WEX Inc. (WEX) Earnings Call Transcript & Summary

[Audio Gap] WEX's CEO, Melissa Smith; and Head of IR, Steve Elder. And today, we'll be talking about the recent Dutch tender offer, the $750 million repurchase plan that they recently announced, a business review and trends. From a disclosure standpoint, I have to mention a couple of things. First of all, please refer to the event calendar, published research or Baird's website for important disclosures regarding the companies discussed during this event, and please refer to WEX's Q4 earnings release for forward-looking statements. And then finally, we'll ask questions from the audience during the last 30 minutes or so. If you have a question, e-mail to Robby Bamberger. You can see him on the call here, too. It's rbamberger, [email protected]. He's going to jump on and ask the audience questions later in the call.

And with that, we can jump right in. Maybe before getting into the segments, maybe we start at a high level. You recently announced a plan for the Dutch tender to acquire up to $750 million of your common stock. I imagine you're trying to send a signal to the market by doing this. Maybe you could go into that a bit. What are you trying to express to the market with this buyback?

Well, first, Dave, thanks for having us here. I think it's pretty simple. Management and the Board of Directors just have a lot of shared confidence in the future outlook of the company and the belief in the long-term value of WEX. So when we look at the recent market reaction to our announcements, we just think people have overreacted quite a bit to our recent guidance. And we are expressing confidence in our outlook. We've done our best to derisk our 2025 guidance. And while 2025 is an investment year, we think the investments we're making are good ones and will benefit the company. So of course, how much we buy back will depend on how much is tendered.

Yes. And maybe also on your last earnings call, one of the big pieces of news was change to long-term guidance ranges. Maybe walk through the lowering of the numbers, what caused it, why you did it, where it's coming from.

Yes. I mean just to put it bluntly, when we -- our point of view is when we put the 8% to 12% out there, they were proper at that point in time when we first discussed them. Organic growth rates, so again, the 8% to 12% before were the organic growth rates. And in the context of the market at the time, it needed a substantial amount of time that's passed. The market developments have happened since that point in time. So we thought it was just appropriate for us to update them. One of the things I think that gets missed is that we really believe that the markets we operate in are quite healthy, they're fertile. So we have an ability to continue to harvest them. So while we're making some minor pivots in our markets, we expect to get back to our growth ranges in 2026 as we are able to harvest that growth. So the majority of the changes were in the Benefits segment. So if you look at the growth rate -- the market growth rates according to Devenir, which is -- think of that as the Gartner equivalent in HSAs, it slowed to the mid-single digits. And we have penetrated the custodial opportunity faster than we had anticipated. So remember, when we first provided this guidance, our penetration of this opportunity was a lot smaller. So once we successfully penetrated and got the economics from doing so, the growth naturally had to slow. So all that said, we also believe that we've been leaving some opportunity to capture more sales on the table by not investing more aggressively. And that's why we're addressing that by adding some quota-carrying capability onto the Street. We're making some targeted marketing investments. And our goals from these investments is to ramp up our top line growth to put that back up. And what we had said on our last call was just to caution people that this is going to take some time. So we have a great amount of confidence in the ROI and realize it's going to take some time for that to translate into revenue growth. We also think there's improvement opportunity in making targeted product investments. We talked about that in the last call. We're making -- we've been working on some product investments here for the last few quarters. We expect some of those to come to market and achieve strong results. We actually already saw sales, and some of those products in our Corporate Payments occurred in the fourth quarter last year. And if you look at our history, we made investments in credit loss and fraud. We're able to bring down our fraud exposure and our product exposure to between 15 and 12 basis points of loss in the last couple of years. So you put it all together, what I'm saying is that our current growth rate really doesn't match the scale of our ambitions, the capabilities of our team, the opportunities in front of us. And we're making investments and feel very optimistic about what lies ahead. And we feel very confident the investments we're going to make will have an impact to our long-term growth rates. Growth is just part of our DNA. It's something that we think about a lot, and we want to make sure that we're taking steps to improve things that are in our control. And then the last part is that there has been some industry-wide slowdown in the travel industry over the last couple of years. We had this great post -- pent-up demand post-COVID, and that has leveled off into more of an even environment now.

Yes, yes. And just on this topic to refresh everybody, the current long-term growth, I think for every segment is kind of mid- to high single digits. Is that right?

Yes. We said 5% to 10%.

Yes, 5% to 10%. Okay. Good. And we'll walk through each segment a little bit. We'll start with the corporate segment. It's about 15% to 20% of revenue. There seems to be a lot of confusion in this segment. Just some people are asking about your moat. So I seem confused on the trend in take rates. Maybe just clear up a little bit of that.

