Ladies and gentlemen thank you for standing by and walk on to the WEX Inc. First Quarter 2017 Earnings 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. [Operator Instructions] Thank you.

Thank you, Tabitha, and good morning, everybody. With me today is Melissa Smith, our President and CEO; and our CFO, Roberto Simon. Press release we issued earlier this morning has been posted to the Investor Relations section of our website at 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 first quarter excludes unrealized gains and losses on derivative instruments, net foreign currency re-measurement losses, acquisition and divestiture-related items, stock-based compensation, restructuring and other costs, debt issuance cost amortization, similar adjustments attributable to our non-controlling interest, and certain tax-related items. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis as we are unable to predict certain elements that are included in reported GAAP earnings. Please see Exhibit 1 to 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 6th, 2016. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue resilience on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa.

Good morning everyone, and thank you for joining us today. We're pleased to report a solid start to the year, highlighted by a topline beat and bottom-line results at the upper end of our guidance range. During the quarter, we generated an impressive 41% growth in revenue to $291 billion compared to the first quarter of last year. Net income on a GAAP basis was $0.68 per diluted share and we generated adjusted net income of a $1.23 per share, up 26%. The first quarter has established a foundation that positions us well for the remainder of the year. Before I go into segment detail, I want to highlight what we've done so far to execute against the strategic pillars for 2017 that I introduced last quarter. First and foremost, we're driving organic growth by deepening relationships, achieving new business wins, and continuing with our pricing modernization efforts. In Q1, revenue growth was 13% excluding the EFS acquisition and the positive benefits from fuel prices. We signed significant contracts renewals with longtime partners and saw high retention rates across all of our segments both of which speak to the value of the products and services we offer. We generated positive momentum in the marketplace and we will continue to capitalize it on our product sales and marketing skills along with a customer orientation to win additional share. Secondly, we're a leading to a superior technology. Developing and implementing innovative technologies enables us to better serve our customers and maintain our competitive positioning. Within WEX Health, we've continued to invest in R&D to further differentiate the platform and build upon the best-in-class mobile capabilities. In Brazil, we're leveraging our proprietary scale [Indiscernible] cloud based platform to innovate around mobile communications to increase cardholder engagement. In North American Fleet, our ClearView technology…

Thank you, Melissa, and good morning everyone. For the first quarter of 2017, our total revenue was $291.4 million, a 41 % increase over the prior year period and above the high end of our guidance range of $275 million to $285 million. Net income on a GAAP basis for first quarter was $29.4 million or $0.68 per diluted share compared to $23.1 million or $0.59 per diluted share for the first quarter last year. Non-GAAP adjustment net income was $52.9 million or $1.23 per diluted share, up 26% from $0.98 per diluted share for the same period last year and at the high end of our guidance range of $1.16 to a $1.24. We are pleased with the results as we grew organically, expanded into key markets and regions, and saw a strong performance across all segments. We are also confident in debut business wins that Melissa just spoke about. And our [Indiscernible] which further contributes to our future growth. The Fleet Solution segment achieved $190.8 million in revenue, an increase of 58% or $70 million compared to the prior year. Contributing factors to this quarter's growth includes the ongoing contribution of EFS, higher fuel prices, the benefits of our price modernization, and favorable volumes. During the quarter, payment processing transactions increased to $102.9 million, or 15% as compared to prior year. Non-payment processing revenue in the Fleet segment increase $45.8 million as compared to last year due to the benefits from our price modernization efforts and contribution from EFS. The average domestic fuel price in Q1 was $2.40 versus a $1.97 in Q1 last year. Fuel prices were favorable compared to last year, though they fell a slightly short of our expectations. The increase in prices contributed approximately $50 million to revenue growth when compared to last year.…

[Operator Instructions] The first question comes from the line of Sanjay Sakhrani with KBW.

Hey guys, good morning. It’s actually Chas Tyson on for Sanjay. I just want to go back on the comments you made on pricing and pricing modernization efforts. You know that the consumers are continuing to react to that, can you talk about how we should expect that to trend going forward and what growth we should expect to see in that particular line in the fleet?

Sure, this is Melissa. I said -- just going back, when we started looking back at pricing modernization, what we wanted to do is make sure that we implemented fees to put us in better alignment in with market and particularly in the small Fleet segment of the U.S. marketplace. And we made a number of changes and included in that changes was the change to late fees for our universal product and you see those reflected in the run rate of the portfolio. And from a behavioral change perspective, what we saw is just a slight trend towards making a payment that we have seen historically. So as Roberto mentioned back, what we have seen in the first quarter is what we are reflecting in our guidance for the full year. So it is a similar trends and similar behavior or similar growth and we implemented those changes in the second quarter of towards the end of the second quarter of last year.

