Q4 2020 WEX Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the <unk> Q4, 'twenty and 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Good question during the session you will need to press star one on your telephone please.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero and I would now like to turn the call over to Steve Elder Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you operator, and good morning, everyone with me today is Melissa Smith, our chairman and CEO and our CFO Roberto Simone <unk>.
The press release, we issued earlier today and our slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at <unk> Dot com a copy of the release and the slide deck have also been included in eight Ks, we submitted to the SEC.
As a reminder, we will be discussing a non-GAAP metric specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or a ni.
Adjustments for this year's fourth quarter and full year GAAP results to arrive at this metric include unrealized gains and losses on financial instruments net.
Net foreign currency remeasurement gains and losses acquisition.
And related intangible amortization and other.
Other acquisition and divestiture related items.
Last on sales, but subsidiary stock based compensation a.
Our legal settlement.
Restructuring and other costs and impairment charge debt.
Debt restructuring and debt issuance cost amortization non cash adjustments related to our tax receivable agreement similar adjustments attributable to noncontrolling interests and certain tax related items as applicable.
Please see exhibit one of the press release for an explanation and reconciliation of adjusted net income attributable to shareholders to <unk>.
GAAP net income attributed 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.
The risk factors identified in our 2019 annual report on form 10-K filed with the SEC on February 28 2020.
Our quarterly reports on form 10-Q, and subsequent SEC filings.
While we may update forward looking statements and the future we disclaim any obligations to do so you.
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, and thank you for joining us today, I hope, everyone is well and staying healthy.
And we all know 'twenty and 'twenty proved to be a year like no other <unk>.
<unk> remained resilient and nimble, which allowed us to stack up a series of competitive wins and renewals and target our spending and areas that will drive benefit for years to come and build upon our robust technology capabilities.
We ended 2020 with the purchase of Ethernet and optical with a very favorable result, and successfully navigated and extraordinarily complex set of circumstances and the process.
I remain excited about strengthening our travel position and adding these two assets will enhance our global payment capability, creating value for our customers and our investors over the long term.
Our focus on the health and safety of our people customers and partners and the communities and which we operate with Paramount in 'twenty and 'twenty and remains the same today.
We're focused on waxes next chapter of growth enhancing our culture, extending our diversity and inclusion programs and implementing new programs to broader support ESG efforts.
Before I dive into our results for the quarter and want to express my gratitude and deep appreciation for the hard work and dedication of the entire works team.
Under unprecedented circumstances, they executed extraordinarily well this past year and once again have proven why they are the cornerstone of our organization.
Turning to our results for the quarter and the year the fourth quarter played out better than we had expected given the expectations. We had laid out on the last call.
We generated $399 million of revenue and adjusted net income was $1 45 per diluted share.
We've received a number of questions around the net and opto acquisitions, so I'd like to hit this write off.
We're very sensitive to the challenges our travel customers are facing and this pandemic.
We're partnering with these customers are learning from the marketplace, how best to support them. During these extraordinary times.
And the short term additional travel exposure will introduce some additional uncertainty into our performance.
We have a highly talented team of individuals coming together with an auto and a net teams building upon our existing bench of talent.
Together, we will create even greater value and the marketplace by leveraging and the combination of our collective assets and global reach and the foundation for our future innovation.
Over the long term, we see great growth potential and I remain very excited about the future potential we will create for our customers and shareholders.
As a reminder, our end customers are and the consumer travel category, which we believe will rebound much quicker than business travel.
We started the integration are in the process of updating our assumptions around potential synergies that come from combining the three organizations together.
Turning to our strategic outlook.
And we refreshed our strategic pillars to better reflect the opportunities we see in front of us as well as the operating environment, we expect to see going forward.
As a technology focused company.
Focused on increasing speed and reliability through the use of modern tools.
New development of wax continues to be cloud first and during 2020, we reached a major milestone. We're now approximately two thirds of our volume is running within the cloud.
We'll continue to build upon our technology and risk management skills and carry forward our diversification.
We also remain focused on winning and the marketplace by anticipating customer needs and bringing innovative offerings to the market first using modular integrated solutions and fostering our value based culture to attract and retain the best talent and the industry.
Successfully executing against these pillars couple.
Coupled with our strategic investments and growth, which allowed us to continue to win in the marketplace growing our market share.
Our increased speed and continued advancement of our products is reflected and the large number of customer signings and renewals we announced during 2020.
We created a great deal of sales momentum and the course of the year.
Customers can have confidence that we will continue to advance our capability and innovate with them and the marketplace.
I'd like to take a moment to reflect upon some of the most significant wins and contract renewals and 'twenty and 'twenty.
Which demonstrate our ability to grow business and even the most challenging of market conditions.
Well the majority of our new business wins represent smaller customers of size wins and renewals, notably include O N E.
