WEX Inc. (WEX) Earnings Call Transcript & Summary

Good afternoon, everyone. We're going to go ahead and get started. My name is Madison Suhr. I'm the payments and fintech analyst here at Raymond James. I'm happy to be joined by Melissa Smith, the CEO of WEX. Today's format, Melissa is going to run through a little bit of a presentation, and then we're going to transition to a fireside. So with that.

All right. Well, thank you for having me here today. I'm really excited to be here. Just for those of you who don't know actually, first of all, my name is Melissa Smith. I've been the CEO for WEX for about 13 years and was the CFO when we went public in 2005. I'm excited to be here. And if you don't know the WEX story, WEX sits in the mission-critical parts of spend and what we really focus on is where we can create payment intelligence and combine that with the workflow solutions. So we're going to be deeply integrated in the operations of our customers. We want to make sure that we're thinking about what challenges businesses have and how we can solve those challenges and primarily focused across 3 different markets. We're focused on mobility. We're focused on benefits and we're focused on corporate payments. So if you think about every day, people are making millions and millions of payments, and they're doing it in a very complex regulated environment. And we believe our solutions help them have more confidence in the decisions that they're making. They're able to do it in a compliant way, and they're able to do it in a way that allows them to focus on what they do best in their business. We're really focused around how we can simplify the transactions, how we can enrich the data associated with those transactions and how our customized controls can create more confidence across their businesses so that they can save money, they can save time and they can eliminate misuse. So if you look across everything we do, our core purpose is to simplify the business of running a business. That's how we think about the solutions that we bring into the marketplace on behalf of our customers. So if you look at the markets we're in, we are across 3 large and growing markets. In the mobility market space, we're really focused on vehicle-related payments and how we can help simplify those payments and benefits for looking at places where we can help create more control around the payments that are getting made and help make more intelligent decisions on benefit enrollment options. And then accounts payable, we're focused on embedded payments, which are highly technical and then accounts payable automation. All of these products operate across our technology stacks. So think about we have a payments platform that powers all of this. We're really focused around how that payments platform can create a more intuitive experience for our customers, and we're really focused on how we can optimize both our growth and our profitability across this broad spectrum of customers. Our strategy, if you look at the strategy of the company, we're focused on 3 different things. First of all, we want to make sure that we have a foundation in place in order to grow the company. Number one, we want to amplify our core. So when I think about our motions around this is we want to make sure that we're acutely focused on bringing in new customers, retaining our existing customers and making sure we're doing that at the optimal price point. And as we look at solutions that we're bringing into this marketplace for making sure that those solutions are enabling our customers to simplify their business or running their business. We're in a leadership position across each of the markets we're in, and we're focused on retaining that leadership position. Number two, expand our reach, so this is where we're looking at places where we can extend into new profit pools, new areas of functionality that we haven't been able to provide in the past and where we have a unique right to win. And a couple of examples of that, that are live in the marketplace right now. We have products that we've created called 10-4, which allows owner operators in the over-the-road space to download through an app or access to our closed loop network, which allows them to buy fuel at a discounted rate. When that happens, they actually pay us a fee associated with that. And so it's tapping us into a marketplace that we haven't been able to reach in the past and allowing those customers to grow into some of our more mature products. The same thing is true if you look at some of the embedded payments products that we've rolled out into the marketplace. We've taken functionality that we have within the travel space and are now using it to solve payment flows across other categories where people have a need to fulfill a workflow through a payment. And then the last thing for us is to accelerating innovation, and this sits across everything that we do. We are acutely focused and have been for the last couple of years of how we can use technology and specifically artificial intelligence to create a more intuitive experience for our customers and do that at a lower cost. Last year, we were able to increase our product innovation velocity, which