Good morning. My name is Marcia, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX IQ 2019 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. I would now like to turn the call over to Mr. Steve Elder, Senior Vice President of Investor Relations.

Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our President and CEO; and our CFO, Roberto Simon. The press release we issued earlier this morning and the slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the release and the slide deck have also been included in 8-K we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or ANI, and adjusted operating income margin during our call. Adjustments for this year's first quarter to arrive at these metrics include unrealized losses on financial instruments, net foreign currency remeasurement losses, acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, restructuring and other costs, debt restructuring and debt issuance costs amortization, ANI adjustments attributable to noncontrolling 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 to GAAP net income attributable to shareholders in Slide 19 of the deck for a reconciliation of GAAP operating income margin to adjusted operating income margin. I would also like to remind you that we'll 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, 2019 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 morning, everyone, and thank you for joining us today. WEX had a great start to the year on the heels of a record 2018. We delivered another quarter with strong execution and exceeded our revenue and earnings target. More importantly, our Q1 results set the foundation for our growth over the remainder of this year. We expect that this year will build progressively representing the impact of the significant portfolio wins and recent acquisitions. I'm very proud of the team for executing on our long-term strategies while also delivering in the short term on these large portfolio conversions. As expected, 2019 is shaping up to be a milestone year that will set the foundation for our next chapter of growth. Our objective this year is to capitalize on the extraordinary growth and progress we made in 2018 by delivering continued organic growth across our core verticals while successfully implementing Shell and Chevron and integrating our recent acquisitions. Given the timing associated with these large portfolio conversions and integration plan, we expect to see our growth and profitabilities ramp as we progress through the year. Turning now to our first quarter performance. Revenue grew 8% compared to last year's first quarter, reaching $381.9 million driven by double-digit growth in Travel and Corporate Solutions and Health and Employee Benefit Solutions. We had a number of moving parts this quarter, including additional revenue from acquisitions, which was offset by lower fuel prices and unfavorable FX rates. The combination of these three factors resulted in a 2% increase to our reported revenue growth rates. GAAP net income attributable to shareholders was $0.37 per diluted share and adjusted net income was $1.72 per diluted share. Turning to Slide 4. We continue to deliver against our strategic pillars: Growth, leading through superior technology, execution and…

Good morning, everyone. And thank you, Melissa. As you've heard, our financial results exceeded the targets for the first quarter. The performance was driven by double-digit top line growth from both the Travel and Corporate Solutions and the Health and Employee Benefit Solution segments. We saw particular strength in two areas, the nontravel Corporate Payments and the U.S. health business. Both of them has significant growth versus prior year and surpassed projections for the quarter. Additionally, the Noventis and Discovery Benefits acquisitions were in line with expectations. From an earnings point of view, we continue to benefit from revenue growth, which was offset this quarter by the Shell and Chevron implementation costs, lower fuel prices than Q1 2018 and negative impacts from FX rates. Now let's take a look at the results on Slide number 8. Total revenue for the first quarter was $381.9 million, and 8% increase over the prior year period. GAAP net income attributable to shareholders was $16.1 million. Non-GAAP adjusted net income was $74.8 million or $1.72 per diluted share. Slide number 9 shows the total revenue performance broken down by segments. Travel and Corporate Solutions led the growth once again by posting a 22% increase in revenue. This was fueled by the Health and Employee Benefit Solutions segment, which had 19% revenue growth. Now let's move to segment results, starting with the Fleet segment on Slide number 10. The Fleet solution segment achieved $232.8 million in revenue, an increase of 1% when compared to the prior year quarter. Payment processing revenue was flat and finance fee revenue was up 5%. Finance fee revenue was 44 basis points of spend volume this year compared to 41 basis points last year. The increase in basis points was due to a mix of new business wins and small…

Our first question comes from the line of Sanjay Sakhrani with KBW.

Hi, good morning and congratulations for all the momentum you have. I guess I appreciate the color on Chevron and Shell. I'm just curious if we some kind of run rate as to how much volume – sorry, gallons of gas came in this quarter and how it might sequence through the year. I know you guys have given us a number of approximately what the two might mean. But maybe if there was a little bit of color on the sequencing, that would be great.