Yes. Yes, we do get a lot of questions about this. And people seem to be very focused on the take rate of our embedded payments business. I think a lot of people really think that this is going to trend to 0 over time. And we just think that people are looking at this the wrong way. So the way that we think about the business internally here at WEX is that we built this amazing fixed cost technology stack. We believe that we have the lowest cost in the industry. We have the broadest feature set in the industry. We cover 150 combinations of currencies and interchange rates, which is a multiple that anybody else can do. So if you're an online travel agency or if you're, frankly, operating any company at a global scale, we're the most flexible option for you when it comes to embedded payments. So when I hear people focus on the take rate, we think they're missing the point. And it's not how we look at the business and it's not how we run the business. So we think very incremental dollar of volume that flows through the stack is highly accretive to margins and cash flow and essentially have no variable costs associated with that. So we don't mind lower take rates as long as it comes with higher volume. And in fact, actually, we incentivize our customers to drive more volumes through our offering by giving them larger rebates because we think that's just a smart business decision. We're able to block out competitors because all of that incremental volume accrues to our operating income and our cash line. And we're able to use that to buy back stock or to delever or whatever we want to do from a cash perspective. So by driving volume with lower take rates, we can drive margin, cash flow and right now a smaller share count. So it's really a great business. And the more volume we drive, the better the economics we get from the card networks, which also allows us to get -- have an advantage when we get into the AP direct business. So we think of this as a flywheel, and we just don't think people understand that part yet. I also think we hear a lot about some of the one-off things that happened in the fourth quarter with this fear that, that's going to be something that's -- continue to repeat. So when we think about that, you're going to see fluctuations quarter to quarter because you've got people that are managing multi-vendors. But what we're looking at is a trend that's expanding margins. We focus a lot more on what's happening to our customer volume annually. So we don't think that there's anybody else that's going to be bringing their business in-house because no one else owns a bank or is big enough to do that efficiently. And then I guess the last point I'd make is any contract negotiation that we had -- that we anticipate, we have factored in our guidance. We've really worked hard to derisk that guidance. So we're about on a mission here out there telling that story because we want to make sure that people have a chance to broaden their perspective and get insight on the way that we see this business.

Yes. And I want to address both some of the one-off impacts you mentioned and then macro a little bit, too. But on the one-off impacts, last quarter, corporate declined 22%. There were a few very discrete items. Booking, we think it's 10% plus probably of the segment. That contract changed. There was another large travel client of yours that shifted out, and then Avid very clearly shifted some volumes away. Maybe talk through some of those in how -- what comes back and when you get back to growth in the segment?

Yes. So you talked about a couple of things. So the business is lumpy when you look at it on a quarterly basis, and that's because you've got some of the large customers that are moving volume around to hit the contractual requirements that they have in order to optimize their pricing tiers. So again, we look at this more in the course of the year, and we're showing good growth in the course of the year. For Q4 specifically, there was a lot going on. You talked about the fact that we had one customer insourcing. So we -- that's something that will continue to happen and we've said will affect the first and second quarter, in particular, of this year in 2025 which, again, we factored into our guidance. We do believe that, that is a very unique situation, again, because that customer has core capabilities, including own a bank and scale that we don't see across the rest of our population of customers. And so as we go through that process, we do expect the second half of the year to revert back into growth. So we've guided to the fact we expect the full year to be down slightly year-over-year, but that's really heavily front-loaded to the first part of 2025.

And have you already seen in Q1 some of the normalization of -- the companies that move volumes back and forth, have you seen a little normalization?

Yes. But remember, Q1 last year, we saw a lot -- Q1 2024, just to be clear, we saw increased volume in the first half of the year. So even though we're seeing some of the customer migration back, there's still a tough compare year-over-year, which is why when we think about this business, we do believe you're going to see some lumpiness from quarter to quarter. These are customers that we have strong relationships with, one of them we actually just extended a contract with. And so that lumpiness will continue into the first quarter, but it looks better than it did in the fourth quarter.

Yes. Okay. And what about macro? We hear -- it sounds like when you hear like Visa talk or Fiserv, it sounds like January was really good, February may be a little worse and you had a little leap day. Do you follow some of those like high-level retail trends? Or maybe are there other things we should be looking at?

Yes. So when we think about macro, actually, for us, I would say, it has been pretty consistent. Fuel prices have been a little bit stronger in the first quarter, just a titch. But right now, the forecast of the year looks pretty similar to our last guide. So essentially, you get that back over the course of the rest of the year. Interest rates are down a little bit, which will hurt us a little bit on revenue and is a little bit positive actually to earnings. And so from a volume perspective, we saw OTR volume was a little bit higher in January, dropped off a little bit in Feb, which we think is probably some pull-forward of -- because of anticipated tariffs. But across the portfolio, we're really not seeing big macro swings and something, obviously, that we're monitoring very closely.

Yes. And specific to Corporate Payments, I should have been a little clear on that, like travel and B2B volumes, are those moving much macro-wise?

We have not seen any big shift from a macro perspective in travel. I know we're obviously aware and talking to customers where we've seen the airlines, in particular, have been downgrading their expectations. The airline is a much smaller part of our portfolio. We're much more weighted towards hotel payments, and we have not seen any change or deterioration in that part of our portfolio.

Okay. Good, good. And then suppliers, we hear suppliers pushing back a little bit on accepting virtual credit cards. We hear that from Bill or from Avid, a little less so from Visa, Mastercard, but we hear that. Do you feel any of that or see any of that? And what do you think the longer term on that is?

