Thank you for waiting. My name is Kayla, and I will be your conference operator today. I would like to welcome everyone to the WEX Q2 2024 Earnings Call. All lines are muted to avoid background noise. Following the speaker's remarks, there will be a question and answer session. I will now hand the call over to Steve Elder, Senior Vice President of Investor Relations. You may begin.

Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO; and Jagtar Narula, our CFO. 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 has also been included in an 8-K we filed with the SEC earlier this morning. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, which we sometimes refer to as ANI, adjusted operating income and related margin as well as adjusted free cash flow during our call. Please see Exhibit 1 of the press release for an explanation and reconciliation of these non-GAAP measures. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and the indeterminate amount of certain elements that are included in reported GAAP earnings. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024, 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.

Thank you, Steve, and good morning, everyone. We appreciate you joining us today. This quarter, we delivered record quarterly revenue of $673 million, representing an 8% year-over-year increase for the same period last year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q2 revenue grew 9% year-over-year. Total volume across the organization in the second quarter grew 9% year-over-year to $60 billion, driven by the growth in all 3 segments. Our Q2 adjusted net income per diluted share was $3.91, an increase of 8% compared to the same quarter last year, driven by quarterly revenue growth, expanding margins and share repurchases. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, adjusted EPS grew 10% year-over-year. Overall, our top line results fell short of our expectations. That being said, we delivered another quarter of record revenue and our adjusted EPS came in above the top end of our guidance range. Given volume trends we are seeing primarily in the travel business, we are reducing our outlook for the remainder of the year, which Jagtar will detail shortly. We have strong conviction in our growth strategy, and are continuing to deliver against our operational efficiency targets that drive commercial reinvestment and expansion. We remain well positioned to deliver strong financial results over the long term across a variety of economic conditions. Now let's turn to our segment performance, beginning with mobility. The segment revenue growth in visibility was 5.7%, including a headwind of 1.7% due to lower fuel prices. The addition of new customers resulted in 3% growth in the number of vehicles on our platform versus the same quarter last year. This, coupled with pricing actions drove an increase in the quarterly revenue growth rate. In mobility, we continue to strengthen our leadership position. Beyond our intention to continue growing in our core markets, we are focusing on near adjacencies that can help our customers simplify the business of running their business, which in turn further drives our growth. On the OTR side of the mobility segment, we're pleased by important renewals and business expansion with Snyder, Werner Enterprises, and TransAm trucking. We continue to closely track the trucking industry as it works its way through the macroeconomic cycle. While customer sentiment is turning towards being a little light at the end of the tunnel, results remain mixed in the freight market. While we weathered the cycle with the industry, WEX remains steadfast in its service to the trucking industry with innovative products. We understand this industry's challenges, particularly those in the independent owner-operator segment in small fleets. For them, access to discounts at truck stops remains a challenge. In Q2, we launched the pilot for a unique solution to address this challenge. Tailored for truckers, 104 by WEX enables independent owner-operators and small businesses to save money on their largest expenses and brings a mobile-first experience that provides secure transactions at the pump. We're pleased with our pilot results thus far and expect to soon make this app widely available. I want to briefly touch on PACER, which we acquired in Q4 last year to give us access to our near-adjacent markets and field service management. PACER remains on track to contribute 2% to the mobility segment revenue this year. We remain focused on scaling the PACER sales efforts, along with cross-selling the product into our existing customer base. Turning now to our benefits segment. We continue to see strong growth of HSA accounts on our platform. As of this quarter, we now serve 8.2 million HSA accounts, representing 8.3% growth versus the prior year quarter. We are pleased with benefit wins and renewals across American Benefit Administrators, Enterprise Group Planning, and Admin America. Compared to where we were at this point last year, we are particularly encouraged by the strong contributions we're seeing from our referral partners. Our pipeline and close rates are more robust than this time last year. While there's still a lot to be done as we turn to the second half of the year, we're seeing good trends that bode well for next year's performance. Finally, in our corporate payments segment, purchase volume increased 12% compared to the same quarter a year ago. We're pleased to have signed a number of expansions and new relationships with customers, including fintech companies Upgrades, Jack Henry, and Allied Payment Network this quarter. We believe this business is well positioned to the long term with one of the most competitive offerings in the industry, underpinned by a best-in-class virtual card solution and strong long-term client relationships. We are a preferred payment solution provider for our partners who trust WEX for our reliability and our ability to simplify complex transactions on a global scale. Now let's review our progress in key strategic