J B Hunt.
Enterprise truck rental.
Heartland Express diligent.
And delivery systems, Charles Schwab Transamerica Hormel foods.
Kitco petroleum.
HRC total solutions, the states of Michigan, and Georgia, and many others across our business.
Importantly, this provides us with another leg of growth is new wins get implemented.
Similarly, we expect to reap the benefits of the investments, we made and technology in 'twenty and 'twenty cannot only meet the dynamic needs of our customers, but to also better position WAC for growth and scalability and the future.
We've completed a large shift to the cloud with successful migrations over the majority of our fleet business and 2020.
Following our move to a cloud first development methodologies of all new technology and 2019.
We will continue to build upon these existing capabilities.
Areas of focus going forward include advancing our data Lake Bill.
Building on machine learning and artificial intelligence capabilities as.
And as well as further development of micro services and cloud native capabilities to provide differentiation speed and value in our products and new ways in which we can support our customers.
Again, the aim of all of this is to be able to offer and unique products and services and an increasing speed.
Our development cycle now across wax is on average two weeks.
I would now like to turn to what we're seeing and volume trends so far in 'twenty and 'twenty one.
And the fleet segment.
Gallon volumes are up approximately <unk>, 8% quarter to date versus the same period last year.
Similar to the past few quarters over the road trucking volumes continued to be strong up 18% quarter to date.
While the North American fleet and international volume continued to be down.
And our travel and corporate payment segment purchase volumes are down 52% quarter to date compared to the prior year period.
Global travel related spend volumes continued to be the hardest hit by the pandemic with Q1 quarter to date volumes down 76% year over year, excluding eat it and auto volumes.
Corporate payment volumes on the other hand remained strong with growth of 20% quarter to date.
Lastly, turning to our U S health business. The account growth rate is consistent with the ended the year well spend volume remains healthy.
Finally, I'd like to provide some additional perspective on how we're thinking about 2021.
Building off the weekly trend data I just shared with you. We expect the same slow and steady volume recovery across our business will continue through the first half of 'twenty and 'twenty, one with acceleration in the second half of the year.
However, the pace and breadth of the vaccine rollout as well as the potential for government stimulus will be critical factors and determining how quickly our existing customer activity will rebound.
Given the current pace of vaccine distribution as well as our own customer mix, we believe customer activity will increase from the second half of the year.
But likely more fully and the fourth quarter.
And fleet, we've seen a significant rebound and the over the road volumes as contract signings continue to be reflected and our volume trends.
Based on the size of an average transaction. We believe there was a lag and the automotive transactions versus larger vehicles.
This would likely represent sales professionals who've had a local territory senior executive or more administrative type of role.
We expect that these will be among the last types of transactions to return based on the success and rolling out vaccines.
We're winning new direct business in this market because of our technology.
The level of customer integration from our products that offer our customers a unique set of financial controls and data capabilities.
Carrying that same technology over there at the partner side.
We have a demonstrated ability of growing partner portfolios using our proprietary marketing and sales engine.
And travel we continue to expect a longer recovery time.
We expect to recover volumes as leisure travel slowly improved but we also believe COVID-19 has structurally changed the travel market.
And speaking with our customers they are eager for us to support them through this difficult period and to innovate together for the future.
The increased scale, resulting from the inert and awful acquisitions will help margins. Once we have implemented expected synergies, which we expect to do over the next three years.
And with all that said, we will pursue volume and opportunities where we believe we will earn a return in line with the rest of the business.
Importantly, our pipeline of new corporate payments customers remained strong with a number of large opportunities.
This is another area, where we've seen most existing customers spend less than in the prior year, but we've been able to offset that by signing up new business, primarily through our partner channel to fill the gap and maintain growth.
As this industry continues to mature we're confident we will emerge as one of the long term winners we believe our unique group of assets, including compliance issuing technology and transaction processing combined with leading edge products and integrated payables and dynamic payment.
And as well for future growth.
Across travel and corporate payments, we win in the marketplace because of our enterprise grade cloud based solutions, our global currency capabilities, our level of seamless integration and a broad spectrum of payment expertise bridging many different marketplaces.
Moving to the health and employee benefit segment, we completed the open enrollment season with a strong showing relative to our competitors recognizing that current unemployment rates provide a headwind to normal growth rates.
That said this is an exciting growth opportunity for wax, we continue to invest and our capabilities here and have an exciting pipeline of new customer opportunities ahead of us.
We win new business and this marketplace, whether a customizable multi account offerings and innovative benefit solutions the ability to integrate <unk>.
Moving data and analytics and our mobile capabilities.
Finally, we recently announced the purchase of certain HSA assets from Health care Bank. The custodian Bank of works Health Division.
This expands waxes role and the attractive consumer directed health care ecosystem and aligns with our growth strategy.
