Good morning. My name is Rachel and I will be your conference operator for today. At this time, I would like to welcome everyone to the WEX First Quarter 2016 Earnings Call. I'd now like to turn the call over to Steve Elder, Senior Vice President of Investor Relations.

Thank you, Rachel, 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 Web site at wexinc.com. A copy of the release as well as a Slide deck summarizing our results has also been included in an 8-K we submitted to the SEC. As a reminder, we will be discussing non-GAAP metric, specifically adjusted revenue and adjusted net income during our call. Adjusted net income for this year's first quarter excludes acquisition and divestiture related items, stock-based compensation, restructuring charges, changes in unrealized fuel price derivatives, net foreign currency re-measurement gains, adjustments attributed to non-controlling interest and the tax impact of these items. Please see Exhibit 1 for an explanation and reconciliation of adjusted revenue to GAAP revenue and adjusted net income to adjusted ANI, and Exhibit 2 for an explanation and reconciliation of adjusted net income to GAAP net income, included in the press release. 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 these forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our annual report on Form 10-K filed with the SEC on February 26, 2016. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa Smith.

Good morning, everyone, and thank you for joining us today. This morning we were pleased to announce first quarter results that exceeded our guidance range on both the top and bottom line. We generated $205.9 million in revenue and adjusted net income of $0.97 per share. I am most pleased about the underlying momentum we are experiencing despite the volatility in the fuel price environment. Assuming constant currency, fuel prices, fuel spreads and impacts from the hedge, our revenue would have grown approximately 12% and earnings would have increased approximately 16%. All business segments contributed favorably to our performance, demonstrating solid momentum over the prior year with organic growth across the business being a key driver. Our focus remains on accelerating growth in our core verticals, scaling opportunities across the organization and driving market leading efforts globally. We experienced strong underlying growth in our health and benefits segment and we build upon our fleet and travel customer base. Our pipelines are robust as we make our way into the year. At the same time, we are executing against our plan to modernize our pricing with small fleets in order to align competitively with the market. Our international expansion showed momentum in both Europe and in Asia. As I mentioned on the last call, we had moved from five to 17 countries and territories in last two years with our fleet platform and we are seeing strong ramp of our European and Asia customer signings in virtual travel. We feel good about the products we are bringing to market and our ability to help simplify complexities of payment systems through innovative technology, user friendly tools and industry leading customer service. Our ClearView Analytics offering, Benaissance' technology and the recent success of our travel product in Brazil are great examples of our…

Thank you, Melissa. I am excited to have joined the WEX team and I look forward to contributing to the growth and success of our company. With that, I would like to walk you through a more detailed view of our financial results for the quarter. For the first quarter of 2016, our total revenue was $205.9 million. A 1.8% increase from the prior year period and about the high-end of our guidance range of $190 million to $200 million. Net income on a GAAP basis for the first quarter was $23.1 million, or $0.59 per diluted share compared to $22.3 million or $0.57 per diluted share for the first quarter last year. Our non-GAAP adjusted net income came in at $37.6 million or $0.97 per diluted share, down from $46.2 million or $1.19 per diluted share for the same period last year also above the high-end of our guidance range for the quarter. Overall, we are pleased with our performance across the business. Adjusting for changes in fuel prices, fuel price spreads, impact from the hedge on foreign exchange rates, revenue growth in the quarter was 12% and adjusted net income growth 16%. The primary drivers behind the increase in revenue and earnings versus our guidance were an increase in fee revenue, primarily in the fleet segment and cost containment across the company. The fleet solutions segment achieved $121.1 million in revenue, a decrease of 6%, largely driven by lower fuel prices and partially offset by growth in volume and pricing modernization. Assuming cost and currency, fuel prices and fuel spread, overall revenue growth in this segment would have been 8% for the quarter. During the first quarter, payment processing transactions increased to $89.1 million, 8.7% higher than the prior year period, which was driven primarily by one large…

Rachel, if you could open the line for questions now.

