WEX - NYSE

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX Second Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Steve Elder, SVP of Investor Relations. Please go ahead.

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 and supplemental materials issued yesterday and a slide deck to walk through prepared remarks have been posted to the Investor Relations section of the website at wexinc.com. A copy of the press release and supplemental materials have been included in an 8-K 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 the press release, the supplemental materials and the risk factors identified in the most recently filed annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and other subsequent SEC filings. While we may update forward- looking statements in the future, we disclaim 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. We delivered stronger financial results in the second quarter than anticipated with revenue at the top end of our guidance and adjusted EPS exceeding guidance. Today, I'm excited to preview some of the underlying positives that we're seeing from our investments. We had several meaningful customer wins this quarter across each of our segments, including BP and Mobility, The United Auto Workers Trust and Benefits and a large new corporate payments customer. I'll go over these in more detail when I discuss the segments. These important wins come alongside what is shaping up to be a strong pipeline of new business that has been amplified by our increased sales and marketing investments. Our continued ability to win top-tier customers underscores the strength of our offerings that together enable us to deliver on our purpose of simplifying the business of running a business. Looking ahead, we remain optimistic that each of our segments continue to operate in markets with strong growth potential. We believe that disciplined investment in these opportunities will continue to generate attractive returns for our investors. Now turning to second quarter results. We reported revenue of $659.6 million for the quarter, a decrease of 2.1% year-over-year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, revenue was flat compared to the prior year. Adjusted net income per diluted share was $3.95, an increase of 1% compared to the same quarter last year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q2 adjusted EPS grew 8%. Operationally, revenue performance was consistent with our expectations across all segments. We also benefited from higher-than-anticipated fuel prices. From an earnings perspective, we realized additional benefits by tightly managing our cost structure, including overall headcount. We remain laser-focused on the factors within our control. We continue to execute a focused strategy designed to drive durable revenue growth, margin expansion and long-term shareholder value through intelligent payment of workflow solutions. Our customer-first approach continues to drive value by helping us win new customers, support our existing ones and build integrated intuitive solutions that drive their success. Next, let's turn to an overview of our segments and how they performed in Q2. WEX operates in 3 large and growing markets: Mobility, Benefits and Corporate Payments, each of which we believe offers significant long-term secular growth opportunities where we hold distinct competitive advantages. Mobility, our largest segment at approximately 50% of total revenue, delivers fleet payment solutions, transaction processing and data-driven insights to fleet operators and managers globally. Our proprietary closed-loop payments network provides customers with enhanced data capture, custom controls and tailored economics and covers approximately 90% of fuel stations and 80% of EV charging locations in the U.S. These capabilities help fleet managers optimize costs, detect misuse, improve operational efficiency and support the complexity of operating a mixed energy fleet. This segment has 2 primary categories. The first category comprising roughly 70% of segment revenue is local fleets. The remaining 30% is driven by our over-the-road or OTR trucking customers. With more than 600,000 fleet customers globally, our competitive moat is built upon being data-rich, capital efficient and deeply embedded in our customers' daily operations, delivering both functional value and long-term stickiness. Q2 results from the Mobility segment were in line with our expectations, excluding the benefit from higher fuel prices. Transaction levels were down slightly from the prior year, similar to Q1 and within our range of expectations. Same-store sales growth for local fleets in the U.S. declined in line with Q1 results, while the over-the-road customers saw a modest decline of less than 1%. We continue to believe that this measure reflects underlying economic activity across our customer base when evaluating short-term changes. As a reminder, the same-store sales metric represents approximately 75% of the payment processing volumes and is calculated on a gallons purchase basis, not revenue earned. We noted in Q1 that there had been some tariff-related pull forward of volume with our OTR customers, which appears to have normalized for now. We're pleased with our continued momentum in new sales and renewals in this segment. The investments we're making in digital marketing targeted at small businesses are bearing the fruit we expected. We have high confidence in our ability to close new sales based on the results seen year-to-date as we're tracking ahead of our new sales expectations. In Q2, we successfully extended long-standing relationships with several of the most respected names in the industry and signed new relationships, including a large publicly traded construction company. As I mentioned earlier, we're also very pleased to announce that we have signed BP to a long-term agreement for their U.S. business. BP is one of the few remaining major fuel retailers not utilizing WEX's commercial fleet platform. By choosing WEX, they are now able to offer a card solution that will serve the entire BP family of brands linked with their loyalty program. This exemplifies WEX's purpose of simplifying the business of doing business for our customers. We're able to provide this important feature to BP because of the product investments we've made to expand the reach of our network to support both closed and open loop solutions. This integrated solution provides BP with the tools to enhance control, elevate the customer experience and expand our reach across key fueling segments. The addition of BP cements our place as the most trusted brand within this segment, driven by our industry-leading capabilities and proven track record of growth. There will be 2 phases to this implementation. In the first phase, we will sell BP branded cards to new customers. And in the second phase, we'll convert the existing BP portfolio to the WEX platform. We expect to begin new sales to customers of the BP branded product in the fourth quarter. We're finalizing a purchase agreement for the existing customer base, and we currently anticipate converting this book of business at some point in 2026. We expect it will add between 0.5% to 1% to company revenue in the first full year after conversion. We look forward to working with BP for many years to come. Turning now to our Benefits segment, which simplifies the complex world of employee benefits administration and represents approximately 30% of total company revenue. Here, we offer a comprehensive platform that spans HSAs, FSAs, HRAs, COBRA and benefit enrollment and administration, enabling both employers and partners to help their employees make more informed benefit decisions and facilitate benefit payments. As in our mobility business, our benefits business involves processing hundreds of thousands of transactions across thousands of endpoints every day in real time, verifying eligibility for purchase and authenticating the customer while preventing fraud and providing detailed records of usage to our customers for compliance and operational purposes. WEX serves nearly 60% of the Fortune 1000 in this segment, and WEX Technologies powers over 20% of the total HSA market through both our direct and partner offerings. In total, we manage more than 21 million SaaS accounts. The customer base in this segment is sticky due to the deeply embedded nature of our offering. For partners, it's integrated into their platforms. For direct customers, it serves as a critical employee benefit