Q2 2020 WEX Inc Earnings Call
After the telephone please clearly state in spell your first and last name the name of your company and provide your telephone number beginning with the area Code then press the pound key.
David Brown, Iran. The one do lighting 03697.
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His money.
That you have their maintenance agreement that we can come back.
Ladies and gentlemen, thank you for standing by and welcome to the WEX 2002, excuse me second quarter 2020 earnings Conference call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If he would like to ask a question at that time. Please press star one on your Touchtone phone Mr. Elder. Please go ahead.
Thank you operator, good morning, everyone.
With me today as Melissa Smith, our CEO and our CFO Roberto Simone.
Press release, we issued earlier this morning, and a flight deck to walk through our prepared remarks I've been posted to the Investor Relations section of our website at <unk> Dot com.
Copy of the relief in the slide deck have also been included an eight cave, we submitted to the FCC.
As a reminder, we'll be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders.
Which we refer to as adjusted net income or you know I during our call.
Adjustments for this years second quarter to arrive at these metrics.
Include unrealized losses on financial instruments.
Net foreign currency Remeasurement losses.
Acquisition related intangible amortization other acquisition related items stock based compensation.
Other cost debt restructuring and debt issuance cost amortization.
And I adjustments attributable to non controlling interests in certain tax related items.
Please see exhibit one of the press release for an explanation and reconciliation of adjusted net income to GAAP net income attributable to shareholders.
I would also like to remind you that we will discuss forward looking statements under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those forward looking statements as a result of various factors.
Including those discussed in our press release and the risk factors identified in our annual report on form 10-K for the year ended December 31 2019.
Filed with the FCC on February 28, 2020.
Our quarterly report on form 10-Q for the quarter ended March 30, Onest 2020 filed with the FCC on May 11, 2020, 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.
Importantly, I hope all of you and your families are safe and healthy.
Like last quarter I will start today's call with an overview of our Q2 performance highlights before providing an update on some of the key metric in the current environment.
This will include what we're seeing as we've progressed ended the back half of the year as well as some color around key announcement, we made this quarter.
I will close we're talking about how we're progressing with our long term strategic objective.
Then norberto will provide more detail about our financial results for the quarter as well as some balance sheet highlights before we open it up for questions.
As we begin this morning, let me Express my continued appreciation for our employees, who have been working hard to continue to build upon our outstanding technology and products, while providing the quality service that our customers and partners expect.
The work, they're doing will not only help us navigate through this unusual period, but equally important will ensure that WEX emerges stronger as operating conditions improve.
Turning to our second quarter performance highlights on slide three.
Q2 saw the full quarter impact of Cobot 19 on our business.
The quarter played out broadly along the lines, what we had outlined in may with revenue declining 21% versus the prior year quarter to $347.1 million due to compressed volumes across all of our business segments and significantly lower fuel prices.
With that being said I'm pleased to report that we've seen volumes improved across all segments from the Q2 lows and of note. We continued to see year over year revenue growth and our us health business.
From a profitability standpoint, GAAP net income was $1.66 per diluted share and adjusted net income was $1.21 per diluted share.
Dan 47% year over year.
This was driven by lower year over year spend volumes across all of our business segments as mentioned earlier.
And lower year over year fuel prices.
Disciplined execution of our cost containment initiatives that I discussed last quarter helped to partially offset some of the declines this quarter.
Starting with the fleet segment revenue was down 24% year over year, primarily driven by unfavorable fuel prices and lower volumes due to covert 19.
The lower volumes also led to softness and other ancillary revenue.
Same store sales in the North American fleet business were down 21% compared to last year as the impacted the pandemic permeated all of the verticals we measure.
This was partially offset by contributions from the EG go fuel card acquisition that we closed in July 2019, as well as new business signed in the quarter.
So this will be the final quarter, where we will see outsize year over year contributions from the shell and Chevron portfolios, which are performing as expected given overall business volume trends.
Our travel and corporate payments segment was the most severely impacted by the pandemic and the resulting decline in travel activity.
Segment revenues decreased by 40% year over year.
While travel of related revenues in the segment were down 68% and corporate payments related revenue was flat.
Travel purchase volumes were down 87% from the second quarter of 2019 as travel restrictions and work from home orders remained in place through much of the world coupled with a decline in consumer and business activity.
Corporate payment volumes were flat as the Pandemics flowed economic activity and B to B payment volume.
Especially for small and midsized businesses.
Partially offsetting these declines with a reduction in scheme fees, which were $10 million lower than last year.
And the average number of SAS accounts on our WEX health platform.
As customer demand for HSH FSC in copper products remained strong.
This included a 33% revenue increase from our Cobra offerings.
However, health purchase volume was down 26% as compared to the prior quarter as customers deferred non essential medical treatments as a result of the pandemic this year.
I'd like to take a moment and provide you with some additional color on the current environment and how we're responding to the challenge.
Beginning with employees.
Our work from home program remained in place this quarter.
With nearly all of our workforce still currently working remotely.
I'm pleased to report that we Didnt Miss a beat in terms of remote technology capabilities, and importantly, our productivity and customer service.
