WEX, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• New Business: In Mobility, invested in sales/marketing, including digital marketing and infrastructure. Launched 10-4 by WEX app for independent truckers. In Corporate Payments, signed new/expanded relationships, e.g., Artsyl. In Benefits, consistent new account growth.
• Customer Retention: Utilizes NPS surveys to track customer sentiment, with feedback informing product roadmaps. For example, enhanced claims processing in Benefits.
• Management/Growth of Customer Base: Focus on pricing and volume growth. In Mobility, pricing initiatives working despite macro headwinds. In Corporate Payments, transition of large OTA customer progressing. In Benefits, solid market dynamics with SaaS account growth.
• Cost Management/Capital Allocation: Realized ~$110 million in annual cost savings. Utilized savings for growth initiatives. AI initiatives, e.g., Benefit Assistance, improving user experience. Board increased share repurchase program authorization by $1 billion, reducing share count to near decade low

Segment Performance

• Mobility: Revenue was $357.2 million, a 2% increase from the prior year. Normalizing for fuel prices and FX rates, revenue growth accelerated. Payment processing transactions increased 1.3% y-o-y. Adjusted operating income margin was 46.8%, up from 45.6% in Q3 2023.
• Corporate Payments: Total segment revenue decreased 6% to $126.9 million. Purchase volume issued by WEX was $23.4 billion, a 16% decrease y-o-y. Adjusted operating income margin was 56.4%, down from 61.3% in Q3 last year.
• Benefits: Q3 revenue was $181.5 million, an increase of $15.4 million or 9% over the prior year. Average SaaS accounts grew 2% y-o-y. Segment purchase volume increased by 9.6% y-o-y. Adjusted operating income margin was 43.2%, up from 35.4% in 2023

Guidance

• Fourth Quarter: Expect revenue in the range of $630 million to $640 million. ANI EPS expected to be between $3.51 and $3.61 per diluted share.
• Full Year 2024: Expect revenue in the range of $2.62 billion to $2.63 billion. ANI EPS expected to be between $15.21 and $15.31 per diluted share. Revised guidance reflects macro factors like lower fuel prices and softness in same-store sales

Risks

• Macro Factors: Substantial decline in fuel prices and softness in same-store sales impacting Mobility segment.
• Operational Issues: Isolated unplanned charge from pricing optimization in Mobility.
• Transition Challenges: Impact of large OTA customer transition on Corporate Payments segment continuing over next few quarters

Q: On Mobility segment, is the interchange rate sustainable and how big was the finance fee reversal?

A: Jagtar Narula said interchange rate pickup due to fuel prices and pricing increases, sustainable. Finance fee reversal was ~$10 million impact to Mobility segment.

Q: On Corporate segment, is the large client totally out already?

A: Melissa Smith said large client migration ongoing, with seasonality affecting spend volume, expected to impact next few quarters Q: On Benefits segment, pipeline for open enrollment?

A: Melissa Smith said good bookings year-over-year, expecting to beat market growth rate. Jagtar Narula added SaaS account growth excluding Medicare Advantage is in 7% range Q: On Mobility pricing impact and buybacks?

A: Jagtar Narula said pricing had $40-50M impact this year, expecting $10-20M roll forward next year. Melissa Smith said share repurchases attractive use of capital, share count down 12% since Q1 2022 Q: On Corporate Payments OTA impact and credit losses?

A: Jagtar Narula said OTA transition impact to grow in Q4 and next year. Jagtar Narula said credit losses in Q4 guide due to reserve balance factors, not specific macro item