solution. For both customer sets, switching providers is complex, time-consuming and disruptive. The embedded nature of the platform, combined with high retention and predictable SaaS and custodial revenue streams leads to attractive margins and long-term customer value. Overall, SaaS account growth was 6% for the quarter. Within this, we grew HSA accounts on the WEX Benefits platform by 7% in Q2, bringing us to more than 8.7 million HSA accounts. The breadth of product and integration capabilities of our technology platform, combined with our multi-account expertise, supporting a wide range of account types on a single tech stack continues to resonate strongly with both direct customers and channel partners. Following up on a successful open enrollment season, we are very pleased to announce the UAW Retiree Medical Benefits Trust as a new HRA customer starting in Q2. The UAW Trust provides health care coverage for United Auto Worker retirees. Our extensive experience with spending accounts put us in a position to successfully win the trust. We also have some encouraging developments on the legislative front. Recent legislation that passed in July will increase the number of people eligible for a health savings account. Beginning next year, certain plans offered on the public health care exchanges will be classified as high deductible plans, making them HSA qualified. This equates to an increase in the TAM of more than 7 million people or 3 million to 4 million accounts using our existing product functionality. While this is a positive development with the potential for increased awareness and adoption, we're taking a thoughtful approach to how we address this opportunity. We look forward to sharing more on its contribution to our Benefits segment results. The custodial cash balances that are part of HSAs are a meaningful revenue source for the segment. As a reminder, the interest income we earn in this segment is less sensitive to changes in interest rates as it is invested predominantly in fixed rate products with maturities that vary and extend over several years. One of the strengths of the company is how we're able to leverage the core value proposition of WEX Bank across multiple segments. Our Benefits segment is able to achieve returns on HSA assets that far exceed those of our peers because we can leverage WEX Bank to invest HSA funds into stable, high-grade investments that deliver meaningful returns across interest rate cycles. From a product perspective, we continued investing in smarter customer- centric solutions with the launch of an AI-powered claims experience that dramatically simplifies FSA reimbursement reducing processing time from days to minutes, improving accuracy and easing the burden on HR teams during peak enrollment. This new technology lowers our cost to serve and increases customer satisfaction. Moving now to our Corporate Payments segment, which represents approximately 20% of our revenue and includes 2 major offerings, embedded payments and direct accounts payable. Embedded payments represents the majority of revenue in the Corporate Payments segment, including all of our travel-related customers. With this solution, we integrate virtual card payment capabilities into our customers' existing workflows. We combine highly customizable reconciliation benefits with a wide range of card products and currencies, more than 180 possible combinations, which is an order of magnitude larger than most competitors. These capabilities are coupled with deep industry-specific knowledge and experience as well as a best-in-class service approach. Our embedded payments offering has high operating leverage because the investment in the technology platform and our global compliance infrastructure represents the majority of cost, it's a largely fixed cost business, and most incremental volume is accretive to our margins and cash flow. n Our ability to compete and win here is built on our technical and domain expertise strength and our economics that stems from scale. Within our embedded payments offering, Q2 purchase volume was down in line with our expectations. The large travel customer we've mentioned in recent quarters has completed their transition to a new operating model with us, and we will lap this headwind in large degree in Q3. We will fully lap this headwind in Q4 and continue to expect to return to revenue growth in the second half of 2025. The platform investments we're making to diversify from travel have started to bear fruit, and we're seeing strength in our new customer pipeline and new customer signings and embedded payments. We expect this healthy pipeline will continue to broaden out the customer base, and we look forward to them contributing to growth in the back half of the year. We're pleased to note that we have implemented a large publicly traded fintech to use our virtual card issuing technology. Switching gears to talk about the direct AP product within our Corporate Payments segment, which accounts for approximately 20% of segment revenue. This solution automates accounts payable by integrating our enterprise resource planning systems and accounting workflows to maximize virtual payment usage. During the quarter, direct AP volume grew more than 25% compared to last year. We're feeling very good about the outlook as we currently have the best new business pipeline we've ever had for this product. Our new account growth included more than 140 new customers year-to-date, which only bolsters our confidence that additional sales, marketing and product investments we discussed last quarter have started to bear fruit and will lead to strong returns in the future. We've increased the size of the sales force by more than 50% since the beginning of the year, and our new sales resources are ramping as expected. On the product side, we continue to invest in expanding our embedded payments offering beyond our core travel vertical, launching new funding capabilities now live in 3 geographies and 10 currencies. In our direct channel, we've extended our mobile wallet capabilities and enabling broader customer spend on our market-leading processing platform. These enhancements will be paired with deeper data integration and automation. Across all 3 of our segments, the incremental investments we're making in product capabilities and sales and marketing resources are working. We believe that the investments will deliver strong ROIs and contribute to a reacceleration of growth. The majority of our incremental sales and marketing investment continues to be in the Mobility segment, where we're deploying a multichannel marketing strategy targeted at small business customers and seeing encouraging results. Historically, every dollar we spend on marketing earned a return of $4 in revenue over the first 2 years following the customer acquisition date. These results build on the confidence we have in our investment thesis, and I'm excited about how they position us to accelerate growth going forward. The remaining investments we're making in other segments are also showing early signs of success. As I noted earlier, the pipeline of new customers in the Corporate Payments segment has never been better, and we expect the segment to reaccelerate growth in the back half of this year. This growth is in part driven by the product investments we've been making that strengthen our offerings outside of travel, many of which have recently come online with additional features in the pipeline. It is exciting to see the fruits of our product investments delivered not only in Corporate Payments, but also in mobility and Benefits. In closing, I am most excited about the momentum we're building by actively investing in accelerating growth for the business. Our industry-leading products, service and reliability drive our ability to win customers of all sizes across each of our segments. As we enter the second half of the year, our robust new customer pipeline gives me confidence that the investments we're making in sales and marketing are paying off. We're also seeing our investments to innovate and enhance our product offerings directly deliver meaningful new customers like BP. We're in a great position to continue to win in the market across each of our segments, and I want to thank our teams for their hard work and commitment. There is more to do, and we're entering the second half of the year with momentum and clear focus. With that, I'll turn it over to Jagtar to walk you through our financial performance in more detail. Jagtar?

