Ladies and gentlemen, thank you for standing by, and welcome to the WEX’s Fourth Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host Mr. Steve Elder. You may begin, sir.

Thank you, sir, and good afternoon everyone. With me today is Melissa Smith, our President and CEO; and our CFO, Roberto Simon. The press release we issued earlier today has been posted to the Investor Relations section of our website at wexinc.com. A copy of the release has 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. Adjustments for this year's fourth quarter and full-year to arrive at these metrics include unrealized gains and losses on financial instruments, net foreign currency re-measurement gains and losses, acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, restructuring and other costs, impairment charges, and asset write-offs, the gain on divestiture and debt restructuring and debt issuance cost to amortization, non-cash adjustments related to our tax achievable agreement, similar adjustments attributable to non-controlling interest, and certain tax related items as applicable. 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 attributable to shareholders to GAAP net income attributable to shareholders. 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 18, 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'll turn the call over to Melissa Smith.

Good afternoon, everyone, and thank you for joining us today. I’m excited to report a strong finish for 2018. We delivered fourth quarter revenues that exceeded the top end of our guidance range and strong bottom line results that grew 34% year-over-year. Revenues were 15% to 381 million compared to last year, making our 10th consecutive quarter of double-digit revenue growth. This includes strong revenue growth in our Fleet Solutions and Travel and Corporate Solutions segments as well as in our U.S. Healthcare business. The positive impact of higher fuel prices, foreign exchange rates in the new revenue recognition standards and M&A activities were 6%. On the bottom line, net income on a GAAP basis was $0.41 per diluted share and adjusted net income was $2.11 per diluted share. Overall, we executed well this quarter on the backdrop of favorable macroeconomic conditions. Looking at the total year, 2018 was another record year for WEX. Revenue increased 20% to $1.49 billion, GAAP net income per diluted share increased slightly to $3.86 per diluted share, while adjusted net income per diluted share increased 56% to $8.28. The full year earnings for 2017 and 2018 include adjustments to the preliminary results we announced from February 22nd due to the corrections of previously disclosed errors relating to our Brazil operations as well as other immaterial corrections we identified during our review. Roberto will give some more detail, but the changes to our preliminary 2019 guidance were not related to the issues we corrected for. Our performance in 2018 was guided by the strategic pillars we set a year ago, which serve as a guide as for our business. We remain committed to building upon our best-in-class growth engine, leading through superior technology, delivering scale through superior execution and levering our culture to attract and…

Thank you and good afternoon everyone. As Melissa mentioned earlier, I will like to provide you with an update on WEX's internal financial statement review. In addition, the recently filed 10-K, 10-K/A and press release contain updates to the preliminary results issued on February 22, 2019. During the Company's 2018 year-end close process, WEX identified immaterial errors in the financial statements of our Brazilian subsidiary, which began before 2015 and are primarily related to accounts receivable and accounts payable. The financial statements have been corrected for these matters. At the same time, we revised the financial statements to correct other immaterial variances, impacting prior years that were not previously recorded. WEX believes that the effects of the provision is not material to our previously issued consolidated financial statements. We are actively engaged in the implementation of our remediation plan to ensure that controls are designed appropriately and will operate effectively. Changing gears to the 2018 results, I want to pause for a moment to discuss the results for the full year. In 2018, WEX outperform again with revenue growth of 20% and adjusted net income growth of 56% when compared to 2017. We had significant organic revenue growth in the business, supplement with the M&A activity. In the Fleet segment revenue grew 18%, 10% of this relates to macro economic factors and revenue recognition. In the Travel and Corporate Solutions segment, revenue grew 35% approximately half of this growth was due to M&A and revenue recognition. Finally, the U.S. Health business grew 14%. Now let's move to the Q4 results. We had a strong organic revenue and adjusted net income growth, driven by robust results from Fleet Solutions and Travel and Corporate Solutions segment. The U.S. Healthcare business also performed better than expected with solid revenue growth. From an earnings…

[Operator Instructions] Our first question comes from the line of Ramsey El-Assal from Barclays. Your line is open.

Can you give us a little more color on the Brazil situation sort of what happened there exactly? Was it just an accounting error, but there is no indication of any type of malfeasance or anything like that or willfulness statements as of past results, this is just simply an error that you've cleared up and now it is completely behind you, if you could provide a little more color there would be appreciated?

