Hello, everyone. Thank you for joining us, and welcome to the WEX third quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Pedro Alvarez, Head of Investor Relations. Pedro, please go ahead.
Thank you, operator, and good morning, everyone. With me today are Melissa Smith, our President and CEO, and Jagtar Narula, our CFO. The press release and supplemental materials issued yesterday and a slide deck to walk you through prepared remarks have been posted to the Investor Relations section of the website at wexinc.com. A copy of the press release and supplemental materials have been included in an 8-K filed with the SEC yesterday afternoon. Before we begin, unless otherwise noted, all comparisons discussed during today's call are on a year-over-year basis. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, which we sometimes refer to as ANI, adjusted net income per diluted share, adjusted operating income, and related margin, as well as adjusted free cash flow during our call.
Please see the exhibits of the press release and the earnings supplement for an explanation and reconciliation of these non-GAAP measures. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and indeterminate amount of certain elements that are included in reported GAAP earnings. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in the press release, supplemental materials, and the risk factors identified in the most recently filed annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and other subsequent SEC filings.
While we may update forward-looking statements in the future, we disclaim any obligation to do so as a result of new information, future events, or otherwise. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa.
Thank you, Pedro, and good morning, everyone. We appreciate you joining us. I am going to start on slide four of our earnings presentation today. We delivered another strong quarter, and our teams continue to execute against both our near and long-term objectives. Results benefited from tailwinds from higher fuel prices, but the real story is the actions we have taken to strengthen execution, expand our competitive advantages, and deliver sustainable growth. This year, we have focused on pricing and margin expansion, winning new business, elevating our customer experience, and innovating across the platform. We have delivered on each of these fronts. At the same time, we are leveraging our strong cash generation, including the benefit from higher fuel prices, to create long-term shareholder value through disciplined capital allocation. This includes investing prudently to accelerate organic growth while fulfilling our commitment to return capital to shareholders.
We are making measurable progress in building meaningful momentum for the future. Turning to the financial results, we delivered record quarterly revenue of $780.1 million, an increase of 12.8%. Adjusted operating income grew 21.6% to $332.5 million, and adjusted EPS grew 33.6% to $6.13. Organically, excluding the impact of fuel prices and foreign exchange, revenue grew 4.4%. Adjusted operating income grew 6.7%, and adjusted EPS grew 14.3%. We exceeded our guidance ranges for revenue and adjusted EPS, with both metrics coming in above the midpoint of guidance, even after excluding PPG and FX. This strong performance demonstrates the operating leverage we are building in the business. Part of that operating leverage comes from our ability to build capabilities in AI, data, and infrastructure once, and then deploy them across all three segments.
Strong cash generation continues to provide meaningful strategic flexibility, and we generated $764.1 million of adjusted free cash flow on a trailing 12-month basis. In turn, we deployed 85% of our quarterly adjusted free cash flow towards repurchasing $200 million worth of shares, delivering on our promise to return the vast majority of our cash flow back to shareholders in the near term in illustrating our disciplined capital allocation approach. Turning to slide five of our presentation, let me remind you of our three strategic pillars: amplify our core, expand our reach, and accelerate innovation. Our strategy is designed to drive sustainable and profitable growth in each of our segments over the long term. These pillars are powered by organic investments in both product innovation and our sales and marketing engine.
We continue to see opportunities in both new and existing markets, which makes us excited about the future. At WEX, our decades of experience have earned us a trusted position within our customers' workflows. This allows us to deliver a simpler, more integrated experience for our customers and positions us to take on more mission-critical financial work on their behalf. Let me give you an example. In Mobility, we are testing new AI-powered capabilities as part of our intelligence portfolio for fleets. These offerings are designed to go beyond a dashboard to provide recommendations that help customers cut costs, prioritize performance opportunities, and run their operations more efficiently. This moves us from simply reporting data to driving action for our customers. Touching more broadly on AI, we are building it into our product experiences and deploying use cases across WEX.
This includes recently launching a pilot in our Mobility space that allows us to scale our account management functions. Historically, only our largest fleets could have a dedicated account manager. We're piloting an AI-driven program that reaches every customer at the moments that matter most in their experience with WEX, effectively extending sophisticated account management at scale to small fleets that couldn't previously afford that investment. Building on the great strides we've made in AI-assisted software development last year, the pilots we have launched this year to identify our software development lifecycle are delivering promising results. These pilots have taken us to a new level. With humans in the loop providing context and evaluation, we've built an in-house solution aimed at shortening development time and maximizing team capacity. We're now preparing to scale these efforts, which we believe will materially change our speed of innovation over time.
Beyond how we build our products, we believe AI becomes even more valuable when applied alongside the proprietary data our network generates. The decades of expertise earned inside our customers' industries and the infrastructure we've built to move money and manage risk. Together, these capabilities create a combination that is very hard to replicate. An example of this is how we use AI in combination with our bespoke credit tools to dynamically increase more than 215,000 customers' credit lines year to date, helping them navigate higher fuel prices while managing risk. Let me now take a few minutes to update you on our segments before turning it over to Jagtar, who will provide more detail on our quarterly results and updated outlook. Starting with Mobility, we continue to see strong tailwinds from higher fuel prices in the quarter.