Sure. I'll start and Roberto may want to add on to this. But just I am going to reiterate a couple things I said to give you some data points. The Shell portfolio was ramping up, say – it was not a significant amount of volume in Q1, but it was ramping up towards the end of the first quarter with the total kind of what happened April 1. And what that means is that we then shut off their old card program, and so that's where you start to see much more conversion activity. And the reason why we say that it's going to continue to ramp through the latter part of the year are two reasons. Some of the fees related to the activity. So it takes some time for that activity to recur. And as a result, they're going to get a little bit of staging and with the revenue comes and then we've added sales and marketing resources. So those sales and marketing resources will continue to – continued growth in the portfolio from the baseline that we brought in to see kind of a stepup that will happen in the second quarter and then it will continue to grow from there. The Chevron, we've gone through the portfolio conversions – we've talked about 50% of account being converted over now, but they're coming over in tranches and the last tranche completes just before the end of the second quarter. So that will also continue to ramp even more ratably in that case because of how the portfolio is moving over to us. And again, we've got sales and marketing resources that are dedicating to continue to grow the business. So both of them are going to add sequentially into what we're seeing in volume trends. I don't know if you can add to that, Roberto?

Yes. No, Sanjay, what I'll also say if you remember, we have disclosed a couple of times the expected number of gallons overall for those two portfolios. And if you take that the revenue of the two of them combined on a full year basis should be between $60 million and $70 million. And you consider what Melissa just said that we should be fully ramped by the end of the second quarter. You know what – directionally to expect on the second half of the year. And as Melissa said, the ramp-up should be targeted by each of the months from the first half. So you know directionally the second half what to expect from a revenue point of view. And on the Q1 and then obviously, Q2 we should be seeing the ramping up of the volume and the revenue.

Second question on the net interchange rate in Travel and Corporate Solutions. That was up like 15 basis points. And I think you guys have talked about it being up 10 for the year. Should we assume the 15 is a more sustainable rate going forward now? And then, secondly, just on the slowdown in volumes. Understanding you expected to ramp up because of some wins. I mean, what specifically drove the slowdown this specific quarter?

So I will start with the net interchange. You are completely right. So the quarter was 15 basis points, and I gave all the reasons why. What I would say to you is that most probably we're going to be between the 10 basis points and 15 basis points. There's a lot of moving pieces, as you know, because there's – the Noventis acquisition will add the interchange. We have the partner rebate revenue that now will record the gross interchange and the expenses of the rebate goes on the expense line in SG&A. But I would say to that you can model between 10 basis points and 15 basis points as we move to the full year. It should be a pretty stable number going forward, unless there is a big swing on the revenue side between the parts that I mentioned to you.

Then on Corporate Payments just in terms of volume. There was a negative 2% around FX. And if I add another negative 2% because of less business days this year compared to last year, which affected both our fleet volume and our Corporate Payments volume. Those are the bigger things. And then on top of that, I talked about the fact we've a little bit of softness in the travel spend volumes. But if you look at the trends we're seeing coming through in April, we're seeing a step up in what's happened from stand volume between the first quarter and even the month of April.

That's probably Easter?

Yes. Yes, Sanjay, and also I remember last year, the first quarter was very, very strong. We had a growth of 20%. And then, obviously, it has moved a bit. And also the first quarter between what Melissa said and the fact that last year, the first quarter was really very, very strong is adding a bit of a pressure on the first quarter. But we should be seeing very quickly ramping up volume in the coming quarters.

Okay. I'm sorry, just one last one. On the FX impacts, how is it progressing to what you had in your guidance? I mean should we expect it's more of a headwind, less of a headwind or in line?

It should be – last year, first half was positive and second half was negative. This year should be the opposite. So you should – it's probably that this quarter is the one with obviously, if the rates just stay as where they are today, they should stay as we progress into Q2, Q3 and Q4 barely talking $1 million, $1.5 million per quarter. So the big impact was in Q1 this year, obviously, at the rates of today, and the guidance includes that.

Okay, thank you.

Our next question comes from the line of Darrin Peller with Wolfe Research.

