Q1 2022 WEX Inc Earnings Call
Good morning.
My name is David and I'll be your conference operator today.
At this time I'd like to welcome everyone to the what's Q1 2022 earnings call today's conference is being recorded.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one once again, thank you Steve elder.
And your Vice President of Investor Relations you May begin your conference.
Thank you operator, and good morning, everyone with me today is Melissa Smith, our chairman and CEO and our interim CFO Jen Kimball. The press release, we issued earlier this morning, and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at <unk> Dot com.
Copy of the release and the slide deck have also been included in an 8-K, we submitted to the SEC.
As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or <unk>.
And adjusted operating income during our call.
Adjustments for this year's first quarter to arrive at these metrics include unrealized gains on financial instruments net foreign currency Remeasurement gains.
Change in fair value of contingent consideration.
Acquisition related intangible amortization other acquisition and divestiture related items stock.
Stock based compensation and other costs.
Debt restructuring and debt issuance cost amortization.
Ni 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 GAAP net income attributable to shareholders.
And an explanation and reconciliation of adjusted operating income to GAAP operating income.
The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and indeterminate amount of certain elements that are included in reported GAAP earnings.
I would also like to remind you that we will discuss forward looking statements under the private Securities Litigation Reform Act of 1095.
Actual results may differ materially from those forward looking statements as a result of various factors.
Including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March one 2022.
And subsequent SEC filings.
While we may update forward looking statements in the future we disclaim any obligations to do so you should not place undue reliance on these forward looking statements all of which speak only as of today.
With that I'll turn the call over to Melissa.
Thanks, Steve and good morning, everyone. We appreciate you joining us today.
Before diving into our Q1 results I'd like to thank our dedicated team members across the globe, who continued to deliver great results even in a quarter that included the impact of the omicron variant.
As a result of their efforts 2022 is off to a great start for wax.
I'd also like to take a moment to touch on the war in Ukraine.
Our hearts continue to be with the people of Ukraine, and we remain hopeful for a return to peace.
As we communicated at the beginning of the conflict.
It did not and does not have any employees our operations in Russia.
We took additional steps since we last spoke to stop supporting business in Russia.
The impact of these decisions is immaterial to our financial result at less than $5 million per year in revenue.
Now turning to our results in the first quarter, we once again delivered record revenue generating $518 million a year over year increase of 26%.
Driven by a continued recovery in travel volumes a strong increase in fuel volumes are very good open enrollment season.
And if favorable fuel price environment.
This increase includes a 6% negative impact from a change in accounting presentation. We have discussed in each of the last two quarters.
To put this in perspective of the $107 million of year over year revenue increased approximately $38 million was related to higher fuel prices and unfavorable foreign exchange rate.
And approximately $69 million, which for all other factors.
We're very pleased with this result.
Total purchase volume processed across the organization in first quarter grew 66% year over year to a record high $28 billion, reflecting the strong double digit growth rates in each of our segments.
Well travel volumes globally have not yet returned to pre pandemic levels as an industry.
<unk> had record high travel related purchase volumes for the first quarter at more than $7 billion.
We also had a significant contribution from the new avid exchange relationships as well as higher fuel prices.
Record quarterly revenue paired with expense scalability resulted in adjusted net income per diluted share of $2 88, an increase of 61% compared to the same quarter last year.
We experienced significant growth from operations, which contributed about half of the increase in EPS and high fuel prices drove the other half of the increase.
On an adjusted basis, the first quarter of 2022 was the most profitable and waxes history as we continue to execute well on all fronts.
Now, let me take a step back to discuss the key drivers of our first quarter results in more detail.
We continue to win new customers and expand relationships with existing partners across the wax ecosystem.
First travel enjoyed a strong rebound with hotel industry revenue and some of our key markets trending above 2019 levels in February and March.
There was a sharp increase in demand in both air and hotel travel when the threat of omicron with deemed less severe than previous variance.
This resulted in first quarter purchase volume for travel related customers.
Nearly three times last years level.
Despite uncertainty caused by the Ukraine, Russia conflict and a slower recovery in Asia.
On the corporate payment side avid exchange volumes continue to ramp.
And the implementation phase is now complete.
As a reminder, we won the right to be avid partner based on our wide range of different card products extremely high reliability and our all in one solution across both technology and funding capabilities.
Also in the corporate payment space, we renewed a long term agreement with Commerce Bank one of our major bank customers, who uses our technology platform and the state of Arkansas renew its payable business contract.
In mobility, we're seeing a strong uptick in new applications, particularly from the over the road small carriers.
Given the rise in fuel prices small carriers are spending more money on fuel need more credit or looking for discounts and card programs to help defray costs.
New applications from this market were up 26% year over year in the quarter.
In March had the highest volume of new applications ever.
Similar to last quarter more than half of these new accounts were sold and implemented digitally.
We also signed a new agreement to provide a private label program to travel centers of America.