So this is Roberto, good afternoon. The majority of issues we found in the Brazil fleet was our fleet business. The process is you know where highly manual and in the past two years, we have been improving both processes overtime. And the other thing, I would say to you is that finally, the volume on this particular segment has climbed significantly in the past two years. So this is why you know as we look into 2019, we feel comfortable on where we are.

It is Melissa. I make sure that we respond to your second question. One of the things we did as part of the process was we engaged one of the big four firms to perform work for us. And we did not find any evidence of fraud or intended errors by that process. So things are absolutely clear.

I wanted to ask also about your corporate payments growth rate which was extraordinary. Can you give us a little more color in terms of what industry verticals there are driving that or solutions you have that are driving that. And also just bolted onto that, it looks like your credit loss expectations for 2019 or little higher than your full year 2018 outlook. And I was just curious as to what the -- what is causing that to be elevated a little bit, is it increases, is it on the credit side rather in fraud side or any color there could help as well. And then I'll hop back in the queue.

Yes, sure, Roberto actually gave some pretty good color of the corporate payment side. We actually, if you look across the portfolio, we saw great growth, but we saw over sized growth in some of the areas like the corporate payments and health. And more we think of the business, we're segmenting it between travel and corporate payment -- government payments, it is a bigger market, it's the higher growth rates. And we've been putting an increasing amount of capital and efforts towards that space. So that's a piece of it, we are going of relatively small base which helps, but that piece of it also growth outside of United States. As the business continued to globalize we've added and really strengthened up our European office. And you're seeing the benefit that I talked about, one is that we just had in that space in Europe, but I think there is a direct correlation between, we present product but also that what we've done in that office and making sure that we have really high talent that's focused on globalizing development.

Great. Just on the credit

Yes, this is Roberto. Let me take the credit loss question for you. I mean this is the way we see. So we closed 2018 with 12.5 basis points of the spend volume on the fleet credit loss. And I've guided 13 basis points to 18 basis points. We don't expect any change from the '18 results, with just one exception that is related to the Shell and Chevron portfolios. And here there are two pieces, number one, this accounts have a small businesses, which as you know, come with higher credit loss than the average North American fleet business. And the second thing is specifically to Shell, that is our another portfolio that also come with a higher credit loss than the average of the business we have today.

Our next question comes from the line of Darrin Peller from Wolfe Research. Your line is open.

Thanks guys. You -- you continuously show mid single-digit growth in your transaction levels in the fleet segment, which I guess just give us a little more update on what you're seeing that's driving that level versus what we see industry at some of your competitors, is it -- and then just maybe expand on sustainability to that as we get more organic going forward?

Yes, when we think about growth in that part of the business, there's a lot of blocking tackling as we continue to roll our products, we had sales people that are selling against both our partner portfolios and then directly -- over time, as we've added partners, it might be counterintuitive, but it actually help builds the ability to grow in the marketplace because you have customers who have many different options. And there is something unique about each brand and we market to make sure that we're really be thoughtful about what -- people are attracted to about that brand and maybe try to accept them maybe something around brand loyalty that you noted a whole host of reasons that people pick a particular product, but that's an area of expertise of ours is to really understand what is going to drive somebody to that product to make sure that we are marketing to that. And at the same time, we have a WEX offering which gives you universality if that's something that they're interested in alternatively. And if you look across our partner portfolios, we had really great growth year this year on behalf of our partners working in conjunction with them. And then the universal business has done well on the over-the-road business and talked about having one of the biggest implementations in the history of the overall business. I think this reached for the good momentum behind the fact that the technology was always good but we really added on to that with new products and features that's resonating in the marketplace.

All right, thanks. Melissa, you've mentioned I think 800 million gallons expected to roll on associated with Chevron and Shell for the year. First of all, is that still on target? And then just quick update on the trend on the overall integration and bringing those clients on how is it going?

