Q1 2024 WEX Inc Earnings Call
Please wait the conference will begin shortly.
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Alex: Thank you for standing by my name is Alex and I will be a conference operator today.
Alex: This time I would like to welcome everyone to the works Q1, 'twenty 'twenty four earnings conference 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. If you would like to ask a question. During this time simply press star followed by the number one on your own.
Telephone keypad, if you would like to withdraw your question Press Star One again I would now like to turn the call over to Steve Elder Senior Vice President of Investor Relations. Please go ahead.
Steven Alan Elder: Thank you operator, and good morning, everyone with me today is Melissa Smith, our chairman and CEO and Jack <unk>, 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 a copy of.
Jack: The release has also been included in an 8-K, we filed with the SEC earlier. This morning. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, which we refer to as a NII.
Alex: Adjusted operating income and related margin as well as adjusted free cash flow during our call.
Alex: 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.
Alex: I would also like to remind you that we will discuss forward looking statements under the private Securities Litigation Reform Act of 1995.
Alex: <unk> results may differ materially from those forward looking statements as a result of various factors <unk>.
Alex: 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, 2023 filed with the SEC on February 23, 2024, and subsequent SEC filings.
Alex: 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 photos news statements all of which speak only as of today.
Alex: With that I'll turn the call over to Melissa.
Melissa D. Smith: Thank you, Steve and good morning, everyone. We appreciate you joining us today.
Melissa D. Smith: The first quarter marked a strong start to 2024 for works, we delivered another quarter of impressive financial results, including record high revenue for the first quarter, which is a testament to the resilience of our diversified business model in any economic environment.
Speaker Change: Earlier this month, we hosted our annual Spark conference, where we brought together industry leaders to demonstrate how our cutting edge solutions can help simplify the business of running a business.
Speaker Change: At the event, we showcased how our customers and partners can unlock the full potential of workforce solutions highlighting the power of our innovative technology across employee benefits fleet management and corporate payments we.
Speaker Change: We had record attendance at spark, which underscores the invaluable role our services play for our customers.
Speaker Change: Now, let's discuss our first quarter results during the quarter, we achieved revenue of $653 million an increase.
Speaker Change: Crease of 7% year over year.
Speaker Change: Excluding the impact of fluctuations in fuel prices and foreign exchange rates Q1 revenue grew 10% year over year.
Speaker Change: Total volume processed across the organization in the first quarter grew 9% year over year to 57 billion.
Speaker Change: Driven by strong performance in corporate payments.
Speaker Change: Adjusted net income per diluted share in Q1 with $3.46, an increase of 5% compared to the same quarter last year as a result of strong quarterly revenue and share repurchases.
Speaker Change: Excluding the impact of fluctuations in fuel prices and foreign exchange rates adjusted EPS grew 14% year over year. As a reminder earnings growth was impacted by exiting our interest rate swaps in December which Jack will discuss later on the call.
Speaker Change: Each of our business segments demonstrated robust performance during the quarter.
Speaker Change: Our corporate payments segment remains very healthy and continues to grow at a strong pace as purchase volumes increased 29% year over year.
Speaker Change: The travel business continues to grow at a faster pace than the overall market.
Speaker Change: We have solidified our virtual card offering as a best in class solution and build strong long term relationships with our clients. This approach has positioned us as a preferred payment solutions provider to our partners driving sustained growth and customer loyalty.
Speaker Change: To that end, we recently signed a new long term agreement with booking Dot com and this agreement distinguishes wax is bookings preferred partner.
Speaker Change: <unk> Dot Com first became a west customer in 2013.
Speaker Change: Now process payments for booking dot com and more than 20 currencies.
Speaker Change: We've also renewed our agreement with <unk> group, one of the largest <unk> travel tech ecosystems in the world.
Speaker Change: <unk> group and its a combination division known as hotel beds. It's been a works customer for many years going forward, we expect to serve a larger share of their total volume as they consolidate relationships.
Speaker Change: The continuation of these long standing partnerships demonstrates the strength and reliability of waxes enterprise grade technology platform, our broad currency offerings, and our deep payment expertise when delivering world class travel payment solutions globally.
Speaker Change: Among our more than 800000 active customer relationships worldwide. We are proud to work with eight of the top 10 online travel agencies globally.
Speaker Change: And the benefits segment overall, SaaS account growth with lower than normal this quarter, primarily due to the previously mentioned loss of a Medicare advantage customer.
Speaker Change: The core business continues to perform well and we grew accounts excluding the declines in Medicare advantage accounts, 8% compared to last year. We're now serving 8 million HSA accounts. According to the 2023 yearend report by Devon year.
Speaker Change: Overall number of HSA accounts grew 5% last year to $37 million. So we continue to perform well compared to the market growth.
Speaker Change: Based on the overall number of HSA accounts at year end. This also means that approximately 20% of all HSA in the U S. Ron on the wax platform as of the end of Q1.
Speaker Change: We also continued to integrate the extensive health and benefits line of business that we acquired last September.
Speaker Change: The acquisition positions us for accelerated growth and innovation in the rapidly evolving benefits landscape.
Speaker Change: Finally in our mobility segment, we continue to be a market leader in this space across all of our core markets and are focused on maximizing the value that we provide to our clients.
Speaker Change: In addition to the many small businesses that signed up with the works in the quarter. We also renewed our agreement with shell to manage its portfolio of commercial fleet cars across North America.
Speaker Change: This represents a continuation of agreements first established in 2018.
Speaker Change: And our over the road truck business the market continues to be challenged but over the road payment processing gallon volumes increased by 1% in Q1 for the first year over year increase in the past five quarters.
Speaker Change: Our go to market engine continues to add vehicles to the platform with an increase of 4% versus Q1 last year.
Speaker Change: <unk> will provide you with the detail, but we are pleased to see sequential increase in the revenue growth this quarter.
Speaker Change: Now I'd like to highlight the progress we've made executing against our strategic initiatives further solidifying our position as market leader.