initiatives through the first half of 2024. As I mentioned earlier, we are expanding our position as a market leader by meeting our customers where they are with new innovative solutions. I want to highlight the progress we are making against our EV solutions, focused on enabling mixed fleet of the future as well as the application of artificial intelligence to drive both customer value and enhance WEX's business model. On the commercial EV front, we're alive and in the market with our public charging solutions as well as our home charging solutions focused on employee reimbursement. We also expect to roll out our captive charging solution for depot or private infrastructure charging later this year. With these three solutions released, we'll continue to develop further solutions with our customers that we believe will resonate with the unique needs of commercial fleet operators. The revenue per vehicle that we are earning with our EV solutions is currently in line with our overall average revenue per vehicle, and we are confident that it will become greater as we introduce additional products and functionality. We are seeing the largest interest in our mixed fleet solutions from our government and enterprise customers, and we are on track with our current year EV growth goals. In addition to having a current pipeline of more than 50,000 potential EV vehicles. We believe the majority of our customers will operate in a mixed fleet world for the foreseeable future. Our strength in both fuel and EV solutions, coupled with our seamless integration into customer systems uniquely position us to help them navigate this complexity and maximize their operational efficiency. We also maintained our practice of embracing digital transformation and harnessing cutting-edge technologies to revolutionize our operations through strategic investments in artificial intelligence. Our efforts are already yielding results, helping us drive both model efficiency and unique customer value. On the efficiency front, we attribute our trending improvements on credit losses in part to enhanced AI tooling, allowing us to better adjudicate credit, review credit line increases and spot abnormal behavior that can be indicative of a pending loss event. Looking ahead, we're excited to keep leveraging AI capabilities in order to transform our customer experiences with specific focus on enhancing our customer service operations and risk functions. This tech-forward approach continues to uncover new efficiencies that translate directly to our bottom line, supporting our profitability both in the near and long term. Moving on to our operational improvement initiatives. I am pleased to report significant progress through the path of 2024 towards our $100 million annual cost-saving target that we announced last year. As of the end of the second quarter, we've realized approximately $106 million in cost savings on a run-rate basis, exceeding our full-year goal. We expect to deliver more efficiency in the second half of the year. Consistent with our previously stated strategy, about half of these savings are being strategically reinvested to drive long-term growth. With a focus on our commercial teams, differentiating our technical infrastructure, and enhancing our risk management capabilities. These investments are yielding positive results, improving our operational efficiency and positioning us for sustained growth regardless of market dynamics. We remain committed to balancing cost optimization with strategic reinvestment to ensure WEX's continued success in innovation leadership. During the quarter, we also realigned the responsibilities of certain executive leadership team members to streamline the structure of our business and best position us to achieve our long-term strategic objectives and growth ambitions. As a result, Carlos Carriedo is now Head of Americas Payments and Mobility. Jay Dearborn is now Head of International, and Robert Deshaies is now the Head of Benefits. These realigned roles will ensure our customers remain at the center of everything we do while honing our focus and accelerating innovation to drive long-term success. As I conclude my prepared remarks, I'd like to reiterate that while we posted strong results, we are not satisfied with this level of growth. That said, WEX's strong market position and our ability to deliver consistently strong financial results even in challenging economic conditions gives me great confidence in the overall resiliency of our business model and our ability to generate strong performance in any environment. That confidence is further underlined by our performance over the past decade, where we have grown revenue at a compounded annual growth rate of 13.5%, despite the effects of a global pandemic or significant fuel price volatility, more than tripled our earnings per share and generated nearly $4 billion in adjusted free cash flow. In this market environment, we believe that buying back our own shares continues to represent a compelling value. To that end, we bought approximately $100 million during Q2 and an additional $70 million during the month of July. In the near future, we expect to enter into an accelerated share repurchase agreement to purchase an additional $300 million in WEX common stock. Jagtar will discuss this more shortly. This decision reflects our commitment to our shareholders as well as our confidence in WEX's intrinsic value and growth potential. Furthermore, our solid balance sheet, strong cash generation and low leverage ratio afford us the flexibility to pursue strategic growth investments while accelerating share repurchases. This approach allows us to reinvest in our future growth while simultaneously driving immediate value to our shareholders through opportunistic share repurchases. I remain confident that our strong market position, strategic growth initiatives and culture of innovation have positioned WEX for sustainable long-term success. With that, I'll turn it over to Jagtar to walk you through this quarter's financial performance in more detail.

