WEX Inc. common stock

Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX Q1 2024 earnings conference 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Steve Elder, Senior Vice President of Investor Relations. Please go ahead.

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, which we refer to as ANI, 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 end of December 31, 2023, filed with the SEC on February 23, 2024, 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. The first quarter marked a strong start to 2024 for WEX. We delivered another quarter of impressive financial results, including record high revenue for the first quarter, which is a testament to the resilience of our diversified business model in any economic environment. Earlier this month, we hosted our annual Spark Conference, where we brought together industry leaders to demonstrate how our cutting-edge solutions can help simplify the business of running a business. At the event, we showcased how our customers and partners can unlock the full potential of WEX's solutions, highlighting the power of our innovative technology across employee benefits, fleet management, and corporate payments. We had record attendance at Spark, which underscores the invaluable role our services played for our customers. Now let's discuss our first quarter results. During the quarter, we achieved revenue of $653 million, an increase of 7% year-over-year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q1 revenue grew 10% year-over-year. Total volume processed across the organization in the first quarter grew 9% year-over-year to $57 billion, driven by strong performance in corporate payments. Adjusted net income for diluted share in Q1 was $3.46 an increase of 5% compared to the same quarter last year, as a result of strong quarterly revenue and share repurchases. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, adjusted EPS grew 14% year over year. As a reminder, earnings growth was impacted by exiting our interest rate swaps in December, which Jagtar will discuss later on the call. Each of our business segments demonstrated robust performance during the quarter. Our corporate payment segment remains very healthy and continues to grow at a strong pace as purchase volumes increase 29% year-over-year. The travel business continues to grow at a faster pace than the overall market. We have solidified our virtual card offering as a best-in-class solution and built strong long-term relationships with our clients. This approach has positioned us as preferred payment solutions provider to our partners, driving sustained growth and customer loyalty. To that end, we recently signed a new long-term agreement with Booking.com, and this agreement distinguishes WEX as Booking's preferred partner. Booking.com first became a WEX customer in 2013, and we now process payments for Booking.com in more than 20 currencies. We've also renewed our agreement with HBX Group, one of the largest B2B travel tech ecosystems in the world. HBX Group, in its accommodation division known as HotelBeds, has been a WEX customer for many years. Going forward, we expect to serve a larger share of their total volume as they consolidate relationships. The continuation of these long-standing partnerships demonstrates the strength and reliability of WEX's enterprise-grade technology platform, our broad currency offerings, and our deep payments expertise when delivering world-class travel payment solutions globally. Among our more than 800,000 active customer relationships worldwide, we are proud to work with eight of the top 10 online travel agencies globally. In the benefits segment, overall SaaS account growth was lower than normal this quarter, primarily due to the previously mentioned loss of a Medicare Advantage customer. Still, the core business continues to perform well, and we grew accounts, excluding the declines in Medicare Advantage accounts, 8% compared to last year. We're now serving 8 million HSA accounts. According to the 2023 year-end report by Devonier, the overall number of HSA accounts grew 5% last year to 37 million. So we continue to perform well compared to the market growth. Based on the overall number of HSA accounts at year end, this also means that approximately 20% of all HSAs in the U.S. run on the WAX platform as of the end of Q1. We also continue to integrate the extensive health and benefits line of business that we acquired last September. This acquisition positions us for accelerated growth and innovation in the rapidly evolving benefits landscape. Finally, in our mobility segment, We continue to be a market leader in this space across all of our core markets and are focused on maximizing the value that we provide to our clients. In addition to the many small businesses that signed up with WEX in the quarter, we also renewed our agreement with Shell to manage its portfolio of commercial fleet cars across North America. This represents a continuation of agreements first established in 2018 In our over-the-road truck business, the market continues to be challenged, but over-the-road payment process in gallon volumes increased by 1% in Q1 for the first year-over-year increase in the past five quarters. Our go-to-market engine continues to add vehicles to the platform, with an increase of 4% versus Q1 last year. Dactyre will provide you with the details, but we are pleased to see sequential increase in the revenue growth this quarter. Now I'd like to highlight the progress we've made executing against our strategic initiatives, further solidifying our position as market leader. We continue to be focused on supporting our mobility customers as they transition to EV and hybrid solutions and manage their vehicles in a mixed fleet world. We have more than 600,000 mobility customers globally. Our expansive reach, coupled with our expertise and our innovative offerings, positions us as a trusted partner for our customers as they evolve their fleet. While we've all read about the slowdown in consumer EV shipments, we continue to