Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX Q2 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Steve Elder, Senior Vice President of Global Investor Relations, you may begin your conference.
Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO, and our CFO, Jagtar Narula. 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 an 8-K we submitted to the SEC earlier this morning. 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, and adjusted operating income during our call.
Adjustments for this year's second quarter GAAP results to arrive at these metrics include unrealized gains on financial instruments, net foreign currency remeasurement losses, change in fair value of contingent consideration, acquisition-related intangible amortization, other acquisition and divestiture-related items, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, and certain tax-related items as applicable. Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income attributable to shareholders to GAAP net income attributable to shareholders, and an explanation and reconciliation of adjusted operating income to GAAP operating income. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and indeterminate amount of certain elements that are included in reported GAAP earnings.
I would also like to remind you that we will 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, 2021, filed with the SEC on March 1st, 2022, 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.
Thanks, Steve, and good morning everyone. We appreciate you joining us today. I'm pleased to report that in the second quarter, we once again delivered record revenue and adjusted net income per share with organic revenue growth of 22%, driven by strong volume trends across the business. Revenue in the quarter was $598 million, a year-over-year increase of 30%. To put our growth in perspective, Q2 revenue increased approximately $139 million year -over -year. The benefit of higher fuel prices, partially offset by foreign exchange rates, was less than half of the increase or $56 million. In our trailing four quarters, we have surpassed $2 billion in revenue, which is a testament to our team's focused execution, leveraging our global commerce platform in our large addressable market, where we continue to benefit from digital tailwinds.
Total purchase volume processed across the organization in the second quarter grew 77% year -over -year to $37 billion. Each of our segments posted record purchase volume numbers, demonstrating the power of our growth engine, coupled with our solutions designed to simplify benefits, reimagine mobility, and pay and get paid. Record quarterly revenue paired with scale efficiencies in our business model resulted in adjusted net income per diluted share at $3.71, an increase of 61% compared to the same quarter last year. The scalability of the business model is reflected in our earnings growth rate. The second quarter of 2022 was another record-setting quarter as we continue to execute well on all fronts.
Now let me take a step back to discuss the continued progress we're making against our growth strategy to win new customers, grow share of wallet, and expand and diversify our offerings. Let me begin with new customers. Our products and offerings resonate in the market, and we continue to win new customers across the WEX ecosystem. First, in the health and employee benefit segment, we won a major American auto parts distributor as a benefit administration customer. Our breadth of solutions and customer orientation were the key reasons as to why we won the business. We continue to see strong execution across the pipelines of our direct partner in benefit administration distribution channels, with success seen in expanded partner referrals.
In mobility, we've won a large new fleet deal with Spee-Dee Delivery Services, a Midwest shipper with 1,800 employees delivering over 70,000 packages per day. Spee-Dee was utilizing eight different fuel card programs with competitors, mobile fuelers, and card locks. By switching to WEX, they will now be able to improve operational efficiencies with a single universal solution and consolidate their fueling to a single bill to ease their administrative burden. They were also able to take advantage of the WEX EDGE fuel discount network for increased savings. In addition to our continued sales execution with large fleets, we're also improving the reach and efficiency of our customer acquisition efforts via investments in our digital marketing channel, which reaches small fleet customers in the U.S. During Q2, we saw a significant increase in new fleet accounts that were acquired via digital channels.
We're also constantly leveraging our technology tools and customer knowledge to enhance the sales funnel using AI capabilities to optimize search engine marketing results and create a more personalized customer journey to improve conversion. This has resulted in decreased cost to acquire for new accounts and the ability to go further down-market. We will continue to learn as we go. Within the travel and corporate payment segment, our outlook continues to be bright. In addition to the rebound in travel, corporate payments volume grew 29% compared to the second quarter of 2021. We're pleased with this growth, and we've been expanding our direct sales team over the past several quarters. Turning now to our efforts to grow share of wallet.
We're seeing cross-channel sales momentum across the WEX ecosystem with new virtual cards and health product sales to some of our existing fleet customers, including a leading provider of global automotive, wholesale, financial, software, and media services, and one of the largest truckload carriers in the U.S. We're building out our cross-sell infrastructure, including leveraging our data platform that allows sales to have a single view of the customer, as well as cross-sell training programs for our account executives. We expect these investments in programs to yield accelerating growth of share of wallet and further enhance our relationships with our customers. In addition, we're excited to announce that we've agreed to acquire a portfolio associated with one of our major oil company partners, which is comprised primarily of small businesses.
Under this expanded relationship, WEX will become the owner and issuer of the accounts and will be working to transition these accounts to our platform by the fourth quarter of this year. This expansion with our customer is evidence of the strength of our execution that makes us a preferred partner for leading oil companies but also for travel, corporate payments, and health partners. As we outlined in Investor Day, we're also expanding and diversifying our offerings to ensure we remain at the forefront across our ecosystem of solutions, providing our customers with best-in-class, simplified experiences. This played out in our travel and corporate payments segment, where our vision is to enable our customers to pay and get paid in the most efficient way possible, reducing friction, streamlining experiences, and giving them precious time back to spend on their core business.
