Joining us again is Jagtar Narula, CFO of WEX. Jagtar joined WEX as CFO in 2022. Prior to that, he was CFO of 3D Systems and held senior finance strategy and business development roles at Blackbaud. His early experience also includes finance leadership positions at Xerox and General Electric. Very well-seasoned executive here. Thank you for joining us.
Thanks, Sanjay.
It has been nearly two years since you reset the long-term growth target, stepped up investment to re-accelerate growth. Where do you assess yourself in terms of your positioning in that broader effort, and what still needs to happen?
That is a good question. Thanks, Sanjay. I think we have made a lot of progress on a number of fronts, right. We think about, we have implemented pricing actions that have accelerated the growth of our Mobility segment. We have talked about some of the sales and marketing investments we have made, which has helped us deliver greater new business generation. We invested in retention, and we are seeing progress there. I think we have done a lot of the things that set us up well. The second part of your question is, what really needs to happen next.
What needs to happen next is really what I am most excited about. A lot of the actions that you have seen come through are the things that we could implement quickly and would result in improvements quickly. Some of the investment we've made and that we started a couple years ago was really on the product side.
We're starting to see some green shoots there, right? If I tick down through our businesses, if you start with Corporate Payments, right? We invested in this new product a few years ago, both in the product, sales, and marketing around direct AP, and that's our product that basically brings AP processing to enterprises. Seeing good progress there. You saw third quarter, 24% volume growth in that business. We've talked about embedded AP or embedded payments, another solution we've built, seeing a good pipeline there. If we go through Benefits, there's also been product investments there on both the customer experience side and how employers use the platform. We've gotten good customer feedback, so we're excited as those roll out.
On the Mobility side, we've talked about on earnings calls 10-4 by WEX, which is a product we introduced to expand basically the market we serve in the trucking segment. We've talked about the size, the amount of data that we collect, and our ability to create AI-driven solutions for customers. Not only are we just giving customers data, but we're decision-making for them and taking actions for them. I think all these will be additional revenue opportunities for us in the future as we expand what we do for our customers.
That is what I'm most excited about. I think we've made progress in the things I've talked about. I think we've made progress in margin expansion. I think the setup is really good, and we'd really like to accelerate on the product side.
That's great. I guess, as we think about monitoring if these initiatives start adding value, what are the KPIs that we should look at, and over what period of time do you think that they start having an impact?
Yeah. Good question. Fundamentally, the biggest KPI for us is revenue growth, right? We've said 5%-10% revenue growth. We've said we expect to be, based on the guidance we've given, we've expected to be in that range in the fourth quarter. For management, that's the number one KPI. If you drill down into the segments, we have a number of KPIs that we track. In the Mobility segment, it comes down to gallons, which is effectively how we do it on new business, retention, and growth of the base. In Corporate Payments, it's really about the total volume that we process. In Benefits, it's the number of SaaS accounts, the amount of assets under management. I think those are the key metrics.
I would say with the new products that we just talked about, I think we'll see those metrics potentially evolve over time as additional new products become incrementally more important to the business, and we'll talk about that at some point in the future as that happens. I would say the other things critical for us is margin expansion, right? We've talked about this year, we're driving towards 75 basis points margin expansion.
We've done that while rebalancing how we spend to do more investment in the business. I think that for us is a critical KPI, and I think we've talked about 10%-15% earnings growth, and we talk a lot about the free cash flow we generate, and those are also, I think, critical. The free cash flow this year has allowed us to buy back roughly 5.5% of our outstanding stock, while at the same time pushing leverage down to 2.7x at the end of the third quarter. I think that's a long list of KPIs that we track, but I think it's indicative of the momentum of the business.
No, absolutely. I remember a year ago, we had the margin discussion, and I'm glad you guys got some nice operating leverage—
Yeah.
—after that.
Yes.
Maybe we just dig down into the various segments and start with Mobility. The growth accelerated this quarter off of better local fleet performance, pricing, and the BP contribution. I mean, how much more room do we have for acceleration given fuel prices are this high, and where's the most incremental opportunity for Mobility?