Engaging with waxes powerful global platform allows ta to provide professional drivers a competitive quality program with many benefits and purchasing options.
In addition to our success with smaller fleet, we signed several new large customers during the quarter, including the largest U S retail propane distributor.
And a top 10 U S city.
In addition, we were added to the list of approved suppliers for Crown commercial service, which is the U K equivalent of the GSA in the U S.
Our broad based success is also reflected in our strong renewals, including a major auto parts retailer.
And the health and employee benefit segment.
As the nation's largest vocational rehabilitation and independent living programs, which is a state run benefits program wanted to find a company to work with to help achieve their vision of simplifying and streamlining the way that they distribute benefits to their clients.
They chose wax because our technology platform uniquely positions us to be able to support multiple benefit programs delivered in one solution.
<unk> was able to extend our core product offering and the consumer directed health care market and create a new and unique product offering meeting their needs.
The clients were able to have a simplified experience by being able to use money from the state programs are eligible for like stipends for education transportation or healthy foods all on one card.
Seamless technology behind the scenes uses custom merchant networks applies rules and applied the correct person to deliver available funds right at the point of sale.
This is a great example of the network effect that differentiates wax in the marketplace that we talked about at Investor day.
Not only do we meet our customers where they want to be met but we have the ability to deploy customer driven improvements across our network to maximize benefits in part due to the deep level of integration into the business processes.
Each new customer and partner adds additional utility to our platform enhancing the network effect to our overall offering.
Turning now to our technology platform, we continue to invest ahead of our customers to anticipate their needs.
Given the recent sharp rise in fuel prices, we are receiving very positive customer feedback around our mobile driver app as customers have been utilizing the app to find the best fuel prices in their area.
This week, we've watched flu.
Our new integrated software and payment solution.
As we discussed at our Investor Day, we're excited about this solution as we are targeting our 450000 mark.
<unk> and mid sized businesses that are searching for an automated solution, while leveraging our digital marketing tools.
We're rolling <unk> out to the market and will continue to enhance the product based on customer feedback, while delivering a seamless digital experience to our customers.
We also had a significant product release for health care products that they went live in March.
The release delivered a highly personalized and engaging consumer experience investment in data and analytics and updated mobile application and benchmarking tools for our partner channel.
Turning now to our electric vehicles vision as outlined at Investor Day, we are well positioned to help our customers succeed in their transition to electric vehicles.
In the second quarter, we expect a rollout of charging solution for our European customers that ties directly to their existing fleet account, providing central billing and access to over 200000 charging points.
We take our role helping customers transition to cleaner fleet seriously as part of our broader focus on ESG and we will be publishing a comprehensive updated ESG report this summer.
As we move forward, we remain focused on our purpose.
Simplifying the business of running a business and this includes our own business. We're.
We're looking at ways to evolve how we operate our core business and to create the resources, we need for future growth.
One way we're doing this is increasingly amount of automation in the business.
Like our customers. We're currently benefiting from and wanted to take even more advantage of advanced tools like AI and robotics that we're developing to free our employees from business complexities. So that they can focus on higher value work and continuing to strengthen our competitive position.
We also stand to benefit from a robust near term environment travel industry bookings for the U S and European Summer seasons are well ahead of 2019 levels, our digital marketing channels.
Continued to deliver great results, and we are well positioned to capitalized on improving macro trends across the company.
Looking ahead, the future for wax remains incredibly bright we entered this year with significant momentum and delivered impressive financial results during the first quarter.
The trends remained strong we continued to win new customers in each of our segments enhancing our leading technology platform and capitalize on the opportunities in front of us.
All of these trends give me confidence in our ability to deliver on our long term financial targets.
Before I turn this over to Jan I want to welcome Jack-tar, No ruler, who will be joining <unk> as our new CFO effective may 25th.
As I mentioned in Tuesday's announcement, jagged has proven strategic and financial experience, leading innovative technology companies and we're looking forward to having him on board.
I'd also like to take a moment to thank Jen for doing an amazing job over the past few months, both leading the finance organization through change during a critical time of year and also jumping into play a key role throat Investor day.
Dan will continue to serve as both interim CFO and Chief Accounting officer until Jack Terra begins his new role on May 25.
I'll now turn it over to Jan to walk you through our results in more detail John .
Thank you Melissa and good morning, everyone. As you just heard from Melissa we delivered a strong first quarter building on the momentum we had coming into the year.
We're firing on all cylinders and had yet another record breaking quarter.
The large attractive markets, we operate in and make us well positioned to achieve our long term growth target.
In light of our strong first quarter and now with better line of sight for the remainder of 'twenty two.
We are raising our full year revenue and EPS guidance that we provided back in February .
Let's start with the quarter results on slide six.
For the first quarter total revenue exceeded the high end of our guidance for three primary reasons.
Continued fleet volume favorability.
Celebrated ramp and travel spend and higher fuel prices.
Total revenue came in at $517 5 million.
