WEX Inc. common stock

Ladies and gentlemen, thank you for standing by and welcome to the WEX 2002, excuse me, second quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star 1 on your touchtone phone. Mr. Elder, please go ahead.

Thank you, operator. Good morning, everyone. With me today is Melissa Smith, our 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 8Ks 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 second quarter to arrive at these metrics include unrealized losses on financial instruments, net foreign currency remeasurement losses, acquisition-related intangible amortization, other acquisition-related items, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, A&I adjustments attributable to non-controlling interests, and certain tax-related items. Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income 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 31, 2019, filed with the SEC on February 28, 2020, our quarterly report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 11, 2020, 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 Smith.

Good morning, everyone, and thank you for joining us today. Importantly, I hope all of you and your families are safe and healthy. Like last quarter, I will start today's call with an overview of our Q2 performance highlights before providing an update on some of the key metrics in the current environment. This will include what we're seeing as we progress into the back half of the year, as well as some color around key announcements we made this quarter. I will close with talking about how we're progressing with our long-term strategic objectives. Then Roberto will provide more detail about our financial results for the quarter, as well as some balance sheet highlights before we open it up for questions. As we begin this morning, let me express my continued appreciation for our employees who've been working hard to continue to build upon our outstanding technology and products while providing the quality service that our customers and partners expect. The work they are doing will not only help us navigate through this unusual period, but equally important, will ensure that WEX emerges stronger as operating conditions improve. Turning to our second quarter performance highlights on slide three. Q2 saw the full quarter impact of COVID-19 on our business. The quarter played out broadly along the lines of what we had outlined in May with revenue declining 21% versus the prior year quarter to $347.1 million due to compressed volumes across all of our business segments and significantly lower field prices. With that being said, I'm pleased to report that we've seen volumes improve across all segments from the Q2 lows and of note, we continued to see year-over-year revenue growth in our U.S. health business. From a profitability standpoint, GAAP net income was $1.66 per diluted share, and adjusted net income was $1.21 per diluted share, down 47% year-over-year. This was driven by lower year-over-year spend volumes across all of our business segments, as mentioned earlier, and lower year-over-year fuel prices. Disciplined execution of our cost containment initiatives that I discussed last quarter helped to partially offset some of the declines this quarter. Starting with the fleet segment, revenue was down 24% year-over-year, primarily driven by unfavorable fuel prices and lower volumes due to COVID-19. the lower volumes also led to softness in other ancillary revenue. Same-store sales in the North American fleet business were down 21% compared to last year as the impact of the pandemic permeated all of the verticals we measure. This was partially offset by contributions from the EG GoFuel card acquisition that we closed in July 2019 as well as new business signed in the quarter. This will be the final quarter where we will see outsized year-over-year contributions from the Shell and Chevron portfolios, which are performing as expected given overall business volume trends. Our travel and corporate payments segment was the most severely impacted by the pandemic and the resulting decline in travel activity. Segment revenues decreased by 40% year-over-year, while travel-related revenues in the segment were down 68%, and corporate payments-related revenue was flat. Travel purchase volumes were down 87% from the second quarter of 2019 as travel restrictions and work-from-home orders remained in place through much of the world, coupled with a decline in consumer and business activity. Corporate payment volumes were flat as the pandemic slowed economic activity and B2B payment volumes, especially for small and mid-sized businesses, partially offsetting these declines with a reduction in scheme fees, which were $10 million lower than last year. Our health and employee benefits segment, which posted another quarter of year-over-year top-line growth, was up 6% from the year-ago period, driven by the strength in the U.S. healthcare business. We're encouraged by the 15% year-over-year growth in the average number of SAS accounts on our WexHealth platform, as customer demand for our HSA, FSA, and COBRA products remains strong. This included a 33% revenue increase from our COBRA offering. However, health purchase volume was down 26% as compared to the prior quarter as customers deferred non-essential medical treatments as a result of the pandemic this year. I'd like to take a moment and provide you with some additional color on the current environment and how we're responding to the challenge. Beginning with employees, our work from home program remained in place this quarter. with nearly all of our workforce still currently working remotely. I'm pleased to report that we didn't miss a beat in terms of our remote