We also made good progress on our diversity and inclusion initiative, which is focused on building upon.
A culture of inclusion embracing diversity in the workplace in our communities.
And having diverse Steve fee part of our brand in the marketplace.
Next launch various programs and resources to support this initiatives throughout the past several years.
Including our most recent group to support or African American colleagues.
We have held opened forms with employees to discuss the impact of racism.
I will use our corporate philanthropic dollars three reinforce our commitment.
Additionally, we'll be rolling out unconscious bias training to all employees in the company beginning with the board in the executive leadership team.
Given where the world is today. These efforts are resonating with our employee base.
Well, we don't have all the answers we will continue to put people first in lead where their commitment to deny.
From a customer standpoint, we've innovated and adapted our technology and products and we continue to see customers taking advantage of bowl to conduct business. During this new normal.
In the fleet business, we have products that offer contact list in digital payments.
Both features that are resonating from health and safety standpoint.
Drivers are increasingly utilizing driver dash to make contest plus transactions while on the road.
Our small business customers are also leveraging the WEX edge savings network, which was launched early this quarter to access fuel tire hotel and wireless discounts among others.
Today, we have saved small businesses nearly $500000 through these discounts the rolling this product out to our wider group of customers.
We've seen an increase in fleet prospect interest by bundling this offering.
With our health customers.
We're focused on ensuring.
The end consumer is top of mind, our speed lift offering announced last quarter continues to gain momentum as employers in consumers rely on speed lift to counter challenges created by cobot 19.
And offset unexpected costs.
We extended our network of offerings to include easy digital offerings like eyeglass purchases, so that commerce continue to happen.
Before I turn our view for the balance of the year.
I want to provide an update around our strategic priorities and cost containment program.
As you can see on slide four we remain on track and aligned with the priorities in initiatives outlined in May.
As part of our initial response to cobot 19 to better align our needs for the new operating environment.
We implemented a handful of cost containment measures last quarter.
This included cutting discretionary spend in eliminating most new hiring across the organization.
While protecting investments in each of the businesses.
We continue to evaluate these levers.
Among others on an ongoing basis to keep us on our front foot during these unprecedented times.
Since our last call, we did reduce headcount in our international locations as we discussed.
But we have not made any further permanent reductions in our us workforce.
Furthermore, all furloughed employees, who have not already returned to work will return next week.
Turning to slide five.
We're focusing on our technology investments in areas, where we continue to grow like the us health business.
And also deploying our capex, where we see growth opportunities in the future.
The investments in our products were making are paying off as we look for ways to further build out our growth and diversification plans.
During the quarter in fleet, we finished an important milestone on the WEX Europe fleet business by successfully completing the migration of the EG fuel business onto our owned cloud based platform.
This is an important prerequisite to building out our European presence.
In addition in US we also completed the migration of the Valero portfolio onto our products and technology.
We're also expanding the ways our customers can by using our products.
Ed is an example of creating a buying community.
While we are also now offering local fueling functionality to our over the road customers.
In the travel and corporate payments segment.
We've migrated nearly 70% of the spend volume onto our own internal transaction processing platform.
In doing so we've increased reliability for our customers and reduce some of our variable cost base from using a third party vendor.
Which will help to increase our scalability.
Finally in the US healthcare business, we're seeing tremendous support for the July 2020 product release.
Which includes additional enhancements to the features and functionality of our employer analytics.
We also continued to build off the success of WEX momentum.
Which is a series of virtual learning and networking events launched in May.
In only a few short month, we've received thousands of views from individuals across the country.
The investments we've made continued to build upon our differentiation in both our products and technology.
Ben an important part in winning new business.
Slide five illustrates some of our impressive recent wins and renewals.
During the quarter, we signed all MD.
Oh MBS, a European based oil company with 2100 locations across 10 countries, who will use us for their private label processing needs.
We've also signed JB Hunt.
Whether the largest trucking companies in the country.
If I ask the signed up to use our bill pay technology as Potter their software offerings to bank.
And Onyx sender source will use our travel solutions and the travel and corporate payments segment.
Finally, transamerica, we'll be using our technology platform for their consumer directed healthcare accounts.
I'm also proud to announce that we've recently renewed contracts with some of our fantastic customers and partners, including enterprise truck rental Snyder Apple Leisure group Zurich insurance and fifth third bank among others.
Our sales and marketing teams have continued to foster relationships and closed new business. Despite the pandemic, which is an important part of our ongoing growth strategy.
Now I want to spend a few minutes looking ahead for the back half of 2020.
Well parts of Europe are easing restrictions and regions of the U.S. are starting to reopen.
This still a long road ahead to sustained recovery.
Given the unpredictable nature of Cobot 19, we expect the business activity or in our customer base to continued to be impacted through the second half of the year.
We also anticipate some additional noise as pandemic related stimulus tapers off and we can now note that smaller businesses and our fleet customer base are showing slower signs of recovery in business volumes than larger businesses.
Nevertheless, we're encouraged to see steady improvements across our key weekly metrics over the past month.
Turning to slide six.
We provided a weekly look at volume trends similar to what we did last quarter.
