WEX Inc. common stock

speaker's remarks, there will be a question and answer session. If you'd 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, again, press the star and one. I would now like to turn the call over to Steve Elder. 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 and supplemental materials issued yesterday and a slide deck to walk through prepared remarks have been posted to the investor relations section of the website at wexinc.com. A copy of the press release and supplemental materials have been included in an AK 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 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 the press release, the supplemental materials, and the risk factors identified in the most recently filed annual report on Form 10-K and other 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. Let me begin by addressing the current macroeconomic landscape. While recent U.S. tariff policy decisions have created uncertainty in the economy, they do not directly impact WEX's operations. That said, we recognize that these policies influence our customers' behavior. In response, we are proactively engaging with them to assess potential impacts and develop plans for a wide range of possible scenarios. In this ever-changing environment, our ability to adapt, innovate, and stay focused on what matters most has never been more important. The secular growth drivers in each of our segments remain highly relevant and very much intact, and WEX is well-positioned to continue advancing as an industry leader in our segments. We've also consistently maintained high customer retention, even during times of economic uncertainty, a testament to the strength of our value proposition and the trust we've built across our customer base. We believe that one of the advantages of WEX's business model is that our strong financial position in diversified segments provide a meaningful buffer against short-term softness in any one sector. Our segments each have different opportunities and risks through economic and business cycles, which helps position us well to navigate ongoing macro uncertainty. In addition, these segments can leverage common technology, resources, and investments, increasing our operating leverage and ability to scale quickly. I remain excited about the opportunities in front of us. We are committed to balancing our long-term investments while remaining disciplined and responsive to near-term macro dynamics. Now turning to the first quarter results, we reported revenue of $636.6 million for the quarter, a decrease of 2.5% year-over-year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q1 revenue was down 0.8% compared to the prior year. Adjusted net income for diluted share was $3.51, an increase of 1.4% compared to the same quarter last year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q1 adjusted EPS grew 5%. Revenue for the quarter exceeded the midpoint of our guidance, while adjusted EPS was above the range. Operationally, our results were consistent with our expectations and we benefited from slightly higher than anticipated fuel prices. We remain laser-focused on the factors we can control, including executing against our strategy, delivering differentiated products and value to our customers, and driving long-term shareholder value through a disciplined, returns-driven approach to investment and capital allocation. At the same time, where we can, We're assessing and preparing for any financial impacts of policy and macroeconomic changes. Now let's turn to an overview of our segments and how they performed in Q1. WEX operates across three large and growing markets, mobility, benefits, and corporate payments, each of which we believe offers significant long-term secular growth opportunities where we hold distinct competitive advantages. Mobility, our largest segment at approximately 50% of total revenue, delivers fleet payment solutions, transaction processing, and data-driven insights to fleet operators and managers globally. Our proprietary closed-loop payment network provides customers with enhanced data capture, custom controls, and tailored economics and covers approximately 90% of fuel stations and 80% of EV charging locations in the US. These capabilities help fleet managers optimize costs, detect misuse, improve operational efficiency, and support the complexity of operating a mixed energy fleet. This segment has two primary categories. The first category, comprising roughly 70% of mobility revenue, is local fleets. The remaining 30% is driven by our over-the-road trucking customers. With more than 600,000 fleet customers globally, our competitive moat is built on being data rich, capital efficient, and deeply embedded in our customers' daily operations, delivering both functional value and long-term stickiness. Q1 results from the mobility segment were in line with expectations. Transaction levels were down slightly from the prior year, partly due to external factors, including a number of weather events across the U.S. Same-store sales growth for local fleets was down 3.9%. Commercially, over-the-road customers saw an uptick of approximately 2.6%. Our working thesis for same-store sales is that local fleets have been responding to the effects of a softening macro environment, while OTR benefited from a pull forward of trucking demand ahead of the implementation of tariffs. We're particularly pleased with our continued momentum in sales, renewals, and customer retention. In Q1, we successfully extended longstanding partnerships with several of the most respected names in the industry, including Circle K, Enterprise Fleet Management, and J.D. Hunt, a testament to the value we deliver and the trust we've earned in the marketplace. Turning now to our benefit segment, which simplifies the complex world of employee benefits administration and represents approximately 30% of total company revenue. Here we offer a comprehensive platform that spans HSA, FSAs, HRAs, COBRA, and benefit enrollment in administration, enabling both employers and partners to help their employees make more informed benefit decisions. WEX serves nearly 60% of the Fortune 1000 in this segment and manages more than 21 million SaaS accounts. This segment is sticky due to the deeply embedded nature of our offering. For partners, it's integrated into their platform. For direct customers, it serves as a critical employee benefit solution. For both customer sets, switching providers is complex and disruptive. The embedded nature of the platform, combined with high retention, in predictable SAS and custodial revenue streams leads to attractive margins and long-term customer value. We had a very good open enrollment season, which sets us up well for the remainder of this year. We grew total HSA accounts on the WEX benefits platform by 7% in Q1, bringing us to more than 8.5 million HSA accounts. Overall SAS account growth was 6% for the quarter. According to the 2024 year-end Devonier HSA research report, HSA industry account growth was 5% for the market. So our 7% organic growth compares very well and underscores our competitive strength. This performance was driven largely by a direct account, which grew nearly 10% compared to the prior year. As we discussed in February, this is one of the key areas