WEX - NYSE

Hello, and welcome to the WEX Fourth Quarter and Full Year 2024 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. [Operator Instructions] I would now like to turn the conference over to Steve Elder, Senior Vice President of Investor Relations. You may begin.

Thank you, operator and good morning everyone. With me today is Melissa Smith, our Chair and CEO; and Jagtar Narula, our CFO. The press release we issued yesterday afternoon and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. New this quarter, we have also posted supplemental materials, which include detail around our performance, to assist investors with understanding our results. A copy of the press release and supplemental materials have been included in an 8-K we filed with the SEC yesterday afternoon. 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 Exhibit 1 of the press release for an explanation and reconciliation of these non-GAAP measures. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and the indeterminate amount of certain elements that are included in reported GAAP earnings. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the supplemental materials and the risk factors identified in our most recently filed annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q and other SEC filings. While we may update forward-looking statements in the future, we disclose any obligations 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'll turn the call over to Melissa.

Thank you, Steve and good morning everyone. We appreciate you joining us today. Before we dive into our results, I want to highlight a new resource we've introduced for investors. As Steve mentioned, we posted a supplemental materials document in the IR section of our website and filed it with the SEC yesterday after the market closed. This document consolidates key quarterly disclosures and commentary, providing details to better understand and analyze our performance, while allowing us to focus this call on strategic and forward-looking priorities. We plan to provide these supplemental materials quarterly moving forward. I encourage you to review the document at your convenience. With that, let's move into our quarterly and full year performance. Let me start with the full year results. Revenue of $2.6 billion for the year was a record high and grew 3% compared to the prior year, despite a headwind of 3% from fuel prices and foreign exchange rates. Adjusted net income per share grew 3% year-over-year. Excluding the impact of lower fuel prices and foreign exchange rate differences, revenue grew 6% and adjusted net income per share grew 11% year-over-year. Now, turning to the fourth quarter results. We delivered revenue of $637 million for the quarter, a decrease of 4% year-over-year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q4 revenue was flat with the prior year. Adjusted net income per diluted share was $3.57, a decrease of 6.5% compared to the same quarter last year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q4 adjusted EPS grew 5%. Taking a few steps back from our reported results, I'm excited to take some time to discuss actions we've recently been undertaking to accelerate growth. I'll also share our perspective on where the business stands today and where we're headed over the next few years. Since our founding, we've been helping customers and partners of all sizes simplify the business of running their businesses, giving them the ability to streamline operations and optimize workflows, so they can focus on what matters most. With WEX, customers grow their business, save time and build confidence. With worldwide business spend measuring in the trillions of dollars, combined with continued technology innovation and the relentless focus by businesses on efficiency, we are in an exciting segment of the economy with strong growth prospects. Furthermore, in addition to the strong sector tailwind, WEX, at its core, is a great business. We have a long trajectory of growth, exceptional margins, and we generate strong cash flow. Underpinning our business is an impressive set of technology assets. However, our growth has slowed in recent quarters. Certainly, macro factors such as fuel prices, FX rates and the trucking recession in our Mobility business have negatively affected our growth. And we also saw pressure from one-off factors, such as the contract renegotiation with a large travel customer and the loss of a Medicare Advantage customer in the Benefits segment. While these external factors impeded our near-term growth rate, we would be remiss to ignore the factors that were within our control. We have deeply examined the reasons why recent performance has fallen short of our target. One conclusion from this review is that our portfolio of software assets and payment processing capabilities and untapped potential, where we can accelerate growth. This is especially true in the Corporate Payments segment, where we have experienced more volatility in growth. By addressing the untapped potential with increased and targeted investments, we believe there is tremendous opportunity to strengthen our competitive position and accelerate our revenue growth moving forward. We also believe that despite our healthy investments in a highly effective sales and marketing organization, the size of the markets we sell into presents an opportunity to do more, and we're addressing this with renewed energy and additional investments. As a result, we have already begun adding additional sales and marketing resources to areas we feel are both strategic and a high growth potential. In all segments, the payback periods are 2 years or fewer, and there was a strong LTV to CAC. To be clear, these growth acceleration actions stem from our view that our currently reported growth rates do not match the scale of our ambition, the capabilities of our team or the opportunity in front of us. This is a very important issue to me personally. With that said, we're adjusting our long-term organic revenue growth target from 8% to 12% to the 5% to 10% range to reflect updated market insights. In addition, as a result of the change in our organic revenue growth targets, we are also updating our long-term adjusted earnings per share target to a range of 10% to 15%. We believe these updated long-term ranges consider the current state and trajectory of the markets we operate in, while also reflecting our opportunity to remain highly competitive with our product offerings. Recognizing that it will take a bit of time for our investments in product and sales to bear fruit, we expect our reported results will be below these updated targets this year. I'll walk you through some of the additional investments we're making to accelerate our growth, many of which are fully underway. Let's discuss the details of these initiatives by segment. In Mobility, we're very competitively positioned with strong moats. We have a closed-loop network in the US, covering more than 90% of all fuel locations and 80% of all charging locations. We own the entire technology stack, and we have WEX Bank as an integrated engine to handle all of the funding and compliance associated with issuing. We also have a strong market share with broad distribution capabilities. We expect to see continued growth as our solutions extend deeper into the market, we're also focused on new product initiatives that we believe can help infuse growth in this segment over time. 10-4 by WEX, which serves independent owner operators in our fleet plus offering, which provides extended network expensive beyond fuel to local fleets, are two of our most exciting new products. We also expect the migration to EVs to present opportunities to us to enhance our unit