WEX Inc. common stock

Ladies and gentlemen, thank you for standing by and welcome to the UXQ4 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to Steve Elder, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Operator. Good morning, everyone. With me today is Melissa Smith, our Chair and CEO, and our CFO, Roberto Simone. The press release we issued earlier today 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 a non-GAAP metric, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income, or ANI. Adjustments for this year's fourth quarter and full year GAAP results to arrive at this metric include Unrealized Gains and Losses on Financial Instruments, Net Foreign Currency Remeasurement Gains and Losses, Acquisition-Related Intangible Amortization, Other Acquisition and Divestiture-Related Items, Loss on Sale with Subsidiary, Stock-Based Compensation, A Legal Settlement, Restructuring and Other Costs, An Impairment Charge, Debt Restructuring and Debt Issuance Cost Amortization, Non-cash adjustments related to our tax receivable agreement, similar adjustments attributable to non-controlling interests, and certain tax-related items as applicable. Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income attributable to shareholders to GAAP net income attributed 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, the risk factors identified in our 2019 annual report on Form 10-K filed with the SEC on February 28, 2020, our quarterly reports on Form 10-Q, 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 and thank you for joining us today. I hope everyone is well and staying healthy. As we all know, 2020 proved to be a year like no other. WEX remained resilient and nimble, which allowed us to stack up a series of competitive wins and renewals, Target are spending in areas that will drive benefit for years to come and build upon our robust technology capabilities. We ended 2020 with a purchase of Enet and Optyl with a very favorable result and successfully navigated an extraordinarily complex set of circumstances in the process. I remain excited about strengthening our travel position and adding these two assets will enhance our global payment capability, creating value for our customers and our investors over the long term. Our focus on the health and safety of our people, customers and partners, and the communities in which we operate was paramount in 2020 and remains the same today. We're focused on WEX's next chapter of growth, enhancing our culture, for extending our diversity and inclusion programs and implementing new programs to broader support ESG efforts. Before I dive into our results for the quarter, I want to express my gratitude and deep appreciation for the hard work and dedication of the entire WEX team. Under unprecedented circumstances, they executed extraordinarily well this past year, and once have proven why they are the cornerstone of our organization. Turning to our results for the quarter and the year, the fourth quarter played out better than we had expected, given the expectations we had laid out on the last call. We generated $399 million of revenue, and adjusted net income was $1.45 per diluted share. We've received a number of questions around the ENET and OPTO acquisitions. So I'd like to hit this right off. We're very sensitive to the challenges our travel customers are facing in this pandemic. We're partnering with these customers and are learning from the marketplace how best to support them during these extraordinary times. For the short term, additional travel exposure will introduce some additional uncertainty into our performance. We have a highly talented team of individuals coming together with the Opto and Enet teams Building upon our existing bench of talent, together we will create even greater value in the marketplace by leveraging the combination of our collective assets and global reach as the foundation for our future innovation. Over the long term, we see great growth potential and I remain very excited about the future potential we will create for our customers and shareholders. As a reminder, our end customers are in the consumer travel category, which we believe will rebound much quicker than business travel. We've started the integration, are in the process of updating our assumptions around potential synergies that come from combining the three organizations together. Turning to our strategic outlook, we refreshed our strategic pillars to better reflect the opportunities we see in front of us as well as the operating environment we expect to see going forward. As a technology-focused company, we're focused on increasing speed and reliability through the use of modern tools. New development of WEX continues to be cloud-first, and during 2020, we reached a major milestone where now approximately two-thirds of our volume is running within the cloud. We'll continue to build upon our technology and risk management skills and Carrie Ford our diversification. We also remain focused on winning in the marketplace by anticipating customer needs and bringing innovative offerings to the market first using modular integrated solutions and fostering our value-based culture to attract and retain the best talent in the industry. Successfully executing against these pillars coupled with our strategic investments in growth which allowed us to continue to win in the marketplace, growing our market share. Our increased speed and continued advancement of our products is reflected in the large number of customer signings and renewals we announced during 2020. We created a great deal of sales momentum in the course of the year. Customers can have confidence that we will continue to advance our capability and innovate with them in the marketplace. I'd like to take a moment to reflect upon some of the most significant wins in contract renewals in 2020, which demonstrate our ability to grow business in even the most challenging of market conditions. While the majority of our new business wins represent smaller customers, of size wins and renewals notably include OMV, JB Hunt, Enterprise Truck Rental, Heartland Express, Diligent Delivery Systems, Charles Schwab, Transamerica, Hormel Foods, Citgo Petroleum, HRC Total Solutions, the states of Michigan and Georgia, and many others across our business. Importantly, this provides us with another leg of growth as new wins get implemented. Similarly, we expect to reap the benefits of the investments we made in technology in 2020 to not only meet the dynamic needs of our customers, but to also better position WEX for growth and scalability in the future. We completed a large shift to the cloud with successful migrations of the majority of our fleet business in 2020, following our move to a cloud-first development methodology of all new technology in 2019. We'll continue to build upon these existing capabilities. Areas of focus going forward include advancing our data lake, Building on machine learning and artificial intelligence capabilities, as well as further