We address customer needs through three solution sets: embedded payments, accounts payable solutions, and expanded offerings for small businesses. Let's start first with the progress on the embedded payments offering, where we believe our virtual card capabilities are market-leading, allowing global online travel agencies and technology companies to build payments into their workflows. As you know, we built our own cloud-native transaction processing system, resulting in a more resilient and scalable offering to our customers. Our travel customers are experiencing rapid volume increases as travel rebounds. Our products and technology is scaling with our customers, allowing us to successfully capture the rebound in travel happening in North America and Europe, seamlessly integrated into their operations. Next, let's turn to accounts payable solutions, which continues to evolve significantly. At the core of this solution, we are helping businesses streamline their accounts payable processes.
Our customers demand intuitive software, and they need help ensuring that they can complete payments across all modalities while maximizing the use of virtual cards. Following our in-depth user testing process, we will begin rolling out a new user experience and interface in Q4. We see our accounts payable solutions as an important contributor to growth in the years to come. Now, I'd like to take a moment to give you an update on Flume. As a reminder, in consultation with our small business customers, we have built a new financial platform that enables any U.S. business to send, store, and receive funds in a WEX digital wallet transacting via digital check, physical check, ACH, or instant Flume transfers. All of this is delivered through a streamlined and intuitive mobile-first interface after a 100% digital onboarding process.
We've just started to sign and onboard initial customers on Flume. While it is still very early days, we have a customer-informed product feedback loop, and initial results are positive. We're rolling out additional updates based on customer feedback to ensure that they are getting the most out of the platform. Turning now to our progress supporting our customers' energy innovation. Optimizing fleet fuel consumption is one of our business's foundational strengths. We provide a range of products and resources to help improve our customers' fuel economy and give them access to controls, business insight and data, in addition to tools such as freight management, route optimization, and idle time monitoring. The transportation sector contributes nearly a quarter of global CO₂ emissions. We are uniquely positioned to help fleet operators make the transition to EVs or other forms of efficient transport.
We are focused on developing and launching solutions necessary to help fleet operators simplify the complex transition. In Europe, we are currently piloting an integrated en route and at-home EV charging and payment solution with select fleet customers. This offering, which helps to bridge the management of mixed EV fleets, is significant for our European customers. This pilot, which leverages our significant customer relationships to understand and address customer needs, puts us in a position to rapidly refine our offering and continue to be a trusted partner to our customers. In the U.S., we continue to build upon the offering we have in the market. I am pleased to see the rapid learning-oriented and innovative approach that we're taking in this highly dynamic and fast-evolving space.
Supporting a commercial fleet transition to electric vehicles is a great business opportunity and one component of our broader commitment to energy innovation and efficiency. We encourage you to read more about our initiatives in the comprehensive updated ESG report we published this week. As you can tell, we're excited about the many opportunities ahead for WEX, and we're moving quickly towards realizing them. I'm pleased to be raising our full year 2022 revenue guidance by $90 million at the midpoint, and our adjusted net income guidance by $0.57 per diluted share at the midpoint. The midpoint of our guidance represents revenue and ANI per share growth of 22% and 44% versus last year, respectively. Looking ahead, the current macroeconomic environment is top of mind to all of us.
Through July, we continue to see strong customer volume activity across our products, including our mobility and travel customer portfolios. In fact, most trends seem to have reverted back to pre-pandemic behavior patterns. We continue to see tremendous runway ahead, and we are taking advantage of favorable fuel prices to accelerate strategic investments, which are designed to increase our agility in automation, further building out the scalability of the organization. We've learned over the past two years that we must remain nimble to address unanticipated issues that demand our action. With that, I'm pleased to turn things over to Jagtar Narula, who, as you know, joined us as our new CFO just a couple of months ago.
Jagtar's background is well-aligned with WEX's strategic path forward, and I'm excited to tap his unique experience successfully executing and integrating acquisitions, as well as bringing process discipline to previous organizations, which will benefit WEX as we continue to scale. Jagtar.
Thank you, Melissa, and good morning, everyone. As you just heard from Melissa, we delivered a strong second quarter building on the momentum we had after first quarter results. We delivered yet another record-breaking quarter in terms of both revenue and adjusted earnings, and by a wide margin. A solid quarter that shows both the strength and the resiliency of our business model. Now, let's start with the quarter results on slide six. For the second quarter, total revenue exceeded the high end of our guidance by more than $30 million due to a combination of record high travel and corporate payments purchase volume and higher fuel prices. Total revenue came in at $598.2 million, a 30% increase over Q2 2021, with more than 80% of revenue for the quarter recurring in nature.
As a reminder, we define recurring revenue as payments processing and account servicing revenue from our factoring business, transaction processing fees, and other smaller items. From an earnings perspective, on a GAAP basis, we had net income attributable to shareholders of $34.1 million in Q2. Non-GAAP adjusted net income was $169.4 million or $3.71 per diluted share. This represents a 61% increase over the prior year as we saw the power of our business model and the benefit of higher revenue drop through to our margins. Turning to slide seven and breaking down the revenue by segment, Fleet grew year-over-year by 38%. Travel and Corporate Solutions posted a 23% increase. Finally, Health was up 15%.