[Operator Instructions] Your first question comes from the line of Bob Napoli with William Blair.

Congratulations on this all-around -- the trends in the business look very good. First question, just on the conversion of a customer from transaction processing to payment processing, where was that at? When was it done? Can you give a feel for how many transactions that represented in the quarter payment processing transactions?

Hi, Bob, it's Melissa. The conversion is something you see is just a normal migration that's happened over time, where we have converted a number of transaction processing relationships over to payment processing. That occurred at the beginning of the year, and so you will see that same effect throughout the course of 2016.

So a couple of hundred basis points benefit to the payment processing growth rate transactions?

Yes. You can see the total growth, vehicle growth 3%, and then when you look at the payment processing growth, you are seeing the increase largely between those two things because of this transition.

Okay. And then you announced -- you said you signed another major oil company in Australia? Is that for payment processing or transaction processing?

The relationship that we have in Australia is, it is really a, think of it as an affinity program. So the relationship would be branded with that customer's name, but using their universal network. So, it's payment processing. It will convert to payment processing but it's kind of a broader relationship than just a traditional private label relationship.

Okay. And then...

This is in startup [phase] [ph], we are not taking over a portfolio. It's...

Okay. And then my last question before I turn it over. Just on the EFS acquisition, have you had any feedback on timing? And then the financing, when you announced the deal, initially credit spreads looking as you're a BB rated company, credit spreads blew out, which essentially would've wiped out all accretion. Now credit spreads in the BB market have narrowed dramatically and are actually tighter than they were when you announced the deal. And I'm not sure that that's a direct correlation to how you would fund the transaction, but can you give us some thoughts on the accretion of EFS? How the business is doing, when it would close? On the funding side, are you going to get the benefits of that spread tightening?

Yes. So you had a bunch of questions in there. But let me talk about, you asked about accretion. So when we announced the deal in October, we said we were assuming an April 1 closing date and it would be $0.15 to $0.25 accretive. And we were presuming at that time, debt as LIBOR plus 350, just to recap what we said. As you mentioned, on our last call we mentioned the fact that the date was not known still. I would say that's still true, that the financing rates had increased significantly and that the business was also impacted by the drop of fuel prices, although less than we are. Only about 15% of their revenue is impacted by that. So I think the one thing that's really changed from that, our last quarter call to now, is the financing rates as you mentioned. They're volatile. The last, we know obviously we're getting updates on a regular basis; our last view was LIBOR plus 400 to 425. So they're still worse than the original announcement day but better than the last time we looked at them, and they're really moving all over the place. So some of that will depend on the timing of the transaction.

And how was EFS performing?

So EFS, I would say, is continuing to win business in the marketplace and strategically still fits the profile of what we are looking for. And as I said, they are impacted by fuel prices and some of the same macroeconomic trends that we are but continue to deliver new customers into their pipeline.

Your next question comes from the line of Sanjay Sakhrani with KBW.

Maybe you guys could talk about the health and employee benefit segment and what drove the outperformance there?

Sanjay, it really is a, it's a combination of a couple of things. Obviously, Benaissance is impacting that quarter, this particular quarter a little bit. It's really the only thing that's inorganic that's affecting the results in the quarter. But there's still over 20% growth when you pull that out. And so I'd say kind of the headlines, they are benefiting from the conversion. It had some pretty significant portfolio conversions that have occurred during the course of the last year that you're able to see that now coming through the results. And as well as just continued customer signings, growth in their underlying business. And so there is really not, when you strip out Benaissance, it may be a couple of customer portfolios, it's just underlying organic growth that's happening with that business.

And so this level of profitability in that business or revenue growth is sustainable throughout the year?

Well, I think the benefit of the portfolio migrations is something that will annualize as you get toward the end of the year, unless there's something similar that occurs. And if so, we have talked about it being a high teens growth rate. And I would still say when we think about the business, we're still thinking about that, in that category, even though it's over that in the first quarter.

