First of all, please refer to the event calendar, published research, or Baird's website for important disclosures regarding the companies discussed during this event. Please refer to WEX's Q4 earnings release for forward-looking statements. Finally, we'll ask questions from the audience during the last 30 minutes or so. If you have a question, email to Robbie Bamberger. You can see him on the call here too. It's R Bamberger, R-B-A-M-B-E-R-G-E-R at rwbaird.com. He's going to jump on and ask the audience questions later in the call. With that, we can jump right in. Maybe before getting into the segments, maybe we start at a high level. You recently announced a plan for the Dutch tender to acquire up to $750 million of your common stock. I imagine you're trying to send a signal to the market by doing this.
Maybe you could go into that a bit. What are you trying to express to the market with this buy-back?
Dave, thanks for having us here. I think it's pretty simple. Management and the board of directors just have a lot of shared confidence in the future outlook of the company and the belief in the long-term value of WEX. When we look at the recent market reactions to our announcements, we just think people have overreacted quite a bit to our recent guidance, and we're expressing confidence in our outlook. We've done our best to de-risk our 2025 guidance. While 2025 is an investment year, we think the investments we're making are good ones and will benefit the company. Of course, how much we buy- back will depend on how much is tendered.
Yeah. Maybe also on your last earnings call, one of the big pieces of news was the change to long-term guidance ranges. Maybe walk through the lowering of the numbers, what caused it, why you did it, where it's coming from.
Yeah. I mean, just to put it bluntly, our point of view is when we put the 8-12% out there, they were proper at that point in time when we first discussed them. You know, organic growth rates, so again, the 8-12% before were the organic growth rates. You know, in the context of the market at the time, it made a substantial amount of time that's passed. The market developments have happened since that point in time. We thought it was just appropriate for us to update them. You know, one of the things I think that gets missed is that we really believe that the markets we operate in are quite healthy. They're fertile. We have an ability to continue to harvest them.
While we're making some minor pivots in our markets, we expect to get back to our growth ranges in 2026 as we are able to harvest that growth. The majority of the changes were in the Benefits segment. If you look at the growth rate and the market growth rates according to Devenir, which is, think of that as the Gartner equivalent in HSAs, it's slow to the mid-single digits. We have penetrated the custodial opportunity faster than we had anticipated. Remember when we first provided this guidance, our penetration into this opportunity was a lot smaller. Once we successfully penetrated and got the economics from doing so, the growth naturally had to slow. All that said, you know, we also believe that we've been leaving some opportunity to capture more sales on the table by not investing more aggressively.
You know, that's why we're addressing that by adding some quota- carrying capability onto the street and making some targeted marketing investments. Our goals from these investments are to ramp up our top-line growth, you know, to put that back up. You know, what we had said, you know, on our last call was just to caution people that this is going to take some time. We have a great amount of confidence in the ROI and realize that it's going to take some time for that to translate into revenue growth. We also think there's an improvement opportunity in making targeted product investments. We talked about that in the last call. We've been working on some product investments here for the last few quarters. We expect some of those to come to market and achieve strong results.
We actually already saw sales in some of those products in our Corporate Payments occur in the fourth quarter last year. You know, if you look at our history, we made investments in credit loss and fraud. We're able to bring down our fraud exposure and our credit exposure to between 15 and 12 basis points of loss in the last couple of years. You put it all together, what I'm saying is that our current growth rate really doesn't match the scale of our ambitions, the capabilities of our team, the opportunities in front of us. We're making investments and feel very optimistic about what lies ahead. We feel very confident the investments we're going to make will have an impact on our long-term growth rates. You know, growth is just part of our DNA. It's something that we think about a lot.
We want to make sure that we're taking steps to improve things that are in our control. The last part is that there has been some industry-wide slowdown in the travel industry over the last couple of years. We had this, you know, great post-pent-up demand post-COVID. That has leveled off into more of an even environment now.
Yeah. Yeah. Just on this topic, to refresh everybody, the current long-term growth, I think for every segment is kind of mid to high single digits, is that right?
Yeah. We said 5-10%.
Yeah. 5%-10%. Okay. Good. You know, we'll walk through each segment a little bit. We'll start with the Corporate segment. It's about 15%-20% of revenue. There seems to be a lot of confusion in this segment. Just some people are asking about your moat. I've seen confused on the trend in take rates. Maybe just clear up a little bit of that.
Yes. Yeah. We do get a lot of questions about this. People seem to be very focused on the take rate of our embedded payments business. I think a lot of people really think that this is going to trend to zero over time. We just think that people are looking at this the wrong way. The way that we think about the business internally here at WEX is that we've built this amazing fixed cost technology stack. We believe that we have the lowest cost in the industry. We have the broadest feature set in the industry. We cover 150 combinations of currencies and interchange rates, which is a multiple that anybody else can do. If you're an online travel agency or if you're, frankly, operating any company at global scale, we're the most flexible option for you when it comes to embedded payments.
When I hear people focus on the take rate, we think they're missing the point. It's not how we look at the business, and it's not how we run the business. We think every incremental dollar of volume that flows through this stack is highly accretive to margins and cash flow. You know, we essentially have no variable costs associated with that. We don't mind lower take rates as long as it comes with higher volume. In fact, actually, we incentivize our customers to drive more volumes through our offering by giving them larger rebates because we think that's just a smart business decision. We're able to block out competitors because all of that incremental volume accrues to our operating income and our cash line.
