Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the WEX Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. Operator instructions were given. I would now like to turn the call over to Steve Elder, Senior Vice President of Investor Relations for opening remarks. Sir, you may proceed.

Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO; and our CFO, Roberto Simon. The press release we issued earlier this morning and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the release and the slide deck have also been included in 8-Ks we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income, or ANI, during our call. Adjustments for this year's third quarter 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, ANI adjustments attributable to noncontrolling interests and certain tax-related items. 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. 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 30, 2020, filed with the SEC on March 1, 2021, and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa.

Thanks, Steve, and good morning, everyone. Thanks for joining us today. Before diving into our Q3 results, I want to thank our incredibly talented team around the world for their hard work and unwavering commitment to delivering value to our customers and partners. Despite the ongoing challenges of COVID, our team delivered another quarter of impressive performance. Turning to our results. Continued platform innovation and successful execution drove 26% year-over-year revenue growth, supported by double-digit increases in each segment. The top-line performance also reflects 5% sequential growth versus Q2 as we continue to capitalize on positive trends across the business. Excluding the benefits of higher fuel prices and favorable foreign exchange rates, revenue growth was up 17% compared to Q3 2020. Total purchase volume processed across the organization in the third quarter grew 93% year-over-year to $26 billion, which is a record for the company. As customer spend patterns improve, mobility rebounds and we continue to win in the marketplace, our outlook remains very positive. This strong revenue growth, coupled with our ongoing commitment to scale our platform and realize operating efficiencies drove year-over-year and sequential adjusted earnings growth of 54% and 6%, respectively. Let me take a moment to unpack two of the key drivers that are supporting our strong year-over-year and sequential growth. First, customer spend patterns continue to rebound from the lows of last year. For example, we see a significant increase in travel-related volumes in Q3, which increased 85% from Q2 and were nearly six times last year's level. We're also seeing a rebound in mobility, leading to higher volumes for our North American fleet customers as more offices reopen. Second, we continue to win in the marketplace. During the quarter, we signed one of the largest U.S.-based multinational corporations specializing in package delivery, transportation, e-commerce and business services. This new customer made the switch to WEX because of our ability to deliver our unique platform, combined with industry-leading products for both over-the-road and local vehicles. We also continue to have great growth for smaller and midsized fleets. The new marketing technology stack, which includes a cloud-based digital marketing engine targeted at acquiring small business customers, is proving very effective and resulted in a 94% increase in new North American fleet customers through September compared to the same period last year. We started expanding this marketing engine to other parts of the business to support improved conversion rates and increased customer engagement in the European region. Within health, we had a key win with a large higher education institution, encompassing the WEX benefits platform for COBRA and benefits administration as well as our fully outsourced benefit administration platform and services. This institution chose WEX to help drive employee engagement and deliver a world-class experience to their multigenerational workforce. I'd also like to note the signing of Stampli, an AP automation company based in Silicon Valley and a member of the Fintech 250 with more than $20 billion of accounts payable under management. They chose WEX due to the versatility and reliability of our platform as well as our payments expertise. The time from contract signing to the first transaction issued was only two weeks, showing the speed and ease of integrating with our technology. As we grow our addressable market, this strategy has resulted in strong market share gains and high customer retention rates. Through innovative technology and outstanding customer service, WEX provides a world-class digital experience that is resonating in the marketplace and underpinning our impressive results. We are nearing completion of moving the corporate payments card issuing technology to the cloud. This will complete having all pieces of the corporate payments platform in the cloud. Our cloud-first strategy remains core to our ability to quickly scale the business and drive profitable growth. This is also a significant step in completing the integration of eNett and Optal and allowing us to combine the platform. The strategic investments we've made over the past few years to sunset legacy platforms and expand our modern commerce solutions are paying dividends, increasing the breadth of our core B2B e-commerce offering and deepening our customer reach. Regardless of size or scale, payment ecosystems can be complex, which is why we work to seamlessly integrate into our customers' workflows and create an intelligent, secure, highly scalable and resilient infrastructure. With rapid expansion and adoption of the digital economy, our proven infrastructure enables customers to access our full suite of capabilities, including digital custom integrations, which simplifies and streamlines the user experience. We're investing ahead of our customers to anticipate their needs, which will contribute to our next wave of growth. An example of how we help simplify payments for our customers is the ease in which they can integrate our embedded payment technology and customize it to their workflows, meeting their needs for secure, frictionless integration. This, coupled with our deep sector experience, made these types of transitions seamless for our customers. Beyond integration, we are maximizing the value of payment optionality for our customers by introducing new flexible rates, expanding the number of merchants willing to use the product. This service is a