WEX Inc. common stock

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX second quarter 2025 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, then the number one on your telephone keypad. To withdraw your question, press star one again. Melissa Smith, We kindly ask that you please limit your questions to one and one follow up. I would now like to turn the conference over to Steve Elder, SVP of investor relations, please go ahead.

Steve Elder, SVP of investor relations, please go ahead. Steve Elder, SVP of investor relations, please go ahead. Steve Elder, SVP of investor relations, please go ahead. Steve Elder, SVP of investor relations, please go ahead. Steve Elder, SVP of investor relations, please go ahead. 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 8-K 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 the press release, the supplemental materials, and the risk factors identified in the most recently filed annual report on Form 10-K and subsequent quarterly reports on Form 10-Q 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 floating 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. We delivered stronger financial results in the second quarter than anticipated, with revenue at the top end of our guidance and adjusted EPS exceeding guidance. Today, I'm excited to preview some of the underlying positives that we're seeing from our investments. We had several meaningful customer wins this quarter across each of our segments, including BP Immobility, the United Auto Workers Trust and Benefits, and a large new corporate payments customer. I'll go over these in more detail when I discuss the segments. These important wins come alongside what is shaping up to be a strong pipeline of new business that has been amplified by our increased sales and marketing investments. Our continued ability to win top-tier customers underscores the strength of our offerings that together enable us to deliver on our purpose of simplifying the business of running a business. Looking ahead, we remain optimistic that each of our segments continue to operate in markets with strong growth potential. We believe that disciplined investment in these opportunities will continue to generate attractive returns for our investors. Now turning to second quarter results, we reported revenue of $659.6 million for the quarter, a decrease of 2.1% year over year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, revenue is flat compared to the prior year. Adjusted net income for diluted share was $3.95, an increase of 1% compared to the same quarter last year. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q2 adjusted EPS grew 8%. Operationally, revenue performance was consistent with our expectations across all segments. We also benefited from higher than anticipated fuel prices. From an earnings perspective, we realized additional benefits by tightly managing our cost structure, including overall headcount. We remain laser-focused on the factors within our control. We continue to execute a focused strategy designed to drive durable revenue growth, margin expansion, and long-term shareholder value through intelligent payment of workflow solutions. Our customer-first approach continues to drive value by helping us win new customers, support our existing ones, and build integrated intuitive solutions that drive their success. Next, let's turn to an overview of our segments and how they performed in Q2. WEX operates in 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 payments 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 segment revenue is local fleets. The remaining 30% is driven by our over the road or OTR trucking customers. With more than 600,000 fleet customers globally, our competitive mode is built upon being data rich, capital efficient, and deeply embedded in our customers' daily operations, delivering both functional value and long-term stickiness. Q2 results from the mobility segment were in line with our expectations, excluding the benefit from higher field prices. Transaction levels were down slightly from the prior year, similar to Q1, and within our range of expectations. Same-store sales growth for local fleets in the U.S. declined in line with Q1 results, while the over-the-road customers saw a modest decline of less than 1%. We continue to believe that this measure reflects underlying economic activity across our customer base when evaluating short-term changes. As a reminder, the same-store sales metric represents approximately 75% of the payment processing volumes and is calculated on a gallon purchase basis, not revenue earned. We noted in Q1 that there had been some tariff-related pull toward a volume with our OTR customers, which appears to have normalized for now. We're pleased with our continued momentum in new sales and renewals in this segment. The investments we're making in digital marketing targeted at small businesses are bearing the fruit we expected. We have high confidence in our ability to close new sales based on the results seen year to date as we're tracking ahead of our new sales expectations. In Q2, we successfully extended longstanding relationships with several of the most respected names in the industry and signed new relationships, including a large publicly traded construction company. As I mentioned earlier, we're also very pleased to announce that we have signed BP to a long-term agreement for their US business. BP was one of the few remaining major fuel retailers not utilizing WEX's commercial fleet platform. By choosing WEX, they're now able to offer a card solution that will serve the entire BP family of brands linked with their loyalty program. This exemplifies WEX's purpose of simplifying the business of doing business for our customers. We're able to provide this important feature to BP because of the product investments we've made to expand the reach of our network to support both closed and open-loop solutions. This integrated solution provides BP with the tools to enhance control, elevate the customer experience, and expand their reach across key fueling segments. The addition of BP cements our place as the most trusted brand within this segment. driven by our industry-leading capabilities and proven track record of growth. There will be two phases to this implementation. In the first phase, we will sell BP branded cards to new customers. In the second phase, we'll convert the existing BP portfolio to the WEX platform. We expect to begin new sales to customers of the BP branded product in the fourth quarter. We're finalizing a purchase agreement for the existing customer base, and we currently anticipate converting this book of business at some point in 2026. We expect it will add between a half to 1% to company revenue in the first full year after conversion. We look forward to working with BP for many years to come. Turning now to our benefits 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 stands HSAs, FSAs, HRAs, COBRA, and benefit enrollment and administration, enabling both employers and partners to help their employees make more informed benefit decisions and facilitate benefit payments. As in our mobility business, our benefits business involves processing hundreds of thousands of transactions across thousands of endpoints every day in real time, verifying eligibility for purchase and authenticating the customer while preventing fraud and providing detailed records of usage to our customers for compliance and operational purposes. WEX serves nearly 60% of the Fortune 1000 in this segment, and WEX Technologies powers over 20% of the total HSA market through both our direct and partner offerings. In total, we manage more than 21 million SaaS accounts. The customer base in this segment is sticky due to the deeply embedded nature of our offering. For partners, it's integrated into their platforms. For direct customers, it serves as a critical employee