Ladies and gentlemen, thank you for standing by, and welcome to the WEX Q3 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Steve Elder, VP of Investor Relations. Please go ahead, sir..

Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our CEO; and our CFO, Roberto Simon. The press release we issued earlier this morning and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com.

A copy of the release and the slide deck have also been included in 8-Ks we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or ANI, during our call.

Adjustments for this year’s third quarter to arrive at these metrics include unrealized gains on financial instruments, net foreign currency remeasurement losses, acquisition-related intangible amortization, other acquisition and divestiture-related items, loss on the sale of a subsidiary, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, ANI adjustments attributable to noncontrolling interests and certain tax-related items.

Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income to GAAP net income attributable to shareholders. 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 risk factors identified in our annual report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020; our quarterly reports on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020, filed with the SEC on May 11, 2020 and August 5, 2020, respectively; and 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 Smith..

Good morning, everyone, and thank you for joining us today. I hope everyone is doing well, and staying safe and healthy.

I will start today’s call with an overview of our Q3 performance highlights and business update, segment trends, progress against our strategic initiatives and additional color around what we’re seeing as we move into the fourth quarter.

Then, Roberto will provide more detail on our financial results as well as some balance sheet highlights before we open it up for questions. Before I dive in, I’d like to provide some perspective on how we’ve been navigating through this global pandemic.

First and foremost, we focus on protecting the health and safety of our employees, customers and communities, which continues to be paramount to everything we do. Second, we ramped up our risk mitigation efforts to ensure WEX is prepared for anything and everything, during this period of uncertainty.

Third, we proactively executed a number of cost containment and CapEx savings initiatives earlier this year to rescale parts of our business.

Finally, we’re very-focused on returning the business to our long-term growth targets and plan to build upon the strong year-to-date sales momentum by resuming our full sales and marketing efforts that had been paused by the pandemic at full tilt in the fourth quarter.

In addition, we will continue our current rate of R&D spending to further improve our leading product and technology position. We believe that these two efforts combined will position us for sustained growth and market share gains in the future.

I’m pleased with the hard work our team has done to control what we could during these unprecedented times and deliver against these four key priorities this quarter. Let’s turn to our third quarter performance highlights on slide 3. As expected, the COVID-19 pandemic continues to impact business activity within our customer base.

Revenue for the quarter was $382.1 million, which is up 10% compared to the second quarter as previously discussed trends continue to improve as we progress through the year. We’re down 17% compared to the prior year quarter, primarily due to compressed volumes and lower fuel prices.

Specifically, lower fuel prices reduced revenue by $16.7 million or about 3.5% compared to the prior year quarter. From a profitability standpoint, GAAP net loss was $1.49 per diluted share, and adjusted net income was $1.59 per diluted share, down 39% year-over-year.

This was again driven by the factors I just mentioned, partially offset by the cost containment initiatives we introduced earlier this year. Although profitability remains down due to the impact of COVID, we continue to execute well on the items we can control, and drove better than expected results for the quarter. Moving on to the segment results.

I’m encouraged by the steady sequential improvement in our fleet business with segment revenue down 18% year-over-year compared to a decline of 24% last quarter. While the year-over-year decrease was due to unfavorable fuel prices and lower volumes, as a result of the pandemic, we had a number of bright spots in the quarter.

Notably, we continued to generate above-market growth with over-the-road customers as over-the-road payment processing transactions grew 8% this quarter. We also continued to gain market share with a number of new wins this quarter and customer implementations year-to-date.

Recently, we’ve also seen stronger new customer applications submitted for approval. In North American fleet, approved applications in September were up 15% compared to last year, and in the over-the-road, the number was 21%. These wins will roll into the future and are an important part of our growth story.

We believe that will also be complemented over time with a rebound in our existing customer volume. Finally, even though outsized growth contributions from Shell and Chevron ended last quarter, the two portfolios remained solid in the third quarter.

Before I move on to other segment performance, I want to provide some additional color around how we think about our fleet customer mix.

Our customers represent a cross-section of many different industries and use vehicles to fulfill a variety of needs, over-the-road customers moving goods, contractor trades going to work sites, government agencies traveling to locations and sales fleets making customer calls.

While overall customer retention rates remain high, we’re seeing continued latent demand amongst some customers. And though we noted a moderate rebound in the existing customer behavior within Q3, we’ve seen a flattening of that curve and returning to pre-COVID levels, which continues to present a revenue headwind.

It’s also worth noting that as our customer mix has shifted towards over-the-road and larger fleet customers, the customer credit quality profile has also improved. At the same time, we’ve seen small fleet customers pay their bills in a more timely manner than in the past, which also improves our overall credit quality profile.

These trends are reflected in a 10 basis-point decline in late fee rate this quarter compared to the prior year, resulting in a year-over-year revenue decline of approximately $8 million. Nevertheless, we’re encouraged by these trends as they set the stage for a stronger customer base for the future.