In the fleet segment month to date gallium volumes are down approximately 2.9% in July from the year ago period.
Compared to where the decline of 20% in April.
Our North American fleet business trended upwards through second quarter with month to date July volume down 8.7% year over year compared to a 25% decline in April.
Our OTI our business continued to demonstrate resilience with month today July volumes up 8.5%.
Compared to an 11% decline in April.
International volumes remain the most challenged down 9.9% year over year in July but up from a nearly 50% decline in April.
Well fleet volumes remain down we expect these trends in further stabilization to gradually continue into the third quarter.
And our travel and corporate payments segment spend volumes are down 65% month to date in July from the previous period compared to a decline of about 70% in April.
Global travel related spend volumes improved slightly from April with volumes down 81% year over year in multi day July.
Volume levels remain compressed due to continued declines in our travel related revenues across the world.
What is still difficult to anticipate when purchase volumes will begin to normalize.
We remain well positioned to recapture volume once market recovery begins.
Our corporate payments spend volumes increased 6% so far in July.
Finally, turning to our US health business on slide seven we expect to trajectory of spend volumes that we saw in June and July to continue through the remainder of 2020, particularly as states reopened and customers began to spend on elective healthcare procedures in.
Presume a more normal cadence of Doctor visits importantly, SASSA account growth, which drives about two thirds of the revenue remains strong and is anticipated to trend positively at a mid to high teens growth rate in the coming month.
I'd like to turn quickly to the ongoing litigation surrounded the he met an awful acquisition.
We continued to remain confident in our position, but we cannot predict the outcome of these proceedings.
Theres a trial of preliminary issues scheduled for the September were certainly issues related to the case will be decided.
So it would be impossible to predict the outcome at this point in time.
We will provide updates from the status of this litigation as they become available.
Before I close out my comments I want to briefly touch on the 400 billion dollar investment for morbid Pincus. So we closed a few weeks ago.
This investment reaffirms our relationship with Warburg, who has demonstrated their strong commitment to the future growth of wax.
Coupled with the recent amendments to our credit agreement. This investment further strengthens our balance sheet and provides us with more certainty through increased financial flexibility improve liquidity and additional cash on hand. These allow us remain focused on our long term strategic initiatives to drive.
Sustainable growth.
In spite of the challenges we continue to face the nimbleness with which we are executing in the resilience of the WEX platform gives me confidence in our future.
First and foremost our employees remain healthy and safe.
They are the cornerstone of our organization and an conduit tour, our customers and partners globally.
They continue to go above and beyond in our WEX community to bring best in class Technology solutions, an unparalleled service to our customers and partners to depend on the web platform to keep their businesses up and running.
From a customer and partner activity standpoint, recent data indicates that trends are significantly better than three months ago in showing gradual improvement.
At a minimum some level of stability.
We're encouraged by the July volumes across our business segments and are hopeful steady progress will continue.
Lastly, we've proven that we can quickly adapt our business under challenging operating conditions.
We've made a number of strategic decisions this quarter to ensure that WEX is well positioned to succeed post pandemic, including strengthening our balance sheet in liquidity position and continuing to execute across our cost containment program, while making targeted investments for future growth.
Thanks products continued to be integral to our customers operations in the current environment. We're confident the volumes will return as the economy begins to recover.
In the meantime, we remain committed to our strategy and are focused on driving sustained long term growth and value for our shareholders.
With that ill turn it over to Roberta.
Thank you Melissa on good morning, everyone.
As we expected to second quarter was unprecedented for loss as we maneuver through Colby My team.
Despite a challenging economic conditions.
We continue to execute on distribution dealers.
Drives efficiency through operations.
Leaving on the cost containment initiatives.
On improve the balance sheet position by increasing liquidity on financial flexibility.
Just as important.
As you careful Melissa.
We continue to focus on our customers.
Furthermore on prospects.
Now, let's take a look at the quarter results on slide number nine.
For the second quarter football revenue was 300 them 47.1 million.
21% decrease year over year.
GAAP net income attributable to shareholders was 72.7 million.
Non-GAAP adjusted net income was 53 million auto mall on 21 cents per diluted share.
Turning to slide seven week MCV overall revenue booked four months by segment.
Breaking down the revenue health on employee benefits solutions grew 6%.
Police segment revenue declined 24%.
Finally travel on quarter 40, so new showrooms bolsters, our 40 person decrease.
Moving to segment results, starting with fleet 400 slide number 11.
Total fleet solution revenue for the quarter.
Two prominent them 4.4 million.
Our 24% decline versus prior year.
The primary box were lower volumes due to the government has seen a pull more doors.
Lower domestic field prices.
These declines were partially offset by new customer wins.
Renewals as well as did benefit from the E. G fuel card acquisition that we completed in July 2000 and Nike.
Payment processing transactions declined 19% when compared to last year.
We've not formally complete down 21%.
On over the wrote down 7%.
As Melissa noted earlier fluid volumes progress, we believe improved through the quarter.
The net claim and but also assume rate Warsaw 23 basis points from Q2 2019 to accommodate them 47.
The year over year increase was mainly due to the EG feel caught acquisition.
The significant decline in us fuel prices.