technology capabilities, and importantly, our productivity and customer service. We also made good progress on our diversity and inclusion initiative, which is focused on building upon a culture of inclusion, embracing diversity in the workplace and our communities, and having diversity be part of our brand in the marketplace. WEX launched various programs and resources to support this initiative throughout the past several years, including our most recent group to support our African American colleagues. We've held open forums with employees to discuss the impact of racism. We'll use our corporate philanthropic dollars to reinforce our commitment. Additionally, we'll be rolling out unconscious bias training to all employees in the company, beginning with the board and the executive leadership team. Given where the world is today, these efforts are resonating with our employee base. While we don't have all the answers, we will continue to put people first and lead with our commitment to D&I. From a customer standpoint, we have innovated and adapted our technology and products and we continue to see customers taking advantage of both to conduct business during this new normal. In the fleet business, we have products that offer contactless and digital payments, both features that are resonating from a health and safety standpoint. Drivers are increasingly utilizing DriverDash to make contactless transactions while on the road. Our small business customers are also leveraging the WEX Edge Savings Network which was launched early this quarter, to access fuel, tire, hotel, and wireless discounts, among others. To date, we have saved small businesses nearly $500,000 through these discounts and rolling this product out to a wider group of customers. We've seen an increase in fleet prospect interest by bundling this offering. With our health customers, we're focused on ensuring The end consumer is top of mind. Our speed lift offering announced last quarter continues to gain momentum as employers and consumers rely on speed lift to counter challenges created by COVID-19 and offset unexpected costs. We extended our network of offerings to include easy digital offerings like eyeglass purchases so that commerce can continue to happen. Before I turn our view to the balance of the year, I want to provide an update around our strategic priorities and cost containment program. As you can see on slide four, we remain on track and aligned with the priorities and initiatives outlined in May. As part of our initial response to COVID-19 to better align our needs for the new operating environment, we implemented a handful of cost containment measures last quarter. This included cutting discretionary spend and eliminating most new hiring across the organization while protecting investments in each of the businesses. We continue to evaluate these levers, among others, on an ongoing basis to keep us on our front foot during these unprecedented times. Since our last call, we did reduce headcount in our international locations as we discussed but we have not made any further permanent reductions in our U.S. workforce. Furthermore, all furloughed employees who have not already returned to work will return next week. Turning to slide five. We're focusing on our technology investments in areas where we continue to grow, like the U.S. health business, and also deploying our CapEx where we see growth opportunities in the future. The investments in our products we're making are paying off as we look for ways to further build out our growth and diversification plans. During the quarter in fleet, we finished an important milestone on the WEX Europe fleet business by successfully completing the migration of the EG fuel business onto our own cloud-based platform. This is an important prerequisite to building out our European presence. In addition, in the US, we also completed the migration of the Valero portfolio onto our products and technology. We're also expanding the ways our customers can buy using our products. Edge is an example of creating a buying community, while we're also now offering local fueling functionality to our over the road customers. In the travel and corporate payment segment, we've migrated nearly 70% of the spend volume onto our own internal transaction processing platform. In doing so, we've increased reliability for our customers and reduced some of our variable cost base from using a third-party vendor, which will help to increase our scalability. Finally, in the US healthcare business, we're seeing tremendous support for the July 2020 product release. which includes additional enhancements to the features and functionality of our employer analytics. We also continue to build off the success of WEX Momentum, which is a series of virtual learning and networking events launched in May. In only a few short months, we've received thousands of views from individuals across the country. The investments we have made continue to build upon our differentiation in both our products and technology and been an important part in winning new business. Slide five illustrates some of our impressive recent wins and renewals. During the quarter, we signed OMV. OMV is a European-based oil company with 2,100 locations across 10 countries who will use us for their private label processing needs. We've also signed JB Hunt, one of the largest trucking companies in the country. FAS has signed up to use our bill pay technology as part of their software offerings to banks, and Onyx SenderSource will use our travel solutions in the travel and corporate payment segment. Finally, Transamerica will be using our technology platform for their consumer-directed healthcare accounts. I'm also proud to announce that