Turning to our Travel and Corporate Payments segment. This continues to be the area of our business most severely impacted by the pandemic.

Segment revenue decreased by 35% year-over-year, with travel-related revenues down 68%, offset by growth in corporate payment customers and better pricing from a new scheme contract, which we signed in the second quarter. Segment purchase volumes were down 59% year-over-year in the third quarter.

Although up from April lows, we continue to see the impact on travel as the majority would-be travelers chose to stay at home during the pandemic in the normally travel-heavy summer vacation months. For the travel that has occurred, trends are clear. Domestic travel over international travel, driving vacations over flights, and U.S.

portfolio faring better than Europe and Asia when cross-border travel is more prevalent. While we look forward to consumer travel rebounding in the years to come, we’ve taken this period of time to restructure, renew and extend our commitments with many of our top travel customers.

As a bright spot, corporate payments revenue and volumes contributed positively this quarter, up 10% as the economy continued to open and B2B payment volumes started to recover. While corporate T&E spend in this segment continues to be depressed, account growth remains strong with many of our partners.

We saw improvements in spend from our media partners in association with the election cycle, and we benefited from maturation of implementations completed this year. This is also an area where we’ll see a lot of strength in the pipeline of new business.

Finally, our Health and Employee Benefits segment posted another quarter of year-over-year top line growth, up 7% from the prior quarter, driven again by strong performance in our U.S. health business, which was up 11%. Importantly, our average number of SaaS accounts in the U.S.

grew 12% year-over-year, underscoring continued strong demand for our products. We’re in the early stages of the open enrollment season for benefits that will begin next year, and so far, we’re encouraged by the trends that we see.

Our COBRA offering also continued to see significantly higher demand, given the high unemployment levels, with associated revenue up 26%. Additionally, we experienced the highest level of health care spend this quarter since the beginning of the pandemic.

That said, continued deferment of nonessential medical treatments kept health purchase volumes flat compared to the prior year quarter.

Most recently, we held our second annual HSA Day virtually on October 15th, bringing the general public and health care benefits industry together to discuss the importance of HSAs in the role in managing health expenses and saving for retirement, all topics that are top of mind for Americans today.

Now, I’d like to take a moment to provide an update on our strategic priorities and cost containment program we began implementing earlier this year. As you can see on slide 4, we remain on track and aligned with our previously announced priorities and initiatives.

From an employee standpoint, WEX’s work-from-home program will remain in place at least until the end of 2020, with the majority of our workforce still working remotely. Productivity remains high as employees continue to leverage WEX’s comprehensive remote technology capabilities to collaborate and stay connected.

In the third quarter, we continued to execute on our cost containment plan while protecting business investments. All the planned reductions for the year are coming through as expected. Importantly, all employees furloughed earlier in the year, returned to work during the third quarter.

We also remain on track to achieve our previously outlined $20 million reduction in capital expenditures. We’ll continue to evaluate these cost levers on an ongoing basis to best position WEX for the long term. Additionally, we have focused on risk mitigation in a number of ways, most notably across our credit and collection practices.

We reduced available credit lines for thousands of fleet and travel customers without impacting their spending with us and revamped our collections operations. We’ve also exited our Brazil commercial operations at the end of the quarter.

The benefits business in Brazil is no longer core to our long-term strategy, and this decision allows us to redirect future investments to faster-growing parts of the Company. And that brings us to our final priority, returning the business to growth.

As you can see from the recent wins and renewals, on slide 5, WEX continues to win business this quarter, signing Red Bull and the U.S. Ecology, as two new large fleet customers; adding Diligent Delivery Systems, a premier nationwide transport and logistics services company; and signing doxo and WidePoint in the corporate payment space.

On the Health and Employee Benefit side, we signed Hormel Foods Corporation, EmpowerFlex and compensation consultants, who will all use the WEX Health Cloud for their HSA needs. Additionally, we also renewed contracts with a number of large customers, including the state of Michigan, state of Georgia, BP and On the Beach.

Our continued win are driven by four factors, our technology, our focus on continuous improvement to meet and exceed dynamic customer needs, our integration, and our people. These factors tie into the customer-focused culture of WEX. It can’t be replicated, copied or bought, and is the reason why we continue to take market share.

To support these new customers and as we continue to capture market share, even in this challenging environment, we’re focusing on continuous improvement and innovation to meet dynamic customer needs through regular releases of new features, additional new products and honing of our technology.

Before I get into the details of our technology wins this quarter, I’d like to take a step back and give a high-level overview of our technology strategy that we’ve been progressing at WEX over the past several years and why we feel this is giving us a distinct competitive advantage in the marketplace.

We’ve taken a multipronged approach in transforming our technology to be based in part on a continually growing platform of services. We first targeted our legacy technologies, simplifying, updating and reducing their complexity while moving them to the cloud, and simultaneously developing new cloud-native and service-oriented technologies.

