Q3 2020 WEX Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 earnings call.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. Please be advised that todays conference is being recorded.
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As to how the conference over to your Speaker today, Steve Elder VP of Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, everyone with me today isn't.
Our CEO and our CFO Roberto Simone.
Through these we issued earlier this morning as well.
Back to walk through our prepared remarks have been posted to the Investor Relations section of our website at <unk> Dot com.
Copy of the release and the slide deck. That's also been included an 8-K, we submitted to the FCC.
As a reminder, we will be discussing non-GAAP metrics.
Adjusted net income attributable to shareholders.
We refer to adjusted net income or a eni during our call.
Just one for this year's third quarter to arrive at these metrics include unrealized gains on financial instruments net foreign currency Remeasurement losses.
Acquisition related intangible amortization and other acquisition and divestiture related items.
On the sale of a subsidiary.
Stock based compensation.
Recall that restructuring and debt issuance cost amortization.
He and I adjustments attributable to non controlling interest and 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.
Adult to 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 31st 2019.
With the FCC on February 22020.
Our quarterly reports on form 10-Q for the quarters ended March 31, 2020, and June 32020 filed with the FTC on May about 2020 and August 2020, respectively.
And subsequent SBC fine.
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, which speak only as of today.
With that I'll turn the call over to Moshe Smith.
Good morning, everyone and thank you for joining us today.
I hope, everyone is doing well and staying safe and healthy.
I will start today's call with an overview of our Q3 performance highlights and business update.
Mint trends.
First against our strategic initiatives and additional color around what we're seeing as we move into the fourth quarter.
Then Roberta will provide more detail on our financial results as well as some balance sheet highlights before we open it up for questions.
Before I Die then I'd like to provide some perspective on how we've been navigating through this global pandemic.
First and foremost we focus on protecting the health and safety of our employees customers and communities, which continues to be Paramount to everything we do.
Second we ramped up our risk mitigation efforts to ensure wexs prepared for anything and everything during this period of uncertainty.
Third we proactively executed a number of cost containment and Capex savings initiatives earlier this year to reach scale parts of our business.
Finally, we're very focused on returning the business to our long term growth targets and plan to build upon the strong year to date sales momentum fibers, assuming our full sales and marketing efforts that had been caused by the pandemic at full tilt in the fourth quarter.
In addition, we will continue our current rate of R&D spending to further improve our leading product and technology position.
We believe that these two efforts combined will position us for sustained growth and market share gains in the future.
I'm pleased with the hard work our team has done to control what we could during these unprecedented times and deliver against these four key priorities this quarter.
Let's turn to our third quarter performance highlights on slide three.
As expected the COVID-19 pandemic continues to impact business activity within our customer base.
Revenue for the quarter was $382.1 million.
Which is up 10% compared to the second quarter as previously discussed trends continue to improve as we progress through the year.
Were down 17% compared to the prior year quarter.
Primarily due to compressed volumes and lower fuel prices.
Specifically lower fuel prices reduced revenue by $16.7 million or about 3.5% compared to the prior year quarter.
From a profitability standpoint, GAAP net loss was $1.49 per diluted share and adjusted net income was $1.59 per diluted share down 39% year over year.
This was again driven by the factors I just mentioned, partially offset by the cost containment initiatives. We introduced earlier this year.
Although profitability remains down due to the impact of coal that we continue to execute well on the items, we can control and drove better than expected results for the quarter.
Moving onto the segment results I'm encouraged by the steady sequential improvement in our fleet business with segment revenue down 18% year over year compared to a decline of 24% last quarter.
Well the year over year decrease was due to unfavorable fuel prices and lower volume as a result of the pen down that we had a number of bright spots in the quarter.
Notably we continued to generate above market growth with over the road customers is over the road payment processing transactions grew 8% this quarter.
Also continued to gain market share with a number of new wins this quarter and customer implementations year to date.
Recently, we've also seen stronger new customer applications submitted for approval.
In North American fleet approved applications in September were up 15% compared to last year and in the over the road the number was 21%.
These wins will roll into the future and are an important part of our growth story.
We believe there will also be complemented overtime with the rebound in our existing customer volume.
Finally, even though outsize growth contributions from shell and Chevron ended last quarter. The two portfolios remained solid in the third quarter.
Before I move on to other segment performance I want to provide some additional color around how we think about our fleet customer mix.
Our customers represent a cross section of many different industries and used vehicles to fulfill a variety of need over.
Over the road customers moving good contractor trades going the Worksite government agencies traveling to locations and sales fleets, making customer call.
Well overall customer retention rates remain high we're seeing continued latent demand among some customers.
Though we noted a moderate rebound in existing customer behavior within Q3, we've seen a flattening of that curve and returning to pre cobot level, which continues to present a revenue headwind.