we've recently renewed contracts with some of our fantastic customers and partners, including Enterprise Truck Rental, Snyder, Apple Leisure Group, Zurich Insurance, and Fifth Third Bank, among others. Our sales and marketing teams have continued to foster relationships and close new business despite the pandemic, which is an important part of our ongoing growth strategy. Now I want to spend a few minutes looking ahead for the back half of 2020. While parts of Europe are easing restrictions and regions of the US are starting to reopen, there's still a long road ahead to sustained recovery. Given the unpredictable nature of COVID-19, we expect the business activity and our customer base to continue to be impacted through the second half of the year. We also anticipate some additional noise as pandemic-related stimulus tapers off, and we can now note that smaller businesses and our fleet customer base are showing slower signs of recovery in business volume than larger businesses. Nevertheless, we're encouraged to see steady improvements across our key weekly metrics over the past month. Turning to slide six, we provided a weekly look at volume trends similar to what we did last quarter. In the fleet segment, month-to-date gallium volumes are down approximately 2.9% in July from the year-ago period compared to a decline of 20% in April. Our North American fleet business trended upwards through the second quarter with month-to-date July volume down 8.7% year-over-year compared to a 25% decline in April. Our OTR business continued to demonstrate resilience, with month-to-date July volumes up 8.5% compared to an 11% decline in April. International volumes remained the most challenged, down 9.9% year-over-year in July, but up from a nearly 50% decline in April. While fleet volumes remain down, we expect these trends and further stabilization to gradually continue into the third quarter. In our travel and corporate payments segment, spend volumes are down 65% months to date in July from the previous period, compared to a decline of about 70% in April. Global travel-related spend volumes improved slightly from April, with volumes down 81% year-over-year in the month-to-day July. Volume levels remain compressed due to continued declines in our travel-related revenues across the world. While it's still difficult to anticipate when purchase volumes will begin to normalize, we remain well-positioned to recapture volume once market recovery begins. Our corporate payment spend volumes increased 6% so far in July. Finally, turning to our U.S. health business on slide seven, we expect the trajectory of spend volumes that we saw in June and July to continue through the remainder of 2020, particularly as states reopen and customers begin to spend on elective healthcare procedures and resume a more normal cadence of doctor visits. Importantly, SASA account growth, which drives about two-thirds of the revenue, remains strong. and is anticipated to trend positively at a mid- to high-teens growth rate in the coming months. I'd like to turn quickly to the ongoing litigation surrounding the ENET and OPTAL acquisition. We continue to remain confident in our position, but we cannot predict the outcome of these proceedings. There's a trial of preliminary issues scheduled for the end of September where certain issues related to the case will be decided, so it would be impossible to predict the outcome at this point in time. We'll provide updates on the status of this litigation as they become available. Before I close out my comments, I want to briefly touch on the $400 million investment from Warburg Pincus that we closed a few weeks ago. This investment reaffirms our relationship with Warburg, who has demonstrated their strong commitment to the future growth of WEX. Coupled with the recent amendments to our credit agreement, this investment further strengthens our balance sheet and provides us with more certainty through increased financial flexibility, improved liquidity, and additional cash on hand. These allow us to remain focused on our long-term strategic initiatives to drive sustainable growth. In spite of the challenges we continue to face, the nimbleness with which we are executing and the resilience of the WEX platform give me confidence in our future. First and foremost, our employees remain healthy and safe. They are the cornerstone of our organization and a conduit to our customers and partners globally. They continue to go above and beyond in our WEX community to bring best-in-class technology solutions and unparalleled service to our customers and partners who depend on the WEX platform to keep their businesses up and running. From a customer and partner activity standpoint, recent data indicates that trends are significantly better than three months ago, ensuring gradual improvement, or at a minimum, some level of stability. We're encouraged by the July volumes across our business segments, and our hopeful steady progress will continue. Lastly, we've proven that we can quickly adapt our business under challenging operating conditions. We've made a number of strategic decisions this quarter to ensure that WEX is well positioned to succeed post-pandemic, including strengthening our balance sheet and liquidity position, and continuing to execute across our cost containment program while making targeted investments for future growth. WEX products continue to be integral to our customers' operations in the current environment, and we're confident the volumes will return as the economy begins to recover. In the meantime, we remain committed to our strategy and are focused on driving sustained long-term growth and value for our shareholders. With that, I will turn it over to Roberto.

