WEX Inc. (WEX) Earnings

Management highlights

- **Overall Quarterly Performance** * The company exceeded the high end of prior guidance for both total revenue and adjusted net income per diluted share (ANI EPS). Total Q2 revenue was $753.5 million, up 14.2% year-over-year; adjusted net income per diluted share was $5.35, up 35.4% year-over-year. Excluding fuel price and foreign exchange impacts, revenue grew 4.2% (at the midpoint of guidance) and adjusted EPS grew 10.1% (at the high end of guidance). * Adjusted operating margin increased 280 basis points year-over-year, primarily driven by higher fuel prices; credit losses of 16 basis points were better than the guided range. * Trailing 12-month adjusted free cash flow was $696 million, up 22% year-over-year. The leverage ratio fell to 2.9x, inside the 2.5-3x target range, achieved ahead of schedule. - **Strategic Pillar Progress** * **Amplify Core**: Strong new sales momentum across all segments. The 2027 benefits sales pipeline is healthy; the corporate payments direct AP pipeline is growing; mobility is stabilizing after macro headwinds. Planned pricing actions in mobility are expected to add $15 million in additional 2026 revenue. Core product enhancements include a new WEX HRA for GLP-1 medications and a DoorDash integration allowing FSA/HSA card storage in DoorDash wallets for pre-tax purchases of eligible health products. * **Expand Reach**: The company is investing to expand into new greenfield markets. Direct AP and non-travel embedded payments are core growth priorities in corporate payments; 10-4 by WEX for smaller owner-operator fleets has delivered significant user growth amid high fuel prices, acting as either an on-ramp to full WEX fuel card services or a standalone monetized offering for non-eligible fleets without adding credit risk. * **Accelerate Innovation**: AI is integrated across the business, leveraging the company's long-standing proprietary data asset. A new AI-powered premium mobility offering, AI Insights, is currently in customer testing, delivering proactive recommendations to reduce misuse, identify savings, and improve fleet performance. AI-powered credit adjudication tools enabled faster, lower-risk credit decisions amid rising fuel prices and increased credit demand, with additional AI investments driving faster claims processing and higher team efficiency. - **Capital Allocation** * Now that the leverage target has been met ahead of schedule, the vast majority of near-term adjusted free cash flow will be prioritized for share repurchases, with a small portion allocated to modest deleveraging, based on management's view that current share valuations are attractive. Between May and July 20, the company repurchased approximately $93 million in shares, including $60 million in Q2. The company regularly evaluates its portfolio as part of annual strategic planning to allocate resources to the highest long-term value opportunities.

Guidance

- **Q3 2026 Guidance**: Revenue is expected in the range of $733 million to $753 million; adjusted net income per diluted share is expected between $5.45 and $5.65. - **Full Year 2026 Guidance**: Revenue is now expected in the range of $2.86 billion to $2.9 billion, representing a $32 million increase to the prior guidance midpoint; adjusted net income per diluted share is expected between $19.68 and $20.08, representing a 63 cent increase to the prior guidance midpoint. The upward revisions are driven by Q2 outperformance, completed Q2 share repurchases, and higher assumed fuel prices for the second half of the year. - The company expects to exit 2026 with organic revenue growth within its long-term target range of 5% to 10%, on an ex-macro basis. - Management expects more than 100 basis points of macro-neutral margin expansion in the second half of 2026, to deliver 75 basis points of full year margin expansion, consistent with prior plans. - Guidance does not include the incremental EPS benefit from future share repurchases beyond Q2, which will add a tailwind to full year EPS depending on repurchase timing.

Segment performance

1. **Mobility**: Revenue increased 22% year-over-year (3.1% after excluding foreign exchange and fuel price impacts). The BP customer portfolio was fully migrated online this quarter. A 1% reduction in revenue came from lower late fee instances, driven by changed customer payment behavior amid higher fuel prices, which was more than offset by fuel price tailwinds. Year-over-year payment processing transactions were flat, but rose 6.8% sequentially, indicating improving underlying activity. Credit losses were 16 basis points, better than guided, and the supply-side recovery in the trucking sector is boosting factoring revenue and credit performance, though overall demand remains constrained by macroeconomic conditions. Mobility contributes approximately 56.2% of total company revenue. 2. **Benefits**: Total revenue hit $206 million, up 5.6% year-over-year, driven by a strong 2026 open enrollment season. SAS account growth was 2.2%, in line with expectations after lapping the addition of the large UAW portfolio in Q2 2025 and absorbing immaterial Q1 2026 account closures. Average HSA custodial cash assets grew 11.1%, HSA custodial investment revenue grew 11.4%, and total HSA accounts grew 7%, supported by WexBank's strong investment portfolio. Benefits contributes approximately 27.3% of total company revenue. 3. **Corporate Payments**: Revenue reached $125.1 million, up 5.8% year-over-year, at the high end of expectations, with net interchange expanding 5 basis points. Total travel volume increased 6.4%, and segment purchase volume declined 3.6% due to timing shifts of volume from a large OTA customer. Direct AP volume growth re-accelerated to 20% in the quarter, and contributes approximately 20% of segment revenue. Corporate Payments contributes approximately 16.6% of total company revenue.

