WEX Inc. common stock

Good day and thank you for standing by. Welcome to the WEX Q1 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on 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 conference over to your speaker today, Steve Elder, Vice President of Investor Relations. Please go ahead.

Steve Elder Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our CEO, and our CFO, Roberta Simone. 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. Copy of the release and the slide deck have also been included in eight Ks we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or ANI during our call. Adjustments for this year's first quarter to arrive at this metric include unrealized gains on financial instruments, net foreign currency remeasurement losses, acquisition-related intangible amortization, other acquisition and divestiture-related items, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, ANI adjustments attributable to 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, 2020, filed with the SEC on March 1, 2021, and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa Smith.

Good morning, everyone, and thank you for joining us today. Today we reported first quarter 2021 results. we continued to drive strong momentum sequentially across both revenue and earnings due to the continued hard work and diligent execution of our team members, underpinned by strengthening volumes in new customer wins and renewals across the business and the scale of our model. Revenue for the quarter came in at $411 million, and adjusted net income was $1.79 per diluted share. Overall, we processed $16.8 billion of purchase volume across the organization during the quarter, driven by notable sequential improvement across all business areas. These strong volumes reflect a number of exciting new wins and renewals, as well as a robust pipeline of opportunities that give me confidence in our ability to continue to drive market share gains throughout the year. As you know, this quarter marks a full year since the onset of the global COVID-19 pandemic. Though 2020 was full of unprecedented challenges and headwinds, some of which we are still navigating today, it was also an opportunity for WEX to prove our resilience and unwavering commitment to our customers, partners, and innovation. On top of this, we took the opportunity to refresh our strategy last year in order to better position WEX for the opportunities we see emerging. In the first quarter of 2021, we cultivated and grew our dynamic customer base across our various segments. As a reminder, our revenue is largely recurring in nature, and as we add new volume and our existing customer base recovers, we expect to capture the related growth. This is illustrated in the robust sequential performance in fleet, corporate payments, and health. In our travel business, we remain focused on the integration of Opto and Enet and effectively positioning the business for the eventual return of volume. I'll talk more about the business performance a little later, but first I'd like to highlight how we translated our strategy into execution in Q1. The technology advancements we made in the last several years to move into the cloud and increase our automation has put us in a position where we can now extend our market capabilities by weaving together the products and data we have spanning all across WEX. This allows us to add value to customers, partners, and prospects by offering new products and services that are tightly integrated into their operations through the use of APIs. We're doing this both through internal development and utilizing our skill in rapidly integrating acquisitions. In addition, we continue to find new ways to deliver significant value to the marketplace, creating momentum in various markets. I'll discuss shortly how this benefits our customers and partners and why this is propelling our growth. Finally, we continue to empower our people to grow and thrive in a value-based environment that is focused on what we do and how we do it. These first quarter highlights align with our strategic pillars of delivering modular integrated solutions, growing through diversification, fostering culture and talent, winning in the marketplace, and mitigating risk while maximizing scale, which support our long-term growth targets. I'd like to turn to innovation at WEX. We've already had some impressive accomplishments this quarter, but this is just the start of what we anticipate will be another exciting and pivotal year for WEX. A key part of our growth strategy is weaving together our product capabilities across the entire WEX platform and exposing these capabilities through APIs, allowing us to create new best-in-class products for our customers and partners. A prime example of this is how we leveraged our technology to create crossroads freight in our over-the-road business. This new product integrates the robust capabilities we have in the OTR space with the data accuracy of the closed-loop network and our local fleet business. With the recent shift in consumer buying behaviors toward online purchases, many fleets are now more focused on last-mile delivery and are changing the kind of freight that they transport. Crossroads Freight functionality works to address this market change and was key to winning J.B. Hunt, which operates intermodal as an over-the-road and local business. This means that they fuel at truck stops, retail sites, and at their own fuel terminals. Our product gives J.B. Hunt a single-payment product with integrated billing, superior data capture, and more robust end-to-end product capability that improves the efficiency of their fleet. We're confident this solution is superior to any other product in the marketplace and is one example of why we've experienced strong sales momentum. We're implementing the same approach across the entire WEX platform and have already made similar advancements through the integration of eNet and Opto. During the quarter, we made the decision to consolidate our virtual card technology stack as well as to retire eNet and Opto's non-core offerings. This will allow us to focus on integrating the technology while exposing the best of the products to our customers and partners, creating new and exciting capabilities. Our strategy is to develop unified and integrated technology offerings across the company, which advance the digitization of our offerings and enhance customer experiences while increasing our speed in bringing new products to market. We're doing this both with internal development as well as through acquisitions. From an M&A perspective, our focus has been on deploying capital in growth markets, continuing to reduce our exposure to retail fuel prices. Our acquisition targets are designed to increase scale, expand product opportunities, or extend our geographic reach. Recently, we announced two acquisitions in our health segment. In April, we closed the previously announced