All right, hey, guys. Thank you. Can we just start off, if you can continue touching on the mid- to high single digit transaction growth where you're seeing in fuel. And just Melissa, just talk through – I know when we've talked before on this, there has been a lot of technology investments that have been resonating. And just what is the sustainability of that, call it, whether it's 5% or even 7% to 8%. And then what was the actual revenue impact from the less fueling days in either of the segments or both, if you can?

Okay. So I'll start on your sustainability questions. It's something that we continue to invest in the products, we continue to also invest in the marketing. And the marketing part is equally important as we continue to target fleets of all sizes. And so as we've added in, added intelligence in the tools that we're going to market, we're just getting smarter about how we're bringing in small customers. And that goes kind of digitally all the way through to how we approve an account and how we're going to count that up. There's been a of automation in all of those pieces. And so we think we'll get continued benefit of that over the next few years and as well as the investments that we're making. We're particularly excited about what we're doing in data analytics and we're particularly excited about what we're doing with mobile capability with our DriverDash product as we continue to expand that. And both of those things, we think, we geared towards smaller businesses as well as larger businesses. So – and obviously – we have the added benefit of bringing in these two large portfolios. So we feel good about the momentum we have in the space and we continue to bring in new wins that make us feel like we are going to be able to continue to grow that part of our business for many years to come. And you asked about the difference between business days and the impact...

I was just trying to figure out the revenue impact specifically for both the fuel and the corporate and travel segments.

Yes. It will be about equivalent. So it's a 2% to spend volumes and it is about 2% to revenue...

So similar revenue?

Yes.

Let me just quickly follow up on that. Look I mean there was a very strong growth in the Healthcare segment, you have see strong enrollment season. But what was the impact from Brazil, Brazil Healthcare. If you could just comment on what's going on there as well in terms of whether that business should be rebooted or any additional reads?

Yes. So if you look at the segment itself, we talked about 19% growth. And when you look at the Healthcare business specifically, it's 31%. And so that's – you can refer from that, that what's happened. Result's negative. And we said that going into the year that we expected the first half of this year that we would have some headwinds. If you remember, we readjusted the way that we were going into the marketplace kind of mid-last year, and we're seeing volume coming through with the product. It's really just a matter of repositioning the product to annualize. And as we continue to work through that part of the business, it has performed pretty close to what we expected during the course of this quarter even though it's down from the prior year. And we're going to continue to work on a couple of things in that front. We're going to continue to work on remediating the control environment like we talked about last quarter and also keep in perspective this is less than 2% of our revenue.

Okay, all right, that’s great. Thanks guys.

Our next question comes from the line of Ramsey El-Assal with Barclays.

Hi, thanks for taking my question. I wanted to ask about the small acquisition you did in Europe. And I know that used to be a bit of a theme in terms of some potential opportunity there for outsourcing. Can you just sort of help us understand how this deal kind of fits into that broader narrative? Have you seen any incremental development in that market to think that, that sort of broader opportunity might be opening? Any color there would be appreciated.

Sure. So we announced the EG Fleet acquisition of the Go Fuel Card portfolio. We haven't closed it yet. And so it's really dependent on going through the work counsel's process, and we expect that to close in the second quarter, just going to look at that narrative. But the business itself, part of why we like this asset in particular, we like the idea of expanding the network in the region. And they have a captive card base, but also a network that allows us to extend the offerings that we have throughout Europe. And they also have network in areas that we wanted to expand. And so there was a good geographic alignment from the portfolio that they have and the coverage that we wanted to have in that marketplace. And so we think of this as an ability to continue to expand our presence in Europe, to continue to build off the base that we have in that marketplace. As it relates to private level offerings, the platform that we developed a number of years ago, it's a platform we've been going into market and selling private label offerings. And we've had really good success in Asia particularly in selling that platform. In Europe, it has been just a slower part of the new business ramp. And I wouldn't say that adding this portfolio is going to make a difference in the private label offerings. With think it will make a difference in our direct offering that we have in the marketplace.

Okay. I wanted to ask about your longer-term kind of capital deployment plans. And you are doing quite a few tuck-in acquisition at a relatively steady pace. How should we think about your views on leverage over time? Should we think about you guys are kind of running at higher normalized leverage levels over a longer period of time and just continuing to fill in gaps? Or is there kind of a trajectory here or maybe you've reached a point where you feel like you filled in some gaps and the leverage level might come in a little bit?