Got it. One follow-up question on EFS. I think on the last call, you did talk about having some other tools around funding the deal to the extent that the capital markets didn't repair themselves and it seems like capital markets are a little bit better today. Would the combination of those tools plus the improvement in capital markets, get you back to your original accretion assumptions?

If you do look at the market today, it would not get you back to the original model but it helps mitigate. So we're still exploring, I would say even more than exploring, we're still looking at those options as ways of financing the business that's going to be optimal in terms of flexibility of structure as well as rate. But even if you blend alternative structures, we are still higher than the original deal announcement date, right now.

Okay, great. And then just finally, as far as other potential opportunities, you mentioned the pipeline is pretty robust. Is that the M&A pipeline as well or just kind of pipeline and workflow? Thanks.

It's both. If you look across the businesses, and part of what I like about this quarter is you can actually really see the organic growth coming through in each of the lines of business that we have. And that's driven largely by a lot of work that's going on the front end just to progress business through the pipeline. And so I'd say that it continues to look really good. And as you get into this part of the year, you certainly have much more visibility into what's going to play out towards the end of the year. So we feel good about that. In terms of the M&A pipeline, there always is going to be big, there's lot of opportunity. And for us, we're obviously spending our focus delevering the business but we will continue to look at M&A opportunities regardless of what's happening within the marketplace because we want to make sure that we are participating.

Your next question comes from the line of Ashish Sabadra with Deutsche Bank.

Congrats on the solid results. Just maybe a quick modeling question. The processing rate in the fleet segment was much higher than I would've expected, any benefit there? And then on the interchange rate in the travel solution, that was a bit light? So was there any seasonality there and how we should think about the processing rate, as well as the interchange rate for those two segments?

Actually, I will take those in reverse. If you look at the travel segment, the biggest impact that happened with travel, and we talked about this, was we had one large customer that signed a new contract in April of last year. And so that's anniversarying in. And at the same time we also had some customers hit higher tier levels, just because the spend volume has been really strong, stronger than what we anticipated. So we've got the impact of both of those things affecting this quarter. And they will, if you're looking for more of a forward view, we think that the impact of that is reflected in this quarter and that's what you would expect to see as the baseline going forward.

And for the processing rate in the fleet segment, 1.44%. That was high as well compared to the first three quarters in 2015. Was there some benefit from spreads there and how should we think about the processing rate going forward?

A piece of that is the hybrid contracts that we have in the business. So as fuel prices have dropped, it makes the rate go up and a piece of it's just blended mix across the portfolio. So there's nothing really that's novel that's happening.

Okay, thanks for that color. Maybe one final question. This one is about the guidance. When I look at the guidance raise for the full year, EPS guidance raise at the mid-point, that's up $0.27. And then when I look back into the fuel price assumption, that has gone up around, I think, $0.17. So looks like most of the EPS raise came from higher fuel prices? But in the quarter, you also beat the quarter by like $0.13 in EPS. So I was just wondering, the fiscal year guidance raise, is that just some more conservatism baked into it?

Ashish, hi, this is Roberto. At the top of our range, EPS guidance, if you remember, was $4.10 in February. We have moved it, you are correct, to $4.37 for the full-year '16. As you also said, domestic PPC for February was $1.97 and now we are raising it to $2.14. And we are maintaining the '16 [indiscernible] guidance. The revenue at about 10% growth and 20% on earnings, assuming constant currencies and also the March fuel prices and no impact on hedging. What I would tell you also is that there are a lot of puts and takes and that the majority of the EPS increase is due to changing domestic fuel prices, as you mention. But we have a portion of the first quarter [supportability] [ph], and so there is more anticipated contraction in the spreads and volume in the U.S.

Your next question comes from the line of James Schneider with Goldman Sachs.