A 26% increase over Q1 2021 with more than 80% of revenue for the quarter recurring in nature.
We define recurring revenue as payment processing and account servicing revenue.
Revenue from our factoring business transaction processing fees and other small items.
From an earnings perspective on a GAAP basis, we had net income attributable to shareholders of $122 8 million.
non-GAAP adjusted net income was $131 1 million.
Our $2.88 per diluted share.
This represents a 61% increase over prior year as we see the benefit of higher revenue dropped through to our margins.
Turning to slide seven.
And breaking down the revenue by segment.
Fleet grew 31% travel and corporate solutions posted a 9% increase and finally helped was up 26%.
The last two quarters, we've discussed the change in revenue presentation for specific customer contract and travel and corporate solution that will impact the comps in this segment through Q3 and Youll see that in the appendix.
On a comparable basis revenue growth in this segment was 47% compared to revenue growth for the total company.
32%.
Now, let's move to segment results, starting with fleet on slide eight.
Fleet revenue for the quarter was $319 1 million.
A 31% increase over prior year.
Powered by strong volumes from new customer wins and renewals.
Higher fuel prices and recovery in the existing customer base.
Payment processing transactions were up 12% year over year.
Over the road transactions maintained their strong growth up 23% and North America fleet was up 13%.
As you saw on our metrics the net late fee rate stayed relatively flat to prior year.
Finance fee revenue was up 51% due to significant increases in volume fuel prices.
Fee instances.
The average domestic fuel price in Q1, 'twenty two with $3 95.
Versus $2 72 in Q1 of 2021.
This increased fleet revenue by approximately $41 million and includes an offset of approximately a $5 million for European fuel price spreads, which generally move in the opposite direction to the U S.
The benefit of higher fuel prices compared to our Q1 guidance was approximately 14 cents of EPS, which is lower than we would normally expect.
There are two primary drivers to the first when fuel prices spike as quickly as they did in March it takes time for late fees to catch up.
Second we saw a bigger increase in diesel fuel prices, which is more fixed fee based.
As you know due to the fixed transaction fees included in our payment processing revenue when fuel prices go up.
Interchange rates trend down so thats, what youre seeing in the 14 basis point change versus last year.
To finish fleet, we are focused on the impact of high fuel prices on customer behavior.
That being said, we haven't historically seen meaningful changes in volume from rising fuel prices, assuming the economy remains strong.
In OTR and to a lesser extent in the local fleet.
We're seeing more frequent transactions that are slightly smaller to cope with higher prices.
We also expect that the high prices will increase our credit losses towards the high end of our annual guidance range, which are more in line with pre pandemic levels as customers absorb these higher costs.
Turning to travel and corporate solutions on slide nine.
Total segment revenue for the quarter increased 9% to $77 3 million.
On a comparable basis adjusted for an accounting presentation change that occurred in Q4 last year revenue growth was 47%.
There's a slide in the earnings presentation appendix that details the adjustments.
Additionally, purchase volume issued by wax was 11 8 billion, which is an increase of 93% versus last year.
Travel related customer volume represented approximately 60% of the total spend and nearly tripled over last year.
Breaking revenue down corporate payments customer revenue was up 18% adjusted for the revenue presentation change led by continued strength in the partner channel, including the avid exchange relationship.
Revenue from travel related customers was up a 151% versus Q1, 2021, reflecting increasing consumer demand.
We are pleased with these results and are well positioned to capture future growth as the travel industry continues its global recovery.
Finally, let's take a look at the health segment on slide 10.
We continue to drive strong growth, resulting in Q1 revenue of $121 1 million.
This represents a 26% increase over the prior year.
The acquisition of benefit express contributed approximately $11 million in revenue.
SaaS account growth was 15% in Q1 versus the prior year building up a strong open enrollment season.
<unk> the accounts related to benefit express.
Purchase volume increased 10%, leading to a 9% increase in payment processing revenue.
We also realized approximately $4 million in revenue from the HSA deposits that removed into West Bank late last year.
The interest income that we earned from these deposits will be a significant lever to driving long term revenue growth as interest rates increase in the deposit base growth.
Now, let's move on to adjusted operating income margins on slide 11.
In fleet adjusted operating income margin for the quarter was 52% up from 48, 5% in 2021.
This is the fourth consecutive quarter with fleet adjusted margins higher than 50%.
The increase was from revenue drop through as we continue to benefit from our ability to scale.
Credit loss trended higher this quarter as expected.
Increasing to 15 basis points of spend volume.
Although we expect basis points to remain closer to historical norm versus the pandemic lows. We saw in the last two years, we had already considered that in the guidance ranges we provided back in February .
Travel and corporate solutions delivered adjusted operating income margin of 36, 7% up from nine 9% in Q1 last year.
There has been significant improvement in the adjusted margins as travel volume accelerated and drove much of the margin improvement we saw on a total company basis.
The sequential decline in adjusted margins of approximately 2%.