is something we pay a lot of attention to. So how can we increase the speed of organic innovation. We increased it 50% in 2025, and we did it with over 400 less people that sit within our product and technology group. So we think of this as a huge accelerant for us because it's allowing us to bring more products into the marketplace, to solve more problems for our customers and do it faster and faster. And at the same time, we're taking that same expertise and applying it to our overall operational cost structure and in finding ways to accrete margin which we think are also creating a better customer experience but doing it at a lower cost. So if you go through each of these different areas, mobility represents about 50% of their overall business. And the problem that we're solving for our customers is using our closed-loop proprietary network. We're allowing our customers to have the most amount of control over what spend happens across the enterprise. Whether that happens with an EV vehicle or if that happens with the gas powered vehicle, we want to be in the front and center of that. And we're using our proprietary data to help fleets either upfront control or at the end of the day, they prefer to detect behavior that is out of a normal pattern. The advantage that we have in this space is a, our close loop network; and b, the fact that we operate at scale. This is a business we've been in for a long time, and we're able to at scale, predict both fraud and just misuse within our customer base. If you're a really large customer, what you're interested in is the ability to look through a huge amount of data and understand where there's an outlier. If you're a really small customer, think of that as like a local fleet that maybe as a contractor. What they're interested in is the piece of buying that people are purchasing old fuel, and so having the ability to lock down what is purchased is really important to that customer base. We go to market here, both through partners. BP being the most recent one. BP will roll on to our platform this year. BP came to us because of the enhanced acceptance product offering that we have in our space where we can lock down not just what people purchase within our closed-loop network, but we've extended the capability to do things like tolling and parking. And so they can have a very specific use case but extended beyond what we've been doing in the fuel arena. So really excited about what we're doing in this space. It continues to be an important part of the growth story and highly cash generative part of the business. So if we turn to our benefits business with this customer base, so think of -- actually, anybody in the room enrolled recently in benefits? There has to be a few here. So if you look across this, we have a unified platform that has the most amount of functionality. So we can enroll someone from a benefits administration perspective, go all the way through to then open up an HSA and FSA health care retirement account, a lifestyle savings account. Any type of functionality that sits across one technology stack. So when people come to us, they're looking at our ability to manage that life cycle and to use the proprietary data that we have in order to make better informed choices. This is a product road map that is filled with AI capability and something that we're super excited about because we're seeing a lot of interest, really good open enrollment seasons because of the type of products that we're bringing into the marketplace. We're a top 5 HSA provider in the space, and we do business with over 60% of the Fortune 1000. A lot of expertise in deep integration, white labeling or directly with their customer base, and a lot of complexity and switching costs. High margin. If you look at this business, we're earning SaaS fees and custodial revenue, which I'll talk more about in a minute. They're in WEX Bank. And then on Corporate Payments. Corporate Payments for us is part of -- about 20% of the business, and we have 2 primary offerings here. We have an embedded payments product, which is what we offer in travel and our travel-related customers, highly technical, very much API-driven. So think of this as their technology stack of our customers is interfacing with our virtual card technology stack, which is operating at massive scale, at highly predictable and people will embed our workflow into their workflow in order to kick off a payment. We provide data and reconciliation capabilities, so people can at scale really understand what's happening with their system and reconcile it back into their operations. And then on the Direct AP side, we are fulfilling customers' AP needs. They are actually giving us their AP file. We're fulfilling that on their behalf. It's been a very predictable grower and part of our business. Last quarter, we grew spend volume 15%, so it's about 20% of the segment and an important part of the growth of the business. This is an area that we've intentionally invested in the product. We've seen a huge TAM, and we have a unique right to win with our -- the size and scale of our technology stack that enables us to go into these new spend columns and do it at a scale that few others can do. So