WEX Inc. (WEX) Earnings Call Transcript & Summary

Up next, we're joined by Jagtar Narula, CFO of WEX. Jagtar took on the role of CFO in May of 2022. He brings 2 decades of financial leadership, experience. Prior to WEX, he served as CEO of 3D Systems and held senior roles at Blackbaud, Xerox, GE and other global firms. Jagtar, thank you for being with us today. Appreciate it.

Thanks for having me.

So maybe we start with mobility. The macro environment remains pretty choppy. OTR volumes softened a little bit further this quarter. Are you seeing any signs of stabilization?

Thanks, Sanjay. That's a good question. So what we saw in Q3, it's been a choppy year for mobility, from a same-store sales perspective. We saw negative volume growth in Q3. We had said it was pretty similar to Q2, where we also saw negative volume growth. That's reflective of challenges we've seen in the OTR segment, especially. We've had the challenges of a tough environment. We've seen the effects of tariffs and things like that. The good news is that Q3 was similar to Q2. So while we haven't seen an improvement in the macro year-over-year yet, what we are seeing is stabilization. So things aren't getting worse, but it's something we continue to keep an eye on.

And when we think about like what's driving sort of the weakness, do you think it's just -- is it tariff-related uncertainty, is it just a macro softness? Like what do you think is driving...

I think it's a combination of both. So if I take the Mobility segment, divide it up into 2 segments. Just a reminder for everybody, about 1/3 of the segment is what we call over-the-road, think of it as kind of the larger long-haul carrier trucks; and 2/3 of the segment is the local fleets, think of the electrician, plumber, sales guy, things like that. If I take the over-the-road segment first, that segment has been challenged for a couple of years now. We had kind of the run-up into COVID with a lot of shipping volumes. We're all sitting at home ordering things from Amazon and the like that drove a lot of volume in the over-the-road segment. And since sort of post COVID, we've seen overcapacity in that market, we've seen weakness there. We've seen that for going on a couple of years from now. This year, I think a lot of market participants is expected going into the year that we were going to start to see a turn in that segment. And then we were all surprised by Liberation Day and the weakness that ensued. So that's what's been going on the over-the-road space. On top of that and what you've seen in the kind of the local fleet space, I think is more indicative of a macro weakness. When we measure their same-store sales, so what we look at is how much is the -- how much volume did a customer, how many gallons that they pump in the prior year versus how many gallons that same identical customer is pumping this year? And we've seen sort of a decline, which when we've seen in the past is more indicative of macroeconomic weakness. So I would expect over time, things would improve. But for where we are -- where we sit right now, it's definitely a macroeconomic weakness there. So there's been a couple of pieces, but they're both hitting at the same time.

Got it. So you've highlighted the SMB segment is one where you see share gain potential. Can you quantify how much SMB contributes to Mobility revenues today? And how big it could become over the next 2 to 3 years?

Yes. SMB is actually a pretty large segment today. If you think of our customers today, we have about 600,000 customers in the Mobility segment. So customer size that large, a lot of those customers are, in fact, small and medium businesses. And that is, from a market perspective, a relatively unpenetrated segment, and that's where we continue to see a large area of opportunity. So one of the things we've done this year is invest in -- more in digital marketing in the Mobility front to drive additional volume into that segment. And we're seeing really good uptick on that. One of the things we've talked about in the last earnings call is that if you look at new business volume, new business that have signed up with WEX, that has increased, SMBs increased 12% year-over-year. So that's indicative of the positive momentum we're seeing there. And on top of that, I'd say we've had a number of initiatives that are also additive to the SMB focus on the segment and should provide a good tailwind going forward. So one of the ones we talked about in the last earnings call, is 10-4. This is a product that we just introduced that's targeted at the owner operator in those kind of long-haul trucking fleets. So think about the one -- the person that owns one truck and drives it around, that's historically not been a customer of WEX. But we've developed a solution now that provides them additional value. Someone that's using our 10-4 product, what we saw in our initial slate of customers, they're savings on the order of $300 in fuel. So there's a big value proposition to them. It requires no credit underwriting in our part. So it's really -- it allows us to serve a segment that we haven't served before. They're on the order of 500,000 owner operators out there. So it's a sizable opportunity. And so we're really, really excited about that one. The other one is Payzer. We've talked about that in the past. We did that acquisition, I don't know, 18 months ago. That one was a little slower to get going than maybe we would have liked. It took us a while to get in the sales motions that we wanted it up and running. But we feel really good about where we are now that -- we think that's a long runway for WEX. A lot of kind of market participants have talked about the tie between payments and software. And this one gives us a really strong payments -- or sorry, software capability with payments functionality at -- starting with HVAC customers is a large small business-focused segment where we even today, we have over 20,000 customers. So I think when you look at it together, and you say, okay, there's a large fuel card opportunity in Mobility that's relatively untapped where we have proven today we can go after it because we've got hundreds of thousands of customers today. When you look at the new products that we've introduced, like 10-4 and then doubling down on things like Payzer, I think there is a very large, very sizable SMB opportunity that we're pretty excited about.

