Ladies and gentlemen, thank you for standing by, and welcome to the WEX Second Quarter 2021 Earnings Conference Call. At this time, all participants' lines are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Elder, Vice President of Investor Relations. Thank you.
Please go ahead, sir.
Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO and our CFO, Roberto Simon. The press release we issued earlier this morning and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the release and the slide deck Have also been included in 8 ks's we submitted to the SEC. As a reminder, we will be discussing non GAAP metrics, Specifically, adjusted net income attributable to shareholders, which we refer to as adjusted net income or ANI during our call.
Adjustments for this year's Q2 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, for an explanation and reconciliation of adjusted net income attributable to shareholders to GAAP net income attributable to shareholders. I would also like to remind you that we will discuss forward looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our annual report on Form 10 ks for the year ended December 31, 2020, filed with the SEC on March 1, 2021 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. Thanks for joining us today. I hope all of you and your families are healthy and doing well. I'm pleased to report that Q2 was a very strong quarter as a result of our laser focus on execution against our strategic pillars and continuous innovation across our technology platform. We're successfully building off the strong momentum from earlier this year, supported by our financial and operating results this quarter, which continues to reflect very positive trends across the business and strong demand for our platform and services.
Our overall value proposition in the marketplace is to leverage our deep industry knowledge, while continuously developing upon a This allows us to give our customers a broad range of bespoke services that meet requirements of easy integration into their systems and the ability to scale quickly and securely. Because of this, we're able to deliver significant benefits to our customers, resulting in market share gains and strong customer retention rates. The pandemic sparked an increased wave of digital engagement and WEX's products and services are uniquely positioned to not only benefit from, but also enable the transition to an increasingly digital economy. We're Excited about the acceleration in digital payment adoption. We see this as a significant opportunity for WEX And as a result, we've increased our focus and investments into accelerating digital transformation across the company.
Turning to our results this quarter, we delivered robust year over year growth with revenue increasing 32% and adjusted net income up an impressive 91% per diluted share. Total purchase volume processed across the organization in the 2nd quarter Grew 104% year over year to $21,000,000,000 For further perspective, Revenue and adjusted earnings were ahead of Q2 twenty nineteen and the best second quarter in WEX's history. We have had strong momentum in organic growth this quarter, reflecting spend patterns returning as mobility rebounds, coupled with new customer wins. Solid execution from the WEX team led to favorable margin expansion across the business. Revenue was up 12% and adjusted net income per share was up 29% compared to Q1 of this year, underscoring the gains we made during Q2 and making us feel very good about the quarter as we look at performance from multiple financial perspectives.
We made progress integrating our recent acquisitions, including ENET and Optil, which contributed to our sequential improvement in performance. Finally, I'd like to point out that during the past 2 years, we have deepened our revenue capabilities and shifted more of our revenue into a high Quality SaaS revenue stream. The mix of our revenue has continued to shift towards account servicing revenue, which primarily represents our SaaS revenue stream, going from 24% of total revenue in Q2 twenty nineteen to 29% this quarter. Now I'd like to discuss a few highlights from the quarter and the innovative solutions we're delivering for our customers. The combination of our technology platform, deep payment expertise and track record in configuring integrated solutions to meet the needs of industry verticals continues to open the door to new opportunities.
This, Along with our ability to seamlessly integrate into customers' operations via APIs or to meet them at their level of technical sophistication, bolsters our value proposition and remains core to our overall strategy. This also leads to very high customer retention rate, as demonstrated by our 95% net revenue retention in the Health business in Q2. Our results demonstrate the strength of our many diverse offerings. I'd like to highlight a few notable examples of how our differentiated products and services and multi channel go to market approach have resulted in new wins this quarter. Our health business continues to drive differentiated growth.
We set on our path years ago to create an ecosystem within health and benefits. We began with a focus on providing the payment technologies behind tax Deferred accounts such as HSA and FSA accounts, expanded into COBRA benefits, extended into a broker channel with greater transit and servicing capabilities and most recently acquired Benefit Express in June, which now gives us enrollment capabilities. I'm excited about this acquisition because it makes WEX the first to form a full service health and benefits marketplace, bringing together benefit administration, compliance services, and consumer directed health and lifestyle spending accounts as one offering. Additionally, this transaction meaningfully expands WEX's total addressable market. Benefit Express is another important piece in our capability to serve the needs of this dynamic and growing market.