economics within our customer base, recognizing that the transition to EVs will take place over an extended time line. In addition, we've gained valuable insights from our experience with Payzer. While this asset has met the expectations we shared last year, we believe it has the opportunity to contribute even more. Over the past year, we gained deeper customer insights, enhanced sales tools and sharpened our cross-sell and go-to-market strategies to deliver effective and scalable growth in 2025. Turning to our Benefits segment. In 2024, we experienced a moderation in growth, largely reflecting an industry-wide leveling in the adoption curve for HSA-eligible plan enrollment. Despite this broader trend, our robust portfolio of assets, including benefit administration, consumer-driven benefit offerings and HSA custodial services positions us for market-leading performance while we continue to invest in strengthening our competitive position. We see a significant opportunity to unlock the next phase of growth by releasing new products and capabilities to drive greater engagement with consumers and employers. For example, as a record keeper of these HSAs, we can utilize our vast data set to create more tailored support, helping employees better understand, utilize and contribute to their accounts. By applying advanced technology like AI to our rich data assets, we provide consumers to make more informed benefit decisions, which in turn can drive higher participation, greater funding levels and stronger outcomes for employers, employees and WEX. We're actively investing in ways to capitalize on these opportunities, and we're optimistic that these efforts will accelerate growth over time in this segment. Now let's turn to the Corporate Payments segment. This is the smallest of our three segments, and growth was lower than historic trends in 2024, and we expect will remain lower in 2025. It is also a segment with a large addressable market where we have a lot of the right assets to win. While acknowledging this volatile performance, I'll spend a few minutes looking forward at our growth expectations. To begin, there are two key solutions that drive this segment's revenue. The first solution is our embedded payments offering, which began by serving the travel industry has now leveraged its capabilities to support a broad range of industries, requiring an integrated scalable payment solution. The unique combination of WEX Bank and our technology platform enables a one-stop seamless payment experience, with WEX handling the full spectrum of card management, banking services, compliance and settlement. We've been making targeted investments to broaden our corporate card capabilities, provide customers with greater flexibility in funding their accounts and enable broadened issuance and settlement in local currencies. We believe these advancements allow us to expand both with existing customers as well as increase our competitiveness and acquiring new business. Last quarter, we signed several new customers and grew our sales presence in order to accelerate customer acquisition for this product suite. Over time, we anticipate that our investments in our embedded payments product will deliver a substantial boost to our market share and transaction volume. While net interchange rates for this product will likely continue to decline as our customers and volumes grow, our scale, cost structure, and resulting economic model ensure that revenue growth will remain highly accretive to our overall margins. We also plan to leverage many of these same technology enhancements to improve the software product portfolio at our direct accounts payable business. With this product, we provide a software solution to mid-market corporations that are looking to digitize their AP payments. Since this solution is sold directly to the end customer rather than the white labels or wholesale to other providers, it possesses a higher net interest rate than what we received from our beta payments offering. The white space for this market is substantial, and we see an enormous opportunity for growth. Further, our investment in product development will maintain and enhance the strong growth this product has already achieved. Purchase volumes for this product has increased by more than 100% from 2022 through 2024, although off a relatively small base. The returns we achieved on our sales investments here are high and very predictable, and we're looking forward to making this a more meaningful portion of the WEX story in the coming quarters. Our corporate payments suite, spending embedded in WEX solutions, leverages a unified infrastructure that allows us to have the scale and economic model to profitably pursue wholesale volume, while also selling high-margin WEX business. With both wholesale and retail capabilities, we are well positioned within our industry. Taking into whole, we expect Corporate Payments revenue to contract slightly in 2025 due to foreign exchange rates and onetime headwinds that we previously discussed. We anticipate the decline will be in the first half of 2025 followed by a return to growth in the back half of the year. In 2026, we expect to reaccelerate growth as we lap these headwinds and continue to build momentum in embedded payments and Direct AP. Pulling this all together across our three segments, we've identified several key opportunities in our product portfolio where we can continue to elevate our capabilities and drive impactful outcomes. As I mentioned a few moments ago, the process to make this reality is already in flight, and we look forward to the benefits of bringing these new solutions to the market. We have the talent internally to build these products, and we are always on the lookout for assets we believe could accelerate our strategic objectives. The other leg of this growth acceleration process is related to our go-to-market investments. Our solution provides exceptional value to customers, as shown by our enviable retention rates. As a result, these concluded that WEX has an opportunity to further enhance our growth momentum by ensuring we're getting our solutions in front of more potential customers and converting them to WEX clients. Accordingly, we'll be stepping these efforts up to have more feet on the street to sell the portfolio of software and team and assets that we're enhancing. While these investments will impact our short-term profitability, as you will see in our 2025 guidance, we're highly confident that over a two-year horizon, that will deliver strong returns and position us for reacceleration during 2026, driving growth in line with our refreshed long-term targets. In closing, before I turn the call over to Jagtar, I want to reemphasize my confidence in the trajectory of WEX. We have significant business tailwinds as a result of the robust market sectors in which WEX operates. I also believe we have the right initiatives in place throughout the organization to drive strong performance over the long term. Across the enterprise, we're focused on winning new business, retaining and growing our existing customers and driving productivity in our cost structure. We continue to enhance and optimize our solutions in our portfolio while we invest in capturing new business. These exciting investments and growth opportunities are underpinned by a business with a solid balance sheet, low leverage, strong cash generation, exceptional margins, enviable customer retention and continued growth. We believe these characteristics are a recipe for shareholder value creation, and we remain committed to making that happen. With that, I'll turn it over to Jagtar to walk you through our financial performance and 2025 guidance in more detail. Jagtar?