And we're excited to provide a more streamlined customer experience one that positions us to better leverage our investments to provide leading HSA solutions.
We expect that this purchase to have a positive impact on adjusted net income in 'twenty and 'twenty one.
In summary, I'm extremely proud of the way. It works responded to this year's challenging environment is disruptive as the pandemic has been we continued down the path we entered in 2020 and delivered on our strategic imperatives.
We entered 2021, having laid the groundwork for success when market conditions recover accelerated initiatives that will enhance the value we deliver our customers and there.
And are continuing to make significant investments and our market leading technology.
At the same time, we're executing extremely well and retaining our customers and signing new ones. All part of the building blocks for accelerating future growth and gaining market share.
To put our future outlook and perspective work.
It's a diversified business that operates in large growing and relatively underpenetrated market and.
And where we have leading positions.
While the pace of recovery remains variable.
We believe that volumes with existing customers will come back and coupled with new customer additions will position us well to succeed post pandemic.
These factors bolstered by the strategic investments, we made in 'twenty and 'twenty gives me confidence that our next chapter of growth will be our best yet.
And it will get back to our long term targeted revenue growth rate of 10% to 15%.
We have established a strong platform for growth that is more resilient and more diversified than ever before and we remain committed to driving long term growth and value for our shareholders and.
I'd now like to turn the call over to our CFO Roberto Simone Roberto.
Thank you and good morning, everyone.
And as Melissa just mentioned works demonstrate a remarkable resilience in 'twenty and 'twenty.
We continued to execute on these strategic pillars.
Investing hi, good old area on maintain high customer retention rate.
I am proud of the way the company has adapted to the new environment on.
And remain confident in the strength of the long term strategy.
Yes.
I will start with a review of the full year.
Then moving to the details of Q4 and.
And finally provide some commentary for 2021.
Starting with our results for the full year on slide number 10.
<unk> total revenue of 1.56 billion down 10% versus 2019.
GAAP net loss attributable to shareholders was $5 on 56 cents per share.
Adjusted net income per diluted share was $6 on <unk>.
Compared to $9 on 20% in 2019.
Field prices on FX rate cut by $63 2 million on negative impact on revenue.
As well on 74 cents on EPS.
We were a challenge in each of the segment.
However, we saw positive trends.
First the U S health business grew revenue 18%.
Second the corporate payment revenue grew 13%.
And finally, the U S OTR business increased gathering volumes by 6%.
No let's move on to Q4 results starting on slide 11.
The quarter was better than we expected.
Revenue was up approximately 4% sequentially, but.
Primarily due to the strong growth in the U S health on corporate payment businesses.
As well as improvements in field prices.
From an earnings perspective, we also performed better than anticipated.
Adjusted net income declined sequentially.
However, as we discussed last quarter, we and thanks, Shirley placed large and embarrassment and Q4.
Which what a target debt in North American Fleet U S health and technology.
To position the company to capture additional revenue in 'twenty 'twenty, one and beyond.
Total revenue in the quarter was three commented on 99 million on 9% decrease compared to prior year.
GAAP net loss on.
Three letter to shareholders was $5 on 30 cents per diluted share.
Non-GAAP adjusted net income was $64 8 million or on all of them 45 cents per diluted share compared to $2 and 61 in Q4 2019.
Turning to slide 12.
You can see the other it'll revenue per four months by segment.
Breaking down revenue.
There are no surprises on.
As expected fleet solutions segment revenue declined 10%.
Travel and corporate solutions declined 22%.
And finally health on employee benefit solutions grew 6%.
Moving to segment results beginning with fleet on slide 13.
Fleet solutions achieved two.
And it on 35, four mainly on <unk> and revenue.
On the 10% from Q4 of 2019.
Revenue was impacted by lower field prices.
Partially offset by continued strength in the over the road business.
As a reminder, in the fourth quarter of 2019, we got the negative 14, mainly on revenue recognition adjustment that also reduced sales and marketing expenses by the same amount.
Okay.
Payment processing transactions declined 7% when compared to last year.
On a positive note over the road transaction went up 14%.
Collecting the strength of these industry on new customer wins.
This was offset by the North American and international fleet businesses.
Which were down nine and 8% respectively.
This is on improvement versus the last two quarters.
And our payment processing transactions declined 20% and Q2 on.
And 11% and Q3 of 2020.
The net payment processing rate and Q4 was a commented on 27 basis points.
It was up 17 basis points over last year.
And down seven basis points sequentially.
Versus prior year, the increase was primarily due to lower fuel prices on.
And the accounting adjustment to revenue.
Versus Q3, the decrease was due to an increase in OTR volume mix on that.
Reduction in positive spreads in Europe.
The net late fee rate was 54 basis points in comparison to 65 in Q4 of 2019.
48 in Q3, 'twenty and 'twenty.
