WEX Inc.
Q2 2016 Earnings Call Transcript

Published: 27 Jul 2016

[Operator:]

At this time, I would like to welcome everyone to the WEX Second Quarter 2016 Earnings Call. I will now turn the call over to Steve Elder, Senior Vice President of Investor Relations. Please go ahead.

[Steven Alan Elder:]

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 has been posted to the Investor Relations section of our website at www.wexinc.com. A copy of the release has also been included in an 8-K we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, during our call. Adjusted net income for this year's second quarter excludes acquisition and divestiture-related items, stock-based compensation, restructuring costs, foreign currency re-measurement losses, similar adjustments attributed to our non-controlling interest and certain tax-related items. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis, as we are unable to predict certain elements that are included in our reported GAAP results including the impact of foreign exchange re-measurement gains or losses due to the uncertainty of market fluctuations. Please see Exhibit 1 for an explanation and reconciliation of adjusted net income to GAAP net income included in the press release. Beginning with Q3 of this year, we will be excluding the amortization of deferred financing costs. 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 February 26, 2016. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa Smith.

[Melissa D. Smith:]

Good morning, everyone, and thank you for joining us today. We're pleased to announce another strong quarter of performance in 2016. For the second quarter, we exceeded our expectations on both the top and bottom line, driven by continued focus on organic growth across our core verticals and execution against our strategic priorities. We also closed the Electronic Funds Source or EFS acquisition on July 1, which is the largest transaction in our history. We feel very good about the benefits of this deal and the opportunity it provides us to drive scale and value creation. I'll come back to elaborate on this momentarily. Despite headwinds there's (02

[Roberto Simon:]

Thank you, Melissa, and good morning, everyone. For the second quarter of 2016, our total revenue was $233.9 million, a 9.5% increase over the prior year period, and above the high end of our guidance range of $216 million to $226 million. Net income on a GAAP basis for the second quarter was $12.6 million or $0.32 per diluted share, compared to $26.5 million or $0.68 per diluted share for the second quarter last year. Non-GAAP adjusted net income came in above the high end of our guidance range of $42.1 million or $1.08 per diluted share, down from $48.3 million or $1.25 per diluted share for the same period last year. This decline includes an $8.2 million impact from lower fuel prices in the second quarter of 2016. In addition, 2015 results benefit by a $5.7 million gain from our fuel price hedges. Our performance this quarter was driven by solid results across all of our core verticals. Versus our guidance, the primary drivers we had the increase in revenue and earnings were solid volumes in our fleet business, coupled with the ongoing benefit of pricing modernizations and higher-than-expected fuel prices. Operating expenses were generally in line with our expectations. The Fleet Solutions segment achieve $144 million in revenue, an increase of 6%. Fuel prices, again, play a significant role. The average domestic fuel price in Q2 was $2.29 versus $2.74 in Q2 last year. This decline in fuel price core revenue to go down by approximately $14 million in the quarter. As a reminder, for a full year basis, it's $0.10 change in average domestic fuel prices will increase or decrease revenue by approximately $12 million including the volume of EFS. During the second quarter, payment processing transactions increased to $94.2 million, 9% higher than the prior year period. It was driven primarily by the conversion of a customer to payment processing from transaction processing, as well as continued organic growth. We continue to see softness in same store sales with a decline similar to the first quarter. And we continue to see weakness in our large fleets and the oil and gas industry similar to what we have seen for the past years. Loan payment processing revenue in the fleet segment increased $17.9 million compared to last year. It was primarily driven by additional price modernization initiatives which continued to shift our offering to better align with the market. As a reminder, when revenue and – from finance fees increases, our exposure to retail fuel prices also increases in dollar terms. In Travel and Corporate Solution, revenue for the second quarter increased 11% to $53.3 million. Spend volume increased 14% over last year to $5.6 billion for the quarter, driven by our large level customer in the U.S. and Europe and continue ramp-up from our business in Asia. Net interchange rate for our virtual card in the second quarter came in at 77 basis points, ahead of our expectation due to customer settlement mix. Other revenue in the segment was impacted by some softness in cross-border fees. For Health and Employee Benefit Solutions, revenue for the second quarter increased 22.5% to $36.6 million, primarily as a result of the continued expansion of WEX Health, including the acquisition of Benaissance and the contribution from our Brazil benefits business. Moving down the income statement, for the second quarter, total operating expenses on a GAAP basis were $182.3 million. Salary expense for the company was $66.7 million, up from $59.1 million in Q2 last year. The increase was due to the acquisition of Benaissance as well as some smaller miscellaneous items. Service fees were $43.4 million in the quarter, which is up from $33.9 million in the same quarter last year. These increases includes cost for volume increases in our Travel segment, deal-related expenses for closing the EFS transaction, and cost for outsourcing much of our back office technology, which is partially offset by other line items. During the second quarter, credit loss on a consolidated basis totaled $6.4 million, up $2.5 million compared to second quarter last year. Fleet credit loss was 10.2 basis point in the second quarter, which was in the middle of our guidance range compared to a record low 5.3 basis points in the second quarter 2015. In the Travel segment, we had the bankruptcy occur in Europe. We anticipate the total loss will be approximately $2.7 million including $1.2 million in the second quarter results. Our operating interest expense was $1.5 million in the quarter, as we continued to benefit from low interest rates in the U.S. During the quarter, we signed an agreement to transfer ownership of the Higher One deposits to another bank. We will be replacing them with broker CDs (19

