WEX, Inc. (NYSE:WEX) Q2 2022 Earnings Conference Call July 28, 2022 10:00 AM ET
Company Participants
Steven Elder – SVP, Global IR
Melissa Smith – Chairman, President & CEO
Jagtar Narula – CFO
Conference Call Participants
Sanjay Sakhrani – KBW
Ramsey El-Assal – Barclays Bank
Darrin Peller – Wolfe Research
Sheriq Sumar – Evercore ISI
James Faucette – Morgan Stanley
Nikolai Cremo – Crédit Suisse
Jeffrey Cantwell – Wells Fargo Securities
Mihir Bhatia – Bank of America Merrill Lynch
Operator
Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX Q2 2022 Earnings Conference Call. [Operator Instructions]. Steve Elder, Senior Vice President of Global Investor Relations. You may begin your conference.
Steven Elder
Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO; and our CFO, Jagtar Narula. The press release we issued earlier this morning and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the release and the slide deck have also been included in an 8-K we submitted to the SEC earlier this morning.
As a reminder, we will be discussing non-GAAP metrics, specifically, adjusted net income attributable to shareholders, which we refer to as adjusted net income, or ANI, and adjusted operating income during our call. Adjustments for this year’s second quarter GAAP results to arrive at these metrics include unrealized gains on financial instruments, net foreign currency remeasurement losses, change in fair value of contingent consideration, acquisition-related intangible amortization, other acquisition and divestiture-related items, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization and certain tax-related items as applicable.
Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income attributable to shareholders to GAAP net income attributable to shareholders and an explanation and reconciliation of adjusted operating income to GAAP operating income. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and indeterminant amount of certain elements that are included in reported GAAP earnings.
I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022, and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.
With that, I’ll turn the call over to Melissa.
Melissa Smith
Thanks, Steve, and good morning, everyone. We appreciate you joining us today. I’m pleased to report that in the second quarter, we once again delivered record revenue and adjusted net income per share with organic revenue growth of 22%, driven by strong volume trends across the business. Revenue in the quarter was $598 million, a year-over-year increase of 30%. To put our growth in perspective, Q2 revenue increased approximately $139 million year-over-year. The benefit of higher fuel prices, partially offset by foreign exchange rates was less than half of the increase or $56 million.
In our trailing 4 quarters, we have surpassed $2 billion in revenue, which is a testament to our team’s focused execution leveraging our global commerce platform in our large addressable market, where we continue to benefit from digital tailwinds.
Total purchase volume processed across the organization in the second quarter grew 77% year-over-year to $37 billion. Each of our segments posted record purchase volume numbers, demonstrating the power of our growth engine, coupled with our solutions designed to simplify benefits, reimagine mobility and pay and get paid.
Record quarterly revenue paired with scale efficiencies in our business model, resulted in adjusted net income for diluted share at $3.71, an increase of 61% compared to the same quarter last year. The scalability of the business model is reflected in our earnings growth rate.
The second quarter of 2022 was another record-setting quarter as we continued to execute well on all fronts. Now let me take a step back to discuss the continued progress we’re making against our growth strategy to win new customers, grow share of wallet and expand and diversify our offerings.
Let me begin with new customers. Our products and offerings resonate in the market, and we continue to win new customers across the WEX ecosystem. First, in the Health and Employee Benefit segment, we won a major American auto parts distributor as a benefit administration customer. Our breadth of solutions and customer orientation were the key reasons as to why we run the business. We continue to see strong execution across the pipelines of our direct partner and benefit administration distribution channels with success seen in expanded partner referrals.
In mobility, we won a large new fleet deal with Spee-Dee Delivery Services, a Midwest shipper with 1,800 employees delivering over 70,000 packages per day. Spee-Dee was utilizing 8 different field card programs with competitors, mobile fuelers and card blocks. By switching to WEX, they will now be able to improve operational efficiencies with a single universal solution and consolidate their fueling to a single bill to ease their administrative burden.
They were also able to take advantage of the WEX EDGE fuel discount network for increased savings. In addition to our continued sales execution with large fleets, we’re also improving the reach and efficiency of our customer acquisition efforts the investments in our digital marketing channel, which reaches small fleet customers in the U.S. During Q2, we saw a significant increase in new fleet accounts that were acquired via digital channels. We’re also constantly leveraging our technology tools and customer knowledge to enhance the sales funnel using AI capabilities to optimize search engine marketing results and create a more personalized customer journey to improve conversion. This has resulted in decreased cost to acquire from new accounts and the ability to go further down market. We will continue to learn as we go.
Within the Travel & Corporate Payments segment, our outlook continues to be bright. In addition to the rebound in travel, corporate payments volume grew 29% compared to the second quarter 2021. We’re pleased with this growth, and we’ve been expanding our direct sales team over the past couple of quarters.
Turning now to our efforts to grow share of wallet. We’re seeing cross-channel sales momentum across the WEX ecosystem with new virtual cards and health product sales to some of our existing fleet customers, including a leading provider of global automotive wholesale, financial software and media services and one of the largest truckload carriers in the U.S. We’re building out our cross-sell infrastructure, including leveraging our data platform that allows sales to have a single view of the customer as well as cross-sell training programs for our account executives. We expect these investments and programs see yield accelerating growth of share of wallet and further enhance our relationships with our customers.
