WEX Inc. (WEX) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the WEX Incorporated Third Quarter 2013 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Steve Elder, CFO. Sir, you may begin.

Good morning. With me today is our CEO and Chairman, Mike Dubyak. We will also be joined by Melissa Smith, WEX President, who will participate in the Q&A portion of the call. The press release we issued earlier this morning is posted in 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 a non-GAAP metric, specifically, adjusted net income, during our call. For the third quarter of 2013, adjusted net income excludes unrealized losses on fuel price derivatives, amortization of acquired intangible assets, adjustments attributed to noncontrolling interests, noncash adjustments related to our tax receivable agreement, other adjustments related to our Fleet One acquisition and the tax impact of these items. Please see Exhibit 1 included in 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; the risk factors identified in our annual report on Form 10-K, which was filed with the SEC on March 1, 2013; our quarterly report on Form 10-Q filed on August 1, 2013; and in our subsequent 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 Mike Dubyak.

Good morning, everyone, and thanks for joining us. Earlier today, WEX reported strong results for the third quarter of 2013. Revenue came in towards the top end of our guidance range, while adjusted net income was above our expectations. Q3 revenue increased 19% over the prior year to $191.5 million. Adjusted net income per share increased 20% to $1.29 per diluted share, as we continue to benefit from enhanced fleet volumes, Other Payments growth, favorable contributions from foreign exchange rates and controlled expenses. Throughout the quarter, we continue to demonstrate our ability to drive meaningful financial performance, while executing against our long-term strategic initiatives by expanding our Americas fleet business, broadening our international reach and further diversifying our revenue streams. In our fleet payment segment, we achieved another quarter of strong revenue growth of 16% year-over-year, driven by organic growth and the acquisition of Fleet One. This growth was achieved even though PPG was below our forecast. During the quarter, we saw increased volumes as new customer wins continued to add vehicles. Our momentum in the first half of 2013 has carried through to the third quarter as we progressed with the CITGO conversion, albeit at a slow pace than expected; and continued to win new business on the private label side with the signing of a premier convenience store branded retailer, RaceTrac, which operates over 600 high volume locations in the Southeast and Southwest under the RaceTrac and RaceWay brands. We also extended our relationship with the GSA fleet by being awarded a substantial contract to provide telematics units. This win will give us the access and ability to sell our product into government agencies, who lease vehicles through GSA's office of vehicle management, which represents more than 200,000 vehicles that currently use the WEX card for fuel and maintenance purchases. Both of these wins were competitive and underscore the relative advantages of the quality of our fleet products. Our product features and functionality, combined with our commitment to fostering long-term customer relationships, provides us a competitive advantage to manage and grow our portfolios. We believe these attributes distinguish WEX from other fuel card providers and service of point of differentiation in our go-to-market strategies. As a result, we continue to see significant interest in the marketplace for WEX and its capabilities. The integration of the WEX Fleet One business continues to advance according to plan, and our focused efforts are producing material results. From a financial perspective, synergies are materializing more quickly than we expected, and we remain confident in our ability to better align and expand WEX Fleet One's margins over the next several years. We're also making progress moving upmarket in the OTR space, seeing promising traction with leasing partners and having success in forging relationships with larger fleets. This has led to some recent large fleet wins. We are very pleased with the progress of the Fleet One integration as our investments support financial growth and positively contribute strategically to our fleet business. Turning to our international fleet business. In Australia, we continue to deliver solid performance and steady growth. In Brazil, we are leveraging our alliance with UNIK to further promote our growing pipeline of opportunities in this region. To enhance penetration of the Brazilian market, UNIK recently acquired FAST FRED, an OTR business that provides electronic, freight management payment services. This marks an exciting opportunity for us to expand into the international OTR market. FAST FRED has recently extended an agreement to service one of the largest freight shipping companies in Brazil, which will immediately contribute volume. FAST FRED's proprietary network allows us to launch an over the road card in Brazil. Europe, Asia Pacific and Brazil remain key geographies for expansion in our fleet business. We are developing the infrastructure necessary to enhance our capabilities in these regions. And our strong balance sheet provides us the flexibility to invest in both organic and inorganic growth. Turning now to our virtual business. We continue to see solid progress, both domestically and internationally. In our Other Payment segment, we posted revenue growth of 27% during the quarter, demonstrating our continued success and proven ability to diversify our revenue streams. We continue to advance our WEX Travel products internationally and see great opportunity for global expansion. As we have noted, we are deploying capital to build the foundation to successfully operate in multiple countries. We are processing transactions in local currencies, allowing us to better serve international OTAs and establishing issuing capabilities in Hong Kong, Singapore and Thailand, among others. Issuing and settling capabilities will allow us to reduce cross border fees, which gives us the benefit of both a compelling economic advantage and competitive differentiation in these markets. We continue to make substantial progress in Europe with 2 major wins in the European OTA market. Our acquisition of CorporatePay, again, played a significant role in reinforcing our strategic directive to bolster our competitive positioning in Europe. Having both credit and prepaid virtual products in the European travel market provides WEX with product differentiation. Year-to-date, we have signed 14 customers using our virtual products in Europe. CorporatePay has won numerous innovation accolades and awards, most recently, the Best Prepaid Innovation U.K.. In Brazil, we are pleased with the strides we have made and on strengthening our foothold in the region through our WEX Travel offering and processing system capabilities. We secured our approval to issue with UNIK and are finalizing our technical implementation. Our virtual card allows us to access growth opportunities, not only in different geographies, but also in different verticals, such as the healthcare industry through WEX Health. In spite of the longer time horizon than we originally anticipated, we continue to believe this is a potential area of considerable opportunity for WEX. As we work to establish ourselves in the healthcare market, we continue to add channel partners, who value our offering in the marketplace. We have signed multiple channel partners in the healthcare market, which will feed our pipeline for future success. In summary, we're pleased with our performance in the third quarter as we capitalize on the momentum WEX's business generated in the first half of 2013. Our third quarter results were strengthened by our investments that drive organic growth and are seeing the benefits, more recent acquisitions, including Fleet One, UNIK and CorporatePay. As we continue to execute against our multi-pronged growth strategy to grow our fleet business, expand internationally and diversify our revenue streams, we have been able to maintain the core tenant of our strategy and value proposition, invest in leading products and develop strong customer satisfaction that provides the ability to create, foster and maintain long-term relationships, both with customers and channel partners. Our strong third quarter speaks to the growth we have achieved on this foundation, and we plan to continue on this path to achieve solid fundamentals and growth as we move into the fourth quarter of 2013. And now, I'll turn the call over to Steve to discuss our financials and guidance. Steve?