Just wanted to get more color on, I apologize if I missed it before, can you maybe comment on numerically, what the same-store sales number was in fleet in the quarter? And then related to that, have you seen any kind of recovery in the transportation or energy subsectors where you've seen weakness for couple of quarters now?

Yes. So same store sales were down 4%. So actually a little bit worse sequentially than it was in the fourth quarter. And I would say similar trends, though, when you really get into it. It's largely driven by oil and gas, a little bit more affected by large fleets than smaller fleets. Transportation, actually still down. And construction is a little bit softer this quarter than it has been. So if there was kind of a standout from quarter to quarter, construction is probably it. It's not quite as strong as it had been in the previous couple of quarters.

That's helpful, thanks. And then maybe just as a quick follow up, related to the travel segment and the gap that someone else referred to before in terms of purchase volume and the effective rates you're seeing. Is there any reason to believe that that gap or that discontinuity wouldn't continue in terms of lower rates on the travel side of things? And, I guess, anyway that we should be thinking about what the normalized rate would be as we get through the end of this year and into 2017?

Yes. I would think of this as the normalized rate. So what we reported in the first quarter is something you would see as kind of the baseline as you go through the year. And so the pieces that affect the rate are mixed. So as transactions occur geographically, there's obviously significant differences on rates. But there's also typically corresponding differences in rebates. And so while it has an impact, it's not as large as you might think. The other thing that affects it is customer blend and as a customer hits their different spend levels, then that can affect the overall rate. Generally, I think that you're going to see a little bit of a downtick in Q2 and Q3 because there's just a seasonal mix to travel but you shouldn't see the same type of decline you saw from Q4 to Q1. Again, think of this, what we're reporting this quarter as kind of more of the baseline going forward.

Your next question comes from the line of Glenn Greene with Oppenheimer.

I will also sort of drill down a little bit on the corporate section, maybe the more positive one. If we could give a little bit color on the 18% volume growth? If there's any way to parse that, domestic, international. The drivers and the sustainability. It sounds like there's been some nice new wins internationally, both Europe and Asia, but maybe just some color on that 18% volume growth, for starters.

Yes, I think, not to get too customer specific but the larger customers in our portfolio had some pretty significant spend volume increases and that's a piece of it. And that travel happens everywhere. It's truly global. And then we've had a customer ramping in Europe. It's more than one, but the one that's kind of notable enough that it's actually affecting the volume mix. And so that's a trend that we are expecting to continue as well. As I mentioned, the win with Ctrip, which we're really excited about, is still in the very early stages and it's kind of too early to know what the ramp is going to look like. But it's a customer we're obviously really excited about having into the mix and could affect the future results.

Okay. And on the travel side, just thinking about that 9% payment processing transactions. I wonder if there is just sort of a highway, high level way of reconciling from, I'm thinking of negative 4% same store decline. You've got the transition of the client to a payment processing relationship. There's probably some net sales benefits in there. But how do we sort of bridge the gap from that negative 4% same store to the 9% positive?

Yes. The 9% positive is payment processing transactions. So I would bridge it more, if you look at the total transaction number, it's probably a better bridge, and then you add the negative 4% to that to think about how we're actually growing organically.

Okay. And then just maybe a quick update on Esso trends and your profitability expectations or timing?

So that's what we still believe it's going to be breakeven this year. And so on an operating income basis, and we're progressing well on that front. The key pieces to that, that we've talked about, are continue to grow the portfolio, making sure that the pricing is set at market. And then working on operational efficiencies and the team in Europe is doing a great job of progressing on all of those fronts. And so I'd say it's very much on track, if not ahead of where we expected it to be.

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

I wanted to ask you about your sensitivity to fuel prices. I just want to make sure that I'm understanding what you told us last quarter correctly. What I'm getting at is, is that sensitivity going to increase now later in the year as all of your hedges have rolled off? The last bit of them rolled off in the first quarter. Or was that $0.16 impact on the, moving the price of fuel, was that presuming -- that was already factoring in that is it going to roll off at sort of a full-year kind of an impact that was valid for the full year?