win-win for our customers and WEX. This simplifies the payment process for our customers and allows WEX to capture new spend opportunities. This is another example of how we work with our customers to offer solutions that meet their needs. The breadth and reach of our offerings make us the premier choice for B2B commerce. This is why we continue to win customers like AvidXchange, where we are now live with transactions. Another great example of the development of our tech platform is what we're doing to support electric vehicles. From our perspective, we believe the EV market opportunity for WEX is significant over the long term in that we are well positioned to support our customers through the transition. As our customers begin to transition parts of their fleet to electric vehicles, WEX will be ready for them, anticipating their needs. We will simplify the added complexity that is coming their way with mixed fleets, expand options to charge at home, solve as they need for data-driven solutions, reporting, benchmarking and payment systems. Our customers will need tailored solutions from a trusted partner. They will need support to meet their goals around carbon reduction and understand the total cost of ownership as well as the energy efficiency and cost savings of EVs. In addition, we will use our unique scale and purchase volumes to create further incremental value for our clients. Doing so will open new opportunities for WEX to continue to gain market share and to build on our unique and highly defensible position. One more example of progress in this space is the Element Fleet announcement earlier this month. Element is the largest pure-play automotive fleet manager in the world and will use the combined offerings from WEX and ChargePoint to serve its customers. WEX's technology and consolidated data will be integrated into Element's analytics and dashboard programs. This is a great demonstration of companies working together to meet broader environmental goals for fleet electrification. In the longer term, our customers and partners are looking to us as their trusted partner to provide solutions for the future. We are actively developing new integrated payment products to better serve fleet managers and remain their trusted partner for future solutions. We plan to develop additional products and related services as the market is further defined and expand. For example, given our market presence, we are exploring how WEX can further play a role in the reduction of carbon emissions or benchmarking the efficiency of an EV versus a gasoline-powered vehicle through reporting and benchmarking, which can also open up new revenue opportunities. Beyond positioning us for long-term growth in the EV space, we are proud to support the transition to electric vehicles, which has the potential to bring important benefits for the environment and for future generations to come. Lastly, I would like to highlight our efforts to increase penetration of HSAs by educating health care consumers at our National Health Savings Account Awareness Day held earlier this month. There are an estimated 31 million HSA accounts with significant growth projected over the next three years. HSA Day is an opportunity to explain the benefits of using an HSA to increase their buying power and plan for unexpected health-related expenses, leading to better health care outcomes. We all know that health care costs are top of mind for most Americans, and our goal is to help educate consumers at various life stages. For example, we have targeted information for young people just starting out about how an HSA has benefits to go well beyond covering health care costs. For this demographic in particular, with benefits like triple tax advantages and investment accounts, an HSA can be a way to supplement both health care savings and retirement investment. Beyond end consumers, we are focused on helping the companies we work with to provide education, tools and resources to their employees so they can use health products to help alleviate rising health care costs and reduced income inequality. As we look ahead, the future is very bright for WEX. Strategic investment in innovation, combined with our customer-centric culture, has positioned us to continue to grow and capture market share. As volume continues to rebound and we leverage our best-in-class growth engine, we remain confident in our ability to achieve our long-term growth targets of 10% to 15% revenue growth and 15% to 20% growth in adjusted net income per diluted share. We remain committed to innovating across our technology platforms, accelerating our digital transformation and delivering tailored solutions to fit our customers' needs. To that end, we must continue to evolve our organization to ensure we are best positioned to capitalize on the tremendous opportunity that lies ahead. As you may have seen this morning, we announced some changes to our executive leadership effective on January 1 to align our teams to enable us to better serve our customers by offering a truly integrated solution across the entire WEX platform. These changes will allow us to move our business closer to our customers' needs and preferences, keep our individuality and what makes our products special and unique while sharing best practices and create a stronger go-to-market approach. Our goal is to create deeper customer relationships by offering them a one-touch experience as they make decisions across their entire product portfolio. I am confident that these changes will allow us to secure our next phase of growth and better position us to achieve our strategic priorities. We're excited about the growth opportunities that this will drive across the business and the value it will ultimately unlock for our customers, shareholders and other stakeholders. I look forward to continuing to update you on the success of our strategic initiatives and our expectations around the long-term impact they will have on the business. To that end, we're planning to hold an Investor Day in March of 2022. We will provide more details in the coming months. In closing, I'm incredibly proud of our team's performance this quarter. As I've discussed time and again, WEX's people and culture are a significant differentiator and have proven to be a key competitive advantage as we navigate the current environment. We'll build on this momentum and will continue to drive long-term shareholder value while supporting our employees, partners, customers and communities across the globe. With that, I'll turn the call over to our CFO, Roberto Simon. Roberto?