We're able to use that to buy back stock or to deliver or whatever we want to do from a cash perspective. By driving volume with lower take rates, we can drive margin cash flow and, you know, right now, a smaller share count. It's really a great business. The more volume we drive, the better the economics we get from the card networks, which also allows us to have an advantage when we get into the AP Direct business. We think of this as a flywheel. We just don't think people understand that part yet. I also think we hear a lot about some of the one-off things that happened in the fourth quarter with this fear that that's going to be something that's, you know, continued to repeat.
When we think about that, you're going to see fluctuations quarter to quarter because you've got people that are managing multiple vendors. What we're looking at is a trend that's expanding margins. We focus a lot more on what's happening to our customer volume annually. We don't think that there's anybody else that's going to be bringing their business in-house because no one else owns a bank or is big enough to do that efficiently. I guess the last point I'd make is any contract negotiation that we had that we anticipate, we have factored in our guidance. We've really worked hard to de-risk that guidance. We're on a mission here out there telling that story because we want to make sure that people have a chance to broaden their perspective and get insight on the way that we see this business.
Yeah. Thank you. I want to address both some of the one-off impacts you mentioned and then macro a little bit too. On the one-off impacts, last quarter, Corporate declined 22%. There were a few very discrete items. Booking, we think it's 10% plus probably of the segment. You know, there were that contract changed. There was another large travel client of yours that shifted out and then Avid very clearly shifted some volumes away. Maybe talk through some of those and how, you know, what comes back and when you get back to growth in the segment.
Yeah. You talked about a couple of things. The business is lumpy when you look at it on a quarterly basis. That's because you've got some of the large customers that are moving volume around to hit contractual requirements that they have in order to optimize their pricing tiers. Again, we look at this more in the course of the year. We're showing, you know, good growth in the course of the year. For Q4 specifically, there was a lot going on. You talked about the fact that we had one customer insourcing. That's something that will continue to happen. We've said will affect the first and second quarter in particular of this year in 2025, which again, we factored into our guidance.
We do believe that that is a very unique situation, again, because that customer has, you know, core capabilities, including owning a bank and scale that we do not see across, you know, the rest of our population of customers. As we go through that process, we do expect the second half of the year to revert back into growth. We have guided for the fact we expect the full year to be down slightly year- over- year, but that is really heavily front-loaded to the first part of 2025.
Have you already seen in Q1 some of the normalization of the companies that move, you know, volumes back and forth? Have you seen a little normalization?
Yeah. Remember Q1 last year, we saw a lot in Q1 2024, just to be clear. We saw increased volume in the first half of the year. Even though we're seeing, you know, some of the customer migration back, there's still a tough compare year over year. Which is why when we think about this business, we do believe you're going to see some lumpiness from quarter- to- quarter. These are customers that we have, you know, strong relationships with. One of them we actually just extended a contract with. That lumpiness will continue into the first quarter, but looks better than it did in the fourth quarter.
Yeah. Okay. And what about macro? You know, we hear it sounds like when you hear like Visa talk or Fiserv, it sounds like Q or January was really good, February maybe a little worse, and you had a little leap day. Do you follow some of those like high-level retail trends, or maybe there are other things we should be looking at?
Yeah. So when we think about macro, actually for us, I would say it has been pretty consistent. You know, fuel prices have been a little bit stronger in the first quarter, just a titch. Right now, the, you know, forecast of the year looks pretty similar to our last guide. Essentially, you get that back over the course of the rest of the year. Interest rates are down a little bit, which will hurt us a little bit on revenue and is a little bit positive, actually, to earnings. From a volume perspective, we saw OTR volume was a little bit higher in January, you know, dropped off a little bit in February, which we think is probably some pull forward of, you know, because of anticipated tariffs.
Across the portfolio, we're really not seeing, you know, big macro swings and, you know, something obviously that we're monitoring very, very closely.
Yeah. Specific to Corporate Payments, I should have been a little clearer on that. The like travel and B2B volumes, are those moving much macro-wise?
We have not seen any big shift from a macro perspective in travel. I know we're obviously aware in talking to customers where we've seen, you know, the airlines, you know, in particular have been downgrading their expectations. The airline is a much smaller part of our portfolio. We're much more weighted towards hotel payments. And we have not seen any, you know, change or deterioration in that part of our portfolio.
Okay. Good. Good. And then suppliers, we hear, you know, suppliers pushing back a little bit on accepting virtual credit cards. You know, we hear that from Bill.com or from AvidXchange. A little less so from Visa and Mastercard, but we hear that. Do you feel any of that or see any of that? And you know, what do you think the longer term on that is?
Yeah. I know we've been doing this for a long time. There's always some level of, you know, pushback from an acceptance perspective. I would put that, you know, for us, it's a pretty minor thing, but it's something that we deal with, you know, throughout our portfolio. You know, obviously less under our it's not something we experience on a closed-loop network. When I think about acceptance, sometimes what they're trying to negotiate is a clearing rate across the portfolio. For us, yes, it's something we see. I would say it's a pretty minor thing, you know, in our business, but it's something that we work across and deal with, you know, particularly on our Corporate Payments business.