benefit solution. For both customer sets, switching providers is complex, time-consuming, and disruptive. The embedded nature of the platform, combined with high retention in predictable SaaS and custodial revenue streams, leads to attractive margins and long-term customer value. Overall, SAS account growth was 6% for the quarter. Within this, we grew HSA accounts on the WEX benefits platform by 7% in Q2, bringing us to more than 8.7 million HSA accounts. The breadth of product and integration capabilities of our technology platform, combined with our multi-account expertise, Supporting a wide range of account types on a single tech stack continues to resonate strongly with both direct customers and channel partners. Following up on a successful open enrollment season, we are very pleased to announce the UAW Retiree Medical Benefits Trust as a new HRA customer starting in Q2. The UAW Trust provides healthcare coverage for United Auto Workers retirees. Our extensive experience with spending accounts put us in a position to successfully win the trust. We also have some encouraging developments on the legislative front. Recent legislation that passed in July will increase the number of people eligible for a health savings account. Beginning next year, certain plans offered on the public health care exchanges will be classified as high deductible plans, making them HSA qualified. This equates to an increase in the TAM of more than 7 million people or 3 to 4 million accounts using our existing product functionality. While this is a positive development with the potential for increased awareness and adoption, we're taking a thoughtful approach to how we address this opportunity. We look forward to sharing more on its contribution to our benefit segment results. The custodial cash balances that are part of HSAs are a meaningful revenue source for the segment. As a reminder, the interest income we earn in this segment 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. One of the strengths of the company is how we're able to leverage the core value proposition of WexBank across multiple segments. Our benefit segment is able to achieve returns on HSA assets that far exceed those of our peers because we can leverage WexBank to invest HSA funds into stable, high-grade investments that deliver meaningful returns across interest rate cycles. From a product perspective, we continued investing in smarter, customer-centric solutions with the launch of an AI-powered claims experience that dramatically simplifies FSA reimbursement, reducing processing time from days to minutes, improving accuracy, and easing the burden on HR teams during peak enrollment. This new technology lowers our cost to serve and increases customer satisfaction. Moving now to our corporate payments 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 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 wide range of card products and currencies, more than 180 possible combinations, which is an order of magnitude larger than most competitors. These capabilities are coupled with deep industry-specific knowledge and experience as well as a best-in-class service approach. Our embedded payments offering has high operating leverage. Because the investment in the technology platform and our global compliance infrastructure represents the majority of cost, it's a largely fixed-cost business, 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, Q2 purchase volume was down in line with our expectations. The large travel customer we've mentioned in recent quarters has completed their transition to a new operating model with us, and we will lap this headwind in large degree in Q3. We will fully lap this headwind in Q4, and continue to expect a return to revenue growth in the second half of 2025. The platform investments we're making to diversify from travel have started to bear fruit. We're seeing strength in our new customer pipeline and new customer signings and embedded payments. We expect this healthy pipeline will continue to broaden out the customer base, and we look forward to them contributing to growth in the back half of the year. We're pleased to note that we have implemented a large publicly traded fintech to use our virtual card issuing technology. Switching gears to talk about the direct AP product within our corporate payment segment, which accounts for approximately 20% of segment revenue, this solution automates accounts payable by integrating our enterprise resource planning systems and accounting workflows to maximize virtual payment usage. During the quarter, direct AP volume grew more than 25% compared to last year. We're feeling very good about the outlook as we currently have the best new business pipeline we've ever had for this product. Our new account growth included more than 140 new customers year-to-date, which only bolsters our confidence that additional sales, marketing, and product investments we discussed last quarter have started to bear fruit and will lead to strong returns in the future. We have increased the size of this sales force by more than 50% since the beginning of the year, and our new sales resources are ramping as expected. On the product side, we continue to invest in expanding our embedded payments offering beyond our core travel vertical, launching new funding capabilities now live in three geographies and 10 currencies. In our direct channel, we've extended our mobile wallet capabilities and enabling broader customer spend on our market-leading processing platform. These enhancements will be paired with deeper data integration and automation. Across all three of our segments, the incremental investments we're making in product capabilities and sales and marketing resources are working. We believe that the investments will deliver strong ROIs and contribute to a reacceleration of growth. The majority of our incremental sales and marketing investment continues to be in the mobility segment, where we're deploying a multi-channel marketing strategy targeted at small business customers and seeing encouraging results. Historically, every dollar we spend on marketing earned a return of $4 in revenue over the first few years following the customer acquisition date. These results build on the confidence we have in our investment thesis, and I'm excited about how they position us to accelerate growth going forward. The remaining investments we're making in other segments are also showing early signs of success. As I noted earlier, the pipeline of new customers in the corporate payments segment It's never been better, and we expect the segment to reaccelerate growth in the back half of this year. This growth is in part driven by the product investments we've been making that strengthen our offerings outside of travel, many of which have recently come online with additional features in the pipeline. It is exciting to see the fruits of our product investments delivered not only in corporate payments, but also in mobility and benefits. In closing, I am most excited about the momentum we're building by actively investing in accelerating growth for the business. Our industry-leading products, service, and reliability drive our ability to win customers of all sizes across each of our segments. As we enter the second half of the year, our robust new customer pipeline gives me confidence that the investments we're making in sales and marketing are paying off. We're also seeing our investments to innovate and enhance our product offerings directly deliver meaningful new customers like BP. We're in a great position to continue to win in the market across each of our segments, and I want to thank our teams for their hard work and commitment. There is more to do, and we're entering the second half of the year with momentum and clear focus. With that, I'll turn it over to Jagtar to walk you through our financial performance in more detail. Jagtar?