Thank you, and good morning, everyone. As you've heard from Melissa, the third quarter results were really solid, building upon momentum we saw in the year's first half. We had another record-breaking quarter with revenues surpassing the previous high by more than $20 million. The company's position for long-term sustainable growth remains agile in adapting to customer needs, effectively integrating acquisitions, driving innovation across the technology platform and scaling the business. Starting with the quarter results on Slide 10. For the third quarter, total revenue exceeded the high end of expectations mainly due to better-than-expected volumes in the fleet and travel businesses. Total revenue came in at $482.8 million, a 26% increase versus Q3 2020. From an earnings perspective, on a GAAP basis, we had a net income attributable to shareholders of $48.3 million. Non-GAAP adjusted net income was $111.1 million or $2.45 per diluted share. This represents a 54% increase versus prior year, driven by higher revenues as well as robust adjusted operating income margin that I will discuss later. Turning to Slide 11. I'm breaking down the revenue by segment. Fleet Solutions grew 25%. Travel and Corporate Solutions posted a 42% increase. And finally, Health and Employee Benefit Solutions was up 18%. Now let's move to segment results, starting with fleet on Slide 12. Total Fleet Solutions revenue for the quarter was $286.4 million, a 25% increase versus prior year, powered by strong volumes from new customer wins and renewals, higher fuel prices and the recovery in the existing customer base. Payment processing transactions were up 11% year-over-year. Over-the-road transactions maintained their strong growth up 17%. North American fleet was up 11%, and the international fleet business was up 4%. The net late fee rate decreased to 45 basis points in comparison to 48 in Q3 2020, continuing the trend of customers paying their bills on time. On the other hand, finance fee revenue was up 46% due to significant increases in volume and fuel prices. In fleet, the average domestic fuel price in Q3 2021 was $3.23 versus $2.23 in Q3 2020. This increased fleet revenue by approximately $39 million and was partially offset by lower European fuel price spreads. Turning to Travel and Corporate Solutions on Slide 13. Total segment revenue for the quarter increased 42% to $91 million. Additionally, purchase volume issued by WEX was $12.8 billion, continuing the sequential improvement since Q2 2020. Travel-related customer volume represented approximately 70% of total expense. Breaking revenue down, corporate payment customer revenue was up 17%, led by continued strength in the partner channel. Revenue from travel-related customers was up 153% versus Q3 2020 and also up 70% sequentially, reflecting seasonality, increasing demand and a significant contribution from eNett and Optal. We are pleased with these results and are well positioned to capture future growth as the travel industry continues its global recovery. Finally, let's take a look at the Health and Employee Benefit Solutions segment on Slide 14. We continue to drive a strong growth, resulting in Q3 revenue of $105.4 million. This represents an 18% increase over prior year and 27% versus 2019. The acquisition of Benefit Express contributed approximately $9 million in revenue, offset by approximately $2 million from Brazil which was divested at the end of Q3 last year. SaaS account growth was 16% in Q3, including new accounts related to Benefit Express and the temporary COBRA accounts we discussed last quarter. For the fourth quarter, the COBRA accounts will fall off as we are transitioning back to employment-related growth. Now let's move on to expenses and adjusted operating income margins on Slide 15. For the quarter, total cost of service expense was $179.9 million, up from $156.9 million in Q3 last year. Total SG&A depreciation and amortization expenses were $202 million, which is up $25 million. In the fleet segment, adjusted operating income margin for the quarter was 50.6%, compared to 44.7% in 2020 and 48% in 2019. This is the second consecutive quarter with fleet adjusted margins higher than 50%. The increase reflects