More importantly, we're seeing tangible progress in the areas we directly control. Organic growth increased to 4.4% year-over-year, accelerating from 3.1% in the first half of the year. This outperformance reflects the impact of our pricing actions and product investments. We believe we will continue to have opportunities to further improve pricing and margin as we step into 2027. We also continue to win in the market. This quarter, we renewed our largest direct OTR customer by gallons processed, a global leader in parcel delivery and logistics. We believe this renewal reflects what sets us apart, our technology, our service, and the deep understanding of our customers' operations that we've built over years of partnership. Let me close on Mobility by emphasizing that we have deep moats that we continue to strengthen through smart investments.
Simply put, we're combining the strength of our network with continued innovation to make what we believe is already the best solution for fleets of all sizes, even better for our customers. Moving on to Benefits, we're well into our sales cycle for 2027, and customers have been particularly excited about the investments we're making to modernize our platforms. There's more to come as we continue to integrate AI into our solutions to take more of their critical work off their plates. For example, we've recently expanded our AI-powered claims adjudication tool to support additional account types, further strengthening the value proposition of this offering. Our strong competitive position is also reflected in industry data. According to the 2026 Devenir Midyear report, WEX remained the nation's fifth largest HSA custodian, and our technology powers eight of the top 10 custodians listed in the report.
This demonstrates the breadth of our reach across the HSA ecosystem and the important role our technology plays in supporting the industry. To drive long-term volume growth, we will continue to build HSA awareness through industry leadership and national programs. With our established market position, broad technology reach, and continued focus on driving HSA adoption, we believe we are positioned to benefit as the HSA market expands, both as a top five custodian and as the technology provider powering eight of the top 10. With that said, there's still work to be done to close the 2027 cycle, and we look forward to updating you next quarter as our sales cycle concludes. Moving on to Corporate Payments, we're pleased to report another strong quarter of improved profitability and strengthened Direct AP.
On the revenue side, accelerating performance in Direct AP was somewhat offset by delayed implementations and embedded and the Middle East travel disruption. We are pleased that adjusted operating income grew 7.4% with margin expansion of 190 basis points. In our Direct AP business, volume has handily outperformed our mid-teens expectations, growing 24%. This is a product with a large addressable market that we've targeted through investments in sales capabilities over the past year and a half. Our investments have paid dividends, illustrating the value of our strategic approach to capital planning, where we thoughtfully allocate every dollar to high-value opportunities. Separately, our best-in-class virtual card offering continues to win in the market. We've added new names to our OTA portfolio this quarter while continuing to expand outside of travel.
Our ability to offer a broad range of virtual card solutions tailored to customers across geographies and use cases remains an important competitive differentiator. Expanding our embedded virtual card offerings and continuing to build momentum in Direct AP positions us well to capture the significant opportunities available in this segment. Travel will always be an important part of our Corporate Payments story, while continued diversification reduces volatility and creates additional avenues for long-term growth within the segment. Shifting to capital allocation on slide 10. Last quarter, we committed to returning the vast majority of our adjusted free cash flow to shareholders through repurchases in the near term, and we did just that. During the third quarter, we repurchased $200 million of our shares, representing 85% of our quarterly adjusted free cash flow, while also further strengthening our balance sheet.
The remaining cash flow contributed to a reduction in leverage from 2.9x- 2.7x sequentially. Looking ahead, our capital allocation priorities remain clear. We are committed to directing the vast majority of our adjusted free cash flow towards share repurchases in the near term. That isn't to say we won't evaluate M&A opportunities in the future, but rather that we'll continue to weigh those opportunities against the returns we believe we can generate by buying back our own stock. At today's valuation, we think buybacks set a pretty high bar for M&A. Before I hand it over to Jagtar, I want to close by reiterating our focus on execution. While we've made meaningful progress this year, we recognize that there is still work to do and significant opportunity to accelerate organic growth, expand margins, and unlock even more value from our platform.
We have distinct competitive advantages, including the data our network generates, decades of industry experience, and the infrastructure we've built to move money and manage risk. We're winning new business and innovating for the future, building for the work that can't go wrong. With that, I'll turn it over to Jagtar to walk through our financial performance, segment results, and updated outlook in more detail. Jagtar?
Thank you, Melissa, and good morning, everyone. We delivered another quarter of strong revenue and adjusted EPS. Importantly, our performance remains strong even after excluding the tailwinds we've had with fuel prices throughout the year. As Melissa said, we are focused on the things we can control, including accelerating growth, expanding margins, and delivering against our strategic initiatives. Total revenue in the quarter was $780.1 million, up 12.8% and above the guidance range we provided last quarter. The impact of foreign exchange rates and fuel prices increased revenue growth by 8.4%. Excluding these macro impacts, revenue was above the midpoint of our guidance range we provided last quarter. Adjusted earnings per share was $6.13, an increase of 33.6%, with 19.3% of that growth driven by the impact of fuel prices and foreign exchange rates.
Excluding those factors, adjusted EPS was above the midpoint of our guidance range we provided last quarter. I'll add that we repurchased $200 million worth of shares in the quarter. Repurchases have continued in October. Through the 26th, we have repurchased another $75 million in shares, and we plan to continue doing so through the rest of the quarter. Moving to margins. Q3 adjusted operating margin increased approximately 310 basis points, driven primarily by the increase in fuel prices during the quarter. On a macro neutral basis, margins expanded 90 basis points year-over-year. We are pleased with this progress, which demonstrates our commitment to delivering margin expansion in the business. Credit losses decreased from 12.1 basis points to 11.7 basis points, in line with the range we guided you to last quarter. Let me now walk you through the segments. Starting with Mobility, which delivered another strong quarter.
