WEX Inc. common stock

Thank you for standing by, and welcome to the WEX Q4 2023 earnings call. I would now like to welcome Steve Elder, SVP of Global Investor Relations, to begin the call. Steve, over to you.

Thank you, Operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO, and Jagtar 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 wexinc.com. A copy of the release has also been included in an 8K we filed with 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 AMI. adjusted operating income and related margin, as well as adjusted free cash flow during our call. Please see Exhibit 1 of the press release for an explanation and reconciliation of these non-GAAP measures. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and the 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, 2022, filed with the SEC on February 28, 2023. and in our quarterly reports on Form 10Q and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligation 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. Before diving into our results, I'd like to take a moment to reflect on 2023. As I've said in prior quarters, our business model is resilient and it delivers strong results in a variety of environments. This is true over the past 10 years, during which time we have delivered a revenue CAGR of 14%. I am very proud of what we've accomplished in 2023 as we continue to achieve our long-term growth targets despite macroeconomic uncertainty, higher interest rates, higher inflation rates, a freight recession, and lower fill prices. Our incredible team of WEXers has consistently risen to the occasion, further positioning WEX for long-term success and demonstrating our ability to grow, to deliver that growth profitably, and to advance our strategic priorities. Let me start with the full year results. Revenue of $2.5 billion for the year was a new record high and grew 8% compared to the prior year despite a headwind of 5% from fuel prices and foreign exchange rates. Full year total volume processed was $225 billion, an increase of 6% year-over-year. Adjusted net income per share grew 9% year-over-year. Excluding the impact of lower fuel prices and foreign exchange rate differences, revenue grew 13% and adjusted net income per share grew 21%. Both of these growth rates were within or above our long-term target ranges, as we continue to deliver strong results in the face of the headwinds I just mentioned. I'm particularly pleased about the strong performance in benefits and corporate payments, which further demonstrates the resilience of our model across many environments. Now turning to fourth quarter results, We delivered revenue of $663 million for the quarter, an increase of 7%. Excluding the impact of fluctuations of fuel prices and foreign exchange rates, Q4 revenue grew 11%. Total volume processed across the organization in the fourth quarter grew 6% year over year to $56 billion, driven by the strong performance in corporate payments and benefits. Strong quarterly revenue, high margin drop through on volumes, and share repurposes resulted in adjusted net income for diluted share of $3.82, an increase of 11% compared to the same quarter last year. Excluding the impact of fluctuations in fill prices and foreign exchange rates, Q4 adjusted ETF grew 23%. In corporate payments, Purchase volumes grew 33% year over year, primarily due to continued strength from our travel customers. We had a number of significant contract renewals in the quarter, including Kiwi and On the Beach in Europe and Flight Center in Australia. WEX continues to outpace the growth of the travel market. We're having success gaining additional pockets of spend within our existing customer base, and volume growth continues to benefit from the market transition to settling hotel transactions with virtual cards. In the benefits segment, the full transition to the public cloud positions us to improve our agility and platform strength going forward. Following open enrollment, we now have more than 8 million HSA accounts on our platform, making us one of the largest providers in the country. Since we closed the acquisition of the Census Health and Benefits line of business in September, we have quickly integrated our team. The Census technology complements ours well, increasing our scale in the benefits space and expanding our benefit product offerings with our Affordable Care Act compliance and dependent verification capabilities. Finally, in our mobility segment, we continue to see the positive impact from our enhanced credit policies. We were also pleased with strong sales performance, including a number of key contract wins and renewals in the quarter, adding approximately 121,000 new vehicles in signing wins with Smith Transport, Estes Express Lines, Quality Carriers, and PODS, to name a few. Overall, I'm proud of the strong progress we made executing against our strategic themes throughout 2023. which positions us for success in 2024 and beyond. A top priority for us as a company is leading in the energy transition for our mobility customers. Currently, we're focused on helping businesses navigate the energy transition and manage their vehicles in an increasingly complex mixed fleet world. With over 600,000 customers worldwide, including more than 19.3 million vehicles, service globally as of the fourth quarter, our partners and customers will first look to WAX for help in simplifying the process of building and managing mixed fleets. While the pace of transition remains fluid, we are meeting our customers where they are in their EV journeys. As part of our EV product suite, we have a new white-labeled offering to help fleet managers determine which vehicles and routes may make sense to transition to EVs. In cases where it does make sense, like a sales rep driving a sedan and returning home to charge each night, there can be substantial savings for the fleet operator. Our understanding of these dynamics uniquely positions WEX to help customers both navigate the decision to transition and effectively manage their fleets once they do. We've also launched products in the market designed to help facilitate en route charging at public