You will recall that for the last three quarters, we've discussed a change in revenue presentation for a specific customer contract in the Travel and Corporate Solutions segment that will impact the comparisons in this segment through Q3. You will see the details of the change in the appendix of the presentation we filed this morning. On a comparable basis, after adjusting for the accounting change, revenue growth in this segment was 64%, and revenue growth for the total company was 36%. Now let's move to segment results, starting with Fleet on slide eight. Fleet revenue for the quarter was $379.2 million, a 38% increase over prior year, powered by strong volumes from new customer wins and renewals. Record high fuel prices and a continued recovery in the existing customer base.
Payment processing transactions were up 10% year-over-year, which is in line with our historical growth rate. As expected, growth in the over-the-road transactions moderated some at 19%, while North American fleet was up 11%. As you saw in our metrics, the net late fee rate stayed relatively flat to the prior year, which is still lower than historical rates due to the rapid increase in fuel prices. Overall, finance fee revenue was up 44% due to significant increases in volume, fuel prices, and an increase in the number of late fee instances. We saw record high fuel prices in the quarter with an average domestic fuel price in Q2 2022 of $4.98 versus $3.04 in Q2 2021.
We estimate the year-over-year impact of higher fuel prices increased fleet revenue by approximately $64 million, including a benefit of approximately $2.4 million for European fuel price spreads. The net interchange rate in the fleet segment was 1.09%, which is down slightly from the prior year. The decline is due to the increase in fuel prices this quarter, offset by a one-time benefit in Europe related to an amendment of a large customer contract. We are seeing our transaction mix move towards slightly smaller but more frequent transactions as fleet owners cope with the higher prices, especially in the OTR space. This transaction shift has a slight benefit to our net interchange rate. Turning now to travel and corporate solutions on slide nine. Total segment revenue for the quarter increased 23% to $100.4 million.
Purchase volume issued by WEX was $17.1 billion, which is an increase of 96% versus last year. The net interchange rate in this segment was down 3 basis points sequentially as travel customers were a larger percentage of total purchase volume. Breaking down the segment further, travel-related customer volume represented approximately 70% of the total spend and grew 150% compared to last year. Revenue from travel-related customers was up 174% versus Q2 2021. This reflects a strong rebound in customer travel demand. We are very pleased with these results and are well-positioned to capture future growth as we expect the travel industry to continue its recovery.
Corporate Payments customer volume grew 29% versus last year, and revenue was down 18% as reported, but up 21% after adjusting for the previously mentioned accounting presentation change, led by continued strength in the partner channel. Finally, let's look at the health segment on slide 10. We continued to drive strong growth resulting in Q2 revenue of $118.6 million. This represents a 15% increase over the prior year. I would also like to remind you that we had approximately $7 million of revenue and one million SaaS accounts last year that were associated with our COBRA offering that were one time in nature. SaaS account growth was 7% in Q2 versus the prior year, building off a strong open enrollment season and including the accounts related to benefitexpress.
Adjusting for the temporary COBRA accounts last year, the growth rate was in line with what we reported in Q1. Health segment purchase volume increased 15%, leading to a 14% increase in payment processing revenue. We also realized approximately $5 million in revenue from the HSA deposits that were invested by WEX Bank starting late last year. Now, let's move on to adjusted operating income margins on slide 11. In Fleet, adjusted operating income margin for the quarter was 50.9%, up from 50.2% in 2021. This is the 5th consecutive quarter that these margins exceeded 50%. Before I continue with the other segments, let me briefly address the increased credit losses we saw in Q2.
Fleet credit losses were above the high end of our range at 23.6 basis points of spend volume and included approximately 11 basis points of fraud losses. We saw a significant increase in both application and transactional fraud that we believe is related to higher fuel prices. We have invested heavily in our fraud monitoring infrastructure, which enabled us to respond quickly to increasing fraud attempts and expect fraud losses will decline over the next 1-2 quarters. On the credit loss side, we continue to see a very healthy portfolio overall. Now, moving on to Travel and Corporate Solutions. The segment delivered an adjusted operating income margin of 50.8%, up from 21% in Q2 last year.
There has been a significant improvement in these margins as travel volume accelerated and drove much of the margin improvement we saw on a total company basis. Our business model here is very strong and revenue drop through for this segment is high given our relatively fixed cost base. In Health, adjusted operating income margin was 23.9% compared to 28.1% in 2021. The revenue and associated income from the temporary COBRA accounts last year are the primary driver of a decline in margin. In total, adjusted operating income margin for the company was 42.3%, which is up from 36.3% last year, largely driven by the fleet and travel and corporate solutions segment. Shifting gears now to slide 12, I will provide an update on the balance sheet.
We remain in a healthy financial position and ended the quarter with $439 million in cash. We had over $718 million of available borrowing capacity and corporate cash of $143 million, both as defined under the company's credit agreement. As you'd expect, we saw a sizable $1.6 billion increase in our accounts receivable versus year-end from higher fuel prices and more volume. Our invested HSA deposits at WEX Bank ended the quarter at $1.4 billion. There is an additional $530 million of HSA deposits held at WEX Bank that we're currently using as replacement funds for certificates of deposit.