In addition, we’re excited to announce that we’ve agreed to acquire a portfolio associated with one of our major oil company partners, which is comprised primarily of small businesses. Under this expanded relationship, WEX will become the owner and issuer of accounts, and we’ll be working to transition these accounts to our platform by the fourth quarter of this year. This expansion with our customer is evidence of the strength of our execution that makes us a preferred partner for leading oil companies, but also for travel, corporate payments and health partners.
As we outlined at Investor Day, we’re also expanding and diversifying our offerings to ensure we remain at the forefront across our ecosystem of solutions, providing our customers with best-in-class simplified experiences. This played out in our Travel & Corporate Payments segment, where our vision is to enable our customers to pay and get paid in the most efficiently possible, reducing friction streamlining experiences and giving them precious time back to spend on their core business.
We address customer needs through 3 solution sets: embedded payments; accounts payable solutions; and extended offerings for small businesses.
Let’s start first with the progress on the embedded payments offering, where we believe our virtual card capabilities are market-leading, allowing global online travel agencies and technology companies to build payments into the workflow. As you know, we built our own cloud dated transaction processing system resulting in a more resilient and scalable offering to our customers.
Our travel customers are experiencing rapid volume increases as travel rebounds. Our products and technology is scaling with our customers, allowing us to successfully capture the rebound in travel happening in North America and Europe, seamlessly integrated into their operations.
Next, let’s turn to accounts payable solutions, which continues to evolve significantly. At the core of this solution, we are helping businesses streamline their accounts payable processes. Our customers demand intuitive software and they need help ensuring that they can complete payments across all modalities, while maximizing the use of virtual cards.
Following our in-depth user testing process, we will begin rolling out a new user experience and interface in Q4. We see our accounts payable solutions as an important contributor to growth in the years to come.
Now I’d like to take a moment to give you an update on Flume. As a reminder, in consultation with our small business customers, we have built a new financial platform that enables any U.S. business to send, store and receive funds in a WEX digital wallet, transacting via digital check, physical check, ACH or instant Flume transfers. All of this is delivered through a streamlined and intuitive mobile-first interface after a 100% digital onboarding process. We’ve just started to sign and onboard initial customers on Flume. While it is still very early days, we have a customer-informed product feedback loop and initial results are positive. We’re rolling out additional updates based on customer feedback to ensure that they are getting the most of this platform.
Turning now to our progress supporting our customers’ energy innovation. Optimizing fleet fuel consumption is one of our business’s foundational strength. We provide a range of products and resources to help improve our customers’ fuel economy and give them access to controls, business insight and data, in addition to tools such as freight management, route optimization and idle time monitoring. The transportation sector contributes nearly 1/4 of global CO2 emissions. We are uniquely positioned to help fleet operators make the transition to EVs or other forms of efficient transport. We are focused on developing and launching solutions necessary to help fleet operators simplify the complex transition.
In Europe, we are currently piloting an integrated on-route and at-home EV charging and payment solutions with select fleet customers. This offering, which helps to bridge the management of mixed EV fleets is significant for our European customers. This pilot, which leverages our significant customer relationships to understand and address customer needs, puts us in a position to rapidly refine our offering and continue to be a trusted partner to our customers.
In the U.S., we continue to build upon the offering we have in the market. I am pleased to see the rapid learning oriented and innovative approach that we’re taking in this highly dynamic and fast-evolving space. Supporting our commercial fleet transition to electric vehicles is a great business opportunity and 1 component of our broader commitment to energy innovation and efficiency. We encourage you to read more about our initiatives in the comprehensive updated ESG report we published this week.
As you can tell, we’re excited about the many opportunities ahead for WEX, and we’re moving quickly towards realizing them. I’m pleased to be raising our full year 2022 revenue guidance by $90 million at the midpoint and our adjusted net income guidance by $0.57 per diluted share at the midpoint. The midpoint of our guidance represents revenue and ANI per share growth of 22% and 44% versus last year, respectively. Looking ahead, the current macroeconomic environment is top of mind to all of us.
Through July, we continued to see strong customer volume activity across our products, including our mobility and travel customer portfolios. In fact, most trends seem to have reverted back to pre-pandemic behavior patterns. We continue to see tremendous runway ahead, and we are taking advantage of favorable fuel prices to accelerate strategic investments. which are designed to increase our agility and automation, further building out the scalability of the organization. We’ve learned over the past few years that we must remain nimble to address unanticipated issues that demand our action.
With that, I’m pleased to turn things over to Jagtar Narula, who, as you know, joined us as our new CFO just a couple of months ago. Jagtar’s background is well aligned with WEX’s strategic path forward, and I’m excited to tap his unique experience, successfully executing and integrating acquisitions as well as bringing process discipline to previous organization, which will benefit WEX as we continue to scale. Jagtar?
Jagtar Narula
Thank you, Melissa, and good morning, everyone. As you just heard from Melissa, we delivered a strong second quarter, building on the momentum we had after first quarter results. We delivered yet another record-breaking quarter in terms of both revenue and adjusted earnings and by a wide margin, a solid quarter that shows both the strength and the resiliency of our business model.