Due to the benefit from card network incentive we spoke about in Q4.
Revenue dropped through for this segment is high.
Given our relatively fixed cost base and we also continue to see benefits from the <unk> and <unk> synergies.
And health adjusted operating income margin was 29, 3% compared to 31, 7% in 2021.
The acquisition of benefit express and some expense timing is driving a lower year over year comparison.
All of this led to adjusted operating income margin for the company of 39, 2%, which is up from 34% last year.
Largely driven by the travel and corporate solutions segment.
Shifting gears now to slide 12, I'll provide an update on the balance sheet.
We remain in a healthy financial position and ended the quarter with $578 million in cash.
We had over $698 million of available borrowing capacity and corporate cash of $156 million Boe.
Both as defined under the company's credit agreement.
As you'd expect we saw a sizable increase in our accounts receivable of $972 million versus yearend from higher fuel prices and more volume.
Our invested HSA deposits at West Bank ended the quarter at $978 million.
These assets are currently yielding approximately one 6% or about $4 million in Q1 revenue.
There is an additional $250 million of HSA deposits held at <unk> Bank that we are currently using as replacement funds for certificates of deposit.
We continue to evaluate opportunities to optimize earnings from the remaining $1 $8 billion of HSA deposit assets that we control that are not handle that works fine.
We intend to bring more deposits onto the balance sheet this year.
These deposits should continue to be a good source of revenue for us as interest rates rise and will act as a natural hedge through interest rate cycles.
At the end of the quarter. The total outstanding balance on our revolving line of credit term loan and convertible notes was $2 8 billion.
The leverage ratio as defined in the credit agreement stands at three three times, which is well within our long term target of two five to three five times and down from the end of 2021 due to strong earnings.
Our strong and consistent free cash flow generation give us a tremendous amount of financial flexibility to invest back into the business and pursue growth opportunities.
Finishing off the balance sheet, you'll see that we came to an agreement to purchase the remaining noncontrolling interest related to our health business.
The contract is structured so that wax will make payments totaling $234 million.
Interest over a three year period, beginning in March 2024.
This is shown at a discounted amount of $217 million in other liabilities.
Finally, let's move to revenue and earnings guidance for the second quarter and the full year on slide 13.
The first quarter was a very good quarter for us and I'm pleased to share that we are significantly increasing our guidance for 'twenty two.
Before I get into the specifics I want to remind you again of the impact of a renewed contract for a significant corporate payments partner that occurred in Q4, which altered the accounting presentation from gross revenue recognition to net with a corresponding change in sales and marketing costs as shown in.
The appendix of the slide.
There is no material impact on earnings from this change, but several of the segment metrics.
Including the revenue growth rate are not comparable to prior periods.
You can see the comparable numbers in the appendix to the slide deck.
Starting with the second quarter, we expect to report revenue in the range of $555 million to $565 million and adjusted net income in the range of $154 million to $159 million.
We expect Eni EPS to be between $3 35.
And $3 45.
For diluted share.
For the full year, we expect to report revenue in the range of $2, one five to $2 195 billion.
And adjusted net income in the range of $569 million to $588 million.
We expect anti EPS to be between $12 40.
And $12 80 per diluted share.
For the full year. These updated ranges represented an increase of $105 million in revenue and a $1 20 of EPS at the midpoint from our previous guidance.
Including Q1 actual results.
Fuel prices contributed approximately $75 million of the increase to our revenue guidance and a dollar of EPS compared to our previous guidance.
These amounts are slightly lower than our historical sensitivity to fuel price changes would suggest as I talked about earlier.
This also means that excluding the impact of fuel prices, we are raising our 2022 guidance at the midpoint by $30 million in revenue and 20 in EPS.
Based on our strong Q1 results and the continuation of both good execution and a rebound in volumes.
Now, let me walk you through a few more assumptions.
Exchange rates are as of the end of March 2022.
We estimate domestic fuel prices will average $4 46 per gallon for the second quarter and $4 13 for the full year.
Both are based on the Nymex futures price from last week.
The adjusted net income tax rate is expected to be between 25% and 26% for the second quarter and the full year and finally, we are assuming approximately 47 5 million shares outstanding including the assumption that the share count will continue to include one six.
Million shares associated with the convertible notes.
As a result of including the shares approximately $3 $8 million of interest expense each quarter net of tax.
We will be added back to net income to calculate EPS.
And with that operator, please open the line for questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad will pause for a moment to compile the Q&A roster. We will take our first question from Mihir Bhatia with Bank of America. Your line is open.
Hi, Thank you for taking my question I wanted to just quickly go back to the discussion about what you see in todays market with the movement in prices be hearing more about the freight recession, a little bit light. So there's been more talk about can you just talk about the trends youre seeing in the various segments and anything worth calling out regarding <unk>.
Claims in recent weeks. Thank you.
Sure Melissa respond back to that.