Yeah. Okay. Finally, just in Corporate Payments , you talked a little bit about this before. Incremental margins, very, very high. I mean, should we think of it as nearly 100% incremental margins? If you're growing, it's really good, and you just have to get back to growth?
Yeah. It is very high. You know, if you think about this business, it is very tech-enabled, which means our customers are making API calls into our technology. So the costs are really going towards making sure that we continue to refine the technology and that we keep it up. You know, stability is a really important part of that customer base. To your point, it's, you know, very high drop-through rate because we have such a high fixed cost structure. Our objective function is to go and get more volume to push that through. You can see over time, you know, if you were to look back and look at our margin profile over time, you can see the benefit of that has come through in margin expansion.
Yeah. Okay. Sounds good. If we move to Mobility, you know, first of all, if we kind of look back at growth, the last few quarters have been quite good. 5%-6% organic, you know, constant macro. That accelerated from a few quarters before that. A little bit pricing, maybe a little macro backdrop, like maybe talk through what's gotten better and is that mid-single digit plus sustainable?
Yeah. As you said, in 2024, we grew revenue 5% macro-adjusted to, you know, felt really good about that. If you look at the macro again, like the things that affect that part of the business, we've seen fuel prices slightly higher in the first quarter. Again, we think that's going to go away in the course of the year. Interest rates coming down a little bit. That'll be a little bit of a negative on revenue, but, you know, positive to EPS. The OTR market, you know, it's been in this prolonged downturn. January was one of the first quarters that we saw this increase in volume on the ATA ton, the truck tonnage index, which was positive that February was softer. We think that has something to do with the tariffs. You know, our Mobility customers are very, very resilient.
When you think about gallon growth, you know, gallon volume could be affected, you know, positively or negatively based on what's happening with the economy. The number of customers that we have, you know, continues to grow, which has been, you know, a great, you know, benefit. You can see that particularly in our over-the-road business where we really have sold through, you know, a very, you know, difficult environment and continue to do that. We feel, you know, really good about our Mobility business.
What about the local and international markets? The macro there, what, you know, what are you seeing in those businesses?
Yeah. Really not seeing any, you know, change, you know, from a customer perspective in those markets from what we have seen over the last, you know, last few months. I'd say it seems to be actually quite stable. Again, something that we're watching pretty closely.
Yeah. I know sales is so important in this business. Your average, I was looking through the 10-K recently, your average number of vehicles per fleet is about 35. You know, reasonably small, like a lot of smaller fleets, right? Selling, you know, is that part of what some of the new investment dollars are going into? How are you seeing sales lately?
Yeah. When we talk about the $25 million of incremental investment, we put it pro rata across the business. The largest of that is going to our Mobility business. That is going into our marketing group. If you look across the business over time, it has changed where the majority of the leads are coming through digitally. Marketing enabled, you know, coming all the way, you know, right through our system. It is a place that we have a really high degree of confidence. If we increase the amount of marketing spend, we can actually see that benefit coming through. As you mentioned, you know, our average customer size is, you know, tends to be small, even though we have really great, you know, penetration in the margin of the marketplace.
The way that we think about this business is that we have still tremendous opportunity to grow. We continue to take market share at kind of the top of the house. In the smaller field, we have a lot of opportunity still that's just open in the marketplace where people are either using cash or general purpose credit cards. Our digital motions, you know, have been really successful of making sure that we're continuing to bring in business there.
When we think of competitive pressures, you know, is it some of the other, you know, is it like Corpay and others that are like you, or is it mostly just Mastercard and Visa? You're just winning small fleets away from just using general purpose cards.
When we think about competitive pressure, the larger fleets are typically between us, Corpay, and a company called Voyager. You know, we feel really good about our competitive set in that space. You know, the fact that we have a closed-loop network and we have an ability to create a tremendous amount of control that builds confidence for our customers. We can see that coming through from a, you know, just an overall win in the amount of vehicles that we continue to add to our business. When you get into the smaller customers, they tend to be either cash or general purpose credit cards. There's a little bit of competitive, but I'd say much less when you get into that smaller in the marketplace, much more open market. In that case, you know, we continue to win business.
You know, people like the ability to lock down just to fuel only, you know, capability. When you get to the point where you're, you know, you move beyond just your family members and you actually, you don't really want to give people a general purpose credit card, you don't really want to give them cash. Our offering is incredibly well-suited for those smaller customers. They come in either directly through us or we do business across many different oil companies, nine of the largest in the world, and then another, you know, over 15 that are kind of mid-size. That gives us a lot of opportunity to bring in customers through different brands as well.
Yeah. Okay. EV has been something that I'd say two, three, four years ago was viewed as a big risk to you guys. We don't get a ton of investor questions about it anymore. It seems like if anything, it's a neutral, maybe a positive. Maybe discuss a little, maybe how big that is of your portfolio today, how you think of it going forward.
Yeah. We are very bullish about EV. We think that it's a huge headwind. You know, if people have thought about it as this huge headwind in the future, and I think that narrative has flipped to your point where now people believe that this is a tailwind, you know, which is what we're seeing in the marketplace. On average right now, our customers are paying $6 per vehicle per month. In the world of EV, what we like about this is we have this great grounding position where our customers want to be able to have their ICE vehicle and their EV vehicle, all that data combined into one source of information for the total cost of their fleet, one bill. We start from a position of our customers want us to move into EV with them.
