Q1 2025 WEX Inc Earnings Call
Thank you for standing by my name is Caitlin I'll be a conference operator today at this time I would like to welcome everyone to the works first quarter 2025 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question answer session.
You'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star and one.
I would now like to turn the call over to Steve Elder you may begin.
Steve Elder: Thank you operator, and good morning, everyone with me today is Melissa Smith, our chairman and CEO and Jaguar and the ruler our CFO.
Steve Elder: The press release and supplemental materials issued yesterday and a slide deck to walk through prepared remarks have been posted to the Investor Relations section of the website at <unk> Dot com.
Steve Elder: Copy of the press release and supplemental materials have been included in an 8-K filed with the SEC yesterday afternoon.
Steve Elder: As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, which we sometimes refer to as anr.
Steve Elder: Adjusted net income per diluted share adjusted operating income and related margin as well as adjusted free cash flow during our call.
Steve Elder: Please see exhibit one of the press release for an explanation and reconciliation of these non-GAAP measures.
Steve Elder: The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis.
Due to the uncertainty an indeterminate amount of certain elements that are included in reported GAAP earnings.
Steve Elder: I would also like to remind you that we will discuss forward looking statements under the private Securities Litigation Reform Act of 90 95.
Steve Elder: <unk> results may differ materially from those forward looking statements as a result of various factors, including those discussed in the press release, the supplemental materials and the risk factors identified in the most recently filed annual report on Form 10-K, and other subsequent SEC filings.
Steve Elder: 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.
Melissa Smith: With that I'll turn the call over to Melissa.
Melissa Smith: Thank you, Steve and good morning, everyone. We appreciate you joining us today let.
Melissa Smith: Let me begin by addressing the current macroeconomic landscape.
Melissa Smith: Recent U S tariff policy decisions have created uncertainty in the economy, they do not directly impact <unk> operations.
Melissa Smith: That said, we recognize that these policies influence our customers' behavior.
Melissa Smith: In response, we are proactively engaging with them to assess potential impacts and develop plans for a wide range of possible scenarios.
Melissa Smith: In this ever changing environment, our ability to adapt innovate and stay focused on what matters. Most is never been more important.
Melissa Smith: Secular growth drivers in each of our segments remain highly relevant and very much intact and work is well positioned to continue advancing as an industry leader in our segment.
Melissa Smith: We've also consistently maintained high customer retention, even during times of economic uncertainty a testament to the strength of our value proposition and the trust we've built across our customer base.
Melissa Smith: We believe that one of the advantages of Brexit business model is that our strong financial position and diversified segments provide a meaningful buffer against short term softness in any one sector.
Melissa Smith: Segments, each have different opportunities and risks through economic and business cycles, which helps position us well to navigate ongoing macro uncertainty. In addition, these segments can leverage common technology resources and investments, increasing our operating leverage and the ability to scale quickly.
Melissa Smith: I remain excited about the opportunities in front of US we are committed to balancing our long term investment.
Melissa Smith: All remaining disciplined and responsive to near term macro dynamics.
Melissa Smith: Now turning to the first quarter results, we reported revenue of $636 $6 million for the quarter, a decrease of two 5% year over year.
Melissa Smith: Excluding the impact of fluctuations in fuel prices and foreign exchange rates Q1 revenue was down 8% compared to the prior year.
Melissa Smith: Adjusted net income per diluted share was $3 51.
Melissa Smith: An increase of one 4% compared to the same quarter last year.
Melissa Smith: Excluding the impact of fluctuations in fuel prices and foreign exchange rates Q1, adjusted EPS grew 5%.
Melissa Smith: Revenue for the quarter exceeded the midpoint of our guidance, while adjusted EPS was above the range.
Melissa Smith: Operationally our results were consistent with our expectations and we benefited from slightly higher than anticipated fuel prices.
Melissa Smith: We remain laser focused on the factors, we can control, including executing against our strategy delivering differentiated products and value to our customers and driving long term shareholder value through a disciplined returns driven approach to investment and capital allocation at.
Melissa Smith: At the same time, where we can we're assessing and preparing for any financial impacts of policy and macroeconomic changes.
Melissa Smith: Now, let's turn to an overview of our segments and how they performed in Q1.
Melissa Smith: Rex operates across three large and growing market mobility benefits and corporate payments.
Melissa Smith: Each of which we believe offer significant long term secular growth opportunities, where we hold distinct competitive advantages.
Melissa Smith: Mobility, our largest segment at approximately 50% of total revenue.
Fleet payment solutions transaction processing and data driven insights to fleet operators and managers globally. Our proprietary closed loop payment network provides customers with enhanced data caps.
Melissa Smith: Custom controls and tailored economics and covers approximately 90% of fuel stations in 80% of EV charging locations in the U S.
Melissa Smith: These capabilities help fleet managers optimized cough, the tech misuse improve operational efficiency and support the complexity of operating a mixed energy fleet.
Melissa Smith: This segment has two primary categories. The first category comprising roughly 70% of mobility revenue is local fleet.
Melissa Smith: The remaining 30% is driven by our over the road trucking customers.
Melissa Smith: With more than 600000 fleet customers globally, our competitive moat is built on being data rich capital efficient and deeply embedded in our customers' daily operations, delivering both functional value and long term stickiness.
Melissa Smith: Q1 results from the mobility segment were in line with expectations.
Melissa Smith: <unk> levels were down slightly from the prior year, partly due to external factors, including a number of weather events across the U S.
Melissa Smith: Same store sales growth for local fleet was down three 9%.
Melissa Smith: Actually over the road customers saw an uptick of approximately two 6%.
Melissa Smith: Our working thesis for same store sales is that local fleets have been responding to the effects of the softening macro environment well OTR benefited from a pull forward of trucking demand ahead of the implementation of tariffs.
Melissa Smith: We're particularly pleased with our continued momentum in sales renewals and customer retention in Q1, we successfully extended longstanding partnerships with several of the most respected names in the industry, including Circle K Enterprise Fleet management, and J B Hunt a testament.
Melissa Smith: The value, we deliver and the trust we've earned in the marketplace.