The year over year decrease was primarily driven by volume mix on Inc.
Customer payment behaviors.
Similar to Q3, a result customers continue to pay their bills on time.
The number of late fees incidents were down 10% versus last year.
Although finance fee and revenue was down 25%.
It is a positive sign a split credit losses improved both sequentially and year over year.
I will go over to this shortly.
To finish and fleet the average domestic fuel price and Q4 was $2 on 26 cents per <unk>.
<unk> was $2 on 80 cents in 2019.
These lowered revenue by approximately $20 million.
Additionally, positive spread in Europe increased revenue by one one mainly on.
Turning to the travel and corporate solutions segment on slide 14.
As expected this segment remains the most challenged area of the business.
With total revenue down 22% to $74 7 million.
Breaking the segment down corporate payments customer web and it was up 23%.
This was offset by continued softness in travel customer revenue that was down 60%.
These include a small contribution from E on it on up top.
Additionally, total purchase volume issued by works was $5 billion.
To conclude this segment the net interchange rate was accommodate and 26 basis points.
Which was up 42 from Q4 last year.
The increase was mainly due to higher corporate payment related to volumes and the newest scheme fee arrangement that will shine in Q2, 'twenty and 'twenty.
Finally, let's take a look at health unemployed benefit solutions on slide 15.
I am pleased to report that the segment posted another quarter of growth with revenue growing 6% versus Q4 of 2019 to $88 9 million.
In the U S health business revenue grew 12% driven again by several accounts, which went up 8%.
Roughly two thirds of the segment revenue more SaaS fee and related which was up 13%.
Reflected in the account servicing revenue line.
To close the segment in Q4 2019, we got $3 9 million of revenue from the divested but as helium business.
But I met him and reported in other revenue.
Now, let's move to expenses on slide 16.
For the quarter total cost of salaries expense, whereas I commented from $68 6 million.
Down from a parameter on $81 million in Q4 last year.
Total ex G&A depreciation and amortization expenses were four commented on 27 5 million.
Which is up two parameters on 71 4 million versus 2019.
Breaking down the line items within these categories.
Both processing cost and service fees were essentially flat.
Good day, they lost on a consolidated basis was $11 6 million.
Don from $18 2 million on a year ago.
Fleet credit losses were $9 2 million.
And if we can lay down year over year and sequential Inc.
This equates to $6 nine basis points of spend volume versus $18 five in Q4 of 2019.
On 10.8 in Q3 'twenty 'twenty.
Consistent with last quarter, the reduction and credit losses was driven by the change in customer payment behavior.
The operational improvements and internal controls that were implemented in the credit and collections area.
While we are pleased with the overall credit loss per four months of the past couple of quarters. We are closely watching for any signs of weakening.
Operating interest expense was $3 7 million down $6 5 million from the prior year quarter.
This is due to lower interest rates on works are on deposits.
On a lower deposits overall.
G&A expenses increased $24 9 million versus Q4 last year.
Mostly due to expenses related to day in it on up sell transaction on our stock compensation.
Sales and marketing expenses went up $29 3 million.
The increase was largely due to a 14, mainly on revenue recognition adjustment that I mentioned on earlier calls.
Bottom and rebate.
And with corporate payment volumes on.
And we expect that investment in the fleet and health businesses.
Next on the income statement there is a charge of 162 5 million.
On the total <unk> commented on $77 5 million debt, we paid for it on auto.
And it reflects the estimated apportionment for settling the litigation.
The remaining amount was allocated to the purchase price of the companies.
Finally, the last item in operating expenses is a charge of $53 4 million related to a goodwill impairment for the European field business.
As a result of the pandemic volume decline.
Yes.
Changing gears to taxes on slide 17.
On a GAAP basis.
This tax rate this quarter was 7% compared to 26, 9% for the fourth quarter of 2019.
So on and an 80 basis debt.
Tax rate was 22, 4% down two commented on and 30 basis points from a year ago.
Turning now to slide 18.
I will like to provide an update on the strength of our balance sheet.
Despite a very volatile 'twenty and 'twenty, we maintain financial flexibility with robust levels of liquidity.
We ended the quarter with they commented on 52 million and cash.
From a commented on 11, mainly on at the end of 2019.
The corporate cash balance as defined in the credit agreement was six commented on 42 million at quarter end.
Dumped from abelian adia and off Q3 'twenty 'twenty.
This reduction was due to the closing of the <unk> on <unk> acquisition.
Partially offset by very strong cash flow generation.
Additionally, there is over a commented on $18 million of available borrowing capacity under the company's credit agreement.
Oh, Dear and the total balance on the revolving line of credit.
And loans and notes outstanding.
$3 billion.
The leverage ratio stands at approximately three seven times at the end of 'twenty and 'twenty.
Which is up from three five times a day end of last year.