[Operator:]

The first question comes from Sanjay Sakhrani of KBW.

[Sanjay Sakhrani:]

Good morning. Sorry. I was on mute. Sorry about that. How are you guys?

[Melissa D. Smith:]

Hi. Good.

[Roberto Simon:]

Good.

[Sanjay Sakhrani:]

So I had a question on the Fleet Solutions segment. When I look across the revenue lines, those all seem pretty strong relative to our expectations and the margin seem – the yields seemed a lot higher than we anticipated. Could you just talk about the sustainability of that going forward?

[Melissa D. Smith:]

Yeah. And there's a couple things that are impacting that. There was a re-class that we did into that business from Health, so about $3 million that got re-classed out. So, if you look at the Health segment, it looks – the growth looks a little lower than it really is and it looks a little bit higher than it really is. So just to kind of keep that in mind. But if you look across the business, there's about $18 million worth of additional revenue that came into the second quarter outside of payment processing revenue. If you strip out that $3 million, there's still $15 million of incremental revenue. A lot of that, beyond just the organic growth piece, is coming from the pricing modernizations that we're doing. So that work – we talked about being in a test mode and making a number of changes over the last couple of years. We rolled in a lot of those into the second quarter. So we do think that that's generally sustainable when you remove that re-class out of it just to think of that as a little bit of noise, but if you move that out, we do anticipate they're going to see something continued like that. The things that might change and that we're still tracking are customer behavior patterns so if we see some changes in their behavior since some of those things are activity based, that could cause it to move a little bit, but largely we're expecting this to look like that...

[Sanjay Sakhrani:]

All right, great. Great. And then just following up on EFS. When we think about the new terms and looking out to next year, adding some of the wins that you mentioned that are ramping up towards the end of the year into next year. Could you talk about like how you expect EFS to kind of play out next year as far as accretion is concerned?

[Melissa D. Smith:]

Yeah. If you start with this year – and then I'd say we've only owned it now for a month to little bit like having a – present it's been sitting there for nine months that we just get to open and we're very excited. But, as we really get to know it even better, we are more and more excited about the opportunities that we have. And we've talked about the customer ramps that they have that we're seeing, (27

[Sanjay Sakhrani:]

Okay. Great. I mean, is there any specific revenue – I'm sorry, earnings accretion number that you might be able to guide us towards yet?

[Melissa D. Smith:]

Not yet. I'd say, it's still early. We are learning where the pieces are going to come from and we've gone through and obviously done detailed builds around the synergy components, but we're filling that out. And so, we'll give more insight into 2017 as we get closer and we give guidance for 2017.

[Sanjay Sakhrani:]

All right. Great. Thank you.

[Operator:]

Our next question comes from Ashish Sabadra of Deutsche Bank.

[Ashish Sabadra:]

Hi. Good results from the quarter. My question was around the 3Q guidance. The 3Q guidance on the EPS side was a bit soft compared to what we were expecting. I was just wondering are there any puts and takes there.

[Roberto Simon:]

Are you talking the full year guidance?