acquisition of certain HSA assets from Healthcare Bank, the custodian bank of Wex Health customers. This transaction furthers our growth strategy and expands our role and reach as we look to fully monetize these HSA assets while providing a better, more streamlined user experience for our customers. Additionally, a few weeks ago, we signed an agreement to acquire Benefit Express. This acquisition significantly expands WECC's offering in benefit administration, bringing complementary suite of solutions, including employee enrollment and decision support tools, benefit administration, and important value-added services. This represents the cornerstone to our strategy of expanding into the large benefits marketplace and will significantly expand the value proposition to our customers and partners by providing a more streamlined, consolidated offering utilized by employees to make benefit decisions. We expect this transaction to close in Q2. Both of these acquisitions support our strategy of extending our reach across a broader base of customers, accelerating our strategic vision of offering a complete healthcare ecosystem with a highly complementary benefit administration platform at its core. Our business in health has grown from less than $100 billion in revenue in 2014 to more than $350 million in 2020. It's been foundational to our diversification strategy and an important piece of Lex's growth. Importantly, these product extensions are increasing our total addressable market and creating competitive advantages for us and our partners. I'd also like to highlight a few examples this quarter of how we're finding new ways to deliver value to our customers and partners, resulting in new wins in the marketplace. One recent new win we signed is Avid Exchange, a leading provider of accounts payable and payment automation solutions in the United States. This win positions WEX as the new preferred issuer, processor, and virtual card provider for all of Avid Exchange's AP offerings. As part of this agreement, Avid Exchange will leverage WEX's dynamic B2B payment technology, while WEX will leverage the Avid Pay network to expand acceptance and further digitize B2B payments. By working together, we will simplify payments for customers, provide an improved and more secure supplier payment solution, and solve major pain points such as manual AP processing and payment delays. Wins like this one are indicative of the continued strength in corporate payments, which was up an impressive 20% in revenue this quarter year over year. In addition to this win, we very recently signed the State of California, one of the largest state fleets in the United States. I'm also pleased to announce some signings under the NASPO, or National Association of State Procurement Officials, contract we announced towards the end of last year. While the state of Washington was our first signing, we've also signed the states of Wisconsin, Colorado, Oregon, and Indiana, bringing our total number of states currently served to 31, with more in the pipeline. These states recognize the value that our analytics platform provides with fraud protection and detection tools and virtual payment capabilities. It's once again a point of reference where we're leveraging functionality across WEX to win in the marketplace. Our pipelines reflect the momentum we have built because of the differentiated products we have in the marketplace coupled with our focus on supporting our customer needs. Our employees deliver WEX's superior brand into the marketplace each day and have shown resilience, care, and creativity during this past year that continues to deliver strong results for our customers and partners. We continue investing in our most important asset, our people, with a focus on cultivating a diverse and inclusive workplace supported by WEX's values of integrity, execution, innovation, relationships, and community. We're proud of the heritage and culture we have developed at WEX and know our efforts to create a positive and empowering corporate environment will propel us forward. This focus on culture is a key piece of our broader ESG strategy. I'm pleased to announce that we'll be publishing our inaugural ESG report shortly, which I encourage you all to take some time to read. This is the product of a lot of hard work and passion across the organization. and speaks to the core to WEX. We recognize we still have a lot of work ahead, and I look forward to sharing updates on the exciting efforts planned for this year. Finally, I'm going to wrap this back into the context of our performance in the quarter and our view for the remainder of the year. We're very pleased with the performance of the company in the current operating environment. Through unprecedented hurdles, we've retained customers, won new business, and controlled our cost base. Revenue is nearly back to pre-pandemic levels in all areas except travel. Overall margins have improved, leading to a 25% sequential improvement in adjusted earnings. We continue to have some very strong demand in our customer pipeline and have seen great scalability despite the lingering impacts of the pandemic. Travel is one area of the business that has been most significantly impacted by the pandemic. the market environment remains dynamic, and we are aligning our business model accordingly. We rapidly and thoughtfully created an integration plan for ENET and Opto, and have already announced the organizational changes to integrate the business into WEX. In addition, to date, we've recognized $14 million of run rate synergies and expect to deliver over $20 million in run rate synergies this year, and approximately $40 million overall. This is up for our original target of $25 million. Our near-term goals, as I mentioned earlier, are rooted in delivering best-in-class functionality to our customers and partners while scaling the business to meet the market environment of today and the future. Through innovative technology, strong partnerships and outstanding customer service, we provide a world-class experience to our customers today and I'm confident we're well positioned to do so as leisure travel volumes recover. In summary, we executed well during the first quarter of 2021, supported by sequentially improving volumes across the business, and reflected in a number of exciting new wins, renewals, and a robust pipeline of opportunities that give me confidence we'll continue to drive market share gains throughout the year. We made significant advancements towards our broader strategy, and I'm confident our technological innovation will differentiate WEX in the future through our more unified and integrated technology offering. Importantly, we continue to execute against our long-term vision and goals in the quarter, controlling what we can, and positioning WEX for long-term success as recovery accelerates across our end markets. With that, I'll turn the call over to our CFO, Roberto Simón.