revenue growth, higher fuel prices and the scale in the expense base. Of particular note, credit loss in the segment continues to be low at 5.9 basis points of spend volume, compared to 10.8 in Q3 prior year. Travel and Corporate Payments delivered adjusted operating income margin of 34.1%. There has been steady improvement in the adjusted margin this year, starting with 10% in Q1, 21% in Q2 and now 34%. As expected, we continue to see high drop-through of revenue increases as the cost base is primarily fixed and continue to see benefits from the eNett and Optal synergies. So far, we have implemented approximately $30 million of run-rate synergies. The remaining $10 million of the $40 million target relates to platform consolidation and back-end processing. In the health segment, adjusted margin was 22.6% compared to 26.7% in 2020. It was down mostly due to the acquisition of Benefit Express and the timing of certain expenses. Finally, for the total company, adjusted operating income margin was 37%, which is up from 32.8% last year and up 70 basis points compared with Q2 this year. Let's discuss taxes on Slide 16. On a GAAP basis, the effective tax rate was 27.2% compared to negative 59.8% for the third quarter of 2020. On an ANI basis, the tax rate was 25% for the quarter and 23.4% for Q3 prior year. Changing gears now to Slide 17, I will provide an update on the balance sheet. We remain in a healthy financial position and ended the quarter with $533.8 million in cash, which is down from $852 million at the end of 2020. From a liquidity perspective, WEX got over $665 million of available borrowing capacity and a corporate cash balance of $145 million, both as defined under the company's credit agreement. At the end of the quarter, the total outstanding balance on the revolving line of credit, term loans and convertible notes was $2.9 billion. The leverage ratio as defined in the credit agreement stands at 3.7 times, which is level with the end of 2020. We will continue to take advantage of the free cash flow generation to reduce leverage until it is within the long-term target of 2.5 times to 3.5 times. Once that level is reached, we will evaluate all opportunities to deploy capital. To close out the call, we are extremely satisfied with the third quarter results, which positions us for continued success. Revenue and earnings guidance for the fourth quarter and the full year are on Slide 18. However, before I get into the specifics of guidance, I want to note that we have renewed the contract of a significant corporate payments partner in Q4. This new contract will alter the accounting presentation from gross revenue recognition to net with a corresponding change in sales and marketing costs. There is no material impact on earnings from this change, but several of the segment metrics will change going forward. For Q4 2020, these have resulted in a reduction in both revenue and sales costs of approximately $15 million. In addition, although domestic fuel prices have increased significantly, we are expecting the benefits to be tempered by Express in Europe. All of this is reflected in the numbers I am about to give. Starting with the fourth quarter, we expect to report revenue in the range of $468 million to $483 million and adjusted net income in the range of $102 million to $111 million. On an EPS basis, we expect adjusted net income to be between $2.25 and $2.45 per diluted share. For the full year, we expect to report revenue in the range of $1.82 billion to $1.84 billion and adjusted net income in the range of $400 million to $409 million. On an EPS basis, we expect adjusted net income to be between $8.81 and $9.01 per diluted share. Now let me walk you through a few more assumptions. Exchange rates are based as of the end of September 2021. We estimate domestic fuel prices will average $3.45 per gallon for the fourth quarter and $3.12 for the full year. Both are based on the NYMEX future price from last week. The adjusted net income tax rate is expected to be between 24.5% and 25.5% for the fourth quarter and the full year. And finally, we are assuming approximately 45.4 million shares outstanding. And with that, operator, please open the line for questions.