Speaker Change: We continue to be focused on supporting our mobility customers as they transition to EV and hybrid solutions and manage their vehicles in a mix fleet world.
Speaker Change: We have more than 600000 mobility customers globally.
Speaker Change: Our expansive reach coupled with our expertise and our innovative offerings positions us as a trusted partner for our customers as they evolve their fleets.
Speaker Change: While we've all read about the slowdown in consumer EDI shipment, we continue to invest in this area and rollout our integrated next fleet solutions because customer interest remained steady.
Speaker Change: In Q1, we launched the general availability of our at home reimbursement feature set to complement our public charging access where we have broad acceptance. We believe that fleet made up of traditional ice vehicles hybrids and evs will be for years to come.
Speaker Change: Our solutions are designed to support these mixed fleets with integrated reporting and data at our Spark conference. We pulled together, our most innovative customers where their product development teams and more than a dozen early stage energy innovation startups I was left with great confidence that we're helping the industry. Thank you.
Speaker Change: Critically about how to help customers unlock significant value by integrating evs properly and how to operate a mix fleet with wax as their trusted partner.
Speaker Change: In Q1, we launched the pilot for an enhanced acceptance offering for our North American mobility customers that combines the best of waxes fleet solution with a broad acceptance of the Mastercard network with this offering customers can manage all of their vehicle related purchases, including fuel parking.
Speaker Change: Services car washes parking toll and roadside assistance.
Speaker Change: All with the same data controls and integrated experience that helps simplify the business of running their business.
Speaker Change: This helps us small business owner better understand the expenses related to each vehicle while at the same time, having the controls of our closed loop card to closely manage what is able to be purchased.
Speaker Change: While it's early days, we have hundreds of customers enrolled in the pilot and are actively gathering insights to inform future product features as we contained to expand the program in increased mobility spend beyond fuel.
Speaker Change: Furthermore, we completed our strategic acquisition of Peyser, a leading cloud native field service management software in November as we continue to integrate peyser into the works ecosystem.
Speaker Change: We remain confident that the platform complements and significantly enhances our existing mobility offerings.
Speaker Change: Porting our efforts to expand our total addressable market and deliver high value to our customers.
Speaker Change: During the first quarter, we launched our first marketing efforts with peyser targeted at current works customers and we're testing different sales techniques to drive the best result.
Speaker Change: We're focused on both targeting Pacers customer base and marketing to works field service management customers. We continue to be very excited about the long term prospects and are tracking well with our integration efforts.
Speaker Change: Last quarter, we announced that we achieved $75 million of cost savings on a run rate basis through the end of 2023.
Speaker Change: As we start 2024, we remain very confident in our ability to achieve the full $100 million of our run rate cost savings goals. This year.
Speaker Change: As a reminder, roughly half of these savings will be reinvested and have been frontloaded in our year to drive long term growth in the business in key areas, such as digital products technology, and risk management capabilities and tools generating sustained cash flows to prefer our strategic growth investments.
Speaker Change: <unk> and maintained our solid balance sheet with low leverage remains a top priority for wax, we continue to view share repurchases as an important and attractive element of our capital allocation strategy underscoring our commitment to drive shareholder value.
Speaker Change: Consequently during Q1, our board expanded our share repurchase program by authorizing an additional $400 million in repurchases, reflecting our unwavering commitment to delivering long term value for our shareholders.
Speaker Change: Advancing technology innovation through the business remains a priority as our ongoing efforts in this area continue to drive cost savings and our margins, while demonstrating our commitment to drive long term sustainable profitability.
Speaker Change: From an AI perspective, our initial use cases that I updated you on last quarter have yielded positive results and we're taking steps to accelerate our AI capabilities and support additional use cases in the business.
Speaker Change: Our main area of focus is our customer service operations, where we're experimenting with new technologies and driving efficiencies for better customer service.
Speaker Change: We're currently working on re imagining our IV, our systems and flows to enable customers to fulfill payments faster and with more accuracy.
Speaker Change: The advancements we have made with voice to text and text to speech technology. In this area will enable us to apply our learnings and many other areas going forward, particularly as we work to reinvent our call center experience.
Speaker Change: One area, we're particularly excited about is the application of AI and our benefit business.
Speaker Change: We've been able to leverage AI to deliver personalized targeted messaging to an HSA account holders and by using predictive analytics, we've helped our customers optimize their HSA enhancing their ability to pay and save for health care.
Speaker Change: In closing I want to reiterate that <unk> is well positioned to continue driving solid financial performance in any macroeconomic environment as we have proven over the last several quarters, we expect to deliver strong revenue and adjusted earnings growth This year.
Speaker Change: We remain focused on delivering accretive EPS driven by high marginal contribution of incremental revenue to our business. Our reengineering efforts that are delivering efficiencies across the enterprise and pricing optimization initiatives the yields strong drop through to our bottom line.
Speaker Change: Finally, we are in a privileged position to make strategic growth investments in our business. While also buying back shares to deliver the most value to our shareholders. This is supported by a solid balance sheet with low leverage.
Speaker Change: As we look ahead to the rest of 2024 I remain confident in <unk> ability to drive growth across the business in the near and long term backed by our strong position in the market and strategic initiatives in place.
Speaker Change: With that I'll turn it over to Jack <unk> to walk you through this quarters financial performance in more detail <unk>.
Jack: Thanks, Melissa and good morning, everyone. We reported a strong first quarter with record high Q1 revenue.
Jack: Our adjusted EPS results show continued execution against our strategic initiatives.
Jack: Even against a year over year decline in fuel prices.
Jack: Now, let's start with the quarter results.
Jack: For the first quarter total revenue was $652 7 million.
Jack: The 7% increase over Q1, 2023 with more than 80% of revenue for the quarter recurring in nature.
Jack: We had strong contributions from both corporate payments and benefits, while lower fuel prices impacted reported growth in the mobility segment.