That is still -- that is still actually the target for us. And we have rolled out the card, but what will happen with the customer, they now have two cards in hand. They had over periods where we're starting to migrate, those customers onto our platforms. They have to go through a process, if they're interested in being -- on using our online tools, which a lot of people are then they have to go through an activation process, but also process of getting online. And so we're in the thick of that right now, but we're seeing that migration happened. We talked before about having those tranches executed by the first half of this year, and we're still on target to do that. So very much on target, but we're going to point out this new concept of dilution in the first half of the year, we tried to talk about that at the end of last year as ideas that we've got costs that are going to come in advance of when we see revenue. And that's very normal process we go through private label implementation. It's a little bit abnormal to have two stack up of this size and so it's a little bit worth accentuated than it normally would be, but the costs are there -- the sales people are out selling these new products, the customers have cards and the tranches are converting over. We're seeing some volume coming through now. And so we feel very much on track to what we said on our call.

Our next question comes from the line of Bob Napoli from William Blair. Your line is open.

First on the healthcare business with the acquisition of Discovery Benefits, WEX has well stated over the years has increased its investment in healthcare. Now this is a -- the Discovery Benefits, I think that business was growing at a high rate, if you can, but it does bring up some questions of whether there is some conflict -- channel conflict between Discovery Benefits and your other partners, but if you could just talk a little bit about the investment in Discovery Benefits and healthcare business and the high-teens growth that you're -- are you seeing more of that from a product basis HSA, FSA. So it's kind of a broad question there, conflict of interest and just the overall healthcare business. Sorry.

Actually, I'd like to know that's great. I'd like it's actually high-grade after that last question. When we think about most channels there is something that we do in every part of our business and we're very conscious about how we go into a marketplace, and how we -- make sure that we're transparent. I mean when it comes down to going into a marketplace with partners and directly, a lot of it's around creating rules of engagement and being transparent with people around what you're going to do. And making sure you follow through that and we have a very rich and deep history of making sure that we are supporting our partners, well at the same time having direct products. And as we think about this space, a part of what we were interested in with DBI, you also had a growth rate and that's certainly part of what it interesting to us as they are growing at a rate higher than core healthcare business shortly. And at the same time, it adds product extension, we can sell some of the products that they have to our existing partners that they have an ability to use that to the marketplace, we can share best practices with some of what they're doing that we think that's unique with our partners into the marketplace and then we have an ability to -- have an offering that is integrated into the marketplace and we like that. We like that as a setup in the background that we need to be able to show our partners in the marketplace that we can do that. So from a cost perspective that's something we intend to continue to work through with our partners and the way that we have in every other part of the business. And in terms of our interest in growth in this marketplace, it is -- got some great tailwinds behind it. We'd like just the market dynamics, we like the size of the market. We think that it is a market that Healthcare in general is being as complicated, it's a place that we think that we can help. And you asked about growth, it's kind of coming all over the place and people think of HSA account as not growing but they actually do, they just grow at a lower rate and then you see over sized growth on HSA side of the market pricing. And it comes from adding new partners, spend volume going up, and the partners that we have continued to grow, combination of all those things.

My follow-up question would be just on the economy, I mean you saw FedEx report some weaker news, the Federal Reserve today said, they're not going to raise rates anymore. So there are signs of global softness, but it doesn't sound like, I mean you certainly didn't call out, I guess same-store sales were little weaker, but what are you seeing as far as the -- what's your view on the economy?

Same-store sales were negative 0.4, I'd say, it really didn't see a significant change and that was in period we had the government shutdown. The primary latency is just letting through as volume trends. So from our perspective there isn't really been -- remains much of a change. And what we're seeing for activity in the market and we think that our fleet business is pretty good -- pretty good deal if we do the business [indiscernible].

Okay, so you're not seeing any slowdown in the economy. Nothing that's worrying you, and just, if I could just sneak in the first quarter guidance, and I know you talked about the dilution but is that Shell, Chevron, can you quantify the EPS dilution in the first quarter?

So Bob, this is Roberto, obviously, I'm not going to get a specific on how much is Shell and Chevron for the quarter, but if you position what we have been saying in the past few calls, I mean those portfolios as Melisa said they are big portfolios, they are going to bring a significant amount of revenue and to get them up to speed, the boarding cost of this is significant. So I wouldn't quantify how much is the amount related to those portfolios, but its a significant amount obviously. What I think is importance -- what I would say, Bob, what is important is the confidence on the guidance that we have for the full year, which is we have a growth within our long term targets, and that's where we want to reinforce that. And we are working towards that.