locations as well as at-home reimbursement capabilities. Later this year, we plan to launch depot charging solutions for companies that intend to use their own infrastructure. Our EV product suite gives our customers a simple, consolidated platform for mixed fleets, greatly simplifying the job of the fleet manager. Similar to the EV transition, a strategic priority has been to expand into near-adjacent addressable markets, increasing our TAM. In November, we completed our acquisition of PASER, a leading cloud-native field service management software. As we integrate PASER into the WEX business, we expect the platform to strengthen our relationships with customers in our mobility vertical, allowing us to match our world-class payment capabilities with integrated software that creates durable value to our customer base. we're excited to deepen and expand our offerings to approximately 150,000 mobility customers that operate field service management companies. So far, we have completed the initial stage of integration and launched our first marketing efforts targeted at current WEX customers. Over the next few quarters, we will test and learn from this initiative, and we will continue to be prudent in our decisions to allocate additional capital to this effort. That said, We're excited about the pay-through opportunity, and I look forward to providing updates on our progress going forward. Across each of our businesses, we are focused not only on driving growth, but on delivering that growth profitably. To that end, we remain well-positioned to generate $100 million in run rate cost savings exiting 2024. Last quarter, we said we were on track to achieve $75 million of cost savings on a run rate basis by the end of 2023. I am proud to say we have accomplished this goal, which was ahead of our original expectations. We have high confidence in achieving the full $100 million of cost savings in 2024. With these savings, we plan to let half flow through to earnings, which we will see in our expectations for 2024, and reinvest the remainder in the business to enhance our capabilities, including digital projects technology, and risk management capabilities and tools. We also continue to drive technology innovation throughout the business. The work we are doing is delivering results, and we're receiving cost savings coming through our margins. In 2023, we focused heavily on determining how AI could both optimize our business and the business of our customers. We've invested in dozens of projects around developing these capabilities. We are currently using internally developed AI technology to assist in making credit decisions and detecting fraud. We believe this technology helped drive the substantial credit loss improvement that we have seen over the last two quarters. We're also piloting several new initiatives to enhance productivity and drive efficiencies in our sales teams by using AI to prioritize the leads most likely to convert and by prioritizing deals in the sales pipeline to maximize focus on impactful deals. We are also using AI to help process benefit claims, which drives efficiency and improves customer experience by processing claims on the same day. We processed greater than 350,000 claims last year and continue to expand use cases. We expect to process more than 800,000 claims this year using AI. Beyond this, we have a slate of digital product releases expected throughout 2024 and look forward to updating you on these developments over the coming months. We expect these margin accretive initiatives and others to further bolster our ability to generate significant cash flow conversions, and we continue to view shares with purchases as an attractive proposition. We're in the privileged position to be able to make strategic growth investments in our business and buy back shares. all while maintaining a solid balance sheet with low leverage. GAGDAR will provide more detail on our 2024 guidance in a moment, but I'd like to share a few high-level takeaways as we look ahead. First, WEX is incredibly resilient to economic conditions and is well-positioned for continued strong revenue growth. You will note in our guidance that we have made assumptions that include continued headwinds. such as slower than normal U.S. GDP growth and further depressed field prices. Despite these headwinds, we expect 2024 revenue growth in the 6% to 8% range, including a 2% headwind for lower field prices. All segments of the business will benefit from the full year impact of our sales activity in 2023. Within our mobility segment, we expect continued strong sales momentum benefit from pricing actions, stabilization in the portfolio from the credit policy changes made a year ago, and the benefit of a full year of pager growth. Within our benefits segment, we expect continued sales through our distribution channels. We expect continued growth in custodial assets and our organic customer growth and the census acquisition. Last, but certainly not least, We expect strong growth within our corporate payment segment, built on continued strength in our embedded payment solution, inclusive of both share of wallet capture and our travel and partner businesses, as well as our investments in scaling our direct sales force becoming more meaningful to the segment. Second, we continue to be focused on delivering a creative ETF. This includes the high marginal contribution of incremental revenue to our businesses, our re-engineering efforts that are delivering efficiencies across our enterprise, and pricing optimization work that yields strong drop-through to our bottom line. Finally, our strong adjusted free cash flow underpins our ability to drive shareholder value. It enables us to invest in our market-leading products and solutions, as well as invest in our share repurchase program and our disciplined M&A program, all in maintaining a healthy balance sheet. As I look across our business, I am confident in WEX's future, our momentum in the marketplace, and our continued ability to deliver our long-term aspirations. With that, I'll turn it over to Jagtar to walk through this quarter's financial performance in more detail. Jagtar?