Im positive spreads in Europe.
The next May few rate also increased to 57 basis points in comparison to the 54 basis points in Q2 2019.
The increase will largely due to the shell and chevron portfolio the ships.
So when be segment deorbit of domestic field for rising Q2, 2000, and lumpy was $2 on seven cents.
First was $2 a 91 cents in Q2 2019.
Which lowered the fleet revenue approximately 32 million.
These amount Wolf review.
But ultimately three mainly on the positive spreads from Europe.
Turning to travel on Corporation solutions on the slide number 12.
As anticipated total segment revenue for the quarter decreased 40% to 54.5 million.
But it can it Dom conforti payments costumer revenue were flat year over year.
While revenue from travel related costs from our Wolves Dol, 68%.
Purchase volume issue by WEX was also down 68% to 3.2 billion.
The net being sort of trend rate was our commented on 37 basis points, which was up 60 basis points from Q2 last year.
The increase was mainly due to two factors.
First there was a significant swing to quarter 40 payment volume, which has a much higher net interchange.
Second.
The reason scheme, we've gone through our renewal desktop better economics.
Finally, let's take a look up the health on employee benefit solution segment on his line number 13.
Building, all funny, but actually first quarter. This segment experienced our solid Q2 with revenue increasing to 88.2 million.
4% to 6% increase compared to last year.
In the US show business revenue grew 9% driven by Suffolk Downs growth, which was 15%.
Breaking it down non payment processing revenue grew 17%.
Due to Colby 19 payment processing revenue declined 18%.
As Melissa mentioned in her remarks.
Volume sales improved through the quarter.
We anticipate our healthcare spending will continue to trend our blocks during the second half of the year.
Now, let's move onto expenses on July 14.
For the quarter total cost of services expense was our commented on 61.9 million slightly up from 160.8 million in Q2 last year.
So, though as gionee depreciation and amortization expenses, what our commented on 56.4 million.
We choose down 29.9 million Leon versus 2019.
We are on track to achieve their 60 to 65 million in cost savings in Twentytwenty, Doug we aligned last quarter.
In light of current conditions, we anticipate keeping most of these measures in place.
Breaking down the line items, we've seen these capabilities.
But also seen costs increased less than 1%.
However.
Potentially the year down about 5 million from Q1 this year.
Certainly see decreased 4.5 million.
Due mainly to lower processing volumes on their commercial 20 thermo processing platform.
Good idea loss will not consolidated basis was 20.6 million.
Versus 14.8 million in Q2 last year.
What I, mainly driven by kw losses within the fleet segment.
In the fluid segment revenue losses would up 3.8 million bushels prior to year.
These equates to 26.9 basis points over spend volume compared to 13.9 in Q2 2000 and IP.
The basis points, what unusually elevated.
Because of the combination of a significant drop off in gallon volume a lower fuel prices.
On a positive note I'm pleased to report.
Be accounts receivable aging using good condition.
Despite the current economy.
In the travel Encore 40 payments segment credit loss was 2.2 million, which is much lower than last quarter.
Im reflects the ongoing challenges we are seeing in the travel industry.
Operating in that it expense was 6.5 million down 4.2 million from the prior year quarter.
This is mainly due to lower interest rates.
DNA expenses decreased 14 million barrels to two last year.
Mostly due to the cost containment efforts.
Hey fees on restructuring charges.
Lastly, the assumes a marketing line decrease.
Team point 1 million.
Driven by lower bottom and rebates on the cost containment measures.
Let's discuss DOCSIS on his life 15.
On a GAAP basis, the effective tax rate was three helmeted them, then putting 8% compared to 28% for the second quarter of 2019.
On M&A basis, the tax rate remained consistent at 25.2% for both Q2 Bcf all last year.
Changing gears to a slide 16, I will like to provide an update on the balance sheet.
Despite the very volatile environment will remain in our healthy position with robust level so liquidity on from.
Which were bolstered by the Warburg vehicles investment that we closed in July.
We remain committed to maintaining a strong balance sheet.
We'll continue to evaluate the market to that from any of that out opportunities to further enhance it.
We ended the quarter with 1.3 billion and gosh.
From a prominent on $11 million Dnos 2019.
From a liquidity perspective, the core 40 crush volumes were five prominent on 80 million up quarter.
These volumes increased more than 75 million from Q1, Twentytwenty same store another quarter of a strong cash generation.
We continue to keep tight controls on the capital allocation.
But I already by the investments are manage our cost structure.
Additionally, there is over 750 million of available borrowings under the company's credit agreements.
Combining these.
The core putting cash at the end of this quarter on the new embezzlement from Warburg Pincus beginning of this third quarter.
The company has access to over 1.7 billion in capital.
We continue to believe that we have adequate farms to meet our what operating investing on financial needs in the quarter and conditions.
To conclude this section.
During the quarter, we also amended credit agreement.
The most notable changes include.
Increasing the maximum leverage ratio covenants.
And so at a meeting a limited corporate cash mapping.
For six months following the resolution of date units and I'll start transaction.
After these six months period that is our pheromone, an increasing cash net being all out.
When compared to previous that agreement.