Now let’s start with the quarter results on Slide 6. For the second quarter, total revenue exceeded the high end of our guidance by more than $30 million due to a combination of record high travel and corporate payments purchase volume and higher fuel prices. Total revenue came in at $598.2 million, a 30% increase over Q2 2021 with more than 80% of revenue for the quarter recurring in nature.
As a reminder, we define recurring revenue as payments processing and account servicing revenue, revenue from our factoring business, transaction processing fees and other smaller items. From an earnings perspective, on a GAAP basis, we had net income attributable to shareholders of $34.1 million in Q2. Non-GAAP adjusted net income was $169.4 million or $3.71 per diluted share. This represents a 61% increase over the prior year as we saw the power of our business model and the benefit of higher revenue dropped through to our margins.
Turning to Slide 7 and breaking down the revenue by segment. Fleet grew year-over-year by 38%. Travel and Corporate Solutions posted a 23% increase. And finally, Health was up 15%. You will recall that for the last 3 quarters, we’ve discussed a change in revenue presentation for a specific customer contract in the Travel and Corporate Solutions segment that will impact the comparisons in this segment through Q3. You will see the details of the change in the appendix of the presentation we filed this morning. On a comparable basis, after adjusting for the accounting change, revenue growth in this segment was 64% and revenue growth for the total company was 36%.
Now let’s move to segment results starting with Fleet on Slide 8. Fleet revenue for the quarter was $379.2 million, a 38% increase over prior year powered by strong volumes from new customer wins and renewals, record high fuel prices and a continued recovery in the existing customer base. Payment processing transactions were up 10% year-over-year, which is in line with our historical growth rate. As expected, growth in the over the road transactions moderated some at 19% while North American fleet was up 11%.
As you saw in our metrics, the net late fee rate stayed relatively flat to the prior year, which is still lower than historical rates due to the rapid increase in fuel prices. Overall, finance fee revenue was up 44% due to significant increases in volume, fuel prices and an increase in the number of late fee instances. We saw record high fuel prices in the quarter with an average domestic fuel price in Q2 2022 of $4.98 versus $3.04 in Q2 2021. We estimate the year-over-year impact of higher fuel prices increased fleet revenue by approximately $64 million, including a benefit of approximately $2.4 million for European fuel price spreads. The net interchange rate in the Fleet segment was 1.09%, which is down slightly from the prior year. The decline is due to the increase in fuel prices this quarter offset by a onetime benefit in Europe related to an amendment of a large customer contract.
We are seeing our transaction mix move to slightly smaller but more frequent transactions as fleet owners close with a higher prices, especially in the OTR space. This transaction shift has a slight benefit to our net interchange rate.
Turning now to Travel and Corporate Solutions on Slide 9. Total segment revenue for the quarter increased 23% to $100.4 million. Purchase volume issued by WEX was $17.1 billion, which is an increase of 96% versus last year. The net interchange rate in the segment was down 3 basis points sequentially, and as travel customers were a larger percentage of total purchase volume.
Breaking down this segment further. Travel-related customer volume represented approximately 70% of the total spend and grew 150% compared to last year. Revenue from Travel-related customers was up 174% versus Q2 2021. This reflects a strong rebound in customer travel demand. We are very pleased with these results and are well positioned to capture future growth as we expect the travel industry to continue its recovery. Corporate Payments customer volume grew 29% versus last year, and revenue was down 18% as reported but up 21% after adjusting for the previously mentioned accounting presentation change led by continued strength in the partner channel.
Finally, let’s look at the Health segment on Slide 10. We continued to drive strong growth, resulting in Q2 revenue of $118.6 million. This represents a 15% increase over the prior year. I would also like to remind you that we had approximately $7 million of revenue and 1 million SaaS accounts last year that were associated with our COBRA offering that were onetime in nature. SaaS account growth was 7% in Q2 versus the prior year, building off a strong open enrollment season and including the accounts related to Benefit Express. Adjusting for the temporary COBRA accounts last year, the growth rate was in line with what we reported in Q1. Health segment purchase volume increased 15%, leading to a 14% increase in payment processing revenue. We also realized approximately $5 million in revenue from the HSA deposits that were invested by WEX Bank starting late last year.
Now let’s move on to adjusted operating income margins on Slide 11. In fleet, adjusted operating income margin for the quarter was 50.9%, up from 50.2% in 2021. This is the fifth consecutive quarter that these margins exceeded 50%. Before I continue with the other segments, let me briefly address the increased credit losses we saw in Q2.
Fleet credit losses were above the high end of our range at 23.6 basis points of spend volume and included approximately 11 basis points of fraud losses. We saw a significant increase in both application and transactional fraud that we believe is related to higher fuel prices. We have invested heavily in our fraud monitoring infrastructure, which enabled us to respond quickly to increasing fraud attempts and expect fraud losses will decline over the next 1 to 2 quarters. On the credit loss side, we continue to see a very healthy portfolio overall.
Now moving on to Travel and Corporate Solutions. The segment delivered an adjusted operating income margin of 50.8%, up from 21% in Q2 last year. There has been a significant improvement in these margins as travel volume accelerated and drove much of the margin improvement we saw on a total company basis. Our business model here is very strong and revenue drop-through for this segment is high given our relatively fixed cost base.