Jack: As a reminder, we define recurring revenue as payment processing and account servicing revenue.
Jack: Revenue from our factoring business income from custodial HSA cash assets transaction processing fees and other smaller items.
Jack: In total adjusted operating income margin for the company was 38, 5%, which is up from 37, 6% last year driven by margin increases in both corporate payments segments.
Jack: From an earnings perspective on a GAAP basis, we had net income of $65 8 million in Q1 or $1 55 per share.
Jack: non-GAAP adjusted net income was $146 7 million or $3 46 per diluted share, which is an increase of 5% over last year.
Jack: Our first quarter results were solid.
Jack: Up well for the remainder of the year.
Jack: We continue to navigate a year over year decline in fuel prices.
Jack: As well as a significant increase in debt costs due primarily to higher interest rates.
Jack: Like we have discussed in previous quarters, our HSA custodial cash balances.
Jack: Now us to mitigate the impact of higher rates.
Jack: As a reminder, we also exited our interest rate hedge positions in December leading to an increase in interest costs. This quarter exiting our interest rate swaps in December resulted in an $11 million cash impact to interest expense and a 7% drag on earnings per.
Jack: Sure.
Jack: In addition, the foreign exchange rates and lower fuel prices resulted in a negative $20 million impact to revenue this quarter versus last year.
Jack: Or an approximate nine 5% drag to earnings per share.
Jack: Our ability to continue to grow earnings per share. Despite the drag from exiting the swaps and lower fuel prices is a testament to our diverse vertical focused businesses strong recurring revenue.
Jack: And balanced interest rate exposure, allowing us to sustain durable through the cycle revenue and earnings growth now.
Jack: Now, let's move to segment results starting with mobility.
Jack: Mobility revenue for the quarter was $339 million.
Jack: A 1% decrease from the prior year fuelled.
Jack: Fuel prices are strong, but have retreated compared to last year with the domestic average fuel price in Q1 of $3 56.
Jack: Versus $3 86 in 2023.
Jack: The Q1 fuel price was slightly higher than our guidance, but the benefit we received in the U S was almost entirely offset by $2 million of negative spreads in Europe versus our expectation.
Jack: While mobility revenue declined approximately $3 million year over year fuel prices had a large impact.
Jack: Year over year, 8% fuel price decline and reduce spreads in Europe decreased segment revenue by an estimated $21 million.
Jack: Or 6%, while the underlying business continued to perform well.
Jack: We expected excluding the change in fuel prices revenue growth accelerated from Q4.
Jack: Similar to last quarter payment processing transactions remained roughly flat year over year, which was in line with our expectations local customers in the U S were approximately flat compared to last year and over the road payment processing transactions were slightly above year ago levels.
Jack: As Melissa noted this is the first quarter in some time that OTR transactions have increased.
Jack: Afflicting stabilization in that business.
Jack: Despite the fact that this was a leap year, we actually had one less business day in Q1 last year.
Jack: Overall, we were pleased that both payment processing transactions and total transaction growth rates improved from Q4 2023.
Jack: Next let's turn to late fees.
Jack: The net lease fee rate decreased four basis points versus the prior year.
Jack: Finance fee revenue decreased $10 million or 32%, which reduced segment revenue in total by 3%.
Jack: Previously mentioned decline in fuel prices, a 20% decline in the number of late fee instances.
Jack: 7% slowdown in our factoring revenue caused the decline and finance fee revenue.
Jack: We believe the decline in late fee instances reflects the tighter credit policies that we have put in place.
Jack: While these tighter policies reduce our late fee revenue.
Jack: Also resulted in significantly lower credit losses, and taken Holistically, our positive earnings impacts the company I will touch further on credit losses in a moment.
Jack: The net interchange rate in mobility segment was 131%, which is up eight basis points over our 2023 net interchange rate.
Jack: The increase reflects continued benefits from the interest rate escalator clauses contained in various merchant contracts.
Jack: Rate benefit from lower domestic fuel prices.
Jack: And higher rates earned.
Jack: For merchant contract renewals at favorable terms.
Jack: The mobility segment adjusted operating income margin for the quarter was 38, 6% down from 45% in Q1 2023 the.
Jack: The decline in fuel prices. This year is the primary reason for the lower margins.
Speaker Change: Moving on.
Jack: Credit losses decreased $24 million in the mobility segment versus last year and were in line with our guidance range at 15 basis points of spend volume, which compares to 32 basis points last year.
Jack: Loss.
Jack: Proved significantly compared to last year as expected.
Jack: The changes that we've made to our credit policies a year ago have had the intended impact in terms of reducing losses, especially with over the road trucking customers.
Jack: The year over year decline of 70 basis points in credit loss rates more than makes up for the four basis point decline in our net late fee rate and underscores the positive overall impact from the credit changes, we made a year ago, turning now to corporate payments.
Jack: Total segment revenue for the quarter increased 17% to $122 5 million.
Jack: Purchase volume issued by works was $23 9 billion.
Jack: Which is an increase of 29% versus last year.
Jack: The net interchange rate in this segment was down nine basis points sequentially related to the timing of revenue recognition for network incentives earned in Q4 of last year.
Jack: We continue to see strength in consumer travel demand that drove strong results in corporate payments.
Jack: Travel related customer revenue grew 30% compared to last year.
Jack: The interchange rate for travel related customers is down from Q4 due to the timing of incentive recognition.
Jack: Tired of travel our non travel customer revenue was up 7% driven by a 26% increase in purchase volume showing some reacceleration in our partner channel and continued positive growth in our direct channel revenue Sim.
Jack: Similar to last quarter over half our non travel corporate payments revenue growth came from our direct channel.
Jack: The corporate payments segment delivered an adjusted operating income margin of 52, 7%.
Jack: <unk> up from 46, 9% in Q1 last year driven by continued acceleration in volume.
Jack: Finally, let's look at the benefits segment.