That's fabulous. I guess when we think about the competitive backdrop for fleet cards, how do you see it sort of today? And how do you see it maybe evolving over time? And maybe you could talk about your value prop and your moat in the industry?

Yes. So in the fuel card segment today, we have a very strong value proposition, right? Let's start with sort of the recent evidence of a very large customer win in BP. We now have, with the win of BP, 10 of the top -- all 10 of the top 10 kind of fuel brands in the U.S. are on the WEX platform. And that's indicative of the value proposition we provide and the fact that we've proven time and again our ability to take ownership of a branded fuel program and grow it. And I think that reflects a number of pieces. One, it reflects the value proposition of the product, the ability to provide fraud controls, to provide analytics for customers. These are all things that are very important to fleet managers and WEX Solution offers that. We provide the volume to merchants, which they view as incredibly valuable. So that in itself creates a moat for us, both in having the kind of the buyers and sellers of fuel plus all the value-added services we bring on top of that. I think when you bring those pieces together, it's really, really a strong value proposition for the market. And I think we continue to be in a very, very strong competitive position as a result.

And then in the non-big fuel side, like the small business side, like do you think there's a lot of fintechs that are sort of creating value props that might be...

On the mobility side?

On the mobility side.

Well, I certainly think there are some fintechs that are trying. Where there's some smaller customers that are -- Visa has got their sort of fleet 2.0, which they've tried to create a solution to provide kind of a value proposition to customers that rides on the Visa network. I would point out a couple of things. So when you talk about the value proposition we provide with the controls and the analytics, I mean, we're years ahead of the competition because we've been doing this for decades. We know how to bring a fleet manager onto our platform, provide them the tools and capabilities they need to run an effective card program. So that inherently gives us kind of a leg-up. And then on top of that, we're not standing still from innovation. So we just talked about BP a second ago. One of the reasons that BP chose us is in addition to our sort of closed-loop fuel card capabilities, which because we run our own closed-loop, we're able to provide data that other networks historically have not been able to provide it. On top of that, we've developed the capabilities to also ride on an open-loop network. So somebody that goes into a BP station that's pumping fuel that also wants to go buy lunch at the convenience store can go in and use a card to buy items from the convenience store. And that was something that was pretty exciting to BP, one of the reasons they chose us. And so I think that's additional value proposition that we now put on top of the card. And this program will be launching once we get the BP onboarded, and we'll see how it goes. But my expectation would be that as we see success in that program, some of our other fuel merchants may start to say, we'd like to be on a similar card program as well.

Got it. So as we think about -- if we pull up and we think about the growth targets for this segment, 5% to 10%, I'm sure you feel pretty comfortable in that range. I'm just curious like what leads to an outcome that's sort of at the midpoint or higher of that range?

Yes. I think it's a number of fronts. So one is new business, right? We've invested more in new business this year because we saw pretty high returns on it. When I joined WEX, one of the things we did is look at our LTV to CAC across our business. And those of you involved in software are very familiar with this metric, and what we saw is a high LTV to CAC across all WEX's lines of business, including the Mobility. And we looked at that and said, well, you have a large untapped market opportunity, especially on small business; you have a high LTV to CAC, shouldn't we be investing more there? And so that's -- and that's one of the things we did this year was then take up investment there. We expect -- Melissa talked about it in the last earnings call, every dollar that we put in sales and marketing, in mobility or in marketing mobility, we would expect kind of $4 return over the first 2 years that a customer onboards. That's a pretty high return. So with the dollars we're putting in, we expect higher return that will drive up growth. We have very high retention rates in the segment, but we continue to invest there to improve retention rates. So I would expect the delta between new business and retention to expand over time. I would expect on the order of 1 to 2 points there. We then have the new products that we're investing, whether it's 10-4, more aggressiveness in Payzer, things like that, those new products will then add incremental additional growth, that should push us up further in the range. And then the big one now is the macro, right? You referenced the macro in the initial of the conversation. Right now, from a planning perspective, we're not changing our expectations of the macro. We're sort of expecting it to continue as we've seen for the last several quarters. But with changes in the macro environment, we're not going to be in this macro environment forever. Trucking isn't going away. There will be a turn in the trucking market at some point. So as we start to see that change in the macro, we'll go from where we are today, which is maybe the base growing at 1% to 2%, we should see that grow at incrementally higher. So I think when you add up those pieces, you start to get to, okay, I can see how we get Mobility further and further up into the targeted range.

