WEX, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• New Investor Resource: Posted supplemental materials in IR section of website with detailed quarterly disclosures and commentary.
• Performance Review: Full year revenue record high but impacted by fuel prices and FX; Q4 revenue down but flat excluding fuel and FX. Growth slowed due to macro factors (fuel prices, FX, trucking recession in Mobility) and one-time factors (contract renegotiation with large travel customer, loss of Medicare Advantage customer in Benefits).
• Growth Acceleration Initiatives: Identified untapped potential in software assets and payment processing capabilities, especially in Corporate Payments. Increased and targeted investments in sales and marketing with payback periods of 2 years or fewer. Added sales and marketing resources to strategic and high-growth potential areas. Adjusted long-term organic revenue growth target from 8%-12% to 5%-10% and adjusted earnings per share target to 10%-15%.
• Segment-Specific Initiatives:
  • Mobility: Closed-loop network in US, strong market share, focused on new product initiatives like 10-4 by WEX and EV transition opportunities. Gained insights from Payzer and expect to contribute more.
  • Benefits: Robust portfolio of assets, opportunity to unlock growth by releasing new products and using AI on data assets to drive engagement.
  • Corporate Payments: Two key solutions: embedded payments offering with targeted investments to expand corporate card capabilities and direct AP business with high growth potential despite recent volatility.

Segment Performance

• Full Year: Revenue was $2.6 billion, a record high, growing 3% year-over-year. Adjusted net income per share grew 3% year-over-year. Excluding fuel prices and foreign exchange rate differences, revenue grew 6% and adjusted net income per share grew 11% year-over-year.
• Fourth Quarter: Revenue was $637 million, a 4% year-over-year decrease. Excluding fuel prices and foreign exchange rate fluctuations, Q4 revenue was flat with prior year. Adjusted net income per diluted share was $3.57, a 6.5% decrease year-over-year. Excluding fuel prices and foreign exchange rate fluctuations, Q4 adjusted EPS grew 5%.
• Mobility Segment: Q4 revenue declined 1.4%. The impact of fuel prices and foreign exchange rates reduced revenue growth by 7.6%. Payment processing rate was up ~10 basis points year-over-year.
• Benefits Segment: Total revenues in Q4 were $186.9 million, rose 4.9% year-over-year. SaaS term growth was 2.5%, custodial investment revenue rose 17.9% for the full year.
• Corporate Payments Segment: Revenues in Q4 were $104.3 million, declined 22.7% year-over-year. Included factors like purchase volume decline, temporary volume reductions from large customers, and lack of repeat incentives from prior year. Direct purchase volume, including AP automation solutions, grew over 25% from Q4 2023 to Q4 2024.

Guidance

• Adjusted long-term organic revenue growth target revised from 8%-12% to 5%-10%, and adjusted earnings per share target to 10%-15%.
• 2025 Q1 revenue expected in range of $625 million to $640 million; adjusted net income EPS between $3.35 and $3.50 per diluted share.
• 2025 full year revenue expected in range of $2.6 billion to $2.66 billion; adjusted net income EPS between $14.65 and $15.25 per diluted share. Investments in new product development and sales and marketing will impact short-term profitability but expected to deliver strong returns over two-year horizon.

Risks

• Macro Factors: Fuel prices, foreign exchange rates, and trucking recession in Mobility business negatively impact growth.
• One-Time Factors: Contract renegotiation with large travel customer and loss of Medicare Advantage customer in Benefits segment impede near-term growth.
• Investment Impact: Investments in sales and marketing and product development will impact short-term profitability.

Question and Answer

• Q: Sanjay Sakhrani asks about long-term outlook change by segment and early long-term target performance A: Melissa Smith states context of market changed, with travel penetration normalized and Benefits HSA adoption growth rate decreased. No material differences across segments, not giving long-term growth targets for individual segments.
• Q: Dan Dolev asks about macro and sales and marketing investment returns A: Melissa Smith says same-store sales trending back to historical norms, returns on sales and marketing investments under two years with high retention rates. Jagtar Narula mentions returns on investment with high retention rates and lifetime value of customers in mid-15 to 20-year range.
• Q: Dave Koning asks about corporate yields and HSA accounts A: Jagtar Narula expects purchase rate to be somewhat comparable to 2024. Melissa Smith says HSA account growth rate has decelerated due to market growth slowdown, but custodian product has seen growth.
• Q: Andrew Jeffrey asks about travel and Benefits segments A: Melissa Smith says confident in travel market growth and expects to outgrow account growth in Benefits, with no material difference from overall corporate growth rate.
• Q: John Davis asks about margins and long-term operating leverage A: Jagtar Narula says margins expected to start accreting upward over time, with investments funded through cost containment and one-time savings, expecting margins to increase going forward.
• Q: Ramsey El-Assal asks about M&A and asset shedding A: Melissa Smith says embedded payments products are integrated, leveraging scale and technology, and always reviewing the business, with focus on leveraging product and scale advantages. No plans to shed assets significantly.
• Q: Tien-Tsin Huang asks about Mobility's EV transition and segment outlook A: Melissa Smith is bullish on EV transition, sees products resonating, but transition will take time, not having big impact in midterm but will over time.
• Q: Andrew Bauch asks about investments and segment growth A: Melissa Smith says growth acceleration plan focuses on all segments, with no significant deviations from overall corporate growth rate in midterm, with investments in product innovation, marketing, and data assets.
• Q: Daniel Krebs asks about Direct AP target customers A: Melissa Smith says mid-market customers with wide variety of industries, including insurance, healthcare, etc., with AP automation offering and enhanced product experience.