This benefits us by having a technology platform that allows for building out a common set of shared services that they can be used across the Company via restful API gateways rather than having to rebuild everything on a per-product basis.

These services interoperate seamlessly with a legacy system, continuing to push products and services to market quickly with improved scale and reliability. Core to this strategy is the early recognition that data is a central part of our digital transformation and subsequently, building out both a new data organization and the data platform itself.

This platform allows us to view our data holistically across the enterprise and introduces modern tools and processes, including AI, everywhere the data is used.

Looking forward, this platform-as-a-service concept will allow us to have a common set of loosely coupled shared services while still enhancing our value-added services to customers, which is key to our differentiation in the marketplace. Specifically this quarter, we focused on customers, particularly as they use our tools outside of the office.

In fleet, we re-launched our customer portals for North American fleet and modernized the digital interface to provide a more intuitive, user-centric experience. We also updated our mobile application for over-the-road fleet managers, making it easier for them to run their business.

New mobile functionality includes enabling fleet managers to generate money codes when using a fuel card isn’t an option, pay their bills online, load cash to card, manage cards, transfer funds and view statements. From a fleet technology perspective, we’ll be transitioning the EFS platform to the cloud in the next few weeks.

This will mark a major milestone of largely completing our global fleet cloud migration. In corporate payments, we’re focused on helping our customers and partners deliver payments in whatever form is necessary, including new bank transfer capabilities in market by the end of the year.

Direct debit capabilities fast track this year to help our customers manage constrained credit better and in-house check fulfillment technology down production. We continued our cloud migration of platforms across the corporate payments technology.

On the health front, we introduced Let’s Chat, an AI-driven chatbot that enhances the personalized benefits account experience. Let’s Chat expands on the powerful analytics capabilities the health division offers partners.

Other Q3 product updates focus on features and functionality to help partners maximize HSA enrollments and deposits and deliver a personalized, consistent consumer experience.

As always, work continues to enable partner growth with new product offerings, increased efficiency and reduced costs through new technology and processes and ensure industry-leading fraud protection and security. Apart from new products for our customers, we’ve also been able to transform our operations.

For example, our internal business intelligence and AI experts have been focused on improving collections and credit monitoring technologies to give us the ability to react faster and with greater accuracy during this uncertain time. Now, let’s look ahead at the fourth quarter.

We expect third quarter top-line trends to hold steady and level off as we progress through the end of the year. This is driven by continued uncertainty around the virus and a slow economic recovery.

As a reminder, the fourth quarter also has fewer business days due to Thanksgiving and Christmas holidays, which has a slight drag on our numbers every year. On the expense side, we’re ramping up investments as part of the broader strategy I just discussed.

In the fourth quarter specifically, we expect to incur higher sales and marketing spend in the fleet segment as we invest in growing our pipeline following solid performance. On the health side, expenses typically increase in Q4 as we gear up for the open enrollment season and resulting implementations, and this year will be no different.

While this means we may see sequential impact to profitability, I am confident that these investments are key to driving sustained growth going forward. Turning to slide six. We provided a weekly look at volume trends in fleet gallon volume, and Travel and Corporate Payment spend volume.

Overall, while volumes are still down compared to the prior year period, all segments trended upwards as we progress through the year. In fleet, month-to-date gallon volumes are up approximately 0.6% in October from that year-ago period.

Breaking this down further, the North American fleet business trended relatively flat in the third quarter compared to the second quarter with month-to-date October volume down 6.6% year-over-year. Our over-the-road business remained solid, with month-to-date October volumes up 15.4%.

The timing of the Labor Day distorted year-over-year comparability through the first two weeks of September. Our international business remains challenged, with October volume down 11.4% year-over-year. In our Travel and Corporate Payment segment, purchase volumes were down 50% month-to-date in October from the year previous period.

Global travel-related spend volumes continued to trend slightly upwards with volumes down 74.6% year-over-year, month-to-date in October. However, the recovery in volumes slowed during the quarter. Our corporate payment spend volume increased 32.1% so far in October. Finally, turning to our U.S. health business on slide 7.

We saw spend volumes begin to stabilize from April lows as we progress through the quarter. September had the highest cardholder spend since the beginning of the pandemic. Month-to-date in October, spend volumes were up 5.6%, and we expect spend going forward to trend similarly to the third quarter.

Before I conclude, I’d like to make a few brief comments on the ongoing litigation surrounding the eNett and Optal acquisition. Earlier this month, we were very pleased with the English court’s decision in the preliminary issues trial.

As you will have seen, the decision upholds our position that in the context of the Material Adverse Effect clause eNett and Optal operate in the B2B payments industry.

We believe this ruling supports our determination that they have been disproportionately impacted by the pandemic, and as such, we believe WEX is not required to close the transaction. The claimants are seeking permission to appeal that decision, along with another part of the ruling concerning which party bears the burden approved.