really excited about the growth of this part of the business. And then if you look across the business, one of the things that sits behind everything we do is WEX Bank. WEX Bank gives us the structural advantage of being able to have low cost of funding and a unified compliance structure in the United States. It also gives us the advantage of being the custodian with their benefits business. And each of those cases, we're able to accrete higher economics than if we were to do it outside of our banking structure. To look at our track record, over time, WEX's 10-year CAGR on revenue growth has been 10%. Our CAGR on EPS, adjusted EPS has been 14%. And -- when I think back in 2025, we think of 2025 was for us an investment year. We were very focused around how we could, based on the analysis we've done, invest incremental dollars that yielded high returns. 2026, we view as a scaling year. Embedded in our guidance and our long-term guide is 5% to 10% organic revenue growth, excluding macro, and 10% to 15% EPS growth. we're in this range in 2026. So if you exclude fuel prices, FX and interest rates, the midpoint of revenue guide is 5%, midpoint of EPS guide is 13%. And so we're really proud of the history that we have of consistently delivering both revenue growth and earnings growth. And sitting behind that is an expectation that -- and I talked about '26 being a scaling year that we've started to see that scale coming through from investments, they're paying off. That's -- we had incrementally better quarter improvement each throughout 2025. We set a plan, we delivered against the plan. We've done that same thing in '26. And we're really excited about the tangible progress that we've made around expanding our margins and how we're using technology to make that a very sustainable approach into the marketplace. So when we think about 2026, we entered the year with more momentum. We hit this inflection point towards the end of 2025 and are excited of how that is progressing through the course of '26 so far. One of the things people talk a lot about is how much cash we generate. So WEX is a strong, consistent cash generator, $638 million in 2025. So if you look at where we've been placing our cash flow, we've been really focused around keeping within that leverage range of 2.5 to 3.5x. You can see that we are in that 3.1x range right now. We're very focused on delevering and continue to move down into that range. And if you look at how we continue to gear the businesses with this eye towards how can we maximize the cash flow generation that we have across the enterprise, it's a great cycle that we have because we can reinvest a portion of that which I'll talk about in a minute. So if you think about capital allocation, the last few years, we've been particularly focused around how we can deploy capital and been acutely focused on share buyback. We've returned $2 billion to shareholders since 2022, including $790 million this last year. As we think about deployment in the moment we're in right now, first, we're focusing on continuing to strengthen the balance sheet. So moving cash to pay down debt until we get below the midpoint of our leverage range. So as we dip below that 3%, then we would look at other uses of capital. Internal reinvestment has been a high focus of ours recently. And so we continue to make sure that we're delivering the right amount of investment for what we see as a really significant opportunity. We're satisfied with that. And then next order has been when we think about risk-adjusted return, that's our North Star. So really focused, again, recently has been share buyback. It's been the place that we've been deploying capital. In this environment, I would expect that to continue through 2026. So when we look at the business, these long-term growth targets for us are, again, they're organic. So we're looking at 5% to 10% organic revenue growth, 10% to 15% EPS growth. We gave out a guide on February 5 of $2.7 billion to $2.76 billion in revenue and EPS of $17.25 to $17.85. So again, at the midpoint when you exclude fuel prices, FX and interest rates, that puts us at 5% revenue growth and that puts us at 13% EPS growth. So very much in the range and marks clear acceleration from 2025 into 2026. And I think more importantly, we feel like we're on a really great path of increasing our organic innovation and that that's a cycle that will continue to be much more predictable for us in the next few years. So for me, the big takeaways is we operate in really complicated payment streams where we're able to take friction out of complicated workflows. We're able to do that with a highly recurring revenue model and increasingly, the organization has been innovation led in the way that we're thinking about that. So we put the customer in the center of what we do. We've been really thoughtful about creating new and emerging products with customer in mind. It's solving problems for them in a way that is -- where we are uniquely positioned. And we have a long track record of compounding both earnings growth and revenue growth. And so we're excited about the path we're on. We feel really committed to the strategy that we have and looking forward to any questions.