Thank you, Mike. For the third quarter of 2013, we reported total revenue of $191.5 million, an increase of $30.6 million from the prior year period and toward the high end of our guidance range of $186 million to $193 million. As Mike mentioned, this performance versus the prior year was driven primarily by the acquisition of Fleet One and solid volume increases in both our fleet and Other Payments segment. Net income to common shareholders on a GAAP basis for the third quarter was $43.8 million or $1.12 per diluted share. Our non-GAAP adjusted net income increased to $50.4 million or $1.29 per diluted share. This compares to our guidance of $1.16 to $1.23 per diluted share and $1.08 per diluted share reported in Q3 last year on an adjusted net income basis. Taking a look at some key performance metrics, which includes Fleet One, consolidated fuel transactions increased 13% over the prior year. Consolidated payment processing transactions increased 16% over the prior year. Approximately half of the growth in payment processing transactions was due to the Fleet One acquisition, and the other half represented organic growth. The consolidated net payment processing rate for Q3 2013 was 1.4%, which was down 22 basis points from Q3 2012 and flat versus the second quarter of 2013. Similar to last quarter, this reduction versus the prior year was primarily due to the lower rate charged by Fleet One on their diesel transactions, which are larger volume transactions given the nature of the vehicle service. Finance fee revenue in the fleet segment increased $3.1 million compared to Q3 last year. This increase was driven by a change in the rate we charge late-paying customers and by growth in our Factoring business. In the Other Payments segment, revenue for the third quarter increased 27% or $11.6 million year-over-year to $54.7 million, as a result of the strength in our virtual card purchase volumes, which increased 24% over last year to $3.9 billion for the quarter. The net interchange rate for our virtual card in Q3 was 95 basis points, up 5 basis points year-over-year and down 4 basis points sequentially. This increase over the prior year was primarily due to customer-specific incentives received from MasterCard, which will continue through 2013. The sequential decline was due to the impact of the MasterCard and Visa merchant litigation settlement, which reduced the interchange rate we earned on domestic transactions by 10 basis points during August and September. Moving down the income statement. For the third quarter, total operating expenses on a GAAP basis were $113.6 million, a $3.9 million increase versus last year. The majority of this increase is due to the Fleet One acquisition completed in 2012 and was partially offset by the goodwill impairment for the WEX Australia prepaid business last year. Salary and other personnel costs for Q3 were $41.5 million, compared with $28.8 million in Q3 last year. The increase was predominantly due to the acquisition of Fleet One and additional headcount in sales and support personnel. Service fees were essentially flat over the prior year at $29.4 million. Looking ahead, we anticipate benefits from contract renegotiations in our service fees beginning in Q4. During the third quarter, we again saw excellent performance in our credit losses, which on a consolidated basis totaled $5 million in Q3. This compares to $5.6 million in Q3 last year. Consolidated fleet credit loss was 7.6 basis points in Q3, compared to 11.1 in the third quarter of last year, reflecting the strong condition of our portfolio. Our operating interest expense was $1 million in Q3, as we continued to benefit from low interest rates. The average interest rate on our operating debt balances this quarter is 25 basis points. During the third quarter, we recognized a $3 million nonoperating gain on foreign currency translation adjustments. The majority of this gain comes from our WEX Travel product. We are now settling transactions in 11 currencies as we expand globally with 4 more in testing phases. As a result, we are holding cash balances in these currencies, which must be marked-to-market at the end of each quarter. As we increase the volume of these local currency settlements, the potential foreign exchange fluctuations reported at the close of any given quarter could become larger in the future. The effective tax rate on a GAAP basis for Q3 was 37.5% compared to 59.3% in the third quarter of 2012. Our adjusted net income tax rate this quarter was 36.8% compared to 39.5% for Q3 a year ago. The decrease in the ANI tax rate is due to a charge of approximately $2.4 million last year for the impact of tax legislation in Australia. For the full year, we expect our ANI tax rate to be approximately 36.8%, which is consistent with our prior guidance. Turning to our derivatives