So we had said that on $0.10 of fuel price movement would translate into $0.16 of EPS. That was unhedged, so the underlying presumption is you're looking at the business un-hedged. We also had said that that's domestic U.S. only. And so the pieces that affect fuel price movements, you still can get some movement in Australia; you just can't translate it to the NYMEX. And in addition to that, in Europe you've got the counter to that with, you've got movement in spreads. So in this quarter, when we were giving an update on guidance, Roberto talked about the fact that we're expecting fuel prices to go from $1.97, which we gave on the last call, to $2.14, based on the NYMEX curve on the full year. So you're getting the benefit of that, but we're also getting, we're anticipating that that's going to have some effect on fuel price spreads in Europe. And so that's where we're kind of buffering those two things together when we're looking at our full-year guidance number.

Okay, perfect. On the, moving the customer from the transaction processing relationship to the payment processing relationship. How typical of a transition is that? I guess I'm trying to figure out whether your processing relationships represent a pipeline that eventually converts over to the, or rather your transaction processing relationship is sort of a pipeline that converts over to payment processing? Or is this more of a one-off thing and it's not necessarily a natural progression for your customers?

I think that that has been a trend in the U.S. So we have signed -- when you think about transaction processing, for us, it's largely, it's just a technology play where people are outsourcing the technology. And over time we tend to build confidence in the fact that they can move from just the technology to some of the other areas of expertise that we have around the whole host of products from a credit perspective all the way up to, in some cases, we're doing sales. So we're doing that more and more, where we're actually the front end for a lot of the oil companies because we have an inherent competency in that area. So I would say that it has been a trend we've seen over the years. And it is something that when we look at a business, we're interested in doing the whole host of services. And obviously from our perspective, the relationship is deeper when you're doing more than just processing the transaction.

Okay. And then lastly on Europe. You mentioned you took some price there? Did you see the market in Europe as being underpriced relative to where it could be? In other words, if there was WEX like operators who are running those fuel portfolios in Europe, would there be a large opportunity to take price across the board?

I don't know that I would generalize. I think in this case, that was true. It depends largely on the portfolio and how it's been managed historically. And so it's something that we were able to do and it was part of how we thought about the portfolio. It was a piece of how, we talked about moving it to operating margin breakeven, it was a piece of the plan in doing that all along.

Okay. And then really quickly. Any word on Europe RFPs? Any movement on outsourcing? There still seems like those RFPs have been ongoing for quite some time.

Yes, I know. I keep saying that’s -- I put that in the longer term category in my mind. There's nothing really new to talk about. There's still RFPs that are in process and kind of making their way through the path.

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

I just wanted to follow up on an earlier question on take rate in the fleet segment. Melissa, you mentioned that there is some offset as fuel prices fall, that you get some other revenue support on the take rate. But last year we had an even bigger year-over-year headwind and we didn't really see that much of a benefit. So I'm wondering if you could just walk us through what's different this quarter? Is it that you've crossed some threshold so you're more protected as you approach some floor level on fuel prices?

No. I think it has more to do with the, mix isn't really the right word, but some of the contract renewals that we've gone through. That mix of moving one other portfolio into -- from that transaction processing relationship to payment processing relationship. All of those things are coming together that are affecting the rate in this quarter. And it's not really anything that's new other than a normal process that we're going through and renegotiating with our customer base.

Got it. And maybe a high-level question on the travel segment. Can you remind us where you are in terms of penetration of online travel? In the past you've talked about a TAM, I think it was $60 billion or $70 billion in volume. Just maybe an update on how big that TAM is, considering how fast the industry has been growing? And then how much, there's a distinction between merchant model and agent model, one of them being more addressable to you. So, maybe an update on where that split is today and overall what your penetration is today? Thanks.