invest in this area and roll out our integrated mixed fleet solutions because customer interest remains steady. In Q1, we launched the general availability of our at-home reimbursement feature set to complement our public charging access, where we have broad acceptance. We believe that fleets made up of traditional ICE vehicles, hybrids, and EVs will be present for years to come. Our solutions are designed to support these mixed fleets with integrated reporting and data. At our SPARC conference, we pulled together our most innovative customers with our product development teams and more than a dozen early stage energy innovation startups. I was left with great confidence that we're helping the industry think critically about how to help customers unlock significant value by integrating EVs properly and how to operate a mixed fleet with WEX as their trusted partner. In Q1, we launched the pilot for an enhanced acceptance offering for our North American mobility customers that combines the best of WEX's fleet solution with the broad acceptance of the MasterCard network. With this offering, Customers can manage all of their vehicle-related purchases, including fuel, parts and services, car washes, parking tolls, and roadside assistance, all with the same data, controls, and integrated experience that helps simplify the business of running their business. This helps the small business owner better understand the expenses related to each vehicle, while at the same time having the controls of a closed-loop card to closely manage what is able to be purchased. While it's early days, we have hundreds of customers enrolled in the pilot and are actively gathering insights to inform future product features as we continue to expand the program and increase mobility spend beyond fuel. Furthermore, we completed our strategic acquisition of Pacer, a leading cloud-native field service management software, in November. As we continue to integrate PASER into the WEX ecosystem, we remain confident that the platform complements and significantly enhances our existing mobility offerings, supporting our efforts to expand our total addressable market and deliver high value to our customers. During the first quarter, we launched our first marketing efforts with PASER, targeted at current WEX customers, and were testing different sales techniques to drive the best results. We're focused on both targeting Hazer's customer base and marketing to WEX Field Service Management customers. We continue to be very excited about the long-term prospects and are tracking well with our integration efforts. Last quarter, we announced that we achieved $75 million of cost savings on a run rate basis through the end of 2023. As we start 2024, We remain very confident in our ability to achieve the full $100 million of our run rate cost savings goals this year. As a reminder, roughly half of these savings will be reinvested and have been front-loaded in our year to drive long-term growth in the business in key areas such as digital products, technology, and risk management capabilities and tools. Generating sustained cash flows to power our strategic growth investments and maintain our solid balance sheet with low leverage remains a top priority for WACS. We continue to view share repurchases as an important and attractive element of our capital allocation strategy, underscoring our commitment to drive shareholder value. Consequently, during Q1, our board expanded our share repurchase program by authorizing an additional $400 million in repurchases, reflecting our unwavering commitment to delivering long-term value for our shareholders. Advancing technology innovation through the business remains a priority as our ongoing efforts in this area continue to drive cost savings in our margins while demonstrating our commitment to drive long-term sustainable profitability. From an AI perspective, our initial use cases that I updated you on last quarter have yielded positive results and we're taking steps to accelerate our AI capabilities and support additional use cases in the business. A main area of focus is our customer service operations, where we're experimenting with new technologies and driving efficiencies for better customer service. We're currently working on reimagining our IVR systems and flows to enable customers to fulfill payments faster and with more accuracy. The advancements we have made with voice-to-text and text-to-speech technology in this area will enable us to apply our learnings in many other areas going forward, particularly as we work to reinvent our call center experience. One area we're particularly excited about is the application of AI in our benefit business. We've been able to leverage AI to deliver personalized, targeted messaging to HSA account holders, and by using predictive analytics, we've helped our customers optimize their HSAs, enhancing their ability to pay and save for healthcare. In closing, I want to reiterate that WEX is well positioned to continue driving solid financial performance in any macroeconomic environment as we have proven over the last several quarters. We expect to deliver strong revenue in adjusted earnings growth this year. We remain focused on delivering a creative ETF driven by high marginal contribution of incremental revenue to our business. are re-engineering efforts that are delivering efficiencies across the enterprise and pricing optimization initiatives that yield strong drop-through to our bottom line. Finally, we're in the privileged position to make strategic growth investments in our business while also buying back shares to deliver the most value to our shareholders. This is supported by a solid balance sheet with low leverage. As we look ahead to the rest of 2024, I remain confident in WEX's ability to drive growth across the business in the near and long term, backed by our strong position in the market and strategic initiatives in place. With that, I'll turn it over to Jagtar to walk you through this quarter's financial performance in more detail. Jagtar?