WEX has a proven ability to invest in extending our technology platform functionality, Both through internal bills and through acquisitions, we look to offer our existing partners additional opportunities for growth By leveraging technology and services that meet the full set of employer benefit needs, as we further develop our health and benefits service ecosystem, We expect to create new and exciting opportunities. While we have strong new customer and partner growth and high retention rates, We continue to see a lag in employment growth with our existing partners and customers, which is a trend that we believe will return to normal over time. In the meantime, we're focused on innovating and outperforming competitively in the marketplace, and we are reiterating our Small Business Group. This shows the strength of our expanded offerings for our partner base, the ease of integrating with WEX, Our ability to successfully integrate new acquisitions on the tech platform and our ability to quickly scale our offerings through APIs. I'm also excited to announce that we're continuing the strong momentum in corporate payments, including the recent renewal of our agreement with American Express for additional 5 years.
American Express has grown its payables program into billions of annual spend in just a few years using our issuing technology. With this agreement, WEX and Amex combine each partner's course ranks to provide a best in class customizable account stable automation solutions for Amex Corporate Customers. By working with businesses' existing accounting systems to streamline the AP process, WEX Technology allows Amex Business and Corporate Card Customers To make supplier payments via single and multi use virtual cards, increasing the ease and efficiency for Amex clients to pay their suppliers. We're excited about continuing our partnership with Amex and delivering best in class payment automation solutions to their corporate customer base. For our largest customers, our deep payments expertise allows us to develop bespoke solutions and expanded global currency capabilities, all delivered with easy to integrate APIs and built upon enterprise grade cloud based solutions that allows us to win and retain key brands.
This is another piece of the large and growing B2B payments market We have committed to continuing to develop upon our capabilities to capture additional market share. Before I conclude, I'd like to talk about ESG. We published our inaugural ESG report at WEX earlier this year, which has set a baseline that we will continue to build upon. Our goal is to further integrate our ESG program into our overall business strategy and I'd like to update you on some of our ESG related activities, which are part of our overall strategy. A great example is the work we're doing around WEX's Electric Vehicle or EV Strategy and how we're working with our customers and partners to meet their evolving needs.
Our customers and partners' goals are expanding and now often includes sustainability targets in compliance with future government mandates. We believe our expanded EV products will support WEX's future growth and benefit the environment. We've been providing EV payment solutions such as data capture, seamless integration and secure payment solutions to customers for several years, including the General Services Administration or GSA. GSA Fleet is the largest public fleet in the United States and have been using our integrated EV payment and reporting solution for the past 2 years. Looking forward, we're planning on helping our customers meet their needs for mixed fleets comprised of both internal combustion engines and EVs.
Our product roadmap includes options for broader access The public charging locations, on-site or depot charging, enhanced data capabilities, reimbursement tools for employees that Our customers' transition to EV will progress over time and WEX will be ready to meet their needs. We're also keeping in mind possibilities for future products as the industry evolves. We've also made progress on the diversity, equity and inclusion front following the most recent election of our Board of Directors. Our belief is that our Board should embody a diverse set of skills, experiences and backgrounds, which provides us an informed approach to governance and Strategy. With the election of new directors at our Annual Meeting in June, our gender diversity at WEX's Board of Directors is now 5 women and 7 men and 25% of our members come from ethnically diverse backgrounds.
These individuals bring decades of experience in leadership in areas that are critical to our future. I'll continue to update you on our ESG journey along the way. As I look back on the quarter, I'm extremely proud of WEX's performance In this dynamic and fluid environment, keeping the customer at the center of all we do allows us to win in the marketplace. Our customers and partners value the power of our differentiated products and services, the experience WEX brings to the table to meet their needs and to provide seamless integration with our systems. Our new customer signings and pipeline remains robust We will continue to drive innovative solutions that meet the dynamic needs of our customers.
These results are only possible due to the talent, I'd like to thank them for their hard work and dedication in delivering another excellent quarter. As you've heard me talk about before, we believe the WEX culture is a significant competitive differentiator And this is more relevant than ever as we navigate the ever changing effects of the pandemic. For example, As we begin the transition back into the office, we're listening to the needs of our employees and fostering a flexible work environment, which allows our talent to best focus on customer needs. This collaborative process has allowed us to maintain our strong employee retention rate and add new talent. We're proactively positioning WEX to continue to scale and capture additional profit as volume increases.
We're seeing strong momentum across our sales channels with significant new wins and renewals and we are successfully integrating acquired businesses. Our combination of innovative technology and talented people with deep industry expertise differentiates us in the market And we remain well positioned for future growth. With that, I'll turn the call over to our CFO, Roberto Simon. Jose, I can.