Great. And this is Sanjay, sorry, I have done. Could you just talk about the Pilot J relationship maybe just this size and scope and the timing that you expect to bring them on?

Yes. We're excited about this, but we're doing with Pilot Flying J is similar to what EFS does in the Canadian marketplace with major roles that they are private label process, but in addition to that, we do whole host of other services. And so we just announced the contract working through the details of what the implementation will look like, but we think it's good and also it has to be in fact that they want to work with us in the marketplace and that allows us to think of things that we can do collectively that would make that unique.

Your next question comes from the line of Tim Willi with Wells Fargo.

Hi. Thanks, and good morning. A couple of modeling questions. First in the Corporate and Travel, the other revenue, I guess is a little bit larger than I would have expected. Is there anything their unique? Or just related to sort of all the changes you had with MasterCard and contract renewals?

Hi. Good morning. If you remember when we talk last quarter, the new contract renewal with one of our largest OTAs what we have is an impact on our processing revenue. But at the same time, what we have going forward is higher revenue based on the spend volume outside of the U.S. So what you will see going forward is that -- you saw the revenue depending on the mix between domestic and international volume will have some fluctuations.

Okay. Great. Thank you for clarifying that. And other question I had on modeling. I know you touched on this I got pulled away from the call at a second. So I apologize, but with Pilot Flying J, with Chevron, lots of new pieces of business coming on, again, could you just sort of repeat or sort of how we think about the investment flows through the course of 2017 as you start to get ready for those contracts and sort of springboard for 2018 when you start to actually bring the revenue on it and stand those up?

Yes. The first thing is as I said ExxonMobil expenses are already in our Q1 and are going to continue for the remainder of the year. In the case of Chevron and as I said, this is ramping cost will be towards the second half of the year and obviously, all these contracts events, as Melissa mentioned, and the growth we are experiencing in the health business, we are ramping up expenses in this segment as we move into Q2 and then therefore, also in Q3 and Q4.

Great. And that I just had one last one -- sort of macro and the same-store, so I guess, as you pointed out some stabilization, I guess in the year-over-year growth rate at minus two. Any kind of color or sense is to how you guys perceived, I guess, the economy and the possibility that, that same-store begins to show improvements. Obviously, you see lots of lots of granular data versus we get sort of these macro numbers around GDP and stuff like that, but do you have any optimism of sense that the way the comp set up any other data you see that -- it's possible that the same-store number have moved towards a flat line of not even positive, if we keep sort of economic trajectory we're seeing?

Yes. If you look at the places that we're soft, there is more softness around transportation. Construction looks flat to slightly positive and I was looking the construction sites in a way to think more about consumer parts of the economy and having that the slightly positive I think is a good time. In terms of whether or not we think that's going reflect to something positive. We think that there is always a bit of a natural drag in same-store sales because of fuel efficiency. As vehicles are getting moved into the marketplace, they are more and more efficient. So having it be at negative 2% isn't that far off and we normally plan for it to be about flat. So you take the economic growth and united against fuel efficiency and expect same-store sales to be generally flat and normal -- so we're not that far off from that. So I think, we're seeing positive movement in this and we have seen that the last couple of quarters, I think that makes us slightly positive on what we're seeing in the economy right now.

Great. Thanks very much.

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

Good morning. Thanks for taking my question. I was wondering if you could maybe just kind of touching on your earlier comments on the deals in Europe and Asia you're involved with most, can you maybe give us a sense of how many European or Asia specifically are out there that you're currently involved in bids on? And maybe just kind of give us any kind of color you can on the relative size of some of those deals? And then whether you expect anything to be decided one way or another before the end of this year?

Yes. Actually, I'll start with the marketplace in Asia I -- we were experiencing what we’ll find in that marketplace is that it moves faster, it's just more fluid and with more broadly that just lead us experience too far on the travel side of the business. So as we're looking at our pipeline that's the place that we had focused and we felt really good about on a shorter-term basis. On the European marketplace, we continue to -- it's not just a responding RFPs and that’s being proactive in the marketplace and talking to a bunch of different customers of different size that you get obviously majors are out there. But in the U.S., we process for a number of mid-size customers as well and so we've been in the marketplace and active for a while. I've said for years that market moves slower and that certainly been our experience. Since we've been in the marketplace now it's not different now, so there is number of prospects that are active in the pipeline. There are sizes of all over the place. But in terms of how we think about the marketplace, we think that we will see more momentum in the short-term in Asia and then we think of Europe is being a longer-term plan.