Jack: We again achieved strong results in this segment with Q1 revenue of $191 2 million, which is an increase of $26 3 million or 16% over the prior year.
Jack: As we expected SaaS accounts were flat in Q1 versus the prior year with the loss of the Medicare advantage customer that we mentioned last quarter.
Jack: Core market dynamics of this business continued to be strong as exemplified by the underlying SaaS account growth excluding the declines in Medicare advantage accounts, which was 8% year over year.
Jack: The benefits segment purchase volume increased 10%, leading to a 6% increase in payment processing revenue.
Jack: We also realized approximately $51 million in revenue from the custodial HSA cash deposits that were invested by works bank and from funds held at third party banks compared to $37 million last year.
Jack: Approximately $8 billion of the revenue increase and the benefits segment.
Jack: Due to the average interest rates earned earned on these balances increasing from 4% last year to four 8% this year.
Jack: That the benefits segment adjusted operating income margin was 41, 5% compared to 39, 1% in 2023.
Jack: Custodial revenue from the invested HSA cash deposits has very high incremental margins as the primary driver of this increase.
Speaker Change: Now I will provide an update on the balance sheet and our liquidity position.
Jack: We remain in a healthy financial position and ended the quarter with $780 million in cash.
Jack: We have $463 million of available borrowing capacity and corporate cash of $176 million as defined under the company's credit agreement at quarter end.
Jack: The total outstanding balance on our revolving line of credit and term loans was $3 2 billion.
Jack: The leverage ratio as defined in the credit agreement stands at two six times, which is near the low end of our long term target of two five to three five times.
Jack: Leverage generally increases slightly in the first quarter of each year.
Jack: Our ability to invest in the business and return capital to shareholders. While also maintaining conservative debt levels puts us in an enviable position.
Speaker Change: Next I would like to turn to cash flow.
Speaker Change: <unk> generates a significant amount of cash each year.
Speaker Change: Using our definition of adjusted free cash flow was negative $205 million in Q1.
Speaker Change: The first quarter of each year is seasonally low for us and the timing of the end of the quarter falling on a weekend resulted in an estimated $190 million cash flow impact it caused an even larger negative number than normal for the quarter. We expect this will reverse in Q2.
Speaker Change: Our primary discretionary use of cash so far this year has been to repurchase shares.
Speaker Change: We repurchased 353000 shares at a total cost of $74 million during Q1.
Speaker Change: Since we started our share repurchase program in 2022.
Speaker Change: We have repurchased approximately three 9 million shares at a cost of $662 million.
Speaker Change: Which equates to an average cost of $169 per share.
Speaker Change: Looking forward, we will continue to manage capital allocation between organic investment M&A and returning capital to shareholders.
Speaker Change: Finally, let's move to revenue and earnings guidance for the second quarter and full year.
Speaker Change: The first quarter was another good quarter for us and as a result of improvement in some macro factors I'm pleased to share that we are raising our guidance for 2024 to reflect those factors and trends.
Speaker Change: We expect EPS to be between $3 75 and three.
Speaker Change: $3 85 per diluted share.
Speaker Change: For the full year, we expect to report revenue in the range of $2 73 to $2 77 billion.
Speaker Change: We expect EPS to be between $16.10 and $16 60 per diluted share.
Speaker Change: For the full year. These updated ranges represent an increase of $30 million in revenue and 20 cents of EPS compared to the midpoint of our previous guidance.
Speaker Change: The major moving pieces compared to our prior guidance, our updated fuel price and interest rate assumptions and the impact of share repurchases completed.
Speaker Change: Consistent with our prior guidance, we expect mobility revenue growth to accelerate through the year as we lap credit changes that cause higher attrition and lower finance fee revenue.
Speaker Change: As we noted last quarter. We are also implementing a number of pricing changes that will help the second half of the year.
Speaker Change: We also expect corporate payments revenue growth to slow as we progress through the year.
Speaker Change: In addition, we expect a greater proportion of our cost savings program to flow through to net income as we have frontloaded. The reinvestment we intended to make.
Speaker Change: In conclusion, we delivered another quarter of growth in our financial results I'm, especially proud that we were able to do this and the uncertain economic environment that we're operating in.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: And we would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: You are called upon to ask your question in a listening via loud speaker in your device Lee speak up your handset and ensure that your phone is not on mute when asking your question again press star one to join the queue and your first question comes from the line of Ramsey Alice Tsao with Barclays. Please go ahead.
Speaker Change: Okay.
Speaker Change: Ramzi.
Speaker Change: Alright. Your next questions come from the line of Sherri Kumar. Please go ahead.
Speaker Change: Yes, Hi, this is Shane.
Unknown Attendee: Thanks for taking my question so on the benefit side.
Unknown Attendee: I believe your guidance still remains around 10% to 15% for 2024.
Shane: The potential pipeline of HSA, and even the interest rate dynamics and potentially revise any impact I mean can you help us understand that.
Shane: Dividends for the full year and how should we think about deep drivers for growth in 2025, I mean, I mean do you think that we could be able to maintain these levels or would there be some tougher comps in 2025. Thank you.
Speaker Change: Let me start and give a little bit of context here.
Speaker Change: This year one of the things that we've talked about that's going to impact the year is the loss of the Medicare advantage accounts.
Speaker Change: When you exclude the Medicare advantage accounts loss.
Speaker Change: We grew our total accounts, 8%. So we think that will run through the course of this year and will affect the growth rate for the traditional year.
Speaker Change: Now that being said, we feel good about how we're growing accounts, excluding that compared to what's happening overall in the marketplace. So as he transitioned into next year. We expect to continue to see strong account growth and then have that be compounded by additional custodial revenue.
Speaker Change: As well as some of the other ancillary fees that we are continuing to earn across the portfolio. So we do think we've talked about our long term guidance range of 15% to 20% in that segment.
Speaker Change: This year, we're going to have some anomalies going to affect that.