Revenue increased 20.6%. Organic growth, which excludes fuel prices and FX, was 4.4%, accelerating from the first half of the year due to pricing initiatives and new business wins. The impact we saw last quarter from lower late fee instances partly reversed this quarter, which helped drive better performance in the segment. Additionally, the pricing actions we discussed last quarter remain on track to deliver this year, and we saw healthy organic margin expansion of about 260 basis points year-over-year. We're also encouraged to report that payment processing gallons increased 1% sequentially, driven by improvement in local fleet performance. Touching on credit performance, credit losses were in line with expectations. We have leveraged risk-adjusted strategies to increase customer credit limits through this period of elevated fuel prices and continuously monitored portfolio performance with advanced analytics and machine learning tools.
Overall, we remain pleased with how the portfolio has performed in this environment and attribute it in part to the exceptional work the credit teams have done to enhance their approach, including through the use of AI and real-time credit decisioning in recent years. To close in Mobility, we're very pleased with how the segment has performed, driven by the actions we've taken. It is exceeding the full-year organic revenue growth expectation of 1%-3% we set at the beginning of the year. Even without a demand-side recovery, we now expect organic revenue growth to be in the 3%-5% range. We remain focused on executing against the things we can control and are well-positioned as we close the year. In our Benefits segment, total revenue of $207.6 million rose 4.8%.
Overall, SaaS account growth was 2.8% in the quarter, in line with the expectations and reflecting a difficult comparison as we lap the addition of a large UAW trust portfolio in the second quarter of last year, along with the impact of the previously disclosed Q1 account closures, which were immaterial to both revenue and income. As a reminder, both of these account headwinds will persist into Q4. The Benefits segment continues to capitalize on both the scale we have built and the value derived from our investment portfolio at WEX Bank, which allows us to deliver industry-leading returns on our HSA assets. Average HSA custodial cash assets grew 11.2% in the quarter, and custodial investment revenue grew 7.7%. HSA accounts also grew 7.7%.
Overall, we're very pleased with the performance of the segment, which is delivering within the range we expected this year, and we look forward to updating you next quarter on our open enrollment season. Moving on to Corporate Payments. Revenue of $137.4 million increased 3.5%, with our net interchange rate decreasing by one basis point. Total travel volume increased 13.1%, and we're seeing continued strength among our travel customers despite the uncertainty associated with higher fuel prices and the Middle East conflict. As a reminder, we face headwinds in Q3 and again in Q4 as we lap the scheme incentives renegotiation from last year. Thinking through the rest of the year, we initially guided to a full-year segment revenue growth of 5%-7%.
We now expect it to come in slightly below that at 4%-6% after factoring in the travel impact of the Middle East conflict, which results in about a 1% headwind to growth rates. Segment purchase volumes increased 6.3%, primarily due to the quarter-to-quarter timing of travel volumes from a large OTA customer, as well as growth outside of travel, particularly in our Direct AP business. In travel, our volume growth was in line with what we expected as the customer shifted volume towards WEX in the quarter. As an important reminder, approximately two-thirds of revenue from our travel business comes from outside our top five OTAs, and we continue to win new OTAs that further diversify the travel portfolio, which we believe illustrates the value and trust customers place in our leading virtual card product.
In our business outside of travel, we continue to see healthy pipelines for both our non-travel embedded payments and Direct AP businesses. Growing these products is part of our strategy to accelerate growth by expanding our reach into new markets. As Melissa Smith mentioned earlier, I'm excited to note that our volume in our Direct AP business increased 24% this quarter. Last quarter, we indicated that we expected it to grow in the mid-teens for the remainder of the year, and we're ahead of that. Direct AP today contributes approximately 20% to segment revenue and is growing. With that, let me transition to the balance sheet. WEX is a business that generates strong recurring revenue, which in turn produces reliable free cash flow. On a trailing 12-month basis, we have generated $764.1 million of adjusted free cash flow.
Our ability to generate strong cash flow across market cycles gives us significant capital deployment capacity. We also benefit significantly from WEX Bank, which provides low-cost funding through deposits and Federal Home Loan Bank lines. The bank gives us lower cost of funding versus alternatives, such as securitizing our receivables and other financial benefits in our payments businesses. In addition, as we've mentioned before, WEX Bank also helps us drive higher yields in our HSA assets through its investment portfolio. Turning to leverage, we closed Q3 with a leverage ratio of 2.7x , decreasing from 2.9x at the end of the second quarter, and remaining within our target range of 2.5- 3x . We take care to ensure we maintain a responsible level of leverage across economic cycles.
Let me add a few points to Melissa's earlier comments on capital allocation, a focus of every investment decision we make at WEX. Each step in our disciplined capital allocation process is grounded in a clear objective to maximize long-term shareholder value, and every investment decision we make is weighed against returning capital to our shareholders, including internal investments in our segments. As Melissa Smith noted, we expect to return the vast majority of our adjusted free cash flow to shareholders in the near term through share repurchases. We believe this is currently the best use of free cash flow we are generating after funding organic investments. To be clear, we remain committed to operating within our 2.5- 3x leverage range and will continue to apply a rigorous, returns-based approach to our share repurchase activity. Should market conditions change, we will adapt our strategy accordingly.
