have in terms of our overall product portfolio where it might fit a need that some of the other products don't as well. And so, it's an area that we've been testing. I'd say, it's really early stages for us.

It's like many of the other newer technologies. There's a lot that is unknown, but we think it's important to be involved in this. And so, so far that work we've done – we have been doing internally with a group of very talented people.

If we got forward to this and thought we needed to help externally or we thought that that will be beneficial to us then we're not – we'd be fine with doing that as well. But at this point, we're working on the concept of prototypes with customers that we have internal with the development that we've done internal..

Got it. And then, you mentioned around the investments you've made opening up new opportunities for growth and providing diversification benefits.

Can you just expand upon that a little bit? Which verticals would benefit the most? Could it potentially help you lead into additional verticals than what you're in today?.

Yeah. What I like about where we are as a business, if you look across the portfolio.

So, the investments that we've made from the acquisitions we've done with WEX Health, which extended us into the healthcare business, which is – it put us into a whole new market of growth for us and as we've extended into some of these international markets, we still are relatively small in size. That has opened up opportunity for us.

And EFS, we found an ability to extend into a product category that we didn't have. And then, what we're doing now in the Corporate Payment side. So, I think it's more a matter of the investments we've made, both from just technology development that we're doing internally and M&A acquisitions have created new opportunity for us.

And that's great, because it really fuels the growth of the company and the growth profile of the company.

At the same time, when I talk about diversification, that means that you can have a quarter where one part of the business is really accelerating and doing really well, another part maybe a little bit slower in the growth that you're seeing that diversification come through.

And so, that – depending on what's happening with some of the macro factors, it isn't having as big an impact on – in any particular part of our business, when you look at it in totality..

Got it. Thanks for taking my questions..

Sure..

And our last question comes from the line of Bob Napoli of William Blair. Your line is open..

Thank you. Nice quarter. First question on the Corporate Payments – Travel and Corporate Payments business.

Melissa, I thought I heard you say six out of the top 10 were not Travel, did I hear that correctly?.

You did. You did – six out of 10, if look at it in terms of revenue, yes..

Right.

So, what is the growth rate of the Corporate Payments business versus the Travel business? And is Corporate Payments becoming – what percentage is Corporate Payments versus Travel today?.

So, if you look at the portfolio, the Corporate Payments piece, we think about it in three different chunks I guess. So, let me kind of walk that through, and Roberto, I'm sure will add on to this. But there is the traditional virtual card program, which historically had been about 80% of that was Travel related to the original core business.

And then, as we've done acquisitions both of the EFS's portfolio and then of top of that AOC that's where you've really started to see some diversification. And in terms of the organic growth on the Corporate Payments side I think that is probably early to say that.

We're seeing really tremendous growth, but it's off a relatively small base with the EFS acquisition side of it. If you look at what we brought on for AOC and it's been in the business for all of the quarter. So, I don't know that I can talk to you about our historical run rate there.

But on a go-forward basis what we like about where we are right now is the diversification in terms of revenue concentration is positive. The growth is happening across the portfolio, so you're seeing slightly oversized growth on the non-Travel part of the business, but you're seeing continued growth in the Travel.

So, it's not like you're seeing radically different profiles in terms of the growth of each from a spend perspective, and then ultimately from revenue perspective.

So, that's kind of how we've landed here and where we're going to go from here is we're putting those pieces together and something that we think is pretty compelling into the marketplace and addresses a very large part of the market..

Okay..

Yes. Bob, to add on Melissa's, you heard that the segment grow 40% and also when you exclude AOC and some of the rev-rec changes, the overall segment grew slightly below 20%. We think that 20% our Corporate Payment business grew over 30%. So, it's rapidly growing, much faster than the Travel business..

Okay.

And then, one area where you guys have invested in the past in healthcare virtual cards, and in your Healthcare business the Evolution1 business obviously has done very well for you and you have this virtual card segment, and the healthcare virtual there are some companies that are being successful that may not be public in that space, are you making any progress is that still a significant priority, because it's certainly an awfully large market opportunity?.

As we've looked at verticals to extend Corporate Payments into, healthcare's not been one of our focuses I'd say for a few years. And I'd say that's more just a matter of focus, if you look at the place that we can spend time and effort we've had more success in some of the other verticals than we have in that one.

It doesn't mean that it isn't on our list; it's just going to further down the list for us..

Okay. Just last numbers question, the tax rate you expect for the full year. I'm sorry if I missed that.

Did you change what your outlook was for the tax rate?.

Hi, Bob. No, we have not. We guided early in the year 25% to 27%. We were in the quarter 26.3% and for our guidance we're still maintaining the 25% to 27%..

Great. Thank you. Appreciate it..

You're welcome..

There are no further questions at this time..

Thank you everyone for joining us and hanging on for a few extra minutes. And we'll look forward to speaking with you again next quarter..

This concludes today's conference call. You may now disconnect..