These enhancements ultimately provide additional financial flexibility on leaves us in a much stronger position.
At the end of the second quarter, we start our total volumes of 2.7 billion on the revolving line of credit.
Term loans on notes.
Delivered operational as defining the could any 30 men.
Sums up approximately 3.1 times, which is down from 3.5 times IDN of 2000 and IP.
Limit our to decrease based on the new calculation containing the amendments to the credit facility.
Which allows the company to review of gross debt by the full amount of core reported cash.
To end the call we remain optimistic about the second half of the year.
Based on the Quorum volume trends are aligned by Melissa.
That being said future projections remain unpredictable.
Due to Theyve, all up by nature of that pandemic.
For the reason, we are not being opposition to provide guidance at this time.
And now we will open the line for questions.
At this time, if you would like to ask and audio question. Please press star one on your Touchtone phone once again that you star one to ask and audio question one moment for your first question.
Your first question comes from the line of Ashish Sabadra with Deutsche Bank.
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Hi, Thanks for taking your question.
Good to see the improvement in the few towards human July I was just wondering if you can talk about the verticals within the North American locals market.
And if you could also comment on any potential sensitivity to potential slowdown in the economy from the surgeon Pandemics.
How should we think about that going forward. Thanks.
Yes sure.
Yes, let me give you a little bit more color about what we're seeing when you look into the trends a little bit more deeply note. As you said, we're pleased with the amount of improvement you saw some pretty significant improvement in our fleet trends between April in July and some of the the trend started to change in April.
Pretty big impact within the United States, depending on what state yearend and those that were hardest hit by co. Good started to really deviate and have worse have an impact than others. During the course of the quarter. Those state activity started to converge to not seeing large deviations depending on.
State now it's much more to do with the S. IC. So people are in.
The way, we think about it is that a large amount of the customer base, we're providing services that were essential and continue to operate and.
And as the economy is continuing to improve you're starting to see some of the non essential components rollback in the places that we still.
See you an oversized amount of weakness.
Areas like retail.
The end think of sales fleets that are driving vehicles that are using our products.
Some service related financial and insurance related.
Again, it's much more as I see specific so on the positive side construction as as really come through pretty well in in a lot of the construction trades that sit within our portfolio or.
Thank you that is things that are related to road work and it could be state related or government funded types of construction progress projects across other types of construction as well.
And then on the other thing I'd say is that when we've looked in the last couple of weeks at the impact to what's happening in the states in the United States than more heavily impact by cobot. They are looking similar to other states, we're not seeing at the moment any type of.
Compounded impact based on Covidien.
The related activity in the United States right now.
That's very helpful color tanks, and then maybe just a quick follow up question on the corporate payments on pretty good volume grew 6% growth in July.
You also talked about the fires adoption of the Bill payment solution can you just talk about the pipeline for that business.
And the demand for BCP payments in general Thanks.
Yes, we're really excited about the pipeline that we have and corporate payments. We also if you look at what's happened in the quarter in leading up until July you also saw a lot of deviation than the places where in corporate payments. The fin tech related customers that we have in our portfolio grew over 20%.
The channel that we have with our size, we're growing single digits, even in the quarter. The places that were offsetting that and softness we're in the really smaller accounts, where we have a direct relationships with the customer and then in bill pay.
And so we started to see a little bit more improvement in those trends in July.
We're excited about the relationship with it we have as by US on Bill pay.
Great customer great relationship that we want to build on over time and.
And again, we remain excited about what we're seeing in the pipeline and corporate payments is a strong pipeline relative to what we've seen a year ago.
Thanks, most of it was very helpful.
Your next question comes from the line of engine.
Wong with JP Morgan.
Thanks, so much thanks for the slides as well I think the biggest delta versus our model was the processing costs were.
Up 1% and contracts some of the declines you saw across the other businesses I'm just trying to maybe I missed it just trying to reconcile why.
That was the case anything unusual there.
Hi themes in the similar level good luck.
Let me recap first one big cost containment I'm going to take on digging a bit more on the processing costs. So as Melissa said ill one on kind of remarks, we wanted to know two foot opex, especially the U.S. scout investments.
Well as the deck investments on the on the processing cost line. The majority of the expenses that we carve out related to stick ops IP and then obviously call centered on everything relate that we've got anytime collections. So as you think about what we have been doing DNA.
In the quarter.
There's two things we have kept investing in the us where we wanted to continue investing on we have also move some resources from the sales our market the line into the processing costs to help on big cash collection initiatives that we've put in place. So when you put everything together this is why.
You see being flat, but if you look compared to Q1, we had approximately four to 5 million down sequentially. So obviously the volume comes also a small impacts on on that area as well.
I see that makes sense. Thanks for going through that just as my quick follow up from a list of and just on you guys have a few fleet wins here.
Any way to talk about.
Sales pipeline or quantify your your bookings growth that kind of idea just curious how you have adapted on the on the selling front and what demand looks like thanks.
Yes, and I'm really proud of our sales and marketing teams because they have adapted really quickly to this environment and if you look at the pipelines, we said last quarter or over the road pipeline was stronger than year ago, I'd say, that's still true.
