Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WEX Inc (WEX, Financial) delivered record quarterly revenue of $673 million, representing an 8% year-over-year increase.
- Total volumes processed grew 9% year-over-year to $60 billion, driven by growth in all three segments.
- Adjusted net income per diluted share was $3.91, an increase of 8% compared to the same quarter last year.
- The company achieved significant progress on its $100 million annual cost-saving target, realizing approximately $106 million in cost savings on a run-rate basis.
- WEX Inc (WEX) continues to see strong growth in HSA accounts, now serving 8.2 million accounts, representing 8.3% growth year-over-year.
Negative Points
- Overall top-line results fell short of expectations, leading to a reduction in the outlook for the remainder of the year.
- The travel business segment experienced softness, which is expected to persist for the rest of the year.
- Mobility segment adjusted operating income margin decreased to 42.9% from 44.2% in Q2 2023, primarily due to lower fuel prices.
- Corporate payments segment revenue growth expectations were reduced from high-single digits to low-single digits for the full year.
- The company is seeing a moderation in travel volume growth, with total travel volumes expected to be flat in the second half of the year compared to last year.
Q & A Highlights
Q: On the fleet side, you mentioned the market is mixed but there's light at the end of the tunnel. What's driving that optimism?
A: Melissa Smith, CEO: Customers are becoming more bullish, and within our portfolio, same-store sales were flat in the quarter, which is a positive sign. This is based on both data and anecdotal commentary from the field.
Q: Regarding the travel side, you mentioned smaller OTAs driving some weakness. Any comments on geography and the impact of booking.com?
A: Melissa Smith, CEO: We saw stronger growth in the U.S. and decent growth in Europe, with average transaction sizes up 5% year over year. Jagtar Narula, CFO: Booking.com started transitioning to a new model, with $1 billion flowing through in Q2. We expect this to accelerate in Q3 and Q4.
Q: Can you unpack the comment around travel or OTA customer wallet share?
A: Melissa Smith, CEO: Many OTAs use multiple providers for business continuity, leading to lumpiness in spend. We saw strong growth with larger OTAs but weakness with smaller ones. Jagtar Narula, CFO: The share of wallet issue is a timing item; we expect volumes to return in the future.
Q: What are your expectations for HSA account growth in the benefits segment for the next two quarters?
A: Melissa Smith, CEO: We are seeing 8% growth in HSA accounts year over year. Sales momentum and close rates are higher, and the pipeline looks strong. Jagtar Narula, CFO: We expect slight acceleration in HSA account growth, with mid-single digits in the second half.
Q: Can you clarify the revenue guidance coming down by $50 million, primarily in corporate payments?
A: Jagtar Narula, CFO: We now expect low-single-digit growth in corporate payments, down from high-single digits. The guidance change is due to faster-than-expected transition of booking.com and timing impacts with larger OTAs. We expect travel volumes to be flat in the second half compared to last year.
Q: How do you anticipate the commercial team starting to contribute to growth with the reinvestment strategy?
A: Melissa Smith, CEO: We are investing across the company in areas that drive the highest return, including marketing in mobility and ramping sales in corporate payments. Jagtar Narula, CFO: Tech investments are also spread across all three lines of business.
Q: Can you elaborate on near adjacencies in mobility and other similar opportunities?
A: Melissa Smith, CEO: We are expanding offerings to meet customer needs, such as maintenance-related products for North American fleet customers and products for owner-operators. Pager is an example of expanding vertical capability within our customer segment.
Q: What is the size of the electric vehicle pipeline relative to the number of EVs in your fleet today?
A: Melissa Smith, CEO: We have hundreds of EVs now, and the pipeline is significantly larger. The demand is mainly from government fleets and large enterprises with ESG commitments. We are well-positioned for when the migration to EVs happens.
Q: How should we think about expense reductions given the slower top line in corporate payments?
A: Melissa Smith, CEO: We are confident in our ability to manage costs through technology and AI, which have already yielded meaningful results. Jagtar Narula, CFO: We have baked in cost savings for the second half, pulling levers on headcount growth and vendor spend.
Q: What does the M&A pipeline look like, and are there particular segments you are focusing on?
A: Melissa Smith, CEO: We continue to be interested in geographic and product expansion, particularly in benefits and corporate payments. We are maintaining financial discipline and looking for opportunities that make sense in the current market environment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