It's also worth noting that our as our customer mix has shifted towards over the road and larger fleet customers the customer credit quality profile has also improved.
At the same time, we've seen small fleet customers pay their bills in a more timely manner than in the past, which also improves our overall credit quality profile.
These trends are reflected in a 10 basis point decline in late fee rate this quarter compared to the prior year, resulting in a year over year revenue decline of approximately $8 million.
Nevertheless, we are encouraged by these trends as they set the stage for stronger customer base for the future.
Turning to our travel and corporate payment segment. This continues to be the area of our business most severely impacted by the pandemic.
Segment revenue decreased by 35% year over year, we travel related revenue is down 68% offset by growth in corporate payment customers and better pricing from a new scheme contract, which we signed in the second quarter.
Segment purchase volumes were down 59% year over year in the third quarter, although up from April lows, we continued to see the impact on travel isn't the majority would be travelers chose to stay at home during the pandemic and they normally travel heavy summer vacation month.
For the travel it has occurred trends are clear.
Domestic travel over international travel driving.
Driving vacations every flight and the U.S. portfolio faring better than Europe, and Asia When cross border travel is more prevalent.
Well, we look forward to consumer travel rebounding in the years to come Weve taken this period of time to restructure renew and extend our commitments with many of our top travel customers.
The bright spot corporate payments revenue and volume contributed positively this quarter.
10% as the economy continued to open and B to B payment volumes started to recover.
Well corporate you need spend in this segment continues to be depressed account growth remained strong with many of our partners. We saw improvements in spend from our media partners in association with the election cycle and we benefited from maturation of implementations completed this year.
This is also an area, we'll see a lot of strength in the pipeline of new business.
Finally, our health and employee benefits segment posted another quarter of year over year top line growth up 7% from the prior quarter driven again by strong performance in our U.S. health business, which was up 11%.
Importantly, our average number of staff accounts and U.S. grew 12% year over year underscoring continued strong demand for our products.
We're in the early stages of the open enrollment season for benefits that will begin next year and so far we're encouraged by the trends that we see.
Our Cobra offerings also continue to see significantly higher demand given the high unemployment level with the associated revenue up 26% I.
Additionally, we experienced the highest level of health care spend this quarter since the beginning of the pandemic.
That said continued deferment of non essential medical treatments.
How purchase volumes flat compared to the prior year quarter.
Most recently, we held our second annual interest say day virtually on October 15th.
Bringing the general public and health care benefits industry together to discuss the importance of HIV assays and their role in managing health expenses and saving for retirement all topics that are top of mind for Americans today.
Now I'd like to take a moment to provide an update on our strategic priorities and cost containment program. We began implementing earlier this year.
As you can see on slide four we remain on track and aligned with their previously announced priorities and initiatives.
From an employee standpoint, Wexs work from home program will remain in place at least until the end of 2020, but the majority of our workforce still working remotely.
Productivity remains high as employees continued to leverage Wexs comprehensive remote technology capabilities to collaborate and stay connected.
In the third quarter, we continued to execute on our cost containment plan, while protecting business investments.
Oh, the planned reductions for the year are coming through as expected.
Importantly, all employees furloughed earlier in the year returned to work during the third quarter we.
We also remain on track to achieve our previously outlined that $20 million reduction in capital expenditures will.
We will continue to evaluate these cost levers and the ongoing basis.
Best position WEX for the long term.
Additionally, we have focused on risk mitigation in a number of ways, most notably across our credit and collection practices.
We reduced available credit lines for thousands of fleet in travel customers without impacting their spending with us.
Revamped our collections operations.
We've also exited our Brazil commercial operations at the ended the quarter Ben.
To meet dynamic customer needs through regular releases of new features additional new product and honing of our technology.
Before I get into the details of our technology wins this quarter I'd like to take a step back and give a high level overview of our technology strategy that we've been progressing it works over the past couple of years and why we feel this is giving us a distinct competitive advantage in the marketplace.
We've taken a multi pronged approach and transforming our technology to be based in part on the continually growing platform of services.
We first targeted our legacy technologies, simplifying updating and reducing their complexity, while moving them to the cloud instead.
And simultaneously developing new cloud native and service oriented technologies.
This benefits us by having a technology platform that allows for building I would've common set of shared services that they can be used across the company b, a restful API gateways, rather than having to rebuild everything on a per product basis. These.
These services inner operate seamlessly with a legacy system, continuing to push products and services to Margaret quickly with improve scale and reliability.
Courted this strategy with the early recognition that data is a central part of our digital transformation.
And subsequently building out both a new data organization and the data platform itself.
This platform allows us to view our data holistically across the enterprise incident introduces modern tools and processes, including a I everywhere the data issues.
Looking for this platform is the service concept will allow us to have a common set of loosely coupled chair services, while still enhancing our value added services to customers, which is key to or a differentiation in the marketplace.