Thank you, Melissa, and good morning, everyone. As Melissa mentioned, we started a new format this quarter in which we published supplemental materials yesterday afternoon that contain more information about our reported results and relevant KPIs, which we typically have addressed on this call to assist investors with better understanding and analyzing our results. Consequently, and in an effort to shift our focus on these earnings calls to our most strategic items, I will keep my remarks brief. Total revenue in the quarter was $636.5 million, which was down 4% versus last year. The impact of foreign exchange rates and lower fuel prices reduced revenue growth by 4.2% year-over-year. Revenue was slightly ahead of the midpoint of the guidance range we provided last quarter. Adjusted earnings per share was $3.57, down 6.5% year-over-year, including a reduction of 12% from lower fuel prices and foreign exchange rates. Adjusted EPS was also slightly ahead of the midpoint of the guidance range we provided in October. In our Mobility segment, revenue declined 1.4% during Q4. This includes an unfavorable impact of 7.6% due to fuel prices and foreign exchange rates. The softness in same-store sales that we called out last quarter persist began this quarter, but improved compared to Q3. Our payment processing rate of 1.36% was up approximately 10 basis points year-over-year, primarily due to the pricing initiatives we discussed all year. There was also some benefit in our payment processing rate from lower fuel prices, which was partially offset by the lower interest rates. In our Benefits segment, total revenues of $186.9 million, rose 4.9% on a year-over-year basis. The decline in growth rate from the first half of this year was due to lapping the Ascensus acquisition, which closed on September 1, 2023. SaaS term growth of 2.5% was in line with recent industry trends when adjusted for the loss of a Medicare Advantage customer at the beginning of the year. This is the final quarter that this will be an issue. Custodial investment revenue, which represents the interest we earn on the cash balances we hold for our custodial clients, rose 17.9%, and was nearly $210 million for the full year. Despite the fact that Fed lowered interest rates late last year, this interest income line has remained fairly steady, since nearly 80% of investments in deposits are in fixed rate instruments. Turning to our Corporate Payments segment. Revenues of $104.3 million declined 22.7% year-over-year, which was in line with our expectations. There are several moving pieces to the segment results this quarter. First, purchase volume declined on a year-over-year basis, in large part because of the contract renegotiation that we have discussed in prior quarters, which has progressed in line with our expectations. Second, two larger customers had temporary volume reductions in the fourth quarter, which were largely in line with expectations. In both cases, annual volumes increased while Q4 was down. We feel confident in the value of our offering and our competitive positioning with the customers. In fact, we’ve recently signed a contract extension with one of them. But I would point out that volumes can swing from quarter-to-quarter. Third, the prior year benefited from a drop of approximately $8 million for incentives we received from the schemes, which did not repeat this year. Finally, on a positive note, I'd like to call out that our direct purchase volume, which includes our AP automation solutions, grew more than 25% from Q4 2023 to Q4 2024. This is one of the key focus areas that Melissa discussed earlier, where we plan to invest more in the future. Let me transition now to the balance sheet. Our balance sheet remains strong, and our leverage ratio of 2.6 times was once again at the low-end of our long-term range of 2.5 to 3.5 times. This gives us important flexibility in how we optimize our capital structure. During the fourth quarter, we returned $106 million to investors, and we spent an additional $40 million on share repurchases in January. We remain open to both share repurchases and strategic M&A and will consistently approach all of our options with an eye towards generating the greatest long-term return for our shareholders. Turning now to guidance. Like Melissa mentioned, as part of these growth acceleration actions, we are making significant investments in new product development and in sales and marketing. We will pay for some of these increased investments through efficiency measures and temporary cost actions across the business, but the amount that incremental investment we're making will exceed these cost reduction measures. As a result, you should see an approximate $25 million increase to our sales and marketing expenses, in addition to the natural expense growth in the business. Melissa also mentioned that we are adjusting our long-term organic revenue targets that had previously been in the 8% to 12% range to a more sustainable 5% to 10% range. Additionally, we are updating our long-term adjusted earnings per share target to a range of 10% to 15%. These ranges exclude the impact of changes in fuel price, foreign exchange rates and interest rates, as well as any potential acquisitions. We view this range as in line with the market growth of the segments and products we compete in. We expect 2025 will be below this revised long-term range as we ramp up our investments and focus on our new product initiatives. Now, let's move to 2025 revenue and earnings guidance for the first quarter and the full year. Starting with the first quarter, we expect to report revenue in the range of $625 million to $640 million. We expect the adjusted net income EPS to be between $3.35 and $3.50 per diluted share. For the full year, we expect to report revenue in the range of $2.6 billion to $2.66 billion. We expect adjusted net income EPS to be between $14.65 and $15.25 per diluted share. There are many assumptions that go into guidance at the beginning of the year, which we have included in our supplemental materials. In closing, we're enthusiastic about the changes we're making. While we expect our near-term revenue and earnings growth will be below the long-term aspirations we have for WEX, we strongly believe that these investments will help WEX realize its full potential, generating long-term returns as they take hold. With that, operator, please open the line for questions.