Thank you, Melissa, and good morning, everyone. As we expected, the second quarter was unprecedented for us as we maneuvered through COVID-19. Despite the challenging economic conditions, we continue to execute on the strategic pillars, drive efficiency through operations, deliver on the cost containment initiatives, and improve the balance sheet position by increasing liquidity and financial flexibility. Just as important, as you heard from Melissa, we continue to focus on our customers, partners, and prospects. Now, let's take a look at the quarter results on slide number nine. For the second quarter, total revenue was $347.1 million, a 21% decrease year-over-year. Cap net income, attributable to shareholders was $72.7 million. Non-GAAP adjusted net income was $53 million, or $1.21 per diluted share. Turning to slide 10, we can see the overall revenue performance by segment. Breaking down the revenue, health and employee benefit solutions grew 6%. Fleet segment revenue declined 24%. And finally, travel and corporate solutions posted a 40% decrease. Moving to segment results, starting with fleet on slide number 11. Total fleet solution revenue for the quarter was $204.4 million, a 24% decline versus prior year. The primary impacts were lower volumes due to the government staying at home orders and lower domestic fuel prices. These declines were partially offset by new customer wins, renewals, as well as the benefit from the EG fuel car acquisition that we completed in July 2019. Payment processing transactions declined 19% when compared to last year, with North American fleet down 21% and over the road down 7%. As Melissa noted earlier, fleet volumes progressively improved through the quarter. The net payment processing rate was up 23 basis points from Q2 2019 to 147. The year-over-year increase was mainly due to the EG fuel car acquisition, the significant decline in US fuel prices, and positive spreads in Europe. The net late field rate also increased to 57 basis points in comparison to the 54 basis points in Q2 2019. The increase was largely due to the Shell and Chevron portfolio additions. To end this segment, the average domestic field price in Q2 2020 was $2.07 versus $2.91 in Q2 2019, which lowered the fleet revenue approximately $32 million. This amount was reduced by approximately $3 million in positive spreads from Europe. Turning to travel and corporate solutions on slide number 12. As anticipated, total segment revenue for the quarter decreased 40% to $54.5 million. Breaking it down, corporate payments customer revenue was flat year-over-year, while revenue from travel-related customers was down 68%. Purchase volume issued by WEX was also down 68% to $3.2 billion. the net interchange rate was 137 basis points, which was up 60 basis points from Q2 last year. The increase was mainly due to two factors. First, there was a significant swing to corporate repayment volume, which has a much higher net interchange. And second, the recent scheme fee contract renewal that has better economics. Finally, let's take a look at the health and employee benefit solution segment on slide number 13. Building off an impressive first quarter, the segment experienced a solid Q2 with revenue increasing to $88.2 million, or a 6% increase compared to last year. In the US health business, revenue grew 9%, driven by SAS accounts growth, which was 15%. Breaking it down, non-payment processing revenue grew 17%. Due to COVID-19, payment processing revenue declined 18%. As Melissa mentioned in her remarks, volumes have improved through the quarter, and we anticipate that healthcare spending will continue to trend upwards in the second half of the year. Now, let's move on to expenses on slide 14. For the quarter, total cost of service expense was $161.9 million, slightly up from $160.8 million in Q2 last year. Total SG&A depreciation and amortization expenses were 156.4 million, which is down 29.9 million versus 2019. We are on track to achieve the 60 to 65 million in cost savings in 2020 that we outlined last quarter. In light of current conditions, we anticipate keeping most of these measures in place. Breaking down the line items within these categories, processing