Specifically this quarter, we focus on customers, particularly as they use our tools outside of the office and fleet, we relaunched our customer portal for North American sleep and modernize the digital interface to provide a more intuitive user centric experience.
We also have dated a mobile application for over the road fleet managers, making it easier for them to run their business New mobile functionality includes enabling fleet managers to generate money codes when using a feel card isn't an option pay their bills online low cash to cards managed cards transfer funds and few statements.
From a fleet technology perspective will be transitioning the E F F platform to the cloud in the next few weeks. This will mark the major milestone of largest completing our global sleep cloud migrations.
And corporate payments were focused on helping our customers and partners deliver payments and whatever form it's necessary, including new bank transfer capabilities in market by the end of the year direct debit capabilities fast track this year to help our customers managed constrained credit better and it has check fulfillment.
Technology down production.
We continued our cloud migration of platforms across the corporate payments technology.
On the health front, we introduced let's chat and a I driven chat bot that enhances the personalised benefits account experience, let's chat expands on the powerful analytic capabilities. The health Division offers partners other.
Other Q3 product updates focus on features and functionality to help partners maximize HSA enrollment and deposits and deliver a personalized consistent consumer experience.
As always.
Work continues to enable partner growth with new product offerings increased efficiency and reduce costs through new technology and processes and ensure industry, leading fraud protection and security.
Part for new products for our customers. We've also been able to transform our operations for example, our internal business intelligence and a I experts had been focused on improving collections and credit monitoring technologies to give us the ability to react faster and with greater accuracy. During this uncertain time.
Now, let's look ahead of the fourth quarter, we expect third quarter topline trends to hold steady and level off as we progress through the end of the year.
This is driven by continued uncertainty around the virus and a slow economic recovery.
As a reminder, the fourthquarter also has fewer business days due to Thanksgiving and Christmas holidays, which has a slight drag on our numbers every year.
On the expense side, we're ramping up investment as part of the broader strategy I just discussed in the fourth quarter, specifically, we expect to incur higher sales and marketing spend in the fleet segment as we invest in growing our pipeline falling solid performance.
On the health side expenses typically increase in cute for as we gear up for the open enrollment season, and resulting implementations and this year will be no different.
Well. This means we may see sequential impact profitability I am confident that these investments are key to driving sustained growth going for it.
Turning to slides six we've provided weekly look at volume trends in fleet gallon volume and travel and corporate payment spend volume.
Overall, while volumes are still down compared to the prior year period, all segments trended upwards as we've progressed through the year.
And fleet month to date gallon volumes are up approximately 0.6% in October from that year ago period.
Breaking this down further north American sleep business trended relatively flat in the third quarter compared to the second quarter with month date October volume down 6.6% year over year.
Over the road business remains solid with month to date October volumes up 15.4%.
The time it was labor day distorted year over year compare ability for the first two weeks of September.
Our international business remains challenge with October volume down 11.4% year over year.
And are travelling corporate payment segment purchase volumes were down 50% most of the day in October from your previous period.
Global travel related spend volumes continued to trends slightly upwards with volumes down 74.6% you ever year motivate in October.
Whoever the recovery volume slow during the quarter.
Ah corporate payment spend volume increased 32.1% so far in October.
Finally, turning to our U S health business on slide seven we saw spend volumes begin to stabilize from April lows as we progress through the quarter.
September had the highest cardholder spend since the beginning of the pandemic.
Most of the date in October spend valliant throughout 5.6% and we expect spend going forward to transfer Lily to the third quarter.
Before I conclude I'd like to make a few brief comments on the ongoing litigation surrounding the ynette and off till acquisition.
Earlier. This month, we were very pleased with the English courts decision in the preliminary issues trial.
As you will have seen the decision uphold our position that in the context of the material adverse effect claws ynette in off the operating the BTB payments industry.
We believe this ruling supports our determination that they had been disproportionately impacted by the pandemic and as such we believe wax is not required to close the transaction.
The claimants are seeking permission to appeal that decision along with another part of the ruling concerning which party bears the burden of proof.
We're also seeking permission to appeal parts the decision on a couple of secondary issues, including on how the material adverse effect claws works in respect of events that are reasonably expected to have a material adverse effect and the court's conclusion that the impacts caused by changes in law arising from the pandemic.
May not be taken into account in determining whether these had been a material adverse effects.
We remain confident that <unk> has been and continues to be disproportionately impacted by the pandemic and that and M. S. E has occurred which is something that will be decided conclusively at a subsequent trial.
As I look back on the year, we've made significant strides over the past six months in response to these extraordinary times.
A business model is diverse and resilient and while the environment remains challenge, we continue to perform well.
Looking ahead as we close at 2020, we will continue to invest in high growth areas of business and in technology and innovation, which are key to our success implementing in the market <unk>.
We believe these investments will position works well as the market recovers.