And these new areas that you're sort of targeting and taking share into, like what are you displacing there, like a competitor or is it, I mean, cash and check. What is it?

Yes. I think it depends on the area. So when we go after SMB, by and large, those customers will use a general purpose card. So without the controls that we provide, without the analytics that we provide, so we're largely doing that. When you look at 10-4 owner operators, what we're providing essentially is a fuel discount network, something that they don't have access to. Fuel is the largest component of their operating expense outside of the cost of paying for the truck. So if you can provide meaningful fuel savings, that's very, very important to the [indiscernible] operator. So in that case, we're providing something incrementally new that they're not necessarily coming from somewhere else today. And then Payzer, by and large, you're displacing them from using Excel or Google Sheets or pen and paper. I mean these folks are -- sometimes you're taking away from competitors. We know there's competitors out in the market that don't exactly touch the segment that we're going after, and as a result, we provide a more tailored solution or you're taking away from historically running their business essentially manually and you're providing a meaningful automation solution. And so I think in each case, we're taking away from something that where they're not getting the level of quality and capability that WEX is now coming in and providing to them.

Got it. Okay. So we're going to pause on Mobility and move to Corporate Payments. Obviously, that's been another segment that's been going through its own set of ups and downs with -- maybe we focus on the virtual card business and then we sort of migrate to the other part. But with Booking and Expedia headwinds now largely in the rearview mirror, how should we think about the baseline growth of corporate payments? And then maybe just walk us through the long-term building blocks.

Yes, sure. So we've talked about a lot about Booking and Expedia over the last year, right? The transition of Booking to kind of a new model with us was sort of a revenue drag over the last several quarters. We're now at the tail end of that. And you saw with Corporate Payments returning to growth in the last quarter. Expedia was also a challenge because we had some sort of seasonality in Expedia or timing in Expedia going to '24 to '25 that provided some sort of difficult compares when we were looking at year-over-year that we're now kind of largely past that. So as we move past that on the travel segment of Corporate Payments, I would expect that -- which is about half the business today, I would expect that to move towards more kind of in line with overall OTA growth, travel -- online travel agency growth, so that's half the business. The other half of the business, we have sort of -- this is a business that we're also pretty excited about. We've invested in capabilities that I think provide meaningful kind of upside and growth opportunity in the business, leveraging the platforms that we have today. So the first is embedded payments. So the way I like to characterize embedded payments, you talked about me joining WEX in '22. At the time, one of the biggest questions I got was, hey, WEX, you're really successful in travel, what are you doing outside of travel? What are your next verticals outside of travel? That in essence is what embedded payments is. It's basically taking what we've built in travel. We've built additional functionality that the product needed and now we are moving it outside the travel vertical, starting with other fintechs. We're very excited about the pipeline there and the growth opportunity as a result of that. You then take the direct AP part of the business, which is about 20% of the segment today. That's also taking the same platform. And what we've done with that platform is provided a new front end that it now can be used by corporate customers to process payments. And we've been seeing the last 2 quarters, we've seen 20% volume growth in direct AP. So that provides evidence that it's having resonance in the market and the strategy is working. So I think when you put all those pieces together, I think you're looking at a Corporate Payments segment that will grow in the mid-single digits range. I think we've got the building blocks and pieces in place, and we're pretty excited about it.

And just to clarify, like the travel growth, industry growth, what do you think that growth rate is? Like how would you define that growth rate?

Yes, I would call that kind of the mid-single digits range in line with Booking, Expedia and the others.

Got it. All right. And then I guess the industry -- so maybe just one last one around Corporate Payments, the direct AP business. Maybe just elaborate a little bit more on that because I know that's an area you're investing in. Sort of where are we in the journey of that and sort of what's your growth path expected for the next couple of years?

