Q1 2023 WEX Inc Earnings Call
Remarks, there will be a question and answer session.
If you would like to ask a question. During this time. It is star one on your telephone keypad I will now turn the conference over to Steve Elder. Please go ahead.
Thank you operator, and good morning, everyone.
With me today is most of them.
Our chair CEO , and president and Jack turning to ruler our CFO .
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.
Hello, and welcome to the works Q1, 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
A copy of the release has also been included in an 8-K, we filed with the SEC earlier this morning.
I also want to mention that we are renaming our existing segments in connection with our rebranding initiatives.
The fleet solutions segment will now be renamed to mobility.
The travel and corporate solutions segment will now be renamed to corporate payments.
The health and employee benefit solutions segment will now be renamed to benefit.
There are no changes to what is included in each segment.
As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders.
We refer to as adjusted net income or <unk>.
And adjusted operating income and related margin and adjusted free cash flow during our call.
Please see exhibit one of the press release for an explanation and reconciliation of these non-GAAP measures.
The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and the 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 1995.
Actual results may differ materially from those forward looking statements.
As a result of various factors.
Including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for.
For the year ended December 31, 2022 filed with the SEC on February 28, 2023, and subsequent SEC filings.
While we may update forward looking statements in the future we disclaim any obligation 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.
Thank you, Steve and good morning, everyone. We appreciate you joining us today Brexit.
Brexit off to a great start in 2023, we've continued our long track record of delivering exceptional financial results and performing well across dynamic macroeconomic environment.
Revenue present first quarter came in at $7 million above the midpoint of our guidance and adjusted net income per share beat the midpoint of our guidance by <unk> 11.
Revenue growth of 18% and adjusted earnings per share growth of 15%. This quarter represents the eighth consecutive quarter. These metrics each grew 15% or more.
Last week, we held our annual Spark conference a customer event, which unites leaders across the mobility corporate payments and benefit industries to showcase how our platform specialized solutions and help them overcome complexity and reached their full potential.
Mark has historically been focused on our benefits business, but was held as a joint conference across all of our solutions for the first time this year.
This highlights the ongoing transformation of our business as we discussed unifying product themes around data payments and digitization.
Our message to customer centered on <unk> unique ability to address the challenges they face in their businesses.
These challenges are experienced across many industry verticals and include personalizing employee benefit navigating the complexity of mix.
And removing the friction caused by inefficient payment processes and systems.
<unk> can help simplify these challenges today, when we are innovating to anticipate and address those it tomorrow.
We had record attendance at FERC, which shows the importance of our solutions and how they resonate with customers.
I am excited by the positive response and the momentum we're seeing across the business.
We continue to invest in our platform to help our customers meet the demands of their market employee and customer base.
Our investments in data and advanced analytics for example are benefiting customers across our platform and we're providing critical flexibility that allows them to choose from a suite of customized solutions that best serve unique needs of their business.
At the same time, we have been moving aggressively to the cloud with increases sneak market with innovation and enhance scalability for our customers.
We currently have approximately 85% of our cloud migration completed.
We expect to reach our overall cloud goal later this year, allowing us to further leverage share technologies across product sets.
Before jumping into our performance for the quarter I'd like to quickly address the recent disruption in the banking industry.
First it's worth noting that failures of Silicon Valley Bank and signature bank had very minimal impact to our business needs.
Neither of these banks, who are our customers or partners of wax and we had minimal deposit exposure.
They were not a party to our credit facility, nor counterparties, so our hedging relationship.
As the banking industry cope with significant movement in deposit flows since the recent bank failures.
<unk> HSA cash deposits and certificates of deposit have shown themselves to be extremely stable.
This is thanks in part to contractual limitations too early withdrawals.
And it's also evidence that the market for these funding vehicles continues to remain strong.
Now, let's turn to the financial results.
Turning to our performance in the first quarter revenue increased 18% year over year to $612 million.
This increase of $94 million year over year was primarily driven by the growth of 36% in both our corporate payments and benefit segments.
On an organic basis, which excludes the impact of fluctuations in fuel prices and foreign exchange rates.
Revenue in the quarter grew 19% compared to the prior year's period once again, beating our long term organic growth target of 8% to 12%.
Strong quarterly revenue paired with the scalability of our business model and our superior funding model resulted in adjusted net income per diluted share of $3 31.
An increase of 15% compared to the same quarter last year.
Total volume processed across the organization in the first quarter grew 17% year over year to $52 3 billion.
Driven by strong performance in our corporate payments and benefit segment.
During the quarter, we repurchased approximately 525000 shares of <unk> stock for roughly $93 million.
<unk> and a small EPS benefit in the quarter.
Now I'd like to recap our business highlights in the quarter.
On the benefits front, we completed a very positive open enrollment season.
We signed one of the largest administrators of multi employer benefit comes in the Midwest.
This administrator made them live to wax in order to offer the benefits of our card programs and a longtime client for their health reimbursement arrangements plan.
This administrator has more than 100 multi employer clients allow.
Allowing for a large market reach.