Thank you, and good morning, everyone. As Melissa talked about earlier, Operating and financial results in the 2nd quarter were very impressive, building off a strong Q1. Overall results are above the Q2 of 2019. And as I look forward to the second half of the year, We continue to position the company for long term sustainable growth as we execute against the customer pipeline, M and A integration and drive innovation across the technology platform. Starting with the quarter results On Slide number 11.
For the 2nd quarter, total revenue exceeded the high end of expectations, But I'm merely due to better than expected volume recovery in the Fleet and Travel and Corporate Solutions segments, Higher fuel prices and COBRA revenue stemming from recent loss changes. Total revenue came in at $459,500,000 a 32% increase versus Q2 2020, up 12% sequentially and up 4% compared to Q2 2019. From an earnings perspective, on a GAAP basis, We had a net loss attributable to shareholders of $33,900,000 Non GAAP adjusted net income This represents a 91% increase versus the prior year and the 4th consecutive quarter of adjusted earnings growth. This was driven by higher revenue as well as robust adjusted operating income margins in each of the segments. To put this in perspective, it represents the highest second quarter revenue and adjusted earnings in WEX history.
Turning to Slide number 12 and breaking down the revenue by segment. Fleet Solutions grew 34%, Travel and Corporate Solutions posted a 50% increase. And finally, Health and Employee Benefit Solutions was up 17%. Now let's move to segment results starting with Fleet on Slide number 13. Total Fleet Solutions revenue for the quarter was $274,400,000 a 34% increase versus prior year, Primarily driven by new customer wins and renewals, higher fuel prices And continued recovery in the existing customer base.
This also reflects And growth when compared to Q2 2019. Payment processing transactions were up 26.2 percent year over year. Over the road transactions maintained a strong growth up 31%. With the North American and International Fleet Businesses up 25% 34%, respectively, The net late fee rate decreased to 41 basis points in comparison to the 57 as customers continued to pay their bills on time. On the other hand, Finance fuel revenue was up 40% from the prior year period due to the significant increases in volume and fuel prices.
To finish, please, the average domestic fuel price in Q2, 2021 was $3.04 versus $2.07 in Q2 2020. This increased fleet revenue by approximately 37,800,000 And was partially offset by fuel price spread in Europe. Turning to Travel and Corporate Solutions on Slide number 14. Total segment revenue for the quarter increased 50% to 81,800,000 Additionally, purchase volume issued by WEX was $8,700,000,000 with volume from travel related customers representing the majority. Breaking it down, corporate payments customer revenue was up 49%, Led by continued strength in the partner channel.
Revenue from travel related customers was up 53%, including approximately $10,000,000 in revenue from Ines and Opto.
As
a reminder, in Q2 2020, We recorded a revenue true up from the renewal of a SCIM P contract. Finally, let's take a look at the Health and Employee Benefit Solutions segment on Slide number 15. We continue to drive strong growth resulting in Q2 revenue of 103,300,000 This represents 17% increase over prior year and 24% versus 2019. We are excited about the growth opportunities we are seeing in this business and are finding ways to expand our offering, supported by the recent acquisition of Benefit Express, which closed this quarter. In the U.
S. Health Business, revenue was up 19% and sales account growth was 13%. These numbers include approximately $3,000,000 in revenue and approximately 200,000 accounts related to Benefit Xpress. Of particular note this quarter, we were able to pivot and respond quickly This led to an unusually high number of COBRA participants in May June, adding close to 1,000,000 temporary accounts And approximately $7,000,000 in revenue. Looking forward, we expect to transition back to employment related growth.
Now let's move on to expenses and adjusted operating income margins On Slide number 16. For the quarter, total cost of service expense It was $171,700,000 up from $161,900,000 in Q2 last year. Total SG and A, depreciation and amortization expenses were 205,600,000 which is up $49,200,000 versus 2020. In the Fleet segment, Adjusted operating income margin for the quarter was 50.2 The increase reflects revenue growth, very low credit losses, higher fuel prices And operating leverage in the expense baseline. Credit loss in this segment was 8 basis points of spend volume compared to 27% in Q2 prior year.
Travel and Corporate Payments delivered Adjusted operating income margin of 21%, up from 20.1% in Q2 2020 And a significant sequential increase from 9.9% last quarter. As we expected, we are seeing additional benefits in the margin from the Innos and Opto synergies and the increased volume, which led to a high drop through rate. So far, we have implemented approximately $30,000,000 of run rate The remaining $10,000,000 will take longer as it relates to platform consolidation and backend processing. The Health segment's adjusted operating income margin was 28.1% compared to 28.6 percent in 2020. This also compares to 25.4 percent in 2019, showing clear progress over time.