Thanks, Melissa, and good morning, everyone. Our second quarter results fell a bit short of our guidance for revenue, while adjusted EPS came in above the top end of our range. While we are not satisfied with these results on revenue, they do represent a record high, and we are also seeing a number of positive trends. As expected, mobility revenue growth accelerated from last quarter. And our benefits segment revenue growth is also in line with our expectations. These strong positives were offset by softness in travel-related volumes, which we expect to persist for the remainder of the year. Our adjusted EPS results were the highest we have ever reported for the second quarter of the year and show continued execution against our strategic initiatives even in the face of a year-over-year decline in fuel prices. Now let's start with the details of the quarter results. For the second quarter, total revenue was $673.5 million, an 8% increase over Q2 2023, with more than 80% of revenue for the quarter recurring in nature. We had solid growth rates in each of the segments. As a reminder, we define recurring revenue as payment processing and account servicing revenue, revenue from our factoring business, income from custodian HSA cash assets, transaction processing fees and other smaller items. In total, adjusted operating income margin for the company was 40.7%, which is up from 40.3% last year. Segment margins increased in both corporate payments and benefits compared to the prior year. From an earnings perspective, on a GAAP basis, we had net income of $77 million in Q2, or $1.83 per share. Non-GAAP adjusted net income was $164 million or $3.91 per diluted share, which is an increase of 8% over last year. Now let's move on to segment results, starting with mobility. Mobility revenue for the quarter was $359.6 million, a 6% increase in the prior year. Fuel prices are strong but have retreated 2% compared to last year with a domestic average fuel price in Q2 of $3.62 versus $3.68 in 2023. The Q2 fuel price was slightly lower than our guidance but did not have a significant impact on revenue versus our expectation. As we expected, normalizing for the change in fuel prices the revenue growth rate in Q2 accelerated compared to Q1. We remain on track to deliver full year segment revenue growth at the high end of our long-term range when taking into account changes in fuel prices. Payment processing transactions increased 2% year-over-year, which was in line with our expectations. Local customers in the U.S. increased 1.5% compared to last year. And over-the-road payment processing transactions were up 2.2% versus year ago levels. This is the first quarter since Q1 of 2023, that payment processing transactions have increased, reflecting the anticipated stabilization following the credit policy changes we made a year ago. Next, let's turn to late fees. The net late fee rate increased 1 basis point versus the prior year. Finance fee revenue increased $1 million or 2%. As expected, the late fee rate and related revenue have stabilized compared to last year as we lap the credit policy changes made a year ago. The slight increase in revenue is primarily due to the amount earned on each late rate. The net interchange rate in the mobility segment was 1.29%, which is up 4 basis points over our 2023 net interchange rate. The increase reflects continued benefits from the interest rate escalator clauses contained in various merchant contracts, the rate benefit from lower domestic fuel prices and higher rates earned from merchant contract renewals at favorable terms. Compared to Q1, this rate is down slightly due to the mix of diesel gallons and a one-time item reducing the current quarter. The mobility segment adjusted operating income margin for the quarter was 42.9%, down from 44.2% in Q2 2023. The decline in fuel price this year is the primary reason for the lower margins. Moving on, credit losses decreased by $3 million in the mobility segment versus last year and were below the guidance range at 14 basis points of purchase volume compared to 15 basis points last year. Loss rates were significantly better than what was expected in our Q2 guidance. Charge-offs during the quarter were also better than expected, particularly in the OTR customer base, leading to the lower expenses. Compared to last year, loss rates are similar as we have now lapped the credit policy changes made a year ago. Turning now to corporate payments. Total segment revenue for the quarter increased 10% to $134.1 million. Purchase volume issued by WEX was $25.8 billion, which is an increase of 12% versus last year. The net interchange rate in the segment was up 2 basis points sequentially. Booking.com did begin testing the new process this quarter. Approximately $1 billion of volume was processed under the new in-sourcing arrangement but this did not have a material impact on revenue and the interchange rate in Q2 compared to our guidance. Consumer travel demand was softer than we expected in the quarter, primarily with our smaller OTA customers. Travel-related customer purchase volume grew 12% compared to last year, which is down significantly from the growth rates we have seen recently. This is due to the transition of Booking.com volume, softness with smaller OTAs and lower-than-expected growth in airline-related spend. The interchange rate for the travel-related customers is up 1 basis point from Q1 due to the timing of incentive recognition. Our non-travel customer revenue was up 11%, driven by a 13% increase in purchase volume and the net interchange rate for non-travel customers was up 11 basis points sequentially. Direct sales in the U.S. continued to perform above expectations in Q2. We continue to optimize the time it takes to onboard a new customer as well as the supplier enablement process we used to grow these programs. The corporate payments segment delivered an adjusted operating income margin of 55.5%, up from 54.4% in Q2 last year, driven by sustained acceleration in volume. Finally, let's look at the benefits segment. We again achieved strong results in this segment with Q2 revenue of $179.8 million, which is an increase of $20.6 million or 13% over the prior year. SaaS accounts grew 3% in Q2 versus the prior year to $20 million. The core market dynamics of this