Thank you, Melissa, and good morning, everyone. In an effort to shift the focus of these earnings calls to our most strategic items, we have published a supplemental information deck with commentary that would historically have been included during my prepared remarks. So since the detail is already available on our website, I will keep my remarks brief. Total revenue in the quarter was $659.6 million, which is down 2% versus last year. The impact of foreign exchange rates and lower fuel prices decreased revenue growth by 2.1% year-over-year. Revenue was at the top end of the guidance range we provided last quarter. Adjusted earnings per share of $3.95 was an increase of 1% year-over-year, including a decrease of 6.7% due to lower fuel prices and foreign exchange rates. Adjusted EPS was above the high end of the guidance range we provided in April due to higher-than-expected fuel prices with a contribution from lower expenses, including tightly managing our headcount. In our Mobility segment, revenue declined 3.7% during Q2 compared to last year. This includes a drag of 4.2% due to lower fuel prices and foreign exchange rates. Our payment processing rate of 1.31% increased 2 basis points year-over-year. In our Benefits segment, total revenue of $195.1 million rose 8.5% on a year-over-year basis. SaaS account growth of 6% was in line with our expectations. Custodial investment revenue, which represents the interest we earn on custodial cash balances we hold rose 11.4% and was $57.8 million. This interest rate we earned has remained fairly steady with the yield rising 1 basis point from Q2 last year. Turning to our Corporate Payments segment. Revenues of $118.3 million decreased 11.8% year-over-year, which was in line with our expectations. Purchase volume in Corporate Payments declined on a year-over-year basis, primarily due to the large customer transition we've been discussing in recent quarters. The transition to a new operating model is complete, and we will lap most of this headwind next quarter. We will fully lap this headwind in Q4. There are a number of positive trends in the segment this quarter that give us optimism as we enter the second half of the year. First, our direct AP volume grew more than 25% versus last year. This is the third consecutive quarter of 25% growth rates. This is one of our key investment areas and provides a less volatile revenue stream when compared to our embedded offering. Since the beginning of this year, we have increased the size of the sales force by more than 50% with plans to continue growing. Second, as Melissa mentioned, we're encouraged by the strengthening pipeline in our embedded payments offering, driven in part by prior product investments that are helping us further diversify our customer base beyond travel. For the remainder of the year, we expect to see the continuation of significant volume growth for direct accounts payable customers, a ramp-up in volume from a new publicly traded fintech win that has already been implemented, lapping the negative comparisons for the large OTA customer transition and an easing of temporary spending timing from 2 other large customers over the back half of the year. Taking all these factors into consideration, we are confident that the revenue in the segment will turn to growth in the second half of the year, starting in Q3 and accelerating in Q4. Let me transition now to the balance sheet. Our balance sheet and the ability to generate cash flow reliably remain a source of strength for us, especially in periods of economic uncertainty. Our leverage ratio ended the quarter at 3.4x, which is the high end of our long-term range of 2.5 to 3.5x, primarily due to our share repurchase activity in Q1. For the remainder of this year, we will prioritize using available cash flow to pay down debt and reduce leverage. As a result, you shouldn't expect any additional share repurchases or material M&A in the near term. Historically, we have been able to delever about 0.5 turn per year based on cash generated and earnings growth. Now let's move to earnings guidance for the third quarter and full year. It is important to note that we are updating our full year 2025 guidance to account for the Q2 results and the macro-related impacts of fuel prices, FX and interest rates with all other changes minor in nature. To be clear, we have only included revenue related to new sales from the BP contract in guidance and none related to the accounts once converted. We have included the costs we expect to incur this year as part of the conversion. In Q3, we expect to report revenue in the range of $669 million to $689 million. We expect adjusted net income EPS to be between $4.30 and $4.50 per diluted share. For the full year, we expect to report revenue in the range of $2.61 billion to $2.65 billion. We expect adjusted net income EPS to be between $15.37 and $15.77 per diluted share. In closing, we remain focused on what we can control during a period of elevated macro uncertainty and are enthusiastic about the progress we've already made this year in helping WEX realize its full potential to drive long-term returns and accelerated growth. With that, operator, please open the line to questions.

