Operator: Thank you for standing by. And welcome to the WEX Second Quarter 26 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star then the 1 on your telephone keypad. I would now like to turn the call over to Pedro Alvarez, head of investor relations. Sir, please go ahead.
Pedro Alvarez: Thank you, operator, and good morning, everyone. With me today are Melissa D. Smith, our President and CEO and Jagtar Narula, our CFO. The press release and supplemental materials issued yesterday and a slide deck to walk you through prepared remarks have been posted to the Investor Relations section of the website at wexinc.com. A copy of the press release and supplemental materials have been included in an 8-K filed with the SEC yesterday afternoon. Before we begin, unless otherwise noted, all comparisons discussed during today's call are on a year over year basis. As a reminder, we will be discussing non GAAP metrics, specifically adjusted net income, which we sometimes refer to as ANI, adjusted net income per diluted share, adjusted operating income and related margin, as well as adjusted free cash flow during our call. Please see the exhibits of the press release and the earnings supplement for an explanation and reconciliation of these non GAAP measures. The company provides revenue guidance on a GAAP basis. And earnings guidance on a non GAAP basis due to the uncertainty and indeterminate amount of certain elements that are included in reported GAAP earnings. I would also like to remind you that we will be discussing forward looking statements under the Private Securities Litigation Reform Act of 2000. Actual 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 our most recently filed annual report on Form 10-K and subsequent quarterly reports filed on Form 10-Q and other subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward looking statements all of which speak only as of today. With that, I will turn the call over to Melissa.
Melissa D. Smith: Thank you, Pedro, and good morning, everyone. We appreciate you joining us. I am going to start on Slide 4 of our earnings presentation today. The second quarter built on the momentum we established earlier this year. We exceeded the high end of our guidance range for both revenue and adjusted net income per diluted share. Excluding the beneficial impact of fuel prices and FX, we delivered on our expectations with strong execution across the organization. New sales momentum is building. And customers are increasingly focused on controlling expenses by leveraging our industry leading platform. We are progressing across each of our strategic pillars and our organic investments are delivering. Our balance sheet remains strong with leverage back below 3 times and we are prioritizing our strong cash generation towards returning capital to shareholders in the near term. We are repurchasing shares on what we believe are attractive levels reflecting our confidence in the plan and the value we see in our business and assets. there is a lot to be excited about as we look forward to the second half of the year. In corporate payments, volume growth in our direct AP channel is expected to remain in the mid teens after reaccelerating to 20% this quarter. In benefits, our early sales pipeline for 2027, looks healthy, we have real opportunities in our operations platform to be more efficient with AI. In mobility, we are seeing a stabilization of transaction trends near and long term pricing opportunities, and ongoing opportunities to expand margins. Combined, these factors give us confidence in our investments strategy and execution as we expect to exit the year within our long term organic revenue growth range of 5% to 10%. Let me walk you through the second quarter results and point you to Slide 5. Revenue for the quarter was $753.5 million an increase of 14.2%. Excluding fuel prices and foreign exchange, revenue grew 4.2%, which was at the midpoint of our guidance for the quarter. Adjusted net income per diluted share was $5.35 up 35.4% Excluding fuel prices and foreign exchange, adjusted EPS grew 10.1%. At the high end of our guidance range reinforcing our ability to leverage top line growth into even stronger earnings growth. Cash flow remains a continued source of strength and we generated $696 million of adjusted free cash flow on a trailing 12 month basis. This allowed us to reduce leverage to 2.9x and resume share repurchases in the quarter ahead of schedule. Turning to Slide 6. Let me remind you of our 3 strategic pillars, amplify our core, expanding our reach, and accelerating innovation. These pillars are the foundation that we believe will allow us to deliver sustainable and profitable growth over the long term while remaining laser focused on our customers. Each pillar is powered by organic investments, product development, and the strength of our sales and marketing efforts. Let me take a moment to highlight how we are progressing against them as we pass the midpoint of the year on Slide 7. Our first pillar, amplifying our core, centers on continuing to grow in our core markets by leveraging our strengths which include proprietary data and technology tools, compliance and regulatory capabilities, including WEX Bank, deep industry expertise, advantage positioning in the payments ecosystem, scale, and deep customer and partner relationship Within this pillar, we are focused on executing across the business to delight our customers accelerate growth and strengthen margins. We measure success by delivering on profitable new growth, In the first half of the year, we saw strong new sales to support this. For example, in benefits, we are lining up a healthy early pipeline for 2027, after completing an excellent open enrollment season for 2026. In mobility, we have been executing on fundamental priorities amid challenges in the macro environment. And in corporate payments, our pipeline is continuing to build momentum in our direct AP business. There are 2 important points here. First, we are carefully looking at pricing levers across the portfolio. We plan to continue to thoughtfully execute on opportunities in the back half of the year including new pricing actions in mobility, that we expect to result in $15 million of additional revenue in 2020. Second, we are balancing those pricing actions with a focus on improving profitable retention across the business by proactively engaging with our customers to keep our value proposition at forefront. In benefits, the first half of the year included 2 enhancements to our core offering, driven by customer feedback. First, we introduced the WEX HRA GLP-1 medications. This is a defined employer funded benefit that sits outside the core health plan. Giving employers greater flexibility and control over GLP-1 benefit costs while maintaining access to