Yes. I think there's a pretty sizable opportunity. So this is a market segment that's pretty unpenetrated from an automation perspective and from the perspective of utilizing virtual cards to process payments. And we provide meaningful capabilities to corporate customers to be able to automate their payments and to streamline their process. You move customers away from check, ACH, things like that to we'll take your payment file and we'll automate it through the virtual card, and we'll also give you the benefits of a portion of the interchange. So I think we're in pretty early days there. As I mentioned a minute ago, we've seen 20% volume growth the last couple of quarters. We've hired up a sales team that we've expanded this year. We track that pretty closely in terms of the performance of the sales team, and they are building really good pipelines, closing really good deals. So we continue to see momentum and volume build there. And so I continue to see that going forward.

Got it. And then when we think about like who you're displacing again there? Like is it the competitors in that -- or the competition in that business that does this or is it businesses that just don't use that?

Today, it's largely businesses that don't use that. So when you think about the AP process, usually, there's some software process, ERP or something that results at the end of the day in a payment file that's ready to be paid. And that payment file today would be paid through a check, through an ACH, through some other mechanism that where now we can take that AP file and say, "We'll process the payments and handle this for you." So it provides meaningful automation to the customer where they didn't have that today. So in addition to potentially reducing the size of their AP team or something, they'll get a more streamlined process, they'll also get meaningful rebate to the extent that we move some of the volume to virtual card. So there's multiple value propositions for the customer coming out of that.

Got it. All right. We're going to shift gears and talk about Benefits. The industry for HSA and FSA has matured. As that has matured, what are you guys focusing on to sort of sustain the above-market growth in the Benefits segment?

Yes. We grow typically above market. And I think we grow above market. So just a reminder to kind of everyone that's maybe new to the WEX story: About 20% or more of the HSAs in the United States run on the WEX platform, and we go to market through a couple of different channels. We have a direct business. So we will go to employer and sell direct. We will also -- we also have a very, very extensive partner network where we will have partners resell our product or they will actually offer our product as part of the bundled offering that they're offering to their customers. So we have multiple routes to market, which basically means that we typically see a deal from multiple angles. And so the combination of having a market-leading product is evidenced by the large market share we have, the scale of that platform, as well as the broad market coverage provides us kind of a very, very meaningful way to be very competitive in this market. And as a result, if you look at this last year, market growth is estimated about 5%. We've grown HSA, our market has grown about -- we've grown about 7% in terms of HSA accounts. So we've beat the market by a couple of percentage points. And we've done that pretty consistently over the past couple of years. I would say on top of that, we continue to invest in the product. We have multiple products that we can sell. We've got HSAs, we've got FSAs, we've got flexible spending discounts, we've got lifestyle accounts. So we're able to continue that -- to grow that business by expanding wallet share with the customer. We're also able to grow that business by more effectively cross-selling. That's one of the strategy of the business. Mobility customers are a big opportunity for us. We continue to focus on that. And then we layer on top of that continued innovation. So things that we're doing now like a new investment product, today, we outsource that functionality. We're actually building the capability so that if you're an employee, you have a sizable HSA account, you want to invest a portion of that, not just keep it in cash, we've got capability for you to do that as well. So I think it's the combination of market coverage, multiple products and continued innovation that sustains the growth in that segment.

So The Big Beautiful Bill is expanding HSA eligibility and contribution limits. Maybe you could just help us frame the size and scale of the benefit to WEX and sort of how you intend to capitalize on this opportunity?

Yes. So with The Big Beautiful Bill, it opened up about 7 million accounts -- or 7 million individuals that will now be eligible for HSAs. And we translate that 7 million individuals into about 3 million or 4 million accounts. So a sizable increase in the number of accounts. The good news here is that we don't need to do anything to the product. This product is ready to sell to customers, it's the same product that we sell today. It -- we've already got the routes to market, so we will continue to get our fair share of this expanded market. Now it won't all happen -- this will go into effect 1/1/'26 in terms of eligibility. I wouldn't expect all 3 million to 4 million to sign up on day 1. There'll been an education period. Also, our partners will work to get these customers signed up and moving forward with HSA accounts. But I would expect over time that you'll see that -- those 3 million to 4 million, you'll see a substantial portion to move on to an HSA account of some sort.

Okay. Great. So we're in open enrollment season now. Any early reads or updates on how it's going?