Our first question comes from the line of Ramsey El-Assal with Barclays.

This is Shray on for Ramsey. Starting off in Corporate Payments. You mentioned that WEX was investing in new product capabilities and additional sales and marketing, specifically also within the direct AP business. I was wondering if you could talk about the initiatives within Direct AP and any early traction or trends that you're seeing?

Sure. Happy to. Actually, when we think about the investments we're making in product, we, last year worked on a product that we've rolled out at the beginning of this year, which allowed our customers to move money much more efficiently across the globe. We did that to support not just our travel customers, but it extended our TAM into some new markets outside of travel. A lot of that functionality is a base of what we're doing with our AP customers as well. And so with those customers, we're focused on increasing mobile capability and just making it more seamless for them to use. But there's a lot of synergy across both the embedded payments products and the AP products in the places that we're making investments. So I would say on the embedded payment side, there's a real hunger that we're seeing in the marketplace right now for someone who can do that end-to-end processing. And so the fact that we actually own a bank and can provide all of the services with our strong technology stack, the deep integration capability that we have and the experience we have managing complex transactions is playing really well in the marketplace, and we're seeing that result in a bigger and bigger pipeline each quarter that we look at it and in conversion starting to happen.

Got it. And then as a follow-up for me, looking towards the back half of the year, how should we think about the reacceleration time line in mobility? And I was just wondering if you could provide if you're seeing any early signs or traction that indicate that inflection?

Yes. If you look at the first half of this year, we have had some headwinds associated with same-store sales. We're assuming that the macro environment that we saw in Q2 will continue through the course of this year. And so that the same-store sales negative has been pretty consistent this year in our local fleet business. When we talk to those customers, what we hear is it's a combination of the fact that they're really clamping down on costs within the organization, particularly in the mid-market as well as some fuel efficiency. And so we're assuming that's going to continue. In the over-the-road marketplace, we did see this step down, which we had anticipated. We knew that there was a pull forward because of the tariff activity. So we saw same-store sales go from a positive 2.6% in the first quarter to just a little under negative 1%. And we're assuming that, that's going to continue. It's what we've seen so far and the trends throughout this month.

Our next question comes from the line of Nik Cremo with UBS.