Melissa Smith: Turning now to our benefits segment, which simplifies the complex world of employee benefits administration and represents approximately 30% of total company revenue.
Melissa Smith: Here, we offer a comprehensive platform that spans HSA, FSA, HRA Cobra and benefit enrollment and administration, enabling both employers and partners to help their employees make more informed benefit decisions.
Melissa Smith: <unk> serves nearly 60% of the fortune 1000 in this segment.
Melissa Smith: It is more than 21 million SaaS account.
Melissa Smith: This segment is sticky due to the deeply embedded nature of our offering for our partners is integrated into their platforms for direct customers. It serves as a critical employee benefit solution.
Melissa Smith: For both customer sets switching providers is complex and disruptive.
Melissa Smith: The embedded nature of the platform combined with high retention and predictable SaaS and custodial revenue streams leads to attractive margins and long term customer value.
Melissa Smith: We had a very good open enrollment season, which sets us up well for the remainder of this year. We grew total HSA accounts on the web benefits platform by 7% in Q1, bringing us to more than $8 5 million HSA accounts.
Melissa Smith: Overall, SaaS account growth was 6% for the quarter.
Melissa Smith: According to the 2024 year and seven year HSA Research report HSA industry account growth was 5% to the market towards 7% organic growth compares very well and underscores our competitive strength.
Melissa Smith: This performance was driven largely by a direct accounts, which grew nearly 10% compared to the prior year.
Melissa Smith: As we discussed in February this is one of the key areas, where we are increasing sales investments this year.
Melissa Smith: We believe the benefits segment is less sensitive to macroeconomic trends in the rest of the company and provide stability to wax during economic downturns.
Melissa Smith: For example, during the COVID-19 pandemic, we saw the increase in unemployment have a modest impact to account growth, but this was partially offset by increase in usage of our Cobra product.
Melissa Smith: As a result total account growth remained fairly consistent despite the disruption.
Melissa Smith: In addition, the interest income we earn is less sensitive to changes in interest rates as it is invested predominantly in fixed rate products with maturities that vary and extend over several years.
Melissa Smith: As I stated earlier, one of the strengths as a company is how diverse segments don't react in lockstep to macro events.
Melissa Smith: In the case of our benefits segment reevaluate its long term growth profile and stability.
Melissa Smith: Moving now to our corporate payments segment, which represents approximately 20% of our revenue and includes two major offerings embedded payments and direct accounts payable.
Melissa Smith: Embedded payments represents the majority of the revenue in the corporate payments segment, including all of our travel related customers.
Melissa Smith: With this solution, we integrate virtual card payment capabilities into our customer's existing workflows, we combined highly customizable reconciliation benefit with a range of card products in currencies in order of magnitude larger than most competitors.
Melissa Smith: These capabilities are coupled with deep industry knowledge and experience and a best in class service approach.
Melissa Smith: Our embedded payments offering has high operating leverage.
Melissa Smith: The investment in the technology platform represents the majority of cost. It is a largely fixed cost base and most incremental volume is accretive to our margins and cash flow.
Melissa Smith: Our ability to compete and win here is built on our technical and domain expertise strength in our economic strength that stems from scale.
Melissa Smith: Within our embedded payments offering Q1 purchase volume was down in line with our expectations.
Melissa Smith: The large travel customer we've mentioned in recent quarters is nearing the end of their transition to a new operating model with us.
Melissa Smith: We remain on track to lap this headwind that began in Q3 last year.
Melissa Smith: Continue to expect a return to growth in the second half of 2025.
Melissa Smith: Switching gears to talk about the direct AP product with our corporate payments segment, which accounts for approximately 20% of segment revenue.
Melissa Smith: This solution automates accounts payable by integrated with enterprise resource planning system, and accounting workflows to maximize virtual payment usage.
Melissa Smith: During the quarter direct <unk> volume grew nearly 25% compared to last year.
Melissa Smith: We're seeing a contraction in spend per account in the face of a tougher economic environment similar to the market that said, our new account growth is outweighing the slowdown in spending which only bolsters our confidence that additional sales marketing and product investments, we discussed last quarter.
Melissa Smith: We will have a strong return even in a diminished macroeconomic environment.
Melissa Smith: From a macro perspective, I do want to provide some context on our corporate payment segment.
Melissa Smith: We have deep relationships, whether embedded payments customers.
Melissa Smith: Our portfolio is skewed towards international hotel spend and we appear to be holding up better than the noise. We've heard in domestic travel.
Melissa Smith: At this point, we have not seen signs of a slowdown in our travel volume, but we remain vigilant and we'll continue to monitor this given the rapidly evolving macroeconomic outlook.
Melissa Smith: For our direct accounts payable product, we're monitoring business spending and usage trends along with the credit health of our portfolio as we progress through 2025 during an economic downturn middle market companies need a partner that will give them security visibility and control as it relates to their AP.
Melissa Smith: Spend as mentioned above our intent here is to grow to a contraction in spend per account being mindful of how we extend credit in a risk tolerant fashion.
Melissa Smith: I'd now like to provide an update on the growth initiatives, we outlined last quarter. As a reminder, the incremental investments. We discussed in February are being deployed across all of our segments roughly in line with their size. While we are progressing as planned. We're also being mindful of the rapidly evolving economic landscape.
Melissa Smith: We believe that the investments, we're making will deliver strong rois and contribute to a reacceleration of growth at the same time should external economic conditions deteriorate substantially from here, we will of course be thoughtful about our approach.
Melissa Smith: Roughly 75% of our incremental Q1 investments within the mobility segment.
Melissa Smith: Where we've been deploying a multichannel marketing strategy targeted at small business customers we.
Melissa Smith: We are seeing encouraging early results for our small business prospects new application volumes are outperforming the prior year by 18%.
Melissa Smith: These early results give us added confidence in the ROI of these investments and I'm excited about how well we're positioned as we exit Q1.
Melissa Smith: We're also making investments in sales head count across the company, which will drive further impact as our pipeline gets on boarded and ramp later in the year.