North American fleet has been a little bit lower than what we've seen historically, but if you combine the two they look pretty much on par.
And.
And then on top of that is going to go across the business our health.
Hi, blend looks stronger than it has in the past or corporate payments pipeline looks stronger than hasn't pass so across the business we have learned.
Hi to migrate had to sell differently and we migrated our dollars and our time accordingly based on the environment that we're in and we feel really good about the wins that we were able to talk about this quarter really across every part of our business. We've got some really great names that we can that we can talk about theyre going to get implemented in the course of this year or.
I have already started implants.
Terrific.
Thanks for the uptick.
Your next question comes from the line of Stephen walled with Morgan Stanley.
Great. Thanks for taking my question have you guys are staying safe and healthy.
Maybe I know you guys can't really comment Tom that you net awful deal maybe just conceptually just because your stance back in April was the you're not obligated to close the deal I'm curious if youve given any thought since then to the broader global reopening and what's going on in other parts of the world as to whether there might be any.
Rationale under which you'd consider closing the deal regardless of what is the court rules you have to.
Ill take its really appropriate for to us to discuss the.
On that transaction or the substance of the litigation at this time and elegant assays I have just reinforces our confidence that we have in the physician.
You know that we've put forward and.
If you look at what's happened over the course in last quarter and say if anything we feel more confident than we did a quarter ago.
Completely understood how to try there.
Maybe just switching gears towards the outlook in the trends you guys outlined since the end of the quarter.
I understand it's still very influx environment and so ascribing a guide at this point is still very difficult, but if you were to sort of caught the line. As you guys did have the improvement in trends across the different businesses.
If you were to improve at this rate without sort of major disruptions you sort of looks like you'd be back into positive territory on at least transaction volume growth by sometime in mid or early fourth quarter and I guess I'm curious if thats your sense of things, even if you're not willing to ascribing formal guidance.
To that outlook, just given the uncertainty around it.
I don't think anyone really knows precisely what gets back to know what's going to happen with volume trends. What we're trying to do is the as transparent as we can to show you. The trends we're seeing week over week, we certainly have seen some pretty substantial improvement over the course of the quarter.
And then what we would say right now we're seeing it minimally minimally we're saying stability.
Some areas, it's certainly better than that.
And.
In my other points that have made is two things I'd call out is if you look at again the states that are being were impacted by co bid, we're not really seeing a big impact right now, which I think is important.
You know as we're thinking about what's going to happen over the next couple of months anyway, and then some of the trends we're seeing it and we've been asked a lot in the past between small and large.
Customers and we are seeing some divergence in small and customer behavior with the over the road business in particular are seeing larger over the road fleets recovering faster than some of the smaller over the road fleet customers.
In North American fleet business, it's actually the little bit less clear the smaller businesses have held up really well insight.
One other things that were just watching is what happens with stimulus money and has that how is that going to impact some of that.
Ultimately the customer behavior.
But right now it again, we're providing transparency is even see what we see in terms of a volume trends.
Of course, we definitely appreciate that transparency and thats helpful color on on the underlying pieces. Thank you.
Your next question comes from the line of Ramsey Eliseo.
With Barclays.
Hi, Thanks for taking my question today.
I ask you about that all in the.
Private label contract and I know, there's a question that used to get asked a little more than than it has recently.
But do you see covert for to potentially opening up the pipeline in Europe for more kind of outsourcing deals like that that used to be kind of his team that folks thought were comp was coming and it sort of seized up for a while has there been any any perceptible change in the kind of pipeline or sales activity in Europe on these outsourcing contracts.
Yeah, I've always described that as or if you think about the length of our pipelines and said the European sleep pipeline is the longer [laughter] cycles that we've ever had I.
I don't think that it has anything to do with Covance I think right now. It's these cycles just or are you know tend to be really quite long and.
And we have some great technology that available to the customers. It's more of a question of the impetus, making a change in making migration over and when they get to a point, where they are willing to make a change we feel like we have a really good competitive offering and play.
In fact, bill and be transaction I mean, we started the process much earlier than koby discussed it so thoroughly has nothing to do with that.
I see I see okay.
And another question for you about kind of the potential could that impact on the business. It seems like theres been such a huge change at the front end, particularly of retail, but it's sort of the front end of the economy in terms of digital.
More more direct to consumer kind of digital type purchasing is there any corresponding change that you're seeing on the backend of those purchases in terms of trucking patterns or is there are fewer goods to be shipped from warehouses to retail locations is there is there any other kind of infrastructure level.
Changes that you're seeing to sort of match the changes that we're seeing it at the front end does have kind of Thats I guess, particularly the consumer.
Kind of experience another to a tricky question, but I thought I give the shot no and it would definitely I mean, I'd say, yes.
No if yet if these are long standing changes or changes because of their environment. Your end, but you'd you'd we definitely see within our portfolio Bayes some customers that are up 180% over prior year and in that while others are down and if you wanted to drive the one particularly in the over the road.
Arena those that are doing business with online retailers are seeing much more volume this alcoa.
The big demand on refrigerated diesel, which we think has to do with.