And corporate payments, we signed a part of one of the largest healthcare systems in the United States.
As you may recall.
We've added to our direct sales force in this business.
We're starting to see a positive return with more than 40 deals signed in the first quarter.
We also continued to benefit from a rebound in travel volume globally.
Benchmarked against 2019, we're seeing improvement versus Q4 in all regions.
With the largest gains coming from Europe .
Overall travel related purchase volume pro forma for the Ethernet acquisition was up 29% versus 2019 with approximately half of the growth to the number of transactions in half two the value of each transaction.
And in mobility, we recently signed a renewal with one of the most popular states in the country certainly anything that our array of products continues to be a leading value proposition.
I'm proud of our strong execution this quarter and believe we remain well positioned for the future as we deliver on our strategic priorities.
Let me start with an update on our electric vehicle initiatives.
We've been listening closely to the evolving needs of our commercial customers.
They're asking us for simplified solutions to manage the next week.
And they are looking for a single card or App on a single credit line on a single dataset, all managed and controlled through a single view.
This feedback has informed our electric vehicle strategy.
<unk> consists of giving fleet managers the tools the plan their energy transition manage their vehicles and the mixed fleet environment and help ensure their EDI and conveniently controls and charged across a distributed environment.
To this end our mobility team is currently expanding our driver gas mobile app.
Sleep funds fueling locations on the go to include EV charging stations in Europe .
This furthers our goal of putting tools in the hands of drivers that simplify the process of determining where when and how to charge.
We will build on this launch by focusing on learnings and rapidly innovating our offerings in the U S based customers.
More broadly as we drive our strategy of simplification and convenience in the evening.
The first phase of our EV product rollout with focus on en route charging.
We have a solution is live in Europe , and the United States.
Without the signed acceptance agreements with five of the 10 largest public charging networks in the U S.
All of which are in various stages of implementation.
Our objective is to create a universal network of EV charging stations similar to our fuel acceptance network.
We believe these new agreements will be a win win for wax and our network partners given the significant relationships, we have with the government and large fleets.
Our next phase will turned to at home reimbursement.
We will be piloting an at home reimbursement product this quarter and expect to have a broader rollout in the second half of this year.
Again this is consistent with our strategy of ensuring electric vehicles can be charged conveniently, while simplifying payments when reimbursement for organizations.
Theres a significant pipeline in development beyond that with an overall vision of enabling managers to grow their fleet and have a unified experience using our product no matter how their vehicles are powered.
We're also encouraged by early cross sell conversations as we begin the new year.
Our focus on cross sell continues to gain traction with more than 60 signed contracts during Q1.
Most of these expanded relationships, our mobility customers to whom we were able to sell a benefit solution.
Next let me turn to our operational improvements.
We remain focused on enhancing the scalability of our platform.
We are on track to capture a $100 million and run rate operating efficiencies by the end of 2024 with approximately half of these savings being reinvested in the business.
As part of this initiative, we have been looking closely at a number of areas of our company using improved processes data and technology.
One of the areas I am excited about is the planned improvement in the customer experience by creating a more seamless digital journey.
Has the added benefit of saving costs.
We have a dedicated leader for this initiative with dozens of cross functional teams inside of wax, we're focused on execution and has the full support of me and my entire management team.
Finally, before turning the call over to Jack <unk>.
I did highlight that we will host an investor event to provide an in depth understanding of our benefit segment, including the product set opportunity on financial profile.
As you will hear from Chad Turner, we had terrific results and benefits this quarter and we're excited to share more about the sizable fast growing and profitable business with you on June <unk>.
<unk> for the webcast of the event will be available on the Investor Relations section of our website in the coming weeks.
With that I'll turn it over to Jack to walk you through this quarters financial performance in more detail.
Thanks, Melissa and good morning, everyone.
We started off the year with a solid first quarter, achieving strong top line growth, while delivering with a dependable execution that our employees partners customers and shareholders have come to expect.
As with prior quarters. This quarter showed the strength of our global Commerce platform, the competitiveness of our offerings and the power of our business model.
Now, let's start with the quarter results.
For the first quarter total revenue exceeded the midpoint of our guidance by $7 million due.
Due to a combination of strong corporate purchase volume and the very good open enrollment season.
Good.
Total revenue came in $612 million, an 18% increase over Q1 2022.
More than 80% of revenue for the quarter recurring in nature.
As a reminder, we define recurring revenue.
Timna processor and the junk servicing revenue.
Revenue from our factoring business.
Transaction processing fees and other smaller items.
In total adjusted operating income margin for the company was 37, 6%, which was down from 39, 2% last year.
<unk> driven by much higher margins, both the corporate payments and benefits segments offset by lower margins in the mobility segment.
From an earnings perspective on a GAAP basis, we had net income attributable to shareholders of $68 million to work.
non-GAAP adjusted net income was $145 8 million.
Or $3.31 per diluted share.
This represents a 15% increase over the prior year.
Now, let's move to segment results starting with mobility.
Mobility revenue for the quarter was $342 3 million.
A 7% increase over the prior year powered by solid volume growth from new customer wins and renewals.