program for the third quarter of 2013, we recognized a realized cash loss of $900,000 before taxes on these instruments and an unrealized loss of $2.7 million. We concluded the quarter with a net derivative liability of $500,000. For the fourth quarter of 2013, we've locked in at a price range of $3.36 to $3.42 per gallon. For the first quarter of 2014, the average price locked in is $3.38 to $3.44 per gallon. Moving over to the balance sheet, we ended the quarter with $391 million of cash, up from $300 million at the end of the second quarter. The increase in cash was primarily driven by a seasonal increase in deposits at our bank. In terms of capital expenditures, CapEx for the third quarter was $17.1 million. We continue to expect our CapEx for the full year to be in the range of $40 million to $45 million, which includes approximately $14 million related to the consolidation of data centers, a significant portion of which was spent in Q3. Our financing debt balance decreased $3.8 million in Q3, reflecting a quarterly payment required by our term note. We ended the quarter with a total balance of $689 million on our revolving line of credit term loan and notes. As of September 30, our leverage ratio was 2.14x, our 12-month trailing EBITDA compared to 1.1x at the end of Q3 last year with the increase driven by our acquisitions. Regarding our capital allocation strategy, our primary objectives remain to reinvest in our core fleet business, to expand our international reach and to establish our presence in a diversified set of revenue streams. At the same time, we are focused on M&A and joint ventures abroad to increase our international exposure and develop our foothold in new verticals that provide diversified revenue sources. In addition, in the third quarter, our Board of Directors authorized a new $150 million share repurchase program. Now, for our guidance for the fourth quarter of 2013 and the full year, which reflects our views as of today and are made on a non-GAAP basis. Overall, we expect to finish out 2013 by continuing at the strong pace we have set in the first 3 quarters of the year, and we are updating our guidance to reflect this. For the fourth quarter 2013, we expect to report revenue in the range of $173 million to $178 million and adjusted net income in the range of $41 million to $44 million or a $1.04 to $1.11 per diluted share. These figures assume normal seasonality trends in the virtual card and prepaid businesses, as well as credit losses. Our fourth quarter guidance assumes that Fleet's credit loss will be between 9 and 14 basis points, and that domestic fuel prices will be $3.47 per gallon. For the full year 2013, we expect revenue in the range of $708 million to $713 million and adjusted net income in the range of $171 million to $174 million or $4.37 to $4.44 per diluted share. Beginning with our initial 2014 guidance, we will exclude stock compensation expense from our adjusted net income in order to make this measure more comparable with our peers. For 2013, this would have resulted in an increase to our adjusted net income of $0.15 per share. Our guidance continues to assume a significant investment related to our virtual card product to expand into new geographies. As part of the strategy, we have started to move existing customer volume over to our new issuing and settling capabilities in several currencies. This will benefit our OTA customers by minimizing their fees related to cross-border transactions. Additionally, this will reduce our cross-border fee revenue, but will not have any impact on earnings. Our full year guidance also assumes that fleet credit loss will be between 7 and 9 basis points and assumes that domestic fuel prices will now be $3.66 per gallon versus our prior expectation of $3.69 per gallon. The fuel price assumptions for the U.S. are based on the applicable NYMEX futures price. Given our success to date on our international expansion efforts, a portion of our business, sensitive to changes in foreign exchange rates, has grown. Our initial guidance also assumes that exchange rates will remain in the range of the current spot rates, and therefore, does not account for the impact of potential fluctuations and foreign exchange rates and what they may have on results. In addition, we are not including any gain or loss for cash balances held and foreign currencies related to our virtual card product. We continue to include the negative impact to our business as a result of the pending MasterCard and Visa merchant litigation settlement into our guidance. The impact is 10 basis points for an 8 month period, which began July 29. Finally, our guidance does not reflect the impact of any further stock repurchases that may occur in 2013. Now, we'll be happy to take your questions. Raquel, please proceed with the Q&A session now.