So this is Roberto. Let me start by reminding you at the Investor Day, we have been clear, our policy is to be between 2.5 and 3.5x on leverage ratio. And when we closed the 2018, we closed at 3.1x. But we also have said that for the right transactions, we will go up in leverage. Going back to three years ago, when we did the EFS transaction, we did the same. The company went up in leverage. We went a bit more than 4x when we closed EFS, we went to 4.7x. From there, we have been spending 2.5 years reducing leverage up to the 3.1 we closed at the end of '18. And on those – in that period, we also did the transaction of AOC and we did the Chevron portfolio acquisition. So I would say to you that our policy doesn't change, 2.5 to 3.5. For the right transactions, we will go up in leverage. And going forward, all our focus is going to delever as much as we can to get back to the ratios that I just mentioned. And finally, what I would say to you as well is we expect to delever 0/5 a turn to 0.75 of a turn per year, and this is consistent now with the last 2.5 years through the EFS acquisition.

Great, thanks so much.

Our next question comes from the line of Oscar Turner with SunTrust.

Hey, guys. Good morning.

Good morning.

Good morning.

So first question is on the Travel and Corporate Solutions segment. Can you talk about drivers of that 48% growth in North America Corporate Payments? Are there any verticals, channels or partners worth calling out?

The growth actually has been primarily driven by our AP product and that corporate payment segment. And we have a group of sales people that have done a fantastic job out in the marketplace selling and as we've guided those accounts, we've seen a really nice ramp in that business. Part of why we've been excited about what we can do in that space and part of what led us to the acquisition of Noventis, we just believed that this is a space that's right for growth. And you're starting to see more movement where people are interested in making that outsource move now.

Okay. That make sense. And then second question is on Healthcare and Discovery Benefits, which closed recently. How does this deal enhance your value proposition in the HSA marketplace? And then can you give any color on the tone of customer conversations since you closed the deal just given the potential for channel conflict there?

Yes. I'm going to start with your latter part. It's something that we think a lot about. If you look across our business, we go-to-market in multichannels across the board. And so we've done that in fleet for many, many years quite successfully, in Corporate Payments. You can see that we're doing business with American Express and a lot of FIs. At the same time, we have a direct product offering. And so this is kind of part of who we are as a company. And we think that, that really starts with a foundation of having ground rules of how you operate and it works to do this in really big markets. And so that's been the narrative we've had in the space. And I think that when it comes right down to it, people just one of make sure that you're following what you say you're going to do. And so there's going to be a period of time that we have to make sure that we continue to demonstrate that this is a core capability of ours. And in terms of DBI itself, the idea that they have a transit products, which I believe is an interesting product. The idea that you can just extend the offering and so that you can have kind of full services is interesting to some in this marketplace. And so when we think about the – kind of the options out there, we currently like this position of having that as a option and also working with partners, which they bring something unique. Sometimes that's the user interface that they have created. Some times it is something else. And they have created this unique to their brand and their offering will be differentiated in the marketplace as well.

Okay, thank you.

Our next question comes from the line of Bob Napoli with William Blair.

Thank you and good morning. The – follow-up on the Corporate Payments business. What is the revenue for the North American Corporate Payments business today? I wanted just to dig into that a little bit more, the nontravel portion. Hello?

You didn't lose us. I'm just looking at the data. We don't report it, so I'm just looking to make sure I'm giving you the right number here.

And then just as you're looking for that, I wanted to understand...

It's about 20% of the segment.

Okay. Segment, 20% of that segment.

Yes.

And how much of the growth is Noventis. How much is Noventis adding? And the AP capability that you've built, is that primarily from EFS, which you've built upon? Or is Noventis bringing that to you? So you're combining the AP with the payment side. I mean, it's obviously a very large market. So I'm just trying to understand. And then your focused on mid-market companies in that space?