Risks & headwinds

- Macroeconomic conditions have constrained demand in the trucking sector, which limits mobility segment volume growth, and any recovery in demand is not currently factored into 2026 guidance. - Vendor suppression of virtual card payments exists as a long-running industry dynamic, though it currently has only minor impact on WEX's business and has been factored into existing guidance. - Elevated fuel prices increase credit risk and the size of potential credit losses per default, though current credit performance has been better than expected and this risk is incorporated into guidance. - Competition exists across all segments, including targeted competition for mid-market mobility customers and expansion of full-service fleet management providers into the middle market, and newly acquired competitors are investing heavily in the benefits segment partner channel.

Analyst Q&A

• Q: Recent trucking sector indices show early signs of supply-side recovery. Has this improvement been factored into 2026 guidance, and is it driving higher volume growth? /

  A: WEX has seen clear supply-side recovery, as excess capacity has left the market, which has improved spot rates and helped larger over-the-road customers. Better credit performance is also flowing through, particularly in the small factoring business. However, WEX has not yet seen an increase in overall miles driven driven by improving end demand, so the current macro environment is assumed to persist through year-end in guidance. Any unexpected demand recovery would be upside to current results.

• Q: The corporate payments segment saw strong yield expansion in Q2 despite a temporary volume decline. How will volume and yield trend in the second half of the year? /

  A: The Q2 volume decline was almost entirely driven by two temporary factors: a large OTA customer shifted volume from Q2 to the second half, and an existing contract is currently paying minimum guaranteed revenue that impacts reported volume, which combined created a 5% temporary volume drag. In the second half, purchase volume is expected to grow at high single-digit to low double-digit rates. Yields are expected to dip slightly due to mix: higher travel volume and growing share of higher-volume embedded payments will pull the average rate down modestly, which is an expected dynamic.

• Q: What factors drive the expected acceleration in organic growth that will get WEX to the 5-10% long-term range by year-end? /

  A: Multiple cross-segment factors support this outlook: mobility will get a $15 million revenue lift from already announced pricing actions, volume trends have stabilized from new sales investments, and the full BP migration is now contributing. In corporate payments, non-travel embedded payments and direct AP are delivering strong, accelerating growth from prior sales investments, and these lines are becoming a larger share of the segment. The 2027 benefits sales pipeline is already healthy. Incremental operating leverage from scale is also amplifying top-line growth into stronger earnings.

• Q: Direct AP growth reaccelerated to 20% in Q2, after slower growth in prior quarters. How much of this acceleration is underlying new business growth versus lapping easier year-ago comparisons? /

  A: The acceleration is split roughly one-third from stronger OTR client volume (which was weak in the year-ago quarter) and two-thirds from underlying new business growth. New business growth has picked up as sales hires made in 2025 have fully ramped, and an AI-powered lead generation tool piloted in corporate payments has improved customer acquisition, especially in the fintech vertical that is a key target for direct AP. New direct AP business is delivering strong volumes, rates, and credit performance, which flows through well to the bottom line.

• Q: Beyond current fuel-driven credit limit increases, is there room to systematically expand WEX's credit box to drive more growth? /

  A: The near-term credit limit increases were driven by AI-powered risk tools that automatically adjust limits for the highest quality customers to account for higher fuel prices, with automatic adjustments also made if fuel prices decline. Beyond that, WEX's risk and commercial teams are systematically and surgically reviewing the portfolio to expand credit to qualified customers, with decisions tied to ongoing portfolio performance monitoring. The easy, automatic fuel-related adjustments are complete, and further gradual, risk-aligned expansion is ongoing across the portfolio.