Thank you. [Operator Instructions] Your first question comes from Sanjay Sakhrani with KBW. Your line is open.

Thank you. Good morning. I guess, I'm just trying to get a little bit more color on the long-term outlook change. Melissa, maybe you could just build up a little bit by segment what your new expectations are by segment? And then do you feel like early in the long-term, target range, you could do better than what you're expecting post this year? Maybe you can just talk about that.

Sure, sure. I actually, just to be direct, when we set the 8% to 12% organic guide, we thought that was proper at the time. And the context of the market has changed, I'd say, primarily in two areas. First, within travel, we have seen great penetration within our travel customer base and the return to normal within our travel customer base, which still represents a large part of Corporate Payments. So we feel like that has more normalized. And then secondly, which is more important within our Benefits space, there has been adoption of HSAs as more companies have adopted consumer directed health care plans. And so the growth of HSAs at a market level has decreased, still growing, but at a lower rate and our custodial products, which we've had really great benefit of have seen much more penetration within our portfolio. So we expect in the mid-term that our benefit growth rate would more closely tie to accounts than it has historically. So those are really the two primary drivers that are having us look at our long-term growth targets and reset them to the 5% to 10%. From a segment perspective, just to answer that question, we're not seeing material differences across the different segments, and so we're not giving out long-term growth targets for the individual segments.

Okay. And then you talked a little bit about the portfolio of software assets that have untapped growth potential. And I think direct corporate payments, that's sort of the area that -- where the most promise. Maybe you could talk about where exactly you're going to compete? Like as we think about the size of the market, who your competitors would be, how easy is it to win against those competitors? Because I know you've mentioned the payback periods two years or shorter. I mean like how do we get comfortable with that? Thanks.