business are strong, as exemplified by underlying SaaS account growth excluding the declines in Medicare Advantage accounts, which was 7% year-over-year. Benefits segment purchase volume increased 9%, leading to a 6% increase in payment processing revenue. We also realized approximately $52 million in revenue from the custodial HSA cash deposits that were invested by WEX Bank and from funds held at third-party banks compared to $42 million last year. The average interest rate earned on these balances increased from 4.4% last year to 4.9% this year. We believe this rate will be relatively stable for the next few years because 75% of our HSA-related investments are deployed in laddered fixed-rate investments that protect future revenue from interest rate changes. Interest rate impacts in the remaining portfolio, which includes short-term deposits held at third-party banks, will be balanced by the reinvestment of lower-yielding fixed-rate investments at higher rates as they mature. To summarize, the revenue from our benefits business is well shielded from changes in interest rates and as we've discussed previously, our overall balance sheet hedge protects the company from macroeconomic interest rate movements materially impacting overall earnings. Now turning to margins. The benefits segment, adjusted operating income margin was 39.6% compared to 37.2% in 2023. The increase in margin versus last year is driven by the high flow-through of historical income. Now I will provide an update on the balance sheet and our liquidity position. We remain in a healthy financial position and ended the quarter with $683 million of cash. We have $804 million of available borrowing capacity and corporate cash of $143 million as defined under the company's credit agreement at quarter end. The total outstanding balance of our revolving line of credit and term loans was $3 billion. The leverage ratio as defined in the credit agreement stands at 2.5 times and which is at the low end of our long-term target of 2.5 times to 3.5 times. Our ability to invest in the business and return capital to shareholders while also maintaining conservative debt levels puts us in a good position. Next, I would like to turn to cash flow. WEX generates a significant amount of cash each year. Using our definition, quarterly adjusted free cash flow was $161 million in Q2. Our primary discretionary use of cash so far this year has been to repurchase shares. We repurchased $174 million of our own shares in the first half of the year including $100 million during Q2. In addition, we purchased an additional $70 million of our common stock during July. We believe in the long-term business momentum of WEX. Earlier, Melissa illustrated the solid revenue and earnings growth the company has seen over the last decade. The business drivers of the company have remained solid, and we believe the stock price is a compelling value at recent levels. As a result, we also expect to enter into an accelerated share repurchase agreement in the near future to repurchase at least an additional $300 million of our common stock. We expect to receive approximately 80% of these shares upfront with final settlement expected to recur in the fourth quarter of 2024. At our present share price, this equates to approximately 4% of our outstanding shares. And when combined with $70 million of shares already repurchased in July, represents almost 5% of shares outstanding. Since reinitiating our share repurchase in 2022, we have acquired approximately 4.8 million shares at a cost of $830 million, which equates to an average cost of $173 per share. Since April of 2022, we have reduced our share count by more than 7%. We believe our expected continued strong revenue and adjusted net income growth combined with a prudent capital allocation plan is a very compelling story for our shareholders. Looking forward, we remain committed to managing capital allocation between organic investment, M&A, and returning capital to shareholders. Finally, let's move to revenue and earnings guidance for the third quarter and full year. We expect many of the trends from the second quarter to continue, and we are updating our 2024 guidance primarily to reflect trends in the corporate payments segment. Starting with the third quarter, we expect to report revenue in the range of $688 million to $698 million. We expect ANI EPS to be between $4.42 and $4.52 per diluted share. For the full year, we expect to report revenue in the range of $2.68 billion to $2.72 billion. We expect ANI EPS to be between $15.98 and $16.38 per diluted share. For the full year, the midpoint of these updated ranges represent a decrease of $50 million in revenue, including the Q2 shortfall and $0.17 of EPS compared to the midpoint of our previous guidance. Although there are small moving parts in the mobility and benefits segment, the decrease in revenue guidance is primarily related to the corporate payments segment. Overall, we are pleased with the non-travel portion of the segment, which further accelerated in the second quarter. However, we are reducing travel customer purchase volume expectations for the second half of the year as we anticipate the softness we saw in Q2 among our smaller OTAs will continue for the remainder of the year. In addition, we are seeing second half purchase volume weakness in some large customers with multiple payment options. Some of these customers gave us a high share of wallet over the last 12 months but are balancing out their spend in the second half of the year. We do not believe these short-term spending decisions reflect any longer-term impact to our volume of business with these customers and we remain confident in our ability to grow the market. Note that these changes also have an impact on the amount of network incentives that we expect to earn this year, which is reflected in our revised guidance. Much of the decline in revenue expectations is being offset by lower expected credit losses in the mobility segment, a variety of strategic cost-cutting measures, and the share buybacks that I discussed. Finally, one other quick modeling note. We expect Q3 revenue in mobility to be relatively strong as there are two more business days in the current year versus last year. With that, operator, please open the line for questions.