And as expected the increase reflects the acquisition of unit and knockdown.
Finally, and this section we announced the redemption of the outstanding 400 million senior secured notes.
It is expected to be funded from cash on from and complete that the March 15.
To close out the call and as you probably anticipated we will not be providing revenue and earnings guidance at this time.
The president and vitamin and does not allow us to accurately make projections.
However, we do want to share some observations on give me and put what we got.
Fleet volumes have been improving sequentially for the past three quarters and.
And we expect these positive trends to continue.
Corporate payments customer volumes are expected to continue to see strong momentum.
Travel customer volumes, but is still depressed and this market remains uncertain in the short term.
However in the long term, we feel positive about this part of the business.
In the meantime, we are focused on the integration of in it on up though.
Finally, looking at the U S health business, we expect revenue to grow in the range of eight to 12 per cent.
Yeah.
On the operating expense side and assuming the prevailing economic environment does not change, we do not plan to make meaningful adjustments.
Yeah.
Both operating and financing and interest will benefit from lower interest rates.
Translating this into our view for Q1, we are expecting revenue to increase between zero and 2% compared to Q4, 'twenty and 'twenty revenue.
Which includes the full quarter contribution from <unk> and auto.
From an earnings point of view, we expect EPS to improve sequentially.
Driven by higher revenue and higher.
And your fuel prices offset by the <unk> and upsell integration.
To give you more color on day and at an optimal timing we are planning on improvement each quarter.
Leading to a no material impact on earnings on a full year basis.
To conclude we are proud of what resilience in 'twenty, and 'twenty and are confident and well position to capture future growth of the economy continues to improve.
And with that operator, please open the line for questions.
Ladies and gentlemen to ask a question. Please press star and on the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.
Your first question comes from Darrin Peller with Wolfe Research Your line is open.
Hey, Thanks, guys.
Can we just start off.
And so on the travel side is there any change to the way that you're going to be managing.
And many more like if you net and optimal resolved or would there be anything you would've done differently now and then just thinking of the fundamental changes and the euro TV payment space from a competitive standpoint, any development developing opportunities post pandemic.
Beyond rebounding volumes you could talk to just we get a lot of questions on the overall corporate and travel segment as being a key highlight for you guys long term strategically we'd love to hear your thoughts there and then obviously if you could just touch on the <unk> side, the corporate payment side as well.
Thanks, guys.
Sure.
Good morning on.
Your first question around travel and when we had originally intended to do a transaction.
We had planned to split out the.
And the travel group in terms of having it.
And a separate management team focusing on the integration of the business and and really focused on those customers and.
And so we really just carried forward with that after we settle the transaction too.
Now have Anthony.
Anthony Hynes and his team that is in charge of that part of the business working very closely with Jay Dearborn, who runs our corporate payments business and.
Integration.
<unk>, the technology and the product set.
And that we felt like we wanted to create a lot of focus because of the opportunity set and because of the amount of work we need to do on the integration we think both.
Parts of the business have really great long term growth. So you were talking about the <unk> space.
And the in the <unk> space the place that we really have been having the most amount of success is this kind of concept as embedded payments, which we're doing it through partners. Some of those partners are financial institutions and some of those are fintech companies and are they.
They have different needs, but the fact that we have the underlying technology.
Our processing system that we developed with cloud base and a highly reliable and notes.
And I selling point and we have within that marketplace.
We also have merchant portal and in.
And you know a number of different payment capabilities beyond our virtual payment.
Capability. So in the wins that we are having and it was a key.
Combination of the expertise that we have and the marketplace. The technologies that we have.
And and again, we've been really primarily focused in the partner channel of that marketplace.
It's a place we see continued growth opportunity and and we're excited about the prospects there and it and say equally excited about the prospects, we havent travel, albeit that we expect to have more volatility and the short term there to a little bit less predictable, what's going to happen with that customer set right now and.
Terms of volume.
Okay, and then I guess, when we look at the overall corporate.
Corporate side, just to think about the strategy of what you can do there I mean, obviously, that's held up very well with any of that a bit of a pull forward just given the pandemic or do you think that's really the sustainable run rate now for some and strategically what Melissa and give us a sense of what you may or may not want to do on that.
Yeah, Yeah, and I think that we are.
Part of the business, we are getting a you know.
A benefit and new contract signing in terms of our partners bring on new business because of the digital needs and the marketplace right now so there's benefit to that there's also been a headwind in this last year were some of the existing customers just aren't spending as much as as you know we've been able to overcome that through.
New contract signings, and we feel particularly bullish I guess about it right now because we're because we're working against that headwind and we're still able to show some pretty significant growth. There so going forward into the marketplace. This is a place we're going to continue to put emphasis on continued to spend internal investment dollars and and <unk>.
Do see a long runway, it's also a huge market and so we can be.