We are if you look across the fleet business the North American fleet business continues to rebound and I think that is tied more to just the reopening of businesses and so we've seen some really great volume trends there and the over the road business. We are hearing from customers that theyre seeing a little bit more softness than they have over the last couple of.
Years in terms of just volume trends, but I would say.
On the you know.
The a little bit so I'd just emphasize that.
Where spot rates are are softer than they have done.
And across the portfolio.
What we're hearing from our customers is a lot of focus around how to make sure that people have access to labor.
Inflation some of the big macro trends that everyone's talking about is certainly embed in the conversations we're having with with our customers across the portfolio.
So anything in recent weeks.
Hey, guys.
In your commentary around credit losses and season is there anything we should be really thinking about you're just more recently.
Yeah definitely if you look at volume trends they remain really strong for us and it's part of what we baked in when we looked at our second quarter guidance. So from a if you kind of run across the business from a freight perspective, you know like I said, theyre seeing a little bit of a softness in spot rates, which will translate into.
A little bit less revenue in our factoring business, but from a volume perspective volumes remained strong.
And we've assumed that within our second quarter guidance and for our full year guidance. What are the things that we thought about when we laid out our guidance for both second quarter and the full year.
The second half of last year, you started to see this kind of movement and in reopening and some strong trends that we just have continued to see.
And you can see that reflected overall, if you look at our growth rates for Q1, excluding fuel prices and FX.
And adjusting that one customer back from a revenue recognition perspective first quarter growth was 22% in revenue and 30% in N IEPS and from a full year perspective at the midpoint, we're assuming that that seemed like for like revenue growth of 13% and.
Our EPS growth of 17% that's been point, so really strong within our long term ranges.
But what we believe is you're going to see some of these <unk>.
<unk> trends continuing to play out over the course of the year, but you'll have harder comps as we get towards the end of the year because some of that starting to happen at the end of 2021.
Yeah. That's helpful. And then just my last question just.
And just remind us what are you assuming in terms of just the travel recovery as.
As we progress through the year it looks like you had a nice <unk>.
<unk> seen some good volumes you also have some good volume even this quarter, obviously, we're hearing positive commentary from.
The Otas and airlines et cetera. So what are you all assuming for the travel recovery yeah. Thank you yeah no. Yeah. If you look at our first quarter results our travel volume.
Reminder, our travel volume or hotels, so humor facility largely we're facilitating some airline payments that the by far the largest part are or hotels, and we tend to lag the broader marketplace. Because it is when people actually stay there as opposed to when they're booking.
But in the first quarter, we were about 70% pro forma of the number for the first quarter 2019, so tracking nicely and in April .
That's been moving up you know we're closer.
Closer to 70, 580% of our 2019 numbers for April so really nice trends.
And we feel really good about not only that trend better ability to actually show that dropped through to earnings because of the scalability of that part of the business.
Thank you.
Okay.
Next we'll go to Jeff Cantwell with Wells Fargo. Your line is open.
Hey, good morning, everyone and thank you for allowing me to join this call.
I was wondering if you could drill down a little bit on the guidance for two periods whether.
The improved guidance for the rest of the year, perhaps qualitatively in terms of what you're seeing right now at home.
And what your expectations are with next few months it looks like 26% growth this quarter to core groups on this Charles I'm, just curious what trends going forward what are your thoughts sure. Thank you.
Sure.
The genuine and you talk about the total amount talk about health Okay sure.
So in terms of the full year guidance, obviously, it reflects a really strong Q1.
And really an expectation for all three of our segments.
But theyre going to do quite well for the remainder of the year, we did and last year with a lot of volume momentum much. Melissa had mentioned of course, there are a lot of moving parts, but I'll keep it simple and really just to kind of two key areas.
It's really the travel the travel ramp.
I'm coming through as well as just again continued volume improvements.
And then about 75 million like I said in my remarks, it's really the tailwind on top of the strong business performance from fuel prices.
And again the Q1 beat was about 50 50, the travel ramp versus the fuel prices. So that's continuing to flow through for the remainder of the year. So that's what you're seeing them, we're well within our long term.
Targets, even without fuel prices.
And we added some more rate relative to what we had seen for Q1 here.
Higher fuel prices certainly are nice benefits for us and they are moving daily that being said.
It will generate some nice cash for us going forward, so I'll turn that over to Melissa Yeah, and then on health side, you mentioned, the 26% growth in the first quarter.
Yeah, So really strong growth, 15% growth in SaaS accounts. So we feel really good about how we came out of open enrollment season.
John mentioned in the prepared remarks, the fact that we have additional deposits that we intend to invest through the course of the year. So that will be an additional benefit as you go through the course of the year and then the acquisition benefit expressed will anniversary in June of this year. So if you look at held.
The year is going to rollout first court with a couple of quarters, we'll have the benefit of that benefit of express acquisition that will become annualize. The latter part of the <unk> will start to see more of a pickup from the deposits and just as a reminder, the long term growth rates that we've put out there for the health and employee benefit solutions segment.
