Q1 2021 WEX Inc Earnings Call
During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
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I would now like to turn the conference over to your Speaker today, Steve Elder Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone.
With me today is Melissa Smith, our CEO and our CFO Roberto Simone.
The press release, we issued earlier this morning, and a slide deck to walk through our prepared remarks, Hep and posted to the Investor Relations section of our website at <unk> Dot com.
A copy of the release Msy Duck I've also been encoded and eight case, we submitted to the SEC.
As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or a N during our call.
Adjustments for this year's first quarter to arrive at this metric Inc.
Unrealized gains on financial instruments, net foreign currency Remeasurement losses.
Physician related intangible amortization.
Other acquisition and divestiture related items stock based compensation.
Other costs debt restructuring and debt issuance cost amortization.
And I adjustments attributable to Noncontrolling interest and certain tax related items.
And you see exhibit one of the press release for an explanation and reconciliation of adjusted net income to GAAP net income attributable to shareholders.
I would also like to remind you that we will discuss forward looking statements under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those forward looking statements as a result of various factors, including those discussed in our press release and the risk factors identified and our annual report on form 10-K for the year ended December 31 and 2020.
Filed with the SEC on March one 2021, and subsequent SEC filings.
While we may update forward looking statements and the future we disclaim any obligations to do so you should not place undue reliance on these forward looking statements all of which speak only as of today.
With that I'll turn the call over to Melissa Smith.
Good morning, everyone and thank you for joining us today today, we reported first quarter 2021 results.
Continued to drive strong momentum sequentially across both revenue and earnings due to the continued hard work and diligent execution of our team members.
Underpinned by strengthening Boston, and new customer wins and renewals.
The business and the scale of our model.
Revenue for the quarter came in at $411 million and adjusted net income was $1 79 per diluted share.
Overall, the process and $16 $8 billion to purchase volume across the organization during the quarter.
Driven by notable sequential improvement across all business areas.
These strong volumes reflect a number of exciting new wins and renewals as well as a robust pipeline of opportunities that give me confidence and our ability to continue to drive market share gains throughout the year.
As you know this quarter marks a full year since the onset of the global COVID-19 pandemic.
The 2020 with full of unprecedented challenges and headwinds some of which we are still navigating to day. It was also an opportunity for wax to prove our resilience and unwavering commitment to our customers partners and innovation.
On top of this we took the opportunity to refresh our strategy last year and.
Order to better position <unk> for the opportunities we see emerging.
And the first quarter of 2021, we cultivated and grew our dynamic customer base across our various segments and.
As a reminder, our revenue is largely recurring in nature and.
And as we add new volume and our existing customer base recovers, we expect to capture the related growth.
This is illustrated in the robust sequential performance and fleet corporate payments and health.
And our travel business, we remained focused on the integration of that awful and Ethernet and effectively positioning the business for the eventual return to volume.
I'll talk more about the business performance and a little later, but first I'd like to highlight how we translated our strategy into execution and Q1.
The technology advancements, we made and the last several years to move into the cloud and increase our automation has put us in a position where we can now extend our market capabilities by weaving together the products and data we have spanning all across whack.
This allows us to add value to customers partners and prospects by offering new products and services that are tightly integrated into their operations through the use of API.
We're doing this both through internal development and utilizing our scale and rapidly integrating acquisition.
In addition.
We continue to find new ways to deliver significant value to the marketplace, creating momentum in various markets.
I will discuss shortly how this benefits our customers and partners and why this is propelling our growth.
Finally, we continue to empower our people to grow and thrive and a value based environment that is focused on what we do and how we do it.
These first quarter highlights align with our strategic pillars of delivering modular integrated solutions.
Growing through diversification.
Strength culture and talent.
And the marketplace and mitigating risk, while maximizing scale, which support our long term growth targets.
I'd like to turn to innovation network, we've already had some impressive accomplishments this quarter.
But this is just the start of what we anticipate will be another exciting and pivotal year for works.
A key part of our growth strategy is weaving together, our product capabilities across the entire wax platform and exposing these capabilities through a P. I.
Allowing us to create new best in class products for our customers and partners.
A prime example of this is how we leverage our technology to create crossroads freight and our over the road business.
This new product integrates the robust capabilities, we have and the OTR space with the data accuracy of the closed loop network and our local fleet business.
And with a recent shift in consumer buying behaviors towards online purchases. Many fleets are now more focused on last mile delivery and we're changing and the kind of freight that they transport.
Crossroads freight functionality works to address this market change it was key to winning J B Hunt, which operates intermodal and over the road and local business. This means that they feel at truck stops retail site and at their own fuel terminals.
Our product gives J b hunt, a single payment product with integrated billing.
<unk> to capture and more robust and end product capability that improve the efficiency of their fleet.
We're confident this solution is superior to any other product and the marketplace and as one example of why we've experienced strong sales momentum.
We're implementing the same approach across the entire works platform.
And they've already made similar advancements through the integration of Ethernet and off though.
During the quarter, we made the decision to consolidate their virtual card technology stack as well as to retire ynette and off the non core offerings.
This will allow us to focus on integrating the technology, while exposing the best for other products to our customers and partners, creating new and exciting capabilities.
Our strategy is to develop a unified and integrated technology offerings across the company, which advance the digitization of our offerings and enhanced customer experiences, while increasing our speed and bringing new products to market. We're.