As they make this migration over time, we've developed products that give them an acceptance network similar to what they have with their ICE vehicles. We have at-home charging reimbursement capability. We see a tremendous amount of opportunity to continue to create new use cases for those customers. We're charging subscription fees. We like that too because it migrates from this exposure we have to fuel prices to something that's an even more stable source of revenue and at a higher rate. We're already making as much money as we were on ICE vehicles. We feel like we have just a limited product set in the marketplace right now that will grow over time as our customer needs grow. You know, all that said, it is still a very small part of our portfolio. We are incredibly bullish about this opportunity.
We do not know when this migration will happen, but we feel like we are really well prepared. There is a lot of benefit to us economically as it happens.
Yeah. Great. Thank you. Maybe if we move on to the benefit segment, it's about a quarter of your total revenue. It seems like, you know, HSAs remain like a really good long-term growth industry, right? How do you see this? You kind of talked about 5-10% growth. What are kind of the tailwinds, headwinds? I guess we'll kind of start there.
Yeah. If we look at this business, it's, you know, it's a great, stable, you know, part of our business. You know, I talked earlier about, you know, the Devenir report. So there's an expectation that accounts will continue to grow in that mid-single digit. We think of that as one of the core drivers as we continue to bring on accounts either through our existing customers and partners growing or through new incremental additions. On top of that, we have an opportunity to continue to penetrate our customer base with our existing products. We have like a host of products across. It's one of our competitive advantages, the fact that we're this one stop for someone to have access to an HSA account or an FSA account or a COBRA. Think of many different tax-deferred accounts.
We have the ability to make sure that they are spending money on things that are highly controlled and meet the IRS requirements and to do that in one place. You know, as we look at this business, account growth is, you know, the primary driver. We also see the amount in an account gets higher over time. We get a benefit of that. As I said, this penetration of the different products that we have across the portfolio.
Yeah. What's churn like in this business? I mean, I almost think of it like Fiserv's core processing business where they lose 1% of clients a year, right? Like once a client's on your platform, I would imagine they hardly ever leave.
Yeah. If you look across all of WEX, the churn rates are pretty similar. We're in the mid-90% of retention rates, you know, across all of the portfolios. That's true of Benefits as well. You tend to get churn, you know, from customers that migrate in and out of the accounts as opposed to, you know, as much as you see, you know, partners churning. There is some consolidation that happens occasionally in this space that creates some churn as well. Overall, very high retention rates in that mid-90%.
Yeah. Maybe across all the businesses, but here maybe especially, is there risk of government regulation coming in? Maybe what's just the risk of, I guess you could, we could talk about regulation here, tariffs, just, you know, overall, what are you seeing?
Yeah. It's a hot question lately, huh? If you look across, let's start with Benefits first. Benefits, you know, we have this kind of privileged position in our benefit space where the accounts themselves, you know, are something that are viewed positively by, you know, both parties for different reasons. You know, bankruptcy or healthcare bankruptcies are one of the unexpected healthcare costs and one of the number one causes of bankruptcies for consumers. This kind of idea of having a tax-deferred account is a really important part from just a consumer financial health perspective. It's something that we lean in pretty heavily on and provide a lot of education from a consumer perspective to just talk about the benefit of these accounts. There's a positive to the consumer. There's also just the idea that you're creating this tax efficiency across.
They tend to be viewed, you know, positively across. If you talk more broadly, you know, tariffs is something that, you know, I think that, you know, really the big question is more, you know, what's the impact to the economy? Again, we haven't seen any. One of the things we've been paying particular attention to, if you look across over-the-road trucking, there's about 6%-ish, you know, somewhere between 5% and 10% that comes from that cross-border Canadian-Mexico cross-border. We've been looking at fueling along the borders. We have not seen any, you know, migration off, you know, at this point in time. It is something, again, that we're, you know, paying attention to in two different ways.
You know, would it affect, you know, a small part of the over-the-road trucking, you know, market, which has already been, you know, in a, you know, difficult spot for a while? If it is, again, it's pretty contained. More broadly, you know, does it have an impact overall in the economy? You know, right now we're seeing, you know, stability across, you know, the portfolio. That, you know, great question and certainly very relevant right now.
Yeah. When you say 6%, 6% of OTR, it affects or 6% of the overall Mobility ?
No, 6% of OTR. That's a U.S. stat. Assuming that something similar would happen within our portfolio, that's, you know, the number that we would be watching.
Yeah. Okay. One last thing just on healthcare growth. The first half has a little tougher comps, I think, than the back half. Is it fair to, is it kind of fair to look at it that way that the first half is probably closer to what Q4 was? The back half might be closer to 10% if account growth is good.
What we've talked about is the fact that we think that this is going to be in the lower end of the guide for the year. We talked about the, you know, 5-10%, so assume that's 5%. There's an assumption that we had that we have a 1% negative that's happening because of interest rates in the year. You know, there'll be some variation in the course of the year, but we don't expect it to be as dramatic as what you're talking about.
Yeah. Okay. Okay. Maybe just a couple final ones, I guess. The sum of parts valuation, a lot of investors talk about that. I mean, is that something, you know, you look at either unlocking, you know, part of the business, spinoffs, you know, whatever, just because, you know, we look at the stock too as undervalued, right? Like you look at HealthEquity or some others that are higher value. Like how do you think of some of the parts?