So I feel good about where we are. So 2 pieces to how it goes. So one is how are we doing with selling new customers onto the WEX platform? Obviously, that's something that goes on all year. We feel really, really good about -- today, we know what deals we've signed that will be going live, it's gone live now or will be going live in the new year. The sales signings from where we stand from a signing standpoint is pretty much on top of where we expected to be for the year. So that's going really well. The second piece of it is the open enrollment piece, which is, I'm an employee, I'm making benefit elections, am I signing up for an HSA today? So we are right in the thick of it. All indications are positive. It's been a pretty consistent growth over the last few years. There's nothing that suggests that this year will be any different than any other. So we feel really good. Obviously, we'll get more data as we go through the open enrollment period. But from where we stand right now, all indications are positive and that we should see consistency with what we've seen in the last few years.

So it seems like when you add it all up, right, the Benefits segment can be sort of at the mid to higher end of the range that you guys have talked about over the long term. Would you agree with that? Or maybe what else needs to be done for the growth to be faster because it has been historically?

Well, so I think doing what we said -- what I just said is what's going to drive growth. We need to continue to sell and earn our fair share or more than our fair share of the market. That's signing up new partners, new employers, hence, why we've added sales resources to that business. Historically, that business grew heavily through the partner channel, which is kind of less in our control because it's dependent on what partners sell. We supplemented that with direct and then we added meaningful sales resources on top of that. So that gives us more control over how much is sold and therefore, how fast that business grows. Second piece of that is getting people to sign up for HSA accounts. What we've done there is to invest meaningfully in front-end capabilities so that we can help employees understand what's best for them. And oftentimes, what is best for them is an HSA account. So for example, we have a benefits admin platform, that's front-end capability. That's the platform that employers use to help employees sign up for benefits. We've added analytics and AI capabilities on top of that to take employee data and help them make the right decisions for them. And I think as we expand that platform, that will help the market grow. And then on top of that is the things that I talked about: continued new innovation, new capabilities that -- and expanding cross-sell share of wallet because we have so many different products we can sell, the more that we can sell into an existing account or more accounts that we can get to take multiple products provides meaningful growth on top of what we're doing today.

And what you just alluded to was sort of doing more inside of benefits enrollment, like are there areas inside benefits enrollment that you'd still want to be part of that you aren't part of now?

I think our biggest focus right now is that, that front and benefit administration capability, continuing to enhance the tool that we have today to make it a very, very critical piece for an employer to say, "I want a good experience for my employee. I want them to come in and be able to make -- being able to understand what the benefit options are and to make good benefit elections that will be good for them, and that'll help me as the employer understand what my employees are doing and provide me meaningful data." So enhancing our capabilities to do that, I think is a critical piece of the puzzle.

Okay. Maybe shifting gears and talking about investments. And I feel like 2025 was an investment year that put pressure on your margins. On the third quarter call, you mentioned margins will stay stable year-over-year versus expansion. Maybe you could just clarify or provide more color on the drivers influencing your outlook.

Yes, sure. And let me clarify one thing because I've learned since there was some confusion of what I said during the call. I think I said some of the effect of I expect '26 to be similar to '25. And some people thought that to mean that margin trajectory in '25 is lower than '24. Maybe I'm saying that '26 is going to be lower than '25, which is not the case. What I was trying to signal is kind of exactly what you just said, which is -- and keep in mind, we're still in the budgeting process here, but from where I sit right now, at the very least, we're going to be kind of margin flat next year to this year. Now obviously, still working on what do we need to do to make that better. So the puts and the takes. So by and large, let me start with the puts. By and large, our business is characterized by high incremental margins as we grow. Incremental margins in Mobility, typically very strong. Incremental margins on our Corporate Payments segment, when you think about that business, we run a platform, more volume runs through the platform, not necessarily incremental costs, so a very good margin profile of that business. In the Benefits segment, obviously, the float piece of this, very high incremental margins. The non-float side of it, the traditional side, does come with some cost as you grow revenue, but it's also an area where we've been investing heavily to get cost down. Things like AI that Melissa talked about in the last earnings call, the claims automation capability that we've built. So to the extent we are able to drive that into our claims operation or employee call centers, that improves the margin profile of that business. So the puts of the business is that revenue grow, the margin profile is very, very good. So then is what's the takes. Why aren't we seeing that next year? A couple of pieces. So we just talked about the innovation. Investing in innovation has been an important capital allocation priority for WEX. If you look at the numbers for the last couple of years, CapEx has been up. We capitalized software development. That's resulted in kind of higher depreciation like this year versus last year, and we're expecting one more year of that before it starts to flat line. And that's just reflective of us driving innovation so we can hit the revenue opportunities we talked about. Also, earlier this year, I think it was on the Q4 earnings call, I had indicated that as we thought about investments this year, and this year was a meaningful year of investments, we wanted to get those investments in place while protecting as much of the P&L as possible. So we took some cost actions this year that were kind of onetime in nature. And I'd indicated that there's some savings this year that are going to come back next year. And so we're now into next year and those -- some of those costs are going to come back. we're doing it in a fashion where we can at least keep margins flat year-over-year. And the idea is continue to drive momentum in the business, get the incremental margins as the revenue grows. In a period where we're reinvesting a portion of that in the business that will continue to help drive revenue growth going forward. But then as we move out of '26, I would expect to see that momentum that the business has of, we've got the new products, we're growing the business, it flows through at high margins, and we see margin expansion as a result. So some takes and -- puts and takes in '26, but that builds us momentum in future years.