Our 15% to 20%.
Okay, Great appreciate all the color and then Ernie.
On your cross selling efforts and also on direct sales would love to hear about the progress you've been making in both of those areas over the past quarter and maybe give us some color. Thanks.
Yeah, so on the cross selling.
I have no I'd say it is early for us. It's a place that we are really excited in particular excited there are a couple of things when I talked in my prepared remarks were examples of that that have happened even organically, we talked about one of the states.
Where we've extended what we're doing within our health business. It's also a customer that we have on the fleet customer side. The launch of the flu for US is really excited about that not only did we bring it to market rapidly we did it cloud first.
It's all digital offering for paid and get paid.
We're testing that within our existing fleet customer base. So we have 450000 customers that are smaller in size that are really the target audience for this product, we went through Bolton and alpha and beta test using existing customers we're learning.
From from their experiences how they're using the product and that's allowing us to make rapid advancement. So we feel like we have an ability not only with their technical capability, but with our existing customer base to combine those things together and actually bring products into the marketplace that allow us to extend the ecosystem that we have for offerings.
And really solve some of the problems that we're hearing that our customers have that are beyond that the piece of the verticals that we're providing for them right now.
Yeah.
Okay, Great I appreciate all the color thanks very much.
Next we'll go to Tien Tsin Huang with Jpmorgan. Your line is open.
Hey, great good morning.
I appreciate the time here I just wanted to ask on the travel and corporate segment and the visibility I know, there's so many moving pieces did a good job.
Explaining what's going on but just thinking about the visibility here on the line of sight to the second quarter or second half of the year.
It might fall in relation to your.
Longer term targets within that segment.
Sure.
We actually added them in the appendix on page 15, a lot of color around that segment, because I know, there's a lot of interest in it. So we have split out.
What's happening both in terms of volume and in terms of rate across travel and corporate payments and you can see from our perspective, what we said last quarter is from a rate perspective that as we blend in more embedded payments customers into our corporate payments business that you would see that rate.
Trail down during the course of this year, which is what we did see as expected and then on the travel related side that we expected to.
See that rate be close to what we had in the full year last year, because we made some true up adjustments in the fourth quarter.
And that also happens came in actually a little bit better than we expected. So so from a rate perspective, that's translating through from a volume perspective.
The volume trends in corporate payments came in you know really very much on on what we had forecasted when we provided our guidance.
Thing that has come in higher than what we expected and so on the travel side, we talked about that being up significantly year over year.
And when we created the range.
For the year as we guided now we've thought about that as.
Continuing down the path of Iran, where we're growing significantly over prior year, but still lagging a little 2019 up to the possibility of actually getting back to normal.
Got you.
I appreciate the slides looking at it now.
Okay. No I think that's good I think we have we can we can use debt to run rate. The rest of the year just really quickly. If you don't mind I know tons of questions by fleet.
On travel and cross border.
I know from a regional perspective, there's probably differences in recovery on the Mastercard earlier right before this call talked about how they see pent up demand there.
Given differences in Lockdown timing do you see that as well I mean is that whats given you maybe some.
Some bullishness around a quick recovery, just depending on where that pent up demand plays out given given lockdown changes do you follow my question Melissa.
Yeah, Yeah, no totally yeah, then there is definitely our regional differences that are playing out Asia and what we're seeing in Asia has lagged the rest of the world.
And so so yeah, so I'd say that that's been the one standout where.
Both in the U S and in Europe , you've seen some nice try.
Trends returning back.
And you know that's part of it as we thought about the guide for the year. That's part of what's in that range of possibilities and remind us does that returned back to normal or does that take some time.
Got it and hopefully it happens sooner rather than later thanks, Yeah, yeah. Thanks, Sam Thank you.
Next we'll go to Bob Napoli with William Blair. Your line is open Sir.
Thank you and good morning.
A question just when you have the HSA.
HSA assets fully invested what is the level of assets and then how do you manage the returns on that those assets are you lowering demand should we should we think about modeling it against the fed funds rate or.
So what is the amount of assets when they are fully moved how long does it take and how should we model. The returns I would imagine that interest income is also 90% pre tax margin revenue.
Yeah, So John talked about in your prepared remarks that there was one.
$1 $8 billion that are Uninvested, where part of what we're looking at right. Now is some of well I shouldn't say uninvested. They are invested with a third party not in their bag and so.
So they are earning.
Interest income now we are going to move them into our bank through the course of the year.
And what we're evaluating is how much we want to use to replace C. D's and how much we want to invest since we're going through that process right now that we will we will roll them in through the course of the year. So think of that is they're not going to do all at once because when they take advantage of.
No market changes over time.
And in terms of the rate.
<unk> talked about the fact that what we have right now is at 1.6% you know rates are certainly trending higher than that.
At the moment.
But when the fed raises 50 basis points next month are you are these invested such that they will move quickly York.