Operator instructions were given. Your first question comes from the line of Mihir Bhatia of Bank of America.

I wanted to start with the interchange rate in the corporate payment section. I imagine some of that is being driven by the mix shift towards travel. But can you provide a little more color on where you expect that to be? Last quarter, the view was it should start stabilizing in the back half of the year. I'm trying to understand the drivers of such a big decline this quarter and your expectations for next quarter.

Yes, of course. So if you recall what we have discussed for two to three quarters now, the rate is impacted by different reasons. The most important is mix: in Q1 this year, our travel-related customer volume was 40% of the segment; in Q2 it went up to 55%; and in this quarter, it's 70%. Because the travel rate is much lower than the corporate payments one, it has a material impact on the overall take rate. Second, as customers and volume increase, we also have some tier rebates that may kick in, which affected results from Q2 to Q3 as travel volumes improved by almost $7 billion. Looking forward into Q4 and next year, if you pro forma for the renewed contract I mentioned that changes accounting from gross to net, the Q3 and Q4 numbers would be very similar. One last point: if you compare just the travel rate from Q2 to Q3, it is slightly higher; you don't see it in the overall rate because of all the reasons I mentioned.

Can I go back to the contract when you pro forma? I want to make sure I understand exactly what you're saying. Can you provide more color on the impact on the rate and how that will affect the rate next quarter? Is this change from gross to net?

Yes. Three years ago, we reviewed revenue recognition and moved some contracts from net to gross presentation. By renewing a contract with a significant corporate payment customer, we changed clauses such that the presentation will now be net revenue. On the appendix of our presentation today, Page 20, we show pro forma KPIs and metrics for the segment year-to-date September with and without the pro forma adjustment. Year-to-date, the rate is down from 74 basis points to 55 when you pro forma that customer — a 19 basis point reduction just by changing the classification from gross to net revenue. Revenue is reduced by approximately $55 million; operating expenses go down the same and operating income is essentially unchanged, with an improvement in margin.

Understood. So if you pro forma, the Q4 guidance already reflects that change. If the change had not happened, your Q4 revenue guidance would have been materially higher — roughly $15 million to $25 million higher?

That is correct. If you think about our Q4 guidance, we increased the midpoint by $10 million. If we hadn't had the accounting change, it would have been $25 million higher.

Your next question comes from the line of Ramsey El-Assal of Barclays Capital.

I was wondering if you could give us a little more color on the new deal win you mentioned, the large multinational corporation in package delivery and e-commerce. Is that an impactful deal where we should be thinking about timing and magnitude of P&L impact, or is it not sizable enough to call out materially?

It is a direct customer in our fleet business. We like to talk about larger deals we sign. It's not the same magnitude as a partner relationship where you get a bunch of customers bundled together. We're proud of the win and think it helps our overall growth objectives, but I wouldn't say it moves the needle in a way that requires carving it out specifically.

Roberto, could you help us think through the health segment and the SaaS accounts cadence, noting that COBRA accounts will roll off next quarter? How should we think about the revenue impact and cadence of customer adds? Should growth grind higher after Q4?

Yes. Earlier this year we guided organic growth for health at 8% to 12% for 2021. Given year-to-date results and our guidance for Q4, we expect to be near the mid-point, roughly plus/minus 10% organic growth for the year, which is a solid outcome given industry trends. For SaaS accounts, we reported 16% growth this quarter. There is noise from the Benefit Express acquisition, which added about 500,000 accounts, and from temporary COBRA accounts added last quarter. Those COBRA accounts will tail off in Q4 as we transition back to employment-related growth. We're in the enrollment season now and will add new SaaS accounts; COBRA accounts decline as expected. Overall, into Q4 and next year, we should see growth rates similar to current levels, adjusted for market conditions.

Your next question comes from Georgios Mihalos of Cowen.