For the total company, adjusted operating income margin was 36.3%, which is up from 28.7% last Let's discuss taxes on Slide 17. On a GAAP basis, The effective tax rate was negative 7.9% compared to 310.8% for the 2nd quarter of 2020. On an ANI basis, the tax rate was 24.8% for the quarter And 25.2 percent for Q2 prior year. Changing gears now to Slide number 18. I would like to provide an update on the balance sheet.
We remain in a healthy financial position and ended the quarter with $425,300,000 in cash, down from $852,000,000 at the end of 2020. From a liquidity perspective, WEX had over $630,000,000 of available borrowing capacity And a corporate cash balance of $109,000,000 both as defined under the company's credit agreement. These numbers reflect the acquisitions completed this year. At the end of the quarter, the total outstanding balance on the revolving line of credit, term loans And convertible note was $3,000,000,000 The leverage ratio as defined in the credit agreement It stands at just under 4 times, which is up from 3.7 times at the end of 2020. To finish the balance sheet discussion, in June, we executed on $900,000,000 of interest rate swaps at an average rate of 67 basis points.
As of now, the interest rate on the financing debt To close out the call, We are extremely pleased by the results of the Q2 and the recovery we have seen so far. The first half of the year set a solid foundation and we believe we are entering a post pandemic business environment. Therefore, we are resuming revenue and earnings guidance for the Q3 and the full year, which you can see on Slide number 19. Starting with the Q3, we expect to report revenue in the range of $465,000,000 to $480,000,000 and adjusted net income in the range of 98 to $107,000,000 On an EPS basis, we expect adjusted net income to be between 2.15 and $2.35 per diluted share. For the full year, we expect to report revenue in the range of to $395,000,000 On an EPS basis, we expect adjusted net income to be between 8 point $0.30 $8.70 per diluted share.
Now let me walk you through a few more assumptions. Exchange rates are based as of the end of June 2021. We estimate domestic fuel prices will average $3.18 per gallon for the 3rd quarter and $3 for the full year. Both are based on the NYMEX future price from last week. The adjusted net income tax rate is And finally, we are assuming approximately 45,400,000 shares outstanding.
And with that, operator, please open the line for questions.
Your first question comes from Sanjay Sakhrani with KBW.
Thanks. Good morning. Obviously, you guys are seeing some constructive trends as we move through the Q2. Maybe you could just talk about these new forecasts that you've provided and how much continued improvement you're expecting as we move to the So when we think about some of the macro factors like SME recovery, the travel volume growth, Could you just talk about contextually how much improvement you're seeing assuming relative to 2Q?
Hi. Good morning, Sanjay. This is Roberto. Let me give you some color on how we have come with the guidance, And I know that Melissa probably will also add some color as well. So the first thing I would say, we have been sharing all along the weekly trends.
And as you can see, the weekly trends have been improving, especially from the month of May, we saw a big jump on travel And the trend has continued to improve. So from there, what we have done is taken into account the seasonality for the 3rd On the Q4, as you know, normally on the Q3, we have more travel and also the fleet volume improved from Q2. So we have also taken that into consideration. And then when you get to Q4, what we have modeled also is the seasonality that we have always seen in the last 4, 5 years where the travel volumes turned down a bit, the same with the fleet numbers. Now that can be different this year.
This is what we have modeled. We will keep watching every week, not the trends. And if something changes or is a bit different, obviously, we will discuss that. And then the other two things that we have added On our projection for Q3 and Q4 are an increase on both credit losses and late fees. So more or less, they wash From an earnings point of view, what you should see as we go along into Q3, I'm sure some increases on both.
And finally, on the revenue side, with the closing of the transaction of Benefit Xpress, we have added $20,000,000 $25,000,000 in revenue on a full year. So if you take the almost $3,000,000 that we did In the Q2, so you are talking just over $20,000,000 in revenue.
Yes. And the other thing, this is Melissa, that I would add to that is we've seen Obviously, it's a nice sequential improvement between Q1 and Q2. And as we're looking through the latter half of the year, we're looking The trends that we're showing you in these graphs and that's how we're coming up with our estimate.
Okay, great. Yes. And don't
forget Sanjay, don't forget that we are already ahead of 2019 from a revenue point of view overall. So that's why we have considered now that that's the appropriate way to go. Now that think that the patterns are going to become a bit more normal.
Understood. And just a follow-up question on the travel yield. That obviously sequentially declined a decent amount. Can you explain like how much of it is mix versus other stuff that drove that decline?