Now, let's move to earning guidance for the fourth quarter and full year. In Q4, we expect to generate revenue in the range of $760 million- $780 million. We expect adjusted net income EPS to be between $5.67 and $5.87 per diluted share. For the full year, we now expect to report revenue in the range of $2.97 billion- $2.99 billion. We expect adjusted net income EPS to be between $21.28 and $21.48 per diluted share. Compared to the midpoints of the previous ranges, these represent increases of $96 million in revenue and $1.50 in EPS. At the midpoint of our guidance range, this implies 5% organic revenue growth in Q4. These increases are driven by higher fuel price assumptions and the outperformance from Q3. We continue to assume no demand recovery in Mobility.
On the interest rate side, we have included interest rate impacts in line with the current market Fed funds projections. Lastly, consistent with our past practice, we are not factoring the impact of share repurchases beyond Q3 into our guidance. In closing, our third-quarter results reflect both the strength of our business and the progress we are making against our strategic and financial priorities. We are delivering improved underlying growth and margin expansion while generating strong free cash flow that allows us to invest in the business and return significant capital to shareholders. As we look to close out the year, we remain focused on disciplined execution, accelerating organic growth, and driving sustainable long-term shareholder value. With that, operator, please open the line to questions.
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Dave Koning with Baird. Your line is now open. Please go ahead.
Yeah. Hey, guys. Thank you. Nice job. I guess my first question, the Mobility segment, clearly some of the metrics getting better, transactions accelerated the strongest growth in a while. Gallons back to flattish year-over-year. I guess you talked a little about local, but maybe parse out locals maybe getting a little better. Maybe just give a little metrics around OTR and local and where you are seeing some of that recovery.
Sure. Thanks for the question, Dave. You are right. Local is getting better. The investments that we have made in sales and marketing, we can see coming through in the business. So we have seen continued momentum, and that is getting compounded with the pricing changes that we put in place, some of which we saw in Q3 and we will see more of in Q4.
We did see softer volume in our over-the-road business, and that has been driven by this continued elevation of diesel prices, where we saw some shift in volume to rail. I know a lot of people look at the Cass Index. That actually tracks all modalities. So it is not one for one to what we are seeing in our business. So we like to remind people we have had this huge tailwind on fuel prices that have given us 16 points of growth in the segment this quarter.
We're okay with the fact that we're seeing some temporary changes in terms of customer behavior. That's one of the places where we saw that. We're really confident in our ability to win. We talked about the fact that we renewed our contract with our largest rack customer this quarter, so we feel really good about where we stand competitively.
Thank you. I guess just my follow-up, in the Corporate segment, just the yield on volume, the processing yield on volume has been pretty volatile. You explained some of the factors around that and why it declined a little in Q3. As we look forward, should we assume that's going to be pretty stable and maybe what are puts and takes coming up into Q4 and into next year?
Hey, Dave. Yeah, thanks for your question. I just remind, Q3 tends to be a high quarter for the travel segment, and travel segment interchange rates are typically lower than non-travel. So in the quarter, as travel increased seasonality-wise, we saw interchange rates decline. We expect that as we go into the fourth quarter, travel will come down seasonally, and that will sort of bring interchange rates back to levels we saw earlier this year.
Great. Thanks, guys.
Your next question comes from the line of Sanjay Sakhrani with KBW. Your line is now open. Please go ahead.
Thank you. Good morning. I guess just going back to Dave's question on Mobility. I guess as we look into next year, Melissa, you mentioned pricing is still a lever. The macro is what it is, I guess. As we think about sort of the buildup to revenue growth, should we expect it still, and I'm asking you to give guidance, but just broadly, is it still sort of the mid single- digits, or can you add on that given the pricing lever? Thank you.
Hey, Sanjay. Yeah, thanks for the question. We are excited to give you guidance when we get to the fourth quarter earnings call. But we are extremely pleased with the progress that we have made in Mobility in this quarter. Remember, we talked about last quarter, the pricing actions that we were going to take in the second half of the year, and that we expected about 1/3 of those pricing actions to hit in the third quarter, and the remaining two-thirds to hit in the fourth quarter.
So as we go into 2027, you will see a lapping effect from that. So you will get a full year from those pricing actions that we have taken that should help 2027. And we also, obviously we are in the middle of budgeting now, but we will continue to look at pricing actions we can take, as well as further return on the investments we have made in sales and marketing.
When we think about the Middle East conflict and its impacts to travel, as we think towards next year, I guess when we look at Visa, Mastercard, we've asked this question, but when we look at Visa, Mastercard, they don't seem to show any significant drop-down in cross-border volume. As we look to next year, do you anticipate that headwind gets worse, or do we lap that? Has it gotten worse progressively over the course of this year? I'm just curious for some context. Thank you.
Yeah. Thanks, Sanjay. What we have seen is since the start of the Middle East conflict, it's been a pretty consistent impact. It's been about a 1% drag. For the most part, we've seen travel corridors go to other places. For us, we have a few OTAs within our portfolio that are pretty heavily concentrated in that region, and that's where we've seen the biggest amount of the impact. So if the conflict continues, I would expect that we would continue to see that impact in our portfolio. If it resolves, then I would expect that you see this rebound.
Just to add on here to your point, Sanjay, assuming the conflict continues, and it remains stable like we've seen so far, we would expect to lap that next year.