It's just a it's a great market is huge we have and ability to differentiate within the marketplace and as a result, we think that that can create some great growth potential for us long term.
And I will add.
Melissa point, if you think about the second quarter, we were flat in volume.
Q3, we went over 10% and thank you for over 20% and as Melissa said, we expect a good 2021, when we when we are projecting what the things that are happening now.
Alright, that's great to hear thanks, guys.
Your next question comes from Tien Tsin Huang with Jpmorgan. Your line is open.
Hey, good morning, Thanks for the presentation on it.
And I ask Melissa just curious obviously good sales results, how did new sales land versus your original.
2020 target and what are you thinking about this year sales targets for for 2021.
Yeah, well you had particularly strong sales in our over the road business, we have a tremendous amount of momentum coming into that that business and you can here and the contract wins that we've had throughout the course of this year.
I'd also say you know when we set up our targets as we go into each year, we are pretty aggressive about that so we over delivered new crossed a number of the different parts of the business.
And as we go into 'twenty and 'twenty one.
Same thing as we establish our target we established and pretty strong targets, we expect to continue to have momentum and the marketplace and.
Again, we've got a lot of momentum specifically in the over the road marketplace, we have a really good pipeline and.
And corporate payment and we have a really good pipeline and health net and said one caveat with health and have is that you know.
Talked about the fact that we are seeing some headwinds.
And that business because of unemployment rates and so we think that you're going to see that business be skewed towards the second half of the year where and.
Enrollment season was strong for us competitively.
But the growth rates going into the first part of the year were lower than what we would normally see again because of the headwinds and unemployment we have a really good pipeline and that part of the business, we think youre going to see the benefit and that really coming through the second half of the year as we.
Implement some of the customers that we've already closed and we continue to close some of the ones that are on our pipeline.
Good day, just as my second quick follow up on.
I'll jump off just on the cloud update which is I know you went.
And went through that pretty thoroughly and your and your Investor Day, you had two thirds now so.
And you see the potential for debt.
Movement and competitiveness or is this more of a benefit from a cost standpoint, now as we think about that.
And to that last third of the migration and Thats, where you're going on the cloud side I'm just trying to understand what the impact would be for the for the P&L. Thanks.
Yeah, I think the impact actually in three different ways. One one has been around.
Speed for us and it's something we care a lot about in the market now and ability to move really rapidly and as we have moved.
And <unk> into the cloud, it's a combination and moving into the cloud and then architectural works.
Some of which were well underway some of which were kind of and the middle part of doing but as we finish that just making sure that we can continue to move with speed to bring products into the marketplace and being able to share across the different parts of our business as we bring toward features and product set that's really important to us competitive.
And if you kind of think long term.
The competitive set.
We also believe that you're going to see benefit from a cost perspective, as we continue to reduce the number of data centers that we're operating in.
And so that will over time create some benefit for US and then the final thing from a customer perspective, it just increases the overall reliability.
Performance from a customer perspective, and that's something that's ultimately they're important to us so it really hits across all three categories from.
Thanks for that and appreciate it.
Your next question comes from Ramsey El <unk> with Barclays. Your line is open.
Hi, good morning, and and thanks for taking my question today.
I wanted to first ask about the impact of fuel prices and how we should think about incorporating fuel into our models for 2021. It seems like the futures curve is up pretty dramatically quarter over quarter and a typical cycle, where you guys would guide you would give us that average fuel price and it would do would flow into EPS I'm just.
Kind of curious if that if there's if we should be thinking about this and a consistent way as the past, where we just basically see what Dr. Bob curve has done and and kind of take your last average share price and kind of market up basically and our models. If you get to any color on health fuel prices will impact 'twenty, one and in terms of your internal thinking would be super helpful.
For us.
Of course, good morning, So obviously as fuel prices increase we are going to see the benefit and we are very happy to see feel on oil prices going up so.
So I will start you saw on the presentation day, yet the quarter to date.
From 255, obviously the number has improved.
Significantly from the average of those six weeks. So he is going to go up for the second half of February and also for March if you recall from.
The past Expedia and so in 2019 for every 10 cents on the fuel price movement on a full year, we had approximately 20 cents of EPS.
And 14 million and revenue.
As we go into 2021, you should see its going to be very similar maybe slightly lower than that 18 or 19 of Eni EPS because of the mix between OTI on North American fleet.
That's the number that you should be expecting when you compare to 2020 off to us where the average fuel prices whatever on 230 overall compared to where we are now in the months of February and what are the core fees turning <unk> into 2021.
Okay. That's that's true really helpful. Thank you.
And the other question I wanted to ask was about your travel business.
And putting aside the timing of a potential travel recovery because who knows.