costs increased less than 1%. However, sequentially, they are down about $5 million from Q1 this year. Service fee decreased $4.5 million due mainly to lower processing volumes and the conversion to an internal processing platform. Credit loss on a consolidated basis was 20.6 million versus 14.8 million in Q2 last year, primarily driven by credit losses within the fleet segment. In the fleet segment, credit losses were up 3.8 million versus prior year. This equates to 26.9 basis points of spent volume compared to 13.9 in Q2 2019. The basis points were unusually elevated because of the combination of a significant drop-off in gallon volume and lower fuel prices. On a positive note, I am pleased to report that the accounts receivable aging is in good condition. despite the current economy. In the travel and corporate payment segment, credit loss was 2.2 million, which is much lower than last quarter, and reflects the ongoing challenges we are seeing in the travel industry. Operating interest expense was 6.5 million, down 4.2 million from the prior year quarter. This is mainly due to lower interest rates. G&A expenses decreased 14 million versus Q2 last year, mostly due to the cost containment efforts, M&A fees, and restructuring charges. Lastly, the sales and marketing line decreased 18.1 million, driven by lower partner rebates and the cost containment measures. Let's discuss taxes on slide 15. On a GAAP basis, the effective tax rate was 310.8% compared to 28% for the second quarter of 2019. On an ANI basis, the tax rate remained consistent at 25.2% for both Q2 this year and last year. Changing gears to slide 16, I would like to provide an update on the balance sheet. Despite the very volatile environment, we remain in a healthy position with robust levels of liquidity on hand, which were boosted by the Walbert Pincus investment that we closed in July. We remain committed to maintaining a strong balance sheet and will continue to evaluate the market to determine if there are opportunities to further enhance it. We ended the quarter with $1.3 billion in cash, up from $811 million at the end of 2019. From a liquidity perspective, the corporate cash balance was $580 million at quarter end. This balance increased more than $75 million from Q1 2020 thanks to another quarter of a strong cash generation. We continue to keep tight controls on the capital allocation as we prioritize investments and manage our cost structure. Additionally, there is over $750 million of available borrowings under the company's credit agreement. Combining this, the corporate cash at the end of this quarter and the new investment from Wolver Pincus at the beginning of the third quarter, the company has access to over $1.7 billion in capital. We continue to believe that we have adequate funds to meet our operating, investing, and financial needs in the current conditions. To conclude this section, during the quarter, we also amended the credit agreement. The most notable changes include increasing the maximum leverage ratio covenants and permitting unlimited corporate cash netting for six months following the resolution of the INET and OPTAL transaction. After this six months period, there is a permanent increase in cash netting allowed when compared to the previous agreement. These enhancements ultimately provide additional financial flexibility and leaves us in a much stronger position. At the end of the second quarter, we had a total balance of 2.7 billion on the revolving line of credit, term loans, and notes. The leverage ratio, as defined in the credit agreement, stands at approximately 3.1 times which is down from 3.5 times at the end of 2019. Leverage decreased based on the new calculation containing the amendments to the credit facility, which allows the company to reduce gross debt by the full amount of corporate cash. To end the call, we remain optimistic about the second half of the year based on the current volume trends outlined by Melissa. That being said, future projections remain unpredictable due to the volatile nature of the pandemic. For this reason, we are not in a position to provide guidance at this time. And now, we will open the line for questions.