In Health, adjusted operating income margin was 23.9% compared to 28.1% in 2021. The revenue and associated income from the temporary COBRA accounts last year are the primary driver of the decline in margin. In total, adjusted operating income margin for the company was 42.3%, which is up from 36.3% last year, largely driven by the Fleet and Travel & Corporate Solutions segment.
Shifting gears now to Slide 12, I will provide an update on the balance sheet. We remained in a healthy financial position and ended the quarter with $439 million in cash. We had over $718 million of available borrowing capacity and corporate cash of $143 million, both as defined under the company’s credit agreement. As we expect, we saw a sizable $1.6 billion increase in our accounts receivable versus year-end from higher fuel prices and more volume. Our invested HSA deposits at WEX Bank ended the quarter at $1.4 billion. There is an additional $530 million of HSA deposits held at WEX Bank that we are currently using as replacement funds for certificates of deposits.
We continue to evaluate opportunities to optimize earnings from the remaining roughly $1 billion of HSA deposit assets that we have custody over but are not held at WEX Bank. At the quarter end, the total outstanding balance on our revolving line of credit, term loans and convertible notes was $2.8 billion. The leverage ratio, as defined in the credit agreement stands at 3.0x and which is well within our long-term target of 2.5x to 3.5x and down from the end of 2021 due to strong earnings. Benefits of higher fuel prices and our strong cash flow generation positions us well and gives us flexibility through a broad range of economic scenarios. Finishing off the balance sheet, you will see that we repurchased approximately $81 million of WEX shares during Q2 and or 520,000 shares.
Finally, let’s move over to revenue and earnings guidance for the third quarter and full year on Slide 13. The second quarter was a very good quarter for us and I’m pleased to share that we are significantly increasing our guidance for 2022.
Starting with the third quarter, we expect to report revenue in the range of $580 million to $590 million and adjusted net income in the range of $152 million to $156 million. We expect ANI EPS to be between $3.35 and $3.45 per diluted share. For the full year, we expect to report revenue in the range of $2.25 billion to $2.28 billion and adjusted net income in the range of $592 million to $603 million. We expect ANI EPS to be between $13.05 and $.13.30 per diluted share.
For the full year, these updated ranges represent an increase of $90 million of revenue and $0.57 of EPS at the midpoint from our previous guidance. As Melissa alluded to earlier, I’d also like to point out that embedded in our full year guidance are some modest incremental investments in the back half of the year, which will allow us to accelerate specific areas of strategic focus, including cross-sell, additional enhancements to our technology, product innovation, including EVs and process simplification. It’s important to emphasize that we are making these investments from a position of strength, taking advantage of the current favorable fuel price environment to ensure we maintain our market leadership across our ecosystem and position WEX for our bright future.
Now let me talk you through a few more assumptions. Exchange rates are as of the end of June 2022. We estimate domestic fuel prices will average $4.50 per gallon in the third quarter and $4.36 per gallon for the full year. Both are based on the NYMEX futures price from last week. The adjusted net income tax rate is expected to be between 25% and 26% for the third quarter and the full year. And finally, we are assuming approximately 46.5 million shares outstanding, including the assumption that share count will continue to include 1.6 million shares associated with the convertible notes.
As a result of including the shares, approximately $3.8 million of interest expense each quarter, net of tax, will be added back to net income to calculate EPS. As I complete my prepared remarks, I would like to emphasize how pleased we were with our Q2 results. Our business has performed well and benefited from higher processing volumes in the Fleet, Travel and Corporate Payment and Health spaces. Our strong business model resulted in solid margin expansion from the higher revenue. As we continue to integrate our business, we are well positioned to capture more revenue and the benefits of scale in our model. And with that, operator, please open the line for questions.
Question-and-Answer Session
Operator
[Operator Instructions]. The first question is from Sanjay Sakhrani of KBW.
Sanjay Sakhrani
This first question is on the higher fraud losses. Can you just maybe flesh that out a little bit more for us in terms of what happened? Where the blind spots were? And why you don’t expect it to reoccur.
Melissa Smith
Sure, Sanjay. It’s Melissa. There was a couple of areas where we saw increased fraud in the second quarter, both on transactional fraud and on application fraud. As you know, we’ve got an infrastructure in place we’re at the authorizer, which really limits the exposure that we have. But we saw a lot more volume of activity coming through. So over the last couple of months, we’ve been working with law enforcement in our merchants on the transactional side, where we’ve been able to help identify wood card skimming that’s happening, and that ultimately leads to a rest. And as a result of that activity, you can actually see a drop in that volume of activity that’s been happening in July.
On the application fraud side, again, it’s just more of a volume thing as fuel prices escalated, we’ve always had application fraud, but you’re seeing just the volume of that coming through bots. And so we’ve made also changes in the way that we’re doing our digital processes to account for the fact that you’re seeing that really emerging environment. And all of that activity together gives us confidence around what we’re providing from a guidance perspective. And you can see real time, as I said on transaction fraud, how the actions that we’ve taken has reduced the amount of inbound activity that we’re receiving.