The increase in the interchange rates earned on payment processing transactions.
Payment processing transactions were up 4% year over year.
We saw solid mid single digit growth from our local customers in the U S. While we had a small decline is over the road transactions to free market conditions.
The freight market is an area we continue to watch closely.
As you've seen our metrics.
<unk> fee rates was up slightly versus the prior year, mostly as a result, the new exxonmobil small business portfolio as of late last year.
We had anticipated the trend of higher late fee rates that we saw at the end of last year continued in Q1.
That did not materialize and overall IBM Z revenue was up only 3%, which includes a 33% slowdown in refractory revenue, which is related to the freight market conditions I just mentioned.
The domestic fuel price in Q1, 2023 was $3 86.
Versus $3 95 in Q1 'twenty two.
We estimate the year over year impact of fuel prices increased segment revenue by approximately $1 million.
Including a benefit of approximately $6 million for European fuel credit spreads.
The net interchange rate in the mobility segment was 121%, which is up 10 basis points from Q4 of last year.
We saw higher rates earned from the number of merchants due to renewals with favorable terms the impact of interest rate escalator clauses contained in various merchant contracts and the rate impact from a reduction in fuel prices versus Q4.
The segment adjusted operating income margin for the quarter was 45%.
<unk> from 52% in Q1 'twenty through to.
Higher credit losses versus the prior year were the primary reasons for the lower margin.
Let me briefly address the increased credit losses, which were within our guidance range of 32 basis points of spend volume, including approximately four basis points for fraud losses.
The elevated loss rates and the.
Over the road trucking business that we've seen over the past two quarters are starting to abate.
The delinquency rates are improving and we expect loss rates to trend down going forward.
The local fleet customers. The U S continue to March elevated loss rates compared to the last couple of years, but are relatively normal rates.
Delinquencies here also continued to improve.
Fraud losses in this segment, which we've spoken about a bit in prior quarters were down 39% from Q4 of last year and continue to improve.
The fraud remediation activities you have spoken about in prior quarters, which include working with the truck stop operators continue to enhance our fraud detection tools and.
In releasing broad focus product enhancements appeared to be delivering a fraud reduction impact with incentives.
We are pleased with this result and are working diligently to continue on this track.
Turning now to corporate payments.
Total segment revenue for the quarter increased 36% to $104 8 billion.
Purchase volume issued by works was $18 6 billion.
Which is an increase of 58% versus last year.
The net interchange rate in the segment was down 10 basis points sequentially predominantly due to the timing of incentives for the networks in Q4 last year.
As well as travel customers contributing a larger percentage of total purchase volume in Q1.
Breaking down this segment further.
Travel related customer volume represented approximately 71% of the total spend.
Grew 84% compared to last year.
Revenue from travel related customers was up 87% versus Q1 2022.
This reflects continued strength.
Tumor travel demand and we are very pleased with these results.
Non travel related corporate payments customer volume grew 17% versus last year and revenue was up 4%.
This was led by continued growth in the partner channel.
We also saw volume growth in our direct channel and we are pleased to sign more than 40, new direct corporate payment customers in the quarter.
The corporate payments segment delivered an adjusted operating income margin of 46, 9%.
Up from 36, 7% in Q1 last year.
There has been significant improvement in these margins volume accelerate our business model here is very strong and revenue drop through for this segment is high given our relatively fixed cost base.
Finally, let's take a look at the benefits segment.
We continued to drive strong growth, resulting in Q1 revenue of $164 9 million.
The $43 8 million increase represents 36% over the prior year.
We were very pleased with our SaaS account growth, which was up 14% in Q1 versus the prior year.
A reminder, that we view this as an important metric.
It represents the underlying growth in the usage of the platform and drive other areas of the business such as payment processing and HSA deposit growth.
Benefits segment purchase volume increased 18%, leading to an 18% increase in payment processing revenue.
We also realized approximately $37 million in revenue from the custodial HSA cash deposits that were invested by what stake in funds held at third party banks compared to $9 $5 million last year.
Approximately $26 million of the revenue increase in this segment is due to the average interest rates earned on these balances increasing from $1 two 4% last year.
398% this year.
This income mix of less sensitive to interest rates of the company.
As the revenue offset higher interest expense and other parts of the business.
<unk> is a natural hedge.
The revenue is highly accretive to earnings enabling us to perform well across a range of interest rate environments, and providing some stability to navigate economic cycle.
The benefits segment adjusted operating income margin was 39, 1% compared to 29, 3% in 2022.
The custodial revenue from the invested HSA cash deposits as well.
Primary driver of the increase in margin.
But if this was excluded from both periods. The core operating margin would still have increased nearly 1%.
Shifting gears now I will provide an update on the balance sheet and our liquidity position.
We remain very healthy financial position and ended the quarter with another $22 million in cash.
$776 million of available borrowing capacity and corporate cash of $149 million.
Funds under the company's credit agreement at quarter end.
At the end of the quarter. The total outstanding balance on our revolving line of credit term loans and convertible notes was $2 7 billion.