We’re also seeking permission to appeal parts of this decision on a couple of secondary issues, including on how the Material Adverse Effect clause works in respect to the events that are reasonably expected to have a Material Adverse Effect and the court’s conclusion that the impacts caused by changes in law arising from the pandemic may not be taken into account in determining whether these have been a Material Adverse Effect.

We remain confident that eNett and Optal has been and continue to be disproportionately impacted by the pandemic and that an MAE has occurred, which is something that will be decided conclusively at a subsequent trial. As I look back on the year, we’ve made significant strides over the past six months in response to these extraordinary times.

Our business model is diverse and resilient. And while the environment remains challenged, we continue to perform well. Looking ahead, as we close out 2020, we will continue to invest in high-growth areas of our business and in technology and innovation, which is key to our success in limiting the market.

We believe these investments will position WEX well as the market recovers. Our focus has always been and continues to be on sustainable long-term growth. While our outlook remains optimistic, there’s still more work to be done.

I’m proud of our market-leading innovation and solid execution against our strategic initiatives during this quarter and remain confident in WEX’s future. We remain committed to driving long-term shareholder value while supporting our employees, partners, customers and communities around the world. With that, I’ll turn it over to Roberto..

Thank you, Melissa, and good morning, everyone. The pandemic and its effect on the marketplace remain fluid, and the pace of recovery has slowed. Despite that, we remain confident in the Company’s business model and the ability to outpace the market as the economy improves.

Along these lines, we are actively executing against the strategic pillars, improving profitability through the cost containment initiatives, providing best-in-class products and solutions to our customers and partners, we continue to invest in the future, and finally, we are proud of the hard work and continued productivity of our employees.

Now, let’s take a look at the quarter results on slide number 9. For the third quarter, total revenue was $382.1 million, a 17% decrease year-over-year. GAAP net loss attributable to shareholders was $65.8 million. Non-GAAP adjusted net income was $70.9 million or $1.59 per diluted share. Turning to slide 10.

We can see the overall revenue performance by segment. Breaking down the revenue. As we expected, fleet segment revenue declined 18%. Travel and Corporate Solutions posted a 35% decrease. And finally, the Health and Employee Benefit Solutions grew 7%. Now let’s move to segment results, starting with fleet on slide number 11.

Total fleet solutions revenue for the quarter was $228.7 million, an 18% decline versus prior year, primarily due to fuel prices volumes and finance fees, which were partially offset by new customer wins and renewals. Payment processing transactions declined 11% when compared to last year.

On a positive side, over-the-road transactions were up 8%, highlighting the strength of the trucking industry. This was offset by the North America fleet being down 11% and international. This is a significant improvement versus Q2. Along these lines, we saw progressive improvement in weekly volumes at the beginning of the quarter.

However, midway through and into October, volume trends leveled off. The net payment processing rate was up 6 basis points from Q3 2019 and 12 basis points down from Q2 2020 to 135. The year-over-year increase was mainly due to lower fuel prices and positive spreads in Europe.

The sequential decline was mostly due to higher fuel prices, lower spreads in Europe and a customer mix shift to over-the-road and large fleet. The net late fee rate decreased this quarter to 48 basis points in comparison to 58 basis points in Q3 2019.

The decrease was primarily driven by the same mix just mentioned, a shift towards over-the-road and large fleet as well as improved customer payment behaviors. Similar to what other financial companies have reported, customers are paying their bills on time more often than in the past. The number of late fee incidents were down 17% versus last year.

Although finance fee revenue was lower this quarter, it is actually a good sign and it is reflected on the fleet credit loss that I will address shortly. To end this segment, the average domestic fuel price in Q3 2020 was $2.23 versus $2.80 in Q3 2019. This lowered fleet revenue approximately $21 million.

Additionally, this amount was reduced by $4 million of positive spreads in Europe. Turning to Travel and Corporate Solutions on slide number12. Total segment revenue for the quarter decreased 35% to $64.3 million. Breaking it down, corporate payments customer revenue was up 10% year-over-year.

Compared to Q2 this year, I am pleased to report that we have seen a nice recovery sequentially. Revenue from travel-related customers was down 68%. Additionally, segment purchase volume issued by WEX was down 59% to $4.7 billion.

The net interchange rate was 113 basis points, which was up 39 basis points from Q3 last year and in line with expectations. The increase was mainly due to higher corporate payment related volumes, which have a greater net interchange rate than travel-related volumes.

Finally, let’s take a look at the Health and Employee Benefit Solutions segment on slide number13. Building off an impressive first half of the year, the segment experienced another solid quarter, with Q3 revenue increasing to $89.1 million or a 7% increase compared to last year. In the U.S.

health business, revenue grew 11%, driven by SaaS account growth, which was 12%. Breaking it down, nonpayment processing revenue grew 13%, and payment processing revenue grew 4%. As expected, health care spending rebounded during the quarter. Total volumes were flat year-over-year.