[Ashish Sabadra:]

No, I was...

[Roberto Simon:]

We can't hear you very well.

[Ashish Sabadra:]

Oh, sorry about that. No, I was specifically talking about the third quarter guidance, the EPS guidance for the third quarter came in a bit soft compared to what we were expecting, just wondering any puts or takes in that?

[Roberto Simon:]

Yes. Well, let me picture this for you in a summarized way. First thing, you saw that we beat expectations in the second quarter. And on the other side as well, our – the fuel prices are coming as expected. So, on those areas, we do not see a material change from what we have in the previous range. What I would say to you is that as we move, and Melissa has talked about that, we have owned EFS for almost a month right now. And this is – we are saying that for the full year – the remainder of the year, the numbers are going to be positive. But obviously, as I mentioned on the call, we're going to be ramping up positive results, especially as we enter 2014. Because as you can understand in the third quarter, we're just taking the business and we progress on the integration on the synergies, we're going to see the results coming in the fourth quarter. The rest of the moving pieces are in line, except also what I mentioned to you that we have this credit loss in the Travel business, which will have a small impact as well in the third quarter.

[Ashish Sabadra:]

Yeah. Thanks for that color. Maybe just a quick follow-up question on the EFS. Melissa, you talked about the new customer wins and the customer backlog. In the 8-K, you've provided a lot more details around the $26.5 million of incremental EBITDA which is expected to come from these new customers. I was just wondering if you can give some more color around what's driving these new wins. I thought OTR business is normally a low-mid single digit growth business. What is driving this 40% growth and how should we think about the growth going forward?

[Melissa D. Smith:]

Yes. I mean, in terms of what's driving it, it's really coming in a couple of buckets. The first customers that they sign in, and in this case, it's not just fleet customers, but also corporate payment customers. So, they've signed – they've started to ramp, but they haven't experienced the full run rate of that because they're – if you look month to month, the business is growing. And so, you're getting benefit of that growth stacking up each month, and so that's the first category. The second category is around customers that have been signed but are going through an implementation period, an implementation period for EFS on the fleet side. Part of why their products are well-received in the marketplace is because of the level of the integration that they have. That integration is great from a customer perspective because it allows them to do things in a much more seamless way and it increases the amount of flexibility and functionality that they have. But there is a process that people have to go through in order to do that implementation. And so, that what's driving that piece of the backlog. And again, there is a piece that's related to fleet, there's a piece that's related to their corporate payments arena and they've seen some really strong growth on both of them. Corporate payments is coming off a much smaller base. So, on a percentage basis, it seems an oversized growth.

[Ashish Sabadra:]

Thanks for that color.

[Melissa D. Smith:]

(33

[Ashish Sabadra:]

No, that's great. Thanks for that color. And maybe one final question on the fuel sensitivity, that $0.10 change in fuel prices having a $12 million impact on revenues. Is that slightly higher than the prior estimate? And what does it mean for the EPS? Is it still $0.16?

[Roberto Simon:]

What I would say to you is that we haven't (33

[Ashish Sabadra:]

Okay. Thanks.

[Operator:]

The next question – the next question comes from Bob Napoli of William Blair.

[Bob P. Napoli:]

Thank you and good morning. Just on your modernization, your pricing modernization, I mean, it still looks to us like the – your – your fee income and it's well below still even the testing that you're doing, while it's up a lot from where you were, it still seems like it's well below where your biggest competitor is. What are your thoughts around continued modernization or – and what part of your base – customer base and how – what percentage of your customer base are you implementing those – that pricing modernization? I would imagine it's primarily with small to mid-sized companies.

[Melissa D. Smith:]

That's right, Bob. So, the piece of the portfolio, when I talk about pricing modernization, it is related to small fleets in the United States. And so it's a section of our overall portfolio. And that's when you look at our larger fleets, we're typically the premium offering in the marketplace, and that's because of the functionality that we offer. We think that, that is worth the premium that people are paying. When you get into the smaller fleet marketplace, we just hadn't really changed the pricing that we had in the marketplace for quite some time even though if you look at kind of externally, there were a number of changes being made to move these more to the fleet. And so the changes that we've made have been really just updating that. And what we're trying to balance as – as we do this, we care a lot about brand. We care a lot about the brand of our partners too that we're doing business with, and so we're balancing their desires as well in the marketplace to make sure that their customers are satisfied, that they're continuing to do business and fuel within their locations at the same time as making change to the prices. And that's the balance that we've been going through. We feel really good about the balance that we're at right now, but we're continuing to test and getting more sophisticated as we do that testing. And so far, we've seen very little impact to overall attrition rates, and I think that's a positive and the fact that we've been very thoughtful about how we're going to approach this. And over time, I think you could expect that we'll continue to work this, and we'll continue to work this in an increasingly sophisticated manner because what we're finding is customer behavior patterns are unique to in different type of segments within the marketplace, and we're refining those segments all the time.