The leverage ratio as defined in the credit agreement stands at two five times, which is at the bottom end of our long term target of two five to three five times.
Next I would like to turn to cash flow.
Which generates a significant amount of cash each year with Q1, typically being the lowest due to seasonality.
Using our definition.
Adjusted free cash flow was negative $61 million through Q1, which is $16 million better than 2022.
At the beginning of each year is typically a weak time for cash flow due to the timing of some payments.
Also as we noted last quarter, our deposit balances and as a.
Our reported adjusted free cash flow or about $150 million to $175 million more than we would normally expect which during Q1.
Our primary use of free cash flow. This year has been to repurchase shares we will continue to manage capital allocation between organic investment M&A and returning capital to shareholders.
Finally, let's move to revenue and earnings guidance for the second quarter and the full year.
The first quarter was a very good quarter for us and as a result, I am pleased to share that we are raising our guidance for 2023 to reflect those results as well as the benefit of share repurchases completed to date.
Although the macro factors like fuel prices and interest rates, we are largely maintaining our previous guidance for everything else.
Starting with the second quarter, we expect to report revenue in the range of $613 million to $623 million.
We expect <unk>.
EPS to be between $3 45.
And $3 55 per diluted share.
For the full year, we expect to report revenue in the range of 245 to $2 49 billion.
We expect Eni EPS to be between $13 and <unk> 85.
And $14 25 per diluted share.
These updated ranges represent an increase of $20 billion in revenue and 25 of EPS compared to the midpoint of our previous guidance.
As I complete my prepared remarks, I would like to emphasize how pleased we were with our Q1 results.
We have allowed these results to flow through to our guidance increase for the year, while largely maintaining our previous guidance for the remainder of the year.
We continue to execute well on book growing revenue and becoming more efficient servicing our customers.
With that operator, please open the lines for questions.
Thank you and we will now begin the question and answer session. If you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue. Please press star one again.
Your first question comes from the line of Sanjay <unk> with <unk>. Please go ahead.
Thank you good morning.
Melissa appreciate all of the color on business development, just listening to you and Jeff talk about the business generally in the first quarter trends it seems like youre not really seeing any appreciable.
Signs of slowing outside of the over the road freight area is that a fair statement when we not only look across mobility, but just across wax and then maybe you could just remind us.
What you guys are incorporating into the guidance.
Sure Good morning Sunday.
If you look across the business I would agree.
The over the road customers, where we're hearing from them certainly continued weakness within their marketplace with spot rates and are continuing to be lower.
They're not talking about driver shortages and the way that they have in the past and inferring.
A slowdown within that customer base, and we saw negative 2% same store sales within the over the road business, but then when you migrate across the rest of the portfolio.
Our <unk> customers in our North American fleet business was actually up two 5% and so we continue to see and thats across multiple categories. The biggest piece of that is some of the larger customers I think some of that is continued rebound.
If people are going back into the office sales fleet being out and moving and so I think we're continuing to get a little bit of benefit of that but even the construction trades within our portfolio were up a couple percent. So we're continuing to see strength.
Then the North American fleet business, and as you talk to our customers there and travel and events continues to be an area of rebound, where we see strength there continuing as well as.
If you go into our benefits business and benefits are primarily the conversations around.
And player retention and how we're making sure we're offering benefits within the marketplace.
Our attractive.
And continue all evolve in a way that the marketplace expects, so really really strong still conversations within our customer base and then we continue to have the assumptions within our guidance that we would have a slow growth environment in the second half of the year.
Not necessarily because we're seeing that trend within our portfolio.
But consistent with what we had said last quarter, we just held that same assumption.
Okay, Great and just one follow up question for <unk>.
Inside of mobility, I think you mentioned the slowdown in factoring revenue being a big driver of that finance in the late field.
Should we think about that as being the predominant sequential change in that yield I know there is seasonality to the yield likely maybe you could just help us think through that.
And how should we think about the rebound in terms of this factoring revenue on a go forward basis. Thanks, Yes.
Yes.
Thanks Raj I think it's a good question. So I would say there were some puts and takes in the finance fee revenue. We've got some benefit from the Exxonmobil portfolio that we purchased last year.
I think it was about $5 million and on the negative side was the factoring item that you mentioned that we expect there has been the ongoing slowdown in the freight industry was spotless spot rates declining that's brought down both the number of instances on which we factor the number of invoices.
As well as the average dollars per invoice thats, what the whole sort of factoring.
Item down.
And we're expecting that to continue at least for the next couple of quarters.
Seems to be some ongoing spot rate stabilization and the freight industry, but we're expecting these kind of rates going forward.
Great. Thank you.
Your next question comes from the line of Tien Tsin Huang of Jpmorgan. Please go ahead.
Hi, Good morning, good results here I wanted to ask on the corporate payments. That's okay, just thinking about the rest of the year.
Any callouts with respect to volume and as well as yield I'm asking because I'm just always trying to learn the difference between volume growth and the.
And the revenue growth I know the interchange piece was down a little bit from incentives and any clarity on.