Okay. Awesome. Thank you for that. So I did want to start here with, obviously, what's been the most topical, not only at this conference, but also in the market. And obviously, that's AI. Can you just talk at a high level, you gave some interesting stats, but maybe just dive a little bit into more detail on how you believe WEX is positioned as AI adoption grows and where you see potential opportunities and where you're assessing potential risks?

Yes. I love that question. You know I love that question. So 2 years ago, one of the things that we decided that one of the places we want to make a big bet was around AI. We decided to unify our product teams. We brought in a new leader in product and brought in a CTO who had experience in this field. And we ended up replacing about 1/3 of our technology group with people who had artificial intelligence, data science skills in their background. And and started to introduce more early career hiring into our pipeline. We had like a really clear focus around the fact that we wanted to increase our product innovation velocity. So we wanted to be able to use the tools and technology to bring products into the marketplace quicker for our customers because we felt like we were in an environment where we would be doing less M&A and we wanted to be able to bring products into the marketplace organically. And that has been -- it's a great snowball as you can see that our teams are co-creating faster. We've got AI embedded in both product discovery all the way through to 40% of our code is being written by AI right now. And so -- and it is this exponential curve where we're getting faster about the way that we're approaching that. So we're able to do more with less on the technology and product side. Part of what we're able to do when we talk about going into the small customer base in mobility is because we had invested that same type of rigor in our risk and fraud tools a couple of years ago, really step back and said, how do we advance the capability that we have there. And that foundationally and then have moved that into our marketing capability. And so as you look across the business, risk, tech, product, it's been really reimagined the experience and we're just doing that now in our operations areas where we're starting with what's possible and thinking about from a customer perspective, how do we solve solutions, how do we solve the problems our customers have, and we do it in a much more intuitive way. So I'm really excited about the -- I think of this offense and defense. But on the offense side, our product road maps are strung together with a lot of artificial intelligence capabilities for our customers. On the defense side, it's thinking about how you reimagine the company in a way that makes it that much more cost effective. And so I just feel like we're in a really great spot of ability to see that happen at scale faster and faster.

Yes. No, that's very helpful color. And then I did want to ask just on kind of macro quarter-to-date trends. You reported about a month ago, I believe, just anything to call out around macro or quarter-to-date that's changed or...

Obviously, fuel prices are higher. Yes, I'd say like in terms of volume trends have looked pretty much playing out as we had expected despite the fact actually we had a negative with the storms, but overall volume has come through pretty predictably. I know there's been a lot of talk in the conversations today about the over-the-road space. And we're definitely seeing like good indicators around spot rates and things like that. But we haven't seen that translate into like more miles driven coming through our customer base yet. But I think there's some like hopeful signs in the overall industry itself. And so I'd say the kind of the most remarkable thing that has changed is fuel prices are higher than they were.

Yes, certainly. And I would say one of the things that I've kind of noticed over the last few quarters is that really feels like the sales momentum is starting to pick up. So can you touch on some of the recent wins they've been pretty broad-based. I mean what's driving kind of this acceleration here?

Yes. I think it's a combination of things. In our benefits business, our product road map is very compelling, and that strong more interest than we probably have had in recent years. We've had a really good service cycle and that also instills confidence. But I would say like people are really excited about where we're going, the pace by which we're going and the confidence that they give them that we're on the right path, and that's -- so that's accelerated what we've seen in that part of the business. With mobility, we've increased the capability that we have in our marketing engine, and we put more money into it, put about $50 million more into it. And so we're seeing the benefit of that coming through in more sales. And we've gotten much better at tuning who we're going after. And I would say it's one of those things where it gets better and better because the risk tools are talking to the marking tools and so we're targeting better customers along the way. We've also got more productive in the outside sales group, and so we've seen a benefit of that. And in Corporate Payments, we've added more bodies into that. So it's a combination, I would say, of better product and excitement around that and a little bit more people and a little bit more productivity.

Okay. And then I wanted to switch gears into kind of your segments here, starting with mobility. You touched on SMB a little bit. It's an area you guys have invested in. How do you think about the market opportunity within SMB? Who are you taking share from? And do you think this is sustainable over the next few years?

Yes. Yes. Actually, so if you kind of go across the small business is the place that's least penetrated. It's only about 10% of the revenue that we have. And so why you've seen us gear so much towards that is because that's -- it's a huge part of the open marketplace. And so -- and we think we are uniquely positioned to win because of all the work we did on our risk tools, so we can be more intelligent about who we're actually picking through to come through to the -- to become customers of ours. And so we're excited about that, both in our local business, but also in over-the-road trucking, it's just inherently got more risk associated with that customer base. So what we're doing with 10-4 is to do it in a way where we're not extending credit. So we like both of those because one gives us a model of access without the risk and the other one is actually just being more intelligent about how we're approaching the risk.