So okay. So let me kind of parse through your questions. I think there are bunch in there so Noventis itself we'd like to – Noventis itself is a delivery mechanism so what it allows us to do is optimize how the payment is made. And so it allows us to also operate more efficiency if you're deploying a large amount of payments. And so we'd like that in the context of as we continue to scale the business and have variety of different offerings. And so having that sit in the background and optimize how payments are made is something that is interesting to us. So that was one of your questions. The second one is the size that we're going after. So yes, that's true when we go after directly. It's part of why we like going into the marketplace through partner channels. It's just the reach that you get. So some of the partners that we're doing business with are interested in small businesses. And what they had done with us is we create the payment mechanism that sit in the background to whatever product offering that they have. And so that combined offering creates something unique for them in the marketplace and it gives us just greater reach into the market. So I wouldn't limit, when you think about our ability to penetrate the marketplace. We won't be going at least anytime soon after that small, small marketplace on our own. But through partner channels we think that, that is a good mechanism to approach the Market. Was there another question in there?

Yes. The AP piece, is that through the partners?

Yes. It's false. And so the AP piece, so we had an AP product that we have kind of latent within WEX. We expanded that in two ways and we added on the acquisition of AOC. That gave us our broader capability in that space. And then, we also did the EFS acquisition. They had some capability in that space as well. And so what we've done is merged all of those components together and really modernized the technology so that it is a series of micro-services that are all talking to each other. And then we can expose that through APIs to partners. And so it's really a combination of a bunch of different technical moves that we've made over the years, the last two years really primarily that have created this product set. And then on top of that, this in-house processor that we're moving volume over creates more scale of capability for us as we continue to scale up the marketplace. And also is that – it's a solution that enable us more control over the entire servicing experience of our global accounts too. And so we like that from many different fronts, from scalability all the way up until the – our capabilities. So there's a number of different things that have changed over the last few years.

And then last question. Thank you. I mean, that's a very large market and I would imagine it's mostly white space that – is that a business that can grow 30%, 40% for years to come organically?

It is a really – you're right, it's white space. It's a space that I think people have been circling around for quite a long time. But you actually are starting to see movement where people are making the switch and going to technology providers. And so we just think it's the timing is right. In terms of the growth profile, I'd say it's a huge market. So I think that's possible. We haven't – and we gave out our long-term growth targets. We were kind of probably a little bit more conservative in that part of the marketplace and what that looks like because it's still unknown.

And Bob, just to clarify for you the revenue. So you asked about Noventis. And as I said during the call up to $81 million, $82 million in the segment. Approximately eight are Noventis and then approximately 20% of the $81 million, $82 million relates to the corporate payment business, just to clarify your question.

Thank you very much. Really appreciate it.

Our next question comes from the line of David Koning with Baird.

Hey, guys. Thanks for taking my call. And I was just wondering, first of all, on the Fleet business, transactions grew 5%. And I think they had been growing 7%. I think is that explainable to the days that you called out? And then I guess the second question kind of around it, why didn't that pickup as some of the Shell and Chevron came out? I maybe would have thought I would have been a little faster.

So the first answer is yes. It has – the 2% impact has an impact on the volume and is a direct correlation between those two things. Your second question – all right, there really was a moderate volume in Q1 related to Shell and Chevron. Because there's – we had issues carved out there, but people have to actually go through the process of going through the conversion and deactivating their old card. And that created a surge within our call center within the first quarter to really go through that process of getting people through what's new card program like and activating them. And so it is similar to any of these portfolio conversions, it's just a lot of work that goes into the process. And that work happened in the first quarter and we're really starting to see the benefit of it happening more now.

Okay. Okay, that's great. And then I guess my one follow-up question. Just to understand the health business and kind of the dynamics there. I think the 35% or so revenue growth. It seemed half year-over-year on accounts and half on yield. And I'm wondering, where does Discovery – does Discovery, help revenue more on the accounts side or the yield side? Or was it part of both? How do we kind of disaggregate I guess all three of those dynamics?

Yes. So we said that about half was related to the Discovery, and about half was related to organic growth in terms of the total revenue number for the U.S. Healthcare business.

Yes. But I guess my question – like the growth in accounts was pretty, pretty similar to what it's been. So to me it looks like maybe Discovery comes on without revenue account…

Yes, yes…

But without yield.

I'm sorry. Well, the Discovery was a partner, and so the volume was already included in the volume statistics. So the revenue model changed. But if you look at the volume statistics, they were already being captured largely within the volume that we were already reporting.

Totally makes sense. Well, thanks for taking my question.

Thank you.

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