WEX Inc. common stock

Good morning. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the WEX Q1 2022 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 once again. Thank you, Steve Elder, Senior Vice President of Investor Relations. You may begin your conference.

Thank you, Operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO, and our Interim CFO, Jen Kimball. 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 wexlinks.com. A copy of the release and the slide deck have also been included in the AKAs 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, and adjusted operating income during our call. Adjustments for this year's first quarter to arrive at these metrics include unrealized gains on financial instruments, net foreign currency remeasurement gains, 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, A&I 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 attributable to shareholders, and an explanation and reconciliation of adjusted operating income to GAAP operating income. The Company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP due to the uncertainty and 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, 2021, filed with the SEC on March 1, 2022, 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 which speak only as of today. With that, I'll turn the call over to Melissa.

Thanks, Steve, and good morning, everyone. We appreciate you joining us today. Before diving into our Q1 results, I'd like to thank our dedicated team members across the globe who continue to deliver great results, even in the quarters that included the impact of the Omicron variant. As a result of their efforts, 2022 is off to a great start for WEX. I'd also like to take a moment to touch on the war in Ukraine. Our hearts continue to be with the people of Ukraine, and we remain hopeful for a return to peace. As we communicated at the beginning of the conflict, WEX did not and does not have any employees or operations in Russia. We took additional steps since we last spoke to stop supporting business in Russia. The impact of these decisions is immaterial to our financial results at less than $5 million per year in revenue. Now turning to our results. In the first quarter, we once again delivered record revenue, generating $518 million, a year-over-year increase of 26%, driven by a continued recovery in travel volumes, a strong increase in fuel volumes, a very good open enrollment season, and a favorable fuel price environment. This increase includes a 6% negative impact from a change in accounting presentation we have discussed in each of the last two quarters. To put this in perspective, of the $107 million of year-over-year revenue increase, approximately $38 million was related to higher field prices and unfavorable foreign exchange rates, and approximately $69 million was for all other factors, so we're very pleased with this result. Total purchase volume processed across the organization in first quarter grew 66% year over year to a record high $28 billion, reflecting the strong double-digit growth rates in each of our segments. While travel volumes globally have not yet returned to pre-pandemic levels as an industry, Wex had record high travel-related purchase volumes for the first quarter at more than $7 billion. We also had a significant contribution from the new AVID exchange relationship, as well as higher fuel prices. Record quarterly revenue, paired with expense scalability, resulted in adjusted net income per diluted share of $2.88, an increase of 61%, compared to the same quarter last year. We experienced significant growth from operations, which contributed about half of the increase in EPS, and high fuel prices drove the other half of the increase. On an adjusted basis, the first quarter of 2022 was the most profitable in WEX's history, as we continue to execute well on all fronts. Now, let me take a step back to discuss the key drivers of our first quarter results in more detail. We continue to win new customers and expand relationships with existing partners across the WEX ecosystem. First, travel enjoyed a strong rebound with hotel industry revenue in some of our key markets trending above 2019 levels in February and March. there was a sharp increase in demand in both air and hotel travel when the threat of Omicron was deemed less severe than previous variants. This resulted in first-quarter purchase volume for travel-related customers of nearly three times last year's level, despite uncertainty caused by the Ukraine-Russia conflict and the slower recovery in Asia. On the corporate payment side, avid exchange volumes continued to ramp, and the implementation phase is now complete. As a reminder, we won the right to be Avid's partner based on our wide range of different card products, extremely high reliability, and our all-in-one solution across both technology and funding capabilities. Also in the corporate payment space, we renewed a long-term agreement with Commerce Bank, one of our major bank customers who uses our technology platform and the state of Arkansas renew its payable business contract. In mobility, we're seeing a strong uptick in new applications, particularly from the over-the-road small carriers. Given the rise in fuel prices, small carriers are spending more money on fuel, need more credit, and are looking for discounts and card programs to help defray costs. New applications from this market were up 26% year over year in the quarter. and March had the highest volume of new applications ever. Similar to last quarter, more than half of these new accounts were sold and implemented digitally. We also signed a new agreement to provide a private label program to travel centers of America. Engaging with WEX's powerful global platform allows TA to provide professional