weight management options for employees. Additionally, we partner with DoorDash to enable FSA and HSA participants to add their WEX benefits cards directly to their DoorDash wallets. Allowing them to use pretax dollars for eligible health essentials with same day delivery. This makes it easier for consumers to access eligible health care products when they need them, while continuing to embed WEX into everyday use. Our second strategic pillar, expanding our reach, empowers us to enter new markets where we have a clear right to win and where our differentiated assets allow us to create tangible value. This pillar is foundational to how we accelerate growth as a company, and we are investing in both product development and our go to market approach to move deeper into large and profitable markets with ample greenfield opportunities. Let me touch on our nontravel business and corporate payments as a clear example. Within non travel, we are focused on diversifying the business through both our direct AP offering and continuing to expand our industry leading embedded payments virtual card offering outside of travel. These 2 growth vectors are core investment priorities in this segment. As I mentioned earlier, Direct AP growth accelerated in the quarter and our embedded payments pipeline remains strong. Outside of corporate payments, let me touch briefly on mobility. Where we continue to see success marketing to smaller fleets in our North American business, many of which do not currently have a fuel card solution. In our over the road business, TenFour by WEX, has seen significant user growth as fill prices increase and operators look for easy to access fuel discounts. As a reminder, we have positioned TenFour to play 2 roles to maximize our reach. It acts as an on ramp for some customers to join the WEX platform in the future, But for fleets that are not interested, or not eligible for a fuel card product, and provides another way to monetize those relationships without taking on additional credit risk. The last pillar in our strategic framework, accelerating innovation, enables us to deliver better products at a faster pace while driving efficiency and operating leverage. Here, we focused on initiatives that transform what we offer our and how we run our business. This is a pillar I am especially excited about because of the tremendous potential We are leveraging customer feedback and AI to drive targeted new products and service development. AI is deeply integrated in everything we do, and has been for several years. We believe we are well positioned and ahead of the curve with a long history of proprietary data to fuel value added client offerings. Turning to Slide 8, I will touch on how we are progressing. A recent example of how we are accelerating innovation through AI is in mobility, where a new premium offering AI-Insights is currently in beta with customers. By combining WEX's proprietary transaction fleet payment data with AI, for delivering actionable recommendations that help customers proactively identify potential misuse uncover savings opportunities, understand spending trends, coach driver behavior, and improve fleet performance. Our goal here is to help customers move from reactive reporting after an issue occurs to proactive decision making powered by AI. Another area where there are early investments in AI bore tangible fruit in the first half of the year within our credit adjudication functions within mobility. As fuel prices rose, credit demand increased across the business. And our AI powered credit tools allowed us to make faster and smarter decisions for customers in the time of need. These tools allowed us to act quickly, without increasing risk, and we saw those results in Q2. We talked before about how AI is helping to process claims faster, power development and coding, and empower our teams to work more efficiently. All of those trends are continuing. Looking ahead to the second half, we are going to continue to tackle parts of the business that would benefit most from automation, We are committed to delivering more than 100 basis points of macro neutral margin expansion in the back half of the year as part of our plan to deliver 75 basis points for the full year. To close on our strategic pillars, I am proud of the work our teams are doing to position WEX for success now and in the future. Turning now to capital allocation on Slide 9. Our approach has not changed, and our near term priorities reflect our clear focus on maximizing shareholder value. We are continuing to reinvest organically in our business, by evaluating opportunities on a risk adjusted returns basis to prioritize investments with the highest tangible accretion potential. This includes continuing to strengthen our core offerings, to maintain and grow our competitive advantages. While also investing in new products and markets that will accelerate growth. Now that we have achieved our leverage goal of less than 3x and did so quicker than anticipated, we are in a stronger position to return more capital to shareholders. Given WEX's current multiple and our confidence in the long term growth trajectory of our business, we are currently prioritizing buybacks. In the near term, you should expect us to direct the vast majority of adjusted free cash flow to share repurchases while using the rest to delever subject to notable changes in market conditions. Between May and July 20, we repurchased approximately $93 million of shares including approximately $60 million during the second quarter. Finally, I want to briefly touch on our annual meeting in May. I wanna take this opportunity to welcome our new board members and reiterate that the full board and management team are aligned with a singular focus on maximizing value at WEX. We are moving forward with that unified purpose. This shared focus is reflected in how we manage the business every day. Our commitment to maximizing shareholder value includes routinely evaluating our portfolio and assessing the near and long term potential of each of our businesses and their component parts. This is an important piece of our annual strategic planning process, which is already underway, and helps us allocate our resources to opportunities that create the most long term value. I will close by saying that our results would not be possible without our employees. I want to thank our team for their hard work and commitment this quarter. Forbes recently recognized WEX as 1 of America's best employers for company culture, and I believe that recognition reflects the talented team and strong culture that continue to power our strategy, innovation, and customer impact. With that, I will turn it over to Jagtar to walk through our financial performance. Segment results and updated outlook in more detail. Jagtar?