Thank you.
Your next call comes from the line of Tien-Tsin Huang with JPMorgan. Your line is now open. Please go ahead.
Hey, good morning. Melissa, you're achieving the margin, the pricing, the buybacks, a lot of the things you talked about. It sounds like you're going to hit the low end of the 5% to 10% in the exit as you said last quarter. I guess given that and the momentum in the new sales and pricing, I know you're not going to give 2027 specifics, but do you have the pieces in place to get more into the range of the 5%- 10% as we go into 2027 and beyond? What's left to do in your mind?
Yeah, Tien-Tsin, thanks for the question. Yeah, we've made a lot of progress this year, and so we feel good about the fact we continue to execute and that we're creating more commercial momentum across the business. As you said, that's enabling us to convert cash flow to buy back stock. The places that we're focused are to continue to leverage the tools that we have in place. I talk a lot about some of the AI productivity work that we're doing across the organization, but to continue to leverage that across the organization to enable us to get even more out of the investments that we're making.
We are putting product roadmaps out into the marketplace that are resonating with our customers, and so we're really focused on continuing to execute across those, get as much leverage and productivity as we can, and to the extent that we see places that we can put incremental investment dollars that are going to have high returns, we'll do that. But right now we feel pretty confident around where we are, how we're exiting the year, and the level of investments we have across the business.
Okay. No, that's fair. Thank you for that. Just my quick follow-up, just maybe a little bit more detailed than normal, but just thinking about your comments around broadening virtual card and into travel. There's a lot of virtual card activity right now in agentic commerce, and I'm curious, your diversification, does it include some of those potential areas to go into, or am I misreading the diversification comment?
No, you're not misreading it. When we think about agentic commerce, it's certainly an area that we're interested in. We're really focused around continuing to build the technology in a way that enables people to come in and access us in a really tech-forward manner, which would include agentic capability. We're also working directly with our OTA partners who are in the middle of this, who also have partnerships with some of the agentic platforms.
As we continue to be the background of the payment rails, as they're making those partnerships and also on their own going into these unique data assets where they're creating their own agentic platforms, that's giving us another avenue of growth as well. I would think about, we're really focused on is how we can create an experience where you can come into WEX through many different formats, and also working with our partners and customers as they expand into those relationships as well.
Got it. Thank you.
Your next question comes from the line of Rayna Kumar with Oppenheimer. Your line is now open. Please go ahead.
Good morning. Thanks for taking my question. I just want to ask about Benefits. Can you talk a little bit about what the selling season and Benefits is suggesting for 2027 account growth and how much of that could translate into revenue growth? Thank you.
Yeah. Thanks, Rayna, for the question. I think I said this in the prepared remarks, but we're seeing a lot of interest in the products that we're developing. We've been really focused on continuing to modernize the technology and putting AI capability into the products that we're rolling out into the marketplace, so definitely seeing a lot of interest. We're in the middle of the selling season right now, which is not just us selling, but our partners selling. So we'll have a lot more to talk about next quarter. So excited to give you that update a quarter from now.
Your next call comes from the line of Darrin Peller with Wolfe Research. Your line is now open. Please go ahead.
Hey. Can you guys hear me okay?
Yes, we can.
Sorry. Thanks, Melissa. Look, just on Corporate Payments, the Direct Payables volumes grew, I think it was 24% above your prior expectations for mid-teen. Maybe just help us a bit on what's driving the outperformance there. How sustainable do you think that is, and when we should expect stronger volume growth to translate into more meaningful revenue growth as well, and just a little more color and clarity on the delayed implementations in Embedded Finance also.
Yes.
How we should contemplate the headwind from Middle East travel going forward on this. Thanks a lot.
Yeah. Thanks, Darrin. Those two things actually tie together. Let me talk about AP Direct right now. We are really excited about the momentum that we have. We added to our sales force here. We have continued to add functionality of the products. We are seeing the results of that. We saw, as you said, 24% volume growth, which was higher than what we expected. We continue to see this as a place that we will build. It is 20% of the segment right now. But part of what is exciting for us is in why we are investing in Corporate Payments outside of travel, is we see it as an opportunity to create an additional area of growth, as well as reduce some of the volatility that we have in the segment now. So we feel like we are on the right path of that.
With embedded payments, I want to be really clear, our products that we have developed are selling very well in the marketplace. We continue to see customer signings. We continue to see the pipeline building. There is a longer implementation cycle than what we had anticipated, largely because the customers also have to do development into our systems, which is great long-term because it creates a stickiness factor, but it is taking longer than we had expected in those implementations. So for us, this is just a question of timing. The two of those things together give us a lot of excitement about how we are going to continue to grow this segment of the business long-term.
All right. Thanks. Maybe just a quick one, if you do not mind, on the margin side. I think you delivered 90 basis points of macro-adjusted margin expansion in the quarter. I guess relative to what you had previously expected in the second half just to achieve the 100 basis points, it would be about 75 basis points for the full year. So is that how you are still thinking about the year? Just by your math, it implies about 110 basis points of year-over-expansion in Q4. Just curious where your head is around that. Thanks.
Yeah, Darrin, thanks for the question. We were pleased with the margin performance in the third quarter, as you mentioned, 90 basis points. If you recall the last earnings call, we had talked about that we expected to deliver above 100 basis points in total for the second half of the year.
Yep.