We're doing this both with internal development as well as through acquisitions.
From an M&A perspective, our focus has been on deploying capital and growth markets continuing to reduce our exposure to retail fuel prices.
Our acquisition targets are designed to increase scale expand products opportunities or extend our geographic reach.
Recently, we announced two acquisitions and our health segment and.
And April we closed the previously announced acquisition of certain HSA assets from health care back that custodian bank of warehouse customers.
This transaction furthers, our growth strategy and expand our role and reach as we look to fully monetize these HSA assets, while providing a better more streamlined user experience for our customers.
Additionally, a few weeks ago, we signed an agreement to acquire a benefit express.
This acquisition significantly expands wax offering and benefit administration.
And complementary suite of solutions, including employee enrollment and decision support tools benefit administration and important value added services.
This represents the cornerstone to our strategy of expanding into the large benefits marketplace and will significantly expand the value proposition to our customers and partners.
Providing a more streamlined consolidated offering utilized by employees to make benefit decisions.
We expect this transaction to close in Q2.
Both of these acquisitions and support our strategy of extending our reach across a broader base of customers accelerating our strategic vision of offering a complete health care ecosystem with a highly complementary benefit administration platform at its core.
Our business and health has grown from less than $100 billion and revenue and 2014 to more than 350 million in 2000 and 'twenty.
It's been foundational to our diversification strategy and an important piece of waxes growth.
Importantly, these product extensions are increasing our total addressable market and creating competitive advantages for us and our partners.
I'd also like to highlight a few examples this quarter and how we're finding new ways to deliver value to our customers and partners, resulting in new wins and the marketplace.
One recent new win we signed is avid exchange.
A leading provider of accounts payable and payment automation solutions and the United States.
This win positions wax is the new preferred issuer processor and virtual card provider for all of avid exchanges a P offerings.
As part of this agreement and they'd be exchange will leverage waxes dynamic b to B payment technology, well works will leverage the avid paid network to expand acceptance and further digitize BTB payments.
By working together, we will simplify payment for customers and provide an improved and more secure supplier payment solutions and solve major pain points, such as manual AP processing and payment delays.
Wins like this one are indicative of the continued strength and corporate payment, which was up an impressive 20% and revenue this quarter year over year.
In addition to this win we very recently signed the state of California.
One of the largest state fleets and the United States.
And I'm also pleased to announce and findings under the naphtha or National Association of state procurement officials contract, we announced towards the end of last year.
While the state of Washington was our first time and we've also signed the states of Wisconsin, Colorado, Oregon.
And Indiana, bringing our total number of states currently served to 31 with more on the pipeline.
These states recognize the value that our analytics platform provides with fraud protection and detection tool and virtual payment capabilities.
It's once again, a point of reference where we're leveraging functionality across wax to win and the marketplace.
Our pipelines reflect the momentum we have built because of the differentiated products, we have and the marketplace coupled with our focus on supporting our customer needs.
Our employees deliver works a superior brand and the marketplace each day and have shown resilience care and creativity. During this past year that continues to deliver strong results for our customers and partners.
We continue investing and our most important asset our people with a focus on cultivating a diverse and inclusive workplace supported by waxes values of integrity execution innovation relationships and community.
We're proud of their heritage and culture, and we have developed it works and our efforts to create a positive and empowering corporate environment will propel us for it.
This focus on culture is a key piece of our broader ESG strategy I'm pleased to announce that we'll be publishing our inaugural ESG report shortly which I encourage you all to take some time to read.
This is the product of a lot of hard work and passion across the organization and.
Speaks to the core to works with.
And we recognize we still have a lot of work ahead and I look forward to sharing updates on the exciting efforts planned for this year.
And finally, I'm around and wrap this back into the context of our performance and the quarter and our view for the remainder of the year.
We're very pleased with the performance of the company and the current operating environment.
Unprecedented hurdle, we've retained customers and one new business and controlled our cost base.
Revenue is nearly back to pre pandemic levels and all areas except travel.
Overall margins have improved leading to a 25% sequential improvement and adjusted earnings.
We continue to have some very strong demand and our customer pipeline and have seen great scalability. Despite the lingering impacts of the pandemic.
Travel is one area of the business that has been most significantly impacted by the pandemic the market environment remains dynamic and we are aligning our business model Accordingly, we rapidly and thoughtfully created and integration plan for E net and the optimal and have already announced the organizational changes to integrate the business into works.
In addition to date, we have recognized $14 million of run rate synergies and expect to deliver over $20 million and run rate synergies this year and.
And approximately $40 million overall.
This is up for our original target of $25 million.
Our near term goal as I mentioned earlier are rooted in delivering best in class functionality to our customers and partners, while scaling the business to meet the market environment of today and the future.
Through innovative technology strong partnerships and outstanding customer service, we provide a world class experience to our customers a day and I'm confident we're well positioned to do so it's leisure travel volumes recover in.
In summary, we executed well during the first quarter of 2021 supported by sequentially improving volumes across the business and reflected in a number of exciting new wins and renewals and a robust pipeline of opportunities that give me confidence we will continue to drive market share gains throughout the year.
We made significant advancements towards our broader strategy and I'm confident our technological innovation will differentiate works and the future through a more unified and integrated technology offering.