Jagtar Narula: Thank you, Melissa, and good morning, everyone. We delivered both solid revenue and earnings growth in the second quarter. With each of our segments performing well. The momentum we have built in the first half of the year is a great start, and we expect it to continue into the second half as we remain focused on accelerating growth and operational efficiency. Total revenue in the quarter was $753.5 million up 14.2% and above the top end of the guidance range we provided last quarter. The impact of foreign exchange rates and fuel prices increased revenue growth by 10%. Excluding those macro impacts, revenue was at the midpoint of the guidance range we provided last quarter. Adjusted earnings per share was $5.35. An increase of 35.4% with 25.4% of that growth driven by the impact of fuel prices and foreign exchange rates. Excluding those factors, adjusted EPS was at the top end of the guidance range we provided last quarter. I will add that we restarted repurchasing shares during the quarter and brought back approximately $60 million in shares that added about $0.01 to Q2 EPS. Repurchases continued in July and through the 20th, we have repurchased another approximately $33 million. Moving on to margins. Q2 adjusted operating margin increased approximately 280 basis points, driven primarily by the increase in fuel prices in the quarter. Credit losses increased from 13.5 basis points to 16 basis points better than the range we have guided you to last quarter. Our expectations from here are that we will see year over year March improvement of more than 100 basis points in the back half of the year on a macro neutral basis as part of the plan to hit 75 basis points for the full year. And we have embedded that into our guidance. Let me now walk you through the segments. Starting with mobility. Which delivered a very strong quarter. Revenue increased 22% or 3.1% excluding FX and PPG. We are pleased to report that the BP portfolio was fully online this quarter following a successful migration. Lower late fee instances reduced growth slightly, by approximately 1%, we believe, due in part to changes in customer behavior. We found customers adapting their payment behavior in light of high fuel prices that resulted in larger invoices. Overall, this behavior change was more than offset by the significant fuel price tailwinds in the quarter. Continuation of this behavior is contemplated in our guidance and we expect it to be offset by both planned second half pricing changes and continued momentum in the business. We are also encouraged to report that payment process processing transactions were flat year over year and increased 6.8% sequentially. Which is another encouraging indicator of improving activity in the underlying segment. Touching on credit performance, credit losses were better than we expected. We plan for loss rates to decline throughout the year, and we are seeing that positive trend slightly faster than we expected. As a reminder, Q2 includes provision increases due to the higher fuel prices driving higher loss dollars per instance. To close mobility, we are very pleased the results we delivered this quarter. We are also encouraged to see the supply side recovery taking hold in the trucking sector. This has increased trucking spot rates, has helped truckers manage the impact of higher fuel prices while also helping revenue in our factoring business and credit overall. However, as the supply side has improved, the demand side which impacts our volumes, is still constrained by broader economic conditions. We remain focused on executing on the things we can control and are well positioned to benefit from the future demand side recovery in the trucking sector. Sector. Our benefits segment, total revenue of $206 million rose 5.6%, reflecting the strong open enrollment season Melissa mentioned earlier. Overall, SaaS account growth was 2.2% in the quarter, in line with expectations and reflecting a difficult comparison as we lap the addition of the large UAW portfolio in the second quarter of last year. Along with the impact of the previously disclosed Q1 account closures which were immaterial to both revenue and income. The benefits segment continues to capitalize in both the scale we have built and the value derived from our investment portfolio at WEX Bank. Which allows us to deliver industry leading returns on our HSA assets. Average HSA custodial cash assets grew 11.1% in the quarter. And custodial investment revenue grew 11.4%. HSA accounts also grew 7%. Overall, we are very pleased with the performance of the segment. Moving on to corporate payments. Revenue of $125.1 million increased 5.8% at the high end of our expectations. With our net interchange rate expanding 5 basis points. Total travel volume increased 6.4% and we are seeing continued strength in our travel customers despite the uncertainty associated with higher fuel prices and the Middle East conflict. Segment purchase volume declined 3.6% primarily due to quarter to quarter timing of travel volumes from a large OTA customer. As a reminder, 2 thirds of revenue from our travel business sits outside of our top 5 OTAs. Beyond our travel business, we continue to see healthy pipelines from both our nontravel embedded payment and direct AP businesses. Growing these products is part of our strategy to accelerate growth by expanding our reach into new markets. As Melissa mentioned earlier, volume growth in our direct AP business reaccelerated to 20% this quarter and is expected to continue to grow in the mid teens for the remainder of the year. Direct AP today contributes approximately 20% to segment revenue. With that, let me transition to the balance sheet. WEX is a business that generates strong recurring revenue which in turn produces reliable free cash flow. On a trailing 12 month basis, we have generated $696 million of adjusted free cash flow a 22% increase. Our ability to generate strong cash flow across market cycles gives us significant capital deployment capacity. We also benefit significantly from WEX Bank, which provides low cost funding through deposits and federal home loan bank lines. it is important to note that the bank gives us lower cost of funding versus alternatives such as securitizing our receivables. In addition, as we have mentioned before, WEX Bank also helps us drive higher yields in our HSA assets through its investment portfolio. Touching on leverage, we closed Q2 with a leverage ratio of 2.9x, placing us inside our target range of 2.5x to 3x. Let me add a few points to what Melissa talked about