Sanjay Sakhrani
Okay. And just to be clear, you’ve not seen any signs of like credit stress. This is all everything that escalated was fraud related?
Melissa Smith
Yes. Jagtar said in his prepared remarks, but the overall portfolio really looks strong, we continue to be pleased with both the volumes that we’re seeing with our customers and what’s happening within our accounts receivable portfolio.
Sanjay Sakhrani
Okay. And just 1 quick follow-up on the Exxon portfolio. congratulations on that win. Maybe you could just talk about the size and scope of that portfolio? And how strategically, if we think about it, it’s a little bit different, right, because it’s more of a commercial card portfolio, I believe. So how does that factor into the mix of the cards that you do? Like how much of your portfolio is now commercial card?
Melissa Smith
Yes. If you look across the portfolios we have with the major oil companies, there is mix in there. So we’ve got customer portfolios that are revolving in nature, which are primarily newly focused on really small businesses like this portfolio. We’re excited about the fact that we’re just continuing to expand the relationships that we have with these oil merchants.
And as you might imagine, go through a competitive process in order to win the business. And so we’re excited about this expansion. We’re excited about the fact that we’re bringing it on. It’s going to be about 1% of the total new fleet business that we have now. But these customers don’t fuel as frequently as we’d see in the base portfolio. So it’s a little bit less than 1% of revenue.
Operator
Your next question is from Ramsey El-Assal of Barclays.
Ramsey El-Assal
I guess I wanted to ask you first about your view of that sort sustainability of the travel recovery, kind of what inning are we in? What parts of your portfolio are kind of at that 2019 level, beyond that 2019 level, maybe what is [indiscernible] online? I’m thinking maybe that Asia piece from the eNett and Optal acquisition. Just curious in terms of…
Melissa Smith
Yes. Sure. I’ll give you — it’s a lot more insight into what we’re seeing in that part of the business. Obviously, we’re really pleased with the travel recovery that we’ve seen so far. What we had in the second quarter was beyond the 2019 pro forma numbers as if we’d owned eNett and Optal. There is actually — it has been some portfolio shifts, I’d say, is in total. If you look across the business right now for us, about 70% of the volume is happening in EMEA. And APAC is only about 10% of the volume right now. Historically, that would have been 20%. So we just haven’t seen the APAC region recover at the same level that we have with the rest of the world. We’re also seeing transaction volumes to look across the portfolio. Transaction volume is about 85% of what we saw in 2019. That’s being made up with rates. So it’s about 20% higher rates on average. So we’re seeing a little bit less transaction volume at a little bit higher rate, and that’s blending together so that we’re over 100% of 2019 spend volume.
Ramsey El-Assal
Okay. And a follow-up for me on M&A. Just maybe update us on your thinking there in terms of the opportunities you’re seeing. Obviously, there’s been a real reset valuation out there. So are you seeing any incremental opportunities? Maybe more specifically, do you see the opportunity to accelerate the [indiscernible] and cross-sell strategy by maybe tucking in more assets that help pushing out opportunity there?
Melissa Smith
Yes. In terms of M&A, I’ll hit on both of those things. On cross-selling, I talked about building up the infrastructure. We do believe that we have an opportunity on cross-selling across the portfolio. if you look across our customer base, there’s only — we’ve got 9 customers that are not using their products and across the ecosystem and 1 that is. And so that just for us speaks to the opportunity. And I talked about the fact that we’re going to leverage the ability to build out infrastructure to make that more automated than the way that we’re doing it right now.
I think we’ve got some really good evidence of where that has worked where as we’ve extended and added products within existing customer sets like Benefit Express as we’ve added that into the business through an acquisition, we have an ability to — and have been able to cross-sell that product to our existing customers. So we have, from an M&A perspective, when we’ve done product extensions, we have been able to cross-sell. So we do believe that there’s an opportunity to do that. And at the same time, when I think about M&A, we’re looking for scale plays, geographic distribution or product extensions.
And so I would isolate that to in areas where we’re adding in from a product perspective, that’s a place where we think we have cross-sell capability. And in terms of hit on multiple — obviously, as we think about the marketplace as multiples come down, that does create opportunity for us. And so we will continue to evaluate like we have over the years, opportunities and be rigorous about those that we think that we’re going to be able to actually see both strategic and financial benefits from.
Operator
Your next question is from Darrin Peller of Wolfe Research.
Darrin Peller
I just want to touch on investments in the business where you’re making — I mean you talked about accelerated investments and just whether, number one, if you could just give us a little more color on where you’re really putting most of that towards right now, what you’re most excited about? But more importantly, cyclically, if we were to see some changes macroeconomically that requires flexibility, does it give you room to manage expenses and if we were to see a more material downturn. If you could just touch on what kind of flexibility and what willingness you’d have to really protect the bottom line to some degree.
Melissa Smith
I think actually — I think this is a [indiscernible]. We have the ability to make investments now. Those investments are designed to either bring forward revenue opportunities that we have or to create more scalability of the enterprise, which makes us able to actually handle whatever is coming even better. And so — and then I’ll give it — the example I gave on the call was related to infrastructure on cross-selling. But beyond that, if you look across the enterprise, we’re looking for areas that we can use technology to create automation. And in doing so, we believe that you create a better experience both for employees and some customers, but you can do it at a lower cost. And so we’re really gearing our investments towards looking at things that have either a very clear path to revenue or a very clear path to cost savings. And to the extent has a cost savings impact want to make sure that it also creates a better experience from a customer perspective.
