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 Q4 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 will 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 1 on your telephone keypad. If you'd like to withdraw your question, press star 1 once again. Thank you, Steve Elder, Senior Vice President, Global Investor Relations. You may begin your conference.

Thank you, Operator, and good morning, everyone. With me today is Melissa Smith, our Chair, CEO, and President, and Jagtan Narula, our CFO. 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 blackthings.com. A copy of the release has also been included in an 8K we submitted to the SEC earlier this morning. 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 and related margins, and adjusted free cash flow during our call. Please see Exhibit 1 of our most recent earnings press release and a slide deck available on our Investor Relations website for an explanation and reconciliation of adjusted net income attributable to shareholders to gap net income attributable to shareholders, an explanation and reconciliation of adjusted operating income to gap operating income, and a reconciliation of adjusted free cash flow to gap operating cash flow. The company provides revenue guidance on a gap basis and earnings guidance on a non-gap basis. The non-GAAP guidance cannot be reconciled without unreasonable efforts due to the uncertainty and the indeterminate amount of certain elements that are included in reported GAAP earnings. See our most recent earnings release and slide deck for more detail about the company's non-GAAP measures. I would also like to remind you that we'll 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 most recent annual report on Form 10-K 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.

Thank you, Steve, and good morning, everyone. We appreciate you joining us today. WEX finished 2022 in a strong position with another impressive quarter, beating our guidance for revenue and adjusted net income per share and increasing revenue for the 10th straight quarter. But let me start with a very quick overview of the full year numbers. Revenue increased 27% over 2021, to a record revenue for WEX of $2.4 billion. This is driven by a full year total volume process of $212 billion, which was up 45% compared to 2021. Full year adjusted net income per share grew 48%. Our success through market cycles is enabled through our reoccurring revenue model, our diverse earnings engine, and our reliable cash flow model. As previously shared, more than 80% of WEX's revenue is reoccurring in nature. Over 20% of our revenue now comes from our health segment, and this year, exceeding a half a billion dollars in revenue for the first time. This provides a fast-growing, profitable, and predictable revenue and earnings frame. Our health business further strengthens the stability of WEX with its revenue from custodian assets, acting as a natural hedge for our interest expense. WEX remains well positioned to invest for growth while opportunistically returning capital to shareholders as valuations and market conditions warrant. Our combination of growth, scale, and cash generation puts us in the enviable position of both returning capital to shareholders while also investing for the long-term future of the business. Now I'd like to give a quick recap of our quarterly financial results released this morning, which Jag Power will provide more detail on later before diving into our priorities for 2023. I'm pleased to share that revenue in the quarter was $619 million, a year-over-year increase of 24%. This growth was primarily driven by volume growth across the business, normalization of late fees, increased revenue from custodial assets, and the benefit of higher fill prices. On an organic basis, which excludes the impact of fluctuations in fill prices and foreign exchange rates, revenue in the quarter grew 19% compared to the prior year's period. This continues the spring of quarters where we have exceeded our long-term growth targets of 10 to 15%. Strong quarterly revenue, paired with the scalability of our business model and a superior funding model resulted in adjusted N.A. income for diluted share of $3.44, an increase of 33% compared to the same quarter last year. Total volume processed across the organization in the fourth quarter grew 31% year-over-year to $53 billion, driven by strong performance in each of our segments and reflecting the power of our model. Now I'd like to turn to a recap of our business highlights in 2022. We've had several exciting new product launches and customer wins throughout the year that helped drive our outstanding results. In addition to our large enterprise-level wins, we've added more than 100,000 new customers in 2022, the majority of which are small businesses. This speaks to the continued strength of our sales and marketing engine year in and year out. we closed the year posting a 73% increase in travel and corporate payments purchase volume, adding 1.7 million new vehicles, and saw our total health staff accounts grow 14%. We feel very positive about the progress towards the five-year, 10% to 15% revenue growth plan we outlined at our investor day last March. In 2022, We posted an impressive 14% from existing customers, 4% from net new customers, 2% from new products, and 1% from M&A. I am incredibly proud of our performance in 2022 and grateful to our team members who helped us achieve such spectacular financial results. When I look back on the year, it was a year characterized by significant economic and geopolitical events. Through it all, WEX remained a resilient and well-structured company, thanks to our diverse earnings engine and $782 million generated in adjusted pre-cash flow, setting us up for a strong 2023. I'll conclude my remarks this morning by outlining our strategy as we head into 2023. As we talked about in our investor day last spring, our strategy continues to focus on deepening share of wallets, maintaining our market-leading positions by