We still feel good about that. We are still on track, and I would also remind you that the pricing actions we took in Mobility have not been fully onboarded yet. We expect that to help as we go through the fourth quarter.
Okay. Makes sense. All right. Thanks, guys.
Your next question comes from the line of Ramsey El-Assal with Cantor Fitzgerald. Your line is now open. Please go ahead.
Hi. Thanks for taking my question. There has been a lot of media attention on the stress that vehicle fleet operators are facing from higher diesel prices. I noticed, I believe the Q4 expected credit performance was a little bit elevated. I am not sure if those two things are correlated, so maybe if you could just comment on what you are seeing out there in terms of the impact of these higher prices on your customers.
Sure. Thanks, Ramsey. Overall, I would say the portfolio remains healthy and strong. Let me comment a little bit on what we've done from a credit standpoint, then I'll comment specifically to your question on Q4. We've talked a number of times over the last couple of years about the investments that we've made in our credit granting capability from AI, analytics, new data, things like that. We actively have improved how we analyze credit for new customers that are onboarding, as well as customers that are in the portfolio and adjusting credit limits as needed on an automated basis. I think you can see that in our results this year. We've had a pretty significant increase in fuel prices, and yet credit performance has been fairly stable.
If I contrast that back to 2022 when we saw a similarly large increase in fuel prices and impact to credit statistics. That's evidence of the progress we've made. When you get specifically to Q4, it's really a math item. The way it works is the charge-offs that hit the P&L take about two quarters to flow through from the time a customer charges something to a card to if they're not paying, when they would be ultimately charged off.
What we saw in Q3 was fuel prices are up, but the charge-offs that were hitting the P&L were back from Q1 when fuel prices were lower. That is going away in Q4 as we start to hit some of the higher fuel cost charge-offs in the P&L. We're pleased that we've still got into within the range that we established at the start of the year, and we'll feel good about the overall quality of the portfolio.
Okay. Thanks a lot for that. Just a super quick follow-up. On just the BP portfolio, is that fully run rating now and in numbers, and what was the contribution from that this quarter?
Yeah, it is fully run rating. From a year-over-year growth standpoint, it was about 75 basis points.
Awesome. Thank you.
Your next question comes from the line of Mihir Bhatia with Bank of America. Your line is now open. Please go ahead.
Good morning. Thanks for taking my question. Wanted to go back to, I think Tien-Tsin talked a little bit about the 5%-10% organic growth range you'd given and being within it. I was wondering if you could maybe put a little finer point on it. As we think about 2027, and I understand you don't want to give guidance, but maybe talk a little bit about the biggest building blocks to get you from entering the year at five to a little bit further up the range. And I guess really what would be helpful is how much of that is already in hand from the execution, from the pricing, BP that you just mentioned lapping, getting the benefit there, versus things that are reliant on additional wins or execution and better underlying volumes from a demand recovery?
Yeah, Mihir. Thanks for the question. As Melissa said earlier, we are looking forward to talking about our 2027 guidance when we get to the Q4 earnings call. What I will say about the building blocks is that we feel really good about the building blocks that we have put into place. So if I think about this year, this year has been a year of investment and scaling. So we have invested in the products in our portfolio, across our portfolio from Mobility to Corporate Payments to Benefits. Feeling good about the feedback that we are getting from customers.
We feel good about the scaling that we are undertaking and the margin expansion that you have seen in the third quarter. And we feel good about the sales execution that we have done so far this year and how that will set us up. And then lastly, we feel good about the resiliency of our cash flow and our ability to continue to buy back stock as we have talked about. Overall, I think those pieces give us good momentum in the second half of the year that will translate into continued momentum next year.
Got it. Maybe if I could ask just one more in terms of fuel prices and how much of a benefit it has been. I think a lot of investors are trying to figure out what happens if fuel normalizes in 2027, and if the business can still deliver double-digit EPS growth, right? So I guess my question is, if you lose the fuel benefit, does that bring some volume back? I think you mentioned some of the volume in OTR maybe has gone out because of higher fuel prices. And also relatedly, if you could just comment on the large OTR renewal you mentioned. Did that change the economics at all? Thank you.
Yeah, Mihir. Thank you. The way I would describe it is we have seen s ome anomalies that have happened this year because of elevated fuel prices across the business. Last quarter, we talked about late fees, which has largely resolved itself. That was tied into an elevated fuel price situation that this quarter we're seeing a little bit with rail, and movement to rail, which is tied into elevated diesel prices. I would say that those things are happening intermittently on the fringe. That has an impact. I wouldn't say it's a large impact, but it definitely has an impact to us. I keep saying that the upside we're getting for fuel prices more than offset that. So, it's a positive trade. But the way that we're really thinking about the business is our performance is excluding fuel prices.
This year, even with those things, if you look at our earnings growth, Jagtar talked about the fact that the midpoint of our guidance range in Q4 for revenue excluding macros is 5%, but EPS growth is 18%. So we feel the ability to not just leverage organic growth, but to scale that through the organization and compound that with the share buybacks that we're doing.
Yeah. Thank you.
Your next question comes from the line of Madison Suhr with Raymond James. Your line is now open. Please go ahead.
Hey, good morning. Appreciate you taking the questions. I wanted to start on Mobility late fees. It does appear to be an area that helped drive the acceleration in organic growth here. Can you just maybe double-click on what drove such strong improvement in late fees, and more specifically, the net fee rate?