Importantly, we continued to execute against our long term vision and goals and the quarter controlling what we can and positioning works for long term success as recovery accelerates across our end markets.
And with that I'll turn the call over to our CFO Roberto Simone Roberto.
Thank you Melisa and good morning, everyone.
We enter 'twenty, 'twenty, one and well positioned on.
And we continued to execute the refined strategic pillars.
Although the pandemic remains depressed and.
We believe we are taking the right to steps as the markets continue to recover.
This will set up works for long term sustainable growth.
We signed new business across all segments.
Drove innovation across works technology platforms.
And at the U S have business with two acquisitions.
And purchased the remaining 25% ownership of the European Exxonmobil joint venture.
The results this quarter speak for themselves.
In the comp ex of the new invite them and we are in.
Which reflects the strength and diversification of our business.
Let's just start up with a look at the quarter results on slide number 10.
For the first quarter total revenue exceeded the high end of our expectations.
Mainly due to higher fuel prices in the U S market.
Total revenue came in at four commented on thin boy named Malian.
5% decrease versus Q1, 2020.
Sequentially, though.
Revenue was up 3%.
But I meant really driven by the fleet and health segment.
Yeah.
But on an earnings perspective, GAAP net loss attributable to shareholders was $2 6 million.
Non-GAAP adjusted net income was $81 3 million or at all on on 79 cents per diluted share.
On a positive note our adjusted net income was up 25% versus Q4 of 22 on people.
Driven by higher revenue and fuel prices.
Really offset by the result of the net and Oakdale.
Okay.
Turning to slide number 11, and breaking down the revenue by segment sleep.
Felipe declined 2%.
Travel and corporate solutions posted a 16% decrease.
And finally, the health and employee benefit solutions was down 1%.
Now, let's move to segment results, starting with fleet on slide number 12.
Total fleet solutions revenue for the quarter was $243 8 million.
And 2% decline versus prior year.
We saw good momentum with new customers on renewals.
Were offset by lower finance fees.
We are encouraged by the 8% sequential improvement in the revenue growth rate when compared to Q4, 2020.
Payment processing transactions were only down two 6% when compared to last year.
This trend is consistent with the improvement we have seen in each of the last four quarters.
Over the road transactions maintain debt has strong growth up 15, 5%.
And North American and International fleet businesses were each down four 4% and.
Continue their recovery.
The net payment processing rate was a communist on 20 basis points.
<unk> 15 from Q1 'twenty 'twenty on.
Seven from Q4, 2020.
The year over year decrease was mainly due to the significant growth of old P volume.
How are your field price is in the U S.
And the 6 million reduction in positive feel as spreads in Europe.
The sequential decline was mostly due to higher fuel prices and a continued gross to them at a mix shift to larger over the road fleet.
The net late fee rate decreased to 45 basis points.
In comparison to the 56 and Q1 2020.
This decrease was primarily driven by the same over the road mix that I just mentioned.
And improved cash.
Customer payment behaviors that we have seen for the last three quarters.
We continue to see customers paying their bills on time, which has decreased the number of domestic late fees incidents at five 5%.
Consistent with the last few quarters finance fees revenue was down 6%.
Which we interpret as a positive sign because fleet credit losses improved both sequentially and year over year.
I will get into more detail some of these shortly.
So finished fleet B M and its domestic field pricing Q1, 2021 was $2.72 there.
<unk> was $2 57 in Q1 'twenty 'twenty.
This increased fleet revenue by approximately $5 1 million.
However.
The other spreads in Europe decreased by $6 1 million.
Coffee and a small negative impact overall.
Turning to travel and corporate solutions on slide number 13.
Total segment revenue for the quarter decreased 16% to $17 6 million.
Breaking it down.
Payment customer revenue was up 20%.
On the other hand revenue from travel related customers was down 67%.
Including approximately 5 million from <unk> on Optum.
Additionally, purchase volume issued by works was down 24% to $6 1 billion.
The net interchange rate was 94 basis points upset them from Q1 prior year.
This increase was mainly due to higher corporate payment related to volumes and.
The newest scheme fee arrangements signed in Q2, 2020.
Yeah.
This was partially offset by customer mix and rate changes for travel and related customers.
When compared to Q4, 2020 the range was down 32 basis points.
This decrease was due to a higher percentage of travel volume within the segment that comes at a much lower rate.
Finally, let's take a look at the house unemployed benefit solutions segment on slide number 14.
We continue to see significant room for growth.
And by if we use on acquisitions and.
In April.
The segmental EBITDA Q1 revenue of $96 3 million.
In the U S health business revenue was up 3%.
Driven by SASSA account growth of 7%.
However, total purchase volume was down 7%.
As we continue to see the impacts of the pandemic.
On discretionary health care spending being deferred.
To close this segment in Q1, 'twenty 'twenty, we've got $3 5 million of revenue from day, but I was really on business.
Which we divested and Q3 last year.
This was primarily and reported in the other revenue line.
Now, let's move on to expenses on slide 15.
For the quarter total cost of salaries expense was I commented on 57 and 8 million on them.
Dom put on my Congress and 85 8 million in Q1 last year.
Total SG&A depreciation and amortization expenses were $202 4 million, which is up $31 4 million versus 2020.
Breaking down the line items within these categories.