Melissa Smith: In closing, while we continue to monitor the broader macroeconomic environment, we remain focused on thoughtfully driving our strategic initiatives forward.
Melissa Smith: Later policy clarity will undoubtedly help our customers navigate the uncertainties they face and we expect that resolving these uncertainties will lead to a return to more normal buying cycles and payment volumes that.
Melissa Smith: That said I remain as confident as ever in <unk> competitive position across each of our markets.
Melissa Smith: I think it's worth adding that our board regularly reviews, the composition of our business portfolio.
Melissa Smith: The strategic advantages of diversity and scale with potential opportunities to acquire or dispose of businesses at attractive valuations, while factoring in hard cost that might be born as a result of any strategic shifts.
Melissa Smith: These reviews are conducted thoughtfully on a regular basis.
Melissa Smith: And when appropriate with the assistance of independent advisors.
Melissa Smith: While we believe our current configuration is attractive and there is value in our scale and diversification. We will continue to use our best judgment about our business composition always with the goal of delivering great returns for our shareholders.
Melissa Smith: I believe that works is better positioned than ever before to meet our customers' demands.
Melissa Smith: But careful investments, we're making in product sales and marketing will position us to be at the forefront of capturing this demand.
Melissa Smith: We have a stable and experienced management team and a deep bench of talent that is focused on what we can control.
Melissa Smith: Im confidence works will navigate this period and ultimately emerge stronger even better positioned to deliver value to our customers and shareholders.
Melissa Smith: I want to thank our teams for their hard work and commitment as we kicked off 2025.
Melissa Smith: Pleased with our Q1 performance and the progress we're making on our strategic priorities. While there is more to do we entered the rest of the year with strong momentum and clear focus.
Speaker Change: With that I'll turn it over to Jack Charlie to walk you through our financial performance in more detail <unk>.
Jack Charlie: Thank you Melissa and good morning, everyone.
Speaker Change: Efforts to shift the focus of these earnings calls towards more strategic items.
Jack Charlie: Have published a supplemental information deck with commentary that historically.
Speaker Change: Alluded to in my prepared remarks.
Jack Charlie: So similar to last quarter I will keep my remarks brief.
Jack Charlie: Total revenue in the quarter was $636 6 million, which is down two 5% versus last year.
Jack Charlie: Impact of foreign exchange rates and lower fuel prices reduced revenue growth by one 7% year over year.
Jack Charlie: Revenue was slightly ahead of the midpoint of the guidance range, we provided last quarter, primarily due to higher fuel prices.
Jack Charlie: Earnings per share of $3 51 says.
Jack Charlie: One 4% year over year.
Jack Charlie: The reduction of three 7% from lower fuel prices and foreign exchange rates.
Jack Charlie: Adjusted EPS was just above the high end of the guidance range, we provided in February.
Jack Charlie: So due mostly to higher than expected losses.
Jack Charlie: In our mobility segment revenue declined one 5% during Q1 compared to the last year.
Jack Charlie: This includes a drag of two 9% due to lower fuel prices and foreign exchange rates.
Jack Charlie: Our payment processing rate of 130% was flat year over year.
Jack Charlie: Hey, guys. This is segment total revenues of 199 3 billion.
Jack Charlie: Rose four 2% year over year basis.
Jack Charlie: SaaS account growth of six 1% was in line with our expectations given the out of the open enrollment season.
Jack Charlie: Custodial industrial revenue, which represents the interest we earn on the custodial cash balances we hold.
Jack Charlie: Rose 10, 6%.
Jack Charlie: $5 8 million.
Jack Charlie: Interest rate. We earned has remained fairly steady with the yield growth of five basis points from Q1 last year.
Speaker Change: Turning to our corporate payments segment.
Speaker Change: Revenues of $103 5 million declined 15, 5% year over year, which was in line with our expectations.
Speaker Change: Purchase volume and corporate payments declined on a year over year basis.
Speaker Change: In large part due to our cost for transition to a new operating model, which has progressed in line with our expectations.
Speaker Change: We will lap this difficult comparison, starting in Q3 of this year.
Speaker Change: On a positive note I'd like to call out that our direct purchase volume, which includes our AP automation solutions grew nearly 25% versus last year.
Speaker Change: This is one of the key focus areas that we discussed last quarter, we plan to invest more in the future.
Speaker Change: Let me transition to us the balance sheet.
Speaker Change: Our balance sheet and ability to generate cash we will reliably remains a source of strength for us, especially in periods of economic uncertainty.
Speaker Change: Our leverage ratio ended the quarter at three five times, which is at the high end of our long term range of two five to three five times.
Speaker Change: This was driven by normal quarterly trends and our debt raised to fund the Dutch auction tender offer.
Speaker Change: During the first quarter, we returned $790 million to investors through share repurchases, including the Dutch auction tender offer.
Speaker Change: Q2 share count by more than 5 million shares or approximately 32, 1% since the end of last year.
Speaker Change: For the remainder of the year you should expect that we will use available cash flow to reduce leverage.
Speaker Change: As part of our growth acceleration actions, we discussed last quarter.
Speaker Change: We're continuing to make investments new product development and sales and marketing.
Speaker Change: We are paid for some of these investments through efficiency measures and temporary cost actions across the business.
Speaker Change: Consistent with our commentary last quarter, we believe that the amount of incremental investment, we're making will exceed these cost reduction measures.
Speaker Change: We are still planning for the approximately $25 million increase to our sales and marketing expenses.
Speaker Change: Switching to each segment roughly in line with its size. In addition to natural expense growth in the business.
Speaker Change: We are also continuing to closely thoughtfully monitor the macro environment.
Speaker Change: And as conditions dictate may choose to make adjustments to the players.
Speaker Change: However at this point, we believe these prudent investments make a lot of tools to help drive our long term success.
Speaker Change: Now, let's move to earnings guidance for the second quarter and the full year.
Speaker Change: It's important to note that we are updating our full year 2025 guidance to account for the macro impact of fuel prices.
Speaker Change: And interest rates.
Our recently completed a tender offer with all other changes the minor in nature to.
Speaker Change: To be clear.