Thanks, that's helpful. And then maybe just in terms of the overall kind of margin profile on op margin line as you move throughout the year, can maybe just give us a sense of to what extent you expect to hold the line on non-variable costs and maybe just kind of talk a little bit about I believe you referenced the Chevron cost ramping in the back half of this year. So are there any beneficial offsets to that and just how you think about OpEx profile generally?

So this is over to what I would say to you is Q1 results very strong and when you look at our full year guidance, we are increasing revenue and slightly our EPS. They are number of factors influencing and want to consider in while revenue is growing more and EPS is a bit – is growing less than expected. But what I would say to you what I have mentioned before you have second half of the year, you have Chevron car ramping up. In Q1, with that as I said credit loss was higher than anticipated and although it’s going to start going down in the future quarter, we are going to still see on a full year basis more expense that we have initially estimated. Finally, what I also would said to you is our Travel and segment solution is performing better than we expected and our health segment as well and we are taking advantage of that to also continue ramping cost and investing in the business to continue gaining market share.

Thank you.

Your next question comes from the line up Bob Napoli with William Blair.

Thank you and good morning. Just did you said Melissa the -- you had the largest ramp up from new customers that you've ever had in the first quarter and you certainly announced a number of key wins, what is driving, has there been an acceleration in new wins and why is that? And can you give any color on the revenue from the new wins that you are on boarding?

In the reference I was making was within EFS business. There's definitely been an acceleration in new revenue implementation. It had a great pipeline we knew that when we purchased the business there's a period of time from when they take the pipeline and actually go through the implementation because of the level of integration that they have with their customers. But they've got great momentum and I would that we're seeing that across many parts of our business and the momentum ties to the product. I talked about a budget piece of the technology that we’ve got in the marketplace but as I say that's resonating in each of our markets. In Brazil, we've got a huge ramp in revenue and some of that because of the new functionality that we've deployed on a mobile basis to the customers there that have triggered more activation. And in the U.S., the liquidity product that I talked about is getting a lot of momentum in the marketplace, people are very interested in what it can do and that's contributing to some of the wins that we're seeing here in North American fleet and I would say the same thing with EFS, their momentum is really built off from the underlying technology, the capabilities they bring to the marketplace and the enablement of customizing to their customers. And so, even though that we're seeing -- and I talked about negative same-store sales in transportation, they are able to offset that into new customer wins. And we liked what we saw when we bought the business, but we see even more momentum since we bought it and the ability to combine the assets what we had here at WEX prior [ph] and what we're adding on the EFS is pretty powerful.

So, what you think about the growth rate, I guess, for the fuel card business in the U.S.? Is it over the next a few years? Is it -- as you get into next year, 2018, generally, we think about the U.S. business as mid to upper single-digit growth business, is it better than that?

I would say that when we think about the total business, we were looking at the 10% to 15% revenue growth. And the fleet business is a contributor to that. We try to target everything to be at least in that range as we think about the marketplace. And that means we hit it every quarter, but that's our intention and we feel like we've got a lot of capability, we've got a really great prospects to make that happen.

Thank you. And then just to -- question just on the guidance, the fuel price that you used to -- is the same as it was last quarter, but it seems like oil prices have come down, so surprised by using the same number. Just wondered what your thoughts were around that? And then just finally, on the first quarter, you had higher credit losses, lower fee income, but still outperformed. What were the major areas that are exceeding your expectation to offset those weaker items?

So, Bob, good morning. This is Roberto.

Hey, Roberto.

With the fuel prices, as you know, in the last, I would say, two weeks to four weeks, I mean fuel prices has been very volatile. And we have been down to 235 and up to almost 250. So, we took the position of a [Indiscernible] curve of last week and it came to be 244, which is coincidence that was not we had in the full year guidance. So, we keep close monitoring of the fuel prices, but as I said, I mean they have been very volatile in the past two to four weeks and it's difficult to predict what is going to be trending. Your second question was related to service fees, is that correct?

Well, no, first quarter you beat our expectations, but you had higher -- you had some things that missed like higher credit losses and lower late fee income. So, what is the main -- what are the main things, it looks like the payment processing transactions maybe, but what were the main things that outperformed your expectations?