Congrats on the BT portfolio win in the U.S. First, I just wanted to go back to the Mobility segment just because I think there's a few moving pieces that I wanted to go back to. So first, I mean, just to understand the underlying trajectory of that business, I understand that the same-store sales weakness that you saw in North America begins to lap next month in August. So like the next like 2 months of Q3 effectively, you should start to lap that broad-based like negative 3% to 5% same-store sales. So that should be a relative benefit in Q3 and Q4? Or would the same-store weakness like same-store sales weakness compound on the weakness from last year? And then I believe there was like a $10 million late fee reversal in Q3 of last year. So I think that was like a 3-point hit to growth. So did those things, all else equal, support an acceleration in the Mobility segment in the back half? Or can we still kind of expect this business to be in the 1% [ macronutral ]?

Yes, Nick. So a couple of things on that. So we did start to see some of the same-store sales weakness in Q3 last year. But remember, it was a little bouncy at the end of last year. So we saw some ups and downs going in Q3 and Q4. So there will be some pluses and minuses for that, but I don't think it was all kind of one trend line. The second piece of that is on the -- you are correct on the reversal of what we saw last year, $10 million. I think what we're seeing right now is we've had kind of the incremental headwinds that Melissa talked about in terms of tariffs that -- and the OTR going from positive to more flattish, slightly negative in second quarter. We're expecting those trends to continue given the uncertainty around tariffs and things like that. So we're expecting the second half of the year from a growth perspective to look a lot like the first half of the year in the Mobility segment.

Understood. And then next on the BP portfolio. I mean, can you just help us think through how long it will take to convert the portfolio once you actually complete the purchase agreement? And also just provide any color on the level of costs involved in implementing and converting that portfolio?

Let me start with it on the timing of that. So remember, there's 2 pieces. There's the first part where we're going to start selling the program. That's going to happen in the fourth quarter of this year. And so that activity is well underway. The second part where we're actually purchasing the portfolio and going through a conversion. At this point in time, what we would say is we believe it will happen at some point in 2026. It is less clear in terms of the exact date of when it's going to happen. We are working on that. Obviously, it's important and as we know more, we'll make sure that you're aware of it. And then on the cost side...

Yes. So we are expecting some costs this year, Nik. That's been embedded in the guide. So that's reflected in the guide we've put out there.

And the only other thing I'd say on your first question on mobility, we are seeing benefit in the investments we're making in sales and marketing. And so as we think about -- as we go through a period of time, it's really important to us to reaccelerate the growth of that segment. We think it's going to take some time for that to happen because there's so much revenue that comes from the annuity in the base. And at the same time, we're seeing actually good momentum, particularly in the small end of the marketplace with the investments we're making.

Our next question comes from the line of Nate Svensson with Deutsche Bank.

Nice results. I wanted to ask about the outlook for Corporate Payments. It's going to be nice that we'll start finally lapping the OTA client impact here in 3Q. Jagtar, it was good to hear sort of the return to growth in 3Q on a revenue basis, a little acceleration in 4Q. But any more color on the puts and takes we should be incorporating across some of the other key KPIs, whether that's purchase volume, take rate, et cetera? And then I think thinking about that sort of back half run rate as we move into a more normalized growth profile, is that kind of the right place to start as we think about growth going forward? Or anything else we should keep in mind as we model that segment?

I'm going to start, and I'm sure Jagtar will jump in here. But when we think about the second half of the year, we had a negative comp in that segment in the first half of the year. Remember, we have one travel customer that we've migrated to more equal spend volume per quarter this year. And that was not true last year. So they had front-ended spend that's been a negative for us in the first half of the year, but that will become a positive for us in the second half of the year. We also -- as we go through the process of lapping this migration, the in-sourcing, it's about half the impact in Q3 that it was in Q2. So -- and then it starts to clean up in the fourth quarter. So you start to see a more normalized quarter in the fourth quarter with the exception of the fact we've got some benefit and spend trends with that other OTA. We also have customers that we're bringing online. Jagtar talked about one of them that we've already implemented, which is a larger one. And so that will continue to grow in the course of the year. And then we've got more in pipeline, both from AP and our embedded payments products that we're in the process of converting right now. So we've got a bunch of different things that are accumulating that go from negative in the first half of the year to positive in the second half.

And then, Nate, I think you asked a question about KPIs. So when you think about purchase volume, we're expecting kind of low mid-single digits in the third quarter, accelerating to, call it, 20% in the fourth quarter. But keep in mind, a lot of that is still the OTA migration where it flips from purchase volume to total volume. So if you look at it -- or sorry, purchase volume to unfunded volume. So when you look at it on a total volume basis, we're expecting kind of low single -- or low double digits, both Q3 and Q4.