drivers a competitive quality program with many benefits and purchasing options. In addition to our success with smaller fleets, we signed several new large customers during the quarter, including the largest U.S. retail propane distributor and a top 10 U.S. city. In addition, we were added to the list of approved suppliers for Crown Commercial Service, which is the U.K. equivalent of the GSA in the U.S. Our broad-based success is also reflected in our strong renewals. including a major auto parts retailer. In the health and employee benefits segment, one of the nation's largest vocational rehabilitation and independent living programs, which is a state-run benefits program, wanted to find a company to work with to help achieve their vision of simplifying and streamlining the way that they distribute benefits to their clients. They chose WEX because our technology platform uniquely positions us to be able to support multiple benefit programs delivered in one solution. WEX was able to extend our core product offering in the consumer-directed healthcare market and create a new and unique product offering meeting their needs. The clients were able to have a simplified experience by being able to use money from the state programs they're eligible for. like stipends for education, transportation, or healthy foods, all on one card. The seamless technology behind the scenes uses custom merchant networks, applies rules, and applies the correct purse to deliver available funds right at the point of sale. This is a great example of the network effect that differentiates Flex in the marketplace that we talked about at Investor Day. Not only do we meet our customers where they want to be met, but we have the ability to deploy customer-driven improvements across our network to maximize benefits, in part due to the deep level of integration into the business processes. Each new customer and partner adds additional utility to our platform, enhancing the network effect to our overall offering. Turning now to our technology platform. we continue to invest ahead of our customers to anticipate their needs. Given the recent sharp rise in fuel prices, we're receiving very positive customer feedback around our mobile driver app as customers have been utilizing the app to find the best fuel price in their area. This week, we've launched Flume, a new integrated software and payment solution. As we discussed at our investor day, we're excited about this solution as we're targeting our 450,000 small and mid-sized businesses that are searching for an automated solution while leveraging our digital marketing tools. We're rolling Flume out to the market and we'll continue to enhance the product based on customer feedback while delivering a seamless digital experience to our customers. we also had a significant product release for our healthcare product set that went live in March. The release delivered a highly personalized and engaging consumer experience, investment in data and analytics, an updated mobile application, and benchmarking tools for our partner channel. Turning now to our electric vehicle vision, as outlined at Investor Day, we are well-positioned to help our customers succeed in their transition to electric vehicles. In the second quarter, we expect to roll out a charging solution for our European customers that ties directly to their existing fleet account, providing central billing and access to over 200,000 charging points. We take our role helping customers transition to cleaner fleets seriously as part of our broader focus on ESG, and we'll be publishing a comprehensive, updated ESG report this summer. As we move forward, we remain focused on our purpose, simplifying the business of running a business, and this includes our own business. We're looking at ways to evolve how we operate our core business and to create the resources we need for future growth. One way we're doing this is increasing the amount of automation in the business. Like our customers, we're currently benefiting from and want to take even more advantage of advanced tools like AI and robotics that we are developing to free our employees from business complexities so that they can focus on higher value work and continue to strengthen our competitive position. We also stand to benefit from a robust near-term environment. Travel industry bookings for the US and European summer seasons are well ahead of 2019 levels. Our digital marketing channels continue to deliver great results, and we are well positioned to capitalize on improving macro trends across the company. Looking ahead, the future for WEX remains incredibly bright. We entered this year with significant momentum and delivered impressive financial results during the first quarter. The trends remain strong. We continue to win new customers in each of our segments, enhancing our leading technology platform, and capitalize on the opportunities in front of us. All of these trends give me confidence in our ability to deliver on our long-term financial targets. Before I turn this over to Jen, I want to welcome Jagtar Narula, who will be joining WEX as our new CFO, effective May 25th. As I mentioned in Tuesday's announcement, Jagtar has proven strategic and financial experience leading innovative technology companies, and we're looking forward to having him on board. I'd also like to take a moment to thank Jen for doing an amazing job over the past few months, both leading the finance organizations through change during a critical time of year and also jumping in to play a key role throughout Investor Day. Jen will continue to serve as both interim CFO and chief accounting officer until Jagtar begins his new role on May 25th. I'll now turn it over to Jen to walk you through our results in more detail. Jen?