Our focus has always been and continues to be on sustainable long term growth.
While our outlook remains optimistic there's still more work to be done I'm proud of our market living innovation and solid execution against our strategic initiatives during this quarter.
And remain confident works as future.
Roommate committed to driving longterm shareholder value, while supporting our employees partners customers and communities around the world.
With that I'll turn it over to Roberto.
Thank you Melissa I'm good morning, everyone.
The pandemic and its effect on the marketplace remain fluids.
Mm debased on recovery process load.
Despite that will remain confident in the company's business model.
They're really dwelled played the market or the economy improves.
Along this line.
We are actively executing against <unk>.
Improving profitability through the cost containment name is Chavez.
Oh by the best thing plush products solution is to our customer some partners.
We continue to invest in the future.
Finally, we are proud of the kind of work.
Inconvenient put a little CVV, although what employees.
No, let's take a look at the floor resolved on its line number nine.
For the third of water.
Revenue was three surrounded by maybe 2.1 million.
A 17% decrease year over year.
<unk> middle loss.
A dream a double to shareholders 165.8 million.
Non-GAAP adjusted noting gum.
470.9 million.
No doubt I'm 59 cents quite a elude the chair.
Turning towards lifetime.
We come see the overall revenue, but four months by segment.
Breaking down the revenue as we expected.
Flip segment revenue decline, 18%.
Bravo go to 40 solution bolstered Ah 35% decrease.
Finally, the health an employee benefits solutions group, 7%.
No, let's move to segment results stuffing, we'd sleep on a slide number 11.
Both are placed solution revenue photo Paperworker will still communism 28.7 million.
And 18% decline person, but I go to Ya.
But I merrily due to feel prices.
Volumes finance fees.
Which would partially offset by new customer when I'm renewals.
Payment processing from auctions decline, 11% when compared to last year.
On a positive side.
Over the road transactions lit up 8%.
Highlighting the strength of the fracking industry.
This was offset by the North America, please being dumb, 11% funding sort of national.
This is a significant improvement that's just a few too.
Along these lines, we saw progressive improvement in weekly volumes at the beginning of the quarter.
However.
Midway through I mean through October volume friends level off.
The next payment, but also assume rate was up six basis points from 232019.
12 basis points them from Q2, 2022, a harmless I'm 35.
The year over year increase was mainly due to lower field prices.
I'm positive spreads in Europe.
The sequential decline was mostly due to how you feel prices.
Lower the spread in Europe.
On our customer mischief two over the road a lot of sleep.
The net late fee rate decrease this quarter with 48 basis points.
In comparison to see a basis point in Q3 2019.
The decreed work primarily driven by the same mix just mention Ah.
She's still worse over the road a large fleet.
As well as improve costumer a payment behaviors.
Similar to what other financial companies Scott reported.
Customers are paying the bills on time more often done in the past.
The number of late fee incidents would have them, 17% versus last year.
Although finance speed revenue work load of this quarter.
It is actually a good sign on.
I'll need these reflected on the fleet could I be loss, but they will address shortly.
So when this segment be able to domestic feel pricing <unk>.
Was $2.23.
<unk> $2.80 in Q3 2019.
These lower Flitter revenue approximately 21 million.
Additionally, these amount will review by 4 million of positive is spread in Europe.
Turning to travel uncalled for a solution on his line number the 12th.
Yeah.
Total segment revenue for the quarter decreased 35% to 64 3 million.
Breaking it down.
440 payments customer revenue was up 7% year over year.
Compared to queue to this year I am pleased to report that we have seen a nice recovery sequentially.
Revenue from travel related customers.
Was down 68%.
Additionally.
Segment archers volume.
You should buy works was down 59% to 4.7 billion.
The net interchange rates was 113 basis points.
Which was up 39 basis points from Q3 last year.
On in line with expectations.
The increase was mainly due to hire a quota for a payment relates to volumes.
Which got her greater net interchange race done trauma related volumes.
Finally, let's take a look at their health an employee benefits solution on segment on its line number 13.
Bellview Navan impressive first half of the year.
The segment expedient another solid quarter.
With coupons revenue, increasing 289 $1 million.
Or a 7% increase compared to last year.
In the U S sales business.
Revenue grew 11 person.
Driven by several come growth, which was 12%.
Breaking it down non payment processed in revenue grew 13%.
Payment processing revenue grew 40%.
As expected healthcare.
Health care spending rebounded during the quarter.
Total volumes were flood year over year.
This is a significant improvement over a few too what a total volume 426%.
To conclude the segment in late September we sold their Brazil benefits business.
As a reminder, this business accounted for approximately $6 million in revenue year, two days plenty plenty.
Was operating at a loss.
Now, let's move on to expenses on a slide number 14.
Will remain on track to achieve portraying.
Potentially exit.
The cost on Capex reductions that we outlining Q1.