This is a significant improvement over Q2 where total volumes were down 26%. To conclude the segment, in late September, we sold the Brazil benefits business. As a reminder, this business accounted for approximately $6 million in revenue year-to-date 2020 and was operating at a loss. Now, let’s move on to expenses on slide number14.

We remain on track to achieve and potentially exceed the cost and CapEx reductions that we outlined in Q1. As Melissa has discussed, we are balancing cost savings with future spending. We will selectively increase investments in the areas where we see higher rate of return, which will put us in a better position to capture future growth.

For the quarter, total cost of service expense was $156.9 million, down from $165.7 million in Q3 last year. Total SG&A, depreciation and amortization expenses were $177 million, which is up $1.1 million versus 2019.

Breaking down the line items within these categories, processing costs increased $3.9 million, mostly due to headcount increases in the U.S. health care business. Service fees decreased $4 million, mainly due to lower volumes and the conversion to an internal processing platform in the Travel and Corporate Solutions segment.

Credit loss on a consolidated basis was $12.3 million versus $14.8 million in Q3 last year, primarily benefiting from much lower credit losses within the fleet segment. Fleet credit losses were down $4.9 million versus prior year and $9.8 million sequentially.

This equates to 10.8 basis points of spend volume compared to 12.6 in Q3 2019 and 26.9 in Q2 2020. The significant reduction in credit losses is primarily driven by the changing customer payment behavior, which I noted earlier. Additionally, we have put in place a suite of dynamic internal controls within the credit and collections area.

In the Travel and Corporate Payments segment, credit loss was $3.7 million, which was mainly driven by a significant travel customer loss. We are pleased with the credit loss performance in this quarter, but we are closely watching for any signs of weakening. Operating interest expense was $5.3 million, down $6.2 million from the prior year quarter.

This is due to lower interest rates on the WEX bank deposits and lower deposits overall. G&A expenses increased $7.7 million versus Q3 last year. This is mostly due to the litigation expenses related to the eNett and Optal transaction, offset by the cost containment measures.

The sale and marketing expenses decreased $9.1 million, driven by lower partner rebates and the cost containment measures. Lastly, due to the divestment of the Brazilian subsidiary, we recorded a loss on the sale of $46.4 million, which consists of the write-off of the associated assets and liabilities of this entity. Let’s discuss taxes on slide 15.

On a GAAP basis, the effective tax rate was negative 59.8% compared to 31.1% for the third quarter of 2019. On an ANI basis, the tax rate was 23.4% for the quarter, and 25.2% for Q3 last year. Changing gears now to slide number 16. I would like to provide an update on the strength of our balance sheet.

We continue to have a great deal of financial flexibility and remain in a healthy position with plenty of liquidity on hand, which increased since we last reported. We are committed to maintaining a strong balance sheet, and will continue to evaluate the market to determine if there are opportunities to further enhance it.

We ended the quarter with a very strong $1.5 billion in cash, up from $811 million at the end of 2019. From a liquidity perspective, the corporate cash balance was just over $1 billion at quarter-end, which is up more than $400 million from Q2 2020.

This increase reflects the investment from Warburg Pincus that we received in July this year and a strong cash flow generation in the third quarter. On top of that, there is over $800 million of available borrowings under the Company’s credit agreement.

Combining this with the corporate cash at the end of the quarter, the Company has immediate access to over $1.8 billion in capital. As part of the committed financing for the eNett and Optal transaction, and until we have resolution, we have agreed to maintain at least $752 million of available funds on the revolver.

We fully believe this provides us with sufficient funds to meet our operating, investing and financing needs in the current environment, and allows us to continue investing in areas of the business that will drive long-term sustainable growth.

At the end of the third quarter, we had a total balance of $3 billion on the revolving line of credit, term loans and notes outstanding. The leverage ratio, as defining the credit agreement, stands at approximately 3.2 times, which is down from 3.5 times at the end of 2019.

As a reminder, leverage decreased based on the new calculations contained in the amendment of the credit facility, which allows the Company to reduce gross debt by the full amount of corporate cash. To close out the call, the strength and diversification of our business model is proven.

We believe we are well-positioned for future growth as the market recovers. As you probably expected, we will not be providing guidance at this time. The unpredictability of the COVID-19 environment impacts our ability to accurately make future projections.

However, as Melissa also noted, we do expect revenue and volume trends to remain flat to Q3 for the remainder of this year. Finally, given the success in generating new business and expanding the pipeline, we will be increasing the investments when compared to Q3.

This will have a short-term impact to margins, but we believe this trade-off will drive future growth. And now, we will open the line for questions..

[Operator Instructions] Our first question comes from the line of Sanjay Sakhrani of KBW..