earlier regarding capital allocation. A focus of every investment decision we make at WEX. Each step of our disciplined capital allocation process is grounded by a clear objective to maximize long term shareholder value and every investment decision we make is weighed against returning capital to our shareholders. Including internal investments in our segments. As Melissa noted, we expect to return the vast majority of our adjusted free cash flow to shareholders in the near term through share repurchases. We believe this is currently the best use of free cash flow we are generating after organic investments. To be clear, we remain committed to operating within our 2.5x to 3x leverage range target given the strength and durability of our cash flow and we will continue to apply a returns based rigor to our share repurchase act activity. Should market conditions notably change, we will adapt our strategy accordingly. Now let's move to earnings guidance for the third quarter and the full year. In Q3, we expect to generate revenue in the range of $733 million to $753 million. We expect adjusted net income EPS to be between $5.45 and $5.65 per diluted share. For the full year, we now expect to report revenue in the range of $2.86 billion to $2.9 billion. We expect adjusted net income EPS to be between $19.68 and $20.08 per diluted share. Compared to the midpoints of the previous ranges, these represent increases of $32 million in revenue and $0.63 in EPS. These increases are largely driven by the outperformance in Q2 share repurchases in the quarter, and higher fuel price assumptions for Q3 and the full year. On the interest rate side, we are not assuming any changes for the rest of the year. On an ex macro basis, we are expecting to exit the year within our long term organic revenue growth range of 5% to 10%. Lastly, consistent with our past practice, we are not factoring the impact of share repurchases beyond Q2 into our guidance. As I noted, we expect to return the vast majority of adjusted free cash flow through the through repurchases in the near term that would provide an additional tailwind to EPS in the back half of the year with the magnitude depending on timing. In closing, we are pleased with our performance in the second quarter and momentum we are seeing across the business. As we enter the second half of the year, we remain focused on disciplined execution, thoughtful capital allocation, and continuing to drive long term value for our shareholders. With that, operator, please open the line for questions.
Operator: At this time, if you would like to ask a question, press star. Then the 1 on your telephone keypad. To withdraw your question, simply press 1 again. Your first question comes from the line of Sanjay Sakhrani with KBW. Please go ahead.
Sanjay Sakhrani: Thank you. Good morning. Melissa, maybe you could talk a little bit about some of the green shoots we see in the trucking indices like the CAF freight index?
Melissa D. Smith: I know, Jagtar, you mentioned you guys saw some improvement there. But maybe you could just talk about how that is progressing and if that is been factored into your expectations for the year? Sure. Thanks, Sanjay. If you look across the business, 1 of the things that I want you to keep in mind is our over the road business.
Analyst: We represent the whole segment. So really large over the road customers, as well as some of those mid market businesses. And so what we have seen is this really nice recovery on the supply side. And we talked about the fact that there is been an oversupply in the space, and that is really worked its way through. And so what we are seeing is that the larger customers in our base are benefiting from that because their picking up valuing from some of the people that have left the marketplace. But overall, we are not seeing more miles driven. So the way that is coming through in our business right now is that it is a pickup in rates, particularly in the factoring business, is a, you know, really small part of what we do. Better credit losses, you know, are flowing through, which is a combination of the work we have done on the risk side, but also the fact that we are seeing, you know, better quality customers in the marketplace. But we are not seeing that impact volume. And so as we have given our guidance for the year, we have assumed that this kind of macro state that we are in right now, that is gonna continue through the end of the year and that we are not gonna see a rebound And since the extent we do, then that is upside to us.
Sanjay Sakhrani: Okay. Great. Thank you for that clarification.
Analyst: And then that is great news on the buyback.
Jagtar Narula: I am just curious, maybe, Jagtar, you can help in terms of free cash flow conversion. Like how should we think about if sort of free cash flow is a marker for how much you would consider buying back?
Sanjay Sakhrani: Obviously, to delever as well. Maybe you could give us some sense of what those numbers look like as we progress annually. Thank you.
Jagtar Narula: Yeah. So we typically generate around $600 million to $650 million of free cash flow annually, Sanjay. A little bit more weighted to Q2 through Q4. And it generally closely tracks adjusted net income. So that is the right way to think about it.
Sanjay Sakhrani: Okay. Wonderful.
Jagtar Narula: And then as far as, like, delevering, like, what would your needs be in terms delevering from here? Thanks. Yeah. Like I said in my prepared remarks, the vast majority of our adjusted free cash flow is going to go to share buybacks. We will use a modest amount for deleveraging. And really there, what we are doing is we know fuel prices are in elevated state right now. We know that they are going to decline. And so we just want to do some slight deleveraging so we are in a position to continue buybacks as fuel prices come down. But the vast majority will really go towards buybacks.
Sanjay Sakhrani: Okay. Great. Thank you so much.
Operator: Your next question comes from the line of David Koning with Baird. Please go ahead.
David Koning: Yeah. Hey, guys. Thanks so much. In the corporate payments business, you know, the vast majority of revenue driven by volume and yield. Volume was down 4%, like you mentioned, but yield was up really nicely. Just wondering I think we are past a lot of the volume headwinds or the client headwinds from past. So it seems like we are in a normalized environment, I believe. But does the volume get better then maybe what happens with the yield in coming quarters just so we kind of understand the balance?