Yes. And actually, I'd say it a little bit differently. When we look across the portfolio, we see opportunity across each of the segments. We're adding in sales and marketing investments across all three segments of benefits; our small business offerings within our mobility product set; branding, Corporate Payments. Corporate Payments specifically, I will double-click on. We do see an opportunity there that we've had the most amount of volatility in our earnings growth there, which is why we're double clicking on it. There's two different parts of our product set. Our embedded payment product set is built off a world-class virtual card issuing capability. We're operating at scale. We actually just rolled out a new product offering called flexible funding, which enables our customers to maximize the working capital. And really excited about this. We've rolled it out in Europe. We are in a pilot stage in the United States. We have signed several new customers in the fourth quarter of 2024. So those will get implemented throughout the course of 2025. And so when we look at our ability to play in that space. We've just broadened the aperture from travel customers to look across many different segments that where they need to facilitate a payment. On the AP side, we've been really focused around improving stickiness in the customer experience, and we'll continue to enhance the product that we have there. We have had great success in Direct. We talked about over 20% growth in spend volume with our AP Direct product in the fourth quarter. And so we -- now that we've had some time behind us, we've been able to see the returns. We're adding more salespeople into that product offering is really geared towards the mid-market. And so both of those offerings, we feel very confident in, and we're just continuing to build our capability and building our sales momentum there.

Could I just sneak in one last one? I'm just looking at page -- or Slide 17 in the supplemental slides that you guys gave, and it talked about the onetime item sort of contributing to 5% of the ANI decline. I was under the impression that like some of that you guys were able to offset. Jagtar, maybe you could just talk about that. Did something change in terms of that because I know that's sort of a onetime because of that large customer terms change, but maybe you just talk about that? I'm sorry if I misunderstood that.

Yes. Sanjay, yes, I think you hit it right. So this really refers to that one-time customer change. So we highlighted here from both the revenue impact and the EPS impact on a standalone basis. Obviously, we're taking some cost actions to help with that, which shows up a little bit in the underlying growth of EPS column. I'd just remind you that, that business is a highly scalable business. So the customer impact was a tough one to bear, but it shows up in that column.

Got it. Thank you.

The next question comes from Dan Dolev with Mizuho. Your line is open.

Hey, guys. Thanks for taking my question. I really appreciate it. I have a question and a quick follow-up. So just in terms of -- Melissa, in terms of the macro, I believe that last quarter, you called out that customers were buying fewer gallons per business day, which has been associated in the past with the slowdown in macro. And I -- hopefully, I didn't hear it wrong, but I think you were talking about the trucking recession. Can you maybe help us like explain or explain to us like what is actually going on out there? And is there any leading indicator here or hopefully not in terms of the overall macro? And then I have a quick follow-up. Thank you.

Sure. Happy to. So when we measure same-store sales, we're measuring two different things. The economic impact from the businesses having less or more demand of fuel, and then secondly, impacts our fuel efficiency. So we measure attrition separately, just to be clear about that. What we saw in the fourth quarter of 2024 is that we were trending back to more historical norms. It was negative 2.8% across our North American fleet business. To put that in perspective, it normally -- we think of it as GDP growth offset by fuel efficiency, and so it tends to hover around -- around zero, sometimes slightly less than that. So Q3 seems to be more of an outlier, and we're returning to more normal standards. On the over-the-road business, we were negative 1% in the fourth quarter. So that also showed a little bit of sequential improvement.

Got it. So it seems like good news. And then a question follow-up is can you maybe highlight some of the returns you're getting on the sales and marketing investments? And how should we think about that? Thank you.

Yes, I'll start, and I'm sure Jagtar will jump in here. From a sales perspective, we feel really good about the returns. In each of our segments, the returns are under two years. And as we step back and looked at different mechanisms to accelerate growth, this is one that we feel very confident in. And I'd love for you to talk a little bit more about the returns.

Yes. Let me talk about the returns and how we thought about it. So I think Melissa highlighted the key point to this is that for -- and we see this across multiple areas of our business. For every dollar we invest, we would expect to return a dollar in two years or less in some cases. And so if you take that and you take kind of our very high retention rates, we have retention rates in the mid-90s. As Melissa talked about in her script, kind of an enviable position, that would imply a lifetime right for our customers in the 15- to 20-year range. So lifetime value on that is pretty high relative to dollar invested. And so as a result, the returns on that are very strong. And so as part of our thing in the growth of the company was put more wood by the areas that we can land, and we decided to invest on sales and marketing to capture -- to realize the return we're getting.

Appreciate it. Thank you.

The next question comes from Dave Koning of Baird. Your line is open.

Yeah. Hey guys. Thank you. I guess my first question corporate yields have been up on purchase volume in the last couple of quarters. And I believe it has to do with the change in how some of those volumes get recognized the revenue method. Do you expect that through this year, it should continue to be up a couple of bps year-over-year? And maybe just describe that a little bit?

Yeah. We would expect the purchase -- the rate to be, for 2025, to be somewhat comparable to 2024. We think from an overall standpoint and total rate will be roughly flat year-over-year across both travel and in the non-travel segment. We're getting some extra benefit from the customer transition as you pointed out, Dave.