That's super helpful detail and nice to see the momentum in that segment. The other thing I wanted to ask on, it was nice to see the HSA account growth of 7%. I know we talked about some slowdown in the overall market, but you're still outpacing the market at 5%. So could you talk about what specific strategies or investments are driving this outperformance? Is it some of this investment in sales and marketing? Is the strength in the partner channel, anything else? And then I guess moving forward, are there any barriers or anything that might prevent or slow you down from continuing to capture even more market share on the HSA side of the business?

So the second quarter, we did get the benefit of the United Auto Workers Trust getting implemented. So that had a full quarter of revenue associated with that, not a full quarter of accounts. So that was certainly a benefit and that will continue in the -- through the rest of the year. What we're hearing in the marketplace is that deep expertise that we have in managing the complex reimbursement accounts, the scale of our platform, the fact that you can have multi account types that sit across the portfolio, all of those things are playing well into the marketplace. And so it had less to do with the sales and marketing investments. Those -- in that case, in our benefits business, we have seen a win in the marketing category pretty early in the year, but most of those investments have been ramping throughout the course of the year. So we expect to see more of the benefit of that into next year's open enrollment cycle.

Our next question comes from the line of Sanjay Sakhrani with KBW.

Congratulations on all these deals. My question is sort of a combination of some of the questions that were asked before. Obviously, a lot of these new wins and such and the lapping of the OTA relationship sort of further feed or fuel next year. So I'm just trying to think about what the revenue growth potential is as we exit 2025 into 2026. If I'm doing the math right, you're forecasting about 4% revenue growth in the back half of the year ex fuel. How do we think about the starting point in 2026?

So for starting point, we're not giving 2026 guidance yet. But what I would say is mobility, the trends have been the trends. We'll see more as we go through the rest of the year on does the impact of some of the weakness in the economy continue, what's the impact of tariffs. But I think kind of where we are today is a good starting point. I think same thing for benefits is what we're seeing is good outpacing of the market in terms of HSA account growth. I think we'll -- again, not giving a 2026 outlook, but I would think we would still continue to kind of outpace the market. If I turn to Corporate Payments, so you're right, Sanjay. As a company, we're kind of going from, call it, flattish growth in the first half of the year to 4% growth second half of the year. A lot of that is coming in the Corporate Payments segment, where we, call it, declined 15% first half and are expecting kind of flat for the year. So that kind of implies a 30-point swing. I would say there's a couple of pieces in that. We've talked about the OTA transition. We've talked about timing differences for certain spending patterns with certain customers. I would say that's 70% of what we're seeing in terms of that 30-point swing. The other 30% is the things that Melissa has talked about, right? The new fintech customer we've won, the great pipeline and signings we're seeing in the corporate payments business, especially in nontravel, the backlog of implementations we have and the great pipeline we have. So I think that's the piece that we feel good about. And as a result, we feel good about kind of the long-term guidance numbers that are out there and our ability to achieve them.

Cool. And maybe just to dig a little bit deeper on BP and like the new TAM in HSA. BP, you guys said like that 0.5% to 1%, like is there a time -- is that an annualized number? Or is it just your best guess based on the timing you're using, maybe midpoint of the year? I'm just curious sort of how to think about that number. And then just when you could actually start monetizing on some of the increased TAM in the HSA program?

Yes. Two different questions. The first question on BP, the 0.5 point to 1% is the first 12 months after implementation. So think of that. And the way that these implementation works, they happened actually pretty quickly. You typically are moving the portfolio in 1 or 2 tranches. And so the question that's outstanding is when does that implementation start? And what they said is that we expect it to be at some point in 2026 right now, but we don't know exactly when. Once it implements after the first full year, we expect it to be that 0.5 point to 1 point of growth to the company. Is that clear?

Yes.

Yes. I know you how to model it, but that's -- those are the specifics of it. And then your second question was on, yes, the market -- okay, the HSA market. It's interesting in the HSA market expansion because with this is allowing people to do -- who have plans that are on the public exchanges, they now have access to HSA accounts in a way that they didn't before. So that is the biggest part of the market expansion. There are a couple of other things as well that allow things that weren't allowed in the past like some of the telemedicine expenses. So there's nothing we have to do from a product perspective. So really, what we're focused on right now and thoughtfully working through the plan to most effectively address this during this next open enrollment season because it's making sure that the people who now have access understand that and that they can get into these programs. So we know that we'll be a net benefactor. The amount that we are is less clear at this point in time, and we're really focused around making sure that we maximize this expansion.

Our next question comes from the line of Rayna Kumar with Oppenheimer.

Congrats on a great quarter. Just for your Corporate Payments business, can you talk about what travel trends you're seeing so far and what your expectations are for the third quarter?