Processing costs increased $4 8 million, mostly due to the acquisition Avi and it on up there.
Service fees decreased $2 6 million mainly.
Mainly due to our renegotiated a contract with one of our vendors and.
And their conversion to on and thermal processing platform in the travel and corporate solutions segment.
Credit loss on a consolidated basis was $5 1 million.
Down from 34, mainly on in Q1 last year.
This decline was put on both the fleet and travel and corporate segment.
Fleet credit losses were $4 4 million.
This equates to six two basis points on the spend volume compared to 23, six and Q1 2020.
This significant reduction is a continuation of the positive trends that we have reported in the last three quarters.
In the travel and corporate solutions segment credit loss was less than $1 million.
Down from $13 3 million on last year.
Over at all.
And I need a lot of results continue to be very good.
However, we are monitoring for any signs of weakening.
Corporate and interest expense was $2 6 million.
$5 9 million and from a year ago.
This was due to lower interest rate on the West Bank deposits.
G&A expenses increased $24 4 million.
Mostly due to integration expenses related to net on auto.
All of that acquisition expenses.
Bend on contract termination and stock compensation.
The sales and marketing expense line increased $9 6 million.
Driven by higher fund net rebates associated with corporate payment volumes on <unk>.
And also.
Before I move on to taxes I want to talk briefly about the travel customers and the integration of <unk>.
And we've seen the travel and corporate solutions segment.
As Melissa said, we implemented approximately 14 million of run rate synergies in Q1 and.
And we expect to achieve more than 20, mainly on by the end of the year.
The remaining $20 million to get to the 40 million on total will take longer.
This is because they relate to platform consolidation and Bakken processing.
For now we are positioning the business to capture as much cost savings as possible.
While we work through the volume and revenue recovery.
Let's discuss taxes on slide 16.
On a GAAP basis.
And the effective tax rate was negative seven 8%.
Compared to 31, 7% for the first quarter of 2020.
Okay.
On a on a basis the tax rate was 24, 9% for the quarter.
And 25, 6% for Q1 last year.
Changing gears now to slide number 17.
And I will like to provide and update on the strength of our balance sheet.
We maintain a strong financial profile with a robust levels of liquidity.
We ended the quarter with five crowded and $61 2 million and cash.
Don from and you commented on 52, mainly on at the end of 2020.
From a liquidity perspective, the corporate cash balance and B.
Finding the credit agreement was to come in at a $90 million.
Down from six commented on and 42 million on at the end of Q4 of 2020.
Also including some improvements to our credit and somebody a man, which I will touch on in a moment.
There was over $878 million of available borrowing capacity.
At the end of the quarter the total balance on the revolving line of credit.
Certain loans and.
Convertible notes outstanding.
And $2 6 billion.
In March we will redeem the protocol and that a million of senior notes using corporate cash.
In April we refinanced both term loans and the revolver.
These extended the maturity date of the term b loan to 2028.
And the term a low non revolved debt to 'twenty to 'twenty six.
Finally, we increased the balance on the term loan by a communist and $17 million.
And the revolver capacity by $60 million.
And made other positive comment on changes.
The leverage ratio as defined in the credit and February a man stands at approximately three eight times, which is up from three seven times at the end of 2020.
Subsequent to the end of this quarter.
We closed the health go to Bonk HSA assets acquisition.
Announced debt benefit express transaction.
Which we expect to close during the second quarter.
And we purchased the 25% minority interest in West Europe services.
For approximately 97 million.
To close on the call. We are encouraged by the pace of vaccination and how.
The economy recovery.
However.
And the and vitamin remained some predictable and therefore, we will not be providing formal full year revenue and earnings guidance.
We do want to provide some general comments for the business segment on.
And look at sequential trends to provide the most up to date information.
We believe this is a more relevant comparison.
Looking at Q2, 2020.
Fleet volumes have been improving sequentially for the past three quarters.
We expect this trend to continue.
Additionally, we estimate the benefit from fuel prices.
As of April 23rd they would on average $2 91.
Corporate payments customer volumes I'd expect it to remain a strong.
And looking forward, we continue to see strength in this business.
Yeah.
Travel customer volumes on it.
Depressed and Bismarck and 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 Albina pent up, though which is progressing as planned.
For Q2, we are expecting to see a seasonal increase in travel volumes when compared to Q1 this year.
Additionally, I want to remind everyone that in Q2, 2020. We are recorded on approximately 7 million on revenue true up from the renewal of a scheme fees contract.
Finally, looking at the U S. Gulf business, we expect revenue to grow in the range of 8% to 12% for the full year and.
And to see the good old accelerate in the second half of 2021.
These numbers do not include any projected revenue from benefit express.
We have not closed the transaction yet.
Translate and all of these into our view for Q2, we would expect and total revenue to be between 430.
For the commented on 40 million.
For an increase of 5% to 7% when compared to Q1 2021.
But on an earnings point of view, we expect EPS to improve sequentially.
Driven by higher revenue, including higher field prices and deep. It every day as shown on the Ina and upsell integration.
To conclude we are proud to who ex resilience and confident in the future.
As we capture new growth and the economy continues to improve.
And with that operator, please open the line for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Your first question comes from the line of Tim Willi with Wells Fargo.
Oh, Thank you and good morning, everybody two questions.