At this time, if you would like to ask an audio question, please press star 1 on your touchtone phone. Once again, that is star 1 to ask an audio question. One moment for your first question. Your first question comes from the line of Ashish Sabhadra with Deutsche Bank.

Hi, thanks for taking my question. Good to see the improvement in the fleet volume in July. I was just wondering if you can talk about the verticals within the North American local market, and if you could also comment on any potential sensitivity to potential slowdown in economy from the surge in pandemic. How should we think about that going forward? Thanks.

Yes, sure. Yeah, let me give you a little bit more color about what we're seeing when you look into the trends a little bit more deeply. As you said, we're pleased with the amount of improvement. You saw some pretty significant improvement in our fleet trends between April and July. And some of the trends started to change. In April, you saw a pretty big impact within the United States, depending on what state you were in and those that were hardest hit by COVID. started to really deviate and have worse of an impact than others. During the course of the quarter, those state activities started to converge. So you're not seeing large deviations depending on state. Now it's much more to do with the SIC that people are in. So the way that we think about it is that a large amount of the customer base were providing services that were essential and continued to operate. And as the economy is continuing to improve, you're starting to see some of the non-essential components roll back in. The places that we still see an oversized amount of weakness is areas like retail. And think of sales fleets that are driving vehicles that are using our products. Some service-related, financial and insurance-related areas. Again, it's much more SIC-specific. On the positive side, construction has really come through pretty well. A lot of the construction trades that sit within our portfolio are things that are related to road work. It could be state-related or government-funded types of construction projects across other types of construction as well. And the other thing I'd say is that when we've looked in the last couple of weeks at the impact to what's happening in the states in the United States, they're more heavily impacted by COVID. They are looking similar to other states. We're not seeing at the moment any type of compounded impact based on COVID-related activity in the United States right now.

That's very helpful, Keller. Thanks. And then maybe just a quick question on the corporate payment. Pretty good volume growth, 6% growth in July. And you also talked about the FIS adoption of the bill payment solution. Can you just talk about the pipeline for that business and the demand for B2B payments in general? Thanks.

Yeah, we're really excited about the pipeline that we have and corporate payments. We also, if you look at what's happened in the quarter and leading up until July, we You also saw a lot of deviation in the places where in corporate payments, the FinTech-related customers that we have in our portfolio grew over 20%. The channel that we have with FIs were growing single digits even in the quarter. The places that we were offsetting that in softness were in the really smaller accounts where we have a direct relationship with a customer and then in built pay. And so we started to see a little bit more improvement in those trends in July. We're excited about the relationship that we have with FIS on bill pay. It's a great customer, great relationship that we want to build on over time. And again, we remain excited about what we're seeing in the pipeline and corporate payments. It's a strong pipeline relative to what we've seen a year ago.

Thanks, Melissa. That was very helpful.

Your next question comes from the line of Tianjin Huang with JP Morgan.

Thanks so much. Thanks for the slides as well. I think the biggest delta versus our model was the processing costs were up 1% in contrast to some of the clients you saw across the other businesses. Maybe I missed it, just trying to reconcile why that was the case. Anything unusual there? No.

Let me recap first on the cost containment and then I can dig in a bit more on the processing cost. So as Melissa said, you know, on her remarks, we wanted to, you know, to protect especially the U.S. health investments as well as the tech investments. And on the processing cost line, the majority of the expenses that we have are related to tech ops, IT, and then obviously call center and everything related with credit and collections. So as you think about what we have been doing in the quarter, there's two things. We have kept investing in the areas where we wanted to continue investing, and we have also moved some resources from the sales and marketing line into the processing cost to help on the cash collection initiative that we put in place. When you put everything together, this is why you see it being flat. But if you look compared to Q1, we are approximately 4 to 5 million down sequentially. So obviously the volume has also a small impact on that area as well.

I see. That makes sense. Thanks for going through that. Just as my quick follow-up from Alyssa then, you guys have a few fleet wins here. Any way to talk about sales, pipeline, or quantify your bookings growth, that kind of idea. Just curious how you've adapted on the selling front and what demand looks like. Thanks.

Yeah, I'm really proud of our sales and marketing teams because they have adapted really quickly to this environment. And if you look at the pipelines, we said last quarter or over the road, pipeline was stronger than you're going to say. That's still true. North American fleet has been a little bit lower than what we've seen historically. But if you combine the two, they look pretty much on par. And then on top of that, if you kind of go across the business, our health pipeline looks stronger than it has in the past. Our corporate payments pipeline looks stronger than it has in the past. So across the business, we have learned significantly. how to migrate, how to sell differently. And we've migrated our dollars and our time accordingly, you know, based on the environment that we're in. And we feel really good about the wins that we were able to talk about this quarter, really across every part of our business. We've got some really great names that we can talk about that are going to get implemented in the course of this year or have already started to implement.