[Bob P. Napoli:]

Is this may be a third of your customer base in the U.S.?

[Melissa D. Smith:]

It's not even – in the U.S., that's probably about right in the U.S. Yes.

[Bob P. Napoli:]

Then the interchange rate on your Travel business went from 70 bps to 77 bps quarter-over-quarter. What drove the increase and what should we be thinking about as far as an interchange rate in not only the balance of the year but over the next few years?

[Roberto Simon:]

Bob, this is Roberto. What is important to keep in mind in is the first, we have talked extensively about the contract signings we have had in the segment and the impact this have on our interchange rate. And obviously, this has no change. Second, we also talk last quarter about our few customer meeting higher rebate tiers levels which obviously has an impact and a fluctuation in the interchange rate. And finally, in this quarter, we have saw the spend levels of the same customer come down a bit. So, we had a small benefit in our interchange rate as we have aligned our year-to-date rebates to our best estimate and new tiers. Going forward, we would expect the rate to be around the average of the first two quarters of this year.

[Bob P. Napoli:]

Great. And then just my last question on the balance sheet and the – Melissa, you talked in the press release about inorganic, as you look at inorganic growth opportunities. And what are your thoughts on leverage and it'd seem that based on historical leverage levels that you're maxed out for the time being, but are you thinking differently around the balance sheet and your thoughts around inorganic?

[Melissa D. Smith:]

I'd say I'm incredibly thoughtful of where we are in terms of our leverage position right now. We're continuing to look at opportunities. But as we're looking at those opportunities and mindful of the fact that we do have more leverage and as we're prioritizing, we're balancing those two things. So, whether the opportunities worth (39

[Bob P. Napoli:]

Thank you.

[Operator:]

The next question comes from Ramsey El-Assal with Jefferies.

[Ramsey El-Assal:]

Hi, guys. Following up on Bob's next to last question. Is there any incremental pricing opportunity at EFS? Is there any kind of pricing rationalization there to be done? I know it sounds like it was a pretty well-run business, but is that something which you see as like an incremental opportunity to your existing pricing strategy?

[Melissa D. Smith:]

So part of it, what we were interested in in the asset was just their ability to innovate. And what we're – one of the things we're excited about is the fact that they're rolling out new business intelligence toolkits, which just gives their customers greater visibility into indexed information off of the EFS index. And we see that as an opportunity to create value in terms of creating economic value. And also potentially leveraging that across to our Fleet One portfolio. So, we do believe you're going to see some changes that are coming based on the work that they've done to-date to bring new products into the marketplace.

[Ramsey El-Assal:]

Okay. But not necessarily pricing specifically, but just sort of cross-sell of new – of their solutions into your base basically?

[Melissa D. Smith:]

there'll be a combination of just making sure that we look across the business and think about it in terms of making sure that there are standards. Now, that will happen over time.

[Ramsey El-Assal:]

Okay.

[Melissa D. Smith:]

The more immediate piece that's coming is relating to the new products that they're bringing into the market.

[Ramsey El-Assal:]

Got it. Okay. And could you give us a little color as you usually do on the same-store sales metrics? You mentioned about a 4% decline which is about consistent, it feels like with the last couple of quarters. Is there any kind of – can you drill down a little bit for us in terms of the verticals that are performing better or worse than expected or is it just basically same old, same old?