And I apologize. If this was addressed earlier was jumping in between calls, but could you talk a little debt.
Yes about.
The transportation market, we hear a lot about supply chains, and labor issues and and I know that things are improving I'm. Just curious if your gut feel is that it goes types of issues can get solved, but theres, even sort of another sort of step up I guess around activity and the velocity around.
Around July transaction, and transportation and what's on their commercial suffer.
Hi, Tim It's Melissa did you have another question.
Yeah and then.
No.
And the other one after that but let's just call. It that one okay I got it okay. Yeah, Yeah sure I mean, there definitely has been a lot of change and our customer behaviors and that part of the marketplace, where they are on the road customers and I talked a little bit about on our calls from other products that we've developed as a result of those changes spend this movement.
And the more around delivering for the last mile and Theres been no concerns around staffing and and and certainly all of that and played out and in the marketplace and then one other thing I'd say is if you look across that portfolio through the pandemic the larger sized over the road fleet to outperform.
And the smaller businesses and so there's.
And there's been quite a bit of change and in behavior with that customer set and I think like and a lot of and lots of parts of the economy right. Now they are struggling with labor I'm not hearing that that is something that they're concerned about in terms of ability to.
No and to have less.
You know unless ability right now to meet customer demand and aggregator that just kind of shifts the volume around from one customer to another.
So I wouldn't say that that's a trend and debt. We think is going to play into you know a change and overall volume and just changes between.
The customers that are feeling.
Okay. Thank you and then and then my follow up was around B to B and and the partnership with Abbvie true and most people recognize is also working with your competitor and I guess, just sort of thinking about that partnership and and.
And quite sure about how that came about and winning that business and sort of the go to market and just how.
You started feeling and companion to worry about sort of being that preferred partner I guess around helping other people sort of accomplished their standalone business schools. If you will.
Yeah, and we feel great about it and it's one of the hallmarks says and wax and our go to market approach and the past has been and fact that and if we do business with them you know some really great partners and and we also go to into the marketplace directly and the relationship and Avatar, obviously really excited about that there's great great.
And will be a great partner.
And we're gonna workers issuers, the processor and virtual card provider and and a part of it.
What we feel is compelling that we brought into the marketplace is the ability to bridge all of the pieces together and to do it with modern technology that processing capability that we have that we developed and we really developed and you know primarily first in house and we did it to make sure that we were scaling that.
Cost structure across our corporate payments and travel business, but what we developed which was cloud based highly reliable and you know it isn't is an important part of the proposition that we have and the marketplace right now, but it's just one component and so as we are in the market talking to.
And prospective customers and partners it is really the breadth and.
And that we can combine the different pieces of what we're doing I'm you know for maybe for one fintech, we're doing one individual component, but when you when you bring it altogether, it's pretty compelling and.
And again, we're super excited about that we I should mention that we expect revenue to ramp towards the second half of the year some more interest in Q4.
And take a little bit time could you go through the implementation process.
Excellent and find out.
Steve.
Yeah go ahead, sorry, and I wasn't kind of gave you two additional data points on what Melisa was talking about on the over the road, which I think unimportant number one is our customer existing customer base of same store sales went up four 5%.
And at what volume so we're all in the quarter were almost 16%. So I think those two data points are important for you to consider on the on the other the road.
Great. Thank you for that and I won't get greedy and I'll hop back in India and the cure.
Yeah.
Your next question comes from Rob Napoli with William Blair.
Good morning, Thank you for the question.
And I guess.
Alyssa and I'd like to.
And here a little bit more about your tech investments and how and if it seems like you know I mean, obviously, there's a lot going on and Fintech market right. I mean, there's just an average.
Habit exchange, but it almost seems like hundreds and sometimes on some new players and there's new players start out with fresh tech stacks and.
And I think it's sometimes harder.
For incumbents to adjust their technology.
To have the same to be able to compete on technology, but you know works has been investing so I'd just like to hear a little color on how you feel about the tech stack and it works versus.
Some of the newer startups that maybe have a fresher tech stacks and how much what the investment you need to continue to make on.
On a compare competitively.
And I'll leave it there.
Sure. Thanks, Tom.
Talking about technology, a lot because it's an important part of why we're winning in the marketplace and into your your point. If we hadn't started our migration them years ago, now and I would feel differently and I feel really good about where we are because and there's several years ago.
We really looked at ourselves and said, even though we're competing and winning.
Now on technology, the environment around us is going to change and we wanted to make sure that we can play and the new evolving environment and on and we started the cloud migration and I've talked a lot about that that was foundational for us and our ability to go faster.
And then on top of that what we've been doing is building cloud first and as we are adding new components into the business, we're doing it and modular way and now as we're looking at Kraft wax for combining functionality and exposing it through API, which allows us to.
Really take again, the breadth of the offerings, we have and presented it and a.
Very modern way into the marketplace and so I feel really good about the path. We're on technology advancements we've made that the ones that will make going forward, you know and I talked last quarter about adding into that the work that we're doing on artificial intelligence going force the data lake, but just the data.
And that's what we have across wax. We believe is also a competitive advantage. So.
There's a lot on our tech strategy and and I feel really strongly about.
How far we've come and you know, how and how much opportunity that creates for us and the future.
And I was highlighting a number of examples of that.
And my prepared remarks.
Thank you and then just on the pipeline and you talked about a strong.