What's happening with grocery stores and so there are some downstream FX or call it down three upstream but.
With the what's happening with the over the road customer base and what Youre seeing in retail.
But net net it's a it's a it's a wash effectively or you're picking up both sides of it. So it's it's not a headwind or tailwind, it's just a shift toward us.
Well I think it's part of why the over the road business has been.
More resilient if you look across.
The fleet markets that were end over the road businesses as you.
We talked with that being up.
Year over year in July in the in that I think thats part of it is because they're benefiting for some of the new areas of shipments.
And again, its but it's not a universal benefit some customers or are disproportionately benefiting and then others are still.
Still down.
Okay got it thanks, so much I appreciate it.
Your next question comes from the line of Peter Christianson with Citi.
Good morning, Thanks for taking my question.
Most of I was hoping you could give us a little more color on on what you're seeing in terms of your credit lines.
The last quarter.
There were some terming earlier in the year.
What kind of trends do we seem to Q and do you anticipate.
It was.
Further contraction along lines going forward and then just a quick one.
I would be helpful. If you could tell us the organic decline, excluding fuel and FX that'd be helpful. Thank you.
Sure I'll start on credit and I'm sure refer to will jump in here, but the.
We were pretty active in I'd say is kind of the team for the quarter for us was to move faster across a number of fronts and one of them.
Was related to credit and so we took down a number of different credit line is about 2 billion dollars' worth of action that we took.
And in at the same time, we've been working with our customer base to make sure that we are thoughtful about how we're approaching those conversations with our customers. I think you can see that couldn't the net net of that with a really strong customer retention rate.
Income, we've been able to reduce the overall credit exposure that we've had.
The benefit of that we've seen roll through so far in our aging and rivers has meant that a little bit of when talking about it more Roberta yes, I mean, you and I would just focusing on what Melissa said about the measures that we have taken and as I said before when we're talking about the processing costs. We also reallocate some resources from.
So some marketing into the credits on collections on what I can tell you is that overall, you know that could any losses for the quarter.
And how they account receivable aging has been performing we feel we are in good position.
If you look also what do we were nine December with a receivable was going down more than seven comment it merely on today.
So overall, if you look on where do we are we feel quite well.
On to a couple of all the numbers versus we send off from Q1, we are down more than 40 million in could heavy losses from Q1. This year. So that's also good news.
Many of you go through both segments I mean that could any losses in travel this quarter, what a 2 million.
Now what are the receivable balance is really very small so the research studies ready.
I will be materially over the years.
Many of you talk or if you go to the fleet as segment also quarter from Q1. Two tool. We are also down around 25 million on could any losses. So all this signs.
Indicate that you know the measures that we put in place the resources that we have relocated to that area are paying off.
I am as I said, non Melissa said tool the aging buckets, which isn't a big indicate the know how did receivable is performing was seen in that you know very these decent shape now by the end of June.
And then your question around our growth. So we talked about the impact of fuel prices were about to $29 million in the quarter needed a couple of million dollar impact for foreign exchange rates the growth rate, excluding FX and PPG was negative 15%.
And the inorganic contribution.
No.
Yes, very little in is very small it's only.
The acquisition, so maybe 1%.
Okay.
Negligible.
That's helpful. Thank you so much.
Your next question comes from the line of Sanjay Sakhrani with KBW.
Thanks, Good morning, Im glad you guys are doing well.
I wanted to follow up on tinge in question related to some of the wins that you haven't fleet.
And sort of think about how we think that progression in fleet will unfold over the remainder of the year. So.
The expectation that things are stable the gradual is that before.
Those of new relationships come on and there are positive impact related to those new relationships.
You can see actually even now there was a positive.
To the accounts that were winning now talking about same store sales are down 21%, but our transactions were down 17%, So theres a where.
Theres, a big headwind with the macro that there, but we are actually continuing to win new business and implement new business. It's under our portfolio, we're able to talk about some of these accounts because they're larger name, but that in the background. There is also a number of smaller accounts that were rolling into the portfolio on any given quarter.
What these I think.
Thank you start on slide five I guess like our those larger and should we see positive more positive noticeable impact.
Yeah, if you're talking about fleet, specifically, so on T. and JV Hunt and think of those is rolling in towards the ended the year you'd see them.
Having more of an impact into next year now a little bit at the end of the or more of an impact later.
Okay, where.
Yes.
In transamerica, you'll see them a little bit sooner.
Got it.
And then most of you mentioned.
Some of the workforce reductions and the was kind of relatively being on skate I guess as we look forward and should continued weakness persists.
Are there plans for further cost reductions, especially we have another surge in cases.
Yes, when we actually came up with our plan. They wanted to move fast we wanted to the decisive around making some really tough choices and so we take made some choices on what to do with the workforce. Both here in the U.S. and then internationally.
We also made a lot of choices on where we want to spend our money. Both in terms of our current spend and our capital investments going forward. It was with the eye of balancing.
Desire to slow down some of the cost that we have within the company, but also making sure that we can maintain the long term growth trajectory and we feel good about the trade off choices that we've made.
That path and that that's a conversation will continue to have you know on a quarterly basis, where we just look and say or are there places we should reallocate money.