How that spread might behave here for the next couple of quarters, yes.
Yes sure. Thanks, Vincent for the question so you're correct.
Take rate was down over last quarter, primarily because of the ski increasingly skewed seasonally called out last quarter.
Within that segment, what we would expect as the normal puts and takes between travel and non travel business. We would expect to kind of normal seasonality going into Q2 and Q3 on the travel side it tends to be a.
Higher quarter for travel and overall as you can see from the chart in the appendix that we posted to our website travel does have a lower take rate. So we expect some volume impact from that as we go through the next the next couple of quarters.
And in terms of what we're assuming from a volume perspective, we are assuming that.
Having a slow growth environment, we are assuming that you see a trail off in travel growth in the second half of the year system in a decent growth we haven't aren't letting somebody else. We know that there is still pent up demand, but coming off the highs that we're seeing in first and second quarter.
Got it that's prudent.
Makes sense just my quick follow up I know you talked about a little bit just the stresses on the banking system and all the banking turmoil.
And deposit activity it sounds like.
Well I just want to make sure I understood that.
No impact on deposit funding from <unk> standpoint.
And also from a risk management standpoint, any change in operations either on the benefit side or the.
The corporate payments side, given all the cash cash flow activity that happens naturally there.
Thanks.
I'm going to start <unk> that we have.
Whoever that four and $5 billion worth of deposits that sit on our balance sheet includes a combination of Cds, which we use to fund the business and then HSA deposits in the two largest pieces of that.
CBS and it's interesting even in OE win.
The real.
Freezing in the banking marketplace people move money into the CBD market.
No.
A really stable source of funding.
It's also if you look across the whole deposit portfolio, we have over 95% of our deposit for FDIC insured.
Yes, let me add a couple of comments there.
So.
One thing I would point out just a top level youll see that our deposits increased about a $1 billion from the end of Q4 to the end of Q1 this year and that's split roughly evenly between the HSA deposits.
HSA deposits. So I think that that provides evidence that our funding sources remain quite strong.
When we look at our deposit base and a lot of the banking turmoil that we've seen has been basically people worried about non FDIC insured deposits in our case greater than 95% of our of our deposits are FDIC insured. So I think that gives a lot of comfort to depositors with us.
And we've seen as Melissa mentioned pretty robust demand for funding sources in terms of the operational changes we are closely monitoring the banks that we work with.
Looked at.
A range of metrics around the banks, we looked at we work with from whats what's the ratio of.
Insurance to uninsured deposits credit default swaps things like that just to make sure that we're prudently managing money and moving it around where appropriate to thanks, a lot more comfortable with.
Perfect that's great color. Thank you both.
Yes.
Your next question comes from the line of Dave Koning with Baird. Please go ahead.
Hey, guys. Thanks, so much in I guess in the mobility segment payment the payment processing rate was really high and I guess Im wondering if thats sustainable and then it seems like you also you talked about the late fee.
Impacts and then maybe a little bit of just macro on the fleet business. When you put all that together can you still get the low end of the 4% to 8% that youre kind of talking about for the full year.
Yes, So R R.
Interchange rate was up nicely this quarter I talked about some of the reasons for their prepared remarks. So we do have some escalated causes that are that are built into our contracts.
And so with the rise of interest rates, we saw the impact of that we've also had some renewals coming through and we've been very pleased with the renewal rates were getting which been up in certain cases, which also drove the higher the higher interchange rate.
There was really the one time item in the quarter was really market movement in Europe , which was worth about four basis points of interchange rate. The rest of it I would largely expect to be recurring in nature. So we should see these kind of interchange levels as we flow through the year.
And so our expectation right now is that we will continue to grow ex PPG.
FX at our at our.
Our targeted growth rate of 48%.
Got you. Thank you for that and then I guess secondly travel volume.
Your charts looked like whatever it was it was a big it was maybe 70% to 80% or whatever it look like.
What's it like in April and kind of how do you think that is going to go through the year I assume just the natural progression, it's not going to stay quite that strong.
Yes, we continue to see travel volumes in April in line with our forecast.
So.
This is something we watch closely given the overall discussion about the macro economy, but so far in April things are trending well for us.
Got it thanks, guys great job.
Yes.
Your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.
Hey, guys.
If we could touch on the benefits segment from it at the account growth. There obviously has been strong mid teens type growth.
And now you're adding the Midwest.
A manager as well so how do we think about first of all just if you could reiterate what's really driving that.
You know what the strategy is for that business going forward and the kind of growth profile, we can assume into the second half of the year, especially as the Midwest.
Because of that as well.
Yes.
That said, we had a really strong open enrollment season.
So when you think about that business.
A lot of your Onboarding.
It is before you start the year. So it gives you really good visibility in terms of the kind of flat in the course of the year.
And so we feel good about how we've gone through open enrollment in the combination of the products that we have in the marketplace. The distribution channels that we have and we work across a number of different partners and supporting them and growing their business and then also directly.
You can see the benefit of that coming through we also had a period of time, where people were less likely to make changes in <unk>.