Pipeline, where are you seeing the strength and can you give any like the sales.
Year over year, net new business that you've added.
So maybe some commentary on sales and the pipeline and where youre seeing strength in particular.
Yeah. If you look at the activities we've had since the pandemic began and yet it's been really remarkable it's on.
<unk> seen an increase and application volume and throughput and our <unk>.
<unk> business, you can see that presenting and the over the road business know Roberto talked as an example about volume being up 15%, but I'm only same store sales were up four two and you know that's it.
And the rest of that is coming through.
Organic growth that we're seeing and the business. So on fleet are crossed all asleep and our pipelines are looking really good. It's just specifically on the over the road.
Particularly strong, but it but strong across the entire fleet business and talc and I had said on the last call that we expected our health business to and show growth debt.
We'd be back ended this year and you know right now we're seeing some of the headwinds of of employers not adding as many employees, but as you progressed through the year, what we have and our pipelines and what we're seeing for implementations, we know and feel very strong.
And about that part of the business and and corporate payments now that we missed and I talked about average exchange, but we feel good about the pipeline development and what we brought into the market are already this year.
Okay. Thank you appreciate it.
Your next question comes from the line of Sanjay its a crying with William I'm, sorry, which K B W.
Okay. Thanks.
I wanted to drill down a little bit on the health and employee benefit solutions segment.
And just looking at the volumes they were weaker.
You can just speak to that I know youre expecting pretty strong growth.
And the rest of the year, but could you maybe just bridge that for us.
Well I will ask that and good morning Sanjay.
Sanjay the first thing is what Melissa just said and we talk about debt in the previous caller quota and ago that we would expect and the second half of the yet to be stronger on the first half but over at all on what 8% to 12% growth for the full year remains intact and we feel better now than we felt on a per.
And I'll go the reality is the business is growing well south of account growth was 7%, but on the purchase volume side, we were 7% down which is going to start recovering as we get into Q2, because the comps number one and I'm going to be better versus last year, but number two we have seen an improvement on the south Dakota spending as well.
Go into Q2, so those two pieces that are going on.
And on top of that we will have no. Once we close the benefit express transaction and we should see also a boost on the revenue growth.
Yeah, one thing I'd add to that as well is we do anticipate to see some pick up and our Cobra offering and that is the.
Reimbursement instead of reimbursement changes, which were just announced start to play out.
We think we're going to get a benefit and that as well.
Okay and more.
So you talked about.
And number of <unk>.
Obviously, you guys have done deals and.
And number of market share gains.
You could just speak to.
How to think about the progression into the numbers as we move through this year and into next year.
All material deal.
And as we move forward. Thank you.
Sure sure I mean, I think actually if you kind of step back and look and I want to touch on a moment about just sequential improvement because I think that's important because there's two things that are playing out for us one is what happens.
With our existing customer base and then the second is what we're seeing for new sales since I talked a lot about new sales and it's one of the things that we control the most and we feel really strongly about that but if you look at what's happened sequentially in.
Q2 last year, we were down 21%, we were down 17% in Q3, 9% and Q4, and then and 5% this quarter. So we've seen some really nice sequential improvement.
Some of that is based on customer mobility patterns, returning and if you look at each of the segments on and I'll talk about them for a minute, but on fleet. As an example, we've seen improvement sequentially over the road and certainly you've seen some benefit over the last year, but on North American fleet business, which is a larger part of the.
This continues each quarter to look a little bit better. This quarter, you saw a little bit more improvement with the construction trades you saw a little bit more activity and education.
And we expect that that's going to continue to play out gradually is what we've said and that's because you've got activity in that case, the smaller fleet smaller fleets, meaning smaller in size.
And I've been really leading.
And the activity and and I think that's because some of the larger companies where more quick to move to work from home environment and and limit the mobility, where some of the smaller businesses continued and so as you see larger businesses opening back up we believe you're going to continue to see that sequential improvement and we're going to get it.
And if it about and and kind of the the last piece and that North American fleet business or thinking of automobiles like a pharmaceutical sales fleet that will eventually go back out into the marketplace again, so we think that you'll see sequential improvement and that part of the business.
And so one of the factors that affect the growth and we're seeing that play out and of course of this year is that reopening of mobility and then on top of that as we add new business and retain our customers, that's where we get those things coming together is where you see this return to growth and we've been highly focused on making.
Score that we're retaining our customer base that we're working with our customers that were on.
New business and that we're doing everything we can to encourage and activity within our existing customer base and some of those examples are the way that we've made either purchased within our health business. So that we allow people to go on and purchase things, which were harder for them to do during the pandemic.
So all of those things, we think are going to play out together and then on top of that we think first and foremost a about our organic opportunities and then we add on to that what we believe our opportunities to really increase the total addressable market place with players like what we did we benefited for scrap.
Where we think that we're doubling the total addressable market by adding in that asset and their ability to create.
Create a better offering and the marketplace, where you can have an end to end support system, where you're offering that out to our customers and our partners and.
And I'm pleased in the marketplace and so it's kind of it and in my mind, it's a twofer right actually creating a better experience for your customer, but you're also increasing our total addressable market.
Yeah.
And Jay and I will just up and whatnot.
I will add one more thing to Melissa numbers on the sequential improvement, which is we have not provided formal guidance. We have given some numbers for the second quarter on.