Yeah. Some of the parts, you know, the board is really focused on maximizing value to our shareholders. And, you know, they consider all options to do so. When I think about this from the board perspective, they regularly are looking at alternative approaches to maximize value, which includes structural changes, M&A, capital allocation, and other initiatives. You know, the board is really committed to having a disciplined approach, balancing both the near-term interests of our investments and the long-term health and competitiveness of the business. They're really focused on creating sustainable value and are willing to act decisively if they see the right opportunities to emerge. You know, we've got a shared technology platform. We've got deep payment expertise, and that forms the foundation of our business. It enables us to grow. It enables us to extend our product offerings.
We think that the integrated solution, you know, makes, you know, that potential separation challenging. When we think about there's many Benefits for maintaining ownership, you know, across the businesses. You know, for example, WEX Bank provides a highly effective way to monetize the custodial HSA deposits. In the benefit segment, it also helps reduce overall earnings sensitivity to interest rates. Our exposure to multiple end markets with multiple product offerings creates a natural hedge against market volatility. It also reduces our reliance on any single industry or trend and enhances overall stability.
Yeah. Great. I'm going to turn it over in just a minute to Robbie, but just to kind of wrap up, it sounds like what you're saying, you tried to set a guide for the year to de-risk the year. And macro, what you've seen the first two and a half months so far, not big changes. You know, hopefully you're on track, right? Anything else to either talk about the economy like on that or anything else you want to talk about with the tender offering?
No, open to any questions we've got. I would summarize that the same way. We feel really, you know, confident in the year. That's why we're doing the, you know, tender offer. We think that the stock is undervalued. You know, as we laid forth the year, we were looking at how we could de-risk, you know, the guidance that we put out in the course of the year. From a macro perspective, I know that there's been, you know, I've read a lot, I get a lot of questions about that. You know, what we're seeing so far in our portfolio, you know, looks, you know, pretty stable.
Good. Maybe I'll turn it over to Robbie. I know again, his email for people who want to ask questions is rbamberger@rwbeard.com. Robbie, maybe you could jump in.
Awesome. Yeah. We got some questions that came in already. First, some people were just asking why the Dutch auction versus just a normal buyback. Is it just the size, essentially?
There's a couple of reasons. Steve, you might want to add on to this. You know, the Dutch auction is a way of, you know, again, it's creating surety around the fact that we will buy if we're in that range. You can do it pretty quickly, you know, which was another thing that was interesting to us is that you could execute it in a pretty short period of time. You know, as we had a conversation at the board level, we didn't consider different structures. This was a structure that the board decided that they liked best.
Yeah.
Give us the ability to get to do a pretty big size.
Right. That's kind of the key, Robbie. You can do a lot of shares in a short period of time. If you compare it to like an ASR like we did at the end of last year, you know, at this size offering, you'd be talking about a, you know, five or six-month kind of process. In that period of time, you're taking some market risk, if you will, on the share price. This Dutch auction gives you a chance to do it very quickly and at a, you know, some price certainty as to what you're doing.
Yep. That's very helpful. Maybe just shifting over to the S&M investments. Maybe just thinking about, you know, the risk-reward and trade-off there. You mentioned the $25 million of sales and marketing in 2025, but essentially, would you raise that to, you know, $30 million or $40 million if that meant incremental higher revenue growth? Maybe what are the puts and takes of incremental investments and what are the ROI measures that you are seeing or thinking about for putting in that extra, you know, marketing and sales?
Yeah. When we started to make these investments, what we were looking at is across the portfolio, sales and marketing returns at less than two years. We got very specific about where we wanted to put the money in the areas that we had the highest confidence of showing that return. Our marketing investments, and we spent a lot of time and money around creating some really strong risk models. You know, they're AI-based. We've integrated that into our marketing efforts. You know, we just have a high degree of confidence in the, you know, as we increase the amount of outbound that we're able to actually accrete more of that coming in. That'll be the fastest of the returns because it's something you can literally just turn it on and off.
The other investments are putting people into, you know, feet on the street in both our Benefits and our AP Direct offerings. In each of those cases, really high, you know, returns. Although they will take a little bit longer because you have to hire the people, you know, there's a period of time of training and then you see the benefit come through. Again, something that we expect to see at less than two-year payback, but it will be, you know, more slanted towards the, you know, the back end of that. In each of those cases, what we've seen with our AP Direct offering is as we've added people into that, you have seen, we've seen a very strong return associated with that. It's been a very predictable model.
With our Benefits business, what we're seeing is there's just more opportunity for us, you know, in that space. We still have, you know, really low market share. Adding in people is just an ability to actually capture more of that. Really high degree of confidence associated with that. The expectation is to see that, you know, that will drop through to earnings, you know, over time as those, as we actually start to accrete the Benefits of it.
Yeah. Maybe honing in on that sales force ramp. How long do you expect them to be fully 100% productive? I guess by the end of 2025, do you expect, you know, 50% productivity from that incremental sales force? Then by end of 2026, it's 100%, maybe just the cadence of that.