Melissa D. Smith: Yeah. So there is a couple of things that are happening within the quarter. We talked about 1 in the prepared remarks that we had 1 of our larger OTA customers that, we know, and we feel very confident on the volume of the year. But they moved some of the volume from the second quarter into the second half of the year. So some of that is just timing. The second 1, we talked about another contract that is been in place for a while that we are getting paid minimum. Especially with that. So that is affecting volume as well. Those 2 things combined, you know, had about a 5% impact in volume from what would have been normal for us in the quarter. And what we benefited from we do not talk about this a whole lot, but 2 thirds of our travel business are in revenue. Are customers that are outside of the top 5 OTAs. And so we have gotten, you know, a benefit from just great mix as a result of, you know, who is spending in the course of the quarter. And that I would encourage you to look at total volume too, not just look at funded volume because we have had more of the business move into that unfunded model. You know, the way that we are tracking about it is thinking about it in totality.
Analyst: Gotcha. Yeah. And then just a yep.
Jagtar Narula: Just to add a little bit. So from a rate perspective, we would expect you know, because as we expect volumes to increase in the back half of the year, purchase volumes, you know, we will see kind of high single digit to low double digit rates. And that we would expect the rate to dip slightly as a result of predominantly mix as, we move more embedded and more travel customers. So we get more travel volume in the third quarter that affects rate and volume will affect rates. that is really mix related.
Analyst: Gotcha. Yeah. that is no. that is good to hear on volumes.
David Koning: And then as my follow-up, just in mobility, growth was stable on a constant macro basis, but BP helped a little. So underlying, it seems like slightly decelerated So maybe just talk through that. And then in the back half, it seems like you probably get a 2% lift or reacceleration from pricing just based on the 15 million you described. Is that all about right?
Melissa D. Smith: Yeah. Let me start. I am sure Jack wanna pile in here too, But if you look at the business, and you are talking about it sequentially, also look at transaction growth. We went from negative 2% to just slightly positive in the quarter About half of that was related to BP but the other half was related to the pickup that we are seeing from the investments that we have made. So we are seeing that actually translate into incremental volume growth The revenue, as, you know, was talking about, was impacted based on late fee behavior. Sequentially. So as fuel prices went up, we saw our customers pay more frequently. Those customers who tended to be slightly late paid on time, and that had a couple of point negative impact on the segment for the quarter. I mean, Jagtar said this early, but overall, if you think about you know, we have we are a net benefactor of what happened with fuel prices. So yes, we have this thing. it is been on customer behavior, but overall, we had a really big positive within the segment, which allowed us to buy back stock sooner.
Analyst: David.
Jagtar Narula: Just to just to add in here is the way to think about it. So just to, you know, what Melissa said, you know, the late fee was about a you know, 1% drag to the total company, 2% to the segment. From what we would have expected on a normalized basis and impacted by fuel prices. And the way to think about it is if you look at late fees in the second quarter of last year, which is the quarter of this year, fuel prices increased about 40% to 45%. And, you know, our late fees are really pegged off of fuel prices, so you would have expected as a starting point a comp you know, comparable increases in late fees. And the delta between what we saw and you know, actuals is really the instance drive that we saw.
Analyst: Yep.
David Koning: All good. Thanks so much. Thank you.
Operator: Your next question comes from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.
Tien-Tsin Huang: Hey. Thanks so much. Nice to talk to you guys. Just on the comment on accelerating organic growth to exit the year at 5% to 10%, can you just go through the visibility into that? David did mention it. It sounds like pricing is a piece of it. What are the other big factors to that? Acceleration?
Melissa D. Smith: Sure. Sure. Think it is an important question, so thanks, Tien-Tsin. If it we have done a number of things, and so we are really thinking about all the high quality actions that we have taken throughout the course of this year that we think are going to continue to pay dividends as we roll through the year. Now first of all, in mobility, you talked about 1 of those things, is pricing. So we have put in place already notified customers of some pricing actions that we are gonna make which will bring $15 million in the second half of the year. In addition to that, we have stabilized the volume trends you know, in part because we are seeing the benefits of the investments we have made coming through in new sales. We have got the BP conversion that is coming through. And so all of those things you know, are leading us to have confidence within what is happening with the mobility segment issue. As you go through the course of the next 2 quarters. And then within corporate payments, in the places we have been making investments, which are the embedded payments outside of travel and AP Direct, we are seeing really strong growth and our pipelines and embedded payments, and those are starting to convert into revenue as well as really strong volume and revenue growth in our AP Direct offerings. Those are gonna become a bigger part of the segment, and we will continue to build over time. So we feel really good about what we are doing there. And then benefits so far, you know, still early, but, the pipeline for 2027, continues to look really healthy. And we take all of those things, you know, give us a lot of confidence around how we are gonna exit the year and be in that 5 to 10% range. And the fact that it is coming from you know, across all 3 segments, And then I think on top of that, you are starting to see the just scale that we have. You know, we had talked about this year being a scaling year. And you are starting to see that operating leverage coming through. And that allows us to compound know, this incremental revenue growth that we are seeing with earnings leverage You combine that with the fact that we have got ability to buy back stock. it is it is really exiting near in a in a pretty good spot.