No.
And we just put out debt, 5% to 7% revenue.
Essentially improvement growth. So it would have affordable quarters already of sequential improvement we are expecting a quarter call me and also with the very good growth.
Okay.
Next question comes on the line of James I'm, Sorry, that's Ramsey El <unk> with Barclays.
Hi, Thanks for taking my question today, most Robert Roberto.
There are a handful and factors that you called out driving your fleet solutions revenue yield down this quarter, which I get but how should we think about that kind of going forward, you know trenching and <unk>.
<unk> corporate and then through the year.
So I will just start on at least how will China for sure what I would take two user and as I, just said and we expect sequential improvement to continue both in volume and growth on the on the fleet side I think we work on a continuous scene.
Better credit loss system, and we've got a lot here, but at the same time remember that on the late fees site, there's always a correlation between late fees on.
Our credit losses, and the third thing I would say to use what Melissa just mentioned I mean, we are carrying a lot of the new customer wins and all of that as we and reflected on the sequential growth that we have not for the last four quarters and we are expecting to hobby and Q2 two.
Although on a going forward and offered on the second quarter is difficult to predict but as things continue that pace that we are seeing whereas on a continuous seen that and not beyond the second quarter. This year.
Yeah, and actually just to put it.
On a finer point on that and you know Roberto talked about the correlation between late fees and credit loss year over year. If you look in terms of basis points were down $10 million and and ramp the new specifically for <unk> and Q1 late fees down $10 million and obviously, we get the offset non fleet credit losses.
And in Q1 50 million zone, but it wasn't a material impact in Q1 for that so total fleet revenue was down 2%, but you know five to 10 million on late fees is approximately four points of growth and and.
Is that you know as that plays out and <unk> seen this mix change and the over the road business you're mixing to these larger over the road fleet, which has less credit loss associated with that more timely payment no less fees late fees and and across the portfolio and because of the stimulus money. We believe youre seeing just more timely payment.
And then you know we've.
And we've talked about the credit loss favorability, but just to point out there is.
There's an impact on late fees as well.
Okay.
Thanks for that and sort of the comprehensive answer.
The next question I have is on on the travel payments business and you'd mentioned a couple of things and your prepared remarks, one was that you and a context of integrating and and optical you retired some non core offerings and then the second thing was that.
There was a little bit of a headwind on net take rate from rate changes for your travel related customers I guess from the first of those items and is there any is there any.
Reason for us to think about modeling and optical differently in terms of having retired some parts of the business and then second day is there and how should we think going forward about the permanence of the of the rate changes you've made for travel related customers is that something that would have an impact on the translation of volumes and revenues growing volumes to revenues going forward.
Yeah, Let me start on this one and and and I actually I think just to take a step back for a moment and the reason why we liked the combination of Ethernet awful and works with the fact that we saw a really compelling joint product offering and the marketplace and and the ability to scale on a global basis, we like the footprint.
That the assets had that they brought together.
On the non core offerings were immaterial to revenue, but part of how we increase the synergy number.
Associated with them with the integration.
So I don't think that it's going to have an impact on how you model that.
You know if we look at the whole that whole part of our business over the last several years, we've been really focused on in sourcing and the technology and so we had brought in.
Three years ago, we bought a company called Aoc that allowed us to in source and and upgrade the technology wanted to take control over it for a couple of reasons. One we wanted to make sure that had the performance standards that we were looking for.
But then secondly, we wanted the scale of that and we really thought about that and the context of travel marketplace Theres a lot of concentration within that customer base, but it's also the platform that we're using within our broader corporate payments group.
And we did work on on that front, we created this in house system migrated all of our volume onto our internal processing system, which again increased scalability for us.
But also increased performance capability and our overall capability, which is then and what we've been looking at and just doing bolt on.
And then we've done and continue to do a lot of work with the networks. So all of those things are playing out as well into the marketplace.
And and Roberto can talk I guess more specifically about rates, but as we've looked at this business, it's been with an eye towards making sure that we had a lot of scalability and that's hurt us. So you can see that and and.
And the margin that we reported during the quarter as volume is lower but as revenue returns. That's something that we think is going to benefit us and we also have identified and increase the number of synergies that we had with the eating out and novel and acquisition and that's really just recognizing and it's a different environment and what we had intended when we first.
And they put it on offer on this business and and <unk> been really focused around how again, we can present the best of the products to our customer set but also increase the scalability of this business.
It looks like I said, a lot I would just summarize three things for you financially.
Number one out of the synergies.
And then Melissa just mentioned and we have been very clear I mean, we are in a very good position. We are I would say ahead of our plan.
With over 20 million on expected for the year on run rate synergies of this is really good.
The second thing I would say to use on day rate as Melissa said, we have been working with our customers through the pandemic and discuss comp and now since last year and the es, but a year or two but on the same time with have been working with our network. So as we go into the future you should see debt rates, probably real estate debt is stable, but obviously.
It will depend on when Youll get the customary and impact on when you'll get day network benefit so but overall, we feel positive on on on the rate going forward, what within the travel customers and the final thing I would say to you and Melissa mentioned debt as well as the volume recall that and we're going to see a significant improvement on the margin.
And because of everything we have done to move everything in house with our fixed cost, which obviously is the volume recovered and who's going to fall to the bottom line very nicely.