Our next question comes from the line of Jim Schneider from Goldman Sachs. Your line is open.

I was wondering, if can maybe talk a little bit more about the macro environment you're seeing maybe by geography. It sounds like things are still pretty strong in Europe, but I guess maybe talk about either the difference between the U.S. and Europe and specifically your expectations for new sales in Europe, outside of the new portfolio, you've already talked about the U.S.

Yes, when we are looking at any of our sales pipeline, we break down our year as we go into executing the year, we look at what retention rates needs to be by products and by geo, and then what we need from new sales coming in. And as a I said about that across the world, I guess that your question is, U.S. marketplace we are right now envisioning its current economic perspective being similar to last year. We know that we have these two major implementations that we're executing on. So that's a little bit unusual in the backdrop, but that doesn't really impact, that's not affecting my view of the overall macro. And then in Europe and Asia, I'd say similarly, we've had really significant growth in those marketplaces during 20018 albeit off basis, but we don't envision that change in when we look at how much we're going to bring in 2019. There is a little bit more lumpiness as you bring in, one large account. I talked about that can cause a little bit more lumpiness just because of the size of the business, but in terms of new wins and what we're seeing in the pipeline, we feel pretty good across any of these markets. And we said that Brazil is being the one standout and the fact that we are expecting to have headwinds there this year, which is something we talked about the last two or three calls, we envisioned that happen through at least the first half of '19. We would say that again, we still think it's going to happen for at least first half of '19.

And then maybe turning to the corporate payments space for a minute, clearly continued strength in results there, but one of the things that we've seen from some of your competitors is the acquisition outright of our portfolios for the accounts payable and accounts receivable type management software, where you have chosen to rely exclusively on partner strategy. Can you maybe talk about your appetite for potential additional M&A specifically to have your own software solution in the future?

So we have, if you look at our software now, we bought AOC, the combination of AOC and what we had prior to that and then in addition what we're feeling on EFS. We actually feel pretty good about the underlying product capability and we like the fact that we've built it, using micro services on cloud-based, and we just keep adding to the stack that we have. And so when we think about acquisitions, I think about in two different ways. I think about them in that space, technology plays and for us that becomes bills versus buy analysis. And we look at that to say, are there certain things we need to do in order to build out the product, but we like the ability to build on what we've got. And then on the more vertical side of that, that's something, we will continue to play in the marketplace. We'll be interested if someone has a piece of the product or a piece of what they're doing I think it is unique that's comes with a book of business and we will continue to be interested in that as well. So we look at both of those things and pretty -- we also feel pretty good about what we can build upon based on what we've already acquired and put together so far.

And then maybe just one clarification, if I could, clearly there is some dilution on both the new portfolios as well as the acquisitions in the beginning of year, as you exit Q4 of 2019, will you expect operating margins to be to be up flat or down on a year-over-year basis?

So let me tell you, I mean, specifically to those portfolio. So obviously when you look at 2019 as we said we expect to be dilutive on the first half and then on the second half, we are going to be -- we expect to be like a fully ramp. So what you should expect for 2020 is obviously the full year portfolio is fully combated and obviously when you look '19 to 2020, your margin should be better than '19, because you will have the two fuller halves with the revenue and the cost base alone.

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

[Indiscernible] for Sanjay. I guess first I had a quick question on the travel business. It seem like you guys announced some good wins there, including the Etraveli portfolio. How should we think about the potential opportunity there and when does that start to ramp in?

Sure. It's starting to ramp now. And so it will ramp throughout the year. And you talked about broadly about what we expect to see in the corporate payments business. I would restate Roberto said we expect it to be in line with our 10% to 15% guidance range -- our long-term guidance range in the course of this year. The acquisitions are going to push us down on top of that, but the organic growth rate is expected to be between 10% to 15%, and then when you aggregate that with acquisitions, it would be over 30%.

Thanks for that. And I guess a quick clarification on the Shell and Chevron portfolios. We've had quite a bit of discussion on that already, but I guess once you're past the upfront expenses, how should we think about the profitability of these portfolios versus the rest of the fleet business?