Is there any reason to not think that your travel business and that you net optical business as well will not get back to 2019 levels are there any is there any you know customer bankruptcies or any other kind of deterioration and these businesses that would that would keep us from basically saying look when we look out to 'twenty two.
Beyond these businesses should get back really largely on track and where they where they left off.
So when I talked about structural change and the travel marketplace.
Because you know.
I think of.
And you know people.
Particularly businesses as they travel.
And just think that it's going to be different going forward as a result from the pandemic and most of the customer base and customers, who we deal with there are consumers, which is a benefit we do think that you're going to see.
That migrating back that volume pattern migrating back we also think that you're going to see.
On <unk> coming back sooner than you see airlines and travel.
And so from just a timing perspective, we think you're going to see some variability and what's going to happen with the travel business probably more than what you are seeing and other customer.
And markets.
But it's really a question of when it returns.
And I talked about supporting our travel customers and this period of time, we know that they have been particularly hard hit and so our focus has largely been working with them around how we can continue to innovate together and we have more assets now than we have ever had with the combination of Ethernet and optical and wax and and really not looking at.
Across the portfolio and what we've got to.
Look at ways that we can help create even more product for them.
Which you know can be a benefit to them as well and so you know what.
And I look at that marketplace I think that there is great long term opportunity for us.
And and a lot of work that we need to do with that customer set and make sure that we're putting together products. The way that we have across the rest of wax to bring into the marketplaces and more.
<unk> unique and.
And new innovative offerings for the future.
Okay, alright, thanks, so much.
Yeah.
Your next question comes from Bob Napoli with William Blair. Your line is open.
Thank you good morning.
Question on the maybe first on same store sales and the and.
I mean, obviously up 18% for the OTR.
Very strong and I know you've won a lot of customers, but you know I mean, maybe could you give a little color on same store sales.
<unk> OTR and non.
OTR.
Sure. Good morning, so on and the OTR side same store sales are up about 5%.
And we're getting a benefit.
And that part of the business on the North American fleet.
Side down significantly you know and in the order of around 15%.
So you know still still down and in and I don't really have a lot of insights to add because it's really kind of across the board.
Thank you Lisa then on the net.
What was the what are you assuming as far as to get to a material. How dilutive is the net in the first quarter on a on an EPS.
Basis, and and what does it take to get it back to normal what are you assuming on.
Travel getting back to them and American express throughout.
And the consumer travel would be 70% of pre pandemic by the fourth quarter are you, assuming something like that or what do you. So how dilutive and then what was the net revenue prior to the pandemic.
I'm going to start on.
And I can see reproduce eager to jump in here.
[laughter] on.
And in that and also a part.
Part of what we're looking at right now and in <unk>.
And said this before on and.
And our prepared remarks, but we're refreshing the model around our synergies and you know when we originally announced the transaction it was and a different environment and so as we've.
<unk> brought the assets in and have spent time with Anthony and his team that's really we're pretty deep into that process right. Now we know that $25 million that we've laid out before and I think of that as a baseline.
Where we are targeting a number bigger than that.
We have historically have taken three years to go through and integration process and <unk>.
Some of this will take some time for US you know, there's a lot of complexity around that.
And we're new eager to be pulling some of those forward and thats part of why we talk about it.
Being dilutive now and then being breakeven for the years a lot to do with the synergy work that we have ahead of us right now and.
With that and I'll, let Robert talk to you about the specifics right.
Yes, Bob So just to give you some color.
And days of the fourth quarter.
We had less than $2 million and revenue so very material and then the <unk>.
But we and Ips was two to three.
So as you get into Q1, obviously you were going to.
And dilution.
And because obviously revenues this deal or volume side is still down.
And as Melissa said, so as we get from Q1 into Q2, we should see improvement and then on the second half of the year, we should be keep being accretive on when you think about on a full year base system based on the projections that we have seen on volume we should be on a call it and no material impact on a full year basis from them on Eni EPS point of view.
But the cadence of debt recoveries, what Melissa said, so we are going to start having synergies late in Q1, Q2, and then probably more run rate DNA in the second half of the year. So it's gonna be dilutive on the first half on accretive on the second half.
And anything on the revenue pre pandemic from.
Oh yeah.
Yes, so the revenue in 2019 and water, but it almost a 160 million and Thats, what we had and revenue on the volumes what around $20 billion of spend on obviously as Melissa said before I mean, we don't know when we're going to get to the 19 levels. What we know is whether.
And what do you have seen today on the six weeks when we add on the 60, 65% down from last year, and we keep monitoring daily and all things are improving.
While the trucks and so now we're going to get back to the 19 levels then.
Real quick on the health care acquisition and the HSA assets is that going to get you enable you to her and the interest income and I mean niche and what is and how accretive is that and is that really you know.
Over the long term, assuming the fed raises interest rates and thats, something thats really going to move the needle I mean, it's obviously health equity he makes a lot of money off of the float possibly deposits.