Yeah. So, if you look at the third quarter, we had some benefits come through. We talked about the finance fees being soft in the second quarter. We saw that start to normalize, and that added growth to the third quarter. The pricing actions we've taken have helped. There was some softness, primarily in the trucking segment. The North American fleet part of our business, what we call local fleets, did well. We saw improvements in volume growth. In the trucking part of the business, we saw some softness as what we've seen from higher fuel prices have shifted volumes from trucking to rail. So, if we talk about what sustains momentum and accelerates in the future, I think there's two key pieces. So one is the demand environment, right? Both the trucking side, but the overall economic environment, housing starts, and things like that.
That's not been baked into any of our forward guides, but I think that's an incremental opportunity. The same for the new product investments we've talked about, right? I think there is an opportunity for that to be a more and more meaningful part of the business going forward, and that should continue to help sustain growth in the Mobility segment.
Just one on demand. This over-the-road fuel payments industry has been weak for quite some time.
Yeah, it has been.
We've seen some green shoots.
Right.
Hasn't necessarily manifested itself in a big way for you guys yet.
Yeah.
Do you think that that continues and creates momentum, and why is that happening?
Well, I would start by saying, we are a leader in the trucking space, and as trucking comes back, as we're all optimistic that it eventually will, we expect to capture our fair share of that market, right? We're a leader. We have a great solution. We've had a number of green shoots over the last couple years here. The trucking declines we first saw as we came out of COVID, there was very high trucking demand during COVID. We were all sitting home on Amazon ordering stuff to be delivered to our house. As people moved towards experiences and traveling and less purchasing of goods, you saw that softness come through in trucking. Then I would say over the last few years, every time we expected kind of green shoots, there's been something that's hit the trucking segment externally, right?
If we would go last year, the trucking industry was quite optimistic, then we had tariffs hit, right? That dampened demand almost instantly. This year, right, we again were saying, "Okay, we're going to start lapping the tariffs. We're going to start to see some green shoots." Then we had diesel fuel prices hit record highs. So, I think over time, we will move past these items, and I think with that, as I said earlier, we will get our fair share of that market opportunity.
Do you feel like the diesel prices escalating so high are having a pretty meaningful negative impact or headwind? They have done reasonably well despite that, but I am just curious.
Yeah. If I look at our trucking segment, same store sales, to give you a data point, Q3 2025 versus Q3 2026, same store sales were about 150 basis points worse. I largely attribute that to the demand destruction that is happening from fuel prices. We are still incredibly competitive in that market, we are still signing at high rates. This is really less volume on the trucking side. The following question will be, what happens when fuel price is lower? I would expect, I do not know what percentage of that 150%, but I would expect demand to return as fuel price is lower in the future, hopefully.
Great. I know pricing has been a key lever in that business, in the Mobility business, and as I mentioned, it has added to this year. I guess I am curious, how much pricing power is left, and where is it strongest across Mobility's economics?
Sure. We have done pricing pretty consistently for the last several years. If you go back to 2024 and 2025, we implemented about $70 million of new pricing. If you go to this year, we have talked about $15 million in the second half. That will translate to about a $40 million run rate as you go into 2027. The pricing actions have been a number of different areas. We still think there to be considerable opportunity. We have done extensive studies across our different customer segments. I think you will see it more on the local fleet side, but we think there is pricing across the Mobility segment.
I would also add that, in addition to the pricing level, if we go back to some of the product investments that we talked about at the beginning of our conversation, those are investments that are enhancing, whether it's a new product or even new features and new capabilities in existing platforms. Those are things that provide value to the customers and give us an opportunity to capture additional revenue.
Absolutely.
I think that's part of the recipe.
Great. I guess when we think about the margin, right, you mentioned delivered some margin expansion this year. As we think about the opportunities to improve the margin on a go-forward basis, where are those opportunities?