Speaker Change: Our guidance is based upon current trends and small, but manageable incremental headwinds for body our original outlook in February.
Speaker Change: The business environment is dynamic and our guidance does not include the impact of a potential further slowdown in the economy in Q2.
Speaker Change: To report revenue in the range of $640 million to $660 million.
Speaker Change: Expected adjusted net income EPS to be between $3 60, and $3 82 per diluted share for the full year.
Speaker Change: To report revenue in the range of $2 $5 7 billion to $2 six 3 billion.
Speaker Change: We expect adjusted net income EPS to be between $14 and salute to Suez.
Speaker Change: $15 32 per diluted share.
Speaker Change: Our current assumption is that fuel prices interest rates and FX will drive the $31 million negative impact to revenue for the full year, which accounts for nearly all of the change.
Speaker Change: Impact of these anticipated revenue changes should be more than offset by the reduced share count due to severance.
Speaker Change: Kris and adjusted EPS at the midpoint of guidance.
Speaker Change: To reiterate our guidance is based on what we know today and does not consider a broader economic downturn.
Speaker Change: However, we continue to evaluate the impact of the macro environment.
Speaker Change: We would like to provide additional insights to help you assess the impact to the company.
Speaker Change: We view a potential economic downturn impacting the company's Q3 primary levers.
Speaker Change: The macro levers of fuel prices and interest rates.
Speaker Change: Business levers of volume.
Speaker Change: And the final lever of asset quality.
Speaker Change: We've provided detailed in the past on fuel price interest rate impacts.
Speaker Change: Continue to provide sensitivities in our earnings supplement.
Speaker Change: <unk>.
Speaker Change: Industrial relations section of our website.
As a reminder, we.
Speaker Change: We estimate the Tencent change in average fuel prices on a full year basis.
Speaker Change: Good results.
Speaker Change: The impact of approximately $20 million of revenue and 35 cents to Etfs.
Speaker Change: A 100 basis point change in interest rates would result in.
Speaker Change: It was $40 million change to revenue with an opposite impact of 30% to 30 pluses and Etfs in other words the revenue declines as a result of lower interest rates adjusted earnings per share would increase.
Both U S interest rates EPS.
Speaker Change: <unk> increased due to the reduction in share count.
Speaker Change: Turning now to business volumes, starting with mobility.
Speaker Change: Over multiple economic cycles, we have observed the down volumes in our book are correlated to GDP.
Speaker Change: Generally we see that a 1% change in U S GDP impact gallons by 2% Upper zone.
In our travel business is global in nature was two thirds of the steadily.
Speaker Change: Originated and occurring outside of the U S.
Speaker Change: Heavily weighted towards hotels.
Speaker Change: We will travel spend can be impacted by economic activity right now, we expect a bit more resilient given their exposure to international travelers versus U S investors.
Speaker Change: On the non travel side.
Speaker Change: 20% of our volume is related to direct business.
Speaker Change: We expect volume resiliency as we continue to add customers.
Speaker Change: On the remaining volumes, which are a mix of our embedded and partner channels.
Speaker Change: <unk> seen some impacts from business spending levels.
Speaker Change: What we know today has been factored into our guidance.
As Melissa discussed earlier, our benefits segment is more resilient in the near term to economic cycles as changes in employee benefit programs is typically at least partially replace by Cobra related revenue.
Speaker Change: The final impact of works is from asset quality, primarily our accounts receivable.
Speaker Change: We have previously see short duration spikes and credit losses.
Speaker Change: <unk> stressed increases.
Speaker Change: In past severe recessionary periods, we have seen credit losses spike to 40 to 50 basis points.
Speaker Change: Which typically less only one quarter and then improve due to the short duration of our receivables combined with proactive management of credit pulses.
Speaker Change: I will also note that we have made significant investments in our quote tools over the years that would help to mitigate the magnitude of these losses.
Speaker Change: In closing we recognize that we are in a period of economic uncertainty.
Speaker Change: Our customers may face challenges that may cause them to adjust their payment volumes and transactions with us.
Speaker Change: In these times our financial stability.
Speaker Change: Heres to economic cycles, and product strengths help us to deliver tangible support to our customers.
Speaker Change: We remain focused on what we can control and are enthusiastic about the progress. We've already made this year and healthy works realize its full potential to drive long term insurance and growth.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Please limit to one question and one follow up question.
Speaker Change: Our first question comes from the line of Sanjay Kearney with K B W. Your line is open.
Speaker Change: Thank you good morning, Melissa you talked a little bit about the tariff impact and the pull forward in mobility.
Speaker Change: Sort of foot.
Speaker Change: Some of the comments because it seemed like mobility was still weaker despite the pull forward I understand weather impacted so the non OTA side, but maybe you could just talk about what the assumptions are on a go forward basis that you expect a little bit of a rebound from here if the pull forward does not reoccur.
Speaker Change: Sure sure. So there are two things that happens if you look at the local part of the business, which is the majority of the business. We saw same store sales were down three 9%.
Speaker Change: So a piece of that we believe was weather related or piece of that we believe this more economic related.
Speaker Change: <unk>.
Speaker Change: Mind people, we measure same store sales is similar volume from similar customer year over year, we separately measure retention and our customer retention rates were very strong again this quarter across the board.
Speaker Change: So we think that's part of what we were seeing is again weather related some of that with a little bit more economic softness and then when you go to the over the road business we saw that.
Speaker Change: Positive in same store sales, we believe both from the fact that that number was positive two 6% and so it was up sequentially and because of the conversations we're having our customers that we saw a pull forward in that part of our business.
Speaker Change: Is the smaller part of that segment.
Speaker Change: We also since that point in time and as we put together our guide the first couple of weeks of April and the over the road business.
Speaker Change: We're quite strong in terms of volume.
Speaker Change: That had deteriorated over the last couple of weeks has dropped off switch further substantiates. This idea that there was a pull forward that was happening we factored all of that softness. So everything we are seeing the last couple of weeks in April and the continued softness in same store sales, we've seen with our local fleets into our guide.
Speaker Change: We feel pretty good about the fact that we're holding the full year guide, excluding the macro impacts and absorbing the softness that we're seeing that we hadn't con.