Fourth quarter revenue -- revenues remain flat, assumes a flattening out of the trends.

Is there any risk to that or opportunity to that going forward? I mean, how are you guys dimensional -- is that just an assumption, or do you have more data that sort of suggests that this is the track? And then, as far as the expenses are concerned, I assume that means the EPS sequentially will be lower.

And then, how should we think about the expenses into 2021? I know that’s like three questions in there. Sorry..

Let me start with your first one. And I gave you some updates on what we’re seeing month-to-date in October.

So, if you look across the portfolio, what we’ve said is, on the fleet part of the business we’ve got some really strong performance over-the-road, and we’re seeing a little bit more muted recovery in North American fleet in the international part of the business, if we’re aggregating that all together.

So, you can see a little improvement as you’ve gone through October from Q3, but it’s generally flattening off. And so, that’s really what we’re trying to make sure that we’re signaling some of these trends. We saw some pretty steep increases coming out of the second quarter, but they’ve really kind of leveled off.

And what we’re giving you information in October, just to give you as much clarity as we can. The other thing just to keep in mind is there is some seasonality in there too, which we’re also pointing out. There’s less business days in the fourth quarter. And that’s impacting, and it has historically the comparability to Q3..

And Sanjay, the other thing I will add on the fourth quarter is, normally fuel prices tend to go slightly down. And obviously, we are monitoring on a daily basis where we land on that..

Okay.

And so, the EPS sequentially will be lower though, based on your guidance, right, is what you’re saying?.

So, obviously, if you take the volumes and the projected -- the revenues that we are estimating to level off, and the fact that we are going to see some increases in a couple of areas in costs, you should expect EPS to go down sequentially..

Okay..

But you should not take that number in Q4 as -- what we should be projecting as we move into next year..

Okay.

And so, the ramp-up in expenses is just for fourth quarter and shouldn’t continue out to 2021?.

So, I would say two things. One of them is, we have delayed, as part of the cost containment initiatives, some marketing campaigns in fleet. And as Melissa has said, we are seeing great momentum. So, we are going to be spending some of the money in Q4 to get ready for the 2021.

And then, the second thing is the sequential increase that always happens on the U.S. health business as we get into enrollment season. And as you know, our health business grew in the quarter 11%, and we feel very good on the pipeline. And we will continue doing what we always have done sequentially on that business..

So, just to add to that, as I think about the sales and marketing trends, we’re trying to make sure that we are appropriately spending on sales and marketing as part of the long-term growth rates of the Company.

So, we’re looking at what’s happening within pipelines and redistributing some of the spending across the business but also increasing it where we think is appropriate.

At the same time, all the other cost containment initiatives that we’re doing where we’re really pulling back on discretionary costs and pulling costs out of some parts of the business, those type of behaviors are things that we’re continuing to do..

Our next question comes from the line of Steven Wald of Morgan Stanley..

I was wondering if we could start out with some of your comments around the trends continuing. I know Sanjay has asked about it, but maybe in a different way, to look at, the trends continuing through year-end in a number of your businesses.

And I’m curious what you’re thinking of in terms of impact on travel and how you would manage the business if we were going into another second wave kind of shutdown. It sounds like that’s not really what’s being contemplated in the base case.

And if things were to continue into 2021, whether or not we get a vaccine, how are you thinking about toggling that in terms of managing leverage from here, managing the travel business, the risk of having to close? And do you feel like at this point -- I know you said in the current environment, you’ve got enough liquidity to manage through the environment, but if you were to have to close and then -- but we have some kind of improvement in conditions next year, are we sort of at the point where you feel like you can get to the other side without some kind of additional capital raise or anything like that? Could you talk us through how you’re thinking about the next, call it, 6 to 18 months on that -- on those few variables?.

Sure. And thanks for the question. You’ve got a lot in there..

Sorry..

No. That’s all good. And so, just to start with, we feel really good about the liquidity position of the Company. And we really wanted to make sure we set the business up to anticipate the fact that there’s a lot of unknowns, what’s happening in the world right now. And so, we feel very comfortable about the position that we’re in.

On top of that, you asked about kind of how we’re balancing some of the decision-making. I think, that’s -- it’s really core to what we’ve been thinking about. The way that the Company has grown organically has been if we think of this as three buckets. We look at what’s happening with our existing customers.

And traditionally, we’ve gotten a little bit of net benefit from our existing customers and our partners. We managed to really reduce the amount of attrition we have with the existing customers. It’s always been a big focus of ours. And then, the majority of our growth comes from new customer adds.

And so, when we are really making sure that we’re gearing the business for growth long term, we want to make sure that we’re continuing to invest in sales and marketing, because that will drive the organic growth engine of the Company. Now, the attrition rates continue to be very low. We’re getting really good new business coming through.