In order to make sure that we're taking advantage of future opportunities and or their places, we should slow things down, but we feel pretty confident right now the around the changes that we've made that we struck a pretty good balance of that.
Okay, Great and then just one final question.
On the liquidity that was raised.
Over the this quarter.
It picking putting that aside, but just thinking about how you're positioned whether or not that happens or not.
I mean, we consider that you're out of the market for deals or are you are you looking for other acquisition opportunities. Thanks.
Well, it's hard for us to say wherever out of the market and we're active in a number and processes, it's a pretty low market right now no in general.
Because of the level of uncertainty and.
We certainly want to see through the litigation and.
Get more clarity around the outcome with.
Net not though so that would affect the timing of whether or not.
In what we chose to do.
Okay.
Yes.
What I will add the you know support as was the most important was to be depletion, where do we have today.
We self over 1.7 billion of a liquidity on the you know us a day and ethanol.
Lines.
We will be in a much better positioned to decide what all that out there might be if now we want to pursue our stinks has started to do improve.
Understood Alright, thank you.
Your next question comes from the line of Bob Napoli with William Blair.
Thank you.
And a couple.
Segment travel corporate solutions to 54 million of revenue how much of that was corporate.
Solutions versus travel.
It's about 30% was travel and and 70% she was.
I think HP related.
Okay and so.
Thank you that's add account where are you seeing any pickup in travel woman outage was unclear I guess in July.
I would extend the navy and with some of your partners local travel into you asked you might see more activity with.
With that some of your online travel companies.
So the global travel spend was down about 90% in April and down about 81% in July so okay.
A little bit of until okay.
The healthcare sector. The 88, new unit revenue how much of that was from Cobra.
Hi.
Well a it's it's.
We haven't disclosed that historically, it's a it's still a relatively small piece.
Okay.
All right. The then just I guess.
Looking as if you had to close the deal you're confident on your capital. If you did if worst case situation.
Happened may guests or could be other outcomes restructuring of the deal or whatever but if you had to close a deal under the terms that were struck prior to the pandemic.
Your capital with award Bird capital.
You're confident.
That you have the capital you need if you had to close that deal.
So both right, yes, so as I said before I think the position that we have today from a liquidity perspective is probably one of the best in the history of the company over 1.7 billion.
The same time the leverage ratio up 3.1 thing is the lowest of the loss of 40 year, So lease so pretty DFS transaction.
On everything that we have been doing on looking out, but there might be worse, you know there'll be an application the whether or not our day me that we have no declared on that transaction a that if we suffer if we're forced to close that we already now I would position now to to maneuver in any of the of the.
And I'll therapies, so what I can tell you on ikenberry enforces that we feel really well on what we are today on with the position that we saw smell both from a cash position from a liquidity.
On the Prime I will reinforce us as you've got from their remarks. We also have the support of our bonds. We amended now there could any facility again, which you know reinforces.
How is put on the bond Snowsill Porter wax.
On the on you know if we are required to close we have many many different out there might be from now.
Using all the liquidity that we felt Duncan too you know raise new data or all that alternative so we feel really good on what we are now in just to add nine point.
Yes, just added at one of the thanks.
Martin Das was this concept of financial flexibility is a lot about uncertainty with co would just on its own who wanted to make sure that we felt really comfortable from a liquidity standpoint and from the ability to maneuver kind of regardless of any of these different outcomes that could happen.
That 3.1 Werber deal closed after the quarter does that include the capital from Warburg.
It does not but the debt transaction of world, where because of the new credit agreement.
If you'll recall the transaction of war with customer Lex a 19 million common stock on a 310 unsecured notes them secured notes will be neutral to leverage on the night. The mainly on will be incremental quarter Fortyk guys that will help us on the liquidity ratio save you a big 90 million, we would be up too.
Slide nine IDN over Q2.
Got it does not include nights not included on their balance sheets calculation on the quarter at the second quarter at the end of this of course.
Thank you just last quick one is.
Willis said you see opportunities.
To accelerate growth coming out of this pandemic I mean, assuming that the world gets back to normal over the next 12 to 18 months are you seeing opportunities to accelerate.
Yes, as part of our focus right now is making sure that we're well positioned and if you look at some of the products that we are we have on what is slide deck six with the ideas that we want to make sure that we're continuing to build upon the technology that we have we've been really leaning into that.
Digital World anyway over the last several years and so we're just doubling down in that arena and then extending the products that we have through new use cases, where people can buy more so we think the combination of the work that we've done over the last several years and then the products that with some of the new add ons that we're developing.
Right now puts us in a really good position you can see that and health sequencing. The wins that we are having the momentum that we're having guests and really great pipelines across the rest of business and you're seeing adoption of some of these new products. We have out there. So yes, we feel good about our position.
Thank you appreciate it.
We have reached our allotted time for questions I would now like to turn the call back to Mr. elder for closing remarks.
Thank you everyone and thank you for hanging with US as we went to a few minutes on and off so apparently this quarter. So we'll look forward to catching up with you in a few months and.
Moving on our progress now thanks.
This concludes today's conference call you may now disconnect.
Yeah.