Our first question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

I wanted to ask just maybe if you can give a little bit more detail on your, on what you're seeing on the ground on the fleet side. I think you mentioned the market is mixed but like at the end of the tunnel. What's driving that comment there?

Yes, sure, Tien-Tsin. A couple of things. We are out talking to customers, they're starting to be a little bit more bullish. I'd say it's still mixed. We're also seeing within the portfolio itself, same-store sales were flat in the quarter, which is a good sign for that segment of our business. And so some of this data is driven, some of it's more anecdotal from commentary we're hearing from the field.

And then on the travel side, I heard the OTAs on the smaller side driving some of the weakness. Any comments on geography? Because I think Asia was believed to be weaker coming out of Visa. And any updated thinking internal around booking and the impact and when that will show up starting in the fourth quarter?

Why don't I start? And I think Jagtar, you probably want to add on to this. If I look at the mix within our portfolio itself, what we saw was stronger growth in the U.S. and still actually decent growth in Europe but more muted growth in Europe within our portfolio. We also saw that the average transaction size has continued to go up. It was up 5% year-over-year. And so you continue to see some pricing leverage that's happening across the portfolio.

Yes, I'll talk about booking. So Tien-Tsin, we saw Booking.com has started their transition to the new model. We saw about $1 billion flow through the new model in Q2, which was kind of relatively immaterial. We expect that to accelerate in Q3 and Q4. We expect roughly 30% of their volumes to flow through in the new model in Q3, growing to about 40% in Q4.

And just to kind of reiterate from the impact to next year, we've talked about it having an incremental 1% impact to total revenue for the company, that's still reiterating that. That's still what we believe.

Melissa, Jagtar, I wonder if you could unpack the comment around travel or OTA customer wallet share a little bit because I know one of the potential offsets longer term in booking is the thought around being able to capture additional wallet share, but it sounds like maybe in the near term as volume comes off, some customers are maybe spreading spend around. I just wanted to understand that dynamic a little bit.

There's a bunch of things that are happening within the portfolio. And I guess let me start probably just by addressing that question, Jagtar, you may want to add on to that. Within our travel customer portfolio, many of the online travel agencies use multiple providers to fulfill business updates now and purposes, and they put volume across. What Jagtar mentioned in his comments is that we've got a little bit more lumpiness in how that volume is coming through right now. So we've got the advantage of that in the first half of this year. And we think that we're going to see the disadvantage of that, which is going to affect comparability of year-over-year performance in the second half of the year is not something that's new. And then on top of that, we are seeing really great spend volume with the large OTAs, the growth that have been really strong, from we're getting the advantage still of this move into the merchant model. And so the growth that we're seeing with the larger European OTAs. We're certainly getting an advantage of that. And that's being offset by weakness that we're seeing with the smaller online travel agency, which are really just returning to more normal growth patterns. And then Jagtar talked about the fact that we're also seeing softness with airline spend, which for us is in Europe. And it tends to be online travel agencies that are using our product for low-cost air carriers within the European market.

Andrew, I want to add that, as Melissa mentioned, the share of wallet aspect is primarily with some of our larger OTA customers. Our expectations with these customers indicate that in 2024, they will likely spend more with us in the first half and maybe less in the latter half, but we anticipate volumes to rebound as we look further ahead. Therefore, I see the share of wallet item mainly as a timing issue.

And I just wanted to get a little more color on benefits where it looks like HSA accounts are returning to growth. Should we expect the combination of new wins onboarding, lapping the Medicare Advantage losses, and perhaps a better open enrollment season to reaccelerate HSA growth, especially as we look out into next year?

We're seeing right now, because you're going to go through those drivers, we're seeing an increase. We talked about 8% growth in HSA accounts year-over-year. So far in the sales season, we're definitely seeing more momentum and close greater, higher pipelines look really strong. The majority of sales happen in the second half of the year. So we still have more work to do. But we are feeling pretty good about what's happening across the portfolio and how that's going to line up for next year's growth.

Yes, Andrew, I would say what we've closed so far this year at this point in the year versus where we were at this point of the year last year, we are ahead. So that's a good sign of validating our expectations.