Speaker Change: Contemplated when we put out the original guidance at the beginning of the year.
Speaker Change: Okay.
Speaker Change: And I guess, a kind of a follow up similar on the non direct.
Speaker Change: Non travel corporate payments piece like you mentioned that you've seen.
Speaker Change: A little bit of impact, which has now been kept separate it in as we think about the major verticals inside that business.
Speaker Change: Or like what are they and then.
Speaker Change: What's is there a lot of cyclicality there I'm just trying to think about that assumption.
Speaker Change: Sure. So if you look at our corporate payments business, which again is 20% of the total about half of that revenue is outside of travel, saying, it's about 10% of the company. If you look within that portfolio.
Speaker Change: Customers.
Speaker Change: You get into a lot of different micro consciously because it is not that large.
Speaker Change: Some of the concentration if you would call. It that we have where we have cross sold into our existing customers.
Speaker Change: And so think of some of them in the mobility related space.
Speaker Change: We've also in healthcare.
Speaker Change: Syntax fit within that portfolio. So it is pretty broad brush the places that we have seen.
Speaker Change: <unk> in terms of same store sales year over year.
Speaker Change: Or more where people are either spending in teeny or just more discretionary spending that's going on across that portfolio.
Speaker Change: And again, if you look at where we are selling at our <unk> direct product offering we sold through that we saw 25% increase.
Speaker Change: And spend volume year over year.
Speaker Change: But with the existing customer base outside of that part of the portfolio. There is there is some softness in spend volume year over year.
Okay, Alright, great. Thank you.
Speaker Change: And your next question comes from the line of Nick <unk> with UBS. Your line is open.
Speaker Change: Hey, good morning, and thanks for taking my questions. Firstly I just wanted to go back to the mobility segment and good to see that that segment came in line with expectations.
Speaker Change: First could you just provide some incremental color on the composition of the 70% of segment revenue from local fleets and how that's split up between Smbs.
Speaker Change: And its related local fleets and I know theres, a small international piece as well.
Speaker Change: If you have information in front of you just how same store sales have trended across those three buckets of the local fleet business.
Speaker Change: Yes.
So the way that we category same store sales.
Speaker Change: Actually by the different next code does not buy not buy side. It was pretty mixed if you look across it and if you look at our portfolio. It really mimics what the market looks like in terms of small and large and the majority of the market is small.
Speaker Change: And our average fleet vehicle size is $15 16 vehicle fleet as a result of that so we do business with lots of large customers, but there's a mix across the portfolio. If you look at the next code.
Speaker Change: Perfect.
Speaker Change: The surprising things is that the public administration sector was actually up.
Speaker Change: 2% year over year, but if you look across the rest of the portfolio.
Speaker Change: Youre not seeing huge deviations.
Speaker Change: Across the portfolio are the same.
Speaker Change: Same store sales were down pretty ratably construction fare.
Speaker Change: Slightly better.
Speaker Change: Income construction within our portfolio.
Speaker Change: And then people who lane roads, all the way up into what you would think as more traditional retail construction. So there's.
Speaker Change: A really broad base.
Speaker Change: Base of customers that set across that.
Speaker Change: So if you look across the portfolio I would say it's acting.
Speaker Change: Largely homogeneous.
Speaker Change: So we're not seeing big deviations in terms of what we can see either in size or industry.
Brian: Thanks, Brian.
Speaker Change: Alright.
Speaker Change: The international businesses as small as 10%.
Speaker Change: Percent got it okay, great and for my follow up I just wanted to.
Speaker Change: Ask about the cadence of the remainder of the year for macro neutral growth for the mobility segment. I know Q3 last year benefited from I think two extra business days and then also just if you could put a finer point on how much of the same store sales trends slowed in the OTR segment in the last week of April.
Speaker Change: Relative to the strength you saw in the first part of the month.
Speaker Change: Yes, so from a <unk> standpoint.
Speaker Change: I would say that we're expecting mobility growth rates to sort of be comparable to the first quarter as we go through the year.
Speaker Change: So.
Speaker Change: We outlined a range of 1% to 3% from our guidance respectively for over the last guide, we're expecting kind of.
Speaker Change: In the same range low end of that guidance range, we sort of expected even as we go through the year.
Speaker Change: And then what was the second part of your question.
Speaker Change: Yes, so we saw.
Speaker Change: No.
Speaker Change: Two to three percentage point reduction in growth rates going into the last two weeks.
Speaker Change: April but I would also say there was also some noise there from the Easter holiday. So it's a little noisy.
Speaker Change: Like most of US said, we factor that into the guide and we're watching it closely but there was some noise because we have a strong early part of April.
Speaker Change: Okay got it makes sense. Thank you.
Speaker Change: And your next question comes from the line of Dave Koning with Baird. Your line is open.
Speaker Change: Yeah, Hey, guys. Thank you.
I would like to just ask a couple of questions on corporate.
Speaker Change: Thought it was encouraging I guess, a couple of things first of all purchase volume after a few quarters of normal sequential patterns Q1 returned to normal and I guess.
Speaker Change: Is that now on a sequential pattern basis kind of going to be back to normal and then b yields were up a ton year over year our yields.
Speaker Change: Given a little bit of a change in composition of our yields stable from here going forward.
Speaker Change: Yes.
Speaker Change: Sequential standpoint.
Speaker Change: Q1 was a bit more normalized we had some noise last year as we've talked about with some particular customer movements.
Speaker Change: We're now getting past would expect things to more stabilized.
Speaker Change: On the corporate payments side, I would expect yields to be pretty stable for.
Speaker Change: For the rest of the year Q1 is a little high we tend to mix.
Speaker Change: More heavily with travel as we progressed, especially Q2 Q3.
Speaker Change: With travel at lower yields than.
Speaker Change: Our.
Speaker Change: Our.
Speaker Change: Direct corporate side.
Speaker Change: Tends to mix mixed with oil rates, a little bit, but I expect the full on a full year basis will be at or slightly below the level that we saw in Q1.