Yes. I know, we've been doing this for a long time. So there's always some level of pushback from an acceptance perspective. I would put that for us, it's a pretty minor thing, but it's something that we deal with throughout our portfolio. Obviously, less than our -- it's not something we experience on a closed-loop network. And so when I think about acceptance, sometimes what they're trying to negotiate is a clearing rate across the portfolio. So for us, yes, it's something we see. I would say it's a pretty minor thing in our business, but it's something that we work across and deal with, particularly on our Corporate Payments business.

Yes. Okay. And then finally, just in Corporate Payments, you talked a little bit about this before. Incremental margins, very, very high. I mean should we think of it as nearly 100% incremental margins? If you're growing, it's really good and you just have to get back to growth?

Yes. It is very high. If you think about this business, it is very tech enabled, which means our customers are making API calls into our technology so that the costs are really going towards making sure that we continue to refine the technology and that we keep it up. Stability is a really important part of that customer base. But to your point, it's a very high drop-through rate because we have such a high fixed cost structure. And so our objective function is to go and get more volume to push that through. And you can see over time, if you were to look back and look at our margin profile over time, you can see the benefit of that has come through in margin expansion.

Yes. Okay. Sounds good. And then if we move to Mobility, first of all, if we kind of look back at growth, the last few quarters have been quite good, 5% to 6% organic, constant macro. And that accelerated from a few quarters before that. A little bit of pricing, maybe a little macro backdrop. Like maybe talk through what's gotten better? And is that mid-single-digit plus sustainable?

Yes. So as you said, in 2024, we grew revenue 5% macro adjusted. So felt really good about that. If you look at the macro, again, like the things that affect that part of the business, we've seen fuel prices slightly higher in the first quarter. Again, we think that's going to go away in the course of the year. Interest rates coming down a little bit, so that will be a little bit of a negative on revenue but a positive to EPS. The OTR market has been in this prolonged downturn. January was one of the first quarters that we saw this increase in volume on the ATA ton -- Truck Tonnage Index, which was positive but February was softer. So again, we think that has something to do with the tariffs. Our Mobility customers are very, very resilient. So when you think about gallon growth, gallon volume could be affected positively or negatively based on what's happening with the economy. The number of customers that we have continues to grow, which has been a great benefit. And you can see that particularly in our over-the-road business, where we really have sold through a very difficult environment and continue to do that. So we feel really good about our Mobility business.

And what about the local and international markets, the macro there? What are you seeing in those businesses?

Yes. Really not seeing any change from a customer perspective in those markets from what we have seen over the last few months. So it seems to be actually quite stable and, again, something that we're watching pretty closely.

Yes. And I know sales is so important in this business. Your average -- I was looking through the 10-K recently, your average vehicle -- number of vehicles per fleet is about 35. So reasonably small, like a lot of smaller fleets, right? So selling, is that part of what some of the new investment dollars are going into? And how are you seeing sales lately?

Yes. So when we talked about the $25 million of incremental investment, we put it pro rata across the business, and the largest of that is going to our Mobility business. That's going into our marketing group. So if you look across the business, over time, it has changed where the majority of the leads are coming through digitally, so marketing enabled coming all the way right through our system. And so it's a place that we have a really high degree of confidence. If we increase the amount of marketing spend, you can actually see that benefit coming through. As you mentioned, our average customer size is -- tends to be small, even though we have really great penetration in the large end of the marketplace. So the way that we think about this business is that we have still tremendous opportunity to grow. We continue to take market share at kind of the top of the house. And in the smaller field, we have a lot of opportunity still that's just open in the marketplace where people are either using cash or general-purpose credit cards. And our digital motions, I have been really successful of making sure that we're continuing to bring in business there.

And when we think of competitive pressures, is it some of the other -- is it like Corpay and others that are like you? Or is it mostly just Mastercard and Visa, you're just winning small fleets away from just using general-purpose cards?

So when we think about competitive pressure, the larger fleets are -- is typically between us Corpay and a company called Voyager. And we feel really good about our competitive set in that space. The fact that we have a closed-loop network and we have an ability to create a tremendous amount of control that builds confidence for our customers, and we can see that coming through from a -- from just an overall win in the amount of vehicles that we continue to add to our business. When you get into the smaller customers, they tend to be either cash or general-purpose credit cards. There's a little bit of competitive, but I would say much less when you get into the smaller in the marketplace, much more open market. And in that case, we continue to win business. People like the ability to lock down just to fuel-only capabilities. And when you get to the point where you move beyond just your family members and you actually -- you don't really want to give people a general-purpose credit card, you don't really want to give them cash. And so our offering is incredibly well suited for those smaller customers. And they come in either directly through us or we do business across many different oil companies, 9 of the largest in the world and then another over 15 that are kind of midsize. And so that gives us a lot of opportunity to bring in customers through different brands as well.

Yes. Okay. And EV has been something that I'd say 2, 3, 4 years ago was viewed as a big risk to you guys. We don't get a ton of investor questions about it anymore. It seems like, if anything, it's a neutral, maybe a positive. Maybe discuss a little maybe how big that is of your portfolio today, how you think of it going forward.