[Operator Instructions] Our first question comes from the line of Bob Napoli. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Nice quarter, a lot going on there. Nice organic trends as well. I'm just wondering the acceleration in -- if you could give a little bit more color on the acceleration in the virtual card business, and is most of that -- I mean you talked about 14 new customers added in Europe. Is that mostly Europe? I understand some of that is the Australia signings that you made, but maybe give a little color on that and what you expect that 24% growth in the third quarter, is that sustainable or do you expect higher numbers even in the fourth quarter?

Yes, if you look at the segment in total, what we're seeing year-to-date revenue growth, so 26%. And we talked about anticipating growth of over 20% for the year. So we're very much on track for that. We've had strong growth both here domestically in the U.S., but also we talked about the contract signings that we've had. And we talked about originally making the investments to go global. What we've seen is the benefit of doing that, both for the acquisition of CorporatePay and having their physical presence there, their expertise in the area and their ability to sell into that market plays and then more broadly, taking that product into other regions like Australia, as well as other parts of Southeast Asia. So it's accumulation of all those things that you're seeing compounded into that growth rate. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. Now your acquisition in Brazil, that -- I mean it sounds like a relatively small acquisition, but it's a platform into the fuel card business. What are the -- what is the strategy in that market?

It gave us an entry into the over the road market, which they'll call the freight market there locally. What we're able to do is take their network, they have 500 sites where they have a network. And they also have processing capability within that freight marketplace. So we're able to combine that background with our electronic capability in the cards that UNIK packages. So you take those 2 things and put them in the marketplace together, and they gave us an ability to have a much more robust offering into the over the road market. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. Last question for now. Your organic growth in the payments, fuel card payments was 8%. That's pretty strong number, I think. I think that's up a little bit from last quarter, and again, a very strong number. But on the other hand, you say you had delayed implementations. You've reduced your revenue guidance somewhat, not a surprise because I thought your high end was too high. But you talked -- you had a strong organic growth stronger-than-expected, than I expected, but you also talked about delayed implementation. So maybe tell me where that growth is coming from and then what's delayed? What pieces of business that you were looking to be implemented sooner, have not yet been implemented?

We've seen organic growth. It's accumulation of the wins that we talked about and for the last year. And it takes a while typically to roll in some of those larger fleets into our numbers. And so there's not anything in there that I would say point to individually. It's a series of singles that have accumulated to that number. But more broadly, if you talk about the latter part of the year, some of the larger portfolios that we had anticipated rolling in, like CITGO, we do these portfolio conversions very routinely. And one of the things that we need to get is the data for that portfolio, so that we can convert that over onto our systems. And there have been delays in getting that data from their current provider, which are just elongating the process. And so that's true with CITGO. We still anticipate seeing volumes this year, but it will be very late in the year. And so we'll see the benefit of that primarily in 2014. Also with contracts like with the USDA, we have, had request for more product features that they would like added into their portfolio before we do rollout. So it's just pushing it out a little bit, which happens within that large part of the marketplace. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. So FleetCor doesn't want to give up the CITGO portfolio, it sounds like.

Your next question comes from the line of Sanjay Sakhrani. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: So I guess you guys talked about healthcare being a little on the virtual card business being somewhat underwhelming. I was just wondering how it's gone relevant to target any kind of whether or not you guys are still pretty excited about that segment?