Okay. And then you guys have a guide out there for 1% to 3% organic growth for the segment. It does imply a bit of an acceleration. So one of the questions I often get from investors is just, can you help us bridge how we accelerate from here, understanding that macro has been a little bit volatile, not great recently. So how do we kind of accelerate from here?

Yes. So 2 of the big levers, BP coming on. So we expect them to come on, and we had said second half of the year is where we would see the benefit of that. And the money that we spent on customer acquisition, like increasing that, we're seeing that coming through in actual sales and onboarding. It just takes a little while for that to come through the results, but you start to see that in '26 coming through the results. And there's a little bit just better comps, too, because you've had a period of negative same-store sales that has been lasting for a while. But overall, we're assuming a continued pretty soft environment in our guide for '26.

Okay. And then transitioning here to corporate payments. Obviously, this can mean a lot of different things to a lot of different investors. So can you just double-click on what exactly you do within corporate payments?

Yes. So in embedded payments, we are connecting to technology to technologies. They come in, they'll connect through an API to our virtual card technology stack and we'll initiate a payment on their behalf. So like if you're a travel company, if Steve makes a payment to an online travel agency, then there's a one-for-one relationship between that payment that they're logging and a payment that needs to get made to a hotel. That payment to the hotel gets fired off when it is due. And -- but it gets tracked with that consumer -- original consumer payment. And the magic of that is there, as you might imagined, quite a bit of chargeback activity that happens across that portfolio. And so if Steve objects to his stay and wants his money back then we're able to actually trace it all the way through the system and it can reconcile back automatically into the online travel agency records. And so there's a huge volume that's going through, but there are also a lot of chargeback activity and is happening globally in many different currencies. And so there's a lot of complexity that surrounds those transactions. When we've take it outside of travel, it's that same idea. So if you're a customer that is -- that has a payment flow needed in their work stream. They're going to do the same thing. They're going to connect through an API and we'll kick off a payment on their behalf. And what they care about is the payments made, it's reliably made and the data is reconciled back so that they can close their books and they have confidence on the fact that the right payments were made.

Okay. And I did want to transition to benefits just because we're running low on time. This has been I'd say the bright spot of the company over the last few years. I mean, maybe just talk about the strategy there. You've kind of consistently grown accounts above market. I mean how sustainable is that and what's enabling you to take share?

Yes. People are really excited about the products that we're putting out in the marketplace, and we're doing it at a greater pace. And when you think about in the benefit space because there's a consumer at the end, there's 20 million consumers that ultimately are using the products. The fact that we can AI enable them actually creates a much more intuitive experience. So it is ripe for reimagining how a customer decides what benefits they roll in. It helps them decide how much money to put into what account type. It helps them decide whether or not they should invest that money. So all these decision paths along the way that we can take our proprietary data and create like an assist along the decision points. And it's created a lot of excitement in the space of not just what we're doing now, but we're going to be able to do. And it's a pretty long sales cycle. So what you're doing next actually matters quite a bit to that customer base. So we feel like we have a great sales team. We have great products and they're just getting better, frankly.

Yes. And then you do have a target for 5% to 7% top line growth in that business. You do have a bit of a float headwind...

2 points.

2 points of floats headwind. So can you just double-click on the actual revenue growth drivers for just a quick 30 seconds here? I know we're running out of time...

We're getting the hand wave, yes. okay. It starts with accounts. So more accounts we get SaaS revenue associated with that. Custodian balances tend to grow much higher than the account base because people -- their account balances ripen. And so we'll get like an incremental benefit for that. And then because health care costs go up, payment processing revenue also tends to track higher than account growth.

Okay. And we'll stop there. Thank you so much for being here.

Thank you. Yes, thanks.