Yes. So we are very bullish about EV. We think that is a huge headwind. People have thought about it as a huge headwind in the future. And I think that narrative just flipped, to your point, where now people believe that this is a tailwind, which is what we're seeing in the marketplace. So on average right now, our customers are paying $6 per vehicle per month. And in the world of EV, what we like about this is we have this great [ routing ] position, where our customers want to be able to have their ICE vehicle and their EV vehicle, all that data combined into one source of information for the total cost of their fleet, one bill. And so we start from a position of our customers want us to move into EV with them. As they make this migration over time, we've developed products that give them an acceptance network similar to what they have with their ICE vehicles. We have at-home charging reimbursement capability, and we see a tremendous amount of opportunity to continue to create new use cases for those customers. We're charging subscription fees. So we like that, too, because it migrates from this exposure we have to fuel prices to something that's an even more stable source of revenue and at a higher rate. So we're already making as much money as we were on ICE vehicles, and we feel like we have just a limited product set in the marketplace right now that will grow over time as our customer needs grow. All that said, it is still a very small part of our portfolio. So we are incredibly bullish about this opportunity. We don't know when this migration will happen, but we feel like we're really well prepared and there's a lot of benefit to us economically as it happens.

Yes. Great. Maybe if we move on to the Benefits segment, it's about 1/4 of your total revenue. It seems like HSAs remain like a really good long-term growth industry, right? How do you see this? You kind of talked about 5% to 10% growth. What are kind of the tailwinds, headwinds? I guess we'll kind of start there.

Yes. If we look at this business, it's a great stable part of our business. I talked earlier about the Devenir report. So there's an expectation that accounts will continue to grow in that mid-single digit. So we think of that as one of the core drivers as we continue to bring on accounts either through our existing customers and partners growing or through new incremental additions. And then on top of that, we have an opportunity to continue to penetrate our customer base with our existing products. We have like a host of products across. And it's one of our competitive advantages, the fact that we're this one stop for someone to have access to an HSA account or an FSA account or COBRA. Think of many different tax-deferred accounts, we have the ability to make sure that they are spending money on things that are highly controlled and meet the IRS requirements and to do that in one place. And so as we look at this business, account growth is the primary driver. We also see the amount in an account gets higher over time, so we get a benefit of that. And then as I said, this penetration of the different products that we have across the portfolio.

Yes. And what's churn like in this business? I mean I almost think of it like Fiserv's core processing business where they lose 1% of clients a year, right? Like once the client is on your platform, I would imagine they hardly ever leave?

Yes. So if you look across all of WEX, the churn rates are pretty similar. So we're in the mid-90s of retention rates across all of the portfolios. And that's true, Benefits as well. You get -- you tend to get churn from customers that migrate in and out of the accounts as opposed to as much as you see partners churning. But there is consolidation that happens occasionally in the space that creates some churn as well. But overall, very high retention rates, in that mid-90s.

Yes. And maybe across all the businesses but here, maybe especially, is there risk of government regulation coming in? Maybe what's just the risk of -- I guess, you could -- we could talk about regulation here, tariffs. Just overall, what are you seeing?

Yes. It's a hot question lately. So if you look across -- let's start with Benefits first. So Benefits, we have this kind of privileged position in our Benefits space with the accounts themselves are something that are viewed positively by both parties for different reasons. Health care bankruptcies are one of the -- or unexpected health care costs are one of the #1 cause of bankruptcies for consumers. So this kind of idea of having tax-deferred account is a really important part from just a consumer financial health perspective. It's something that we lean in pretty heavily on and provide a lot of education from a consumer perspective to just talk about the benefit of these accounts. So there's a positive to the consumer. And then there's also just the idea that you're creating this tax efficiency across. And so they tend to be viewed positively across. And then if you talk more broadly, tariffs is something that -- I think really the big question is more what's the impact to the economy? Again, we haven't seen any. And one of the things we've been paying particular attention to, if you look across over-the-road trucking, there's about 6%-ish, somewhere between 5% and 10%, that comes from that cross-border -- Canadian-Mexico cross-border. We've been looking at fueling along the borders. We have not seen any migration off at this point in time. So it's something, again, that we're paying attention to in 2 different ways. Would it effect a small part of the over-the-road trucking market, which has already been in a difficult spot for a while? If it is, again, it's pretty contained. And then more broadly, does it have an impact overall in the economy? And right now, we're seeing stability across the portfolio. But great question and certainly very relevant right now.

Yes. And when you say 6%, 6% of OTR it affects or 6% of the overall Mobility?

No. 6% of OTR, and that's a U.S. stat. And so assuming that something similar would happen within our portfolio, that's the number that we would be watching.

Yes. Okay. And then one last thing just on health care growth. So the first half has a little tougher comps, I think, than the back half. Is it fair to -- is it kind of fair to look at it that way, that the first half is probably closer to what Q4 was? The back half might be closer to 10% if account growth is good?

So what we've talked about is the fact that we think that this is going to be in the lower end of the guide for the year. So we talked about 5% to 10%, so let's assume that's 5%. There's an assumption that we had a 1% negative that's happening because of interest rates in the year. And so there'll be some variation in the course of the year, but we don't expect it to be as dramatic as what you're talking about.