Terrific. Good for you. Thanks for the update.

Our next question comes from the line of Steven Wald with Morgan Stanley.

Great. Thanks for taking my question. I hope you guys are staying safe and healthy. I know you guys can't really comment a ton on the eNet Opto deal. Maybe just conceptually, just because your stance back in April was that you're not obligated to close the deal. I'm curious if you've given any thought since then to the broader global reopening and what's going on in other parts of the world. as to whether there might be any rationale under which you'd consider closing the deal regardless of whether the court rules you have to.

I don't think it's really appropriate for us to discuss that transaction or the substance of the litigation at this time. And all I'm going to say is I'll just reinforce our confidence that we have in the position that we've put forward And if you look at what's happened over the course of the last quarter and say, if anything, we feel more confident than we did a quarter ago.

Completely understood. Had to try there. Maybe just switching gears towards the outlook and the trends you guys outlined since the end of the quarter. I understand that it's still a very influx environment, and so ascribing a guide at this point is still very difficult. But if you were to sort of plot the line, as you guys did, of the improvement in trends across the different businesses, if you were to improve at this rate without sort of major disruptions, it sort of looks like you'd be back into positive territory on at least transaction volume growth by sometime in mid or early fourth quarter. And I guess I'm curious, If that's your sense of things, even if you're not willing to describe a formal guidance to that outlook, just given the uncertainty around it.

I don't think anyone really knows precisely what to expect and what's going to happen with volume trends. What we're trying to do is be as transparent as we can to show you the trends we're seeing week over week. We certainly have seen some pretty substantial improvement over the course of the quarter. And what we would say right now, we're seeing it minimally. Minimally, we're saying stability, you know, in some areas, it's certainly better than that. And my other points that I've made is two things I'd call out is if you look at, again, the states that are being more impacted by COVID, we're not really seeing a big impact right now, which I think is important, you know, as we're thinking about what's going to happen over the next couple of months anyway. And then some of the trends we're seeing, we've been asked a lot in the past between small and large customers, and we are seeing some divergence in small and customer behavior. With the over-the-road business in particular, you're seeing larger over-the-road fleets recovering faster than some of the smaller over-the-road fleet customers. In the North American fleet business, it's actually a little bit less clear. The smaller businesses have held up really well. One of the things that we're just watching is what happens with stimulus money and how is that going to impact some of that, ultimately, the customer behavior. But right now, again, we're providing transparency so you can see what we see in terms of volume trends.

Of course, we definitely appreciate that transparency and that's helpful color on the underlying pieces. Thank you.

Your next question comes from the line of Ramsey Ellisale with Barclays.

Hi, thanks for taking my question today. I wanted to ask you about the OMV private label contract. And I know this is a question that used to get asked a little more than it has recently. But do you see COVID potentially opening up the pipeline in Europe for more kind of outsourcing deals like that? That used to be kind of a theme that folks thought was coming and it sort of seized up for a while. Has there been any perceptible change in the kind of pipeline or sales activity in Europe on these outsourcing contracts? Yes.

Yeah, I've always described that as a, you know, and you think about the length of our pipelines, I've said the European fleet pipeline is, you know, one of the longer cycles that we've ever had. I don't think that it has anything to do with COVID. I think, you know, right now it's these cycles just are, you know, tend to be really quite long. And, you know, we have some great technology that's available to the customers. It's more of a question of the impetus of making a change and making a migration over. And, you know, when they get to a point where they are willing to make a change, we feel like we have a really good competitive offering in place.

In fact, the OMB transaction, I mean, we started the process, you know, much earlier than COVID started. So probably has nothing to do with that.

I see. I see. Okay. And another question for you about kind of the potential COVID impact on the businesses. it seems like there's been such a huge change at the front end, particularly of retail, but it's sort of the front end of the economy in terms of digital, more direct-to-consumer kind of digital-type purchasing. Is there any corresponding change that you're seeing on the back end of those purchases in terms of trucking patterns? Is there fewer goods to be shipped from warehouses to retail locations? Is there any other kind of infrastructure-level changes changes that you're seeing to sort of match the changes that we're seeing at the front end of kind of the, I guess, particularly the consumer kind of experience? I know that's a tricky question, but I thought I'd give it a shot.