Yes. So we talked about last quarter about the changes on the overall rate in the Travel and Corporate segment. In this particular quarter, there's no surprises. I mean sequentially, it's down 16 basis points. But you also need to consider that if you look at the mix Between the volume from travel and the mix of the volume from corporate payments, it has increased materially.
So Overall, we went from EUR 6,100,000,000 of spend in Q1 this year to EUR 8,700,000,000 this year, But the increase on the travel side has been more than EUR 2,300,000,000. So the mix is the one that has impacted the most the yield. If you think about what we are projecting based on our guidance for the remainder of the year, Sanjay, it's going to be very close to what we have reported in this quarter, Unless the mix changes
dramatically. Understood. Okay, great. Thank you so much.
Your next question comes from Bob Napoli with William Blair.
Thank you. Good morning, Melissa, Alberto and Steve. Nice to see the rebound in the business. A question On the corporate payments business, which has shown obviously some pretty strong growth, can you give some color around What is working in corporate payments and just maybe Melissa some longer term thoughts on what you think the growth of that
Sure. And this part of the business, obviously, we're We're excited about the growth trends that we're seeing. We would say by being the pioneer in Virtual cards and virtual payments, we already had a base and foundations to build upon. We have about $300,000,000 worth of run rate revenue associated with This business that has been primarily digital from the beginning. And so as we continue to add Customers and new partners into that mix.
We benefited from the rebound in the quarter from prior year spend patterns, but also The additional partners coming on and they're adding new customers within the base and so we've seen really the benefit of all of those things coming together. We really believe that the offerings that we have in the marketplace are compelling. We're adding Marketing names into this part of the business because of the underlying technology and our capabilities. And so we look at this as a little growth avenue for us here at WACC. So I wouldn't call out anything that was specifically different in Q2.
It's just a continuation of some really positive trends that we've seen
And the longer term growth outlook for that Business?
Yes. I mean, it's a huge market and we see a tremendous amount of opportunity for us. We have continued to reinvest in this part of the business. We And so we feel bullish about the long term trajectory and growth opportunity we have in this market.
Then lastly, the American Express, the expansion or the renewal of that, it sounds like an expansion of the To include AP Automation, because I think that was primarily virtual cards. Is that right? Or how is the Amex Relationship going, if you can give any color to give us the
guidance Yes. Amex has been a great partner of ours. We've continued to We're providing issuing technology to them. And through that, we've grown Revenue is they've grown their spend volume. And so primarily, the growth that you've seen from us and what we're projecting forward is that they're continuing to build Your book of business and as their provider of issuing technology, we will grow as well.
Is it an expansion, the AP Automation that you mentioned?
No, it's not. It's a continuation of what we've been doing for them.
Okay, great.
Thank you very much. Really appreciate it.
Your next question comes from George Mihalos with Cowen.
Hey, good morning, everyone. Congrats on the quarter. Wanted to kick things off with just a question on competition and yield. And I'm just curious if you guys can talk about the competitive landscape as it relates to just sort of the corporate and the travel segments. Certainly, there are New entrants that are competing in the virtual card market.
Just curious if there's anything different there? And also, is there an opportunity to improve
that
yield in travel at Some point going forward, just curious how you guys are thinking about it.
Yes. So one of the things I would actually add to that conversation is when we think about the business, it's also what is what happens ultimately from a profitability standpoint. So yield to us, a lot of what we've been working on for the last several years has And to make sure that we create a cost structure that is highly competitive. So it's not just the technology, but the underlying cost, both of those things are important to us. And I would say particularly so in this part of the market.
And so you can see the really significant drop through that happens between Q1 and Q2 is we and Shaw increased revenue that dropping through to earnings. And that's really as a result We believe that what we have, and as a product capability is better than what we were using prior, And it is much more cost effective for us in the marketplace. And so I think you have to look at both sides Not only are we already bringing on for new spend and volume, but also how much of that is actually dropping through Would be my first point. And the second point relating to the competition, I would have argued that this has always been a competitive part of the marketplace. I think that Over time, there's been increased expectation of as the networks are Providing incentives and making sure that those incentives are pushed out into the marketplace.
And so that has Increased, I think, some of the pressure around making sure that those rebates are being distributed. But From a day to day perspective and the way that we compete in this marketplace, I would argue that it's been competitive all along. And The reason why that we win is because of the strength of the underlying technology we have, the product capabilities we have, the way that we're able to configure it To create specific use cases and functionality in specific industries, all of those things together have given us a really strong competitive position and we And as a result, we do keep bringing on new customers and making sure
That's helpful, Melissa. Appreciate that color. And then, Roberto, one quick one as it relates To EPS sort of sequentially from 2Q to 3Q, obviously, you've got revenue coming up Sequentially and sort of adjusted income rather flattish. Just want to make sure I understand what might be happening from an expense standpoint 2Q to 3Q. It sounds like increased provisioning, but is there anything else to kind of keep in mind?
