WEX Inc. common stock

Hello and welcome to the WEX fourth quarter and full year 2024 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. And if you would like to ask a question during this time, please press star one on your telephone keypad. I would now like to turn the conference over to Steve Elder, Senior Vice President of Investor Relations. You may begin.

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 yesterday afternoon and a slide deck to walk through our prepared remarks have been posted to the investor relations section of our website at wexinc.com. New this quarter, we have also posted supplemental materials, which include detail around our performance to assist investors with understanding our results. A copy of the press release and supplemental materials have been included in an 8K we filed with the SEC yesterday afternoon. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, which we sometimes refer to as ANI, adjusted net income per diluted share, adjusted operating income and related margin, as well as adjusted free cash flow during our call. Please see exhibit one 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 supplemental materials, and the risk factors identified in our most recently filed annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q and other 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. Before we dive into our results, I want to highlight a new resource we've introduced for investors. As Steve mentioned, we posted a supplemental materials document in the IR section of our website, and filed it with the SEC yesterday after the market closed. This document consolidates key quarterly disclosures and commentaries, providing details to better understand and analyze our performance, while allowing us to focus this call on strategic and forward-looking priorities. We plan to provide these supplemental materials quarterly moving forward. I encourage you to review the document at your convenience. With that, let's move into our quarterly and full-year performance. Let me start with the full year results. Revenue of $2.6 billion for the year was a record high and grew 3% compared to the prior year, despite a headwind of 3% from fuel prices and foreign exchange rates. Adjusted net income per share grew 3% year over year. Excluding the impact of lower fuel prices and foreign exchange rate differences, revenue grew 6% and adjusted net income per share grew 11% year over year. Now turning to the fourth quarter results, we delivered revenue of $637 million for the quarter, a decrease of 4% year over year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q4 revenue was flat with the prior year. Adjusted net income per diluted share was $3.57. a decrease of 6.5% compared to the same quarter last year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q4 adjusted EPS grew 5%. Taking a few steps back from our reported results, I'm excited to take some time to discuss actions we've recently been undertaking to accelerate growth. I'll also share our perspective on where the business stands today and where we're headed over the next few years. Since our founding, we've been helping customers and partners of all sizes simplify the business of running their businesses, giving them the ability to streamline operations and optimize workflows so they can focus on what matters most. With WEX, customers grow their business, save time, and build confidence. With worldwide business spend measuring in the trillions of dollars, Combined with continued technology innovation and the relentless focus by businesses on efficiency, we're in an exciting segment of the economy with strong growth prospects. Furthermore, in addition to this strong sector tailwind, WEX at its core is a great business. We have a long trajectory of growth, exceptional margins, and we generate strong cash flows. Underpinning our business is an impressive set of technology assets. However, our growth has slowed in recent quarters. Certainly macro factors such as fuel prices, FX rates, and the trucking recession in our mobility business have negatively affected our growth. And we also saw pressure for one-off factors such as the contract renegotiation with a large travel customer and the loss of a Medicare Advantage customer in the benefit segment. While these external factors impede our near-term growth rate, we would be remiss to ignore the factors that were within our control. We have deeply examined the reasons why recent performance has fallen short of our targets. One conclusion from this review is that our portfolio of software assets and payment processing capabilities has untapped potential where we can accelerate growth. This is especially true in the corporate payment segment where we have experienced more volatility in growth. By addressing the untapped potential with increased and targeted investments, we believe there is tremendous opportunity to strengthen our competitive position and accelerate our revenue growth moving forward. We also believe that despite our healthy investments and a highly effective sales and marketing organization, the size of the markets we sell into presents an opportunity to do more. And we're addressing this with renewed energy and additional investment. As a result, we have already begun adding additional sales and marketing resources to areas that we feel are both strategic and have high growth potential. In all segments, the payback periods are two years or fewer, and there was a strong LTV to CAC. To be clear, these growth acceleration actions stem from our view that our currently reported growth rates do not match the scale of our ambitions the capabilities of our team or the opportunity in front of us. This is a very important issue to me personally. With that said, we're adjusting our long-term organic revenue growth targets from 8% to 12% to the 5% to 10% range to reflect updated market insights. In addition, as a result of the change in our organic revenue growth targets, we're also updating our long-term adjusted earnings per share target to a range of 10% to 15%. We believe these updated long-term ranges consider the current state and trajectory of the markets we operate in, while also reflecting our opportunity to remain highly competitive with our product offerings. Recognizing that it will take a bit of time for our investments in product and sales to bear fruit, We expect our reported results will be below these updated targets this year. I'll walk you through some of the additional investments we're making to accelerate our growth, many of which are fully underway. Let's discuss the details of these initiatives by segment. In mobility, we're very competitively positioned with strong modes. We have a closed loop network in the US covering more than 90% of all fuel locations and 80% of all charging locations. We own the entire technology stack, and we have WEX Bank as an integrated engine to handle all of the funding and compliance associated with issuing. We also have a strong market share with broad distribution capabilities. We expect to see continued growth as our solutions expand deeper into the market. We're also focused on new product initiatives that we believe can help infuse growth in this segment over time. 10-4 by WEX. which serves independent owner operators and our Fleet Plus offering, which provides extended network acceptance beyond fuel to local fleets, are two of our most exciting new products. We also expect the migration to EVs to present opportunities to us to enhance our unit economics within our customer base, recognizing that the transition to EVs will take place over an extended