WEX : WEX) Q2 2022 Earnings Call

Corrected Transcript

28-Jul-2022

WEX, Inc. (W EX)

Q2 2022 Earnings Call

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WEX, Inc. (WEX)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

CORPORATE PARTICIPANTS

Steven Alan Elder	Jagtar Narula
Senior Vice President-Global Investor Relations, WEX, Inc.	Chief Financial Officer, WEX, Inc.
Melissa D. Smith
Chair & Chief Executive Officer, WEX, Inc.

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OTHER PARTICIPANTS

Sanjay Sakhrani	Nik Cremo
Analyst, Keefe, Bruyette & Woods, Inc.	Analyst, Credit Suisse Securities (USA) LLC
Ramsey El-Assal	Jeff Cantwell
Analyst, Barclays Capital, Inc.	Analyst, Wells Fargo Securities LLC
Darrin Peller	Sheriq Sumar
Analyst, Wolfe Research LLC	Analyst, Evercore Group LLC
Mihir Bhatia	James E. Faucette
Analyst, Bank of America	Analyst, Morgan Stanley & Co. LLC

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MANAGEMENT DISCUSSION SECTION

Operator: Thank you for standing by. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX Q2 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and- answer session. [Operator Instructions]

Thank you. Steve Elder, Senior Vice President of Global Investor Relations, you may begin your conference.

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Steven Alan Elder

Senior Vice President-Global Investor Relations, WEX, Inc.

Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our Chair and CEO; and our CFO, Jagtar Narula. The press release we issued earlier this morning and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the release and slide deck have also been included in an 8-K we submitted to the SEC earlier this morning.

As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income, or ANI, and adjusted operating income during our call. Adjustments for this year's second quarter GAAP results to arrive at these metrics include unrealized gains on financial instruments, net foreign currency remeasurement losses, change in fair value of contingent consideration, acquisition-related intangible amortization, other acquisition and divestiture-related items, stock- based compensation, other costs, debt restructuring and debt issuance cost amortization and certain tax related items as applicable.

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WEX, Inc. (WEX)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income attributable to shareholders to GAAP net income attributable to shareholders, and an explanation and reconciliation of adjusted operating income to GAAP operating income. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due 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 our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022, and 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.

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Melissa D. Smith

Chair & Chief Executive Officer, WEX, Inc.

Thanks, Steve, and good morning, everyone. We appreciate you joining us today.

I'm pleased to report that in the second quarter, we once again delivered record revenue and adjusted net income per share with organic revenue growth of 22%, driven by strong volume trends across the business.

Revenue in the quarter was $598 million, a year-over-year increase of 30%. To put our growth in perspective, Q2 revenue increased approximately $139 million year-over-year. The benefit of higher fuel prices, partially offset by foreign exchange rates, was less than half of the increase or $56 million.

In our trailing four quarters, we have surpassed $2 billion in revenue, which is a testament to our team's focused execution leveraging our global commerce platform and our large addressable market, where we continue to benefit from digital tailwinds.

Total purchase volume processed across the organization in the second quarter grew 77% year-over-year to $37 billion. Each of our segments posted record purchase volume numbers, demonstrating the power of our growth engine, coupled with our solutions designed to simplify benefits, reimagine mobility and pay and get paid.

Record quarterly revenue, paired with scale efficiencies in our business model, resulted in adjusted net income for diluted share at $3.71, an increase of 61% compared to the same quarter last year. The scalability of the business model is reflected in our earnings growth rate. The second quarter of 2022 was another record-setting quarter, as we continued to execute well on all fronts.

Now let me take a step back to discuss the continued progress we're making against our growth strategy to win new customers, grow share of wallet and expand and diversify our offerings. Let me begin with new customers.

Our products and offerings resonate in the market and we continue to win new customers across the WEX ecosystem. First, in the Health and Employee Benefit segment, we won a major American auto parts distributor as a benefit administration customer. Our breadth of solutions and customer orientation were the key reasons as

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WEX, Inc. (WEX)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

to why we run the business. We continue to see strong execution across the pipelines of our direct partner and benefit administration distribution channels with success seen in expanded partner referrals.

In mobility, we won a large new fleet deal with Spee-Dee Delivery Services, a Midwest shipper with 1,800 employees delivering over 70,000 packages per day. Spee-Dee was utilizing eight different fuel card programs with competitors, mobile fuelers and card blocks. By switching to WEX, they will now be able to improve operational efficiencies with a single universal solution and consolidate their fueling to a single bill to ease their administrative burden. They were also able to take advantage of the WEX EDGE fuel discount network for increased savings.

In addition to our continued sales execution with large fleets, we're also improving the reach and efficiency of our customer acquisition efforts, the investments in our digital marketing channel, which reaches small fleet customers in the US.