development of microservices and cloud-native capabilities to provide differentiation, speed, and value in our products and new ways in which we can support our customers. Again, the aim of all this is to be able to offer unique products and services at an increasing speed. Our development cycle now across WEX is, on average, two weeks. I would now like to turn to what we're seeing in volume trends so far in 2021. In the fleet segment, gallon volumes are up approximately 0.8% quarter to date versus the same period last year. Similar to the past few quarters, over-the-road trucking volumes continue to be strong, up 18% quarter to date, while the North American fleet and international volumes continue to be down. In our travel and corporate payment segment, purchase volumes are down 52% QTD compared to the prior year period. Global travel-related spend volumes continue to be the hardest hit by the pandemic with Q1 QTD volumes down 76% year-over-year, excluding ENET and opto volumes. Corporate payment volumes, on the other hand, remain strong with growth of 20% quarter to date. Lastly, turning to our U.S. health business, the account growth rate is consistent with the end of the year, while spend volume remains healthy. Finally, I'd like to provide some additional perspective on how we're thinking about 2021. Building off the weekly trend data I just shared with you, We expect the same slow and steady volume recovery across our business will continue through the first half of 2021 with acceleration in the second half of the year. However, the pace and breadth of the vaccine rollout as well as the potential for government stimulus will be critical factors in determining how quickly our existing customer activity will rebound. Given the current pace of vaccine distribution as well as our own customer mix, We believe customer activity will increase in the second half of the year, but likely more fully in the fourth quarter. In fleet, we've seen a significant rebound in over-the-road volumes as contract signings continue to be reflected in our volume trends. Based on the size of an average transaction, we believe there is a lag in automotive transactions versus larger vehicles. This would likely represent sales professionals have had a local territory, senior executives, or more administrative types of roles. We expect that these will be among the last types of transactions to return based on the success in rolling out vaccines. We're winning new direct business in this market because of our technology, the level of customer integration from our products that offer our customers a unique set of financial controls and data capabilities. Carrying that same technology over to the partner side, we have a demonstrated ability of growing partner portfolios using a proprietary marketing and sales engine. In travel, we continue to expect a longer recovery time. We expect to recover volumes as leisure travel slowly improves, but we also believe COVID has structurally changed the travel market. In speaking with our customers, they are eager for us to support them through this difficult period and to innovate together for the future. The increased scale resulting from the e-net and offer acquisitions will help margins once we have implemented expected synergies which we expect to do over the next three years. With all that said, we will pursue volume and opportunities where we believe we will earn a return in line with the rest of the business. Importantly, our pipeline of new corporate payments customers remains strong with a number of large opportunities. This is another area where we've seen most existing customers spend less than in the prior year, but we've been able to offset that by signing up new business, primarily through our partner channel, to fill the gap and maintain growth. As this industry continues to mature, we're confident we will emerge as one of the long-term winners. We believe our unique group of assets, including compliance, Issuing Technology, and Transaction Processing, combined with leading-edge products in integrated payables and dynamic payments, positioned us well for future growth. Across travel and corporate payments, we win in the marketplace because of our enterprise-grade cloud-based solutions, our global currency capabilities, our level of seamless integration, and our broad spectrum of payment expertise bridging many different marketplaces. Moving to the health and employee benefits segment, we completed the open enrollment season with a strong showing relative to our competitors, recognizing that current unemployment rates provide a headwind to normal growth rates. That said, this is an exciting growth opportunity for WEX. We continue to invest in our capabilities here and have an exciting pipeline of new customer opportunities ahead of us. We win new business in this marketplace with our customizable multi-account offerings, innovative benefit solutions, ability to integrate, proven data and analytics, and our mobile capabilities. Finally, we recently announced the purchase of certain HSA assets from Healthcare Bank, the custodian bank of WEX Health's division. This expands WEX's role in the attractive consumer-directed healthcare ecosystem and aligns with our growth strategy. We're excited to provide a more streamlined customer experience, one that positions us to better leverage our investments to provide leading HSA solutions. We expect that this purchase to have a positive impact on adjusted net income in 2021. In summary, I'm extremely proud of the way WEX responded to this year's challenging environment. As disruptive as the pandemic has been, we continued down the path we entered in 2020 and delivered on our strategic imperatives. We entered 2021 having laid the groundwork for success when market conditions recover, accelerated initiatives that will enhance the value we deliver our customers, and are continuing to make significant investments in our market-leading technology. At the same time, we're executing extremely well Retaining our customers and signing new ones, all part of the building blocks for accelerating future growth and gaining market share. To put our future outlook in perspective, WEX is a diversified business that operates in large, growing, and relatively under-penetrated markets and where we have leading positions. While the pace of recovery remains variable, we believe that volumes with existing customers will come back and coupled with new customer additions will position us well to succeed post-pandemic. These factors bolstered by the strategic investments we made in 2020 gives me confidence that our next chapter of growth will be our best yet and that we'll get back to our long-term targeted revenue growth rates of 10 to 15%. We've established a strong platform for growth that is more resilient and more diversified than ever before and we remain committed to driving long-term growth and value for our shareholders. I'd now like to turn the call over to our CFO, Roberto Simón. Roberto?