We can see that both in our pipelines but also what we’ve implemented. The part that is least known right now is what’s happening with the existing customers. And I talked about that as latent demand, but what we can see and hear from our customers is that their behavior patterns right now are different.

And I think you can experience that in your own lives. And so, as that rebounds, which we do believe it will, but we think that, that’s going to take some time. That’s going to be the third lever and pulling back to our overall organic growth.

If we go into something where you see more of a shutdown to say right now what we’re seeing across the business is even in regions where they’re starting to have more COVID activity. We’re not seeing big huge swings and customer behavior like we did in the second quarter, so far, knowing that there’s a lot of unknown out there.

But, what we’re seeing really is this almost like parts of the world are operating -- they’re operating so that essential businesses are continuing to happen, and a little bit more than that, but it’s already this muted level of activity that’s happening.

And so, as a vaccine comes out, we do expect that you’re going to see that behavior pattern change, go back to the way it was before. But, as COVID activity increases, we’re already operating off a base where the activity has been more muted. So, we’re not seeing as much of a trend down..

Great, okay. Thank you for the robust comments there. I know I threw a lot at the wall. Maybe just a quick follow-up on the payments side, a bit of a bright spot there.

I’m just curious how your partners are approaching the current environment, if they’re seeing a reason to be more aggressive in trying to sell new clients in the corporate payment side, seeing as that seems to be the strongest and largest area of growth for you guys?.

Yes. On the corporate payment side, the partners are -- yes, so, they are also seeing interest, have good pipelines. We’ve got good momentum in those pipelines, and that is definitely additive to us. I’d say on top of that, just the pipeline of new partners that we have is really good right now. So, we feel good about the addition of new partners.

Our partners continue to go out into the marketplace and sell, and having momentum from each of those things..

Your next question comes from the line of Ashish Sabadra of Deutsche Bank..

So, just a quick follow-up on the earlier question on corporate payment. The 32% growth that we saw in October, I was wondering if you could provide any more color on that. How much of it is coming through partner versus several new wins that you highlighted on the call today? Thanks..

Yes. The largest part of the growth is coming from our fintech channels. If I kind of split it into even smaller subsections, we’ve got our partner channel, which is growing I think more single digits right now, which are more traditional FI partners. The fintech piece is on fire and growing significantly higher pace.

And then, the more traditional direct customers, which are a hodgepodge of use cases that sits in there is actually still down year-over-year as some of their spend just hasn’t recovered..

That’s very helpful color. And then, going back to the fuel segment, I just wanted to confirm that the new applications were up 15% in local and 21% in OTR. That’s really strong growth there in new wins.

I was wondering if you could provide more color on the split between small versus larger fleet, and when should we see some of these applications contribute to revenues going forward? Thanks..

Yes. Look, bringing in new business is something that we’ve been doing throughout the last 12 months. And it’s a little bit hidden, I’d say, based on what we’re seeing with same-store sales trends. But, we’ve had some really good momentum. Why I was calling it out this quarter is because it’s particularly strong right now.

And it’s part of why we want to make sure that we’re feeding into some of the sales and marketing activity that’s happening. I don’t think I can split it down between small and large for you specifically. But, what I can say is, it’s kind of across the board.

The offerings that we have, the introduction of our edge product and combining that with the overall offering that we have within fleet is part of why we’re seeing an uptick in customer interest and pull-through rates.

It’s also a piece of work that has happened within our marketing groups of creating a digital marketing platform, and we’re seeing benefit with the work associated with that. So, there’s a bunch of things around product and what we’re doing on the innovation side that’s contributing to that..

That’s very helpful. And maybe if I can sneak in one final clarification. I don’t know if you provided the same-store sales on the call.

If not, can you provide that information?.

Yes. It’s down about 20%. I don’t have it in front of me. And it is down, if you look across pretty much every SIC, it’s being impacted. So, again, this is same-store sales specifically for the North American fleet business..

Your next question comes from the line of Ramsey El-Assal of Barclays..

Melissa, in the fleet segment, you mentioned stronger new customer applications submitted and approved. Can you help us think how those new signings typically flow through to revenues? How fast do the customers ramp up? I know, we’re in a difficult climate with the pandemic impact.

But, should we think of that as a leading indicator for good things to come, or is it more just sort of capacity that you’re opening up, and the macro environment has to sort of improve in order for that to sort of fill up?.

Well, again, I think that it’s an important component to our growth, and in fact, it is the most important component to our growth in a normal environment. So, I do think it is a leading indicator in terms of just our sales performance, people’s interest in the products where we’re investing money.

I think, all of those things are reassuring, based on what we’re seeing in terms of sales pull-through. But, if you look at our revenue growth overall, what’s happening with our existing customer base is the biggest driver of what’s happening for revenue in kind of that short-term period of time. So, both of them matter to us.