Thank you that's super helpful answers I appreciate it.
Your next question comes from the line of James profit with Morgan Stanley.
Thank you very much on just a couple of quick questions for me and I'll put them. Both upfront first I guess from a strategic perspective you.
<unk> has always been and active acquirer of assets and and clearly Thats continued but I'm wondering how you're feeling about the current environment just.
Given valuations and and be just.
The total amount of capital that is available to a lot of private companies et cetera, and how if at all that sort of impacting your.
Acquisition strategy types of assets Youre looking at what you are willing to pay et cetera, and then my second question is just on on this point around.
People being able to pay their bills, better et cetera, because of availability of stimulus and the like how are you thinking about.
How that may evolve going forward are you seeing any early indications that we may be returning to a more normalized environment or not yes just.
Speaking a little bit about debt for planning purposes, Thanks, a lot and Melissa and Roberto.
Sure sure so on.
First one on the valuations.
Talk about that and Roberto is eager to talk about your second question on.
And valuations and the way that we think about M&A is and we have a very disciplined process that we go through we go into the marketplace based on a strategic set of assets that we've identified them and we are pretty patient you know some of these processes take a long period of time for them to come.
Come to fruition and but it has to meet our financial criteria as well as our strategic criteria and so with and the example, like benefit expressed no. We've been interested and are have been and been asset for quite some time, but we've been really quite patient around waiting for the one that fit the criteria.
Area for us.
And I'd add to that and.
We've also increased our capacity and our capability for building in house and.
And we've done that and it really is we've advanced our technology capabilities, but also intentionally because in some markets and in new ways. You were mentioning the multiples are at a price that we think it's going to be better for us to build and to buy and we're open to doing both and and we have and history of Bell. So.
So aware of the fact that and some and some places specifically you're you've got higher multiples I think that that's going to stay low for a period of time.
And we just handle that by being really diligent and thoughtful around what acquisitions, we ultimately acquire.
And then more recently ramping up our ability to build.
Okay.
And the Burger and you want to talk about credit line.
On the credit loss side and on the late fees. What we can tell you is it's difficult and challenging to predict what he has got a company and debt in the next few quarters, but I can give you a couple of data points. So what we are seeing even in April is a continuation of what we have been seen in the last three quarters, so low credit losses.
Very low credit losses, and lower late fees.
The second thing I can tell you is that when the stimulus money came back in Q3 last year on what we thought Cup and recently.
Scott the similar pattern. So couple of months three months after the stimulus money and we saw a small peak on late fees and a small increase on net credit losses.
So I would say to use it on most probably for the next three to six months, we are going to be in the same dynamics.
Eventually, yes things get back to normal we should see late fees, increasing on credit loss is getting more to normal levels.
The short term I would say that probably they will stay in a similar pattern that downward what they have been in the last three quarters.
Thank you very much.
Okay.
Okay.
George Your line is open.
Okay.
Great. Thank you just a just a couple of questions guys I guess, firstly going back to two day rate as it relates.
So travel just want to make sure I'm thinking about debt that correctly.
How much of that really is mixed day, maybe domestic rooms for example versus versus you know more international travel and the like is that something that is more of global travel starts to come back debt.
And that we should see a bit of a move and the rate or is it is that is that not the case.
Okay.
So I will I will start and Melissa may Tim in debt rating travel so our travel and corporate payment net interchange rate, obviously, two components and other travel site on the corporate payment the travel and rate these low weighted on deal at all.
Quite a lot, but if you think about the rate we've seen travel on domestic or international and the rate is quite similar so when we work with our customers we worked with them on and I know it all right.
And I don't see and that you are going to see a big difference between a range coming from one place of coming to from another ethanol. Its most on the on how the volume line in the travel is coming back.
Yeah, and one thing I would add a lot of our volume is cross border and and that's really a product of the complexity that we can handle.
And subtle and issue and and you know many different currencies and you know that's a competitive advantage for us that it leads us to get the volume that tends to be more cross border and.
A little bit more complicated by nature and.
And that and as I say that there arent cross border fees, though that we charge our customers embedded in that product set and so it doesn't really matter from a monetary perspective, like you might see and in some other and.
Some other industries.
Got you, Okay, and then just shifting gears a little bit too.
So fleet I'm not sure if I missed it but did you guys gave sort of the same store sales metric for north.
North American fleet, and maybe you can just kind of update and so as to what the revenue percent breakdown is now.
From from North American.
North America fleet versus over the road I now open the road has come up with North America is obviously still overwhelmingly the majority.
Yeah, Yeah, Yeah, two questions. One was the split between North American fleet to the total fleet and.
And secondly, the same store sales and same store sales was at and North American fleet was down about 13% and <unk>.
Over the road was up 4% and sequentially that was an improvement and the biggest categories and improved although there is still negative is construction.
Education, and finance and insurance.
Yes on dividend them on the on the fleet revenue. So over the road is just over 30% and North American fleet is around 55% of deal, but it all worked on revenue and fleet.
Okay. Thank you.
Yeah.
Ladies and gentlemen, we've reached the allotted time for Q&A today, and with that being said I'll turn the call back over to management for closing remarks.
And just real quick this is Steve. Thank you all for joining US This morning, and we'll look forward to chatting with you over the next few months.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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