Regarding the fourth quarter and the corporate and travel business: this quarter travel-related volume was about 70% of the segment. Is Q4 expected to be more even in that split? Any updated thoughts on how we should think about that?

Yes. Travel has seasonality and Q3 is typically the highest. In this quarter, $12.8 billion of spend included almost $9 billion from travel. In Q4, the seasonality will compress travel volumes as a percentage of the segment, even though travel is growing nicely year-over-year. We expect corporate payments volumes to be similar to or higher than Q3. If travel was 70% in Q3, we would expect it to fall to approximately 60% to 65% in Q4.

Two quick follow-ups: One, are you starting to see any impact from supply chain disruption on the corporate payments business? Two, on capital allocation, given you're still delevering, any updated thoughts about returning capital to shareholders given current valuation and stock pressure?

On supply chain, it's affecting our customers unevenly. Over-the-road customers have seen a pretty material impact, less so in other categories. We also hear concerns about wage increases and labor shortages across many industries; these affect customers differently by category. For corporate payments specifically, supply chain is not a prevailing theme we hear broadly, although it is meaningful for certain customer types. On return of capital, as Roberto noted, we're still above our long-term leverage targets, so our focus is to continue paying down debt. We will continue to explore the best uses of capital across the enterprise, as we and the Board have historically done.

Your next question comes from James Faucette of Morgan Stanley.

Can I clarify on leverage: you're actively paying down debt, not just reducing ratios via earnings growth? And regarding Travel and Corporate Payments, how should we think about operating margins settling out, and is there a structural growth element post-pandemic where that segment settles at a higher growth rate than previously?

On Travel and Corporate Payments, we've worked to consolidate redundant costs after adding eNett and Optal and have been integrating those businesses while focusing on customer growth. We've realized about $30 million of run-rate synergies with $10 million remaining. The business has a highly fixed cost structure, which was a headwind last year but is beneficial now as volumes rebound. That fixed-cost leverage is improving margins quarter by quarter, and we expect the trend to continue into next year as travel recovers and corporate payments grows.

On leverage: we manage leverage actively. It can be reduced through earnings growth or by reducing debt. From Q2 to Q3, earnings improved significantly and total debt is down. We want to be within the target range and ensure sufficient free cash flow and liquidity. Once we are in the 2.5 to 3.5 times range, we'll evaluate opportunities to deploy capital — M&A, shareholder returns, or other uses — considering short- and long-term perspectives.

Your next question comes from Andrew Jeffrey of Truist Securities.

Melissa, just clarifying: is supply chain affecting corporate payments volume, since Roberto noted corporate payment revenue was up 17%? Also, can you elaborate on the Stampli deal — is it a virtual card issuing deal, who were the competitors in the RFP and how do you frame your position in the industry?

From customer conversations, supply chain is not a prevailing conversation within the corporate payments customer base broadly, though it is specific to some types of customers. Regarding Stampli, we provide a cloud-native offering and feel our technology competes well on reliability. In that engagement we are providing embedded payments and they are using our virtual card technology and card issuing capability. The RFP was competitive, with many well-known providers; outcomes depend on product fit, reliability and execution.

Your next question comes from Tien-Tsin Huang of JPMorgan Chase.

Melissa, you mentioned new pricing initiatives and modernizing pricing in corporate payments tied to cloud migration. Can you elaborate on that and what it means for front-book and back-book pricing?

I think you're referring to our remarks about introducing technology that enables variable rates for merchants. This expands merchant acceptance and allows customers to purchase through different schemes or products. It's not primarily a pricing modernization; it's product expansion to increase acceptance and drive more volume. That helps us sign new partners and let partners push more volume through the network.

Understood. So it's supplier and partner recruitment to accelerate acceptance. On supply chain and driver shortages, is there a way to quantify the impact? We're getting questions on how to frame the pluses and minuses.

On fleet, supply chain and driver shortages are clearly affecting certain customer segments, particularly over-the-road. Goods movement has become more expensive and unpredictable. Driver shortages have pushed some drivers from over-the-road into local categories and some have retired. Customers are concerned about underemployment and recruiting talent as well as wage pressure. It's a systemic issue across many categories. Quantifying it is difficult; it's something we hear broadly but the impact varies by customer.

