WEX Inc. common stock

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the WEX Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Thank you. I would now like to turn the call over to Steve Elder, Senior Vice President of Investor Relations, for opening remarks. Doug, you may proceed.

Thank you, Operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO, and our CFO, Roberto Simón. 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 third quarter to arrive at these metrics include unrealized gains on financial instruments, net foreign currency remeasurement losses, change in fair value of contingent consideration, acquisition-related intangible amortization, other acquisition and divestiture-related items, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, ANI adjustments attributable to 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 attributable to shareholders to GAAP net income attributable to shareholders. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1st, 2021, and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa.

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