We continue to evaluate opportunities to optimize earnings from the remaining roughly $1 billion of HSA deposit assets that we have custody over but are not held at WEX Bank. At the quarter end, the total outstanding balance on our revolving line of credit, term loans, and convertible notes was $2.8 billion. The leverage ratio, as defined in the credit agreement, stands at 3.0x, which is well within our long-term target of 2.5x-3.5x and down from the end of 2021 due to strong earnings. Benefits of higher fuel prices and our strong cash flow generation positions us well and gives us flexibility through a broad range of economic scenarios.
Finishing off the balance sheet, you will see that we repurchased approximately $81 million of WEX shares during Q2 or 520,000 shares. Finally, let's move over to revenue and earnings guidance for the third quarter and full year on slide 13. The second quarter was a very good quarter for us, and I'm pleased to share that we are significantly increasing our guidance for 2022. Starting with the third quarter, we expect to report revenue in the range of $580 million-$590 million and adjusted net income in the range of $152 million-$156 million. We expect ANI EPS to be between $3.35 and $3.45 per diluted share.
For the full year, we expect to report revenue in the range of $2.25 billion-$2.28 billion and adjusted net income in the range of $592 million-$603 million. We expect ANI EPS to be between $13.05 and $13.30 per diluted share. For the full year, these updated ranges represent an increase of $90 million of revenue and $0.57 of EPS at the midpoint from our previous guidance. As Melissa alluded to earlier, I'd also like to point out that embedded in our full year guidance are some modest incremental investments in the back half of the year, which will allow us to accelerate specific areas of strategic focus, including cross-sell, additional enhancements to our technology, product innovation, including EVs, and process simplification.
It's important to emphasize that we are making these investments from a position of strength, taking advantage of the current favorable fuel price environment to ensure we maintain our market leadership across our ecosystem and position WEX for a bright future. Now, let me talk you through a few more assumptions. Exchange rates are as of the end of June 2022. We estimate domestic fuel prices will average $4.50 per gallon in the third quarter and $4.36 per gallon for the full year. Both are based on the NYMEX futures price from last week. The adjusted net income tax rate is expected to be between 25% and 26% for the third quarter and the full year.
Finally, we are assuming approximately 46.5 million shares outstanding, including the assumption the share count will continue to include 1.6 million shares associated with the convertible notes. As a result of including the shares, approximately $3.8 million of interest expense each quarter, net of tax, will be added back to net income to calculate EPS. As I complete my prepared remarks, I would like to emphasize how pleased we were with our Q2 results. Our business has performed well and benefited from higher processing volumes in the fleet, travel, and corporate payment and health spaces. Our strong business model resulted in solid margin expansion from the higher revenue. As we continue to integrate our business, we are well positioned to capture more revenue and the benefits of scale in our model. With that, operator, please open the line for questions.
To ask a question, please press star one. Please limit yourself to one question and one follow-up. The first question is from Sanjay Sakhrani of KBW. Your line is open. Please go ahead.
Thanks. Good morning. This first question is on the higher fraud losses. Can you just maybe flush that out a little bit more for us in terms of what happened, where the blind spots were, and why you don't expect it to reoccur? Thanks.
Sure, Sanjay. It's Melissa. There was a couple of areas where we saw increased fraud in the second quarter, both on transactional fraud and on application fraud. As you know, we've got an infrastructure in place, where at the authorizer, which really limits the exposure that we have. What we saw a lot more volume of activity coming through. Over the last couple of months, we've been working with law enforcement, and our merchants on the transactional side, where we've been able to help identify where card skimming is happening. You know, as a result of that activity, you can actually see a drop in that volume of activity that's been happening in July.
On the application fraud side, again, it's just more of a volume thing as fuel prices escalated. We've always had application fraud, but you're seeing that just the volume of that coming through bots. We've made also changes in the way that we're doing our digital processes to account for the fact that you're seeing a really emerging environment. All of that activity together, you know, gives us confidence around what we're providing from a guidance perspective. You can see real time, you know, as I said on the on transaction fraud, how the actions that we've taken has reduced the amount of inbound activity that we're receiving.
Okay. Just to be clear, you've not seen any signs of, like, credit stress. This is all, everything that escalated was fraud related.
Yeah. Jagtar said in his prepared remarks that the overall portfolio really looks strong. You know, we continue to be pleased with both the volumes that we're seeing with our customers and what's happening within our accounts receivable portfolio.
Okay. Just one quick follow-up on the Exxon portfolio. Congratulations on that win. Maybe you could just talk about the size and scope of that portfolio and, you know, how it strategically, if we think about it's a little bit different, right? Because it's more of a commercial card portfolio, I believe. How does that factor into the mix of the cards that you do? Like, how much of your portfolio is now commercial cards? Thanks.