Sure. Travel actually came in very consistently with what we expected it to. There continues to be growth in volume overall across that portfolio. We've seen a change in some of the border mix, which hasn't had a huge impact on us because just as a reminder, 2/3 of our spend originates and is settled outside of the United States. So we have less exposure to the U.S., but we have seen a shift of less travel inbound into the U.S. and more that's happening in other corridors, both in Europe and Asia. So from a net-net perspective, it hasn't really had an impact on us. And the average rate ticket rate went up a little bit, about 4%. So overall, what we're finding is that the environment continues to be quite stable, which is what we have projected for in our guidance through the end of the year.

Got it. Very helpful. And just as a follow-up, is there any color you can provide for your expectations for adjusted operating margin for the rest of the year? You showed some great cost discipline during the quarter. Should we anticipate that to continue through the rest of the year?

So I would say adjusted operating margin, we kind of expect to be in line with what we saw in the second quarter. I wouldn't assume that costs will remain where they were in the second quarter. We got some good news in the second quarter. So we've been working on a number of efficiency items that was baked into our second half guidance. We actually benefited from getting some of those efficiency items earlier than we expected. So hence, the good news in the second quarter. We also as we've talked about in previous calls, we're making investments into the business. So we've been using some of those cost efficiency savings to make some of the investments we've talked about, whether it's product or sales and marketing. In a few areas, we've -- the ramp in headcount has been a little slower than we planned for. So that provided a double benefit in Q2. We got efficiency that was ahead of plan, while some of the spending was behind plan. Right now within our guide, we're expecting a catch-up on some of those investment -- investments. So I don't think that the OpEx savings that you saw in Q2 will continue, but we should have margins that are pretty comparable to what we saw in the second quarter.

Our next question comes from the line of Dave Koning with Baird.

Nice job. I guess a couple of questions. First of all, the processing rate within Mobility, very consistent with last year. So the first half of last year, about 1.3% yield. The first half of this year, 1.3%. But the back half of last year, I think some of the pricing moved that up to the higher 1.3%, 1.37%, something like that in the back half. Do you think you'll see the same -- is that seasonality? Or was that something pricing? And will that happen again, I guess, this second half?

Yes. We had a couple of items that hit the processing rate this quarter that were kind of onetime in nature. So I think you should expect that to tick up over the course of the year. We also have -- the other thing to think about is interest rates within our Mobility segment within the total plan, we're expecting kind of 225 basis point cuts in the back half of the year. That impacts revenue in mobility. And I've given some numbers in the past that each 100 basis point is about $15 million of revenue impact in the Mobility segment. So that will impact rate as well going in the back half of the year.

Yes. Got you. Okay. And then secondly, in the Benefits segment, we look at it kind of ex the other, just if we just look at our processing and account servicing revenue, it was about 3% growth, the best in, I think, 3, 4, 5 quarters. I guess, a, is this sort of acceleration sustainable? And maybe, I guess, b, should that really over time be 5% plus? And what kind of gets it there?

So when we're looking at the growth of that, we actually would say the custodian accounts are a piece of that growth. It doesn't have to be interest rate related, but the size of the custodian balances tend to increase after you add a customer on, and we saw that in this quarter over time. So we're getting a benefit not just in account servicing and payment processing revenue, but we also get some of the custodial revenue that is not interest rate adjusted. And if you accumulate all those things, we would be in that range.

Our next question comes from the line of Trevor Williams with Jefferies.

For Melissa, I was just hoping to get your latest thinking on the portfolio of assets that you have today, and it's come across on the call, just how upbeat you guys are on the outlooks for each of the 3 segments. I'm just curious how that feeds into your appetite to potentially explore any strategic action within the portfolio.

Yes. I talked about this last quarter, but just to reiterate it, our Board looks at the composition of our business portfolio regularly. And they do these reviews with a lot of objectivity. They bring in outside bankers to support that process. And the things that we're looking at as part of that is what are the strategic advantages of applying our knowledge, the diverse end market across all those diverse end markets that we're part of, where there's common IP, where there's efficiencies around shared infrastructure, technology, talent, things like that. And then they look at what are the opportunities in order to acquire or dispose of businesses and what are the valuations or the hard costs associated with that. So there's a really in-depth view. And along that way, what they're really making sure of is that we're using our best judgment in order to deliver the best returns for our shareholders. So yes, we're very upbeat right now. And at the same time, I'd say our Board is very much engaged in making sure that we're thinking about that as well.

Okay. And going back to Corporate Payments, the total volume growth improved quite a bit from 2Q. I don't know if you guys could unpack where that improvement came from. And then just any update on how you're expecting wallet share with some of your biggest customers to trend from here? It sounds like there's been some improved visibility with some of the other big OTAs, but any more color there would be helpful.

So you're talking about total volume growth in Corporate Payments? I mean that was...

Exactly.