Speaker Change: Sure. It also said with regard to your question about 2024, So we came.
Speaker Change: Roughly a little ahead of our guidance range for the year. So we just.
Speaker Change: Benefits growth to be sort of balance over the course of the year for precisely. The reason is that Melissa said, we saw good benefit from a census, and HSA accounts in the first quarter.
Speaker Change: Going through the rest of the year, we should see.
Speaker Change: Up lift from the normal midyear onboarding that we'd see it sort of HSA Johnson continued good performance of the HSA assets.
Speaker Change: Thank you so much yeah, one follow up on the EV side.
Speaker Change: Is there any color that you could provide on the economics are.
Speaker Change: Potential dilution that we could expect or if you see that.
Speaker Change: Secondly on the competitive dynamics, I mean, where do you see from your seat regulate the Rex spend at this point of time.
Speaker Change: Are you seeing that are you ahead of the curve in terms of investments or.
Speaker Change: Do you see that extend some.
Speaker Change: Gotcha, Thank you need to do versus other peers.
Speaker Change: Okay.
Speaker Change: We continue to be very bullish about the impact of EP disease in our portfolio.
Speaker Change: A couple of reasons first of all we see this as a new revenue opportunity and so far that has proved out to be true to our earnings subscription fees.
Speaker Change: For access to the network that we've created both in the United States and Europe, and then we talked about the fact that we've rolled out at home reimbursement capability, which we think is market leading.
Speaker Change: And earnings subscription fees associated with that and then as we continue to build additional functionality, which we have in our product roadmap. We think that gives us the ability to continue to add in future subscription fees. So okay. The net of that we talked about this between one five and $2 billion.
Speaker Change: Additional Tam and from.
Speaker Change: What we've seen so far we do believe that.
Speaker Change: This is going to be additive and it's a great way to transition the portfolio into a different source of revenue over time from a competitive perspective, we feel really good about where we sit competitively.
Speaker Change: In part because what we're hearing from our customers as they're going through this migration you've got government fleets that are that are going through their migration. Some of the largest fleets that have sustainability requirements and then a bunch of other people that are testing in this marketplace and what we know from talking to our customers is that.
Speaker Change: When they are having these mandates so not really sure what to do next and so we're working in much more of a consultative fashion.
Speaker Change: Then probably we had anticipated and I think that's just.
Speaker Change: Indicative of the fact that there.
Speaker Change: On the commercial side people are looking for options and we feel really good about the capability that we've built.
Speaker Change: Thank you so much that's helpful.
Speaker Change: Your next question comes from the line of Ramsey Al Lassalle. Please go ahead.
Speaker Change: Hi can you guys hear me now.
Speaker Change: Hello, Yes, you can say about that.
Speaker Change: Okay.
Speaker Change: If you can hear me I think again, you mentioned that the net interchange rate in the corporate segment I think fell due to timing of revenue recognition from network incentives from last year can you elaborate that on that a little bit and also just help us think through how interchange rates should trend for the next couple of quarters.
Speaker Change: Yes, sure. So Ramsey what I was referring to was the decrease we saw from Q4 of 2020 through to Q1 of 2024.
Ramsey: You'll recall from the last earnings call. The Q4, we have revenue recognition related to the volumes incentives, we have with the associations and that caused the interchange a rate increase in Q4, and then coming down to Q1.
Speaker Change: Normalized.
Speaker Change: Going through the balance of the year, we expect interchange rates too.
Speaker Change: Be flat to slightly tick up from.
Speaker Change: From the first quarter.
Speaker Change: There'll be some dynamics with the booking contracts, but we expect flat to slightly pick up as we go through the year.
Speaker Change: Okay, and then a quick follow up it looks like in the Q2 guidance you're.
Speaker Change: Expecting credit loss to be a bit higher than it was in Q1 and also for the full year I'm just curious what the dynamic there are in terms of maybe a bit of an uptick in credit losses in Q2.
Speaker Change: Yes, we are.
Speaker Change: Built some pretty.
Speaker Change: Sophisticated models that help us forecast, where we think credit losses are going and we're just we're just looking at.
Speaker Change: Slightly higher charge offs in the second quarter.
Speaker Change: Based upon recent trends nothing too alarming, but we expect as a result of those charge offs.
Speaker Change: We'll be raising reserves in the quarter and then as you can see from the forecast. So the guide we expect that to trend down over the course of the year, we've put into place.
Speaker Change: Some new functionality in Q1, we had a new credit adjudication model.
Speaker Change: Q2, we've got the new automated credit loan monitoring.
Speaker Change: System, that's going into place so we expect.
Speaker Change: Credit losses to be relatively contained as we go through the year, but we are expecting an uptick in Q2.
Speaker Change: Got it thank you so much.
Speaker Change: Yeah.
Speaker Change: Question comes from the line of Sanjay two Kearney please.
Sanjay Harkishin Sakhrani: Please go ahead.
Sanjay Harkishin Sakhrani: Thank you good morning, so yeah, congratulations on the renewals with booking and HD X I guess as we think about and I think John you mentioned it a little bit.
Sanjay Harkishin Sakhrani: There is probably going to be some impact as we look at the yields.
Sanjay Harkishin Sakhrani: And anything else, maybe you can just help us think about the P&L impact in terms of volumes and the take rates and such as we look out this year into next.
John: Yeah, Let me start just a little bit around that specifically the contracted booking now.
John: They're going to be some short term headwinds, but also long term opportunity associated with the new contract and we couldnt be more pleased.
John: To sign this contract booking dot com.
Speaker Change: And it's the largest online travel agency in the world. It's a uniquely sophisticated partner and we're going to continue to be there primarily virtual card partner.
Speaker Change: But going forward, they're going to continue to rely upon waxes best in class payments technology platform.
Speaker Change: And those are going to be transitioning and performing certain activities in house related to a portion of the virtual card program.
Speaker Change: And it's contemplated this obviously in our guidance.