[Melissa D. Smith:]

It is pretty consistent. The oil and gas continues to really get hit hard. It's down over 30% year-over-year. So, the base is getting smaller, but the numbers are big enough that it still affects the total. That's the biggest thing that's getting affected. The larger fleet profile seems to get hit a little bit more than the rest of the profile. I think Roberto had mentioned that. Also construction's down a little bit; manufacturing is down a little bit and transportation is down a little bit. So, this time, it does seem like there are more positives. So, it's not like you look across the board and you see everything looking negative, but there's a couple of really pretty big negatives (42

[Ramsey El-Assal:]

Okay. Lastly from me, any word on the Europe RFPs? I think your competitor mentioned on a conference appearance inter-quarter that there may be one of the RFPs kicking around in Europe potentially coming to a head at some point soon. Has your view there evolved at all? And I guess also, do you think that your leverage level or your ability to get those deals done now that you just closed on EFS, is there any incremental change there in your view that you're competitive with those types of offers?

[Melissa D. Smith:]

Yeah, we continue to get great feedback on the products that we have in the marketplace. I think that our ability to grow portfolios is important still, not just in the U.S., but outside the U.S. And so – and we do feel like we're well positioned. The timing of these things, I'm always a little bit more skeptical around how long it takes to go through them because they tend to get elongated from intended timelines. And so, there are things that are in process. We're participating in those processes and we're feeling good at this point in time about the prospective outcome.

[Ramsey El-Assal:]

And your current leverage level post EFS, these are not terribly capital intensive deals. I understand. No change there in your perception of your – maybe the perception of the other side's ability that you can get the deal done and...?

[Melissa D. Smith:]

No. A lot of the transactions are structured in a way that wouldn't be like what we did with Exxon, and I think that that was kind of an unusual transaction in the way that we went to market with them. It often – people start with wanting to replace the technology and they kind of move up the value chain over time, which is consistent with what we've seen in the United States, and so it's a way that build trust and to take on more responsibility. So, I don't envision our leverage as a blocking point for us in Europe.

[Ramsey El-Assal:]

Okay, great. That's all for me. Thank you.

[Operator:]

The next question comes from James Schneider of Goldman Sachs.

[Melissa D. Smith:]

Hello?

[Steven Alan Elder:]

Jim?

[Melissa D. Smith:]

Jim?

[Steven Alan Elder:]

Operator, why don't you move to the next question?

[Operator:]

The next question comes from Tim Willi of Wells Fargo.

[Timothy Wayne Willi:]

Hi, thanks, and good morning. Couple of questions. I think, Melissa, you referenced in the sort of the Corporate and then Travel some commentary around softness in cross-border. And I know that flowed into the earlier discussion about the yield, et cetera. Could you just maybe – any additional thoughts and color on that topic? Anything that you think might have been related to Brexit versus the unfortunate rash of terrorist attacks, just sort of how you think about that, the trajectory of it and how you guys are monitoring it.

[Melissa D. Smith:]

Yeah. And actually there's two pieces to cross-border. One is what we saw in the quarter, which we think had to do more with travel patterns than from what we're seeing. And I don't think that we could comment of whether that's because of terrorist activity or if that's because of Brexit or something else. But we are seeing a little bit of a change in behavior. And what that means to us is when people are moving from within where we're issuing to another country, those cross-border fees aren't there, and so it's a little bit of a revenue impact to us. And the other part of the commentary was around going to local bins (47

[Timothy Wayne Willi:]

Okay. And then, can I ask again on fleet. Just in general of Southeast Asia. I know there is a lot of focus on North America and Europe. But I guess as you sort of been around that market now for a while, counting Australia sort of that part of the world, how do you think about growing that part of the franchise versus may be how you went about (47

[Melissa D. Smith:]

Yeah. We're finding some markets are more fragmented. And it's so – when we talk about country expansion, that's in part because of that fragmentation. That's why it's important that we can move from country to country to get the scale. We are seeing interest with private label relationships and that's what happened with us with both Exxon who now does business with us within Southeast Asia and with Shell where we're doing the prepaid offering for them in Europe and parts of Asia. But we're also seeing interest with just regular private label customers who want us to do traditional processing and outsourcing arrangements. So, there clearly is interest in the market and we see that coming through our pipelines, and so we just see the opportunity there. I put fleet (49

[Timothy Wayne Willi:]

Okay, great. And I just had one last question. In terms of the Higher One deposits and the shift in the funding mix, can you just sort of frame how we should think about the difference between the Higher One deposits and going back to the wholesale CD market? I just haven't had chance to do that yet this morning, but just any general commentary as we sort of think about beyond 2016 and sort of modeling out the cost of working capital there?