Tien-Tsin Huang: Perfect. I know, mostly, you have been focusing on organic growth. You said you mentioned leverage. So my second question was on just the incremental margins in that corporate payments business. It was quite high there. I heard some of the details of the direct AP, etcetera. But anything unusual that is driving that step up in the incremental margin in the second quarter? And how should we consider second half? Because it does seem like it is it is running on the on the higher side margin wise.
Melissa D. Smith: Yeah. it is it is yeah, it is really strong. So 2 things happened in the second quarter. The first was the fact that and we have talked about is we see incremental volume coming through that actually is a positive, and we saw rate positivity, you know, particularly in this quarter. that is flowing through. it is it is really high drop through. And then on top of that, we had some credit losses a year ago that is giving us a benefit when you are looking year over year in the in the comp. But we do expect to continue to have strong margins through the rest of the year.
Tien-Tsin Huang: Alright. Terrific. Thanks for the update.
Operator: Your next quest comes from the line of Nate Svensson with Deutsche Bank.
Nate Svensson: Hey. Thanks for the question. Nice to hear about the pricing in mobility. I did want to ask on another topic within that segment. I think in the prepared remarks, you were talking about the 120 thousand customers that have seen proactive credit limit increases due to higher fuel prices. I was wondering if you could talk more about the credit box maybe beyond the of the fluctuation in fuel prices. Is there more opportunity to continue to expanding the credit bar box regardless of how fuel prices trend? Is there enough positive momentum in the health of your end customers, or is there more you need to see before you start the contemplate that?
Melissa D. Smith: There are 2 pieces of how that we are thinking about that. The first for us is when I talked about this kind of automated tool that we have, this AI tool, What that is doing is going through and extending higher credit to the highest in the credit quality customers that we have. And so it is it is really connected into our risk models and going through the mechanics of increasing credit lines when you see these big fluctuations in deal prices. And the reverse is true. You would we would see a declining in fuel prices. The second part is more of the art where our risk teams are working with our commercial teams to more surgically go through and extend credit and that is an active engagement that is happening. And it is really tied into ultimately, the financial models. So as we are bringing in, we are we are monitoring how each of those portfolios performing. that is feeding back into the marketing tools that are deciding which customers we wanna go after. But also in the credit decisions we are making. So I that is a long winded way of saying, immediate easier parts, we did very quickly, and the next level of changes we have been working through systematically across the portfolio.
Analyst: K. Understood. Thanks, Melissa.
Nate Svensson: The other question I had was just on direct AP volumes So it is nice to see growth reaccelerate there to 20%. I think you mentioned the expectation for maybe mid teens for the rest of the year. So maybe 2 questions around direct AP. So 1, just kind of a qualitative update on some of the success you are seeing there. Kinda where you are winning accounts maybe outside of travel like you were talking about, where you are gonna keep investing, etcetera. And then the second part of that, maybe more for Jack I think some of the slowdown in growth that you had seen the past couple of quarters was related to lapping some seasonal volumes from larger OKR customers that are within the direct AP. So wondering if you can kind of disaggregate what is what of that reacceleration is coming from better underlying growth the lapping dynamics? Any help there would be helpful.
Melissa D. Smith: Sure. Sure. So we had when we put our guide out at the beginning of the year, we said we expected to have that mid teens growth in volume with our AP direct product. And so we are we are essentially saying the second half of the year, we are we are gonna continue with that expectation. If we the places that we are seeing benefit, you know, first, kudos to our sales team. I think they are doing a great job out there bringing new customers, but we also have been using a tool that helps us. it is an AI based tool that helps us lead generation. We piloted that in our corporate payments business it is been going really well, and we are starting to roll that out through other parts of the company. that is a piece of, you know, the success we saw in the second quarter as well as we are doing an even better job of identification of leads. Would not say that, like, there is any particular vertical in that offering because what we are doing is fulfilling an AP file on behalf of our customers, kind of the part of what we are able to do is make that offering to pretty much any type of customer. And so we have not had a vertical specialist across the places that we are selling. On the embedded payment side, though, that we tend to have more vertical that we are going after. And in particular, we have been looking at other fintechs as well as people who are in need of making a payment is kind of a subsection of their business. It may be part of their business model, or it could be something that they wanna increase financial benefit by adding it into their business model. And so that tends to have a little bit more of a vertical focus and in particularly with the with the fintech community.
Operator: And then, Nate, on the second part of your question, So I would say the split on the growth that we are seeing in the DirectAP business was split Roughly 1 third of the growth is coming from OTR, and 2 thirds is coming from new business.
Jagtar Narula: On the OTR side, you are correct. We saw, you know, a little lightness last year We have seen kind of spend acceleration, volume acceleration from a couple of big clients. So that was that was a good outcome in the quarter. And then as you recall, we have invested in new business development. We hired more sales people last year, and they have you know, they have ramped up over the course of last year and into this year. And we have seen good new business generation coming out of that ramp. And that is that is really what is the other 2 thirds of the growth year over year is. So we are we are quite pleased with that because that is coming in at very good volumes, very good rates. And as you saw from the credit loss results, very good performance metrics that is dropping through off the bottom line.
Nate Svensson: Nice to hear. Thanks, Melissa. Thanks, Jagtar.
Operator: Your next question comes from the line of Madison Suhr with Raymond James. Please go ahead.