Jagtar Narula
Darrin, this is Jagtar. I’ll just add into that, much of what we’re considering and mentioned for the back half of the year, we’re really considering as onetime in nature. So it does give us some flexibility from a cost perspective is to deal with market dynamics.
Darrin Peller
Right. Okay. All right. And so I guess to follow on to that, I mean, in terms of your willingness to really pull levers where necessary and what you’d consider someone — somewhat discretionary in terms of where you can pull back on. If you can just give us a sense of what kind of potential area is there. And then I just had 1 quick follow-up on your fuel segment. I mean when I look at the transaction growth and the underlying back row just the normalized growth backing out fuel prices, turning pretty well, low double-digit type growth from what we can calculate.
And if I think about normalized, there’s concerns over trucking recession and other variables. It doesn’t seem like we’re seeing that. So I’m curious if you think the current trends underneath the hood and the business is really representative of what you’d expect longer term?
Melissa Smith
Yes, why don’t I start with the latter part of that. We would pile on to the first part of that. On the latter part of your question, from a trend perspective, the over-the-road business, what we’re seeing is that it is really reverted back to behavior patterns and growth rates like we saw pre-pandemic. They had an accelerated growth rate period within that business is kind of really reverted back.
And so within that mix of customer base, the larger customers right now are faring better than some of the smaller ones in the broad marketplace. But overall, they’re still seeing a need to move products and they’re seeing backlogs in doing so. And so it remains actually quite healthy.
On the North American fleet customer base, we saw actually a pretty nice pop in the second quarter from same-store sales, where I think we’ve really benefited from the economy continuing to reopen the mobility specifically. They’re really continue to reopen. And so the growth rates that we assumed in the second half of the year in a more normalized environment than what we’ve seen in the last couple of quarters, it’s still really strong.
Jagtar Narula
And then Darrin, I think the first part of your question was around how we think about protecting EPS through the economic environment chain. And I think to the extent we have discretionary investments in the back half of the year, like we talked about and other discretionary items that the company has, we would absolutely continue to focus on the profitability of the company. Obviously, we have a very scalable business model here, and you get the benefit of that, the good times, and we’ll have to watch them in downtime, but I think we’ve got a number of levers to pull to ensure that we maintain profitability.
Melissa Smith
I think just across the model, too, if you look at the business, 20% now of our revenues from Health, which is a SaaS-based model, it has been incredibly resilient for us. And when I think about where the business is now much more diversified, which gives us a lot of confidence as we go into any different markets going back over the last several years and actually have evidence of that. Our last 5 years, we’ve grown revenue 13% and EPS 20% in a really difficult market.
Operator
Your next question is from Mihir Bhatia of Bank of America.
Mihir Bhatia
I actually wanted to just continue and just follow up the same thing where we ended the last one. Maybe just talk about the recession resiliency of your business. How has that changed over the last few years? I understand you probably can’t give that. I mean it depends on how deep a recession it is. But just in general, when we think of the various businesses and the businesses within just the segments, are there particular areas which are maybe more vulnerable like I’m thinking could travel maybe is a little more. But just talk about the recession resiliency of the business.
Melissa Smith
Yes, sure. If we look across the business, we do business with over 800,000 customers globally, and they are in many different SICs. So think of that I’d start with foundationally it’s an incredibly diverse customer base. And the model, if you look at WEX has become really quite resilient over many different economic cycles. So as I said before, about 20% of our revenue comes from our Health customer base, which has been resilient even through the pandemic for pretty much any environment. It’s part of the attraction for us. And that part of the business is the fact that it is resilient to many different markets, but it’s also a really complicated market that we think that we can continue to play well in complicated and growing.
And then if you look at other parts of the business, both our fleet business, the over-the-road customers would be a place that you could see some slowdown if something happens from an economic perspective, our North American fleet customers tend to be more resilient because, again, they run across many different businesses. And Travel and Corporate Payments, part of the interesting thing about travel for us is that it is global. And so that in itself gives us some resiliency because even if you had an issue with 1 particular marketplace, it typically doesn’t happen across the world all at once. And so we really feel pretty good about the ability of the company to be nimble and to react to different economic cycles, and we think we’ve actually shown that we can do that historically.
And then on top of that, we’ve really been focused around our balance sheet, as Jagtar said, as we reduced our leverage ratio. We think that positions us well also with what’s happening from a multiple perspective in the marketplace to be an acquirer.
Mihir Bhatia
And then just a question on the Health business. I appreciate that there’s a few onetime things last quarter that kind of dropped out. But you — I mean you had a decel in the SaaS account growth this quarter. How are you thinking about that SaaS account growth for the full year? And if you can also just comment on the Benefits Express acquisition integration and just like how is that going to help this year? I think last year, the timing wise the acquisition was late and offset you really didn’t get benefits from like synergy benefits, if you will, from it. Are you expecting some of that to come through this year? Just talk about those 2 topics.