Your next question comes from Darrin Peller of Wolfe Research.

Can we revisit the corporate payments segment? Looking at Slides 6 and 7, third-quarter volume shows a trend down compared to Q3 2019 and year-over-year looks a little negative. What are the dynamics into October? More broadly, what's the strategy — software-centric, virtual card-centric — and your vision for that business?

On strategy: we've had a lot of success with embedded payments across many customer categories. We've built an efficient, high-uptime cloud-based platform supporting modular functionality — card issuing, virtual card capability, and processing. Customers can choose components or bundle them. Both approaches are good for us and drive highly profitable volume. We see a large opportunity with our captive base of over 400,000 small customers who have migrated to digital tools; that represents a significant growth opportunity. We've also been ramping up direct sales in fleet in addition to partner distribution. Regarding volume, remember big comps from last year: Q3 grew 41% and Q4 2020 grew 56% year-over-year. For example, corporate payments spend was $2.3 billion in Q4 2019 and $3.6 billion in Q4 2020. Partner volume dynamics and timing of ramps, like with AvidXchange, can cause variation. AvidXchange is in implementation and will ramp.

On M&A, would corporate payments be the primary focus once you reach the right leverage position, or would you prioritize other areas?

When evaluating M&A, we step back and consider how we want the business to evolve and whether opportunities push us toward strategic goals and financial returns. We maintain a disciplined process and review the pipeline regularly. We're not solely focused on corporate payments; we've increased organic investment there because M&A in the category has been expensive. We will continue exploring options that move us toward strategic objectives, build growth, and diversify the business. Corporate payments is one area but not the only one.

We have time for one more question. Your final question comes from Sanjay Sakhrani of KBW.

Following up on travel and corporate: for future renewals, how will they feed into yield going forward? Are we going to see more of these accounting classification changes? Where do yields stabilize? Also, please parse travel versus corporate volume. Avid is coming on — will that be good for volume but dilutive to yield? People are trying to understand the yield trajectory as a baseline.

Sanjay, I'll try to be clear. Our focus is growth and profitability. Look at the improvement in Travel and Corporate margins: Q1 was about 10%, Q2 22%, and now 34%. If adjusted for the accounting presentation change, it's another 3 to 4 points improvement. Renewals on the travel side do not change gross vs net presentation, so they won't cause accounting classification changes. On the corporate payments side, many renewals or new partners may be presented on a net basis. Net presentations will lower reported take rates but improve margins because less revenue is presented with lower associated costs. We prefer to focus on revenue growth, profitability growth and margin growth rather than the take-rate metric alone. More volume also increases purchasing power, which benefits us.

Regarding Avid and its impact on corporate yield, is there a significant effect or is it immaterial?

Avid will be net presentation. In Q4 and next year, the ramp will be more visible, but being net, the reported take rate for corporate payments will be lower. The overall rate depends on how much travel recovers next year and which corporate customers grow most — partners or net-presented customers. All of that will materially impact reported take rates, up or down. That's why we emphasize volume growth, revenue and profitability metrics.

Final quick question on the fleet business: where are we with SME recovery? That's a big profitability driver. Should we expect further tailwinds as reopening continues?

The fleet business is composed of many different customer types. Over-the-road customers have been affected differently than local fleets. Smaller businesses have been taking advantage of labor market conditions in local categories, while larger companies that shut offices or reduced travel have lagged but are recovering. We've seen a mix shift where volumes have largely recovered, though transaction sizes skew toward over-the-road. We do expect some captive recovery in account activity as offices reopen, so there are still opportunities despite volumes being back to pre-COVID levels.

We spent a lot of time on Q&A today. I will now turn the floor back over to Steve Elder for closing comments.

Thank you, operator. Thank you, everyone, for hanging with us a few extra minutes, and we appreciate your time, and we'll speak to you again shortly when we release our fourth quarter earnings.

Ladies and gentlemen, this concludes today's event. Thank you for your participation. You may now disconnect.