Okay. So there's about $70 billion worth of spend, if you look at U.S., Europe, Asia PAC and LatAm. And so we're about 28% of that. So if you kind of do the math on our spend, comparatively. And you asked about the merchant model versus agency model, so we're playing heavily in the merchant model which is where we get involved in making the payment on behalf of the online travel agency as opposed to the consumer making the payment directly to the hotel. And typically, the spend volume is roughly half and half. And I haven't seen anything that's really updated that nor have we seen trends that would make me think that's changed much.

And I guess by that logic then, is your penetration of the merchant market 56%?

Yes. Mathematically, that's probably right.

Your next question comes from the line of Tom McCrohan with CLSA.

Melissa, I guess before the big drop in fuel prices, you had talked about long-term expectations for EPS growth, I think about 20%? I'm just wondering how you're thinking about that now?

Yes, we had long-term growth targets of revenue 10% to 15% and earnings 15% to 20%. And we actually, with the exception of fuel prices, I'd say we've largely been on track with that. So when we think about the business over the longer term, part of what we've been trying to do is diversify the business away from the fuel price exposure. And we thought hedging was an okay strategy for a shorter period of time but over the longer term, the intention was to increase the other parts of the business in areas that we thought we had expertise that would also reduce that exposure. And so I would still stand by the numbers as we think about the business on a longer-term basis that we're seeing that representing the quarter. And if you take out the impact of fuel prices and FX, we grew 12% top line and 16% on an ANI basis, again, adjusted for fuel prices and FX. And so underlying the business, you're still seeing that level of strength. And we've gotten to the point where we're starting to see fuel prices, hopefully, lift again. But regardless of whether that happens or not, we're making sure that we're gearing the business on a longer-term basis. So that there isn't as much sensitivity longer term to fuel prices.

Okay. Just trying to make sure I could characterize the increase in guidance correctly? It looks like most, if not all, the increase was due to expectations for higher fuel assumptions. And that seems to kind of square with the sensitivity, the $0.10 to $0.16. So, raising guidance about $0.27 and your fuel price assumption went from $1.97 to $2.14, right. So that kind of squares with the EPS increase. So it doesn't really seem to bake in any of the positive trends and outperformance you're seeing in healthcare, the Ctrip win in Asia. So I'm just trying to make sure I'm thinking about the change to guidance, was it all attributable to fuel or not?

So you were right in using the U.S. calculation, but as a contra to what we're picking up in the U.S. So you're saying that $0.27 is largely based on the fuel price changes happening in U.S. fuel prices. We're expecting to see some contraction in spreads in Europe. And so we're buffering some of the expectations we're going to have in fuel prices because of what typically happens is you get a little bit of an offset to that. And at the same time, we're pushing through the piece of favorability we saw in the first quarter that wasn't timing related. There's a little bit that was timing, but the majority of it we actually are including in increasing the guidance. You asked about Ctrip and I think it's kind of early for us in that stage to really know what that's going to ramp to be. And so something like that, we typically are anticipating a ramp of new signings when we give out guidance. Something that's larger like that and unpredictable, we won't necessarily factor in until we have better insight into what that's going to look like.

Okay. So kind of a last question. To understand the guidance relative to the new disclosures in exhibit 1, which strip out the noise from FX and fuel prices. So, on a normalized basis as per the methodology you're using in that new Exhibit, the FX and PPG effect. What would guidance -- like how do you normalize your full-year guidance for those two factors?

So if you were to normalize, and Roberto had said this earlier, but if you normalize for those factors, the mid-point of our revenue guidance is a little bit more than 10%, and mid-point of our earnings guidance is a little ahead of 20%. So it's a little bit better than what we had said on the last call but pretty comparable.

This concludes the question-and-answer session for today. Steve Elder, the floor is yours for any closing remarks.

Thank you, Rachel and thank you, everyone for joining us this quarter and we look forward to talking to you next quarter.