Speaker Change: Injector I will talk more about that in a minute, but I just wanted to reiterate the great outcome from both companies. The partnership has allowed us to scale together and we're really excited about the opportunities that we have long term.
Speaker Change: So Sanjay I'll talk a little bit about what this means for interchange rate in the corporate payments business. So just a reminder, right I've said that we've included this in our guide for the year.
Sanjay Harkishin Sakhrani: And I think I previously said in the last earnings call that we expect our corporate payments revenue to grow in the high single digits. This year and this new contract does not change our expectation. So if you look at what we did in the first quarter, we grew 16% year over year in corporate payments and so.
Speaker Change: I said in my prepared remarks employers, so we expect to trend down or.
Speaker Change: Over the course of the year this booking contract doesn't change that expectation embedded in that outlook.
Speaker Change: So let me start with the accounting impacts to this.
Speaker Change: So today booking volume is recorded as payment processing revenue.
Speaker Change: And it will continue to be under under the existing contract as it transitions to the new program.
Speaker Change: We expect a portion of that volume the transition to this new program and in this new program. It will no longer be recorded this payment processing revenue.
Speaker Change: And there'll.
Speaker Change: There'll be recorded in this account servicing revenue. So the result of that will be that volume that transitioned to the new program will not be included in our purchase volume metric that we report or net interchange rate. Although you will still see is included in our total volumetric that we that we published so we're obviously in early days.
Speaker Change: With this transition and we're much remains to be seen and how how it.
Speaker Change: Flows through and the timing factors, but our current expectation as I said earlier to Ramsey is that our total interchange rate for corporate payments for the full year will be stable to slightly up from the rates that we saw in the first quarter and while the timing could still shift what we're currently expecting.
Speaker Change: The corporate payments purchase volume will grow in the high single digits for the year.
Speaker Change: <unk> of the reduction reported volumes related to the booking transition so with that rate and volume that gives you our expectations for corporate payments purchase revenue and then the remaining bridge to our full year guide.
Speaker Change: Is really the expected corresponding increase that we expect some niche health service account servicing revenue related to <unk>. So just to reiterate what Melissa said, we're really excited about those contracts we've got.
Speaker Change: Great customer a long term relationship.
Speaker Change: Continues that long term relationship and we see additional revenue opportunities working working with them. So we're really excited about this.
Speaker Change: Okay, and just to clarify.
Speaker Change: See this is net accretive to the growth rate on a go forward I know there is transitory stuff this year, but as we look out to <unk>.
Speaker Change: 'twenty five onwards is this renewal net accretive stable or dilutive to sort of revenue growth in that segment and then.
Speaker Change: I have one quick follow up on something you said jetstar.
Speaker Change: It's a headwind in the short term, we think into the benefit of the long term.
Speaker Change: And when you say short term yamana, even into next year or just mainly this year.
Speaker Change: Well if it goes through the migration, so there's going to be a period of time and again this is a piece.
Speaker Change: The portfolio that they're going to bring in house and the timing of that is is uncertain. So we're giving you on our current expectations. So it's really going to depend on how much transitions when it transitions and so again, we're we're giving you our current thoughts right now.
Speaker Change: Got it got it and then just.
Speaker Change: One of the questions I've gotten is just that backend.
Speaker Change: EPS guide it seems like the revenues and EPS.
Speaker Change: Sort of a de linking of little bit Jonathan you mentioned, you're sort of front end that the investment in.
Speaker Change: Frontloaded the investments, but the back end you've got the cost saves. So that's more you have a decent amount of visibility into that EPS trajectory in the back end assuming the revenues are correct is that right.
Speaker Change: That's right Sanjay So we've got if you look at the back end, it's roughly based upon where we guided Q2 and the full year you talked about it.
Speaker Change: 75 million dollar increase in revenue in the second half and that's related to the things we've talked about pricing volume et cetera, and then you've got the cost reductions that we have talked about repeatedly that we expect to start flowing through in the second half.
Speaker Change: Whereas we frontloaded the cost reductions we've seen with some of the investments that we've talked about before.
Speaker Change: We also have the step up in credit loss, but we're anticipating second quarter correct.
Speaker Change: Alright, great. Thank you guys I appreciate it.
Speaker Change: Your next question comes from the line of James Fawcett with Morgan Stanley. Please.
James Eugene Faucette: Please go ahead.
James Eugene Faucette: Great. Thank you very much I wanted to ask just how we should be thinking about the mix between travel and non travel revenue and corporate payments over the near to medium term.
James Eugene Faucette: Especially with some of these model transitions et cetera.
Speaker Change: So right now.
James Eugene Faucette: $55, 60% of revenue is travel and about 70% of the spin.
Speaker Change: <unk> volume.
Speaker Change: It relates to travel the rest obviously is non travel.
Speaker Change: Yes over time, we are expecting.
Speaker Change: From a spend perspective and again in this case I will talk about total spend just to make it cleaner.
Speaker Change: <unk> seen a big deviation, we have seen obviously like a big uptick over the last couple of years and travel spend with a rebound from the pandemic.
Speaker Change: We do think that that will continue to normalize as sheet as you progressed through the course of the year.
Speaker Change: And I think Jan talked about the moving parts of how the pieces are going to move through our P&L in a way that you can actually go through you can do the math to give you the current expectation.
Jan: Yes, I'd just add.
Jan: I gave sort of what we expect for total volume purchase volume through the year I would say that.
Speaker Change: We expect the rates of non travel purchase volume to be fairly stable over the course of the year.
Speaker Change: The real net to that and the <unk>.
Speaker Change: Total volume number I gave is really.
Speaker Change: The booking transition.
Speaker Change: Got it got it got it and then.
Speaker Change: Just wanted to touch quickly on the benefit side.
Speaker Change: HSA just wanted to better understand what's happening there.
Speaker Change: You've seen growth there in cash assets, but that seems to be.
Speaker Change: Getting to normalized.