I just wanted to ask on corporate payments and the outlook for the full year. So I think previously, you had talked about both revenue growth and volume growth being in the high single digits. Obviously, it sounds like that's coming down. So I just wanted to clarify, the revenue guidance is coming down by $50 million. It sounds like a vast majority of that is in corporate payments. So I just wanted to clarify the math there. And then any nuances or updates on the cadence through the year. I think, Jagtar, the last call, you talked about year-over-year growth decelerating through the year. So I just wanted to see if there's any updates to the thing in there.

At the beginning of the year, we were anticipating high single-digit growth for corporate payments. Now, we are projecting low single-digit growth following the adjustment in our guidance. To provide more clarity on this change, I want to highlight what remains the same in our guidance. Our benefits business is still performing according to our initial growth expectations, and it's doing well. Mobility has picked up as expected in Q2, aligning with our forecasts. Additionally, the non-travel component of our corporate payments business saw revenue growth in Q2, which we are pleased with. The adjustment in guidance mainly concerns the travel segment, which represents about 10% to 15% of our total revenue. It's important to note that this change isn't due to any customer losses; our relationships with customers remain strong, and they continue to find value in our offerings. The adjustments stem from a slight effect of the bookings announcement we made last quarter—while the transition is going smoothly, it has been slightly faster than we anticipated, leading to around a $5 million impact on our overall guidance. Another significant factor involves our large customers, where we encountered timing issues. We benefited in the first half of the year but expect a slowdown from them in the latter half. We are also noticing softness among smaller online travel agencies, partly due to challenges in virtual card acceptance with certain airlines, particularly in Europe. Overall volume growth outside of airlines with these smaller OTAs has fallen short of our expectations, and we anticipate this trend will persist for the rest of the year. This situation also affects our incentive fee recognition program. Although we are observing some challenges, we maintain confidence in our customer relationships, and we are now projecting approximately 2% growth this year, reflecting low-single-digit growth.

That is great information. I appreciate all the details provided. Regarding the outlook for the remainder of the year, it's encouraging to see another quarter of solid operating margin expansion. You mentioned the cost-saving efficiencies realized, which have been ahead of plan year-to-date. I'm curious about your thoughts on the potential for further margin expansion in the latter half of this year, especially considering you're comparing it to some strong margin growth in the latter half of 2023. Is there anything we should consider for our models regarding the timing or scale of margin expansion in the second half?

Yes, I would say we continue to focus on cost containment, I'd call it. So we were at a roughly $106 million run rate on the cost-saving initiative exiting Q2, we think we'll add on the order of another $10 million on that run rate as we go through the year. So that will add incrementally to margins as we go through the year.

One of the things that we said in the last call that we had front-loaded some of the reinvestment. And so that's why you're seeing more pickup in the second half of the year.

First, I just wanted to follow up on the benefits segment. Could you just provide what your expectations are for SaaS account growth for the next 2 quarters that's embedded? Is it 10% to 15%? 2024 segment revenue guide rates aside, and then does that give you line of sight for this business to reaccelerate back into the longer-term target range of 15% to 20% in 2025?

We mentioned that we experienced an 8% growth in HSA during the quarter. Throughout the year, we will continue our sales efforts, with many implementations taking place at the beginning of next year. Typically, we start to see increased growth towards the end of this year. Right now, we are focused on preparing for the upcoming enrollment season next year. Our goal is to ensure we are attracting more than our fair share of new customers. We are also benefiting from the custodial counts, which is a newer revenue source for us, as well as some compliance tools we acquired with the census, which began to show results in the first quarter. This growth can be somewhat unpredictable in timing, but it tends to boost our first-quarter performance. We believe we have many resources available to further develop this business and ensure we outpace market growth.

And in terms of SaaS account growth, we're expecting a slight acceleration as we go through the year. We did about before the Medicare Advantage item. We did about 3% SaaS account growth in Q2, and we're expecting, call it, mid-single digits in the second half.

And then for my follow-up on the corporate payments segment focusing on the non-travel portion. It was great to see the yield improved 11 basis points sequentially, much stronger than expected. You could just provide details on what sort of the improvement and that should be kind of like the new baseline rate for this segment? And then also, we just noticed that the volume on the non-travel side appeared to be down about high single digits quarter-over-quarter. So curious, what was going on there?

Yes. So the rate in the volume is actually the same item, which was related to a little bit of mix. We have a particularly large customer that's at a low rate that processed a little bit less in the second half. I expect them to do more later in the year. But that mix effect helped the rate in the second quarter. When we look at the back half of the year, overall, we're expecting our take rates to roughly match the first half of the year to be roughly flat overall. Q3 will be a little lower. Q4 will be a little higher or all on average. We expect about the same second half that we did the first half.