Yeah. If you look across the portfolios we have with the major oil companies, there is a mix in there. We've got customer portfolios that are revolving in nature, which are primarily really focused on really small businesses, like this portfolio. We're excited about the fact we're just continuing to expand the relationships that we have with these oil merchants. You know, as you might imagine, go through a competitive process in order to win the business. We're excited about this expansion. We're excited about the fact that we're bringing it on. It's gonna be about 1% of the total fleet business that we have now. But these customers don't fuel as frequently as we've seen the base portfolio, so it's a little bit less than 1% of revenue.
Okay, great. Thank you.
Your next question is from Ramsey El-Assal of Barclays. Please go ahead. Your line is open.
Thanks so much for taking my call. I guess I wanted to ask you first about your view of the sort of sustainability of the travel recovery. Kind of what inning are we in? What parts of your portfolio are, you know, kind of at that 2019 level, beyond that 2019 level? Maybe what is yet online. I'm thinking maybe that Asia piece from the eNett Optal acquisition. Just curious in terms of-
Yes.
[audio distortion] we're in. Yeah.
Sure. I'll give you know, a lot more insight into what we're seeing in that part of the business. You know, obviously we're really pleased in the travel recovery that we've seen so far. What we had in the second quarter was beyond the 2019 pro forma numbers, you know, as if we'd owned eNett and Optal. There actually has been some portfolio shifts, I'd say, this in total. If you look across the business right now for us, about 70% of the volume is happening in EMEA. APAC is only about 10% of the volume right now. Historically, that would have been 20%. We just haven't seen the APAC region recover at the same level that we have with the rest of the world.
We're also seeing transaction volume. If you look across the portfolio, transaction volume is about 85% of what we saw in 2019. That's being made up with rates, so it's about 20% higher rates on average. We're seeing a little bit less transaction volume at a little bit higher rates, and that's blending together so that we're over 100% of 2019 spend volume.
Okay. A follow-up from me on M&A. Just maybe update us on your thinking there in terms of the opportunities you're seeing. Obviously, there's been a real reset in valuations out there. Are you seeing any incremental opportunities? Maybe more specifically, do you see the opportunity to accelerate the fleet end or cross-sell strategy, by you know, by maybe tucking in more assets that help in terms of fleshing out opportunity there?
Yeah. In terms of M&A, I'll hit on both of those things. On cross-selling, you know, I talked about building out the infrastructure. We do believe that we have an opportunity on cross-selling across the portfolio. If you look across our customer base, we've got nine customers that are not using their products across the ecosystem, and one that is. I've talked about the fact that we're gonna leverage the ability to build out infrastructure to make that more automated than the way that we're doing it right now.
I think we've got some really good evidence of where that has worked, where, as we've extended and added products within existing customer sets, like benefitexpress, as we've added that into the business through an acquisition, we have an ability to, and have been able to cross-sell that product to our existing customers. We have from an M&A perspective, when we've done product extensions, we have been able to cross-sell. We do believe that there's an opportunity to do that. At the same time, when I think about M&A, we're looking for scale plays, geographic distribution or product extensions. I would isolate that to in areas where we're adding in from a product perspective, that's a place where we think we have cross-sell capability.
No, in terms you've hit on, multiples, you know, obviously, you know, as we think about the marketplace, as multiples come down, that does create opportunity for us. We will continue to evaluate, like we have over the years, opportunities and, you know, be rigorous about those that we think that we're gonna be able to actually see both strategic and financial benefit from.
Got it. Thanks so much. Appreciate it.
Your next question is from Darrin Peller of Wolfe Research. Please go ahead. Your line is open.
Hey, guys. Thanks. You know, I just wanna touch on investments in the business where you're making. I mean, you talked about accelerated investments and just whether, number one, if you could just give us a little more color on where you're really putting most of that towards right now, what you're most excited about. More importantly, cyclically, if we were to see some changes macroeconomically that requires flexibility, does it give you room to manage expenses if we were to see a more material downturn? If you could just touch on what kind of flexibility and what willingness you'd have to really protect the bottom line to some degree.
I think actually I think of this as a twofer. We have the ability to make investments now. Those investments are designed to either bring forward revenue opportunities that we have or to create more scalability of the enterprise, which makes us able to actually handle, you know, whatever's coming even better. I'll give you the example I gave on the call was related to infrastructure on cross-selling. But beyond that, if you look across the enterprise, you know, we're looking for areas that we can use technology to create automation. And in doing so, we believe that you create a better experience both for employees and from customers, but you can do it at a lower cost.
We're really gearing our investments towards looking at things that have, either, you know, a very clear path to revenue or a very clear path to cost savings. To the extent it has a cost savings impact, wanna make sure that it also creates a better experience from a customer perspective.
Darrin, this is Jagtar . I'll just add into that, much of what we're considering and mentioning for the back half of the year, we're really considering as one-time in nature. It does give us some flexibility.
Okay
From a cost perspective as to deal with market dynamics.