Yes, so in Q1 and I say, number one on the traveler space, we have no more volume than we anticipated. We grow over 20% organic and 35% when you include all the Travel segment. So, we beat expectations there. Our U.S. Health business also outperformed our expectations and our Brazil business as well. So, all of these made up a good quarter in terms of revenue. On the other side, I think, I outlined well the biggest expense higher than anticipated in our Q1, which was the credit loss and I outlined the reason why.

Yes.

We expect this credit loss expense to start going down in Q2 better than Q1. I mean, I guided 11 to 16 basis points when we closed the quarter almost at 18. And then we expect that the second half of the year with a credit loss continue going down.

Okay. Thank you.

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

Hi. Good morning. I wanted to just ask on the credit loss component. Can you break out how much of that is due to the card skimming versus the some of the other cyclical factors you called out?

Yes, good morning. What I would say to you is that -- obviously, we expect to credit losses and we would have hoped at the high end of our guidance range. And the other thing I said to you is that historically, our fraud of this type was not a significant expense to us. So, there's too many factors to say, which one was higher than the other. I mean, every piece contributed to this credit loss increase. What I would say to you, specifically, on the fraud, we are working diligently, implementing, as I said, a new detection software that is already in place in Q2 and as I said as well as start implementing a stricter velocity limits, so that we can limit the unauthorized purchases.

Right. Okay. So, the software upgrade, it sounds like that's a pretty easy and quick fix and we should see -- we will the performance improves pretty quickly as a result of that?

What I would say to you is we put it in effect in place early in Q2. And we're going to see -- I mean we expect obviously that's why we're investing the money to see the fraud going down. If it's going to go faster or slower, we're going to be seeing in the next couple of weeks -- in a few weeks.

Yes. Okay.

And more broadly I would say, if you think about it from a trend perspective, there's the migration over to chip and there's going to be a lag [Indiscernible] field locations with [Indiscernible] and so this is something that we want to make sure that we're investing in because it could become more of a trend. It's actually been fairly isolated behavior. And so we -- Roberto talked about the velocity controls, one of the things we have already embedded in the program, the ability to create a lot of different control around spending. And so part of what we did pretty quickly was to increase those velocity controls. So, we had to work that through with both the merchants and with our customers before we did that. So, it took us a little bit of time to work our way through that. But that's another thing that we've seen immediate benefit from. It's just really adopting some of the control features that are designed in the product even more aggressively in the markets where we've seen some of the behavior.

All right. Thanks for that, that's useful. Just a quick final question. Just the better repayment performance because the fleets are avoiding fees, sort of similar question. Is that cyclical or are fleets even more mindful of savings there or is that just a natural byproduct of the changes you guys have made? Thanks.

I think that what we typically see is that their behavior is more akin to what they've done historically and a little bit of the timing of when payment cycle event. So, depending on when you get billed that affects payment behavior and well, that's fairly predictable and we could see that play out over the course of the year. What we think happened this time is that people are moving towards making payments more current, which is a good thing. There's other savings for us when that happens, so that's positive. And we're planning as if that's a trend and the only caveat, I'd say, there's either some seasonality quarter-to-quarter based again on when the timing of bills goes out that we reflect in the future quarters of the year.

Makes sense. Thanks as always.

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

Hi, guys. I wanted to ask about the net interchange on -- in the Travel business. What is the long-term view of this metric? Is this kind of a new baseline that we have here? I mean will this line continue to compress over the long-term or do you expect some stability at some point?

So, good morning, this is Roberto. I will start saying we gave a pretty specific guidance last quarter on where we expected net interest rate to be for this year. And we were right in the middle of that range in Q1. For the remainder of this year, I would say that we're not expecting any big changes. So, we can always have some movement, as I said before, based on the customer mix and geographical mix. But I repeat I mean we do not expect any big changes for the remainder of 2017.

Okay. And over the longer term, I'd say next to three years, five years, is there a point at which renegotiation of contracts in this line will -- simply there's just not enough left in order to compress the line further? I mean is the long-term view that this continues to kind of compress for every renewal cycle or is it just more like you reach a point where it sort of stabilizes?

I think it's probably somewhere in between. If you look at the longer term cycle, the interchange revenue, in general, we look at our rates; we typically do see some compression upon renewal. But there is a point that in most parts of our business, when you get to the point where that hit a saturation spot, you start to getting into some of our other fees also the customer because at the end of the day, we think of it as a value exchange as they need to be able to get value at the products that we're offering and there's clear demonstration of the value that you can quantify. And at the same time, we have to stay competitive to the trends that are happening in the marketplace. And those are the two factors that kind of bound where our pricing is. And -- so in this case I think there will continue to be some competitive pressure which is what we see generally across all of our markets. We compete on product; other people come in and compete on price. And so we have to be conscious of that, we had to make sure our cost structure is set up with that in mind, but there is a limit to where that will go. And at the end of the day we can show some tremendous cost savings to our partners and efficiencies that we don't think other people can bring to the market.