Sure. Just to remind the audience, this year, or if I take the last quarter, right, we saw about 90 basis points of margin expansion year-over-year. So we've seen really good progress, and if you sort of look at kind of what underlies that, clearly the pricing actions we took helped. We've also been focused very heavily on improving expenses, and especially through the use of AI. We've seen progress. I think Melissa's talked about product development. We've seen progress in customer support and services. We've seen progress in credit decisioning, right? In all those areas, you've seen improvement in the expense rate. As I think going forward, obviously, we talked about pricing continuing to be a lever for us, but I also think AI will continue to be a lever for us in managing expenses beyond the areas we talked about, right?
If I think of collections, if I think of fraud, if I think of sales, marketing, account management, right? Those are all areas where I think AI will provide significant value, and we'll have opportunities in the future.
Is there a way to think about the incremental margins of the business versus the margin you have today? I mean, give us some direction outside of investments you're making on the path to where margins can go. Is there a way to think about that?
Yeah, I would say, the incremental margins of our business are generally very high, right?
Mobility drop-through, an incremental dollar of revenue typically falls through at very high margins, and you can see that from the fuel price guidance we give, right?
Of course.
You can see exactly how much revenue kind of drops through. Same thing with Corporate Payments. We manage that business. It is a platform we have built. It has got a fixed cost to maintain, but the incremental is pretty high. In the Benefits segment, I would say you have two parts of the business. The part of the business is the float income, very high drop-through margins. The part of the business that is servicing accounts, there is an incremental servicing cost that comes with that, so less high drop-through, but also an area that we are trying to tackle through AI, so that drop-through should improve.
One of our challenges has been, as we see the number of opportunities for us going forward, it is how do you balance the incremental drop-through of revenue against additional investment opportunities to grow the business in the future? I think if you look at this year as the example, we have been committed to doing both. We have both invested in our business while expanding margin, and that is the mentality we take going forward.
Got it. Let us move over to travel and corporate. Lot of moving pieces here, and it has obviously been one of the areas where you felt some pressure, Middle East being one of them. Maybe you could just walk us through the trajectory from here in terms of the growth algorithm that you talked about.
Yeah, sure. Where we've been investing, we've built a very longstanding, very successful business in the travel segment. We've been investing, as we talked about at the beginning of the conversation, outside of travel, and two big areas that I've highlighted. First is that direct AP business that we talked about. Just a reminder, I said earlier that we saw in the third quarter 24% volume growth out of that business. That business has now grown to about 20% of the segment. This is a business that we started investing in a few years ago. We enhanced the product. It operates off the same platform, essentially the same leading payments platform that we've built on the travel side, but an enhanced front end, something that makes it usable by enterprises. We hired sales teams to go sell it, and now we're seeing the benefits of that.
The objective now is how do we sustain and accelerate that momentum? Then you get to the embedded payments side. Again, that's taking essentially what we do in travel and now moving it to payment processes outside of travel. We have seen there a really, really good pipeline. We've signed great customers. The start has been a little slower than I'd like. We've seen longer implementation cycles than I'd like to say, that we'd like to see, but we're addressing that, and we're very optimistic because that area has a high opportunity.
I think those two areas will add incrementally to the growth algorithm of the business while we continue to sustain good momentum in travel. That continues to be a good business. There's still customers to go out and sign. From a volume perspective, travel, I still consider to be a GDP plus area. I think that continues to be part of the mix, but you will see us, if we execute well on our plans, you will see us move shift a bit more to the non-travel side.
Got it. I guess, specific to travel, if this war persists, do you think the pressure gets greater, or do you think we've kind of found an equilibrium on how people are traveling cross-border today?
I think we found an equilibrium today. You didn't generally see a couple effects within our customer base. Some customers, large global footprint, what you tend to see is shifts away from the Middle East and people travel elsewhere. We see that across their portfolio, so that won't change. Then where it impacts us is where we have customers that are more heavily weighted to the Middle East, and there's where you see volumes decline. Right now, I don't envision that changing. It seems like it has stabilized based on the data we see today.
I guess Corporate Payments is one of the fastest-growing segments that you guys have. Maybe you could walk us through what's driving the growth there. I mean, it would seem like an area that's primed for better growth prospects given there's a lot more happening in that space. There's a big secular tailwind.