And just generally, like what kind of margin profile do you think WEX is, like in terms of margin expansion story annually? Any thoughts on that?

Yes. If I were to look next year, well if I were to look into...

Past next year.

Past next year. I would say in the order of -- I mean, we would expect a 50 basis point improvement every year. It's going to be dependent on how do we think about reinvestment versus take it to the bottom line. But I think a 50 basis point margin improvement every year is very doable.

Got it. Obviously, all else equal with fuel prices and such.

Yes. I mean, exactly. I would say and these are all macro -- excluding macros, so you got fuel prices, interest rates, things like that, but macro neutral.

Okay. I got a couple more. First is you guys completed the strategic review and the verdict was you're going to -- it's best to keep the business together. So maybe you could just talk about what the argument is to keep it together because it seems like some of your pieces could be valued higher relative to where your peers trade, right? I mean I'll use Benefits as an example, right? So maybe you could just talk about the rationale a little bit -- broaden out sort of the explanation around that.

Yes. So just in terms of what we did. So we did the strategic review or portfolio review, whatever you want to call it. And just a reminder, it's something we do, and we pretty much have done it every year. It's good hygiene for the company to consistently look at its portfolio and say, "Are we doing the right thing for the business and for our shareholders?" This year, we bought 2 investment banks and Melissa mentioned them on the earnings call, Bank of America and JPMorgan. Didn't tell each of them about the other one. So analysis were completely independent. This was heavily supervised by the Board. The Board, a lot of access to the bankers, lots of questions, lots of follow-up. In each case, both those banks came to almost exactly -- not almost, exactly the same conclusion. And they looked -- both those banks looked at kind of multiple scenarios for the business. And the conclusion they came to was the one that you just highlighted, which is WEX for you right now, it doesn't make sense to break up the business. The value creation is not necessarily there because, one, you get a lot of synergies being together as a business. You leverage the bank, you leverage common technology, you leverage the compliance infrastructure we've built, the regulatory infrastructure we've built. There's a benefit to -- we've got a business that's subject to fuel price swings being stabilized to a business that doesn't have that effect. So when you look at it all together, the conclusion from these banks was the value creation wasn't there. They provided a lot of numbers and data behind their analysis. Now I would also say it will continue to be something we look at in the future. The portfolio composition today, I think, like I said, it's something we've looked at every year. I would expect that it's something we will always keep a more open mind to. But for where we are right now and the analysis we've done, it does not make sense to divest the benefits or any other part of the business.

Fair. So last question, capital allocation. Maybe you could just talk a little bit about sources and uses of capital, sort of what you expect to do in terms of priorities short term?

Yes. So we generate a lot of cash, north of $500 million every year. We have, as I just mentioned, increased CapEx the last couple of years because we view organic growth as the highest and best use of cash. Beyond that, so for the moment of time that we're in now, we ended the quarter 3.25x levered, a little bit above the midpoint of the range that we put out there of 2.5x to 3.5x. We would like to get at least to the midpoint of that range. And so we are focused for the time now on paying down debt. And I estimate it will take us until second half of next year, call it, Q3 before we're down to about 3x. So short-term capital allocation, pay down debt. Once you move beyond that, I think that's when we start talking about, okay, reinitiating a buyback program, M&A. We will continue to look at those options. I think we will be much more programmatic on the buyback front going forward. I know we've done a couple of sizable buybacks with an ASR in '24 and then a Dutch tender this year. I think going forward, it will be a bit more programmatic. But I would expect that to be how it plays out over the next, call it, 12 months -- 12 to 18 months.

Perfect. We've run out of time. Thank you so much. Appreciate it.

Thank you, Sanjay, appreciate it. Thanks for time. All right, take care.