[Melissa D. Smith:]

So, it really actually doesn't have a significant impact. You're talking about a basis point spread of like 50 basis points...

[Roberto Simon:]

60 (50

[Melissa D. Smith:]

50? 50 basis points. About 50 basis points.

[Timothy Wayne Willi:]

Okay. So, about 50 bps. Great. That's all I have. Thanks so much.

[Operator:]

The next question comes from Danyal Hussain of Morgan Stanley.

[Danyal Hussain:]

Hi. Good morning. Thanks for taking the question. Could you just – a couple more questions for pricing, but could you just walk us through when in the quarter you've more broadly rolled out the changes, so whether we had a full quarter of impact? And then two, whether – what the right, I guess, run rate is? It seems like you're maybe about $10 million, maybe you just clarify that?

[Melissa D. Smith:]

So, we actually implemented the changes in July. So, we are getting not necessarily a full impact but pretty close to a full impact. We are continuing to test and roll out additional changes though. So, in our view this isn't done. It's something that's going to continue to happen over a period of time. As we continue to test and learn, we'll implement further changes.

[Danyal Hussain:]

Got it. And then, I guess if you look at guidance, how much you raised it, you're adding it looks like $76 million from EFS. Could you call out or quantify how much incremental you're expecting from pricing?

[Melissa D. Smith:]

It was actually included in our last sort of guidance. So when we – so we got a little bit more in the quarter than we had expected, but that had to do more with timing than anything else. So from a – and if you look at guidance to guidance, there is a little bit that we've got in Q2 that we're adding into the full year number. But I would say generally, it's pretty consistent with what we had anticipated as we went into the year and particularly as we gave guidance last quarter.

[Danyal Hussain:]

Okay. Perfect. And then maybe just quick on your Travel, the volume growth. Could you quantify ex-FX growth?

[Roberto Simon:]

Danyal, in this period is immaterial, the FX impact.

[Danyal Hussain:]

Got it. Thank you very much.

[Operator:]

The next question is from Tien-Tsin Huang of JPMorgan.

[Tien-Tsin Huang:]

Thanks. Good morning. On the EFS, the synergy, the $25 million. I think you said it would be ratable. Just wanted to make sure that I heard that correctly. And there is a way to quantify the timing and the magnitude of the reinvestment required to get through the phases of the synergies?

[Melissa D. Smith:]

So, your first question around ratable, yeah, I would think of it as a third, a third, a third, roughly is what we're envisioning right now. In terms of the reinvestment, I think you're referring to the fact we said that we are reinvesting across the number of our businesses for the second half of the year.

[Tien-Tsin Huang:]

Yep.

[Melissa D. Smith:]

We're talking about something in the order of 4% to 5%. It's not a huge number, but it's enough when you start to talk about the things that are affecting the year. And Roberto talked about the bankruptcy loss that we have, the beat (53

[Tien-Tsin Huang:]

I see. And then just on the – you mentioned the bankruptcy, looks like your credit loss assumption is still the same though for the year. Given that bankruptcy, I'm assuming that most of that is cleaned up, but given delinquency trends, is it likely to see – or we likely to see sort of stable credit losses from here, or could we actually see it tick up with some leakage from the bankruptcies and whatever else you see?

[Roberto Simon:]

Tien, what I would say to you is you are right. We have maintained the guidance as it was. And although we have got this bankruptcy as a one-time event, on other areas, we are seeing improvement as well. So, all in all, we don't see a major impact for the full year.

[Tien-Tsin Huang:]

Okay.

[Melissa D. Smith:]

And when we gave the credit loss range, that's for the fleet business alone. So, it doesn't reflect the Travel part.

[Tien-Tsin Huang:]

Right. Right. Right. Good point. Understood. Just last one. Just the cross-border. I know that was asked a bunch already, but did you quantify the weakness you're contemplating in the third quarter specifically? I mean, the trend is not surprising. We've heard this from some of the other cross-border processors, but just curious if we can maybe quantify that to some degree.

[Melissa D. Smith:]

We have not quantified it. It's included overall in our expectations for the next couple of quarters, but we didn't put a number next to it.