Okay. Okay. And then, I guess my follow-up, HSA accounts, I know this year was down from the loss of some accounts and that anniversary. So I think you only grew 3% accounts. The prior three years were all kind of 11%, 12%. Are you saying now kind of somewhere in between the next few years, not quite as elevated as in the past, because we've hit penetration, but obviously, better than the last year? Like, how should we think of that?

So the latest annual report which is tracks market growth was putting market growth in mid-single digits, and so there has been this deceleration around account growth that's happened over the years. A couple of years ago, we had rolled out our new custodian product, and we've gotten a lot of benefit of that. Over the last two years, I think their business grew from about $500 million to $700 million -- over $700 million over the last couple of years. So over 40% growth and that's been driven both by good account growth, but also this big adoption from a custodian perspective. And so as the market rate has slowed, that's why we're saying that we expect to see more moderation in growth in the segment in the midterm.

Got you. Thank you.

The next question comes from Andrew Jeffrey with William Blair. Your line is open.

Hi. Good morning. Appreciate you taking the question. Melissa, I mean, I guess a couple of high-level questions, specifically as it pertains to travel and benefits. I guess starting with travel, what gives you the confidence that volumes come back? It seems like this business has been moving away from WEX for the last couple of years just from the standpoint of -- you talked about two specific customers, but broadly, the market seems to be getting more competitive with new entrants. And it seems that your customers are more willing to multi-source. So why should we have confidence that volumes do come back and that just isn't a slippery slope?

So if I think about the volume itself, we've actually seen volume growth across the population. And I would say from a multi-sourcing perspective, that's been true for many years. I don't feel like that actually is a new trend. This transition that's happening with one online travel customer that is the first time that we've seen that, we do believe that's unique because of the banking licenses that are required in the scale that's required to do that. And so from a confidence perspective, we have a lot of conversations with our customers. We feel good about, where we sit contractually with them. And we do anticipate the growth of that part of the business to be more likely you expect to see the travel market itself to grow. And we've embedded that in our long-term guide.

Okay. So, it's a market growth expectation. And then in benefits, I certainly appreciate sort of the maturation of that market. What's -- so again, is it -- I'm just trying to understand where -- how you grow faster than the market, I guess, would be the question. It seems like it's very much tied to market growth. And from that standpoint, how is it distinctive? And is it a business that perhaps shouldn't be part of WEX anymore?

So, let me actually be clear. One of our objective function is always to outgrow the markets that we're in. That's something from a sales and marketing perspective. We're highly focused on that. Travel would be a little bit unique in the fact that we are more penetrated within that part of the population. But outside of that, and including benefits, our expectation is that we will outgrow the account growth. And you would see that through all the different revenue levers that we have. So, SAF account [ph] growth is one piece, but purchase volume is typically running ahead of that, where we are the custodian, we actually bring in incremental revenue associated with that. We're still saying that, that puts -- that part of the business doesn't -- isn't materially different than that 5% to 10% long-term growth rate that we have for the whole company, so we're not distinguishing the individual segments.

Okay. And if I could sneak just one last one in to Jagtar just for clarification. The one-time items, to Sanjay's question, those -- is that $0.05 all this large OTA? Or is there anything else in there?

Yes. So, it's all the large OTA.

Okay. Thanks.

The next question comes from John Davis with Raymond James. Your line is open.

Hey, good morning. Jagtar, just on margins. I think the guide implies somewhere around down 300 basis points year-over-year. Maybe talk a little bit about what you would expect longer term, understanding this year is impacted by lower fuel prices, the onetime customer -- or sorry, the onetime items and the investments. But how should we think about the longer term operating leverage embedded in the business?

Yes. So, our intention is with the revenue and EPS growth, the long-term revenue and EPS growth that Melissa talked about, that margins would start to accrete upward over time. Obviously, it's down a little bit in 2025. From the investments we're making, we're doing what we can from a cost containment standpoint to fund those investments and find balance. We're finding some sort of one-time savings in 2025 that will impact margins a little bit in 2026, but we still expect it to be fairly manageable. And then going forward, we expect margins to start to increase.

Okay. And then, Melissa, just bigger picture, diving into corporate payments. If you break out travel and non-travel, we talk a lot about travel. The non-travel piece used to grow healthy double digits, mid-teens, more recently has been growing slower. With investments, like where do you think you can get? Or what's the goal on the nontravel piece, kind of where can that growth get to?