Yep.
Maybe just talk about that and sort of the investments you've made and where you feel comfortable—
Sure.
—the growth is going.
Sure. We've talked a bit about embedded payments and travel. I think it's worthwhile to hit on what we really have here and why we've got a leading solution. We have built the leading virtual card platform, payments platform. Obviously, it's the leading platform in the travel industry, and we hope to make it a leading platform outside of travel. It really brings a robust set of features and capabilities. I think one of the things that's underappreciated when people look at WEX is, we own the technology stack, right? We also own WEX Bank, which is essentially the issuer. So, when we're working with a customer on a solution, we are the one service provider, right? It is us. That gives us a couple capabilities. So number one, we're the one answerable to the customer, which allows us to get a lot done.
Two, I think because of the combination of the WEX Bank and us owning the platform, we are able to innovate very quickly. Just to give you an example, in the last 12- 18 months, we have introduced 60 new card products onto the platform. Think of a card product as a use case for a customer or set of customers. Those 60 new products are already processing about $1 billion of volume in run rate right now. It is that fast innovation that really brings us an advantage. Then you go to, in embedded payments, we built the platform with a robust set of APIs. This allows us to integrate into our customer systems. That eliminates a whole set of manual workflows. It can be fully automated end-to-end.
It also creates a stickiness for us because the work that is gone on in the integration. I think there is a number of competitive advantages to the platform that will drive essentially the growth algorithm that we talked about earlier.
Got it. We move to the Benefits area. Obviously, you have got some of the SaaS account closures that have been a headwind. As we look ahead, what do you think the run rate growth rate is there, and is the high single-digit custodial asset and HSA account growth more reflective of the run rate there?
Yeah. Just to remind everyone, this year, talked earlier, SaaS metrics are important KPI for us. This year, the KPI has been a little lower than typical. The reason for that is earlier this year, we closed a number of accounts that were essentially low-dollar accounts. There was a number of accounts, but individually, they did not translate to very much revenue. For profitability reasons, we closed them. If you adjust for those closures, which did not impact revenue, account growth, the SaaS account growth would be in the mid-single digits like we have seen in the last couple of years. If you further drill down HSA accounts, which is an important subset of them, have been growing this past quarter, we said 7.7%. Assets under management was 11.2%. We continue to see good momentum in the business.
I think account growth, asset management growth, whereas this year there's been kind of a divergence between the growth of the business and account growth. I think in future years we'll see that kind of return to kind of more normalized.
Got it. When we think about just all of the different macro and secular headwinds affecting that space, you've got obviously AI and people thinking about what it does for job displacement. You have obviously rates moving higher generally. How do you think that affects the growth of that segment?
Sure. I think the AI trend to jobs is something we watch. As of today, as I said earlier, account growth has continued alongside normal trajectory. I think I saw the job report number last Friday, and they were all surprised about how robust it was. The job engine of the U.S. continues. I think one of the things I think we're all optimistic about, I'm old enough to have gone through the wave of change that came with the internet. A lot of jobs went away with the internet. A lot of jobs were created by the internet. I think it remains to be seen of what happens there in the future.
With interest rates, I will say if you back up at the WEX total level, the disclosure we give is that a 100 basis point change in interest rates up would increase WEX overall revenue on an annual basis by about $30 million. Half of that would flow into the Benefits segment. That's really caused by the investment securities that we have from the custodial cash. About 75% of that is in fixed rate instruments that we ladder over time to protect interest rate volatility. 25% of that remains floating, and so that's where you'd see right, the up or down from interest rate movements. If you look at WEX overall, again, a 100 basis point rise in interest rates, about $30 million positive in revenue.
Once you get to EPS, it's about $0.40 negative to revenue because of the corporate debt we have that's largely floating rate, right? That's something we manage, right? We've built this natural hedge in our business. We used to hedge the corporate debt through swaps. We eliminated that as we built these natural hedges into our business, and we feel comfortable right now. We try to keep it as interest rate neutral as possible, and $0.40 we feel is manageable, but it's something we constantly look at.