So what I would say to you is during as you know, starting after the pandemic, We took some cost out that we announced last year. And then as we saw at the on Q4 2020, we saw that things were starting to rebound. So we have instituted some cost and some investments, especially in health and in technology. And during the 1st half of the year, as we went through budgeting process and adding some incremental investments, we have been cautious obviously. And we are feeling That as we said today, I mean, we feel now that we are on a post pandemic environment, this is BAU, and we want to continue investing and growing, as Melissa just said.
So There are a few puts and takes. What I can tell you is that during as we go from Q2 to Q3 to Q4, I talk about, especially on the fleet, we believe and we are on our guidance projecting that both late fees will Improve as we go along the month, the same with the credit losses. You need to consider also the Benefit Xpress acquisition within the Health Segment of the U. S. Business.
And as you know, that business sequentially is very strong on the first half of the year in revenue And on earnings and then on the second half of the year, there's obviously some investments I'm getting ready for the enrollment season. And finally, between the course that I was taking before Talking before, restating that and some incremental investments that we continue to do, as Melissa said, on technology, on the cloud And other areas, that's where you see a bit of that yield. But it's nothing different from where we would be on a normal And it's all linked with our long term strategy now of 10% to 15% growth in revenue and 15% to 20% growth on A and I EPS.
Okay. Thank you.
Your next question comes from Dan Dolev with Mizuho.
Hi, guys. Thanks for taking my question. Nice results. So two questions on the take rate. So it looks like travel is picking up.
And can you maybe just reaffirm that should we expect that The yield in Travel and Corporate to keep coming down as the year progresses, is that sort of the assumption we have to make given the improvement in Travel? And then I have a follow-up, please.
So this is Roberto. What I said is sequentially, we had 16 basis points decline, and I would say most of it was related to the mix between the volume on travel and the volume on corporate payments. In Q1, As I said, it was almost 40 around 40% travel and 60% corporate payments. In Q2, it's the majority of the volume is Travel. As you go through Q3 and as we said on our guidance, we expect travel to continue to rebound.
So we Expect to be slightly higher, probably 60% around 60% travel and 40% corporate payments. So you should See a small erosion, but then as we go through Q4, it should flip the other way around as the travel volume goes Slightly down from a mix point of view and probably will be around fifty-fifty, the rate will improve. But if we look at what we are in Q2 and you compare our guidance, I mean, we are talking 5 basis points or so difference up or down depending on the mix, but nothing major.
Got it. And then my quick follow-up is on the fleet. It looks like at 16.2 vehicles, you've had very nice improvement In your fleet, how much of it is share gains versus macro versus mix shift? Can you shed some more light on what is going on there? Because obviously, the number is really strong.
It's an Interesting questions. We're trying to do year over year comparisons gets pretty challenging in the years like this. But what we know Is that we're continuing to win new business and implement those wins and we can see the results of that flowing through from revenue and earnings perspective. We know the same store sales have come back. If you look at total volumes compared Q2 of 2019, we're down 2% to 3%.
And so largely rebounded From the pre pandemic arena, I'd say a lot of that has been it's been a combination of The rebound in volume from existing customers, if you look across categories like construction, which looks like it's really fully rebounded and then other parts Of the North American fleet business, like some of our larger fleets, which still looks like it's lagging. But in aggregate, you can see that We've really largely come back to where we were before the pandemic and then we're benefiting from the increased sales That we've had across the portfolio and really the strength we've had in the over the road business. And so while they're still lagging a little bit in the North American fleet, same store sales, We've gotten the benefit of all of those things that you just talked about. Some of it is new sales, some of it is rebound in existing volume. And the rebound isn't equal depending on the customer category.
Very helpful. Thank you so much.
Your next question comes from Trevor Williams with Jefferies.
Hey, good morning. Thanks for taking the question. Wanted to ask on the margins in fleet, which looks like just relative to 2Q historically, Run at basically the highest level you ever have. I'm just curious if we're thinking kind of pre versus post COVID, any structural changes. I mean, is this a new normal level of margin that we can expect now going forward?