What was happening a little bit of an overhang from the pandemic. So I think that we've gotten the benefit of that we have pipelines that are continuing to fill.
And feel good about the close rates, we have this year, which will more largely impact revenue next year.
We've talked about 25% to 30% growth for the year.
Segment.
Okay.
Okay, I mean, thats, obviously aggressive and I think you guys have a investor event coming up around that range, which will go into more detail.
Yes, we're excited to be able to really go a bit deeper in that business to make sure that people have the visibility and can really understand the products. They have in the marketplace. How we compete Eric <unk>.
Excited to do that highlights.
Just if you don't mind, just a quick follow up on the corporate payments side also I mean, I know that this has been asked a bit but I just want to understand a little bit more on the strategy of the business outside of the Otas.
Obviously travel has been strong, but moving beyond the travel side again in terms of what Youre, what youre doing to really invest there to differentiate and where we see that headed thanks again guys.
Sure. We have two primary products that we have within the corporate payment space. One is the embedded payments product which is it.
What is used within our <unk> customer base that think of that is.
Our customer.
Typically soliloquy this highly sophisticated isn't embedding an API payment stream and their workflow and they are taking advantage of either a virtual card technology or other payment modalities.
And that product itself highly tech enabled really important that has strong uptime.
We have the ability to settle.
Throughout the world in a number of different of our 2000 current themes.
There is a number of things that are really important to that customer base and <unk>.
And we've had good success in selling that into the Fintech community ultimate in the United States and in respect with avid in exchange for the customers that we've added more recently.
The second product that we have is an AP rep product, where we have just started ramping a direct sales force historically with some of that product through our partner channel.
And we started ramping salespeople talked about the fact that we've had 40 signings in the quarter. So we feel good about considering the amount of capital that we're deploying.
Into that Salesforce of results that we've seen so far and it's an area that we expect it will continue to ramp.
So those are really the predominant products, we have in the corporate payment space.
Understood. Thanks, guys.
Okay.
Your next question comes from the line of Nick <unk> with Credit Suisse. Please go ahead.
Hey, guys. Congrats on the strong results and thanks for taking my question.
Can you discuss your 2023 growth expectations for travel related revenue and corporate payments related revenue separately to arrive at the 7% to 11% guide should we expect the corporate payments that kind of trend in the 4% range.
I guess travel to and <unk>.
Decelerate materially just from where is that relative to the guide. Thank.
Thank you.
So the second half of the year, because we assume there's going to be a slow growth environment again, as we are going from really accelerated growth rates in Q1.
Wrapping level in Q2, but still really strong growth rates in Q2, and our expectation and travel.
That trailing off into.
More of what I would say that kind of a traditional growth environment, a little bit elevated still knowing that there's pent up demand and then on the corporate payment space. We are anticipating continuing at that single digit growth rate in the course of this year, which is a combination of where we are with ramping up customers and.
Starting this process of adding new customers with the ramp up of our direct sales force.
Yes, I would say I would just add that reminder, that we project, we gave guidance of 10% to 15%.
Growth rate for the travel and corporate payments with the corporate payments segment overall, and I would say that travel will be the higher of that in corporate payments will be on the lower side.
Thank you.
Your next question comes from the line of Bob Napoli with William Blair. Please go ahead.
Thank you.
Good morning.
Just within the changing demand in mobility solutions at this point.
Yes, I just is there a.
A deeper strategic meaning behind behind that.
But when we talk about the segments internally and in the businesses.
We think of it as more mobility plays and as we continue to expand what we're doing even with our.
Our traditional fleet customers as we're moving into this mixed fleet environment in <unk>.
Migrates to enter new offerings in that space, it's really indicative of how we're running business, where we think it is going strategically.
Okay and then just.
Yes.
BTB payments business.
As you would call it out I know with flame and any progress what youre seeing with the SMB customers and I think I mean related but you had called out weakness in smaller.
Customers within mobility last quarter is that weakness.
The same on the smaller versus larger.
I guess two questions. Thanks, yes.
Just to be specific last quarter, we talked about weakness in the over the road customer segment with smaller <unk>.
Andy.
Yeah.
<unk> talked about the fact, we have seen.
Stabilized within our portfolio so.
We saw this kind of run off of customers that where we've been and we think that you had kind of this acute issue of a big ramp.
Within that marketplace, where in a bunch of people added new vehicles.
And and.
That went down spot rates went down and said the people that were newer in business and smaller in size.
We had a very targeted issue within that part of the portfolio, we have again seen stability within the portfolio nicely.
It looks like that has largely run its course.
We are aware and monitoring what's happening within the marketplace and.
We have made changes with our credit.
Approval processes, both for the underground business and our traditional.
Retail business to tightened credit standards.
In keeping with this idea that we're anticipating are planning for a slow growth environment in the second half of the year.
And so I think you were getting some of the benefit of those earlier moves that we've made and what we're seeing in the portfolio right now.
And as the clean floor that effort, yes, yes.
<unk> is still in I would say still early days <unk> had started about 15 months ago. We.
We have hundreds of customers that are using the product.