As Melissa cause discuss we are fallen scene cost savings with future spending.
We will selectively increase investments in the areas, where do we see higher rate of return.
Which will put us in a better position to capture future growth.
For the quarter total cost of Saturday's expand was our communism $56 9 million.
Down from 165 7 million in Q3 last year.
Soto S GMA depreciation and amortization expenses, where.
<unk> commented on 77 million.
We choose up one 1 million first 2019.
Breaking down the line items within these scattergories.
Processing costs in Greece, three 9 million.
Mostly due to head come increases in the U S health care of business.
Service fees decrease 4 million <unk>.
Mainly viewed lower volumes on the conversion planning thermal processing plant in.
In the travel Encore 40 solutions segment.
Perennial loss on a consolidator basis.
Was $12 3 million versus.
Versus 14 million in Q3 last year.
Primarily benefiting for a much lower could heavy losses within the fleet segment.
Please credit losses would've down for 9 million versus for a year to year.
Ah nine 8 million sequentially.
This equates to 10.8 basis points of a spam volume.
Compare to 12.6 in Q3 2019.
Uhm.
269 in Q2 thousand 20.
The significant reduction credit losses.
Is primarily driven by the changing customer of payment <unk>, which I noticed earlier.
Additionally, we have put in place a sweep of dynamic internal controls.
Within the credits on collections area.
In the trouble on 440 payments segment Karate loss was three 7 million.
Which was mainly driven by a significant travel customer loss.
We are pleased with a karate loft performance in this quarter.
But we are closely watching for any signs of weakening.
Operating interest expense was five 3 million down.
Down $6.2 million from the prior year quarter.
This is due to lower interest rates on the West Bank deposits.
A load of it pauses overdose.
Gona expenses increased seven 7 million.
Verses two three last year.
This is mostly due to the litigation expenses related to the Ynez unasked our transaction.
Offset by the past some statement measures.
The sale of marketing expenses decreased nine 1 million.
Driven by lower bottom of rebates and the cost containment measures.
Lastly.
Due to the divestment of David affiliate Superciliary.
With a record of at a loss under sales of 46 4 million.
Which consists of.
Of the right off of their associated assets and liabilities of this entity.
Let's discuss boxes on a slight 15.
On a GAAP basis.
The effective tax rate was negative 59, 8%.
Compared to 31.1% for the third quarter of 2019.
On an anti basis.
Fax rate was 23, 4% for the quarter.
Uhm.
Five 2% for Q3 last year.
Changing gears now to a slight number 16.
I will like to provide on a based on the strength of our balance sheet.
We continue to have a great deal of financial flexibility.
And remaining a healthy position.
With plenty of liquidity Johan.
Which increased since Willa reported.
We are committed to maintaining a strong balance sheet.
And will continue to evaluate the market.
To determine if there are opportunities to further enhance it.
We ended the quarter with a very strong 1.5 billion and gosh.
Up from a communist on 11, mainly on at the end of 2019.
From a liquidity perspective.
Corporate cash balance was just over 1 billion at quarter for them.
Which is up more than 400 million from Q2 2020.
This increase.
Will reflect the investment from Warburg Pincus that were received in July this year.
On a strong cash flow generation in the third quarter.
On top of that there is over 800 million of available borrowings.
Under the company's credit agreement.
Combining this with the corporate gushed at the end of the quarter. The company has immediate access to over one 8 billion in capital.
As part of the committed financing for the units are not stock transaction.
Uhm.
We cover a solution.
We have agreed to maintain a lease seven commented on 52 million of available funds on the revolver.
We fully believe this provides us with sufficient funds.
To meet our operating investing on financing needs in the current environment.
And allows us to continue investing in areas of the business that will drive long term sustainable growth.
At the end of the third quarter, we started total balance of 3 billion on the revolving line of credit.
Term loans and notes outstanding.
Deleverage ratio of defining the credit Thuggery man.
Approximately three two times.
Which is down from three five times a den of 2019.
As a reminder, let.
<unk> is decrease based on the new calculations contained in the amendment of the credit facility.
Which allows the company to review gross debt by the full amount of corporate cash.
To close up the call.
Friends and diversification of our business model is proven.
We believe we are well positioned for the future growth of the market recovers.
As you probably expected we will not be providing guidance at this time.
The unpredictability of the COVID-19, and vitamin embarrassed as ability to accurately make future projections.
However.
Ultimately sales. So noted we do expect revenue I'm.
I am volume trends to remain flat two Q3 for the remainder of this year.
Finally, given the success in generating new business and.
And expanding the pipeline.
We will be increasing the investment when compared to Peel three.
This will have a short term impact to margins.
But we believe these trade off will drive future growth.
And now we will open the lines for questions.
At this time, if you'd like to ask you a question over the phone lines. Please press stars in one on your telephone keypad, we will pause for a moment to compile the Tuesday roster.