Melissa Smith
Sure. So we had about 1 million SaaS accounts last year that I remember were related to some legislation that allowed us to support our COBRA customer base. So they came in, in the second quarter of last year. So if you normalize that, our growth rate on SaaS accounts in Q2 look very similar to what we had in Q1. So really, you really didn’t see with a deceleration.
We do see a normal thing that happens each year is that you see a ramp in customers in the first quarter. You see some of that at true-off a little bit in the second quarter, and we saw a very normal cycle happen this year related to that. With Benefit Express, we have continue to accelerate their sales pipeline, bringing that into our customer base allowed us to provide the strength of our sales channels to help support that business. And so that was really the primary focus of that acquisition. We didn’t actually intend to have cost synergies. It was more of a revenue synergy play. We were able to actually accelerate the growth that they had seen historically. And that’s what we’ve realized so far.
Operator
Your next question is from Nik Cremo of Credit Suisse.
Nikolai Cremo
Wanted to ask about the cross-sell plans for Flume to [indiscernible] 50,000 SMB free customers. Is there like a particular cohort or particular customer segments that WEX is going to be targeting for the next year? Or is it going to be more broad-based? And then what does the incremental revenue opportunity look like for your average fuel customer just in terms of capturing a greater portion of their non-payroll B2B spend?
Melissa Smith
Sure. So Flume, we’re excited about Flume and I’m excited about Flume because of the product capability that we’ve created and also the way that we’ve done it in a rapid customer-informed way. And our first focus has been very much on our initial customers, making sure that they’re really happy. They were listening to what they want. We’ve been rolling out and continue to roll out new features and functionality based on that customer feedback.
Post Labor Day, we intend to actually do much more of a full launch of the product set. And to your point where we’re actually going into our broader customer base with the product offering and will test many different ways of doing that. So we’re excited about this from an economic perspective, I think, again, it’s really early. And so we’re excited about that. We’re excited about rapid learning and most of the revenue that we see longer term associated with that is monthly subscription fees, but we will be also continuing to test the pricing and the pricing model, and we’ll have more to say about that in the future.
Nikolai Cremo
Got it. And then just for a brief follow-up. There’s a few moving pieces in the fuel payment processing rate. Just based upon your guidance fuel prices coming down in the next 2 quarters. How should that move sequentially relative to like the 109 basis points in Q2?
Jagtar Narula
Yes. Nik, this is Jagtar. So the 109 basis points was higher than we typically would have expected with the higher fuel prices, and that was helped by a few items in the quarter. As I mentioned in my prepared remarks, we had a onetime revenue impact from an amended fuel contract in Europe, that was probably worth about 4 basis points on the rate.
We’re seeing higher transactions especially on the OTR side, I think I mentioned that in my prepared remarks as well that we think is really related to higher fuel prices and people filling up sort of more often at smaller gallons per ton in the OTR space. And that helped the rate as well, about 4 basis points. And then we also had a benefit from the market movement rate in Europe in Q2, that was worth probably about a basis point. So if I add it all that up, it’s probably 9 basis points. Fuel prices are expected to come down in Q3, so we’ll get a little bit of that back. So I, net that out between 5 to 9 basis point impact from going from Q2 to Q3.
Operator
Your next question is from Jeff Cantwell of Wells Fargo.
Jeffrey Cantwell
Nice results. On the 2022 guidance raise, I was hoping you can add some more about the outlook and Fleet. What are the assumptions that reflect there going forward in the updated guidance. Is there any sort of color you can give us there. And maybe tell us what you’re seeing ahead of yourselves in terms of macros. Clearly, [indiscernible] I think that’s what we’re commenting on just in terms of the amount of activity you’re expecting for the rest of this year. And can you just remind us about seasonal trends, typically, I just want to calibrate expectations appropriately.
Melissa Smith
All right. I’ll start and Jagtar might want to add on here. But if I look across the business, so we assumed in the second half of the year from a fleet volume perspective that we would return to more normalized growth rates. We did assume that in the over-the-road business that, that would trail off a little bit from what we’ve seen historically in the fourth quarter. But so I’d say we were cautious, but if you look overall at our growth rates, we’re still pretty strong.
On travel, we assumed similar to the same volume trends that we had in the second quarter. So over 100% of 2019 levels, we assume that in the back half of the year. And so a similar economic environment there. So across the business, really just looking at what are we seeing right now? And just to kind of add on to what you were asking about from a macro perspective, it is interesting because as we talk to our customers and we have across the portfolio, they are really continuing to do well in the marketplace.
Their biggest tension points are around labor and labor shortage, which is causing some ability, some capping under their ability to grow in some cases or employees that feel overburdened across the business. And so there’s some tension created with the labor workforce there’s some tension that’s created because of elevated fuel prices within our fleet customer base.
But overall, they continue to perform really well and see a convenient opportunity within their respective markets. So I’d say that kind of the short-term conversation we’re having with them is really quite positive and it’s a place that we continue to play in really well because in this environment, the products that we have, the tools that we have are really valuable in the marketplace. And so we’re seeing really increased demand for different reasons across each of the product sets. But some of it is the desire to have more automation. Some of it’s cost control related to what’s happening in the marketplace. Some of it is a desire for working capital. And so you’re really seeing all that we offer play really well into the environment we have right now, which is coming across in our sales pipeline.