Yeah, well, we liked about it is it gives us the control over that part of the economics. It also creates a better customer experience because we're streamlining the whole process.
And so from both.
Both the customer perspective, and an economic perspective, we think that Theres a benefit of this it's going to be accretive this year.
But it's not going to have a material impact and particularly if you compare it to the prior year, but what it does allow us to do is the futures have a lot more control, which will give us a benefit financially going forward.
Thank you.
Your next question comes from Ashish, how bad draw with Deutsche Bank. Your line is open.
Thanks for taking my question, maybe just a quick question on fees.
How do we think about any benefit from a potential infrastructure spending bill.
Can you talk about some of your end markets that could potentially benefit or something infrastructure spending.
And maybe just a quick question on fleet all true.
And he said whether.
And Texas could we see any impact on the fleet business near term.
Thanks.
Sure so on.
I'm going to answer your second person and a question first of on top of mind yeah.
We did see weakness during the weather.
And the.
And within.
The southern part of the states and so.
That was reflected and Roberto commentary that when he was giving a framework from it was kind of happened and the first quarter was anticipating that they both we both expect that to have an impact and fleet that also and health, we saw a little bit of and impact on consumers going out and spending money on.
Their routine medical costs and as a result of what was happening with weather.
On the infrastructure spending question, we do think that Theres a benefit to us if you look across our customer categories.
On a big part of of our North American fleet business are in the construction trades and that includes infrastructure.
For type of trades and so we do think that we would get the benefit of that.
That's really helpful color and maybe if I can just ask a quick question on the corporate payment side, obviously very strong momentum there a lot of it is partner driven I was wondering if you could provide more color on your direct business.
And with this acquisition and how do we think about you.
Your ability to sell into your existing small business customer base. Thanks.
Sure on the direct side that actually really has where our primary focus has been to cross sell within our existing customer base. We have a relatively small sales force that has been executing against that and.
<unk> well and then you have a primary customer.
Their ability to cross sell and actually quite strong.
It's a place that we look at is an area that we may want to expand but right now it's.
On a smaller part of where the corporate payments revenue is coming from the larger part is coming from the partner channel.
Thanks, Melissa and congrats on the purchases.
Your next question comes from Dave Koning with Baird. Your line is open.
Oh, Yeah, Hey, guys. Thank you and I just wanted to dig in a little more I think you said revenue up zero to 2% sequentially is that right first of all.
That's correct compared to the fourth quarter results, yes, yeah, and so I guess my question is I would've thought you know normally health is seasonally strong in Q1 from what I remember and then you have the full quarter of you net off till coming on as well so.
It seems like those two are going to provide just alone you know much better than zero to 2% growth for the total company and then fleet you have fuel prices getting better too. So I'm wondering if something and core and fleet going down or is there something else and the core business, that's coming down sequentially that.
And I'm, just missing when I think through that.
Yeah.
Well.
I will start with the fleet so the fleet fuel prices last.
Last year in and it's fair.
First quarter were two.
257.
And would we gave you today is yesterday's 255% so from a fuel price point of view when we get to the end of the quarter is going to be call.
Call It breakeven, obviously as Melissa shared and with a share on the presentation on the volume side is still down and fleet. So when you put the fleet everything together you are not going to see and improvement sequentially.
And obviously on the travel and corporate payment site. So you also have seen the progress in the in the volumes, we have a very strong corporate payment volume growth on the first six weeks.
But the travel is still being impacted from the first quarter terminal off and analyzed yet and we're still down on the 60%. So when you put on the pieces together and we are seeing.
Zero to 2% improvement sequentially.
We believe it's the right guidance, if we want to call, but we feel good with that and obviously that continues to improve from where we were in Q3 Q4 on getting into the first quarter of 2021.
Okay, Good and I'll. Thank you and then just as my follow up on Health care. I think you said up 8% to 12 per cent for the year how much of that is from the acquisition and does the acquisition just hit the yield on accounts and maybe how much does that you'll go up.
And how much do we think for that.
So the acquisition as Melissa said is and I've been a cough and materially but neither and revenue noted and Ips is going to be accretive, but its going to be small and is not going to change. The number of accounts that we have because we were monitoring and we will report and already or via comes and what is gave me and asking us what Melissa said he is going to give us.
And much greater opportunity as we think in the in the future from an economic point of view and photos.
The customers on our customers, who is going to be better because we're going to be managing and everything with them.
Gotcha.
Well, thanks, guys nice job.
Okay.
Yeah, and I would now like to turn the call back over to Steve Elder for closing remarks.
And I just wanted to thank everyone once again for listening.
Listening to the call. This morning, and we'll look forward to updating you again and a couple of months after our first quarter results.
Okay.
This concludes today's conference call you may now disconnect.
Okay.
Okay.
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