Sure first question comes from the line of Sunshine Satriani of UW. Your line is open.
Fourth quarter revenue.
Revenues remained flat assumes a flattening out.
Trends is there any risk to that or opportunity to that going forward. I mean, how are you guys dimensional it's just an assumption or or or do you have more data that sort of suggested dishes.
Track and then as far as the expenses are concerned I assume that means the EPS sequentially won't be lower and then how should we think about the expenses into 2021 I know, it's like three questions sorry [laughter].
Let me start with your first one and I gave you some updates and what we're seeing amongst the date in October. So if you look across the portfolio. What we've said is on the fleet part of the business is that some.
Really strong performance an over the road and we're seeing a little bit more muted recovery in North American fleet and the international part of the business of your aggregating that altogether.
So you can see a little improvement as you've gone through October from Q3, but it's generally flattening off and so that's really what we're trying to to make sure that we're signalling. Some of these trends. This has been pretty steep increases coming out of the second quarter, but they've they've really kind of leveled off and what we're giving you information.
October just to give you eat as much clarity as we can.
The other thing just to keep mine is there is some seasonality in there too which were also pointing out there's less business days in the fourth quarter.
And that's impacting and it has historically the comparability too TQ three.
On Sundays the other thing I will out on the fourth quarter is normally fuel prices tend to go slightly down.
Obviously, we are monitoring known on a daily basis.
Where we where we land on that.
Okay and.
And for the EPS sequentially won't be lower though based on your guidance right is what you're saying. So obviously if you take the volume Sunday projected notice the revenue that we are estimating to level off on the fact that we're going to see some increases in a couple of areas and costs you should expect no EPS to go down sequentially, but you should not take.
The number in queue for us.
What we should be projecting on we move into next year.
And so the ramp up and expenses just for the fourth quarter and shouldn't continue after 2021.
So I would say two things one of them is we cut delay as part of the cost containment initiatives, some marketing campaigns and flip on asthma, Lisa cassette, we're seeing great momentum. So we're gonna be spending some of the morning queue for to get ready for the 2021 and then the second thing is there.
Sequential increase that always carpets from the U S health business as we get into enrollment season, and as you know our health business Guru in the quarter, 11%.
We feel very rude on the pipeline them. We will we will continue doing what willow was scarp Donna sequentially on a business trip.
Just add to that though is that I think about the sales and marketing trends were trying to make sure that we are appropriately spending on sales and marketing as part of the long term growth rates. The company. So we're looking at what's happening within pipelines and redistributing some of the spending across the business, but also increasing it where we think are appropriate.
The same time all the other cost containment initiatives that we're doing we're we're really pulling back on discretionary costs and pulling cost side of some parts of the business those types of behaviors or things that we're continuing to do.
Great. Thank you guys.
So your next question comes from the line of Stephen walls of Morgan Stanley.
To align the sofa.
Great. Thanks for taking my question in the morning.
I was wondering if we could start out with some of your comments around the trends continuing and I was trying to just asked about it but maybe in a different way to look at.
The trends continuing through here and a number of your businesses and I'm curious, what you're thinking of in terms of impact.
Impact on travel and how you would manage the business. If we were going into another second wave kind of shutdown. It sounds like that's not really what's being contemplated in the base case and if things were to continue into 2021.
Whether or not we get a vaccine how are you thinking about toggling that in terms of managing leverage from here managing the travel business the risk of having the clothes and and do you feel like at this point I know you said in the current environment you've got.
Enough liquidity to manage to the environment, but if you were to have to close and then but we have some kind of improvement in conditions next year are we sort of at the point, where you feel like you can get to the other side without some kind of additional capital raised or anything like that could you talk Australia. How are you thinking about the next call at six to 18 months on that on those few variables.
Sure sure and thanks for the question that you've got a lot in there.
Yeah, that's all good and so just to start with we feel really good about the liquidity position in the company and we really wanted to make sure. We set the business up to anticipate the fact that there's a lot of unknowns, what's happening in the world right now and so we feel very comfortable about the position that were.
And.
On on top of that you asked about.
Kind of how we're balancing some of the decision, making I think it's really core to what we've been thinking about the.
The way that the company has grown organically has been we think of this is is three buckets. When you look at what's happening with their existing customers and traditionally we've gotten a little bit of net benefit from our existing customers and our partners. We managed to really reduce the amount nutrition, we have with the existing customers. It's always been a big for.
Because of ours and then the majority of our growth comes from new customer adds and so when we are really making sure that we're gearing the business for growth longterm, we want to make sure that we're continuing to invest in sales and marketing because that will drive the organic growth engine of the company.
Attrition rates continued to be very low where.
Getting really good new business coming through we can see that both of their pipelines, but also what we've implemented the part that is least known right now is what's happening with the existing customers now talking about that as late in demand, but we can see and hear from our customers is the the.