Right. Okay. All right. I guess to follow on to that, I mean, in terms of your willingness to really pull levers where necessary and what you'd consider somewhat discretionary in terms of where you can pull back on, if you can just give us a sense of what kind of potential there is there. I just had one quick follow-up on your fuel segment. I mean, when I look at the transaction growth on the underlying macro adjusted, the normalized growth backing out fuel prices, it's trending pretty well, low double-digit type growth from what we can calculate. If I think about normalized, there's concerns over trucking recession and other variables. It doesn't seem like we're seeing that.
I'm curious if you think the current trends underneath the hood in the business is really representative of what you'd expect longer term?
Yeah. Why don't I start with the latter part of that, so you can pile on to the-
Yeah
... the first part of that. On the latter part of your question, from a trend perspective, the over-the-road business, what we're seeing is that it has really reverted back to behavior patterns and growth rates like we saw pre-pandemic. They had an accelerated growth rate period within that business, and it's kind of really reverted back. Within that mixture customer base, the larger customers right now are faring better than some of the smaller ones in the over-the-road marketplace. Overall, you know, they're still seeing a need to move products, and they're seeing backlogs in doing so and so it remains actually quite healthy.
On the North American fleet customer base, we saw actually a pretty nice pop in the second quarter from same store sales, where, you know, I think we've really benefited from the economy continuing to reopen and mobility specifically. They've really continued to reopen. The growth rates we assumed in the second half of the year is a more normalized environment than what we've seen, you know, in the last couple of quarters, but it's still really strong.
Darrin, I think the first part of your question was around, you know, how we think about protecting EPS should the economic environment change.
Yeah.
I think to the extent we have discretionary investments in the back half of the year, like we talked about and other discretionary items that the company has, you know, we would absolutely, you know, continue to focus on the profitability of the company. You know, obviously we have a very scalable business model here and, you know, you get the benefit out of the good times and, you know, we'll have to watch out for the down times, but I think we've got a number of levers to pull to ensure that we maintain profitability.
I think just across the model too, if you look at the business, 20% now of our revenue is from health, you know, which is a SaaS-based model. It has been incredibly resilient for us. You know, when I think about, you know, where the business is now, much more diversified, which gives us, you know, a lot of confidence.
Yeah
As we go into many different markets. You can look back over the last several years and actually have evidence of that. You know, our last five years we've grown revenue 13% and EPS 20% in a really difficult market.
Understood. Thanks, guys.
Thanks, Darrin.
Your next question is from Mihir Bhatia of Bank of America. Please go ahead, your line is open.
Good morning, and thank you for taking my question. I actually wanted to just continue, just follow up, you know, the same theme where we ended the last one. Maybe just talk about the recession resiliency of your business. You know, how has that changed over the last few years? I understand you probably can't give guidance. I mean, you know, it depends on how deep a recession it is. Just in general, when we think of the various businesses and you know, the businesses within each of the segments, are there particular areas which are maybe more vulnerable? Like I'm thinking travel but travel maybe is a little more. You know, just talk about the recession resiliency of the business. Thank you.
Yeah, sure. If we look across the business, we do business with over 800,000 customers globally, and they are in many different SICs. You know, so think of that, like start with foundationally, it's an incredibly diverse customer base. The model, if you look at WEX, has become, you know, really quite resilient over many different economic cycles. You know, as I said before, about 20% of our revenue comes from our health customer base, which has been resilient, even through the pandemic, you know, through pretty much any environment.
It's, you know, part of the attraction for us in that part of the business is the fact that it is resilient to many different markets, but it's also a really complicated market that we think that we can continue to play well in, complicated and growing. If you look at other parts of the business, you know, both our fleet business, the over-the-road customers, would be a place that you could see some slowdown, you know, if something happened from an economic perspective. Our North American fleet customers tend to be more resilient, because again, they run across many different businesses. Travel and corporate payments, you know, part of the interesting thing about travel for us is that it is global.
You know, that in itself gives us some resiliency because even if you had an issue with one particular marketplace, it typically doesn't happen across the world all at once. We really feel pretty good about the ability of the company to be nimble and to react to, you know, different economic cycles, and we think we've actually shown that we can do that historically. On top of that, we've really been focused around our balance sheet, as Jagtar said. As we've reduced our leverage ratio, we think that positions us well also, with what's happening from a multiple perspective in the marketplace to be an acquirer.
All right. Thank you. Then just a question on the health business. I appreciate that, you know, there's a few one-time things last quarter that kind of dropped off. But I mean, you had a decel in the SaaS account growth this quarter. How are you thinking about that SaaS account growth for the full year? And if you can also just comment on the benefitexpress acquisition integration and, you know, just like how is that gonna help this year? I think last year, timing-wise, the acquisition was late enough that you really didn't get benefits from like, you know, synergy benefits, if you will, from it. Are you expecting some of that to come through this year? Just talk about those two topics. Thank you.
Sure. We had about a million SaaS accounts last year that were related to some legislation that allowed us to support our COBRA customer base. They came in in the second quarter of last year. If you normalize that, our growth rate on SaaS accounts in Q2 looked very similar to what we had in Q1. You really didn't see a deceleration. You know, you do see a normal thing that happens each year is that you see a ramp in customers in the first quarter. You see some of that attrition off a little bit in the second quarter, and we saw a very normal cycle happen this year related to that. With benefitexpress, you know, we have continued to accelerate their sales pipeline.