That they when they get invested now they get invested in in fixed rates over longer periods of time, So think of like the average of the what we have invested I think it's four years that right yet.
So they they tend to be over longer periods.
Okay, and then just on <unk>, where it is blue.
To the market competitively I mean, who would you care compare it to from a competitive standpoint.
I mean is the.
I mean, maybe just talk a little bit more about the product set and claim is it more.
Is the revenue stream, we're going to be AP automation.
Driven.
What is the I guess the game plan to build that so where does it fit that Italy product set.
Yeah sure. So it's a digital pay and get paid model.
And so we're allowing our customers to invoice them.
And collect as well as bill all digitally.
The revenue model will be a combination of transaction fee related didn't subscription fees.
And competitively that you would you would know others that sit in that space. You know part of what we think that we offer a suite of this customer mix.
We already have a relationship with these customers what they're looking for is help.
Automating the solutions that they have in place.
And so we think that we come in from a having a relationship that's trusted with that customer base being able to solve some of their additional problems that they have.
We're finding interest with some of the smaller accounts.
And and as I said, we've got 450000 of them that sit within our existing portfolio.
Thank you and then just lastly can you call out on same store sales trends what is that telling you about the economy.
What are you seeing where do you see strengthen what has been the trend I guess over the last several months.
Same store sales trends have been.
Favorable it was up 4% and if you look across the mix and again when I talk about this I'm talking about North American fleet, which as you know.
There's a lot of customers that sit in there and a lot of diversity of the type of customers that they're there.
And as you might imagine like mining and which is relatively small.
Part of the business you know it was up pretty significantly, but so was construction educational services.
You know some really strong increases and you know a number of different categories.
Accommodations and so you look across the mix most categories were up a lot of them were up in double digits.
Okay. Thank you appreciate it.
Next we'll go to Dave Koning with Baird. Your line is open.
Yeah, Hey, guys. Thanks nice job.
My first question just on travel yield I know you've already answered a lot of questions on it but because people are so sensitive to it each quarter.
I'm just thinking sequentially is there is there a seasonality to that yield or it looks like mid 40 ish basis points or so is that kind of going to be consistent through the year.
Yeah. The we mentioned on the last call that the fourth quarter, we had some true up adjustments and so the rate in the fourth quarter was artificially high and that's why I had said if we use the full year rate for 2021, it would be largely what we expect to play out in 2022 and I'd say the same thing now.
May not play out perfectly every quarter, but we do expect to see.
The quarters.
Come in line with last year's average rate.
Okay. Okay. Thank you.
And then and then I guess secondly in the fleet segment is really good obviously mid teens growth or kind of core X X fuel prices.
The rest of the year is there going to be much difference I mean is it kind of going to be high high single digit maybe for all the quarters are different quarters have different kind of core growth rates in fleet.
Yeah, It wasn't a great quarter and adjusted out for fuel prices and FX It was up 15%.
So you know we feel really good about that and if you can see that in all of the underlying trends where the number of vehicles were up 9% the payment processing transactions were up 12% and we do think we're getting some benefit in the quarter of you know things reopening still and that would that come through the gap between those two years.
Seeing that there were more transaction increases vehicles, but we're also just seems really great sales and you know kudos to our sales teams that continue to be out there in the marketplace into our digital teams.
That are bringing in business digitally.
We feel really good about our ability to continue to bring in new business, our ability to continue to retain the business that we have the thing that I think that will be that were at least in our guidance. Assuming is that you don't see that same kind of macro pickup from same store sales.
Throughout the whole year, because you'll start to see starting to see the benefit at the end of last year, where things were reopening.
But in terms of the framework, we gave when we said we're going to have existing customer growth net new customers.
Coming on new products, and M&A and we feel really good about how we've landed the first quarter very much in the in that framework with the additive part coming from existing customer growth and as you go through the course of the year, we're going to continue to see new customers getting added new products rolling out the <unk>.
<unk> benefit from M&A and then existing.
Existing customer growth.
That's the one thing that if you look at the course of the year I expect to trail down a little from Q1, but the rest of it looking very much in line with our long term framework.
Sounds great. Thank you.
Okay.
Yeah.
Next we'll go to Sanjay, it's like Ronnie with kv double to <unk>. Your line is open.
Thanks. Good morning, most of my questions have been asked but maybe just digging in on a couple.
Maybe similar to the previous question asked on the travel yield.
I know in your prepared remarks, you guys talked about the accounting change on the existing customer in corporate and then avid is coming on as well which is great.
Most of them were RV with the avid.
On boarding like how much more is going to come on over the course of the remainder of this year and what's the impact on the yield.
Their volumes come on.
Okay.
Yeah, I'm gonna be sensitive talking about one customer.
Customer I would say that we we did say that we have fully implemented avid it doesn't mean that now that we're done from a.
You know migration perspective.
And so we feel good about the fact that we've gone through that process with them and.
And we're seeing benefits coming through already we do think that we'll see continued growth in that relationship and the courses this year.