We're excited about the segment because if you look at just the size of the market with -- even if you split out the parts that we say we're not going to play in, it's an $800 million marketplace. And it has similar dynamics to what we've seen in both fleets and travel markets that we've been very successful in. There -- it's a complicated market, it's ripe with inefficiencies. So we still believe that we have long-term play there, but we're still in that testing phase. It's taking longer than we had originally anticipated in entering the marketplace. But frankly, if you compare it to how long it's taken us in some of those other marketplaces, they have been longer-term plays as well. So we had success this year signing new partners. The partners are out there selling the products on our behalf, and that is taking a little bit longer than we had anticipated. But just the fact that we've had numerous signings, it's not just 1 partner that we're working with, it's several. We think it's validation of the product set, and we still believe in the overall marketplace, although we're learning as we go. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: Understood. I guess second question just on the M&A pipeline. Obviously, you guys talked extensively about it earlier in the year raising the debt kind of looking ahead. How is that panned out relative to what you guys anticipated for the year? And what's in the pipeline today?

Yes, I kind of talked about it broadly. I mean we've talked about the fact we're going to continue to look at fleet opportunities in the U.S. and Europe and AsiaPac and even Brazil with this little tuck in. So that's clearly a focus. We're also looking at opportunities in the Other Payment solutions, primarily virtual cards. It's just there aren't that many assets around the globe in that area. So fleet seems like it has the best opportunity for us. I would say, overall, if I look at key partnerships potential JVs or acquisitions, I think we'll have more to announce in the next 90 days in that area. And I guess I'll just have to wait until we can make those announcements over the next 90 days. But I think you'll start to see some of those come to fruition for us. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: Fair enough. I guess final question, today's Wall Street Journal had this article about, I guess over the road trucks tapping into natural gas. I was just wondering what your thoughts were in terms of that and kind of what the risk it poses to gas prices or to demand in the future?

Yes, there's no doubt that the -- I'd say the first area of focus is with heavy trucks. Clearly, as you know, bus companies, intercity bus companies, in particular, use natural gas because they've got a -- they're our little kind of in-house supply, if you will. So we do know it's going to be an area that we will watch closely. We, today, probably have -- I don't know the exact number, but it's well over 50, I think it's closer to 70% of all the natural gas fueling locations accepting our card. So we're agnostic to some extent. Our goal would be that, over time, to try to make the economic somewhat neutral to what we're doing on our fuel, gasoline and diesel products. So if it's electric or natural gas or LPG, we're going to make sure our card's accepted. And then we'll just work hard on the economics to try to make that as little impactful as possible.

Your next question comes from the line of Phil Stiller.

I just wanted to dig in a bit more on the fourth quarter revenue guidance. It seems light you brought down the range for the full year $10 million to $15 million. I was wondering if you could parse out what the impact was from fuel and then the contract delays, and if all of that was in the fleet segment?

Yes, Phil, this is Steve. The fuel price impact, the $0.04 -- $0.03, excuse me, for the full year impact, that was in the neighborhood of $3 million in total, which is, was kind of in line with all the metrics we've given you in the past to how you calculate that. The Federal Government shutdown had a minor impact on our results in the -- will have a minor impact on our results this quarter. For the first 3 weeks of the month of October, we saw their volume's down about 30%. But all in, it doesn't really translate into a whole lot of dollars. We saw slower implementations as Melissa talked about with people like CITGO and the U.S. Department of Agriculture. So those kind of volume impacts were another million or so. And then we just had some slower implementations on our virtual card side as well. So all in, those are the primary factors, I guess I'd call it.

Okay. Is it fair to say that the delays are a bit more related towards the fleet segment versus the virtual card business?

Maybe a bit more, but I wouldn't say it's much different.

Okay. And then on Fleet One, you guys have had that acquisition for about 1 year now. Can you provide an update on how that business is doing? I think when you did the acquisition, you -- they talked about double-digit type growth rates for that business. Seems like you're winning some deals there. Is that still a good growth outlook for that business? And I know you've been executing on the synergies more quickly than you have had expected. Are you guys ready to quantify the synergy benefits from that deal, and has that number changed?

What I'd say is that we're really pleased with the deal. If you look at the original model and where we thought we'd be, we're ahead of schedule. We've just reorganized the sales forces, we've consolidated the product offerings. And we've actually won our first large account doing business as Fleet One, WEX Fleet One. And we believe that is taking our expertise in sales and marketing and their product set and combining those 2 things are pretty powerful in the marketplace. Mike talked about momentum that we're having from a sales pipeline perspective. And so overall, we feel good from a growth perspective about that business and really good where we are in terms of the synergies that we've recognized. And then we talked about one of the original goals was to move the margin of that business closer to our fleet business, and we're on track with that.

Okay. And then last question from me, the service fee benefit, I guess from renegotiations, can you guys quantify that? Is that something that will stand out in the fourth quarter and next year?