[Tien-Tsin Huang:]

Okay. Fair enough. Thanks as always.

[Operator:]

Our next question comes from Tom McCrohan of CLSA.

[Thomas McCrohan:]

Hi. Did you give out the same-store sales growth in fleet? Sorry, if I missed that.

[Melissa D. Smith:]

It's – in the U.S., it's negative 4%.

[Thomas McCrohan:]

All right. That was kind of consistent with last quarter.

[Melissa D. Smith:]

It is. Yeah, it looks pretty consistent.

[Thomas McCrohan:]

Yeah. Okay. And then, based on the disclosures on normalizing the currency in fuel. I think last quarter you said 12% revenue growth, 16% EPS growth. So, I calculate for this quarter, 16% revenue growth adjusted for those items, but can't seem to get to a comparable EPS figure. What would be the comparable EPS growth figure?

[Melissa D. Smith:]

Yes, we – actually we gave you the table in there for revenue, and I think you're getting something closer to 17%, so close. On the earnings side, we've tried to give all that information, it's about 22%.

[Thomas McCrohan:]

And how much of that acceleration is just from fuel versus other factors?

[Melissa D. Smith:]

So, we neutralized it for fuel. So, it's – the acceleration is coming in part because of the pricing modernization we had, a little bit higher growth in revenue on our Travel business because we had – we had a couple of one-time things coming through in last quarter. And so you had an acceleration which was more because last quarter is a little bit of an anomaly on the Travel side. And I would say that those are really the kind of the bigger things that are moving sequentially.

[Thomas McCrohan:]

So, Melissa, if you assume neutralized for fuel, neutralized for currency going forward, is there anything that will prohibit you from growing at these neutralized pro forma growth rates in next several quarters?

[Melissa D. Smith:]

But we also had the benefit of EFS in there when you look at the revenue growth. And so, it's going to be – it's going to affect the results. And when we've given out guidance range in terms of – at least longer-term guidance, we've talked about revenue guidance of 10% to 15%. And we're obviously coming a little higher than that when you exclude the impact of fuel prices right now. I think some of that have to do with the pricing work which we do think will have – it's going to have some carry effects for a period of time for us. But I'm thoughtful about the fact that's not going to carry us forever.

[Thomas McCrohan:]

Yeah. Yeah.

[Melissa D. Smith:]

But it is something that we do think it's going to contribute to the business for a number of periods to come.

[Thomas McCrohan:]

Okay. Yeah, so, I guess the only thing about the quarter I'm trying to reconcile with is sequentially Q1, Q2, you had improvements in those two metrics which seemed to be there for a reason to say once we kind of get through and lap all these headwinds from macro fuel, the growth rate's going to be better obviously, the one's you're posting. So, you had a Q1, Q2 acceleration, but the top end of your guidance, you didn't change despite the fact that you kind of tweaked up a little bit the fuel price assumption. So, I'm just struggling – we're trying to make that bridge between this type of growth and the lack of like raising the high end of our EPS guidance. So, is there a simple answer to that that you could provide?

[Melissa D. Smith:]

Yes. If you start on the revenue side, which I think is where you're beginning with, that you would see similar – so you'd take the top end of our revenue guidance last time, you add in the $78 million which is the top end of EFS, and the second quarter fee, we are adding in some incremental revenue associated with what we're seeing with trends. And so, I would say we are factoring it in. When you get into their earnings on top end, the two things that are offsetting some of the favorability that we are seeing are very intentional investments that we're making in the second half of the year. We're just – we're seeing really great results in a number of places in our business since we're putting some money back into that. And then the underlying bankruptcy that Roberto referred to, and the piece which we took in the second quarter, the piece we know that we're going to take in the third quarter. So, those things are really just affecting our – what we're doing at the top end. We did move up the bottom end of the range. And it kind of reflects the fact that we're seeing that momentum. But we held the top end of the range because of a couple of things. One of which was intentional and one of which we just know it's going to happen in the third quarter.

[Thomas McCrohan:]

Okay. Okay. Fair enough. Thank you.

[Operator:]

Are there any closing remarks?

[Steven Alan Elder:]

I think, we just want to say thank you for everyone for joining us today and look forward to speaking with you again next quarter.

[Operator:]

Thank you. This concludes the call. You may now disconnect.