I've got one more on Benefits, but I also want to just tie in the bank here—
Yep.
—a little bit.
Obviously, you've got the HSA deposits and you've got the WEX Bank. Is there more that could be done to sort of tap into that interest rate sensitivity with those two assets that you have?
With the WEX Bank and with—
With the HSA deposits.
HSA deposits. Well, what we've done over this past year is, when we take custody of cash from our employers, we have, over time, had moved it to third-party banks as well. Right? So we had some sitting at third-party banks, we had some at WEX Bank. And over the last couple years, we've moved more and more to WEX Bank. There's complex set of dynamics that prevented that first couple years I was with the company that we solved over the last couple years, and so we've been able to shift assets from third-party banks to WEX Bank.
And that has really allowed us to earn higher interest income off those assets than we did at a third-party bank, and we've been really excited about that. That's been a tailwind for the last year or two. I would not expect, Sanjay, that to be as much of a tailwind going forward, because we've moved a lot of that. There's little pockets here and there, but not the big driver that we've seen over the last couple years.
Got it. Just one on the healthcare business or the Benefits business. We sort of moved from a high single digits to a mid-single digits structural growth rate for that business. Is there anything that can accelerate or decelerate that, given the structure of the market? Because it seemed like we got to a saturation point where many people had the accounts and there wasn't that much more demand for HSA accounts.
Yep.
Is there something that can accelerate it or decelerate it from here?
Yeah, I'd say, well, I think the question of acceleration and deceleration of the business is separate from the accounts, because I think—
Right
Yeah, the business has plans, new products, et cetera.
Right, other products, absolutely.
Exactly, separate from the accounts. If we focus—
You want to strengthen the engagement with the existing customer.
Correct.
There is revenue opportunities there.
That is a considerable opportunity for—
That's separate from that, yeah.
That's separate from accounts.
Yeah.
If we focus just on the account side, what I would say is, I think there is still a lot of structural momentum. Maybe not the double-digit structural momentum that we saw five or 10 years ago, but still good structural momentum. First you have, from a political standpoint, both parties of the government highly supportive of HSAs and consumer-directed health. You've seen that in some of the legislation passed, including in the last year, there's been additional support of HSAs and expanding the market opportunity than we've talked about in the past. That continues to be a structural advantage. I think employers continue to push for adoption of consumer-directed health, because it's cost-effective for them and puts more power and control and alignment with the employee and how they spend their Benefits dollars. I think that continues to be a structural advantage.
I think one of the biggest missing pieces that are underappreciated is just how much education still needs to be done at the employee level. I'm still surprised the number of times I meet people that haven't moved to a consumer-directed health account or have moved to one and haven't adopted HSAs. There's a pretty significant educational component of the tax advantages of an HSAs. There's a lot of work to be done there, and I think that will continue to sustain the momentum in the HSA adoption—
Got it.
—p eriod of time.
Capital allocation. You talked about how you've delevered and bought back stock. As we think about the path forward, should we expect some of this capital to be used to do more offensive things in terms of M&A, or do you feel like shareholder return is still a key part of the story?
Yeah. I would say in the near term, said in the last earnings call, we expect to use the vast majority of our adjusted free cash flow to buy back stock. That number was about 85% of free cash flow in the third quarter. I wouldn't ground anyone in the 85% number because that'll shift from quarter to quarter, but that's our near-term intention, to use the vast majority of shares. If you look at where the share price is today, I still think it is a compelling buy at these prices, and every model we run says we should be buying stock, and so that's where we've directed our adjusted free cash flow. Look, over time, will M&A be a component again? I suspect it will. We're investing heavily in product organically now.
Yeah.
I think that's how we are trying to grow. That being said, there may be things that provide incremental value add. I don't think it's going to be the core strategy for the company, but it'll be a piece of the toolkit.
My last question, if the audience has questions, please raise your hand. I guess just on the embedded payments opportunity, which is sort of the non-travel piece of virtual.
Yep.