Sure. Late fees, of course. If you go back to the second quarter, you will recall that we had seen a deviation from normal behavior in late fees. That was largely a result from the spike in fuel prices as customers changed payment behavior. We saw in the second quarter about a two point drag in growth rates from late fees. As we look at the quarter-over-quarter improvement in Mobility growth rates, we saw late fees partially come back. That added about a point of growth quarter-over-quarter. I would attribute that to a couple of things. First, we proactively adjusted credit limits for certain customers, not all customers, but where customers had, from our analysis, credit capacity.
That allowed them to continue to run their business and not have to continuously, if they were hitting up on the higher end of their credit limit, they were obviously making prepayments to get the credit lines open. That allowed them to continue to run their business without making those prepayments or early payments. Secondly, we just saw a reversion to normal behavior as I think customers got used to the higher fuel prices and started paying as they normally did. Those two together caused what we think were the improvement on late fees. Regarding the rate, I will remind you that the rate that we disclose includes the impact of fuel prices. That did help the rate. I think excluding the fuel price impact, it was in line with normal expectations.
Okay, that is helpful. Just as a follow-up, more of a high-level question around pricing. As we think about the medium term and the opportunity for growth to accelerate farther into that 5%-10% target, do you think pricing is going to play a more meaningful role in that growth algo, or should we think about some of these actions being more specific to 2026 and 2027? Thanks, guys.
Yeah. Great question. We've actually been making impact for price for a number of years, and so I would consider that to continue to be a lever for us. Particularly within our Mobility business, and a place that we will continue to look at the value that we're creating for our customers and balance that with the fee structure that we're charging in the marketplace.
Your next question comes from the line of Nate Svensson with Deutsche Bank. Your line is now open. Please go ahead.
Hey, thanks for the question. I wanted to circle back on Corporate Payments. Appreciated the comments on this quarter, Middle East travel volumes, yields, et cetera. Just trying to get a better sense on the implied level of Q4 growth given the new full-year outlook of 4%-6%. There's a really funky year-over-year comp, and then I think you have a bigger headwind from the incentive renewal. But at the midpoint of that four-year range, I think it implies Q4 growth, maybe around the same rate as Q3, maybe a little bit better. So hoping you could go through the puts and takes that will keep growth in that same range, and then maybe what we should be looking for that could drive growth to the high or low end of the four-year range.
Yeah, sure. I think it's useful to talk through the drivers from Q2 to Q3, what we saw. Going from Q2 to Q3, we saw, remember we renegotiated our scheme arrangement with the payment networks last year that provided us kind of a nice revenue uplift. We started to lap that in the second quarter, which was about a two point drag in growth rate quarter-over-quarter. We also had some one-time items in the third quarter last year. We also had some one-time items in the fourth quarter last year. From a revenue standpoint. That was about a two point drag in the third quarter, and that's also a two point drag in the fourth quarter that we expect to not repeat.
Then we had, on the plus side, the benefit of the large OTA volume that we talked about, the Direct AP business, et cetera, that added about two points in the quarter. So if I look to the fourth quarter, a lot of those items will continue. We have the one-time item that we talked about. We will have a little bit more of a drag from the scheme item, another about 140, 150 basis points. But largely, other items will continue.
Thanks, Jagtar. Then for the follow-up, just a few clarifications on Benefits. So I know purchase volume was up, but wondering any color as to why total volume was down. I know purchase volume is the more relevant KPI there, but just wondering color on what drove that. SaaS accounts, again, growth kind of in that same range. I guess longer term, my question, is there any reason once we lap UAW and the account closures that we shouldn't get back to, call it, that mid single-digit range that you had shown historically? Then last, just color on how to think about HSA yields given changes in the rate environment. So there was three in there, but appreciate it.
Okay. I will start with the first of that, and I suspect Jagtar will answer the last one. So if you look at our growth this quarter, one thing to keep in mind is that year-over-year, we have over one point headwind from interest rates, which is affecting comparisons from this year to last year. Our HSA account growth in the quarter was 8%, and you talked about the custodial cash balances that grew 11%. We had closed some accounts, which was going through the purchase volume that you're talking about, that was not material to revenue or to earnings.
So it affected some of the KPIs, but it didn't actually really have an impact on the underlying business itself. So think of those account closures, which was about two points to the total account growth, which is what impacted the purchase volume. Overall, we feel really good about the growth of the business and ex what's happened with interest rates and what we're seeing with the HSA in the portfolio itself.
Yeah. Nate, to answer your question on rates for Benefits. If I look at the third quarter, there has been a drag from interest rates year-over-year, about 130 basis points. Interest rates are lower this year than they were last year. But I think watching the market, the market is now, we have seen one interest rate increase this year, and then the markets are now projecting further interest rate increases going forward. That will obviously be a benefit to our Benefits business.
If you look at the company overall, we provide some disclosures in our supplemental materials that 100 basis point increase in rates, plus or minus 100 basis point increase in the rates would be about a $30 million benefit to revenue, although it becomes a drag on EPS, but a benefit on the revenue side, and roughly half of that would be in the Benefit segment.
Thanks. Appreciate you humoring the multi-parter.
Your next question comes from the line of Dominick Gabriele with Loop Capital. Your line is now open. Please go ahead.