Madison Suhr: Hi. Good morning. Appreciate you taking the questions. I wanted to start in the mobility business just at a very high level. I am curious, are higher fuel prices driving any acceleration in this sales pipeline for fuel cards, particularly for SMB customers who may be looking to try to offset higher fuel costs historically have not used fuel cards?
Melissa D. Smith: Yes. Interesting question because we have not seen a high correlation between those 2 things. The 1 place that we are seeing much more demand is we have talked about our TenFour product that is in the marketplace. And so TenFour allows the owner operator that, you know, tends to be smaller fleets access to our discount network. And that has certainly, you know, benefited from interest of those type of customers that are looking for fuel discounts. But in general, I would say the products that we have outside of TenFour work in pretty much any environment. So there is a slight uptick But you know, as steel prices have been lower, we also see demand So there really is not as much of a correlation as you might expect.
Madison Suhr: Okay. Interesting. And then just a follow-up. I did wanna ask on the large OTA customer that went through, you know, business model transition. Obviously, we have lapped those changes for a few quarters, and that customer now sits outside of purchase volume. But I was hoping you could just touch on how that relationship is progressing and maybe any high level color you can give in terms of how you are growing with that customer now that the business model transition has occurred. Thank you.
Melissa D. Smith: Sure. Sure. Do we have a great relationship with that customer. it is 1 of the places where we have been working with them we had talked about this a year ago, but we have been actively working on other areas of the world where they have end needs that we can establish the-- the compliance requirements to actually issue and settle in those countries. And so we have been actively working together in Brazil as 1 of those examples. In addition, we have been looking at other places in within their model that we can meet their needs and have found some of those areas. So I would say overall, it is been a real, you know, partnership in the in the respect that it continues to support their base needs, but in look for places where we can actually provide services that are helpful to them. And we have we have seen some of the benefit of that come through.
Madison Suhr: Okay. Appreciate you taking the questions.
Operator: Your next comes from the line of Michael Infante with Morgan Stanley. Please go ahead.
Michael Infante: Just wanted to ask from a competitive perspective, what are you seeing with respect to your key competitor that has seemingly been targeting some of your middle market customers? And then secondly, as full service suite management companies increasingly expand within the middle market, how should we be thinking about any potential impact on unit economics and where you sit relative to the fleet management company and how that might impact take rates?
Melissa D. Smith: Sure. Sure. Yeah. So I would describe this has been a competitive environment for you know, a long time. It the places that we really emphasize is around our closed loop proprietary network, and what that enables us to do is create higher quality tools for our customers and manage misuse, help them optimize the decisions that they are making. You know, it is part of what we are leaning into with this new AI product that we are putting into the marketplace that we have in a beta. Form right now. And if you look at where we sit, we have a lot of customers that sit in that very large end of the marketplace. We have quite a few in mid market, but, also, if you look across our portfolio, we have a number of small accounts and like, on average, our customer is about a 15 vehicle fleet. And, you know, some of that comes through. The relationships that we have with our with our cobranded partners. And so we see competition kind of across all those categories including the mid market. We have been keenly focused on retention in that space. Continuing to grow in that space, as well as growth in the small end of the marketplace, which we have seen come through, and it is part of why you are seeing a pickup sequentially in our transaction volume is the fact those places where we have been paying attention have been yielding positive results.
Analyst: Helpful, Melissa.
Jagtar Narula: And then, Jagtar, maybe just a quick follow-up for you on the benefits business. The average SaaS account growth is around 2%. I think when I sort of back out the UAW drag and sort of how you were previously communicating that segment. I guess, that sort of in line with your expectations? I know there is a competitor that is obviously investing heavily in the partner channel that was acquired recently. So I am just curious what might be impacting account growth beyond UAW, and if you expect that 2% figure to accelerate throughout the balance of the year. Thank you. Yeah. Thanks for the question, Michael. So it was in line with our expectations. So there was a couple of things I think we communicated last quarter. The first 1 was the UAW point that you mentioned, and that was about 150 basis point quarter over quarter drag in account growth. And then we also talked about the closure of some low value accounts that we closed. I think I said something in my prepared remarks. That really did not impact revenue, but it did not impact the account number. That was about a, you know, a 200 basis point drag as well. Once you net those things out, account growth really did do what we expected. Now we generally expect, you know, accounts to increase, you know, modestly. Over the course of the year. So we will see some increase both on an absolute and a slight percentage basis. And then, you know, obviously, we are busy in the selling season getting ready for the open enrollment period for next year.
Operator: Your next question comes from the line of Mihir Bhatia with Bank of America. Please go ahead.
Mihir Bhatia: Good morning. Thank you for taking my question. I wanted to start with Mobility. Look, I hear you that trends have improved, and you see that, right, in mobility, whether you know, transactions, local, wait, OTR. The trends are certainly improving. Yet, you know, mobility volumes, I think it generally remained a little below what some of the external trucking metrics or indicators would suggest. You talked a little bit about supply side looking better and demand side improvements still to come. I guess, for a would like to understand is, is there anything beyond that? Are there any specific weaknesses in certain sectors customer segments where you may be a little over indexed versus what, like, some of the bigger indices would be reporting Just trying to understand that discrepancies a little bit more. And, really, what I think a lot of people are trying to understand is, do current trends reflect only end-market weakness Or is there fair movement story under the hood? Like, to put it bluntly, like, is WEX gaining share, holding share, or losing share in mobility today?