Speaker Change: Okay. Good thanks, and just a quick follow up just to make sure. We're clear on that rates are really interest expense going forward. Since there was the big borrowing and then the buyback will Q2 kind of all in interest expense be like mid sixties, or so is that about right.
Speaker Change: Yeah.
Speaker Change: I think thats about right yes.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Yes sure.
Speaker Change: Yes.
Speaker Change: And your next question comes from the line of Ramsey El <unk> with Barclays. Your line is open hi.
Speaker Change: Thank you so much for taking my question this morning.
Speaker Change: I had a question about credit and I know Jack are right at the end of your prepared comments you talked about how credit could typically trend in a kind of a cyclical event.
Speaker Change: Right now it feels like you guys. Just went through this process of exiting some of the smaller fleet.
Speaker Change: Exposure.
Speaker Change: To me like maybe fortifying the mobility book at least on the credit side, a bit relative to maybe going into a prior cycle is that a fair way to look at it should we expect now given everything you've gone through with with fleet that you might fare a little better in the next cycle versus the last on the credit side.
Speaker Change: Yes, it's the last cycle.
Speaker Change: Here in the last cycle.
Speaker Change: And we're going back to 2008 at that point in time, but in 2008, Jack Youre talking about what happened within that quarter. So he was referring back since 2008.
Speaker Change: The full year, we still break mid twenties, 25 ish basis points a lot. So.
Speaker Change: As he said there was a rapid spike and then it really moderated very quickly and then the year after that was normal.
Speaker Change: We agreed on a percent.
Speaker Change: Invested a lot of time, creating.
Speaker Change: Proprietary tools that we believe will have been incredibly impactful or ability to moderate fraud, but also make better decisions on where we're extending credit.
Speaker Change: And we're seeing the benefit of that right now in our portfolios are holding up incredibly well, we're just trying to give people as much information. So we have yes, we feel much more confident at this point in time going into.
Speaker Change: Any type of environment that we have tools that will help us with that.
Speaker Change: That's great and another follow up on the credit side, I mean, when I think back to 2008.
Speaker Change: That was the business was more simpler organism at that point.
Speaker Change: I'm just curious if you compare and contrast sort of mobility to the <unk>.
Speaker Change: Corporate payments segment and the embedded payments segment within the court payment segment, where do you see sort of the greater risk in terms of credit exposure.
Speaker Change: If you look across the business.
Speaker Change: The over the road business was a smaller part of our business at that point in time, although we were doing business with the right customers and they tend to be smaller in size.
Speaker Change: And if you look across that portfolio. Those are customers that are typically paying is quite rapidly. So they've already been modified from a risk perspective.
Speaker Change: The over the road customers and I'm sorry, then.
Speaker Change: Online travel agencies also past rapidly.
Speaker Change: And so.
Speaker Change: Think about areas, where we would have exposure were.
Speaker Change: Done a lot over the years.
Speaker Change: And through the different cycles that we've had to make sure that we're pretty balanced about the way that we're approaching.
Speaker Change: Extending credit across our customer base.
Speaker Change: I don't know that I would call out any one particular area is riskier than the other I think that we've used tools to reduce risk.
Speaker Change: Areas that are more naturally risks.
Speaker Change: <unk>.
Speaker Change: Great. Thank you so much.
Speaker Change: And your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.
Darrin Peller: Guys. Thanks can we just touch on the benefits for a minute when we think about confidence potentially outgrow the HFC market versus your guidance. This year roughly in line with the market growth I mean, maybe just what are the drivers we should watch for that may display the differentiation of weapons products here going forward.
Darrin Peller: Yes, when we went through this first open enrollment cycle this last year.
Darrin Peller: <unk>, 7% HSA accounts that they look across the portfolio.
Darrin Peller: We feel really good about that compared to Devon year's report of market growth of 5%. We are also.
Darrin Peller: Really good success in our direct business within benefits, which is a place that we've looked across the company in terms of.
Darrin Peller: Highest returns it is the highest returns in terms of LTV to CAC. So when we are adding in there given the example that we added in <unk>.
Darrin Peller: The marketing dollars and 75% of our marketing.
Darrin Peller: Incremental investment spend in the first quarter went into mobility just to be clear, but we did add in a little bit into our benefit space and we source the largest ever markedly marketing generated.
Darrin Peller: Deal that we've ever had and so it's a place that we feel as we're adding in that we're going to see benefits that comes out of that so I think net net we're looking at is we've got a huge market.
Darrin Peller: Over $13 5 billion Tam that we're addressing with the products that we have.
Darrin Peller: And we feel like we can continue to grow and outgrow in the HSA space.
Darrin Peller: HSA account growth and then on top of that continuing to build the presence we have in there.
Darrin Peller: And as Ben products.
Darrin Peller: And.
Darrin Peller: Net net of that we're looking to that overall growth rate to be higher.
Darrin Peller: <unk> then the growth of the market.
Darrin Peller: So I think it's like ultimately.
Darrin Peller: Digest, what we deliver in terms of revenue growth.
Darrin Peller: Okay. Thanks, a lot. So I guess just more broadly I mean anything any change in your mind or the way youre approaching.
Darrin Peller: The review and the just the portfolio of assets you have I know you mentioned, obviously being comfortable in making the position you have in most of your assets but.
Darrin Peller: That's obviously language you've used for some time now and so I'd be curious if anything at all changing your from your perspective, whether its in the backdrop of the market where in our valuations across the competitive landscape.
Darrin Peller: Yes.
Darrin Peller: Yes sure sure.
Speaker Change: We think our current configurations attractive and that there is value around scale and diversification. We also mentioned on the call, but our board regularly reviews, the compensation of our business portfolio and so it is something that they obviously take quite seriously they bring in outside advisors.
Speaker Change: When appropriate and we will continue to make a call around new what's with that.
Speaker Change: The best.
Speaker Change: Composition of our portfolio.
Speaker Change: Okay.
Speaker Change: Hey, guys.
Speaker Change: Your next question comes from the line of Andrew <unk> with Wells Fargo. Your line is open.
Andrew: Hey, good morning, and thanks for taking my question.