Yes, you'll see it starting in the fourth quarter this year. Service fees, for the most part -- well, I shouldn't say for the most part. But above 60% of that total in the third quarter was tied to the purchase volumes in our virtual card product. And so that's where we're going to hopefully see some savings in the fourth quarter from these renegotiated contracts, and that will carry through next year. As a percentage of revenue, you won't see change dramatically, but that is clear in the area that you'll see next quarter and continuing into next year.

Your next question comes from the line of Tien-tsin Huang. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: Sorry if I missed this. Did you guys give the same-store sales -- by the way, that was also very much better than we expected, so good performance on the -- a lot of these trends here. Did you give a same store trend on the fleet side? I'm just trying to better understand how that is tracking.

We did not give the same-stores number. And really, when we think about that as one piece of what affects the business. And it's become actually a fairly small impact to the business. It was a slight headwind to us within the quarter. We also had a little bit of positive in the fact there were more business days this quarter than there were in the prior year. So we can kind of net those 2 things out. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: Understood. Yes, I mean I heard the government's side. That's a helpful commentary. Can you just remind us sort of your state local, your -- just your government exposures in general in the U.S.?

Yes. So you know that we have a contract with the GSA, and that's really the place where we did see a little bit of a slowdown impact in that business within the quarter. Relatively small, but there was an impact in that, if that's what you're asking. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: Yes. No, I was just curious just -- we're talking about 1% or 2% of revenues or even lower than that. Just trying to get a better for future reference.

No. We didn't -- we have about 250,000 cards for the Federal Government. So it's definitely a large part of our card base, but it -- they tend to spend less per card than you would see with an average fleet. So it has little bit of an impact, but not a significant number.

They're probably less than 1% of our revenue overall. And for a couple of weeks period of time, we saw their volume down. But as of last week, it was pretty much back in line with normal trends. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: Excellent, good to know. Two more quick ones. Just by becoming an issuer on the virtual card side and you can save on the cross-border fees. I'd imagine that's going to be pretty compelling to other clients. So is it just those 3 countries that you named where you're becoming an issuer, and what's sort of the plan to expand on that? Just trying to better understand that.

Yes, we're working throughout Southeast Asia. So we actually have gotten approval in Thailand, Hong Kong. We're expanding our use with MasterCard in Singapore and Malaysia. We're working in Australia, New Zealand. You can kind of -- there's a number of countries that we're working on issuance in. And most of them we're issuing in some form or another right now. In the places that we're still working on, technology -- we've talked before, there are 3 pieces for us to enter a new country. One is regulatory approval with whatever their central bank is. The second one is approval with the scheme, MasterCard or Visa. And the third piece is technology. And we're focused right now on the technology pieces with Hong Kong and with Brazil. But from a issuing standpoint, we actually made really good progress against the countries that we have identified starting into the year. And we're now looking at next list of countries that we want to enter based on feedback that we're getting, both from our existing customers and market research we've done in terms of growth opportunities. And then Steve talked about settling. We're settling in 11 countries right now. We're rapidly moving into others. We've got 4 in test phases. So both of the -- both pieces of that equations is important to the customer base. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: So at this stage in the game, in sort of the virtual card expansion and investment. I know you guys were pretty bullish. Is it moving a little bit faster than expected? Is there a way to characterize it?

We are -- actually, I would say that, in general, the investment's tracking pretty comparable to what we had anticipated. We're spending a little bit less money than we had expected. We're getting results in terms of contract signings. Implementations are taking a little bit longer than we had thought. So all those things, you kind of net them together, it looks about the same in total as what we had expected. Tien-tsin Huang - JP Morgan Chase & Co, Research Division: Mike, I think this might be your last one, this call, if I remember it correctly. So if that's the case, thanks again, and hopefully, we'll stay in touch.

It is, but thank you.

Your next question comes from the line of Thomas McCrohan.

Good quarter. Just had a question regarding the investment spending. Has anything changed in your outlook in regarding the containing the investment spending for this year?

No, I'd say we're on track with what we thought we're going to spend. We're on track with the projects that they relate to, so the data center consolidation is right in line. We spent the money in the third quarter just as we expected on the -- in getting that up and running. The expansion of the virtual card again, it's mostly just kind of outline, making good progress in all the countries that we targeted. And the integration of Fleet One, again, going well, and in line with what we expected on the expense side.

In terms of the OTA opportunity, can you just help us understand the growth in meta travel sites like KAYAK and stuff like that. Like what implications are to you folks long term as more consumers use that, some of those sites, which I guess is not a use case, the virtual core. If you can just kind of confirm that and give us your thoughts around that, that will be helpful.