Jagtar Narula
And the other thing I would say — I would say the only other thing that I’d add to that on the fleet side is I think Melissa said it with kind of expectations going forward that were kind of a normalized volume growth rates, et cetera. I would say that we saw, I’d say, fairly low late fee rates in Q2, mostly because of higher gas prices and the denominator effect. I think going forward, we expect that to revert to more in line with what we saw last year.
Jeffrey Cantwell
Thanks for the color and congrats on the results.
Operator
Your next question is from Sheriq Sumar of Evercore ISI.
Sheriq Sumar
On the buybacks, I just wanted to get your philosophy. How should we think about for the full year 2022. And given the choppiness of the market and supposedly there are no big acquisitions that you would want to pursue. Can we expect the share repurchases to materially pick up? Or would it stay similar levels?
Melissa Smith
So just — when you think about capital allocation, we start with first, organic growth. We want to make sure that the company is tuned and that’s the first lever we hit. We’ve had a bias towards moving money towards growth, and we’ll continue to have M&A pipeline that supports that growth in our long-term framework we assume that we’re going to have 2% to 3% growth from M&A. And then opportunistically, we have $150 million share repurchase program in plan. So we talked about the fact that we bought $81 million. And so we have more to go.
Sheriq Sumar
Understood. And my follow-up is on the interchange rate within Travel and Corporate. A nice pickup on the corporate side this quarter. Can you help us understand as to what drove that? And how should we think about the interchanging rate for the full year?
Melissa Smith
Yes. And when we started the year, we talked about — and we’ve actually added disclosures so you can see the split between Travel and Corporate Payment rates. On the travel side, we said we expected the rate in the course of the year to look similar to the full year rate from last year and this quarter was pretty close to that number, so stability across the year.
And on the Corporate Payment side, we said that we expected the rate to blend down in the course of the year as we add more embedded payment customers. In Q2, what we actually saw was a nice growth also, not just from our embedded payment customers but from our AP direct customers. which has a higher rate, and so we actually blended up in the quarter. We do think that as you go through the course of the year that as we continue to add more on the embedded side that, that should blend it down. You’ll note that from a profitability perspective, it was highly profitable. And so the margin went from 21% last year to 51% this year. So we saw really great scalability, which is part of what we’re looking at is that, if embedded payments product goes up, then the rate may go down, but it’s highly profitable. If the AP Direct product goes up, then you see revenue and rate going up associated with that, but actually has a little bit more cost associated with that. And both are quite positive for us. But our anticipation for the year is that the corporate payments rate will drop a little as you go through the year because of mix.
Operator
Your last question is from James Faucette of Morgan Stanley.
James Faucette
Just a couple of follow-ups. Travel and Corporate margins were really strong in the quarter and now seem to be outpacing where they had been pre-pandemic. You’re obviously benefiting from a Travel recovery right now. And I know you’ve talked about some near-term investments, but how should we think about the trajectory over the longer term? And absent our recession, have we taken a structural step change higher? Or is this transient? Just wondering how to think about that.
Melissa Smith
A number of years ago, 1 of the things that we thought was important competitively was to bring in-house processing capability. And so we built cloud native processor, which has really created a tremendous amount of scale for the business. We saw the downside of that during the pandemic, but we saw and continue to see the upside of that now. So I think of this [indiscernible] we created a better experience for our customers because the processor that we created is highly reliable, from a simplification standpoint in the way that we interface with our customers allowed us to create a better experience and create a scalability from a financial perspective. And so we feel really good about that capability. And it’s a product that we’re selling, not just in the travel space, but we sell it into other fintech companies where they embed this payment within their workflow.
So we feel like that model is great. We’ll continue to build upon that. And what we’re looking at is where can we continue to sell that. But also, we’re building out our AP capability and the capability we have across small business. So what the investments we’ll make we’ll continue to look at other areas where we can expand the market that we’re addressing. And it was a result that we think really blends into the overall growth rate that we have for that segment. But the infrastructure we built out, we feel really good about and the scalability of that right now.
James Faucette
That’s great to hear. And then separately. How should we think about the pipeline on health and employee benefits? I think last quarter, you mentioned that you had signed up 1 of the country’s largest rehab programs. In this quarter, you mentioned a major auto parts distributor. But how — what’s your line of sight right now on adding additional clients to the business over the medium-term? And what does the sales cycle look like, especially given kind of the economic uncertainty right now?
Melissa Smith
Yes. We found actually in — during the pandemic, you had a little bit of less bias to make changes. Now, I’d say that as we’ve kind of moved past that, it has had a really strong sales pipeline. We feel good about how we’re going to enter 2023. So a lot of the implementations would occur the end of this year, leading into the first quarter of next year. And so what we’re seeing right now, we’re really quite bullish about next year.
Operator
We have completed the allotted time for questions. I will now turn the call over to Steve Elder for closing remarks.
Steven Elder
Thank you, Cheryl. Again, I just wanted to say thank you to everyone for listening in, and we’ll look forward to speaking with you again in about 3 months. Thank you.
Operator
This concludes today’s conference call. Thank you for your participation. You may now disconnect.
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