Speaker Change: It's encouraging to see the new application volumes on the small business side being up.
Speaker Change: 10% year over year on the back of your investments.
Speaker Change: Yes.
Speaker Change: Question is though.
Speaker Change: If we continue down this path of macro continuing to weaken what are the trigger points that would kind of signaled to you to.
Speaker Change: Pull your foot off the gas.
Speaker Change: Those investments or if we stay in kind of a status quo macro environment and youre seeing good rois like apparently that data point would suggest that maybe you can even dial it back up.
Speaker Change: Yeah.
Speaker Change: Very fair question and I am very sensitive and the fact, we're operating with a lot of uncertainty right now we know historically that our products because they help our customers save.
Speaker Change: Money and increased confidence in their decisions, we know that we typically actually sell really well through a periods of downturn. So the way we think about the business is.
Speaker Change: Sales coming in the front door.
Speaker Change: Customer retention, which is typically high during the course of a period of economic uncertainty.
Speaker Change: And then what happens with your kind of in the back book your same store sales.
Speaker Change: So far that front of the business that funnels look really strong for us in that kind of across the board.
Speaker Change: <unk>.
Speaker Change: To your point, we've seen an 18% increase year over year in our mobility business.
Speaker Change: New applications.
Speaker Change: Think of that as the top of the funnel, if we see that top of the funnel work its way through that.
Speaker Change: A really good sign.
Speaker Change: And so at this point in time, we're really bullish on what those returns are generating but we will continue to be really sensitive to what's happening in the external environment to make sure that those returns are paying off because we have to balance both short term and long term expectations.
Speaker Change: The only other thing I'd say is if you go across.
Speaker Change: The business when you think again, we're allocating those investments pro rata and the majority of that is going into our mobility business.
Speaker Change: We are seeing really great momentum also over the product rollouts that we've done it in corporate payments. It's early we talked about the fact that we released new functionality into Europe, and just most recently into the U S.
Speaker Change: With our embedded payments products that create flexible funding capability that helps working capital there are customers that selling really well into the marketplace right now so we're seeing pipeline expansion deals closing.
Speaker Change: All things that you'd want to see that leads leading indicators in terms of future growth for us, which we should see very end of this year and that product and going into 2026.
Speaker Change: And I'd say all early indicators are actually really quite positive that the returns that we're generating but we're going to continue to be mindful of how we're operating in.
Speaker Change: Currently make decisions real time based on that data.
Speaker Change: The only thing that Andrew is that.
Speaker Change: We feel pretty good infrastructure in advance of making these investments so as we invest.
Speaker Change: Marketing dollars mobility for example, we have clear expectations of the metrics of how many applications, we expect to come in the credit quality of those applications our approval rates number of applications, how we expect those customers to ramp.
Speaker Change: After they've been approved.
Speaker Change: And what the net result of that Rois and so we track each of those metrics not only from what we expect at the front end, but then what's actually happening on the backend so.
The front end metrics.
Speaker Change: You mentioned the applications came in right at or above our expectations and now we are tracking the revenue flows in.
Speaker Change: We expect so I think all of those things will help us determine.
Speaker Change: Whats the rough estimate is from those on those marketing investments.
Speaker Change: Understood and then my follow up.
Speaker Change: It was also good to see that the travel business was holding in fairly well. Despite some of the fear and headlines that have been created in the market, but could you give us a finer point on the mix of that market. I know you said international hotels, a big chunk of the portfolio, but any other additional granularity.
Speaker Change: Can provide there so that we could be vigilant as well on monitoring these trends.
Speaker Change: Originated and then.
Speaker Change: Activators to think of these are customers that are booking outside the United States and actually traveling outside of the United States.
Speaker Change: So that is all internationally based about 3% right now are originated outside of the United States and then traveled into the U S.
Speaker Change: And that's.
Speaker Change: About 15% are coming to think of that is people that are.
Speaker Change: <unk> in the U S for booking in the U S. When traveling outside the U S and about 17% are traveling within the U S.
Speaker Change: Booking and try very helpful.
Speaker Change: Okay. So I think I think that's part of why you look across our book and the majority of this is hotels.
Speaker Change: That we are seeing a lot of stability and Kraft I think there is stability in general anywhere youre hearing that from the online travel.
Speaker Change: Agencies, but in particular in our book.
Speaker Change: Some of the negative sentiment that might be out there, we don't seem to be reflected in our portfolio.
Hi, Good morning, Thanks for taking my question most of them wanted to.
Speaker Change: Talk about the you mentioned the portfolio review.
Speaker Change: And I understand that this is.
Speaker Change: Somewhat routine but.
Speaker Change: It was somewhat new in the prepared remarks.
Speaker Change: So maybe just along those lines just talk up a little bit about the overlap in the businesses like how much overlap is there between the various segments because I know you've had a few cross sell initiatives along the way.
Speaker Change: So just trying to understand from a customer standpoint, but also from our internal operation standpoint, how much overlap is there between the various segments and businesses.
Speaker Change: Sure.
Speaker Change: Sure. So if you look across the business, we do have cross sell activity that happens.
Speaker Change: The biggest places of cross sell have been between our mobility customer base and our benefit customer base.
Speaker Change: In particular with road customers they tend to be more senior relationships and so we've had success across that.
Speaker Change: You look at the places where.
There is commonality and increasingly over time, we've been focused around our technology stack and where we can create synergies across the portfolio.
Speaker Change: All of the infrastructure.
Speaker Change: It is common to think of that as leveling technical operations.
Speaker Change: Is common.
Speaker Change: And then some of the underlying app.
Speaker Change: That support it as well.
Speaker Change: And then from a treasury perspective, we're.
Speaker Change: We're using our bank across both portfolios so bank.
Speaker Change: Being the depositor.
Speaker Change: Our custodial accounts as well as the issuer for the deposits that we have with our bank.
Speaker Change: So there's a number of nuances that are around how that the businesses have been integrated over time.
Speaker Change: Okay.
Speaker Change: And then Dr.