That their behavior patterns right now are different and I think you can experienced that neurone lives in so.
Is that rebounds, which we do believe it will but we think that that's going to take some time, that's going to be the third lover and pulling back to our overall organic growth.
If we go into something.
Who you see more of a shutdown that's eight right now what we're seeing across the business is even in regions where.
They're starting to have.
More covid activity for not seeing big huge swings and and customer base here like we did in the second quarter. So.
So far knowing that there's a lot of unknown out there.
But what we're seeing really is this almost like.
Arts of the World are operating.
They're operating so that essential businesses are contained to happen and in a little bit more than that but it's already this muted level of activity that's happening and so as a vaccine comes out we do expect that you're going to see that behavior pattern change go back to the way it was before.
But as Covid activity increases.
You were already operating offer base, where activity has been more muted.
So we're not seeing as much of a trend down.
Great. Okay. Thank you for the robust comments or I know it through a lot of the wall, maybe just a quick follow up on the on the payment side a bit of a bright spot there and I'm just curious how how your partners are approaching the current environment, if they're seeing a reason to be.
More aggressive in trying to sell new.
New clients in the corporate Raymond size seeing as that seems to be the strongest enlarged area of growth for you guys.
Yeah on the on the corporate payments had the partners are.
Yes.
They are also.
Seeing interest have good pipelines, we've got good momentum in those pipelines and.
Is definitely additives to us and say on top of that just the pipeline of new partners that we have now is is really good right now we feel good about the addition of new partners are partners continuing to go out into the marketplace and sell and having momentum for me to the.
Great. Thanks for taking my questions.
Your next question comes from the line of Orange sub Salvatierra of Deutsche Bank. Your line is open.
Oh, Thanks for taking my question. So just a quick follow up on the earlier question of corporate payment. The 32 pushing group that we saw in October I was wondering if you could provide any more color on there how much of it is coming to partner versus several new Vin stuck you highlighted on the call today.
X.
Yeah.
The largest part of the growth is coming from our Fintech channels, if I kind of split it into.
Even smaller subsections, we've got our partner channel.
Which is which is growing think more single digits right now which are more traditional FYI partners.
The.
Fintech piece is on fire and growing in a significantly higher pace.
And then the more traditional direct customers, which or it's a hodgepodge as of use cases that sits in there is actually still down year over year as some of their spend just hasn't recovered.
That's very helpful color and then going back to the field segment I just wanted to confirm that the new applications were up 15% in local than 21% in the E. R. That's really strong grew up there and you.
I was wondering if you could forward more color on the split between small versus larger fleet and even should we see some of these applications contribute to revenue is going forward. Thanks.
Yeah.
Bring in new business is something that we've been doing throughout the last 12 months and it's a little bit hidden I'd say based on what we are seeing the same store sales trends, but we've had some really good.
Momentum why I was calling it out this quarter's because it's particularly strong right now and it's part of why we want to make sure that we're feeding into some of the sales and marketing.
The activity that's happening.
I don't think I can split it down between small large for you specifically, but what I can say is it's kind of across the board.
The offerings that we have the introduction of our edge product in combining that with the overall offering that we have within fleet is part of why we're seeing an uptick and customer interest and and pull through right. It's also a piece of work that has happened within our marketing groups of creating.
A digital marketing platform and we're seeing benefit with a work associated with that there's a bunch of things around product and and what we're doing on the innovation side.
Contributing to that.
That's very helpful and maybe if I can sneak into one final clarification I don't know if you provided the steam store sales on the call if not kidney praelect that information. Thanks.
Yeah, it's down about 20% I don't have it in front of me.
Isn't down if you look across pretty much every yes I see.
It's been impacted so again this is same store sales specifically for the North American fleet business.
Thanks, Thanks Medicine.
Your next question comes from the line of Ramsey Elissalde of Barclays'. Your line is open.
Hi, Good morning, guys and thanks for taking my question Uhm, Melissa and the fleet segment, you mentioned stronger new customer application submitted and approved can you help us think how that those new signings typically flow through to revenues how fast the customers ramp up I know, we're in a in a difficult climate would depend demick impact which.
We think of that as a leading indicator for good things to come or is it more just sort of capacity that you are opening up in the macro environment has to sort of improve in order for that to sort of show up.
Well again I think.
It is and it's an important component to our growth and in fact, it is the most important component to our growth in a normal environment.
So I do think it is a leading indicator in terms of just our sales performance.
People's interest in the products and where we're investing money I think all of those things.
In a reassuring based on what we're seeing in terms of sales pull through.
But if you look at our revenue growth overall, the what's happening with our existing customer base is is the biggest driver of what's happening for revenue and kind of that short term period of time.
So both of them matter to us.