Yes. We think that the market we are targeting, online travel agencies primarily, but we're starting to move into other parts of the travel market depending on what regions we're offering the product in. Mike talked about a few earlier. We think that the market, in general, if you look at that just narrow strip of the market, is about $72 billion worth of spend. And that we have about 13% market share in that part of the market. So we're getting benefit of growth with existing OTAs, and we're getting benefit of signing new accounts. You're talking about one trend that we're seeing in the marketplace. And in general, that may not be a place that we're going to play, but we're seeing benefit in lots of other parts of the market.

That make sense. And just one last question on the funding. Steve, I think you said 25 basis points average for the quarter. Are you hesitant in any way to kind of lock in your funding costs if interest rates do rise?

There's a couple of pieces to that. So if you look at, what we call, our financing debt balance, which would be the senior credit facility and the bonds, obviously, the bonds are a fixed rate for the next 10 years, and that was part of that thinking in doing those. On what we call the operating interest side, the funding of receivable balances. That was the 25 basis points that I mentioned. There's pieces of that deposit base where there's essentially no interest right now with the low rates, and that could potentially change as rates rise in the future. But for some time now, we won't be paying any interest on that deposit base. And then with the certificate of deposit marketplace, there's a duration to those instruments. So as we anticipate rates to go up in the future, we can lock in longer-term certificates of deposit and essentially hedge in that way. We don't have -- to answer your question directly, we don't have any direct financial instruments to hedge the interest rates in place right now. But structurally, in our debt balances, we have a number of them.

[Operator Instructions] Your next question comes from the line of Mike Grondahl.

The first one is did I hear you correctly in that same-store sales trends in the quarter were just a slight headwind?

That's correct, yes, yes.

Okay. And then secondly, with some of the slower rollouts for customers, do you believe you can catch up on that in the fourth quarter, or are you anticipating any impact in 2014 now?

I'd say there'd be a minor impact into 2014 to the extent we expected something to be implemented in November, December, and it's going to turn into January or February. You lose a few weeks or something, but that shouldn't have any kind of material impact next year.

Okay. Nothing material, okay.

Your next question comes from the line of David Togut.

As you prepare to take over as CEO on January 1, Melissa, what major changes should we expect to see in terms of the way you run WEX?

I think that there a lot of great things about WEX. I'd say primarily, it's making sure that we're preserving the things that are good. And culturally, it's a great place to work. Our customers and partners have done business with us for a long time because we value partnership, and we want to make sure that those things continue. In the business, in terms of change, I think that well, I've been very involved in strategic planning for a number of years now working with Mike. I don't think you're going to see huge changes. I think that there will be changes in things like as we're targeting acquisitions, the size of the acquisitions. We'll probably be targeting something slightly larger than we have in the past. And in terms of focus, taking the focus that we've had in industries and making sure that we're moving that across new industry verticals is something that we've been talking a lot about internally. So minor changes along the way, but I don't think you'll externally see the company look dramatically different, January 1, than it does right now.

What are the major new industry verticals you're considering?

Yes. So we talked about healthcare. I think that healthcare, again, it's -- we're very early, we're learning a lot about that. But very large market, similar dynamics to places that we've been successful and kind of if you think about the industry dynamics that we think that WEX has a plan, it would be an industry that's large, an industry that's got inefficiencies included in that. Often fraud is one of those inefficiencies, but a place that we can go in and create efficiency. And then some -- an industry where there's a recognized version of a payment, so depending on which products that we go into the market with. So if you think about the virtual card product, we've been most successful where there's card adoption already in place. But we think those are the dynamics of what we're looking for within a marketplace. We've had some success in insurance. It's the other area that we want to continue to test to learn from where we've been successful, why we've been successful to see if there's a way that we can actually extract that. And another area for us that we've been talking about and we're working on is the whole concept of data. We believe that the fleet products set, longer term, that the elements that you're collecting around the transaction is important to our ability to add value long term. And so that's another area that we are going to be expanding for part of our business. To use an example of that will be the GSA. They came to us primarily for the fuel card to start with, but we've been able to then, sell into them a telematics device. And one of the things we can do with the telematics device now is geo-sense the vehicle, so that you can tell if the transaction's occurring at the same location of the vehicle. And that enables you to defer and detect fraud. That's occurring -- so that's something, an application that we can take in to other countries where that's their primary concern, which is certainly what we're hearing out into the marketplace. So that would be an example of taking what we've got, merging it into more of a data element and then changing and altering the way that the business looks over time.

Do some of your goals imply a change in capital allocation priorities, especially as you look for larger deals?