Hi. Good morning. Thanks so much for taking the questions. In Mobility, you've raised the revenue guidance, and I know a lot of talk about 2027, but I just want to focus on the 2% that you raised it between this quarter and last quarter. I'm assuming you kind of knew where the price increases were going to be. I'm just curious if there was anything else that, from an organic basis, that was accelerating that near-term outlook. I just have a follow-up. Thank you so much.
Yeah. Dominick, thanks for the question. We talked about the price increases last quarter, and that was embedded into our guidance. But we also talked about the late fee drag that we had saw last quarter, which was about a two point impact to the segment. At the time, we didn't project any changes to late fees. We assumed that they were going to continue at the compressed rates because of the higher fuel prices. As a result, we didn't change the Mobility segment guidance at the time. Going into Q3, as we talked about earlier, we saw that late fees start to normalize to instances that we had seen prior to the spike in fuel prices, and that allowed us to raise the guide for the segment.
Great. Thanks so much. The company has invested quite a bit it seems, but you're still showing this underlying margin expansion, and you've classified this year as kind of an investment year, but you're still expecting 100 basis points in the second half. There was also a comment at the very beginning about expanding margins again next year. I'm curious if you think there could actually be an acceleration off of this back half, 100 basis points, given this was considered an investment year. Thank you so much.
Yeah. No, I would say we thought of a lot of the investments we actually started to make last year. When we started this year, we said we want to make sure we can see the scale benefit of that. We are indeed seeing that. You can also see if you look at our P&L that the place that we've been investing in sales and marketing costs. We've also shown a lot of productivity in other areas of the company, and that's been quite intentional. So we're focused on how we can continue to be productive using technology, and doing it in ways that we think are creating better customer experiences outside of both our technology and our sales and marketing areas, which are places that we think are important areas that we continue to invest in.
Yes, in regard to margin expansion.
Sorry.
I was going to say, just with regard to margin expansion expectations, we are pleased with the trajectory that we have been on and we did what we said we are going to do in Q3, and we still feel good about what we said we are going to do for the second half. I would say, to Melissa's point, we are constantly balancing margin expansion and investment that grows our business in the future. So, I would not expect that there would be an acceleration next year, but we will talk more about that when we give the fourth quarter guidance.
All right. Great execution. Thanks so much.
Your next question comes from the line of Michael Infante with Morgan Stanley. Your line is now open. Please go ahead.
Hi, guys. Thanks for taking my question. In Benefits, I was curious if you are able to provide the same store sales figures for local and OTR in the quarter. Jagtar, you mentioned about 75 basis points of year-on-year contribution from BP. Is there anything you can share just in terms of what that implies in terms of organic transaction growth excluding BP in the quarter? Do you expect to still lag Cass, at least marginally, just given the near-term mix shift to rail that you alluded to earlier on the call?
Yeah, thanks, Michael. We do not provide detailed, but what I will say on same store sales is we saw improvements sequentially in the local fleet business. Then decrease sequentially in over-the-road for the reasons that Melissa talked about on that price elasticity regarding rail. I would say, I think the second part of your question is what we would expect going forward, and I would say, with elevated fuel prices, I think you should expect some sort of continued use of rail by shippers. But I would expect that to potentially reverse if fuel prices were to come down.
As Melissa said earlier, while there is some price elasticity on the fuel side for over-the-road, we are extremely pleased. The Mobility segment got 16 points of growth benefit from fuel prices. We might have lost a little bit from this price elasticity moving to rail, but overall, it is a very strong net positive for us. We were pleased with that.
Makes sense. Then just a quick follow-up on Nate's earlier question. I wanted to ask mainly on account servicing revenue within Benefits. Devenir, I think is still expecting about 6% industry growth. You are obviously seeing the two points of headwind from the product discontinuation, about a point from UAW. So underlying, you are still relatively in line with that. But as those headwinds sort of roll off after Q4, do you expect account growth to re-accelerate back to this 5%-6% level? Then, if you assume fairly similar magnitude, call it mid single-digit declines in SaaS ARPU, is the intention that the account servicing line item within Benefits starts to grow again? Thank you, guys.
Actually, one of the things to compare to Devenir report, our HSA accounts grew 8% in the quarter. If you want to do a like for like comparison, that is what you should be using. Again, we feel really good about the account growth we have underlying the business. I think accounts and account growth is an important part of the model. Over the last few years, we have had some account cleanup that has affected the total account number.
Our growth has been really very strong. I think of that as one of the things that contribute to the overall building blocks that we have for our Benefits business. As we go through this open enrollment cycle, that is certainly a focus of ours of continuing to build accounts across the portfolio, but actually more importantly for us is how do we grow revenue, and do it in a sustainable way, and that is one component of it.
Michael, the other thing I would add, when you look at the account servicing revenue line, recall that we moved assets under management from third party banks over to WEX Bank this year, and that effectively moves revenue. We gain revenue from it because we earn higher rates at WEX Bank. But it moves the revenue from the account servicing line to the other revenue line. We moved on the order of year-over-year about $300 million of assets under management from third party banks to WEX Bank. That had an impact to the ASR growth rates.
Thank you, guys.
We have reached the end of the Q&A session. I will now turn the call back to Pedro Alvarez for closing remarks.
Thank you, operator, and thank you everybody for participating on the call. As always, if you have any questions, please feel free to reach out, and we appreciate your time today.
This concludes today's call. Thank you for attending. You may now disconnect.