During Q2, we saw a significant increase in new fleet accounts that were acquired via digital channels. We're also constantly leveraging our technology tools and customer knowledge to enhance the sales funnel using AI capabilities to optimize search engine marketing results and create a more personalized customer journey to improve conversion. This has resulted in decreased cost to acquire from new accounts and the ability to go further down market. We will continue to learn as we go.

Within the Travel and Corporate Payments segment, our outlook continues to be bright. In addition to the rebound in travel, corporate payments volume grew 29% compared to the second quarter 2021. We're pleased with this growth and we've been expanding our direct sales team over the past couple of quarters.

Turning now to our efforts to grow share of wallet, we're seeing cross-channel sales momentum across the WEX ecosystem with new virtual cards and health product sales to some of our existing fleet customers, including a leading provider of global automotive wholesale, financial, software and media services and one of the largest truckload carriers in the US. We're building out our cross-sell infrastructure, including leveraging our data platform that allows sales to have a single view of the customer as well as cross-sell training programs for our account executives. We expect these investments and programs to yield accelerating growth of share of wallet and further enhance our relationships with our customers.

In addition, we're excited to announce that we've agreed to acquire a portfolio associated with one of our major oil company partners, which is comprised primarily of small businesses. Under this expanded relationship, WEX will become the owner and issuer of accounts, and we'll be working to transition these accounts to our platform by the fourth quarter of this year. This expansion with our customer is evidence of the strength of our execution that makes us a preferred partner for leading oil companies, but also for travel, corporate payments and health partners.

As we outlined at Investor Day, we're also expanding and diversifying our offerings to ensure we remain at the forefront across our ecosystem of solutions, providing our customers with best-in-class, simplified experiences. This played out in our Travel and Corporate Payments segment, where our vision is to enable our customers to pay and get paid in the most efficient way possible, reducing friction, streamlining experiences and giving them precious time back to spend on their core business.

We address customer needs through three solution sets: embedded payments, accounts payable solutions and expanded offerings for small businesses. Let's start first with the progress on the embedded payments offering,

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WEX, Inc. (WEX)	Corrected Transcript
Q2 2022 Earnings Call	28-Jul-2022

where we believe our virtual card capabilities are market-leading, allowing global online travel agencies and technology companies to build payments into their workflows.

As you know, we built our own cloud-native transaction processing system, resulting in a more resilient and scalable offering to our customers. Our travel customers are experiencing rapid volume increases as travel rebounds. Our products and technology is scaling with our customers, allowing us to successfully capture the rebound in travel happening in North America and Europe, seamlessly integrated into their operations.

Next, let's turn to accounts payable solutions, which continues to evolve significantly. At the core of this solution, we are helping businesses streamline their accounts payable processes. Our customers demand intuitive software and they need help ensuring that they can complete payments across all modalities, while maximizing the use of virtual cards. Following our in-depth user testing process, we will begin rolling out a new user experience and interface in Q4. We see our accounts payable solutions as an important contributor to growth in the years to come.

Now I'd like to take a moment to give you an update on Flume. As a reminder, in consultation with our small business customers, we have built a new financial platform that enables any US business to send, store and receive funds in a WEX digital wallet, transacting via digital check, physical check, ACH or instant Flume transfers. All of this is delivered through a streamlined and intuitive mobile-first interface after a 100% digital onboarding process.

We've just started to sign and onboard initial customers on Flume. While it is still very early days, we have a customer-informed product feedback loop and initial results are positive. We're rolling out additional updates based on customer feedback to ensure that they are getting the most out of the platform.

Turning now to our progress supporting our customers' energy innovation. Optimizing fleet fuel consumption is one of our business's foundational strengths. We provide a range of products and resources to help improve our customers' fuel economy and give them access to controls, business insight and data, in addition to tools such as freight management, route optimization and idle time monitoring. The transportation sector contributes nearly a quarter of global CO2 emissions. We are uniquely positioned to help fleet operators make the transition to EVs or other forms of efficient transport. We are focused on developing and launching solutions necessary to help fleet operators simplify the complex transition.

In Europe, we are currently piloting an integrated on-route and at-home EV charging and payment solution with select fleet customers. This offering, which helps to bridge the management of mixed EV fleets, is significant for our European customers. This pilot, which leverages our significant customer relationships to understand and address customer needs, puts us in a position to rapidly refine our offering and continue to be a trusted partner to our customers.

In the US, we continue to build upon the offering we have in the market. I am pleased to see the rapid learning- oriented and innovative approach that we're taking in this highly dynamic and fast-evolving space. Supporting a commercial fleet transition to electric vehicles is a great business opportunity and one component of our broader commitment to energy innovation and efficiency. We encourage you to read more about our initiatives in the comprehensive updated ESG report we published this week.

As you can tell, we're excited about the many opportunities ahead for WEX, and we're moving quickly towards realizing them. I'm pleased to be raising our full year 2022 revenue guidance by $90 million at the midpoint and our adjusted net income guidance by $0.57 per diluted share at the midpoint. The midpoint of our guidance

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