Think about our business the things that we can control the control livening customer attrition and we've been very focused on that and feel really good about the results of that we can control how much new business that we sign and how quickly we implemented and so we're very focused on that Nathan business activity again, we think we.
Will come back.
There is business behavior returned more to normal.
But we do think that's going to take a little bit of time.
Okay.
And I also wanted to ask about <unk>.
Matter can you give us your thoughts on just sort of the timing in the process I know.
Can happen, but I know, there's an appeals process happening now presumably after that that would you'd get back to the sort of potential trial portion of unless something else gives are we talking about like a Q1 first half a second half them and how long do you anticipate this could kind of stretch out and then tacked onto that and then I'll hop back in the queue is just an update on your fuel price sensitivity for the business is.
Been a lot of obviously covid related mix shifts in the business is an understatement. What is the way is thinking in terms of that that nice ratio you provide us for fuel price sensitivity are back in the queue now thanks.
So on in Annatto birds, obviously happy that we prevailed on the main preliminary issues that were in dispute.
Talked to a little bit about the appeals and the pills processes timing, it's really up to the court.
And so we would ask for it to be expedited, but we we actually don't know when that will be.
And then.
At the same time, the new rested the issues will proceed within the court system, but again the timing that is really more determinant based on the court in their availability.
And then Roberta was going to talk about sales I sensitivity, yes.
Just really quickly so it could be it could happen a little quicker given the expedited.
Requests rather than what we think of and the as analysts in the spaces. These legal matters that can drag on for quite a long time. It seems like the timelines a little more crisp at this point.
Relating to the appeals, specifically, yes, Joshua Nichols.
Okay fair enough.
Hi, I will give you the sensitivity on the field prices on I would've started what we disclose where we were last year. So forever at 10 cents of fuel price change on a full year base of revenue was approximately 40 million.
I am adjusted.
EPS was 20 cents.
When we were moving into 2023 Covid with visions of a challenge Chevron those numbers were increasing from $14 million in revenue to 15 to 16.
And Ips from 20 to around 22 or.
And obviously is the volume scoff gone down there is a shift in the mix from and a fleet two over the road, though from Amazon I would say probably below the 19 levels. So probably you should think about $13 million in revenue on our around 18 on on a on Ips, but obviously this is going to change us when we <unk>.
Into into next year on depending on how the the business of shift.
That's perfect. Thanks for your help I appreciate it.
Your next question comes from the line of Bob Dippolito William Blair Sure line is open.
Good morning, Thank you.
Just a a numbers questions in a big picture question just to clarify that consumer the travel business is essentially 100% consumer you have little to no corporate travel when you and your travel payments.
Business is that correct.
So think of it as people that are using largely using online travel agencies.
The largest part of the business so it tends to be slanted towards consumers.
I wouldn't say that it's exclusively consumers majorities consumers.
Is it like majority 80% or.
<unk>.
It is whatever is in the otas portfolios.
Okay.
Okay.
Thank you and then.
Just a big picture Melissa jurors standing here, hopefully a year from today.
Yes, there are not longer did the pandemic will be behind us your balance sheets in good shape, so and you're investing for great which.
If you think about the long term targets that you've given out in the past high single digit I guess revenue growth, 10% to 15% with M&A, 15% to 20% EPS, great with M&A as you look at the portfolio of.
The product portfolio do those long term targets post once will be August pandemic still still makes sense.
As you look into segments do you have the.
The ability to grow within.
Those types of ranges yes.
Yes, we feel really confident in our ability to our long term growth targets.
And just to add to that and I talked a lot about technology.
So what around the technology is making sure that we're continuing to add to the capabilities that we have.
Which allows us more optionality in the future for doing more than we have in the past so we actually do feel.
Very good about that.
Which technology piece you've added is the most important to you talked a lot about technology. This morning.
I I don't know that I would actually call out any one thing I think it's the aggregate of what we're doing that.
That is having a pretty large impact and then the movement to the cloud.
Combined with.
<unk> textural changes around the systems something like that.
The technology platform that we've created which is cloud based that we're using per transaction processing system. It is.
It is.
It's market leading in the market. So it's got market capability internally it provides additional reliability.
And performance to our client base and it's it is significantly lower cost and so I look at that as something that.
Has been instrumental in what we're doing a cross our technology, but it's just one component what we're doing on data and creating our data lake.
And it is also really important to the future product capability. So with that I think about what we're doing we're increasing our ability to move quickly we're doing it the way that will longterm be less expensive.
And at the same time, we're offering.
A significant scale.
Those things are for us important strategic advantages.
Great. Thank you I appreciate it.
Ladies and gentlemen, we do not have time for any other questions I turn the call back over to the presenters.
Hi, This is Steve. Thank you everyone for joining us today, and we'll we'll look forward to joining done next quarter.
Space Susan well.
Just concludes today's conference call you may now disconnect.
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