Bringing that into our customer base allowed us to provide, you know, the strength of our sales channels to help support that business. That was really the primary focus of that acquisition. We didn't actually intend to have cost synergies. It was more of a revenue synergy play, where we're able to actually accelerate the growth that they had seen historically. That's what we've realized so far.
Thank you.
Your next question is from Nik Cremo of Credit Suisse. Please go ahead, your line is open.
Thanks for taking my question. Wanted to ask about the cross-sell plans for Flume to WEX's 450,000 SMB fleet customers.
Is there like a particular cohort or particular customer segments that WEX is gonna be targeting for the next year or is it gonna be more broad-based? What does the incremental revenue opportunity look like for your average fuel customer, just in terms of capturing a greater portion of their non-payroll B2B spend?
Sure. You know, Flume, we're excited about Flume, and I'm excited about Flume because of the product capability that we've created and also the way that we've done it in a rapid customer-informed way. Our first focus has been very much on our initial customers, making sure that they're really happy that we're listening to what they want. We've been rolling out and continue to roll out new features and functionality based on that customer feedback. Post Labor Day, we intend to actually do much more of a full launch of the product set and, so to your point, where we're actually going into our broader customer base with the product offering, and we will test many different ways of doing that. We're excited about this.
From an economic perspective, I think, you know, again, it's really early. We're excited about that. We're excited about rapid learning. Most of the revenue that we see longer term, associated with that is monthly subscription fees. We will be also continuing to test the pricing and the pricing model, and we'll have more to say about that in the future.
Got it. Thank you. Just for a brief follow-up, so there's a few moving pieces in the fuel payment processing rate. Just based upon your guide of fuel prices coming down in the next two quarters, how should that move sequentially relative to like the 109 basis points in Q2?
Yeah, Nik. Hey, this is Jagtar . You know, the 109 basis points was higher than we typically would have expected with the higher fuel prices, and that was helped by a few items in the quarter. As I mentioned in my prepared remarks, we had a one-time revenue impact from an amended fuel contract in Europe that was probably worth about 4 basis points on the rate. We're seeing higher transactions, especially on the OTR side. I think I mentioned that in my prepared remarks as well, that you know, we think is really related to higher fuel prices and people filling up sort of more often at smaller gallons per time in the OTR space. That helped the rate as well about 4 basis points.
We also had a benefit from the market movement rate in Europe in Q2 that was worth probably about a basis point. So if I add all that up, you know, that's probably 9 basis points. Fuel prices are expected to come down in Q3, so we'll get a little bit of that back. So I'd, you know, net that out to between, you know, 5 basis point-9 basis point impact from going from Q2 to Q3.
Thank you.
Yeah. Yeah.
Your next question is from Jeff Cantwell of Wells Fargo. Please go ahead. Your line is open.
Thanks. Nice results. On the 2022 guidance rates, I was hoping you can expand some more about the outlook in fleet. You know, what are the assumptions that are reflect there going forward in the updated guide? Is there any sort of color you can give us there? And maybe tell us what you're seeing, ahead of yourselves in terms of macro. It's just clear everyone's concerned with macro. I think that's worth commenting on just in terms of the amount of transaction activity you're expecting for the rest of this year. Can you just remind us about seasonal trends typically? Just wanna calibrate expectations appropriately. Thanks very much.
Sure. I'll start, and Jagtar might wanna add on here.
Yeah, sure.
Look across the business, so we assumed in the second half of the year from a fleet volume perspective that we would return to more normalized growth rates. We did assume that in the overall business that that would trail off a little bit from what we've seen historically in the fourth quarter. I'd say we were cautious, but if you look overall at our growth rates, they still look pretty strong. On travel, we assumed similar to the same volume trends that we had in the second quarter, you know, over 100% of 2019 levels, we assume that in the back half of the year. A similar economic environment there.
Across the business, we're really just looking at, you know, what are we seeing right now. Just to kinda add on to, you know, what you were asking about from a macro perspective, it is interesting because if we talk to our customers and we have, you know, across the portfolio, you know, they are, you know, really continuing to do well in the marketplace. Their biggest tension points are around labor and labor shortage, you know, which is causing some ability, you know, some capping of their ability to grow in some cases or, you know, employees that feel overburdened, you know, across the business. There's some tension created with the labor workforce. There's some tension that's created, you know, because of elevated fuel prices within our fleet customer base.
Overall, you know, they continue to perform really well and see a continued opportunity within their respective markets. So I'd say that kind of the short-term conversation we're having with them is really quite positive. It's a place that we continue to play in really well because in this environment, the products that we have, the tools that we have are really valuable in the marketplace. We're seeing, you know, really increased demand, you know, for different reasons across each of the product sets. Some of it is the desire to have more automation. Some of it's cost control, you know, related to what's happening in the marketplace. Some of it is desire for working capital.
You're really seeing all that we offer play really well into the environment we have right now, which is coming across in our sales pipeline.