Or is it maybe the Credit performance is still maybe skewing margins a bit higher than what might be sustainable over maybe whether that's back half of the year than even further out in 'twenty
So I will start saying that obviously, the quarter was very strong and fleet was A big component and a big driver of that. So we haven't seen over 50% margins on the fleet in years. I have the numbers with me, but even if I look to 2018 or 2017, there are a couple of things that I mentioned before when we were talking about guidance. But just think with the lower late fees and the lower credit losses, obviously, your margin is going to improve. That's one thing that we need to take into consideration.
The second thing is, as I was talking before, during the pandemic, we took some cost out. We have been benefiting from that. And some of those costs as we continue to reinvest and we continue to grow volumes, as Melissa said, Obviously, we're going to be reinstituting that cost. But other than that, the business is doing really well, high margins. And if I think about where we should land on a full year basis this year, it's probably going to be slightly better than in the past because of the late fee and the credit losses Because we have got over $15,000,000 lower credit losses, but the late fee rate is also very low.
But other than that, there's nothing major Changing of the environment. And then obviously, fuel prices. I mean, fuel prices have increased from last year to this year. In Q2, more than $1,
no? From 2 I think
it was $207,000,000 or $209,000,000 to $302,000,000 So obviously, that's also a significant yield improvement on margins. But if you put fuel prices aside, the 2 drivers is what I said to you.
Okay, perfect. And then just a quick follow-up on Health. The COBRA accounts that you guys added this Is there any expectation for how long those stay in the base or if there's any potential that you convert those to be more permanent? Thinking kind of how whether that's embedded in the rest of the year guide and can stay through part of 2022, just any help there would be great. Thanks.
Yes, sure. So the art program ends September 30 this year. And so our expectation is that The large number of that millions that we had in the quarter would step down by the end of Q3. And so from a benefit perspective, the work that we did within the quarter, the big part of the number that Roberta was talking about Was the work we did in informing employers of the change and in their and our partners of the change. What that allowed us to then do is reactivate customers within the system so that employees could opt to take advantage of the changes and so We get the step up as a result.
And again, we think most of that will step down at the end of Q3.
Got it. Okay. That's helpful. Thanks, Melissa.
Your next question comes from Darrin Peller with Wolfe Research.
Hey, thanks guys. Listen, when we look at the guide again quickly for the second half, Just to be clear, I mean, you're assuming basically what's equivalent to the run rate as of now, right, or last couple of weeks. So you're not really assuming incremental recovery Relative to what we're seeing right now, I just want to make sure that's clear. And then secondly, when we consider the travel segment in particular, I think it's around 80% international versus 20 domestic pro form a, right, for the Trinidad and Alto. And so What assumptions are you making, I guess, on just cross border travel embedded in that?
Let me I'm going to start with the We've actually seen a little bit of an unusual mix so far in travel where we're Normally not skewed towards North America. I've said before that we do a lot of the more complicated cross border travel, but That is where we've seen pickup in volumes in our North American volume base. And So a little less strength in Europe that we would normally see, more in North America and then less in Asia That we normally see. And so from a trend perspective, given what's happening right now in the world, we would expect those trends to continue Does North America be the place that could be stronger than other parts of the world?
To be clear, I mean, a pickup in cross border iterator Probably would be a pretty big swing for Travel segment, just given those that mix I was talking about earlier.
That would be the case, yes. But And also let me give you again the color on the travel guidance. So we reported Around a bit less than EUR 5,000,000,000 on spend on travel in this quarter. And as you can see from the weekly volume metrics, We have continued to improve during the month of July. And what we have done, obviously, the range is on purpose of our guidance It's a bit wider than it used to be before because obviously, especially on the travel side, we are expecting that what we have seen in July Continuous and at the same time that the seasonality that happens during the summer time also stays course on the next two quarters.
And from there, obviously, we expect that travel volume to slightly come down because of the seasonality That we always see now between the summer and then the 4 summer period. If that's different and we see this year an increase From Q3 to Q4, obviously, a bit is contemplated on the high end of the range. But I would say to you that I will stick with the seasonality that we have discussed. And the comments that Melissa said, obviously, the cross border is going to be more challenged For the next few months.
Yes. And just one thing I'd add to that is, in order to give out guidance, we just decided to be transparent around The assumptions that we're making around this, there's still uncertainty what's going to happen We didn't travel specifically over the next couple of quarters because of what's happening with COVID. But that's we're giving you the assumptions and we're putting a range around it, depending on how that plays out. And to your point, if the cost quarter picks up, that would be an opportunity for us.
Sure. Melissa, one quick follow-up is just more structural. When we think about the position you have across your businesses, primarily in corporate and travel, There's been I know this came up a little bit earlier, but there's been a lot of discussion over incremental competition. But on the same token, you're obviously very well positioned in early innings. So You're digesting Dine and Opto, but are there other assets structurally that you think could make sense to be additive?