And I think that's probably we're going to leave it.
And I guess.
That happens that should.
Drive the yield lower over the course of this year.
Okay.
Yeah. It was actually it was and the embedded payment relationships that we have where are those customers are utilizing our underlying technology stack.
Those relationships tend to be less from a just a revenue yield perspective, but from a cost perspective.
He is highly scalable.
If you compare that to where we're doing an outsourced.
AP automation play with a small customer where we have just more cost associated with that it's going to have a higher yield from our you know from a rate perspective, but theres more cost.
Embedded in that so what we're saying is as we sell more embedded payments as it being a component of that.
Thank you will see that rate will will migrate down a little bit and then we've seen the bulk of that we think.
For the year, but we will continue to trail down a little bit over time as you see more of those embedded claimants mix in but from a profitability perspective as we play out the year. We do believe that we're going to continue to see some nice margin expansion as volume increases.
No that's very clear on that slide 16 that you guys absolutely.
Just one last follow up.
Maybe just to start with your questions as well lots of chatter on supply chain possible recession inflation economy.
Do you think that you've adequately contemplated that in the outlook.
Might there be blind spots.
Yes.
Thank you Sanjay and then we actually spend a lot of time thinking through you know the guide.
And you know for our perspective, you know we feel like we have.
<unk> been thoughtful about where travel go where we believe we're going to see volume trends really across the business and that's what we factored into the guidance that we provided.
You know from a customer perspective, I think it's it is interesting because we are seeing some really great volume trends.
You know some really strong rebound some reopening happening.
And mobility in you know in many ways and knowing at the same time, there's that underlying uncertainty around inflation.
And and from our perspective, we think that we've played out you know both of those things and the full year guidance that we provided.
Thank you.
Yeah.
Okay next we're going to go to Darrin Peller with Wolfe Research. Your line is open.
Hey, guys. Thanks.
When we think about the magnitude of upside to the business.
Assuming let's just say hypothetically there was never a pandemic and you had compounded at a rate that you thought you would.
Travel, obviously, you're still running at I think you said, 70%.
Broadly speaking I mean, there is a massive amount of potential upside to normalize that even beyond just getting back to 19 levels.
And then you look into the other segments, how do you think through where we could be from an earnings power standpoint versus.
Where we're trending right now maybe breaking down the parts with travel being the first and most prominent but obviously others as well if you don't mind.
Yeah, and I would say.
Chart by saying, Yeah, we're projecting the year to be ahead of 19.
And so we you know part of what we feel good about as we've grown through.
Talking about and where there was you know where there has been some softness and some volumes relating to the pandemic.
If I kind of walk across the business from a fleet perspective, the places that we think we still have upside.
<unk> side coming from the pandemic are no continued office reopening says is mobility continues to play out specifically.
Specifically in the North American fleet business.
And also internationally.
We know which has had more.
Impact from the pandemic than we have in the U S.
On the health side, we are seeing some really.
Strong return to spend patterns, but I think that's a place that we can continue to build upon.
And then and travel and said the other part is just having that returned to more normal levels and then continue to see that grow there. There certainly as you know I think everybody knows this in their own lives, there's pent up demand and desire.
On the from a personal travel perspective to to move back to more of a normal environment.
There are pockets across.
The company.
But I think we'd still have an ability to continue to benefit from.
Got it.
Hey, one more quick one is just following up from.
Some of the data points, we learned at your Investor Day about I think you mentioned more than around 10% of your customers utilize more than one of your segments and I'm curious, how that's been going and it was only a.
A little while since that day, but regardless the opportunity to continue that transition and cross sell.
Has there been more progress made and what kind of upside can we see tonight. Thanks, guys yeah.
Yeah, I'd, just say that the we've been really focused in a couple of areas. We've been focused on bringing <unk> to market. Because we believe that that's really compelling cross sell capability and and equally importantly is the ability to bring product into the marketplace rapidly do that in a very digital manner and so that's been a.
Pretty big focus of ours.
Over the first quarter of this year were all per formalizing.
The process of cross selling which again has happened historically.
More organically and so I think you'll hear more about that play out from our perspective, you know later in the year, then you're going to see that right. Now. So again the organic part of that is continued to happened you know across the business and.
And we're excited about the ability to continue to offer both of our product. So it's it's I think of it as two ways. One is the more traditional cross selling component, but also with the work we've done on the technology, that's being able to present the products that we have.
In different ways for our customers that and and and move people through this journey digitally and that's equally exciting to me.
Yes.
Makes sense. Thanks.
Thanks Melissa.
Thank you.
And that is all the time, we have today for the question and answer session. I will now turn the call back over to Steve elder for any additional or closing remarks.
Yes, I just wanted to say thank you for everyone's time this morning.
I appreciate the efforts for joining the call and we'll speak with you again in a few months. Thank you.
This concludes today's conference call you may now disconnect.
Okay.
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