The only other thing I'd add on the.
Okay, great.
I would say the only other thing that I'd add to that on the fleet side is I think, you know, most said it with kind of expectations going forward that we're, you know, kind of at normalized volume growth rates, et cetera. I would say that we saw, I'd say, fairly low late fee rates in Q2, mostly because of higher gas prices and the denominator effect. I think going forward we'd expect that to revert to more in line with what we saw last year.
Okay, great. Thanks for the color. Appreciate it. Congrats on the results.
Your next question is from Sheriq Sumar of Evercore ISI. Please go ahead, your line is open.
Hey, thank you so much. On the buyback, just wanted to get your philosophy as to how should we think about for the full year 2022? Given the choppiness of the market, and supposedly there are no big acquisitions that you would want to pursue, can we expect the share repurchases to materially pick up, or would it stay at similar levels?
When we think about capital allocation, we start with, you know, first organic growth. We want to make sure that the company's tuned, and that's, you know, the first lever we hit. We've had a bias towards, moving money towards growth and, we'll continue to have M&A pipeline that supports that growth. In our long-term framework, we assume that we're going to have 2%-3% growth from M&A. Opportunistically, we have a $150 million share repurchase program in place. We talked about the fact that we bought $81 million, and so we have more to go.
Understood. Thanks. My follow-up is on the interchange rate within travel and corporate. A nice pickup on the corporate side this quarter. Can you help us understand as to what drove that, and how should we think about the interchange rate for the full year?
Yeah. When we started the year, we talked about. We've actually added disclosure, so you can see the split between travel and corporate payment rates. On the travel side, we said we expected the rate in the course of the year to look similar to the full year rate from last year. This quarter was pretty close to that number. Stability, you know, across the year. On the corporate payment side, we said that we expected the rate to blend down in the course of the year as we add more embedded payment customers. In Q2, what we actually saw was a nice growth also, not just from our embedded payment customers, but from our AP direct customers, which has a higher rate, and so we actually blended up in the quarter.
We do think that as you go through the course of the year, that as we continue to add more on the embedded side, that should blend it down. Now you'll note that from a profitability perspective, you know, it was highly profitable, and so the margin went from 21% last year to 51% this year. We saw, you know, really great scalability, which is, you know, part of what we're looking at is the, you know, if the embedded payments product goes up, then the rate may go down, but it's highly profitable. If the AP direct product goes up, then you'll see revenue and rate going up associated with that, but it actually has a little bit more cost associated with that.
You know, both are you know, quite positive for us. Our anticipation for the year is that the corporate payments rate will drop a little, as you go through the year because of mix.
Thank you.
Your last question is from James Faucette of Morgan Stanley. Please go ahead, your line is open.
Great. Thank you very much. Appreciate all the insights, et cetera. Just a couple of follow-ups. Travel and corporate margins were really strong in the quarter and now seem to be outpacing where they had been pre-pandemic. You're obviously benefiting from the travel recovery right now, and I know you've talked about some near-term investments, but how should we think about the trajectory over the longer term? Absent a recession, have we taken a structural step change higher, or is this transient? Just wondering how to think about that?
Well, a number of years ago, one of the things that we thought was important competitively was to bring in-house processing capability. We, you know, we built cloud native processor, which has really created a tremendous amount of scale, you know, for the business. We saw the downside of that during the pandemic, but we saw, you know, and continue to see the upside of that now. I think of this as another one of those twofers. We created a better experience for our customers because the processor that we created is highly reliable. It, you know, from a simplification standpoint in the way that we interface with our customers allowed us to create a better experience and create the scalability from a financial perspective.
We feel, you know, really good about that capability, and it's a product that we're selling not just in the travel space, but we sell it into other fintech companies where they embed this payment within their workflow. So we feel like that model is great. We'll continue to build upon that. What we're looking at is where can we continue to sell that? But also we're building out our AP capability and the capability we have across small business. With the investments we'll make, we'll continue to look at other areas where we can expand the market that we're addressing. You know, as a result that we think really blends into the overall growth rate that we have for that segment.
The infrastructure we built out, we feel, you know, really good about and the scalability of that right now.
That's great to hear. Then separately, how should we think about the pipeline on health and employee benefits? I think last quarter you mentioned that you had signed up one of the country's largest rehab programs, and in this quarter you mentioned a major auto parts distributor. What's your line of sight right now on adding additional clients to the business over the medium term, and what does the sales cycle look like, especially given the economic uncertainty right now?
Yeah. What we found actually during the pandemic, we had a little bit of less bias to make changes. Now I'd say that as we've kind of moved past that, we've had a really strong sales pipeline. We feel good about how we're gonna enter 2023. A lot of the implementations would occur in the end of this year leading into the first quarter of next year. What we're seeing right now, we're really quite bullish about next year.
That's great to hear. Thanks for all the input and color today.
Thank you.
Thank you.
We have completed the allotted time for questions. I will now turn the call over to Steve Elder for closing remarks.
Thank you, Cheryl. Again, just wanted to say thank you to everyone for listening in, and we'll look forward to speaking with you again in about three months. Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.