So, we have two goals. One is related to having more of the business be direct. We talked about the fact that we're going to increase volumes with our embedded payment business. It's great scale that drives wonderful margin expansion. The direct business itself gives us the opportunity to own all of the economics. And so from a rate perspective, we like what that does to the portfolio. And so we're focused on both increasing the overall growth rate, but also the rate and the blended rate that gets affected by that. I think from a long-term perspective, again, we're saying segment -- individual segments, we're saying, are similar, at least in the midterm to that 5% to 10% growth rate. Our expectation, obviously, is that the travel part of that segment will grow slower than the rest. And again, we're really excited about the products we have in the marketplace. What we've seen for contract signings. We think we'll end the year with a lot of good momentum as we lapse this customer migration for online travel agency. And so we're excited about where we're going in this product.

Okay. Thanks.

Your next question comes from Ramsey El-Assal with Barclays. Your line is open.

Hi. Thanks for taking my question. Could you give us a bit more color on the nature of the volume reductions of the 2 large customers? Are those in travel? And sort of what is the kind of context or back story there?

Sure. We actually had talked about this when we provided guidance. We had one within travel and one outside of travel that are both embedded payment customers that temporarily had volume reductions. And then if you kind of like step back within this part of the business, these customers are engaging with us in things that are mission-critical to the business. So it is not uncommon for them to have multiple providers, and that's been true for many, many years. Sometimes they move volume around in order to hit minimum commitments so that they can reach thresholds on incentives. And we saw that happened in the fourth quarter, again, with one in travel and one outside of travel. The one that's outside of travel is a customer we just renewed their contracts. One in travel, that customer actually grew over the course of the year, but it was pretty lumpy. And we're working them to try to have that be less lumpy in 2025.

Got it. Okay. That makes a ton of sense. And then just a follow-up for me. I guess as you move to reaccelerate growth with the plan you laid out, how should we think about M&A fitting into that strategy? Is there a way to accelerate your path with M&A? And I guess the flip side of that question was this. Have you, given the segment level volatility, have you reconsidered shedding any assets or streamlining, simplifying the business? That would be great if you could respond that. I appreciate it.

Yeah, sure. Both good questions. In terms of -- I'll answer the second one first. We're always stepping back and looking at the business itself. The embedded payments products in EP products, which house both our travel customers and our non-travel customers all said on the same technology stack. It's a very integrated offering, and it gives us the scale in order to play even more effectively outside of travel. So think of that as taking all the product advantages that we have and the scale advantages that we have in applying them outside of travel. And so it really is a very integrated thesis. So as we think about the business, the ability to make sure that we're leveraging the scale across and utilizing our technology and our product capability across is something that we've been very focused on over the last several years. And we feel like we're actually seeing the benefits of that coming through, albeit small amounts this year, and it's something that we feel like we can build the momentum as we go through the course of the year.

Got it. Thank you. I also wanted to applaud the release of numbers the night before and all the additional disclosure. I think that's a smart way to do it, and we appreciate that.

Thank you.

Next question comes from Tien-Tsin Huang with JPMorgan. Your line is open. Tien-Tsin, perhaps your line is on mute?

You are correct. Thank you -- some time here for everybody. Melissa, I just want to add on this decision to invest more in sales. Because I feel like your new logos and your signings over the last several years has actually been quite good, if I think it back. So I don't want to label it as under investing in sales. So is this really more of a pivot to go more direct, more down market, maybe more into software? I'm just trying to better characterize it beyond just investing more in sales because again, I don't feel like you've underinvested in sales, but tell me if I'm wrong there.

No. When we look at the growth of business, we've had really strong results, historically right in sales and marketing. It's one of the places that I would say is a core strength of ours. We have a really strong customer retention rates, as Jagtar said. What we've experienced has been a slowdown more in that same-store sales kind of across -- for different regions across categories. And so it's caused us to step back and say, we have really great sales momentum and have tremendous returns. We think that we can just -- we can do more. And we've had experience of that. We have a high level of confidence in that. So it's causing us just to sit back and reflect and add more into both our sales and marketing capability, really, again, across all of our different segments.

Got it. And then within Mobility, I know that the outlook is different than what you've laid out in the midterm, and I know you're not updating the segment, but I presume the underlying drivers are still the same. Is there a different opinion now from you on the EV transition, for example, and how that might impact your midterm outlook?