timeline. In addition, we've gained valuable insights from our experience with Payser. While this asset has met the expectations we shared last year, we believe it has the opportunity to contribute even more. Over the past year, we've gained deeper customer insights, enhanced sales tools, and sharpened our cross-sell and go-to-market strategies to deliver effective and scalable growth in 2025. Turning to our benefits segment, In 2024, we experienced a moderation in growth, largely reflecting an industry-wide leveling in the adoption curve for HSA-eligible plan enrollment. Despite this broader trend, our robust portfolio of assets, including benefit administration, consumer-driven benefit offerings, and HSA custodial services, positions us for market-leading performance while we continue to invest in strengthening our competitive positions. we see a significant opportunity to unlock the next phase of growth by releasing new products and capabilities to drive greater engagement with consumers and employers. For example, as a record keeper of these HSAs, we can utilize our vast data set to create more tailored support, helping employees better understand, utilize, and contribute to their accounts. By applying advanced technology like AI to our rich data assets, We empower consumers to make more informed benefit decisions, which in turn can drive higher participation, greater funding levels, and stronger outcomes for employers, employees, and WECs. We're actively investing in ways to capitalize on these opportunities, and we're optimistic that these efforts will accelerate growth over time in this segment. Now let's turn to the corporate payment segment. This is the smallest of our three segments and growth was lower than historic trends in 2024, and we expect will remain lower in 2025. It is also a segment with a large addressable market where we have a lot of the right assets to win. While acknowledging this volatile performance, I'll spend a few minutes looking forward at our growth expectations. To begin, there are two key solutions that drive this segment's revenue. The first solution is our embedded payments offering, which began by serving the travel industry has now leveraged its capabilities to support a broad range of industries requiring an integrated scalable payment solution. The unique combination of WEX Bank and our technology platform enables a one-stop seamless payment experience with WEX handling the full spectrum of card management, banking services, compliance and settlement. We've been making targeted investments to broaden our corporate card capabilities provide customers with greater flexibility in funding their accounts, and enable broadened issuance and settlement in local currencies. We believe these advancements allow us to expand both with existing customers as well as increase our competitiveness in acquiring new business. Last quarter, we signed several new customers and grew our sales presence in order to accelerate customer acquisition for this product suite. Over time, we anticipate that our investments in our embedded payments product will deliver a substantial boost to our market share and transaction volumes. While net interchange rates for this product will likely continue to decline as our customers and volumes grow, our scale, cost structure, and resulting economic model ensure that revenue growth will remain highly accretive to our overall margins. We also plan to leverage many of these same technology enhancements to improve the software product portfolio in our direct accounts payable business. With this product, we provide a software solution to mid-market corporations that are looking to digitize their AP payments. Since this solution is sold directly to the end customer, rather than being white-labeled or wholesaled to other providers, it possesses a higher net interchange rate than what we receive from our embedded payments offering. The white space for this market is substantial, and we see an enormous opportunity for growth. Further, our investment in product development will maintain and enhance the strong growth this product has already achieved. Purchase volumes for this product have increased by more than 100% from 2022 through 2024, although off a relatively small base. The returns we achieved on our sales investments here are high and very predictable. and we're looking forward to making this a more meaningful portion of the WEX story in the coming quarters. Our corporate payment suite spanning embedded and direct solutions leverages a unified infrastructure that allows us to have the scale and economic model to profitably pursue wholesale volume while also selling high margin direct business. With both wholesale and retail capabilities, we are well positioned within our industry. Taken as a whole, we expect corporate payments revenue to contract slightly in 2025 due to foreign exchange rates and one-time headwinds that we previously discussed. We anticipate that declines will be in the first half of 2025, followed by a return to growth in the back half of the year. In 2026, we expect to re-accelerate growth as we lap these headwinds and continue to build momentum in embedded payments and direct AP. Pulling this all together across our three segments, we've identified several key opportunities in our product portfolio where we can continue to elevate our capabilities and drive impactful outcomes. As I mentioned a few moments ago, the process to make this a reality is already in flight, and we look forward to the benefits of bringing these new solutions to the market. We have the talent internally to build these products, and we are always on the lookout for assets we believe could accelerate our strategic objectives. The other leg of this growth acceleration process is related to our go-to-market investments. Our solutions provide exceptional value to customers, as shown by our enviable retention rates. As a result, we've concluded that WEX has an opportunity to further enhance our growth momentum by ensuring we're getting our solutions in front of more potential customers in converting them to WEX clients. Accordingly, we'll be stepping these efforts up to have more feet on the street to sell the portfolio of software and payment assets that we're enhancing. While these investments will impact our short-term profitability, as you will see in our 2025 guidance, we're highly confident that over our two-year horizon, they will deliver strong returns and position us for re-acceleration during 2026, driving growth aligned with our refreshed long-term targets. In closing, before I turn the call over to Jagtar, I want to reemphasize my confidence in the trajectory of WEX. We have significant business tailwinds as a result of the robust market sectors in which WEX operates. I also believe we have the right initiatives in place throughout the organization to drive strong performance over the long term. Across the enterprise, we're focused on winning new business, retaining and growing our existing customers, and driving productivity in our cost structure. We continue to enhance and optimize our solutions in our portfolio while we invest in capturing new business. These exciting investments and growth opportunities are underpinned by a business with solid balance sheet, low leverage, strong cash generation, exceptional margins, enviable customer retention, and continued growth We believe these characteristics are a recipe for shareholder value creation, and we remain committed to making that happen. With that, I'll turn it over to Jagtar to walk you through our financial performance and 2025 guidance in more detail.