Yes. Okay, okay. And maybe just a couple of final ones. I guess the sum-of-parts valuation, a lot of investors talk about that. I mean is that something you look at either unlocking part of the business, spin-offs, whatever, just because we look at the stock, too, is undervalued, right? And like you look at HealthEquity or some others that are higher value, like how do you think of sum of the parts?

Yes. So sum of the parts, the Board is really focused on maximizing value to our shareholders, and they consider all options to do so. So when I think about this from the Board perspective, they regularly are looking at alternative approaches to maximize value, which includes structural changes, M&A, capital allocation and other initiatives. The Board is really committed to having a disciplined approach, balancing both the near-term interest of our investments and the long-term health and competitiveness of the business. They're really focused on creating sustainable value and are willing to act decisively if they see the right opportunities to emerge. We've got a shared technology platform. We've got deep payment expertise, and that forms the foundation of our business. It enables us to grow, it enables us to extend our product offerings. And we think that the integrated solution makes that potential separation challenging. And so when we think about -- there's many benefits for maintaining ownership across the businesses. For example, WEX Bank provides a highly effective way to monetize the custodial HSA deposits. In the Benefits segment, it also helps reduce overall earnings sensitivity to interest rates. And our exposure to multiple end markets with multiple product offerings creates a natural hedge against market volatility. It also reduces our reliance on any single industry or trend and enhances overall stability.

Great. Well, I'm going to turn it over just a minute to Robby. But just to kind of wrap up, it sounds like what you're saying, you tried to set a guide for the year to derisk the year. And macro, what you've seen the first 2.5 months so far, not big changes and hopefully, you're on track, right? Anything else to either talk about the economy like on that? Or anything else you want to talk about with the tender offering?

No. Open to any questions we've got. I would summarize that the same way. We feel really confident in the year. That's why we're doing the tender offer. We think that the stock is undervalued. And as we laid forth the year, we were looking at how we could derisk the guidance that we put out in the course of the year. And from a macro perspective, I know that there's been -- I've read a lot -- I get a lot of questions about that. What we're seeing so far in our portfolio looks pretty stable.

Good. Well, maybe I'll turn it over to Robby. Again, his email, for people who want to ask questions, [email protected]. But Robby, maybe you could jump in.

Awesome. Yes. We got some questions that came in already. So first, some people were just asking why the Dutch auction versus just a normal buyback? Is it just the size essentially?

There's a couple of reasons. And Steve, you might want to add on to this. But the Dutch auction is a way of -- again, it's creating surety around the fact that we will buy if we're in that range. You can do it pretty quickly, which is another thing that was interesting to us is that you could execute it in a pretty short period of time. And so as we had a conversation at the Board level, we considered different structures. This is a structure that the Board decided that they like best. Yes, it give us the ability to get -- to do a pretty big size.

Right. That's kind of the key, Robby. You can do a lot of shares in a short period of time. And if you compare it to like an ASR like we did at the end of last year, at this size offering, you'd be talking about a 5- or 6-month kind of process. And in that period of time, you're taking some market risk, if you will, on the share price. So this Dutch auction gives you a chance to do it very quickly and at some price certainty as to what you're doing.

Yes. That's very helpful. And then maybe just shifting over to the S&M investments. So maybe just thinking about the risk/reward and trade-off there. So you mentioned the $25 million of sales and marketing in 2025. But essentially, would you raise that to $30 million or $40 million if that meant incremental higher revenue growth? Maybe what are the puts and takes of the incremental investments? And what are the ROI measures that you are seeing or thinking about for putting in that extra marketing and sales?

Yes. So when we start -- decided to make these investments, what we were looking at is across the portfolio, sales and marketing returns of less than 2 years. We got very specific about where we wanted to put the money in the areas that we had the highest confidence of showing that return, our marketing investments. And we spent a lot of time and money around creating some really strong risk models that are AI based. We've integrated that into our marketing efforts. And so we just have a high degree of confidence in the -- as we increase the amount of outbound that we're able to actually accrete more of that coming in. That will be the fastest of the returns because it's something you can literally just turn it on and off. The other investments are putting people into feet on the street in both our Benefits and our AP direct offerings. In each of those cases, really high returns. Although they will take a little bit longer because you have to hire the people, there's a period of time of training, and then you see the benefit come through. So again, something we expect to see a less than 2-year payback, but it will be more slanted towards the back end of that. And in each of those cases, what we've seen with our AP direct offering is as we've added people into that, you have seen -- we have seen a very strong return associated with that. It's been a very predictable model. And with our Benefits business, what we're seeing is there's just more opportunity for us in that space. We still have really low market share. And so adding in people is just an ability to actually capture more of that. So really high degree of confidence associated with that. And then the expectation is you see that, that will drop through to earnings over time as those -- as we actually start to accrete the benefits of it.

Yes. And maybe honing in on that sales force ramp. So how long do you expect them to be fully 100% productive? I guess by the end of '25, do you expect 50% productivity from that incremental sales force? And then by end of 2026, it's 100%? Maybe just the cadence of that.