No, definitely. I mean, I'd say, yeah, and I don't know yet if these are longstanding changes or if they're changes because of their environment you're in, but you would definitely see within our portfolio base some customers that are up you know, 180% over prior year, while others are down. And if you were to draw the line, particularly in the over-the-road arena, those that are doing business with online, you know, retailers are seeing much more volume. There's also a big demand on refrigerated diesel, which we think has to do with, you know, what's happening with grocery stores. And so there are some downstream effects, or I don't know if you call it downstream or upstream, but... with what's happening with the over-the-road customer base and what you're seeing in retail.

But net-net, it's a wash, effectively. You're picking up both sides of it, so it's not a headwind or a tailwind. It's just a shift, sort of.

Well, I think it's part of why the over-the-road business has been more resilient. If you look across the fleet markets that we're in, the over-the-road business has, you know, we talked about that being up. year-over-year in July, and I think that's a part of it, is because they're benefiting for some of the new areas of shipment. And again, it's not a universal benefit. Some customers are disproportionately benefiting, and then others are still down.

Okay, got it. Thanks so much. I appreciate it.

Your next question comes from the line of Peter Christensen with Citi.

Good morning. Thanks for taking my question. Melissa, I was hoping you could give us a little more color on what you're seeing in terms of your credit lines in the last quarter. I know there was some trimming earlier in the year. What kind of trends do we see in 2Q, and do you anticipate those further contraction along lines going forward? And then just a quick one would be helpful if you could tell us the organic decline excluding fuel and FX. That would be helpful. Thank you.

Sure. I'll start on credit, and I'm sure Roberto will jump in here. But we're pretty active. You know, I'd say kind of the theme for the quarter for us was to move fast across a number of fronts, and one of them was was related to credit. And so we took down a number of different credit lines. It's about $2 billion worth of action that we took. And at the same time, we've been working with our customer base to make sure that we are thoughtful about how we're approaching those conversations with our customers. I think you can see the net of that with really strong customer retention rates. And at the same time, we've been able to reduce the overall credit exposure that we've had. The benefit of that we've seen roll through so far in our aging, and Roberto talked about that a little bit. I don't know if you want to talk about it more, Roberto.

Yeah, I mean, just adding on what Melissa said about the measures that we have taken, and as I said before, when we're talking about the processing costs, we also reallocate some resources from sales and marketing into the credit and collections. And what I can tell you is that overall, you know, the credit losses for the quarter are And how the account receivable aging has been performing, we feel we are in a good position. And if you look also where we were now in December with the receivables going down more than $700 million to date. So overall, if you look at where we are, we feel quite well. And a couple of other numbers. As we said, from Q1, we are down more than $40 million in credit losses from Q1 this year. So that's also good news. And even if you go through both segments, I mean, the credit losses in travel this quarter were $2 million, and our receivable balance is really very small. So the risk exposure has been materially reduced. And if you go to the fleet segment, also quarter from Q1 to Q2, we are also down around $2.5 million on credit losses. So all the signs indicate that the measures that we have put in place, the resources that we have reallocated to that area are paying off. And as I said, and Melissa said too, the aging buckets, which is a big indicator on how the receivable is performing, was in a very decent shape by the end of June.

And then your question around our growth, we talked about the impact of fuel prices were about $29 million in the quarter, and it had a couple million dollar impact for foreign exchange rates. The growth rate excluding FX and PPG was negative 15%.

And the inorganic contribution from coal fuel?

Yeah, it was very little. It was very small. It's only, you know, the EG acquisition. Maybe 1%. Okay. It's negligible.

That's helpful. Thank you so much.

Your next question comes from the line of Sanjay Sakrani with KPW.

Thanks. Good morning. I'm glad you guys are doing well. I guess I wanted to follow up on Tingen's question related to some of the wins that you have in fleet and sort of think about how we think the progression in fleet will unfold over the remainder of the year. So the expectation that things are