I know you guys have gotten involved in the fintech space, for example. Is that an area, like is that a segment that you intend to penetrate more? What other segments can you penetrate with the—
Absolutely. I think fintech is a very big piece of it, right? If you think of what happens in the travel industry, right? You have a platform, it's taking these bookings, it's got to pass payments around to hundreds, thousands, tens of thousands of suppliers, and you need a very efficient, cost-effective way to do that, and that's the value we bring.
When you go to the fintech sector, you see a very similar set of problems, right? You have processes that won't scale manually. You need a more cost-effective way to do that. I think when you look at kind of other segments, whether it's insurance payments or things like that, there's a number of other segments where those similar dynamics exist, and I think that'll give us opportunity to tackle additional areas over time.
Who are you competing with in those markets?
You compete against, Marqeta is an example of someone that you would compete against. We don't intend to get into the healthcare payment space, but there's a company like Zelis that's doing something similar in healthcare payments. That would be the type of companies that are doing things like that.
And when you think about your right to win, what is it? Is it your scale?
Yeah. I think there's several pieces. We talked about earlier about what we've built in the platform, right? We've got leading virtual card platform, leading set of capabilities that we continue to enhance. We've got global scale. We've built all the global infrastructure, all the payment rails, all the compliance infrastructure that really is largely fixed cost in nature. There's incremental things we've got to add from a functionality standpoint, but we've built this tremendous infrastructure that somebody else trying to get into this business is very expensive for them to build. We've built that. And then we talked about earlier about the pace of our innovation, the value of WEX Bank, the value of us owning the technology stack as well, this pace that we can innovate. I think that brings us a structural advantage as well.
If you put all those pieces together and you say, okay, you've got really preeminent economics, right? You've got a preeminent footprint, and you have an ability to really own what you deliver for the customer and innovate very quickly, I think that's a very strong recipe.
I think there's a question right there, yeah.
Thanks for the presentation. Two questions, or two concepts really, that you brought up. One was the interest revenue that you get by being a bank, and then this fintech concept that you brought up. Does being WEX Bank give you an advantage with fintechs and a better relationship with the networks, meaning higher interchange or a better negotiation power because you can get more spread on corporate interchange and things like that?
Yes. The amount of volume that we deliver gives us very, very strong relationships with the networks. And that is absolutely one of the advantages we bring. If you look at our results this year, we've talked in some of our earnings calls, in fact, I just talked in the Q3 earnings call, the benefits that we saw this year from what we call basically the scheme arrangements with the network associations, right? And the growth received from that this year. That is in effect the benefits we receive from the amount of volume we bring to those providers. When we go back to one of our structural advantages, and I hit on the economics, that is a key piece of our economics.
You had asked the question with regards to margin expansion. Since you are not sharing that interchange piece with another bank, you are getting more of that interchange, presumably all Corporate Payments interchange, so you are getting a higher share and you are keeping more of it even though you have to give some of it back at rebate.
Of course.
On the corporate side.
Yep. Yeah. Thank you. Did my job.
Any other questions? There is one up here.
Maybe just a high-level question on the top line growth, which you have said 5%-10% is your long-term framework, and I think we are towards the lower end of that range right now. What kind of gets us from that 5% towards the 10%?
The top end? I think it is two pieces, right? I think it is the demand environment, right? We talked about earlier that it has been soft. Housing starts been low. The trucking market has been soft. I think as the demand environment improves, that will help. Then I think it is, as we talked about earlier, it is kind of those new product initiatives, right? The embedded payments one we just talked about, we think is a significant opportunity for us. 10-4 and Mobility. We have not even touched on some of the things we are doing to move out of over-the-road fuel payments. We are seeing that with some of the other companies in our space, and I think that is a very large TAM incremental opportunity for us in kind of like the expense management side.
I think those are things that we have invested in over the last couple years, we continue to invest in, and as we drive those into the market, I think that will enhance the growth rate and tick us up from the bottom end of the range.
Any other questions? All right. We'll end it right there.
All right.
Thank you, Jagtar.
Sanjay, thanks a lot.
Appreciate it.
Appreciate it.