Yes, they're different. So in our AP direct offering, it's typically about a 3-month ramp after we actually onboard the salespeople. Benefits tends to be a little bit more timed towards the next enrollment season, so it's a little bit further out just because it takes a lot of the sales efforts accrues at the back end of the year. And so think of that as the kind of the longest of them in terms of ramp and then length of time in order to actually see the benefit of that just because of the timing of the sales cycle.

Yes. And maybe honing in on Mobility. What percent of your new sales go-to-market pipeline is digital sales versus salespeople versus partnerships? I guess any way to break that down and then what you're trying to trend over time in that proportion?

Yes. It has trended. It has changed a lot over time. Over half of the leads are coming in digitally now. And so that has been a migration over time. And you think about the -- again, the way that we're going into the marketplace is that we're going in through both digital marketing campaigns that are pushing customers into our website where they're making applications. And we still do outbound calling and we do some direct mail campaigns still because part of our customer base that's still effective. And so there's a lot of efforts around that. And then the rest of the business is more traditional, as you would think about it, that we have salespeople that are distributed across the United States that are working leads that are generally some of the leads that they're generating themselves. In both cases, really great return. When we think about the amount that we put out in the field, that's based on the coverage model. And then the marketing, again, we're seeing really great return. We also market across brands. So think of this as we're representing many different brands in the marketplace. Each brand has attributes that are unique in the space. And so we can play off those brand attributes so that we can grow a portfolio, some of which is direct, some of which is partner branded.

Yes. No, that's great. And then maybe just on the algorithm of Mobility. How should we think about maybe same-store sales, new client adds, attrition? And then any kind of new incremental products over time?

Yes. Sure. So again, very high retention rates. The biggest source of attrition is customers that are -- people that we don't have to extend credit to anymore. So think mid-90s percent retention rates across that part of our business as well. And sales engine is quite predictable. So again, we're adding a little bit into our marketing sales engine. But the way I think about this part of the business, it is a very defined machine, very effective at bringing in new business. Across the portfolio, we have great products offerings in the marketplace, and that comes through as new customers that are getting added into the mix. And then price has been another place for us that's been a benefit for us historically. Same-store sales, there's a little bit of volatility that happens with same-store sales. The way that we think about this is generally, you've got GDP growth that's getting offset by some level of fuel efficiency. So that can be in -- it typically is ranging from just a little positive to a little bit negative, depending on what's happening from just an economic perspective. So as we look at this part of the business, we've continued to grow it through a combination of pricing and new customer adds. The other thing for us when we think about this over time is we are now adding new product options into the marketplace. And so we feel really good about it. I'll give you an example. Our 10-4 offering, which is in the over-the-road space, which is designed for owner operators, which is a customer segment that we historically haven't done business with. It gives that customer segment access to our fuel discount network, which -- and fuel is their biggest cost and can make a difference between whether or not that customer stays in business or not. So it's a product that's really interesting to them. What we like about it is that it's a new source of revenue stream. It's a new part of the marketplace that we're now involved in, but it also gives us access to a customer to get to know them. And as they mature, they can mature into some of the other product offerings that we have. And so we feel like we're now just putting new products into the marketplace that over time are going to be beneficial to our growth rates as well.

Yes. That's helpful on the algorithm there. But just wondering on government exposure. I don't think you have much, but is there any at risk from DOGE at all? Any exposure there?

So from a government perspective, it's less than 1% of our revenue. It's very small. So we do business with the federal government with our fleet, but really a small part of our portfolio.

Yes. That's very helpful. And then maybe just moving on to Benefits. Devenir, you talked about, is growing accounts. They said they're growing accounts about 5% or mid-single digits. But then assets I saw were growing mid-teens to high teens. And because your -- about 25% of your revenue is based on that investment income, just wondering if that can help you grow above maybe that mid-single-digit account growth range? Because if assets are growing faster, then you get incremental investment income on that.

Yes. And so typically, what's happening is the size of the investments are going up because people tend to mature their accounts over time. So you do get an additional benefit of the fact typically that the size of the accounts are outgrowing -- the size of the custodial deposits are outgrowing the size of the accounts, yes.

There's also a -- part of that is a reflection of the market, right? The market returns have been really good the last couple of years, and so that's reflected in the investment size. We make most of our custodial income that we earn is on cash balances. So those are growing obviously much slower because you don't have that kind of market return on there. Still growing, but I'd call that a little bit faster than the account growth, not a lot faster like you just talked about. We monetize the investments marginally, right? There's a very small revenue stream that we have from the investment side of things. The vast majority of that income comes from the cash.

Would you mind maybe talking about the duration of your Benefits segment? Like as rates potentially if they come down from here, will you still get a benefit over the next couple of years because the duration, as you know, 3 or 4 years out?

Yes. You want me to take that one, Melissa, I assume, right?

Yes.