Melissa D. Smith: Yeah. Yeah. that is a good question. And let me talk about the over the road business because you are kind of-- you are zeroing on that. In the over the road business, what we have seen is and, again, I will I will point back to we do business across many different segments in the over the road space. it is not just kind of the large accounts. And so what we have seen is that those large accounts are benefiting from the fact that you have had more supply leave the marketplace And so, again, health care and even with the smaller customers, spot rates have improved, and so that customer base is healthier than it has been What we are not seeing is on the demand side, across more miles driven, meaning that you know, housing starts and manufacturing numbers and all the things that actually drive you know, total goods getting moved. Has not improved, and so we are not seeing that translate additional volume. But what we do is look across that portfolio compared to in this case, there are a few people that control the truck stock networks. Where people fuel. And so we have some pretty good insight in what is happening to our volume trends compared to those, and we feel very confident that we continue to take market share in that space. In the North American mobility business, we continue to see some same store sales weakness. That, you know, it is I would say it is, you know, pretty consistent, sorry, across the portfolio. And so the fact that we are you know, seeing benefit of new customers coming in is largely getting offset by a combination of those same store sales weakness and just normal attrition that we see across the portfolio? So, you know, net of all, how I would say across the business, we feel, you know, really confident, and we have much more insight in the over the road space that we are actually continuing to take market share.
Mihir Bhatia: Got it. Thank you. that is quite helpful. Maybe clicking gears a little bit to margins. I think you called out 100 basis points or more than 100 basis points of macro neutral margin? Expansion in the back half. You have also talked about the growing, you know, AI driven efficiencies across the organization. Maybe just pick up step back and take a little bit of a big picture view, maybe couple of years down the line, know, as you look beyond 2026? Do you see a path towards a structurally different margin profile for WEX? Over the next several years? Like, are we gonna continue to see continued margin improvements? From here?
Melissa D. Smith: it is a great question. And 1 that we talk about a lot. If you look at our headcount actually over the last few years, we are actually down in FTEs since 2023. So, you know, we have grown revenue, and we have actually reduced our number of employees. And so we continue to believe that there are ways that we can use AI to create margin expansion across the enterprise. And we have seen the benefit of that so far in our development and product teams. We have been really proactively working across our operations areas which are places that we do believe that you can create even better customer experiences at lower cost. And we have got some pretty good evidence of that, although a lot of those are still in early stages. And so we do believe that there is benefit that is already accreting into the margins that we are we are projecting this year. And we will continue to accrete into the future. So yes, we do believe that will be a big part of the margin expansion story that we are gonna have going forward.
Mihir Bhatia: Thank you for taking my questions.
Operator: Your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.
Darrin Peller: Can we just clarify a little bit more on the mobility segment for a minute? Just to follow-up? I am trying to understand what the puts and takes are versus first quarter specifically. I understand you saw about a 2 point headwind to revenues from lower than expected lead fees. But just from our math, looks like year over year revenue growth decelerated to sequentially excluding late fees. Even with some of the transaction growth accelerating a little bit. So was this just because of less miles, the less miles driven dynamic? Or any other color would be helpful.
Jagtar Narula: Yeah. Darrin, really, it as I mentioned earlier, I mean, it really was latency driven. Late fees was a sort of 2 point drag to the segments. So if I look at what we got out of the second quarter, you know, 3 points of growth, about a point of it was pricing, a point was BP, and a point was sort of underlying growth in the business. So the underlying growth was kinda doing what we expected, and really the drag the drag came out of out of late fees.
Analyst: Okay. Alright. We will have to follow-up a little more on it.
Darrin Peller: Alright. And then just when we look at the corporate payment side, I just wanna ask you more of an industry dynamic. You know, virtual card acceptance, obviously, it is become a larger debate. Just changes by Meta and Amazon. Any other, any broader changes in acceptance behavior you are seeing Is there any potential impact embedded in your outlook for this, or does it even need to be Just maybe a little bit more color on the underlying dynamics and drivers of the of that piece of the business? Thanks, guys.
Melissa D. Smith: Yeah. So this has been an it is been an industry conversation for a number of years. We do see in very small parts of our business where you have issues with vendor suppression. And that is been true, you know, for a long time. it is it is a minor to us compared to other companies in part because, you know, a lot of the application where we are using virtual card payments are to merchants that are quite accustomed to receiving a credit payment or debit payment and depending on the case. But they are used to paying interchange. And so for us, the places that we will see it, we have a smaller bill pay business. Come through there occasionally. We also see it occasionally with our AP direct business. It is something we have factored into our guidance. it is not it is not for us been a big headwind in any given period of time. I think that has as much to do with type of customers that we have in the in the mix within our portfolio.
Darrin Peller: Okay. Alright, guys. Thank you very much. Thanks, sir.
Operator: That concludes our question-and-answer session. I will now turn the call back over to Pedro Alvarez for closing remarks.
Pedro Alvarez: Thank you. We would like to thank everyone for your time and participation in today's call. I am available afterwards for any questions you may have that we did not get to. You very much, and have a great day.
Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