Yeah. They're different. In our AP Direct offering, it's typically about a three-month ramp after we actually onboard the salespeople. Benefits, it tends to be a little bit more timed towards the next enrollment season. It's a little bit further out just because it takes a lot of the sales efforts or accrues to the back end of the year. Think of that as the longest of them in terms of ramp and then length of time in order to actually see the benefit of that just because of the timing of the sales cycle.
Yeah. Maybe honing in on Mobility , what percent of your, you know, new sales go to market pipeline is, you know, digital sales versus salespeople versus partnerships? I guess any way to break that down and then what you're trying to trend over time in that proportion?
Yeah. It has trended, it has changed a lot, you know, over time. Over half of the leads are coming in digitally now. That has been a migration over time. You think about the, again, if the way that we're going into the marketplace is that we're going in through both digital marketing campaigns that are, you know, pushing customers into our website where they're making applications. We still do outbound calling and we do some direct mail campaigns still because part of our, you know, customer base that's still effective. There's, you know, a lot of effort around that. The rest of the business is more traditional as you would think about it that we have salespeople that are distributed across the United States that are working leads that are generally leads that they're generating themselves.
You know, in both cases, you know, really great return. When we think about the amount that we put out in the field, that's based on a coverage model. And then the marketing, you know, again, we're seeing, you know, really great return. We also market across brands. So think of this as we're representing many different brands in the marketplace. Each brand has attributes that are unique in the space. And so we can play off those brand attributes so that we can grow a portfolio, some of which is direct, some of which is, you know, partner branded.
Yeah. No, that's great. Maybe just on the algorithm of Mobility , how should we think about maybe same-store sales, new client ads, attrition, and then any kind of new incremental products over time?
Yeah, sure. Again, very high retention rates. You know, the biggest source of attrition is our customers that are people that we do not extend credit to anymore. I think mid-90% retention rates across that part of our business as well. The sales engine is, you know, quite predictable. We are adding a little bit into our marketing sales engine, but the way I think about, you know, this part of the business, it is a very defined machine, very effective at, you know, bringing in new business across the portfolio. We have, you know, great products, offerings in the marketplace, and that comes through as new customers that are getting added into the mix. Price has been another place for us that has been, you know, a benefit for us historically.
You know, same-store sales, there's a little bit of volatility that happens with same-store sales. The way that we think about this is generally you've got GDP growth that's getting offset by some level of fuel efficiency. That can be, you know, it typically is ranging from just a little positive to a little bit negative, you know, depending on what's happening from just an economic perspective. As we look at this part of the business, you know, we've continued to grow it through a combination of pricing and new customer ads. The other thing for us when we think about this over time is we are now adding new product options into the marketplace.
You know, we feel really good about the, I'll give you an example, our 10-4 offering, which is in the over-the-road space, which is designed for owner-operators, which is a customer segment that we historically haven't done business with. It gives that customer segment access to our fuel discount network, which in fuel is, you know, their biggest cost and can make a difference between whether or not that customer stays in business or not. It is a product that's really interesting to them. What we like about it is it's a new source of revenue stream. It's a new part of the marketplace that we're now involved in, but it also gives us access to a customer to get to know them. As they mature, they can mature into some of the other product offerings that we have.
We feel like we're now just putting new products into the marketplace that, you know, that over time are going to be beneficial to our growth rates as well.
Yeah. That's helpful on the algorithm there. Just wondering on government exposure, I don't think you have much, but is there any at risk from DOJ at all? Any exposure there?
From a government perspective, it's less than 1% of our revenue. It's very small. We do business with the federal government with our fleet, but, you know, really small part of our portfolio.
Yeah. That's very helpful. Maybe just moving on to Benefits, you know, Devenir, you talked about is growing accounts. They said they're growing accounts about 5% or mid-single digits. But then assets I saw were growing, you know, mid-teens to high teens. And because you're, you know, about 25% of your revenue is based on that investment income, just wondering if that can help you grow above maybe that mid-single digit account growth range because, you know, if assets are growing faster, then you get incremental, you know, investment income on that.
Yes. Typically what's happening is the size of the investments are going up because people tend to mature their accounts over time. You do get, you know, an additional benefit of the fact typically that the size of the custodial deposits are outgrowing the size of the accounts. Yes.
There's also a part of that is a reflection of the market, right? The market returns have been really good the last couple of years. That is reflected in the investment size. We make most of our, you know, custodial income that we earn is on cash balances. Those are growing obviously much slower because you do not have that kind of market return on there. Still growing, but I would call that a little bit faster than the account growth, not a lot faster like you just talked about. We monetize the investments, you know, marginally, right? There is a very small revenue stream that we have from the investment side of things. The vast majority of that income comes from the cash.
Would you mind maybe talking about the duration of your benefit segment? Like as rates potentially, if they come down from here, will you still get a benefit over the next couple of years because the duration is, you know, three or four years out?
Yeah. You want me to take that one, Melissa, I assume, right? Yeah. Yeah. We've got like a six-year weighted average duration in our investment portfolio for those cash assets that we've taken the cash and invested it at WEX Bank. The next couple of years, we have, you know, say $270 million to $330 million next year maturing. As those mature, we'll reinvest them. You know, they're maturing at 3.7% and 3.6% in the, you know, in 2025 and 2026 respectively. Current reinvestment rates are, you know, call it 5%, a little higher than 5% right now. Yeah, there'd be some benefit from reinvesting those rates. I do want to, you know, balance that though. We're about 80% fixed rate investments and about 20% floating rate. Depending on what happens with interest rates, you know, obviously if the risk right now is that they'd come down.