Yes. We've got like a 6-year weighted average duration in our investment portfolio for those cash assets that we've -- where we've taken the cash and invested it at WEX Bank. The next couple of years, we have, say, $270 million to $330 million, next year maturing. And as those mature, we'll reinvest them. They're maturing at 3.7% and 3.6% in '25 and '26, respectively. Current reinvestment rates are, call it, 5%, a little higher than 5% right now. And so yes, there'd be some benefit from reinvesting those rates. I do want to balance that, though, we're about 80% fixed rate investments and about 20% floating rate. So depending on what happens with interest rates, obviously, the risk right now is that they'd come down. And so you want to balance that a little bit. And not that I want to spend a whole lot of time on this because the question is about Benefits, but lower interest rates from a company perspective, if you just go to the top of the house, hurts revenue somewhat. And it's about $35 million annually for a 1% change in interest rates. But it actually helps EPS. So I guess it depends on what you're focused on. But from a cash perspective, lower rates would actually be better for WEX.

Yes. That's very helpful. Maybe just on corporate then. Maybe after we lap the bookings, large client -- the large client headwinds, maybe how should we think about the longer-term growth? Is that going to be 5% to 10%? Any way you can get maybe above that or upper end or lower end? Maybe just thinking about the longer-term secular growth of Corporate Payments.

Yes. So we've talked about the midterm being 5% to 10%, and that's primarily because of if you look at the travel part of our portfolio is still a significant part of the portfolio. It's about half. And so because we think that we are fairly penetrated in that part of the business, we think that, that's going to grow more in line with the travel market. And so then outside of that, we're seeing great growth in our AP direct offering. We think that will continue. It's still a relatively small part of the segment. I think it's only 20% of the segment right now. So as that gets bigger -- and we are rolling out. We've talked about the fact we have our enhanced flexible spending capability within our Corporate Payments. Product offerings that we've had those in beta in the U.S. and rolled out in Europe, we're seeing good interest in those products. And so that will take time to sign customers and get them onboarded. But we feel like we have a couple of areas that are really great for us long term from a growth perspective. But it's going to take some time for them to mature into the portfolio to affect the overall growth rate.

Yes. No, that's very helpful. And then maybe just thinking about new products in general across the whole portfolio. What could be maybe the fourth leg to WEX's story incremental to what we've seen so far?

So we like the legs that we have. I say like, where we're really focused is how can we increase the TAMs that are near adjacencies for our customer segments, so things like the 10.4 product that I talked about, the ability to have an enhanced acceptance so that people can solve use cases within their Mobility business. This flexible model that we're offering to our Corporate Payments customers enables them to really maximize their working capital. And so we're looking at places that we think that are really beneficial to our customer but within the same motions that we have with our customer segments, and that's been our primary focus. We are continuing to see benefit of cross-selling across the portfolio. We've added into our commission structure the quotas within our sales groups, and we're seeing the benefit of that as well which, again, will take some time for that to mature. But we feel like early days, but that's actually quite positive.

Yes. And maybe back to fleet cards. Visa talked about tokenization like custom provisioning in their mobile transactions with their fleet cards. Any impact that has to you guys at all, just on Visa specifically and the tokenization?

No. When we look at the customers that we have across the portfolio, I'd say the focus that we have is really continuing to refine the digital experience that our customers have, both in our over-the-road segment and within our local business. Tokenization is something that particularly with the over-the-road customers, is an important feature across that portfolio as being able to make sure they are operating in a secure manner. But we feel like the products we have in the marketplace right now are resonating really well, and we're just continuing to build upon them. So I'd say like nothing new from our perspective.

Yes. We had a couple more questions come in, and then one just about the Benefits segment. If, for some reason, I guess, you wanted to spin that, how difficult would it be to sell that business if you wanted to? Is it really tough because you do have the bank attached to it? Or could there be an opportunity at some point if you saw the value there?

Yes. When we think about the business, it is integrated into what we do from a technology perspective but also from the bank perspective. I think there's a lot of nuances as you go through this consideration. I think you saw Corpay go through a pretty exhaustive process on their side and decide to retain their assets. And I think that's because it is actually quite complicated as you go through that. But again, I would just reinforce the fact that our Board is very focused on maximizing value for shareholders, and we'd consider any options to do so.

Yes. Someone also asked about Impactive Capital. I don't know if you can speak about that in the 13D filing that came out.

Yes. So we -- Impactive has been an owner for 3, 4 years. They are a constructive shareholder. We have regular dialogues with them as we do other shareholders. And I guess there's -- it's all I would say, it's -- we've had a -- built a strong relationship with them and we value their opinions.

Yes. That's helpful. And then maybe just high level, can you break out the incremental margins maybe across the 3 different segments, Mobility, corporate and Benefits? Just what's the margin trajectory look like in each of those businesses over time?

Steve, do you want to do that?