When we think about capital allocation, it’s been really fundamentally based on where's the highest return for capital. And so that's something that I would envision us to continue to practice. So not necessarily capital allocation of how we think about we're replacing a capital. It's more around the size of where we think we're going to have the most impact as supposed to having a bunch of smaller plays, making a few larger ones. It's one of the outcomes I think you could see.

Final question for me. As you become more of a global company, what changes do you intend to make in the management infrastructure at WEX?

Yes. From a global perspective, this is -- we've been creating infrastructure along the way to support our global growth, and that's something we're going to continue to do. So if you think about centralizing our data centers, that's a great example. We're deploying capital. It's something that we're focusing on as a business, and the whole structure of the company is moving that way as well. So people are in more global roles, the products are being thought of on a more global basis, while market research, product specifications are still being localized. And so the company structure is really moving more into this concept of how do I create more of a globalized view from a products set perspective, but in picking up local functionality needs and distribution needs from a local perspective. And so that's the part that will translate from what we want to do strategically and to what the business is going to look like structurally and then ultimately into the people that's doing that work.

Your next question comes from the line of Tim Willi.

I apologize, I hopped on a couple of minutes late, but I wanted to ask you to maybe repeat a couple of things. I caught a comment from Mike about JVs and possible announcements in the next 90 days or something like that. Could you just go back through those comments and that conversation to make sure that I heard that correctly?

Yes, the comments were just around our -- both our appetite and our capabilities for acquisitions. And I guess my point was that a couple of things. One is we see more opportunities on the fleet side. And I talked about that could be in the U.S, that could be in Europe, that could be in Asia Pacific, that could be in Brazil. We'd love to see more opportunities on the virtual travel side, just there aren't a lot of opportunities there. But there is some in the pipeline that we're looking at. And then I said over the next 90 days, we're very optimistic, but I was broad in terms of major partnerships, potential JVs and potential acquisitions. And I just said there'd be more to come in that area of looking at those 3 opportunities.

Okay. And then second question following up from a couple of questions back around product and data, Melissa, I think you were just asked. When you look at the revenue model with your customers and sort of what they get, sort of the basic product set and then how you make your money, do you see anything to clearly be customer friendly and not forced down their throats, but a way to maybe improve your profitability per customer whether it's unbundling products and services that now may just be part of an overall package or new product development where you think people definitely would be willing to pay for some stuff, like I think you referenced with the GSA? I'm just sort of thinking about how you monetized some of what you've built around the network and the connectivity and the data over all these years?

Yes. I think that, that comes from a combination of rolling out new products that are creating value in different ways that you can monetize. So it's a combination of that and this, to making sure that our fee structure is modernized, that it makes sense compared to our competitors in the marketplace. So those are both things that we would be looking at on a regular basis.

Your next question is a follow-up from Bob Napoli. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Just 2 things. One, I think, Mike, that you had said that you had signed multiple channel partners in the healthcare space. Is that in addition to PaySpan and Alegeus, or is that through PaySpan and Alegeus?

It's an addition to them. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. And is this -- what kind of channel partners are these maybe? I think these were not announced right or press released?

No, we didn't announce them. They're smaller in size, which is, in part, why we didn't announce them, but they're -- in similar type of capacity where they're intermediaries in the marketplace. Some of which have existing spend, some of which want to create that opportunity in the future. So it's a combination of all of the above. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. Can you give any feel for -- I know you're -- it doesn't sound like you're doing a lot yet in healthcare, but it is growing. Any feel for kind of what the volume trends are in that business?

Well, it's growing in a very rapid pace, but it's... Robert P. Napoli - William Blair & Company L.L.C., Research Division: Right. But it all still small. Like 1% of the payments of the virtual volume or [indiscernible]?

It's incredibly small. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. And then just -- you had mentioned, I mean, that you had renegotiated service fee contracts. And it sounds like that's something that would move the needle a little bit and I wasn't sure if that was just -- I mean it sounds like that there will be an -- a benefit in the fourth quarter, but an ongoing benefit. Can you give any color around that statement?

Well, I mean, you're correct. I mean what I was saying before was that about 60% of the service fee is tied to our virtual card volumes. And it's a lot of the processing costs around those transactions. And there's a number of players involved in there, but we've been able to renegotiate some of those contracts. And you're right, we will see a benefit in the fourth quarter this year that will continue through next year.

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

No further remarks, but Raquel, thank you very much. And thank you, everyone, for joining once again this time, and we'll look forward to talking to you in February.

Ladies and gentlemen, this concludes the WEX Incorporated Third Quarter 2013 Financial Results Conference Call. You may now disconnect.