I'm just thinking about when you think of the portfolio of assets you have, Anything else you feel like you want to do for the next couple of years?
Clearly, we're Always active from an M and A perspective. We've got a pretty good history of being able to execute and deliver on what we purchase. And so I would just tell you that was a place that will continue to be active. That's my first point. My second point is that prices have been pretty high.
And when we've Look at assets, we don't often get a lot right now in this marketplace for the purchase price. We've had more of a bias Towards building. In this space of late, so we've been increasing and ramping our internal investment dollars that we will continue to evaluate and look at That's like we would normally do and go through the rigorous process that we would go through to make sure it fits both what we want to do strategically, but also that it hits our financial criteria.
All
right. Thanks, guys.
All right. And your last Question comes from the line of Mihir Bhatia with Bank of America.
Hi. Thank you for taking my questions. Maybe just on the healthcare side, I just wanted to go back to the COBRA accounts that are there. Can you just talk a little bit about The timing of the roll off and also do the corporate accounts pay higher fees per account?
So it's been timing perspective. The way that this played out is that we We went through a process obviously of working with our partners on determining how to Informed people about the American Rescue Plan Act and we went through a process of Working with them and employers to inform employees of the changes and that happened within the Q2, then the partner could elect To reimplement or reactivate their customers, so that they could choose to make an election themselves and that all happened Largely within the Q2 of this year. What will then happen over the next quarter is that People will choose to re up and participate further or they will roll off. And so Based on what we're seeing so far as the expectation is, since this is a backward view, the people that are electing are people that had Costs, that's what it covers. And so it's going to be the minority as opposed to the majority that's going to continue on.
And so we expect that they will roll off And the second quarter, so we think we'll get a little bit of benefit within the second within the third quarter, but not nowhere near the same amount we on Q2.
Right. And that was $7,000,000 right in Q2, I think that was called out?
Yes. Productionally, yes. Okay.
Yes. Okay. And then just sorry to go back to the travel questions, but I just want to make sure I understand. What is actually embedded in terms of the travel volume recovery in your guidance? Maybe if you can give it relative to 2019 or Something like geographically, but I guess I understand what you're saying that volume trends have been improving in July.
Do you assume they keep improving from here? Do you assume the cross border Questions that were just asked, like I'm just trying to understand that what is exactly embedded in terms of volumes in the travel
So yes, this is Roberto. So if you look at the weekly volume metrics up to 7.23, You see that in the month of July, we have come from around 50% down from 2019 levels, as you were asking, and we are, I would say, around the 30% down. So if you think about that, we have built from obviously, we know what is coming in July. From there, we have built Two things. 1 is the seasonality that I was talking about that it happened in 2019.
So the comps are similar to that. And at the same time, we have modeled that there is Some continued improvement there. However, as Melissa has been talking about on the cross border side, obviously, with everything we are seeing, We have not modeled incremental improvement or a material improvement from where we are today. But at the same time, that's why there's a range. So if things improve more than what we are seeing as of today and What we are seeing on the weekly volume metrics, that would be an improvement and a benefit.
If things deteriorate a bit, they will go the other way around. But That's why we have given a wider range because we feel good on where we are. We feel really good about the recovery, especially since the month of May. But it's really hard not to predict what is going to happen in the next 6 months. Obviously, July was very good because We continue to see not only the improvement and the recovery from 'nineteen, but also the seasonality has been helping us.
That's why we have taken that approach.
Got it. And my last question and I'll get off is just, is there a particular geography, whether it's Australia or something like that, where If we saw a sea change, that would be very material.
If you look across the volumes right now, it's about in the quarter, it was about a little over a third And the U. S, the majority of it, I'm looking here, about 40 5% in Europe and then The rest in Asia and the Middle East. And so, what I was calling out earlier is, the U. S. In Q2 2019 was a quarter of spend.
So is this the shift that's happening in that period of time?
That's why it's important to consider the cross border and what Melissa said before about the different markets. So North America is performing much better Europe, which is 2nd, and then Asia is way behind where things were back in the past. So we have continued model improvements, But considering that even Asia, we are, say, 75% or 80% down from 2019 levels, we have not considered the improvement we Seen in North America or in Europe in the last few weeks because the news are not telling that.
And to add to your point about one specific country, the products are reused around the world. And so that's why we're grouping them in regions.
And there are no more questions at this time.
Thanks everyone for joining us this quarter. And as always, we look forward to chatting again next quarter and this will conclude the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.