You want to balance that a little bit. Not that I want to spend a whole lot of time on this because the question is about Benefits, but lower interest rates from a company perspective, if you just go to the top of the house, you know, hurts revenue somewhat. It is about $35 million annually for a 1% change in interest rates, but it actually helps EPS. I guess it depends on what you're focused on, but, you know, from a cash perspective, lower rates would actually be better for WEX.
Yep. That's very helpful. Maybe just on Corporate then, maybe after we lap the, you know, bookings, large client, the large client headwinds, maybe how should we think about the longer-term growth? Is that going to be 5%-10%? Any way you can get maybe above that or upper end or lower end, maybe just thinking about the longer-term secular growth of Corporate Payments?
Yeah. We've talked about the midterm being 5%-10%. That's primarily because if you look at the travel part of our portfolio, it was still, you know, a significant part of the portfolio is about half. You know, because we think that we are fairly penetrated in that part of the business, we think that that's going to grow more in line with the travel market. Outside of that, we're seeing, you know, great growth in our AP Direct offering. We think that will continue. It's still a relatively small part of the segment. I think it's only 20% of the segment right now.
As that gets bigger and we are rolling out, we've talked about the fact we have our enhanced flexible spending, you know, capability within our Corporate Payments , you know, product offerings that we've had, those in beta, you know, in the U.S. and rolled out in Europe, we're seeing, you know, good interest in those products. You know, that will take time to sign customers and get them onboarded. We feel like we have, you know, a couple of areas that are, you know, really great, you know, for us long-term from a growth perspective, but it's going to take some time for them to mature into the portfolio to affect their overall growth rate.
Yeah. No, that's very helpful. Maybe just thinking about new products in general across the whole portfolio, you know, what could be maybe the fourth leg to WEX's story, incremental to what we've seen so far?
We like the legs that we have. I'd say like where we're really focused is how can we increase the, you know, the TAMs that are near adjacencies for our customer segments. Things like the 10-4 product that I talked about, the ability to have an enhanced acceptance so that people can solve use cases within their Mobility business, this, you know, flexible, you know, this flexible model that we're offering to our Corporate Payments customers enables them to really maximize their working capital. We are looking at places that we think that are, you know, really beneficial to our customer, but within the same motions that we have with our customer segments. That's been our primary focus. We are continuing to see benefit of cross-selling, you know, across the portfolio. We've added into our commission structure the quotas, you know, within our sales groups.
We are seeing, you know, the benefit of that as well, which again, will take some time, you know, for that to mature. You know, we feel like, you know, early days that that's actually quite positive.
Yep. Maybe back to fleet cards. Visa talked about, you know, tokenization, like custom provisioning in their mobile transactions with their fleet cards. Any impact that has to you guys at all, just on Visa specifically and the tokenization?
Now, when we look at the customers that we have across the portfolio, I'd say the focus that we have, you know, is really continuing to refine the digital experience that our customers have, you know, both in our over-the-road segment and within our local business. You know, tokenization is something that, you know, particularly with the over-the-road customers, you know, is an important feature, you know, across that portfolio is being able to make sure they are operating in a, you know, secure manner. We feel like the products we have in the marketplace right now are, you know, resonating really well. We are just continuing to build upon them. I'd say like nothing new from our perspective.
Yep. We had a couple more questions come in. One just about the benefit segment. If for some reason, I guess you wanted to spin that, how difficult would it be to sell that business if you wanted to? Is it really tough because you do have the bank attached to it? Or, you know, could there be an opportunity at some point if you saw the value there?
Yeah. I think when we think about the business, you know, it is integrated into what we do, you know, from a technology perspective, but also from the bank perspective. There is a lot of nuances as you go through this consideration. I think you saw Corpay go through a pretty exhaustive process on their side and, you know, decide to retain their assets. I think that is because it is actually quite complicated as you go through that. Again, I would, you know, just reinforce the fact that, you know, our board is, you know, very focused on, you know, maximizing value for shareholders and, you know, would consider any options to do so.
Yeah. Someone also asked about Impactive Capital. I do not know if you can speak about that in the 13D filing that came out.
Yeah. You know, Impactive has been an owner for three, four years. They are, you know, a constructive, you know, shareholder. We have, you know, regular dialogues with them as we do other shareholders. I guess that's all I would say. You know, we've had, you know, built a strong relationship with them and we value their opinions.
Yep. That's helpful. Maybe just high level, can you break out the incremental margins maybe across the three different segments, Mobility , Corporate, and Benefits? Just what's the margin trajectory look like in each of those businesses over time?
Dave, you want to do that?
Sure. I would say, you know, with the long-term guidance that we gave, right, we said 5%-10% for revenue and 10%-15% for EPS. Clearly we're expecting some margin expansions. Now, some of that could come from, say, deleveraging or future M&A synergies and things like that. We definitely think there's scale left in the business. We talked a little bit about the Corporate Payments and, you know, essentially the fixed cost base in that processing platform. Dave, I wouldn't go quite to 100%, but those incremental margins are very, very high, as you saw. Within Benefits, I'd also say that the incremental revenue or the incremental flow-through on that interest income or that custodial revenue is similarly high. It's, you know, maybe a touch lower than Corporate Payments .