driving customer-focused innovation through our strong sales engine, and further building out the scalability of our platform that hosts our specialized vertical services. We're doing this by thoughtfully allocating capital across the business to manage through a dynamic economic environment with a balance between reinvestment in the business and shareholder return. The growth, scale, and cash generation of WEX uniquely situates us to capitalize on our momentum. Our business is characterized by large total addressable markets with structural tailwinds that provide significant opportunities for continued growth. Let me translate this to the segments we operate in and highlight a few priorities for the enterprise. First, let's look at our travel and corporate payment solution segments. We're unique in the space as we couple wholly owned market-leading technology with a global issuing and funding capability. The combination of these two gives us the ability to scale quickly, be more agile responding to customer needs, and lead to strong margins in the segment. In the travel portion of our portfolio, we are the clear market leader. We're pleased with the rebound in travel and are excited about growth as travel volumes continue to normalize around the globe. Outside of travel, we increased investment in sales and marketing, yielding positive results in 2022 and will give us momentum through 2023. Next, in health and benefit solutions, employers are looking for tools to simultaneously manage rising health care costs and provide benefits to attract and retain employees, which creates a secular and resilient tailwind. Our market-leading products allow employers to have a simplified, secure experience, utilizing our payments platform, which also offers their employees an integrated benefit experience, whether they are choosing an HSA account paired with a high-deductible plan, an FSA, a traditional PPO plan, taking advantage of lifestyle benefits, or utilizing products like Medicare Advantage or COBRA. As we look to 2023 in the health and employee benefits segment, we'll continue to benefit from our large, diverse distribution network and industry experience and expect to deliver another year of strong account growth. Our ability to distribute broadly, both direct to employer and wholesale partners enhances our ability to penetrate the market. Additionally, our revenue from custodial assets is becoming an increasingly important driver of growth. Rex became an HSA custodian fewer than two years ago and is now the sixth largest custodian, according to Devonier's mid-year update. Finally, in our global fleet business, organizations need to control costs, and as a result, there are ongoing opportunities to further increase penetration with our proven sales engine. Growing market share with our leading fleet solutions and capturing greenfield customers represents a significant opportunity. We're also making good progress with our fleet solutions and yet simplifying the transition to a mixed fleet environment with the addition of electric vehicles. While the timing of the transition is uncertain, we believe it is becoming increasingly apparent that we will compete in the mixed fleet world for more than the next decade. The transition to EV introduces a new TAM that we believe will be valued at $1.5 to $2 billion in revenue and continues to grow reoccurring revenue for the company through subscription-based revenue streams. We've made great strides in EV in 2022, launching products allowing for the payment of charging at public locations in both the U.S. and Europe, and are building functionality to allow for home charging reimbursement and energy management at default locations, all designed to be integrated into mixed fleet offerings with our industry-leading mobility products. Looking across the enterprise, we have multiple levers to drive growth, and importantly, in this macroeconomic environment, scale. From a growth standpoint, we'll continue to enhance our global commerce platform by adding new offerings for mixed fleets and electric vehicles, further integrate platforms, streamline and add efficiencies to our contact centers, and enable speed in our business through the enhanced use of data and analytics across the company. We're also focused on deepening our share of wallet and believe the compelling value of our solutions allows for increased cross-selling, which will take on an even more prominent role in 2023. We have some early success signing up customers for additional services throughout 2022. by adding nearly 100 customers in the second half of the year. We're working with the sales team to apply these learnings to other customers in each segment. From a scale standpoint, we continue to make good progress in capturing $100 million in operating efficiencies by the end of 2024. As I wrap up my comments, we're confident in our ability to deliver on our financial targets, including our long-term revenue of 10% to 15%, and adjusted net income EPS growth of 15% to 20%, as we outlined at our last Investor Day. Regardless of the economic environment, WEX is positioned to benefit from the flexibility and diversity of our business, as well as our reoccurring revenue model. We continue to monitor the macroeconomic environment and are staying close to our customers to understand the impact of a potential downturn on their businesses. We will nimbly respond to challenges or capture opportunities for our plan as they materialize. While some companies may struggle with the impact of rising interest rates or limited capital availability in the current macro environment, WEX will take advantage of its low leverage, strong cash flow, and superior funding model to invest for the future. I continue to be confident in our path forward in the future of WEX as we remain focused on managing the business through a dynamic economic environment. With that, I'm pleased to turn things over to our CFO, Jagtar Noorullah, to walk you through WEX's financial performance this quarter. Jagtar?