Speaker Change: And the growth has still been quite strong though it came in at 14% I think in the quarter. We will see you spoken to Devin years HSA estimates in the past, but curious how you're thinking about the level of HSA growth, we should be expecting.
Speaker Change: For the rest of 'twenty, four and mid 25%.
Speaker Change: As part of that.
Speaker Change: I guess tied into that.
Speaker Change: What kind of assumptions are you, making about rate cuts and an impact on on yield.
Speaker Change: Yields on those balances for the rest of this year.
Speaker Change: Let me start and injectors.
Speaker Change: Because at the end of the year yet.
Speaker Change: So as we go through the course of this year.
Speaker Change: Anticipate to continue to outgrow the marketplace in terms of our account growth.
Speaker Change: It really focused around continuing to move our sales through our pipeline and making sure that we're delivering that through the course of this year.
Speaker Change: So our objective is to outgrow what happens from a market perspective.
Speaker Change: Then.
Speaker Change: We have added in the custodial right capability to be able to make sure that we're earning accretive revenue associated with that as well as added through the sensus acquisition the ability to add in additional products like compliance products, we have a benefit administration products and so.
Speaker Change: Continuing to cross sell those across the portfolio, including our Cobra capability, which has been really strong cross sell that we've had since we added that capability.
Speaker Change: And from a rate perspective, you're going to talk about that yeah. So.
Speaker Change: What we've included in our guidance and I think as our earnings presentation is that we have basically four testing in line with the market expectations. So at the beginning of the year. We had said five rate cuts as what we expected we've changed those.
Speaker Change: I think market expectations are now down to about two rate cuts. This year. So thats whats included.
Speaker Change: In our guide I would say with regard to the HSA balances.
Speaker Change: The majority of our balances are in fixed rate instruments. So we don't expect any rate cuts to impact those are part of our.
Speaker Change: Portfolio that's in <unk>.
Speaker Change: Floating obviously, that's part of our revenue guide increase for the balance of the year since we're expecting less rate cuts because we go through the year, but as I've talked about in previous calls we tend to manage the fixed versus floating rate exposure. So it's effectively P&L neutral once you take it all the way through the P&L and look at corporate.
Speaker Change: So while we will have some revenue impact it doesn't have a bottom line EPS impact.
Speaker Change: Great Hey, I appreciate all the color guys.
Speaker Change: Your next question comes from the line of John Davis with Raymond James. Please go ahead.
John Kimbrough Davis: Hey, good morning, guys, Melissa obviously, you've called out.
John Kimbrough Davis: The X.
John Kimbrough Davis: The account growth and benefits ex the loss of the Medicare advantage customer being about let's call. It $1 5 million accounts or so how should we think about the revenue impact within benefits this year of that that customer loss.
John Kimbrough Davis: Still a couple of percent in the course of the year for the full year.
John Kimbrough Davis: Okay. So a couple of points two benefits growth.
Speaker Change: Yes, okay.
Speaker Change: And then just jets are on mobility margins first time, I think margins have dipped below 40%.
Speaker Change: While and I know you called out lower fuel prices, but maybe just help us think about what the trajectory of margins from here and mobility and how we should think about the full year.
Speaker Change: Any color there would be helpful.
Speaker Change: Yes, sure. So we should expect margins to improve overall as we go through the year I think we've got higher fuel prices that were forecasting for the balance of the year, we're expecting improvement.
John Kimbrough Davis: Yes.
Speaker Change: Late fees as we go through the year some of the drag that we've seen will become less of a drag.
Speaker Change: And then were expecting a better interest rate environment as we go through the balance of the year. So all of those things should help margins will have a little bit of an impact in Q2, because we are forecasting those higher credit losses, but that should improve as we get into the second half.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Okay.
John Kimbrough Davis: Question comes from the line of Nae Vinson with Deutsche Bank. Please go ahead.
Nae Vinson: Hey, I just kind of wanted to follow up on that last question. There I was hoping you could remind us some of the underlying assumptions on the revenue growth within mobility I think before you had talked about 8% macro adjusted growth, including about two points or so from Taser. So I just wanted to make sure that that was reiterated for this quarter.
Nae Vinson: And then maybe some of the underlying assumptions. There you mentioned late fee, increasing I guess, the headwinds getting better in the back half of the year, but maybe some of the other assumptions like gallons of fuel growth expansion and payment processing, great anyway for Dell bus frame that would be helpful.
Nae Vinson: It's actually it's going to go into that in detail, but before he starts one of the things that was really important to us is to see the step up in the first quarter and you talked about the fact that we had an impact of negative spreads in Europe that impacted the quarter, which offset the positive interim steel prices, but in terms of revenue growth.
Nae Vinson: Going from our growth in the fourth quarter to the incremental growth. We saw in first quarter was part of the plan that we had as we were progressing through the course of the year. So we are pleased with the number that we posted this quarter.
Speaker Change: Yes, so I'll jump in here I, just want to emphasize what close to just said right. So we've got it to top end of our long term range so call it 8% growth.
Speaker Change: Bill the first quarter, we saw 5%, which was a tick up from below 2% that we saw in Q4, so that was.
Speaker Change: And sorry, that's ex fuel prices.
Speaker Change: That's exactly what we expected to zero and we were quite pleased to see that.
Speaker Change: So as we think through the rest of the year high end of our range at 8% Taser is expected to contribute to.
Speaker Change: And the rest of it comes from the things that I've talked about in the previous call that we saw come to start to come to fruition in Q1. So part of it is the pricing levers that we've pulled.
John Kimbrough Davis: We saw that coming through in the rate in the first quarter.
John Kimbrough Davis: Part of it is the impact from the credit losses that we saw a couple of years ago and the actions that we took last year.
John Kimbrough Davis: Both volume growth because of higher attrition as well as late fees because of improvements in the credit portfolio. Both of those items, we expect to lap. This year, we didn't quite see it as much as Q1, because it's more of a Q2 and beyond item. So we should start to see that as we go through the year. So.