Okay. Somewhat similar question on pricing, which bodes a little bit of Tien-Tsin's prior question. Has anything you've seen with customer reaction to what you've done change your -- again, long-term view, not talking about guidance this year, but long-term view about pricing being a -- kind of a recurring tailwind in the model going forward?

When we went through and we made our pricing modernization changes, we looked at the border marketplace where fees were and we approach the market with a thoughtful way of being highly transparent about changes that we're going to make, presenting them a bill in a way that was easy for our customer to understand. We largely focused on fees that were avoidable based on their behavior and so all of those things have translated into a very sticky skill experience for the customers and it's clear that they've noticed that we've made changes, but we left a lot less than 3% voluntary attrition even throughout the process of making changes. So, I think what we've learned so far is that how we approach the customer making sure is that we're doing it in a thoughtful way. And at the end of the day, the things -- we do think about is making sure that there's value to that customer, the products that we have in the marketplace. And so there's nothing in what we've learned in our approach that would make us change what we want to do in the future. And we're very much about testing too. If we're going to make a change to something we think it's bigger, we typically will test it in a marketplace, see the reaction to that before we go through an implantation cycle, which makes us move a little bit faster -- I mean slower, sorry in implementation. But I think it's part of why we've seen such a reaction from our customers in terms of making sure that we just have retained the customers. So, that's the long answer to -- I don't think it really changes our long-term approach and in some of the pricing discussions that we've had effecting partners that's something that we've had very direct conversations with our partners about. And that needs to be factored into a mix because we represent our brands who want to make sure what we do in the marketplace is consistent with what they would want us to do.

Okay, great. Thanks so much.

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

Hi good morning. Thanks for taking my question. Just on Travel, you said, I think volumes were better than you had expected. Can you just talk about what's driving that specifically? And whether that's just organic growth from your large OTA partner? And then how sustainable that sort of 20% plus organic growth looks like going forward? Thanks.

It's actually a combination across the portfolio. It's coming from the major travel customers, but it's also coming -- and I talked about $250 million worth of incremental spend outside of United States. So, we're seeing ramp in Asia and growth in other parts of the world. And that -- so all those pieces are coming together and over performance that we saw in the first quarter.

Okay. Thank you. And then and then on the higher retention that you just gave some commentary on a sort of voluntary attrition being less than 3%. But could you talk about that number more broadly? And why retention has trended more positively? And has anything to do with the sort of business ability information and so forth?

Yes. In that number of segment, specifically Fleet in the United States which has been the place that we're focusing on in the previous commentary and pricing. And I would say that it's actually been really consistent if you look back over the last 10 years. The voluntary attrition rates for us have been generally under 3%, often 2% and it's one of the measures that we've looked at amongst many others when we think about customer satisfaction. So, we look at customer satisfaction. We look at Net Promoter Scores, we look at ultimately attrition because we think people talk with their fee and at the end of the day, if we're doing things in a way that is reflective of what a customer expects, then we'll see that play out in voluntary attrition.

Okay. Thank you.

Your next question comes from the line of David Togut with Evercore ISI.

Thanks. Good morning. I apologize if someone asked this before I -- I was joined late from another call. Can you talk about the European business, particularly, the outlook for new deals in Europe? There's been I think some talk over the last few quarters that there are a couple of big deals in the pipeline any update on timing would be appreciated.

Yes. So, what I said about this was that when I think about the marketplace that we think about it more broadly than Europe, we've had really good experience so far in Asia. And we think of Asia as a marketplace that moves more quickly and we have items in the pipeline that are more active in that market place in a short-term manner. In Europe we've been hitting the marketplace for a while and we do have a pipeline of various size transactions, some big, some smaller. But we still think of that marketplace, its playing out more slowly and that's not something that's new that's been our experience in that market for a number of years. So, it really isn't a lot that we would say from last quarter about what's happening with people, still very confident about the long-term prospects we have in both those marketplaces. They move at different speeds.

Understood. Thank you very much.

Thank you. Ladies and gentlemen that does conclude the call for today. We thank you for your participation and ask that you please disconnect.