We're very bullish about the EV transition. What we've learned so far in the marketplace is the products that we have are resonating. We know that we have an ability to charge more, because the value proposition gets more complicated. And so if anything, each year, we get more excited about that opportunity. We think that's going to take time, though, to actually transition into our base, which is why we don't see that having a big impact in the midterm, but we do think it will have an impact over time. And then on top of that, I would say, historically, the driver has been vehicle growth, or transaction growth, I guess, translated differently. And we have seen that be a little bit more muted for a bunch of reasons. The trucking recession is one of them. We have been very disciplined around pricing. We expect to continue to be disciplined around pricing as we go through 2025. What we're saying is that on top of that, we're adding in more marketing capability because we're seeing really strong returns from our direct channels in particular. And that's going to take some time to show return, but we have really good evidence that sits behind that. And we have products that we've rolled out that will take some time to create adoption. But it's another area that over time, we feel very confident that we're going to see new sources of revenue. And I feel much more confident now about Payzer. As an example, we've learned a lot over the course of the last year. There's really been great insights that have us alter our marketing and our engagement strategies, our incentives. And you can see the benefit of that coming through now. And all of these things are relatively small in size, but will accumulate as you go through the course of the year and give us confidence as we go through the next several years.

Thank you, Melissa.

The next question comes from Andrew Bauch with Wells Fargo. Your line is open.

Hey, thanks for taking the question. Just wanted to dovetail on the investments in 2025 and check my math on this. The 5%, I believe that implies $40 million in total. And then, you carved out the $25 million for sales and marketing. Does that mean that the remainder $15 million is attributable to product? And does that have the same LTV to CAC as the sales and marketing does? Or should we like expect the returns to be predominantly just on the $25 million? And just a point of clarification, is that return on revenue or EBIT?

So Andrew, let me start. So the LTV CAC returns I talked about were specifically on the sales and marketing investments we're making. You're correct, there's another kind of $15 million to $20 million that's showing up as depreciation on the product investments that we're making. So just to clarify, we tend to capitalize new product investments that we're making and those new products were started over the past year or so. And so we're seeing the depreciation show up. We would expect the returns on those investments to show up from the sales of new products, and those are embedded into the sales outlook that we've given.

And then the -- it's EBIT, right, the return?

Yes. So, the return that I talked about on the LTV to CAC, that would be margin return, right? So yes, that would flow through to EBIT. Correct.

And then on the follow-up, I just -- I appreciate that we're not giving segment level growth rates here. But I'm getting from investors, is there -- is the rationale around that, just the lack of visibility in the near term on where these things go? I mean, all this kind of know the market drivers and the general growth rates of each sector, but trying to get better confidence in your sense of the visibility for each of these lines.

I would say, differently, I think that the segment growth rates itself, at least in the midterm. We don't see deviating materially from the company's growth rate. And for different reasons, we go through each of them, and let me talk about each of them for a moment. Within Mobility, historically, we've talked about it being 4% to 8%. So, not -- again, not materially different than the long-term range for the company level. Within Corporate Payments, we have reached this point of saturation within the travel part of the portfolio, where we -- again, we expect to be growing similar to a market growth rate. We see a lot of opportunity when you get outside of travel, but it's a smaller part of the portfolio. So it's going to take some time for that to accumulate up into having a more meaningful impact in the segment. So we do think that, that segment growth rate will increase over time. And -- but if I give you a midterm, I would say, I wouldn't make it materially different than the 5% to 10%. And then on the Benefits segment, we -- again, we're seeing this continued growth. We love this part of the business. It's got great macros sit behind it, but account growth at a macro level is slowing. And making -- we've seen a good penetration of our custodial assets that we expect that in, again, in the midterm, that, that part of the business should be growing closer to account growth. And so again, not materially different than that 5% to 10% rate. In each of these areas, we're increasing product innovation in our Mobility business, putting more into marketing in our Benefits business. We have some wonderful data assets, and we're really focused on engagement and how we can use those assets applying AI to create different product experiences. And so we're very bullish about that part of the business at what we can do over time to affect the growth rate there. And then in Corporate Payments, again, huge TAM. We feel like we have some really great right to win, and we're building our product capability, but also adding in sales built in. So in each of the areas, we feel like this growth acceleration plan that we're focusing on. But in this midterm, we're saying we don't expect to see significant deviations within each of the segments to our overall corporate growth rate.

That’s great. Appreciate the additional color, Melissa.

Sure. So in the mid-market, the -- if you look across the customers that we're doing business right now, I don't -- I wouldn't actually say there is an industry-specific component that sits to them. The customers that are wrapping across existing customers that sit within our Mobility business, insurance, healthcare, there's actually quite a wide variety of the customers that sit within that portfolio. Yes, and it's relatively small. It's grown really nicely, and that aperture will probably only increase over time. What we're providing to those customers is AP automation. And again, the place that we've been focusing around is we just – went out with a fully redesigned due to their experience. The product has been selling anyway, but we feel like we have an ability to sell more as we continue to enhance the offering that we have.

That is all the time we have for questions. I will turn the call to Steve Elder for closing remarks.

I just wanted to thank everyone for joining us this morning, and we'll be out and about if there are other follow-up questions that people have. So thank you very much.