John Kimbrough Davis: Those three things that I, just mentioned fuel prices sorry.
John Kimbrough Davis: Late fees volume and pricing are all what we're expecting in Q2 through Q4 of the year.
Speaker Change: Super helpful. I appreciate the color I guess my follow up maybe a two parter on corporate payments I think last quarter, you had talked about a better virtual card attach rate within your travel business. So I guess any update on how that trended this quarter and how you see that going forward and then I guess the second part.
John Kimbrough Davis: You had a couple of comments in your prepared remarks on this but more color on your direct sales efforts and corporate payments. So.
John Kimbrough Davis: Any additional information on the benefit Youre seeing from the direct sales force or selling your AP product into mid sized businesses would be helpful. Thank you.
John Kimbrough Davis: It will take time on this one too.
John Kimbrough Davis: We continue to see the benefit of the migration to the merchant model, which I think is what youre talking about within our European customers and so in that and it's been a benefit although I will say in the quarter.
John Kimbrough Davis: The oversize of the growth came from outside of Europe.
John Kimbrough Davis: In this particular quarter and most of it does increase.
John Kimbrough Davis: Spend volume was because of transaction growth rates seem to have normalized it was only about a 4% increase in rate year over year. So.
John Kimbrough Davis: Again, it feels like we're getting back into more of a normalized environment in terms of sales half of the growth came from our direct sales.
John Kimbrough Davis: Outside of travel and our corporate payments business and so we feel good about.
John Kimbrough Davis: We continue to build the pipeline, there and continuing to execute and deliver.
John Kimbrough Davis: We've got a sustained growth engine at this point in time, that's continuing to deliver each quarter.
John Kimbrough Davis: And I would say thats true within travel too as well and we continue to.
John Kimbrough Davis: Build the pipeline, we have there working with our existing customers look for opportunities you talked about some about during the call.
John Kimbrough Davis: But it's an area that we're going to continue to focus on as well.
Speaker Change: Yes, I'll, just I'll just add to that.
Speaker Change: We were extremely pleased in the growth of that direct business because quarter. This is the second quarter in a row, where over half of our non travel related.
Speaker Change: Payment processing revenue came from the direct business.
Speaker Change: Overall, if I look at our our payment processing revenue trends for non travel. This is the third quarter of.
Speaker Change: Trending upwards.
Speaker Change: We were quite pleased to see that continuing trend.
Speaker Change: Thank you appreciate it.
Speaker Change: Your next question comes from the line of Mihir Bhatia with Bank of America. Please go ahead.
Mihir Bhatia: Good morning, and thank you for taking my questions.
Mihir Bhatia: I actually wanted to start by going back to following up on <unk> question. You mentioned some of those short term headwinds from the booking renewals, but can you just talk about the longer term opportunity that is the additional volume you'll be getting for them from them longer term I'm just trying to understand the benefits of works from the renewal beyond obviously locking up that you.
Mihir Bhatia: Large customer, but what is the opportunity side of that contract when you will look like.
Speaker Change: Yeah, Let me, let me talk about a couple of things here first of all I think it's important to distinguish booking because it is a highly sophisticated customer.
Speaker Change: Unique capability set in this marketplace and so what we're doing with them, we feel like it's a great partnership or bridging them to their capability.
Speaker Change: In terms of the opportunity for us.
Speaker Change: This long term relationship we are the primary provider over that long term, we are continuing to work with them on other areas.
Speaker Change: Crossed their portfolio, which we do believe will create opportunities.
Speaker Change: Okay.
Speaker Change: And then maybe switching to the guidance a little bit right.
Speaker Change: Tried to undecided Big picture right.
Speaker Change: Whats changed here right the fuel price assumption inquiries like nine which.
Speaker Change: Which based on the framework you gave last quarter should be about 27 cents of EPS right.
Speaker Change: Are you going up <unk>.
Speaker Change: It looks like revenue guide is increasing more than just a fuel price tailwind from that framework. So it looks like you're maybe getting a little bit better revenue than you expected at the start of the year.
Speaker Change: But so maybe coming in is that the right way to think about it I'm just trying to understand what's changed really if I remove the macro or the field.
Speaker Change: So what I would say.
Speaker Change: Two items, so if I start with the revenue two macro items are impacting revenue one is fuel prices. The other one is interest rates.
Speaker Change: As we said in the last Colorado assumed originally five rate reductions. This year now we are.
Speaker Change: Assuming less than that so that has a revenue impact.
Speaker Change: Merchant contracts and HSA assets. So the fuel related changes you see flow flow through to earnings.
Speaker Change: Interest rate related changes you see on the revenue line, but as we've talked about before we manage our business to be interest rate neutral.
Speaker Change: At the EPS level. So you don't see those flow through to changes because they are basically counteracted by.
Speaker Change: Interest costs increase we expect from the corporate debt.
Speaker Change: So largely the fuels flowing through we had in the first quarter market movement.
Speaker Change: That impacted our first quarter number that was about $2 million and so that's largely the delta that you see between the 2007, you would expect and what Youre seeing in the actual EPS increase.
Speaker Change: Alright, thank you.
Speaker Change: That concludes our Q&A session I will now turn the conference back over to you Steve Elder for closing remarks.
Steven Alan Elder: Thank you operator, and thank you everyone for joining US today, we will look forward to sharing our progress on the <unk>.
Steven Alan Elder: Second quarter coming up soon thank you.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Okay.
Steven Alan Elder: Okay.
Steven Alan Elder: Okay.
Steven Alan Elder: Yes.
Steven Alan Elder: Okay.
Steven Alan Elder: Yes.
Steven Alan Elder: Yes.
Steven Alan Elder: Okay.
Steven Alan Elder: [music].
Steven Alan Elder: Thanks.
Steven Alan Elder: [music].
Steven Alan Elder: Yes.