We continue to add to the product set that we have in the marketplace.
And so I'd say, so far so good and what we're seeing with that business and it's something we're going to continue to learn and evolve.
And it should play into the 1% to 2% growth, we have slated for new product revenue and our long term growth framework.
Thank you.
Your next question comes from the line of Ramsey El <unk>.
<unk> with Barclays. Please go ahead.
Hi, Thanks for taking my question.
I wanted to ask about.
You mentioned, a few times to building out the direct sales force.
And new deals.
Yes.
Through the timing and impact of not only implementing those deals kind of more tactically, but also the degree over the longer term, whether we should expect more of a mix shift to direct and whether that could have an impact on segment.
Over time, a positive impact.
Yes.
There's a couple of things that are happening within that segment, we are continuing to build the direct sales force.
We are also continuing to work with the customers that we have onboard and it makes sure that we are.
Continuing to meet the needs that they have in the marketplace and look for areas that we can further ramp that customer segment.
And so when we think about growth within that part of the business is a combination of growth from the existing customer base that we already have ramping on the direct side and then continued benefit from the existing partners that we have in the marketplaces, we think that with multiple levers.
The team is focused on each of those areas.
When we talk about that segment and kind of the long term growth rate that we've had for that segment and 15% and that's really what we're what we're working towards is where architect thing both the way that we're thinking about go to market, but also the products.
Okay.
Thank you.
Yes, great.
That's about right, yes, so Ramsey IV.
The U S. A longer term question. So those direct accounts would come in at a higher rate, which is one of the reasons. We go we go direct there so to the extent that that becomes a larger mix of the total.
You would expect that to be a positive benefit to the rate that is both just mentioned we also expect the other segments to continue to grow as well.
Got it and then a follow up from me is could you provide just an update on the broader market opportunity in the mobility segment and for good reason, you're prioritizing electric vehicles is that where you see the largest future growth opportunity is dara ex EV opportunity I don't know internationally and even in the U S ex EV where are there.
Compelling opportunities in the market.
Yes, it's been a great part of our business is an area that we continue to take market share and you can see that in the growth vehicles that we've had within our base and so.
Let's start with that as we think even within the existing customer.
Our portfolio of products that we have we will continue to take market share and build on that position.
A lot of focus that we've had has been on building out additional capability in talking about that a lot over the last couple of years, we brought in our Chief Digital officer firsthand we've had one.
A little over a year ago.
And she is doing some amazing work with our technology and commercial teams is really looking at how we can from an end to end perspective.
Look at that customer experience and even.
Greater digitize that experience, which has a twofer benefited it's better customer experience.
Lose less customers coming through but also at a lower cost. So I feel good about the path that we're on to not only would we have the ability to continue to use the sales channels, we have now but to enhance that with further digital capability, let's start with that because I think that there's still meaningful opportunity there both in United States and outcome.
The United States.
On top of that within the mobility space this conversion to EV.
Increasingly we see this as an opportunity the products in the marketplace right now and talked about in the prepared remarks.
The ability to move.
Our <unk>.
Customers letting them buy as they are on the go having this charging network reimbursement capability and then eventually depo capability those are really for us the starting point, because we know from talking to our customers. They want one integrated build one system of record that run all of that data. So that they can really understand the total AUM.
Your ship.
Ms furnish it for their fleet.
We see lots of opportunities behind that.
Many different use cases that are emerging even now in the early part of this process that we think we can help facilitate.
We do believe that not only do we have this opportunity nascent within the existing customer base with the products, we have but we're rebuilding in the future both through digital capability and through this migration to a mixed fleet offerings, that's going to create opportunity for us.
Got it very helpful. Thank you.
Your next question comes from the line of Mahesh Bahati of Bank of America. Please go ahead.
Hi, Thank you for taking my questions.
I wanted to maybe just start with just your intra quarter volume trends.
Particularly I think you mentioned some weakness in OTR, but I was curious are you seeing macro weakness anywhere else like I understand your guidance as far as slowdown in the back half, but have you seen any actual slowdown yet.
Across your businesses.
The only place that we have seen a slowdown is in the over the road customer base and I talked about same store sales being negative 2% that was it.
<unk> been positive same store sales during the bulk of the pandemic and so.
The negative for a few quarters now the rest of the portfolio. Some of the growth rates are low and within the same store sales.
Talked about the fact that a lot of the benefit that we received in the quarter.
<unk> from some of the larger customers.
But when you look into the individual sic code.
Like construction grew same store sales, 2% year over year.
And so I.
Wouldn't describe that is weakness I would say more slowing of the growth in <unk>.
<unk>.
Yes, I would just.
Like I said the travel trend into April continues as expected and we've seen the same thing with fleet gallons as well as continued into April in line with our expectations.
So we're just seeing got it good luck.
Okay.
Okay.
The other question I had was mostly you mentioned a couple of big customer finding video remark I think amongst the acquire administrator and benefits the large health system in corporate payments, but I wanted to understand a little fast. These filings contributes to revenue like how are you thinking that's like a second quarter or back half of 2023 thing that's more likely 2020.