where we are increasing sales investments this year. We believe the benefit segment is less sensitive to macroeconomic trends than the rest of the company and provides stability to wax during economic downturns. For example, during the COVID-19 pandemic, we saw the increase in unemployment have a modest impact to account growth, but this was partially offset by increasing usage of our COBRA product. As a result, total account growth remained fairly consistent despite the disruption. In addition, the interest income we earn is less sensitive to changes in interest rates, as it is invested predominantly in fixed-rate products with maturities that vary and extend over several years. As I stated earlier, one of the strengths of the company is how diverse segments don't react in lockstep to macro events. In the case of our benefits segment, we value its long-term growth profile and stability. Moving now to our corporate payment segment, which represents approximately 20% of our revenue and includes two major offerings, embedded payments and direct accounts payable. Embedded payments represents the majority of the revenue in the corporate payment segment, including all of our travel-related customers. With this solution, we integrate virtual card payment capabilities into our customers' existing workflows. We combine highly customizable reconciliation benefits with a range of card products and currencies, an order of magnitude larger than most competitors. These capabilities are coupled with deep industry knowledge and experience and a best-in-class service approach. Our embedded payments offering has high operating leverage. Because the investment in the technology platform represents the majority of cost, it is a largely fixed cost base, and most incremental volume is accretive to our margins and cash flow. Our ability to compete and win here is built on our technical and domain expertise strengths and our economic strength that stems from scale. Within our embedded payments offering, Q1 purchase volume was down, in line with our expectations. The large travel customer we've mentioned in recent quarters is nearing the end of their transition to a new operating model with us. We remain on track to lap this headwind that began in Q3 last year and we continue to expect a return to growth in the second half of 2025. Switching gears to talk about the direct AP product with our corporate payment segment, which accounts for approximately 20% of segment revenue. This solution automates accounts payable by integrating with enterprise resource planning systems and accounting workflows to maximize virtual payment usage. During the quarter, Direct AP volume grew nearly 25% compared to last year. We're seeing a contraction in spend per account in the face of a tougher economic environment similar to the market. That said, our new account growth is outweighing the slowdown in spending, which only bolsters our confidence that additional sales, marketing, and product investments we discussed last quarter will have a strong return even in a diminished macroeconomic environment. From a macro perspective, I do want to provide some context on our corporate payment segment. We have deep relationships with our embedded payments customers. Our portfolio is skewed towards international hotel spend, and we appear to be holding up better than the noise we've heard in domestic travel. At this point, we have not seen signs of a slowdown in our travel volume. but we remain vigilant and will continue to monitor this given the rapidly evolving macroeconomic outlook. For our direct accounts payable product, we're monitoring business spending and usage trends, along with the credit health of our portfolio as we progress through 2025. During an economic downturn, middle market companies need a partner that will give them security, visibility, and control as it relates to their AP spend. As mentioned above, our intent here is to grow through a contraction in spend per account, being mindful of how we extend credit in a risk-tolerant fashion. I'd now like to provide an update on the growth initiatives we outlined last quarter. As a reminder, the incremental investments we discussed in February are being deployed across all of our segments roughly in line with their size. While we are progressing as planned, We're also being mindful of the rapidly evolving economic landscape. We believe that the investments we're making will deliver strong ROIs and contribute to a re-acceleration of growth. At the same time, should external economic conditions deteriorate substantially from here, we will, of course, be thoughtful about our approach. Roughly 75% of our incremental Q1 investment was in the mobility segment. where we've been deploying a multi-channel marketing strategy targeted at small business customers. We are seeing encouraging early results for our small business prospects. New application volumes are outperforming the prior year by 18%. These early results give us added confidence in the ROI of these investments, and I'm excited about how well we are positioned as we exit Q1. We're also making investments in sales headcount across the company, which will drive further impact as our pipeline gets onboarded and ramps later in the year. In closing, while we continue to monitor the broader macroeconomic environment, we remain focused on thoughtfully driving our strategic initiatives forward. Greater policy clarity will undoubtedly help our customers navigate the uncertainties they face And we expect that resolving these uncertainties will lead to a return to more normal buying cycles and payment volumes. That said, I remain as confident as ever in WEX's competitive position across each of our markets. I think it's worth adding that our board regularly reviews the composition of our business portfolio. They balance the strategic advantages of diversity and scale, with potential opportunities to acquire or dispose of businesses at attractive valuations while factoring in hard costs that might be born as a result of any strategic shifts. These reviews are conducted thoughtfully on a regular basis and when appropriate with the assistance of independent advisors. While we believe our current configuration is attractive and there is value in our scale and diversification, We will continue to use our best judgment about our business composition, always with a goal of delivering great returns for our shareholders. I believe that WEX is better positioned than ever before to meet our customers' demands. The careful investments we're making in product, sales, and marketing will position us to be at the forefront of capturing this demand. We have a stable and experienced management team and a deep bench of talent that is focused on what we can control. I am confident WEX will navigate this period and ultimately emerge stronger, even better positions to deliver value to our customers and shareholders. I want to thank our teams for their hard work and commitment as we kicked off 2025. We're pleased with our Q1 performance and the progress we're making on our strategic priorities. While there's more to do, we enter the rest of the year with strong momentum and clear focus. With that, I'll turn it over to Jagtar to walk you through our financial performance in more detail. Jagtar?