Other things that were in that mix that we were particularly proud of is the direct segment. Jagtar talked about the fact that we've continued to build into that sales force, and it has continued to deliver. We had 25% growth year-over-year in the quarter that part of the business is a place that we're going to continue to build into.

It's great to see the cost savings plan being implemented. You mentioned reinvesting half of those savings back into the business, such as enhancing the commercial team and upgrading technology. Could you clarify if these reinvestments are focused on specific segments? How do you foresee the commercial team contributing to growth? Additionally, any further details on the reinvestment strategy would be appreciated.

So when we look at those categories, as we're going through and thinking where we want to allocate our reinvestment. We're looking across the company at places that we think are going to drive the highest return. Jagtar has done a great job working with the rest of the business. And so it's really spread throughout. It's not directed in any one particular area. I'd say that we have been focused in the marketing engine with our mobility business. We've been ramping sales within corporate payments. And so it's kind of really spread across.

Likewise, on the tech side, it's really spread across all three lines of business as well, in terms of investments we're making.

And then after this buyback, maybe we could just get a refresh on your capital allocation strategy and how you're thinking about longer-term structure, maybe a little bit more in detail.

I wouldn't say that anything is really changed. When we think about capital allocation, we care deeply about organic growth. And so that's the first place we spend quite a bit of time and thought and we have been ramping both our tech and product teams over the last couple of years. It's a place that we think is really important to the long-term growth of the company. We still have in our framework, 2% to 3% growth from M&A. And then opportunistically, we're going to buy back stock, and we are very bullish on the long term of the company. And feel like that is not represented in our stock price. And so we've been really aggressive about share buyback. We bought back $174 million at the first part of the year and then another $70 million in July and now on top of that, we're talking about the $300 million accelerated repurchase program. And so it's a place that we feel provides a good return for our shareholders and just shows the confidence we have in our ability to continue to grow the company.

I wanted to ask about a comment that you made most in the prepared remarks around new adjacencies in mobility. And I know PACER sounds like you're executing on that very well. Are you seeing, maybe you could elaborate that a little bit for us, and are you seeing other similar opportunities? I know that sort of field services? Are there other adjacencies that we could expect you to kind of move into?

Yes. We're thinking about this in two different ways. First, are the things our customers very naturally need. So we've launched a product into the marketplace for our North American fleet customers that allows expanded acceptance so that they can buy other things that are generally maintenance-related for their vehicle, but just expanding their ability to purchase in a controlled manner. EV, I would put in that same category. We've got this migration that's going into a mixed fleet environment. And so we've extended products in that area. The 104 products that I talked about on the call, it's thinking about the over-the-road customer in a segment that we're not participating in now, which are offers really small segment of the marketplace that will have more credit constraints associated with that but having offerings to that customer set that draws them in to start using our products and as they get bigger, then they can advance into some of the existing products that we have now. And so we're looking across the portfolio at customer needs that we feel like are unmet in places that we feel like we can actually build out the offerings in order to provide even more value to our customers. And then I would say PACER's kind of a step beyond that, where we're looking at a place where we can even more deeply expand vertical capability within our customer segment. And so that for me is a little bit more of a test, and we continue to learn as we go through that process where the real neuro adjacencies are clear customer-driven needs.

And my follow-up is on electric vehicles. And the 50,000 vehicle pipeline you mentioned was a larger number than I anticipated. So I guess the question there is what is the size of the pipeline relative to the number of electric vehicles that are in your fleet today? Sort of what's there today? How fast do you convert the 50,000. And are they incremental vehicles? Or do you see this more as like sort of a swap out fossil fuel for electric?

So we have hundreds now. So it is significantly larger than the existing customer segment that we have right now, they're using the products. The way that I think about this, I think that the news is people are hearing consumer demand dwindle has had very little impact on our experience here where from a commercial perspective, the places that we've seen in demand or government fleets, very largest fleets that have ESG commitments that they've made to the marketplace. And then there's a bunch of others that are testing because they really want to understand the total cost of ownership. They believe that this is going to happen. It's just a question of timing, and so they want to get better educated across that. And with the government fleet in particular, we do business with the federal government, but also over half of the states in the United States. So we have a very close relationship and are in a position to help them through this migration, and they're going to be the leading side of that. So it is a pretty big ramp. And we've said all along that we don't know when this is going to happen, but we know that we need to be very well positioned for when it does, and we feel like that's where we are right now.