3% in the quarter. It was a slight improvement from the first quarter. It was predominantly in the travel segment. We've now hit kind of the summer travel season, and we're seeing kind of strong growth in travel. Was there a follow-up on that to answer the question?

Yes. No, sorry, the other part of the question was just around wallet share trends with some of your biggest customers. It sounds like you've improved some of the visibility with the other big OTAs. I'm just curious if you have any more color to share there.

Yes. And actually I wouldn't describe it as wallet share trends. What we have done is worked with them to have a more consistent pattern of the spend volume so that there's always going to be some seasonality in travel. But what had happened last year was a large front loading and then not as much spend in the second half of the year, and that has created some comp issues for us. So we've been working with that customer to have it become much more normalized, which will create comp issues through the course of this year, but should then make it much more predictable in the future.

Your next question comes from the line of Andrew Jeffrey with William Blair.

Melissa, I wanted to drill down a little bit in mobility. Obviously, good new signings momentum, which is encouraging. Can you talk a little bit about some of the secular trends, and I don't mean necessarily short-term demand. I'm thinking about sort of fuel efficiency and things like that and maybe update on EV mix and whether or not that's something that sort of materially can move the needle here over the next year or 2?

Yes. Great question. On the EV, let me start with the EV side. Our products are resonating in the marketplace. We continue to have a really good pipeline. Most of the customers in that pipeline continue to be government related. There are other people in the space that continue to be interested. But I would say, in most cases, what they're trying to do is test and really understand the total cost of ownership. And so that is still happening. It is happening at a slower pace than what we had originally anticipated because the market is moving, but we feel really well positioned with the products that we have. And the offering we have to that customer base allows them to take all of the different types of activity they have, whether they're charging at a depot or they're charging at home, whether they're charging on the road and as they have a consolidated fleet offering, which includes their ICE vehicles, they have all of that information together. And so we feel really good about that. And in addition to that, some of the offerings that we have with the fleet leasing companies that we have partnerships with, we're exposing them to our EV offerings as well. So feel good about that. We do think this is a great long-term play. The economics are holding up. We just think it's going to take a slower migration path. In terms of the secular trends within mobility, over time, we've done this for a while. We've always assumed that there's going to be some headwind associated with fuel efficiency. Now that's been -- that's played out over the years regardless of what's happening with EV migration, vehicles that come out in production tend to be more efficient than the ones that are getting replaced. And so we embed that in our view of growth within that segment. The second part, the macro tends to be a little bit bumpier. Sometimes we're a benefactor of that, sometimes that's working against us. And what we're really focused on is making sure that we retain the customer. And so that as you go through these cycles, it's just a question of when you see that volume come back on. So net-net, when we think about this part of the business, it's a part we continue to be really excited about. It throws a tremendous amount of cash off, which allows us to invest in other areas of the business as well.

Okay. I appreciate that. And then just as a quick follow-up. In embedded finance, you mentioned virtual card offering for fintech. Can you just sort of describe a little bit the competitive environment and what you think your right to win is in that space? Because that's a relatively new business for WEX I think.

Yes. So it is a similar product offering to what we're doing in travel. We just had added in functionality that made it more applicable outside of travel. And the places that we're having success is AP automation, media tech, expense management, e-commerce, areas like that, where we're finding you've got often new fintech players that are in the space that want to extend their capabilities to include payments. And so this, similar to our travel product, it's an API-enabled payment stream. So you embedded in the workflow of the customer, and it gives them another tool for them to be able to compete in the marketplace. What we're finding in the market. And I would say, yes, we had this great win, and we're really excited about it. And a lot of what's in our pipeline are more what I call singles. There are a large number of customers that are sitting there. And every time that we've looked at this pipeline and again, these products are new this year, it's expanded. smaller in size. And in a way, I like that because it creates that much more diversification across the portfolio that we have in corporate payments. The part of why us is because we have such a strong history managing these complex transactions in travel on the B2B side. That gives us a lot of market credibility. We have a really strong virtual card technology stack. I'd say best. And we have a lot of experience with these deep integrations through API automation within that part of our business. We're also hearing a lot of interest in providers right now in the marketplace that can execute end-to-end. So this is where owning a bank in this particular moment is even more important to our customers. And all of those things combined that's resulting in is a very strong pipeline, a lot of interest, and we continue to add features in this product. So it's a place we're excited about. And we do think that, that will help create momentum within our Corporate Payments segment, which is important to us, obviously.

Okay. So it sounds like a TAM expansion initiative...

Yes. I would say TAM expansion where we've already expanded it. And as we add into the product, we will continue to expand that TAM.

And that will conclude our question-and-answer session. I'll turn the call back over to Steve Elder for any closing comments.

Thank you, Regina. Like usual, I just want to say thank you to everyone for listening in, and we'll look forward to speaking with you at the end of the third quarter.