Paul contributors I'm, just trying to understand the onboarding process the ramp when you do some of these big customers.
Different business.
Yes, I mean, when we planned the year, we look at what.
What do we have for existing customers to the end of the run rate of revenue that come into the year.
That included in that we look at what do we have for our contract has been signed but not yet implemented and what so what do we need to actually push through an implementation perspective.
And then what do we need to go get in the course of the year. So some of that impact 2023, some of that will impact 2024.
And in each of our areas of our business and are really focused on each of those things, making sure that we retain our existing customers and are maximizing.
From that implementing and then finding new customers.
Any of these individual contracts are relatively small in terms of contribution to 2023.
But accumulatively become quite meaningful for our 2020 for me.
Here I would say that the contracts that Moshe talked about are factored into the guidance, we would give it out.
So for example, the the benefits contract that you mentioned.
We've talked about the 25% to 30% growth in our in our guidance.
I think I would say those those contract expectations built into that.
Okay and then last question just on capital allocation given the law challenging fund raising environment are you seeing more interesting opportunities on the M&A side can you just talk a little bit about where you are focusing on the M&A side right now is it and benefits as a corporate payments is it finding.
Some kind of adjacency expansion capabilities, Nick how are you thinking about M&A right now.
Sure.
M&A is something obviously, we're always active.
When we think about opportunities what we're looking at is either product extensions that we go through our analysis of do we want to build partner or buy.
Our product evaluations. So that's an area, where we look at product a product adjacencies across really in any part of the business.
We look at scale players so the assets that are larger in size.
Which are more just financially accretive less about the product.
And then we look at geographic expansion capability.
And so there is an active mix across those categories.
Have also been.
Very focused around innovation and so we have a whole separate work stream that we've added over the last year.
Those assets tend to be much smaller in size.
And so working through those looking at assets, we want to invest in.
In terms of what we're seeing from a multiple perspective, there still is a disconnect between what we're seeing in private multiples in public multiples.
Specifically in the corporate payment space I would say, it's more acute there than some of the other areas.
Of the business and.
We keep that in mind as we're working through all of this and so we continue to look at assets move assets through our pipeline.
With the same rigor that we have historically.
Thank you. Thank you for taking my questions.
Yeah.
Your next question comes from the line of Andrew Jeffrey with Truest. Please go ahead.
Hi, I appreciate you squeezing me in Melissa.
I like the color on the direct corporate payments offerings can you elaborate a little bit I guess, it's also online of M&A do you feel like you have the capabilities internally at this point that you need to grow that direct business or do you need to invest at an elevated rate and or go out and buy technology to <unk>.
Really ramp up that direct im taking about the AP automation and women's piece specifically.
Yes.
Business and this is similar to the way that we look at everything else we are looking at.
Where do you want to continue to build and we've had a bias of buildings just again because of what's happening with multiples. So.
So we have ramped.
Investments that we've made in that part of the business over the last couple of years and were fine doing that if we see an opportunity within that space and we'll continue to look at where should we build where should we partner where should be five. So we are continuing to sell in the marketplace with the product roadmap of what we intend to deliver into the into the.
Marketplace.
And we will evaluate.
Whether or not we should continue to get from build perspective, or if there are opportunities to buy.
And I'd say thats true across every part of the business. We go through that same process.
Okay, but it doesn't sound like you have to go out in your mind and buy something to have success there.
No I think it's in a market that will continue to evolve and we want to make sure that we're continuing to invest in that space. We do feel good about the products that we have.
<unk> is something that we think is in a really interesting space and it's something we continue to build upon as well.
With that being much more of a down market player within the marketplace and so it's an area that we will continue to invest in involve I guess is probably the way I'd said as opposed to selling I don't think you're going to feel like we're done.
But we feel like we have a good foundation that we continue to build upon.
Okay, and if I could just ask one more follow up to that just in the benefits business you've had a.
A couple of really strong open enrollment seasons, and obviously these new these new wins.
Is that are we still early enough in the secular shift to consumer pay at HSA that we can continue to expect big open enrollment seasons that provide momentum and visibility sort of year end and year out and your benefits business.
Yes, we've talked about the long term growth rate of that being 15% to 20% and a piece of that comes from this continued shift to consumer directed healthcare a piece of that is also coming from this anticipation will continue to benefit from the custodial deposits that we have.
And so the growth with movement to HSA has slowed but it's still.
A strong grower and one of the things that we find interesting about that part of the business is the ultimate really resilient.
So it will be growth in most any environment because you get the benefit of this movement.
Two consumer directed healthcare Benny.
Benefit costs continuing to go up and then we continue to build upon our distribution channel and those things combined.
Combined they have been really great.
Contribution to the overall business.
Okay. Thanks appreciate it.
Yeah.
This concludes the question and answer session I will turn the call to Steve Elder.
I just wanted to thank everyone again for hanging with US as we go a couple of minutes on here and we'll look forward to speaking with you again in about three months. Thank you.
This concludes the conference call you may now disconnect your lines.