Speaker Change: That's really helpful commentary about the impacts of a recession on the business in your remarks I wanted to just dig a little bit more just in terms of the levers that you would be able to pull if you started seeing the macro slowdown are there.
Speaker Change: You are in the midst of this investment.
Speaker Change: Sales would that be something that you would have to pull back on are there although discretionary items.
Speaker Change: Areas, where there could be some vivo as that works good pool.
Speaker Change: Yes, thanks for here so.
Speaker Change: I would say we have some levers.
Speaker Change: I would point out that the revenue impact to us will largely outweigh the levers that we are readily to Paul because we are to some degree probably fixed cost business, but at the same time, we would look at our hiring plans pretty in depth principally discretionary non critical hires that we have planned over the course.
Speaker Change: Of course of the year.
Speaker Change: And put a high scrutiny on that and start to pull back on some of our hiring plans.
Melissa Smith: The investments that Melissa has talked about obviously, that's something that would be looked at I think we would look at that.
Speaker Change: With.
Speaker Change: Really and I am already getting the ROI.
Speaker Change: And then making a decision on whats the short term versus long term for the company.
Speaker Change: I don't want to be the position given the resiliency of works.
Speaker Change: Of of throwing the baby out with the bathwater and.
Speaker Change: Spending investment.
Speaker Change: Sure.
Speaker Change: Would be it's going to put <unk> in a strong position coming of coming out of a recession, because we will come out of it.
Speaker Change: At some point in time, so I think we'd look at discretionary spend travel.
Speaker Change: A number of levers to continue to spend and then the investment spending.
Speaker Change: It would be kind of where we are.
Speaker Change: Where are we on the ROI.
Speaker Change: <unk> and <unk>.
Speaker Change: What's the right for the short and long term of the company.
Speaker Change: We're also very sensitive to the fact that.
Speaker Change: So a lot going on right now and if you look across our portfolio. We've done a bunch of scenario planning. There is a couple of places in the Jack talked about.
Hiring.
Speaker Change: Then very selective around and will continue to be around hiring through the end of this year. The other place that we had been focused we've talked a lot about the automation over the years, we haven't talked about it is much less.
Speaker Change: Calls, but it continues to be a big internal focus of ours, and particularly using AI tools in order to create automation.
Speaker Change: Having continued success at that and that's a place that we're looking at doubling down R&R efforts as well.
Speaker Change: Looking for areas, where we believe that you can actually create a better customer experience and lower cost.
Speaker Change: And tightening the belt across across the organization and trying to preserve as much as we can of these.
Speaker Change: These investments.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Shen Qian Wang with Jpmorgan. Your line is open.
Speaker Change: Hey, good morning, Thank you as always.
Speaker Change: A couple of questions just on the enterprise client side, I know you talked about Smbs and new applications being up but I'm just curious on the enterprise side are you seeing any changes in.
Speaker Change: Sales cycle, so in pricing that that kind of thing and also just to ask two together.
Speaker Change: The sensitivity of GDP that Jack you mentioned.
Speaker Change: And those cycles of course are comparable debt that way, but can.
Speaker Change: When we compare it to anything that you can recall I know COVID-19 feels different and we've seen some supply chain issues before it I'm just curious if we can point back to something else to help us sensitize the business.
Speaker Change: Yeah. So.
Speaker Change: Really great questions. If you go across the two I'll answer the last one first the comparability.
Speaker Change: You've lived through these cycles too.
Speaker Change: Don't know that Theres anything quite comparable to what we're experiencing right now.
Speaker Change: I would go back to the great recession as kind of a <unk>.
Jacques: Jacques if we had to do a comparison case.
Jacques: And we actually fared pretty well through that and one of the.
Jacques: The things we learned from that.
Jacques: Because we did see an uptick and demand from our customers that in.
Jacques: Continuing to preserve the sales momentum and the product momentum was really important of how we came out of that which.
Jacques: Arguably came out actually a lot stronger.
Jacques: As a result and in terms of what we're seeing in pipelines right now, we're having a really strong sales first quarter across the board.
And if you ask about mobility with our larger mobility customers say.
Jacques: Very strong.
Jacques: Start to the year so.
Jacques: If you think about the products because they are geared towards helping people save time money and increased confidence like I think.
Jacques: Periods of uncertainty.
Jacques: Largely across our portfolio actually helps.
Jacques: Selling perspective.
Jacques: Okay makes sense and the only thing I would add to that is because you brought up supply chain shock.
Jacques: Yes, I think it's worth pointing out with our OTR segment, there's a lot of questions around what is <unk>.
Jacques: So supply chain sharp shock due to the OTR segment.
Jacques: And there is there is ample data like from the federal government.
Jacques: Around.
Jacques: Truck volume in the U S.
Jacques: Actually comprised the weight of what's moved around the country.
Jacques: Surprisingly or maybe for people that haven't been immersed in the less than 10.
Jacques: Color on the order of 10% of what's moved around from a volume basis is actually in Portland.
Jacques: 90% of what's on trucks is great.
Jacques: Commodities and agricultural items in minerals and stuff that we produced domestically.
Jacques: It's really on the order of 10% to import related so when you think about China, which is where a lot of the focus is.
Jacques: Really.
Jacques: Okay.
Jacques: On the order of a third of that or less so we think.
Jacques: We have kind of.
Jacques: Our hands around what's the important impact the tariff impact into our OTR business, yes.
Jacques: Yes.
It sounds like it sounds like that's the case. Thank you still trying to learn guys. Thank you very much. Thanks, So just extension.
Steve Elder: And I would now like to turn the call back over to Steve Elder.
Steve Elder: Yes, just wanted to wrap up and say thank you everyone for joining and we'll we'll look forward to speaking again on the quarter. Thank you.
Steve Elder: And this concludes today's conference call you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Steve Elder: Sure.
Steve Elder: [music].
Steve Elder: Okay.
Steve Elder: Sure.
Steve Elder: [music].
Yes.
Steve Elder: Yes.
Steve Elder: Yes.
Steve Elder: Yes.
Steve Elder: Yes.
Steve Elder: [music].
Steve Elder: Thanks.
Steve Elder: [music].