I think, about our business, the things that we can control, we control limiting customer attrition. And so, we’ve been very focused on that, and we feel really good about the results of that. We can control how much new business that we sign and how quickly we implement that. And so, we’re very focused on that.

The business activity, again, we think will come back as business behavior returns more to normal. But, we do think that’s going to take a little bit of time..

Okay. And I also wanted to ask about the eNett Optal matter. Can you give us your thoughts on just sort of the timing and the process? I know anything can happen. But, I know there’s an appeals process happening now. Presumably after that, you’d get back to the sort of potential trial portion unless something else gives.

Are we talking about like a Q1, first half, second half? I mean, how long do you anticipate this could kind of stretch out? And then, tacked on to that and then I’ll hop back in the queue is just an update on your fuel price sensitivity for the business. There’s been a lot of obviously COVID-related mix shifts in the business is an understatement.

What is the way of thinking in terms of that nice ratio you provide us for fuel price sensitivity? I’ll hop back in the queue now. Thanks..

Sure. So, on eNett and Optal, we’re obviously happy that we prevailed on the main preliminary issues that were in dispute. I talked a little bit about the appeals. And the appeals process’s timing is really up to the court. And so, we’ve asked for it to be expedited, but we actually don’t know when that will be.

And then, at the same time, the rest of the issues will proceed within the court system. But again, the timing of that is really more determinant based on the court and their availability. And then, Roberto is going to talk about fuel price sensitivity..

And so, just really quickly, so it could be -- it could happen a little quicker, given the expedited requests rather than what we think of -- and as analysts in the space, these legal matters, they can drag on for quite a long time.

It seems like the timeline is a little more crisp at this point?.

Relating to the appeals, specifically. Yes..

Just relating to appeals. Okay, fair enough..

I will give you the sensitivity on the fuel prices. And I will start what we disclosed and where we were last year. So, for every $0.10 of fuel price change on a full year basis, revenue was approximately $40 million and adjusted EPS was $0.20.

When we were moving into 2020 pre-COVID, with the additions of Shell and Chevron, those numbers were increasing from $14 million in revenue to $15 million to $16 million, and ANI EPS from 20 to around 22.

And obviously, as the volumes have gone down and there is a shift in the mix from any fleet to over-the-road, those numbers are, I would say, probably below the ‘19 levels. So probably, you should think about $13 million in revenue and around 18 on ANI EPS.

But obviously, this is going to change as we move into next year and depending on how the businesses shift..

Your next question comes from the line of Bob Napoli of William Blair..

Just a numbers question, then a big picture question. Just to clarify, the consumer -- the travel business is essentially 100% consumer. You have little to no corporate travel in your travel payments business.

Is that correct?.

So, think of it as people that are using -- largely using online travel agencies. That’s the largest part of the business. So, it tends to be slanted towards consumers. I wouldn’t say that it’s exclusively consumer spend. Majority is consumers..

Is that like majority 80% or....

Yes. It is whatever is in the OTA’s portfolio..

Okay. Okay. Thank you. And then, just a big picture, Melissa, you’re standing here hopefully a year from today or not longer, the pandemic will be behind us, your balance sheet is in good shape, and you’re investing for growth.

If you think about the long-term targets that you’ve given out in the past, high-single-digit, I guess, revenue growth, 10% to 15% with M&A, 15% to 20% EPS growth with M&A.

As you look at the portfolio of -- the product portfolio, do those long-term targets post -- once we’re beyond this pandemic, still make sense? As you look at the segments, do you have the ability to grow within those types of ranges?.

Yes. We feel really confident in our ability to hit our long-term growth targets. And just to add to that, I talked a lot about technology, but the -- so what around the technology is making sure that we’re continuing to add to the capabilities that we have, which allows us more optionality in the future for doing more than we have in the past.

So, we actually do feel very good about that..

Which technology piece you’ve added is the most important? You talked a lot about technology this morning..

Yes. I don’t know that I would actually call out any one thing. I think that it’s the aggregate of what we’re doing that is having a pretty large impact.

And then, the movement to the cloud combined with architectural changes around the system, so something like the technology platform that we’ve created, which is cloud based that we’re using for a transaction processing system. It’s market-leading in the market. So, it’s got market capability internally.

It provides additional reliability in performance to our client base, and it’s at a significantly lower cost. And so, I look at that as something that has been instrumental in what we’re doing across our technology, but it’s just one component.

What we’re doing on data and creating our data lake, and it is also really important to future product capability. So, I think about what we’re doing, we’re increasing our ability to move quickly. We’re doing it in a way that will long term be less expensive. And at the same time, we’re operating at a significant scale.

And those things are for us important strategic advantages..

Ladies and gentlemen, we do not have time for any other questions. I turn the call back over to the presenters..

This is Steve. Thank you, everyone, for joining us today. And we’ll look forward to joining you again next quarter, and hope everyone stays safe and well..

This concludes today’s conference call. You may now disconnect..