Sure. I would say, with the long-term guidance that we gave, right, we said 5% to 10% for revenue and 10% to 15% for EPS. So clearly, we're expecting some margin expansions. Now some of that could come from, say, deleveraging or future M&A synergies and things like that. But we definitely think there's scale left in the business. We talked a little bit about the Corporate Payments and essentially the fixed cost base in that processing platform. So Dave, I wouldn't go quite to 100%, but those incremental margins are very, very high, as you saw. Within Benefits, I'd also say that the incremental revenue or the incremental flow-through on that interest income of that custodial revenue is similarly high. It's maybe a touch lower than Corporate Payments. But it's 80% or 85% flow-through rate on the interest income to operating income. When you look at the other pieces, Mobility and Benefits, I'd still put those margins and the incremental margins, I'd say, in -- probably in the 60% range or something along those lines. It's not a perfect number. But there's more servicing you have to do. There's calls that come in or whatever. So they're good, solid incremental margins. We expect each of the segments really to go up a little bit over time. And then obviously, as a company, we're expecting margin acceleration over time.

Yes. And then on Mobility, maybe just thinking about if we do go into a recession, how are you guys exposed there? I know you kind of maybe purged some of the very low smaller accounts. So now are you guys in a much better position going forward? And if we do hit a recession, how could credit losses and late fees be impacted by that?

It's been a while since we've gone through that. I'd say from the last time that we went through a recession, we've made a lot of investments in our risk models and continue to refine payment terms across our portfolio. So from a risk perspective, we feel like we're well positioned to weather an environment if it becomes a difficult environment. Historically, what you've seen is more of smaller companies that have had an issue. We certainly have that within our portfolio. But again, we feel like we're doing business with customers that are generally pretty strong. And then from a -- so I'd say, like if you look back over time, historically, if they've gone into a recession, we've seen an increase in charge-offs short term, it really hasn't had much of an impact long term across the portfolio. And we're not seeing that in our portfolio right now. And then the second thing has been you see a little bit less activity across the portfolio. So our customers are doing out there and they're fueling because they have business needs. They're either making sales calls or making deliveries or service calls. And to the extent that there was some slowness in the economy, you would see that come through in same-store sales, which right now, volume actually is holding up pretty well across the business. And so those are really the 2 big impacts. One is existing volume with customers and the second would be charge-offs. And particularly when it relates to the portfolio, we think that we're pretty well positioned. When it comes to what happens from a volume perspective, what we know over time is that we've done a really great job of retaining customers. So even to the extent you go through something like that, it is a point in time that you'd actually just push through.

Yes. And maybe just focusing on the other 2 segments then in a recession. In the Benefits segment, do you ever see pullback there? In past recessions, it seems pretty stable. And then in Corporate Payments and travel, maybe a little pullback in travel, but just wondering what you're seeing -- what you can see there.

Yes. There are 2 different things. So in travel, historically, these have been more regional. It's benefit of having a global account base is that the customers spend volume is happening everywhere. So that mutes some of the effect unless you see like a global recession. Typically, what's happening with that is that people just downgrade the type of travel they do. So instead of staying at a high-end hotel, they might stay at a kind of mid-tier hotel. So on the fringe, you see some effect of that. And then on the Benefits business, like incredibly stable is part of what we love about the business. It grew through the pandemic. And so as we think about that part of the business, employment rates have a little bit of effect, but we get -- actually, we have a COBRA product out there in the marketplace, and so we get some benefit of that in the instance where you see more employees getting separated. So when we look across the portfolio, the bigger impacts are in Mobility, to a lesser extent, and travel and Benefits is really quite stable.

Yes. And then we just had another question come in about the budget reconciliation. Does that have any impact on the HSA business at all?

None at this point in time. No. And again, like so far, people in both sides like the accounts for different reasons.

Yes. Yes, Dave, anything else as we're coming up on time?

So I had just 2 other ones I kind of I thought of. One is just to make sure we're clear on leverage post the tender offer. We have been around -- currently, I think it was 2.6 or 2.7 was kind of end of Q4, going up to 3.2, 3.3, I think, and then maybe ending the year if you just pay off debt through the year back down to 2.7 or so. Are those roughly the parameters?

Yes. We ended last year at 2.6. So pro forma for the debt raise and assuming we actually fulfill the tender at the full $750 million, then pro forma would be at 3.3. There is historically a little bit of seasonality in Q1, where we do often tick up 1/10 or 2 in Q1, just seasonality. So we could be a little bit higher than that at the end of Q1. But to your point, we do tend to delever pretty quickly, call it 0.5 turn a year, plus or minus in a given year. So yes, I think we'll come back down relatively quickly.

Yes. And then one thing just on when we look at Benefits, right, it's something like 60% is just account fees, about 20% or so is interest fees like just float income and about 20%, I think, is spending. You earn interchange on the spending out of the HSA accounts. Is that holding up reasonably well right now? And should that over time just grow just with kind of your accounts? Or I guess, what's kind of -- what do you think of that part of the business?

Yes. Steve, do you want to talk about -- you talked about interest rates already, I guess. So yes, if you look across the business, yes, in a normal environment and actually, I would say in -- even in the pandemic environment, we saw a drop-off in interchanges because people weren't accessing their medical care. But in any other environment, we've seen those be quite stable and continue to right now as well.

Yes. Okay. Good. Well, we hit the top of the hour. But thanks so much for joining us today. Thank you, Melissa. Thank you, Steve. Yes, big thanks. And everybody have a great weekend.

Thank you, guys, very much.

Yes. Bye. Thank you.