It's a, you know, 80% or 85% flow-through rate on the interest income to operating income. When you look at the other pieces, Mobility and Benefits, you know, I'd still put those margins in the, you know, incremental margins, let's say, in probably in the 60% range or something along those lines. It's not a perfect number. But, you know, there's more servicing you have to do. There's, you know, calls that come in or whatever. So they're good solid incremental margins. We expect, you know, each of the segments really to go up a little bit over time. Obviously, as a company, you know, we're expecting margin acceleration over time.
Yep. Thanks for that. On Mobility , maybe just thinking about if we do go into a recession, how are you guys exposed there? I know you kind of maybe purged some of the very low, the smaller accounts. Now are you guys in a much better position going forward? If we do hit a recession, how could credit losses and late fees be impacted by that?
It's been a while since we've gone through that. I'd say from the last time that we went through a recession, we've made a lot of investments in our risk models and, you know, continued to refine payment terms across our portfolio. From a risk perspective, we feel like we're well positioned to weather, you know, an environment if it becomes a difficult environment. Historically, what we've seen is more of smaller companies that have had an issue. We certainly have that within our portfolio. Again, we feel like we're doing business with customers that, you know, are generally pretty strong. I'd say like if you look back over time, historically, if they've gone into a recession, we've seen an increase of charge-offs short-term. It really hasn't had much of an impact, you know, long-term across the portfolio.
We're not seeing that in our portfolio right now. The second thing has been you see a little bit less activity across the portfolio. You know, our customers are out there in their fueling because they have business needs. They're either, you know, making sales calls or making deliveries or service calls. To the extent that there was some slowness in the economy, you would see that come through in same-store sales, which, you know, right now volume actually is holding up pretty well across the business. Those are really the two big impacts. One is, you know, existing volume with customers. The second would be charge-offs. You know, particularly when it relates to the portfolio, we think that we're pretty well positioned when it comes to what happens from a volume perspective.
You know, what we know over time is that we've done a really great job of retaining customers. So even to the extent you go through something like that, it is a point in time that you'd actually just push through.
Yep. Maybe just focusing on the other two segments then in a recession. In the benefit segment, do you ever see pullback there in past recessions? It seems pretty stable. Then in Corporate Payments and travel, maybe a little pullback in travel, but just wondering what you're seeing, what you would see there.
Yeah. They're two different things. In travel, historically, these have been more regional. It's benefit of having a global, you know, account base is that, you know, the customer spend volume's happening everywhere. That mutes some of the effect unless you see it like a global recession. Typically, what's happened with that is that people just downgrade the type of travel they do. Instead of staying at a high-end hotel, they might stay at a kind of mid-tier hotel. On the fringe, you see some, you know, effect of that. In the Benefits business, like, you know, incredibly stable is part of what we love about the business. It grew through the pandemic. You know, and as we think about that part of the business, you know, employment rates, you know, have a little bit of effect.
Actually, we have a COBRA product out there in the marketplace. And you know, we get some benefit of that. You know, in the instance where you see more employees getting separated. When we look across the portfolio, you know, the bigger impacts are in Mobility to a lesser extent and travel, and Benefits is really quite stable.
Yeah. Thanks. We just had another question come in about the budget reconciliation. Does that have any impact on the HSA business at all?
None at this point in time. No. Like so far, people in both sides, you know, like the accounts for, you know, for different reasons.
Yep. Yeah. Dave, anything else as we're coming up on time?
I had just two other ones that kind of I thought of. One is just to make sure we're clear on leverage post the tender offer. We have it around currently, I think it was 2.6 or 2.7 was kind of end of Q4 going up to 3.2-3.3, I think. And then maybe ending the year, if you just pay off debt through the year back down to 2.7 or so. Are those roughly the parameters?
Yeah. We ended last year at 2.6. So pro forma for the debt raise, and assuming we actually fulfill the tender at the full $750 million, then pro forma would be at 3.3. There is historically a little bit of seasonality in Q1 where we do often tick up a, you know, a tenth or two in Q1, just seasonality. We could be a little bit higher than that at the end of Q1. To your point, we, you know, we do tend to deliver pretty quickly, you know, call it a half a turn a year, plus or minus in a given year. Yeah, I think we'll come back down relatively quickly.
Yeah. One thing just on when we look at Benefits, right, it's something like 60% is just account fees, about 20% or so is interest fees, like just float income, and about 20% I think is spending. You could earn interchange on the spending out of the HSA accounts. Is that holding up reasonably well right now? Should that over time just grow just with kind of your accounts? Or I guess what's kind of, what do you think of that part of the business?
Yeah. Steve, do you want to talk about, you've talked about interest rates already, I guess. If you look across the business, yeah, in a normal environment, and actually I would say even in the pandemic environment, we saw a drop-off in interchanges because people weren't accessing their medical care. In any other environment, we've seen those be, you know, quite stable and continue to right now as well.
Yeah. Okay. Good. We hit the top of the hour. Thanks so much for joining us today. Thank you, Melissa. Thank you, Steve. Yeah. Big thanks. Everybody have a great weekend.
Yeah.
Thank you guys very much.
Thank you.
See you.