I want to drill down a little bit more on the weakness in travel and just the sensitivities. I guess this weakness on the smaller OTAs, what's the risk it trickles up? Like is there any relation in that? And then what are you guys assuming for the second half, like where is there risk to whatever your assumption is?

Sanjay, I'll start. So two-thirds of the revenue in our travel segment, and again, Jagtar said the travel part of our business is between, it was 12% in the second quarter. It's relatively a small part of the business. But two-thirds of that revenue is comprised of the smaller online travel agencies. And if you look in the mix of that customer base, what you're seeing is airline spend was negative 7%. And in the second quarter, so you saw this really deceleration that's been happening specifically with airline, which is in part because of acceptance issues and in part because there just is more softness right now, it's normalizing. And then if you look across the rest of the portfolio, I would say it's growing at a normal market rate. And so when we think about the business long term, we think about the fact that we do business with hundreds of online travel agencies. We represent what's happening across the marketplace. And so we should return spend volumes on an annual basis to a normal market rate trend. And so we feel pretty confident in how this will play out over time. The anomalies that we're seeing with the small online travel agencies in air is not represented, and it's not what we're doing with the larger travel agencies almost all hotels spend, that we're doing with the larger travel agencies.

Sanjay, in terms of extensions, we've factored in kind of what we know today, and we feel pretty good about it. So if I look at what we've assumed for volumes in the second half, right, inclusive of kind of booking volume as well that are transitioning to the new model, but total volumes travel. We're expecting to be flat in the second half to last year. Because of the weakness we're seeing as well as kind of the timing considerations on the larger OTAs. So flat, if you look at the same point last year, volumes were growing in the 40% range. So this is a moderation in travel volume growth. So we feel like we've taken a very realistic approach here. And then outside the travel, non-travel, we're kind of expecting a continuation of the trends that we saw in the first half in the latest quarter. So we feel really good about that.

I have a follow-up question, Jagtar, regarding interest rate sensitivity. With discussions around lower rates, I'm interested in how this will affect your operations moving forward. You mentioned stability and being well-hedged in the health care sector generally, and I believe you referenced interest rate escalators. How do these function when rates decline?

Yes. So roughly the way I think about it is a 100 basis point change in rates flows through our P&L at about $35 million on the revenue side. About half of that, call it, $15 million-ish would be on the mobility segment. So every 100 basis point change would be, call it, a $15 million impact to mobility.

I wanted to start by discussing the expense leverage in the business. You recently executed your $100 million cost-saving initiative, but with a slower top line this quarter due to the corporate payments guidance being down, how should we view expense reductions? Will you need to implement additional cuts to maintain margins, or do you believe this situation is only temporary and no further action is necessary?

So are you referring to the guide, what we actually have in the guide or beyond?

Well, both, I guess, like, I'm trying to understand, one, the expense leverage in the business? And secondly, are you assuming incremental expense actions in the back half?

So the way that we're thinking about the cost structure is a couple of ways. We have a long-term growth algorithm. And so as we grow, it's a little bit easier in a way to manage costs because you can actually just make sure that you're scaling up costs appropriately. And so we feel very confident long term, our ability to continue to scale depending on what's happening from a growth perspective. We've also, I think of it as a flywheel. There's a couple of flywheels that are going right now. There's a flywheel around cost savings, which have been driven across the company, looking at places that we can use technology in order to create efficiencies. I don't see that that's going to stop. That level of discipline is something we want to continue to do. And then the second flywheel for us is AI, which we feel like we've seen meaningful results from that already, and it's a lever that we're continuing to lean into because we think that that has an ability to also continue to significantly alter cost structure. And so those are places that when I think about this at more of a strategic level that we are continuing to emphasize going forward.

Yes. I'll just add sort of specific to the guide on a very tactical level, right, we baked in cost savings in the second half of the year, just pulling levers on headcount growth, vendor spend and the like to the tune of about $10 million to $15 million. So that was a direct response to the weakness we saw in travel. We looked at what cost levers we could pull. But over the long term, I think our cost actions would be at the more strategic level than Melissa talked about.

Yes. So the pipeline continues to be across the portfolio. We've been less likely to do scale plays, which we have done historically. And we've been using that money more for share buyback. But in terms of geographic expansion, product expansion, smaller scale players, and those are places that we continue to be interested and continue to work through our pipeline as well. I feel like we're in a maturing cycle right now where multiples are starting to make a little bit more sense in the marketplace, and we've been really pretty thoughtful about making sure that we're maintaining financial discipline too.

Thank you, Kayla. Just wanted to thank everyone once again for joining us this quarter, and we'll look forward to speaking with you again at the end of the third quarter.

And this concludes today's conference call. You may now disconnect.