I will answer to the question for you. I mean this is -- once we have those fully portfolio ramped on a run rate basis. The profitability of those two portfolios is going to be very similar to any of the other oil companies that we operate. You know that we think the fleet business we have the over- the-road on the trucking industry side, and then when you get more on the fleet North America side, you have more fleet you've larger fleet. And when you compare those portfolios within the oil companies, the profitability is going to be very similar to the other oil companies that we run.

And if I can squeeze in a last one on Discovery Benefits, I know it's not contributing to earnings this year, but I guess going forward, how should we think about the accretion expectation on an earnings basis?

So, what we've said about DBI, we talked about it being immaterial from EPS perspective this year. We obviously think it is going to continue to grow we talked about it -- that combined with healthcare we think it will continue to be high teens grower. And it will continue to scale, we also talked about the fact that we expect to see $20 million worth of synergies that we're going to get over time so if you keep in mind those things, we do expect it to look more like a margin profile of their versus healthcare business.

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

First question just on fleet, I was wondering did you guys provide the expected revenue contribution from Shell and Chevron, this year? Apologies if I missed that. And just to clarify, it sounds like we shouldn't expect to see material revenue contribution until the second half of '19?

We don't disclose revenue or profitability by cost to portfolio, but -- and Melissa has just mention a while ago, we direction on the number of gallons that those two portfolios will add to our business. And if you take these gallons and you translate them into revenue, you will have approx. $60 million to $70 million in revenue on a full -- a full year basis. So, this will give you an idea obviously on whether we should be in 2021, now those two portfolios are fully ramped. And obviously you considering the fuel prices that we have today.

Our next question comes from the line of Matt O'Neill from Autonomous Research. Your line is open.

Actually, most of them have been basically asked and answered, but I guess if I try to ask on the sort of Travel and Corporate momentum we saw in the fourth quarter in another way, maybe what would you characterize if anything is not being necessarily repeatable if you know, we want to think about that kind of levels going forward versus maybe not?

I don't think that Roberto talked about in his section, was around the idea we had the rates were elevated. There -- some of our discount rates and interchange is a little bit higher in the fourth quarter. So and he talked about review running outs, so that's something that -- it's something we do expect will repeat throughout the course of this year. In terms of spend volume, we -- some of what we will experience depends on what's going happen overall in the travel marketplace, because that's still a significant part of the portfolio. So we continue to bring on new business, how our existing partners perform as pretty big impact and that happens to the overall spend volume. Roberto talked about expecting that to be mid-teens-to-high teens and of course that 2019 that kind of give an indicator, so the raise we expect to be a little bit different than you have seen in Q4, but customers spend more and prospectively we expect to continue to see volume coming through that will be driven based on existing customers and the performance of those portfolios, but also adding in new portfolio. If you are looking at growth rates year-over-year, just keep in mind that we get the benefit of bad track in 2018 compared to 2017, so it's a little bit of -- in terms of revenue.

And then I guess just sort of follow on that and specific to the interchange in that segment. Trying to think what kind of the overall bias going forward sort of higher or lower, I think I'm going to guess that it's probably complex or maybe the organic business or the business prior to Noventis maybe stable, but then with Noventis it will wait the average hires, volume gets internalized, am I thinking about that conceptually correctly?

Yes, let me -- let me put this in context for you. So as I said that on -- during the call, we expect for 2019 approximately 10 basis points on the net interchange higher than the average of 2018 and there are a couple of reasons. Number one obviously, the acquisition of Noventis is going to add a few points to our interchange rates. The second thing as I said, with one of our OTA's we amended the contract. There is no impact to total revenue, we are doing, you will see during the year our reclassification from other revenue into payment processing revenue. And the way we calculate the net interchange is based on the processing revenue. So that's another reason why you're going to see the rate to go up. And then the final thing that you always see more difficult how to manage both the customer spend mix as well as from where the spend comes between domestic and international.

There are no more questions over the phone. Presenters you may continue.

Sorry, I couldn't hear you, operator. But I think that's all the time we have for tonight. And we'll look forward to speaking with everyone next quarter. Thank you.

This concludes today's conference call. Thank you for joining. Have a wonderful day. You may all disconnect.