WEX's Strategic Investment in AI and Market Outlook

2023-08-01

WEX, a financial company, recently held a call meeting to discuss their results and provide an update to investors. The meeting was attended by key executives and analysts from financial institutions.

During the meeting, one of the most interesting topics discussed was the company's investment in machine learning and AI technologies. This investment has been focused on two key areas: credit adjudication and portfolio management capabilities, and large language model AI tools for software engineers.

In terms of credit adjudication and portfolio management, WEX has leveraged machine learning models to improve insights on their portfolio and enable proactive actions. This has resulted in strong initial results, allowing the company to manage existing portfolios with increased precision and support future growth. By utilizing machine learning, the company is able to make data-driven decisions and take proactive measures to mitigate risks.

On the software engineering side, the implementation of large language model AI tools has significantly improved productivity. These tools augment the engineers' day-to-day work, increasing speed to market and reducing the cost of developing new products. This has been a successful initiative, leading to the establishment of an AI center of excellence within the company.

The AI center of excellence is focused on hiring, educating, and training data scientists and analysts on best practices in model development and advancements in AI technologies. The goal is to increase the skill set of data science and data analysis teams across the company through projects and rapid experimentation. This will ultimately result in bringing new products to market faster and staying ahead in the competitive landscape.

Overall, the company's investment in machine learning and AI technologies is a strategic move to enhance their capabilities in credit adjudication, portfolio management, and software engineering. This will not only improve their decision-making processes but also drive innovation and growth in the long run.

During the meeting, the CEO also provided an optimistic market outlook for the company. Despite challenges such as higher inflation and utilization pricing, the company is experiencing growth in new sales and same-store growth. They are focused on achieving a long-term guidance range of 3% to 5% across the business. The company is also seeing growth within their existing customer base and new product revenue. The sales force is bringing in new accounts, and the CEO expects a normal year for the company.

Additionally, the company's investment in WEX Venture Capital allows them to stay close to market developments and potentially pursue M&A opportunities. This investment also enables the company to introduce innovative products to their existing customers and foster connections. Overall, the market outlook for the company is optimistic.

The key drivers of the business discussed in the meeting include new sales, same-store growth, higher inflation, and utilization pricing. The company aims to achieve a sales growth rate of 3% to 5% by bringing in new accounts and expanding their customer base. They are also investing in venture capital to stay close to market developments and innovation, potentially leading to acquisitions. Strong travel volumes were also mentioned as a driver of growth for the business.

In terms of the company's plans for product and service, they are focused on achieving sales growth through new sales and same-store growth. Factors such as higher inflation, utilization pricing, and net attrition are being considered to build a better model for sales growth. The company has set a long-term guidance range of 3% to 5% across the business, and each business unit is working towards achieving this growth target. They expect growth within their existing customer base and anticipate revenue from new products. The company's sales force is also expanding to bring in new accounts.

The meeting highlighted several key performance indicators (KPIs) that are important for the company. Sales growth was identified as a crucial KPI, with a focus on new sales and same-store growth. The company also set a target of 3% to 5% sales growth across the business as part of their long-term guidance range. Customer base growth was highlighted as another important KPI, driven by new product revenue and new accounts brought in by the sales force. Additionally, the company announced their investment in WEX Venture Capital, which aims to get closer to market developments and potentially acquire innovative companies in the future. Finally, travel volumes were likely discussed as a KPI, although further details were not provided.

Looking ahead, the company expects a growth rate of around 4% on an ex-fuel basis for the full year. They anticipate tougher comparisons in the back half of the year, particularly in late fee rates and gallon volumes. However, they still believe that the 4% growth rate is a reasonable level to aim for. In terms of the benefits segment, they do not expect significant increases in cash assets for the remainder of the year. They typically see more growth in late-year and going into the next year. In terms of mobility, the company is confident in its ability to continue taking market share from traditional competitors, the cash market, and general-purpose credit cards. They have a predictable sales engine and offer products to both large and small customers. Overall, the company is bullish about its outlook.

The company has also made progress on its strategic initiatives. They are focusing on electric vehicles (EVs) and aim to create a seamless transition for customers as they move towards a mixed-fleet environment. They have invested in tools and partnerships for the mixed-fleet world, have market-leading products for EV capabilities, and have acceptance agreements with charging networks. They are also testing an at-home charging reimbursement product and plan to roll out a depot solution next year. In terms of operational improvement, the company is on track to remove $100 million in expenses by the end of 2024, with half of the savings being reinvested.

The participants of the conference call included Steve Elder, Vice President of Investor Relations, Melissa Smith, Chief Executive Officer, Jagtar Narula, Chief Financial Officer, and several analysts from various financial institutions. The article will focus on discussing the recent conference call held by the company, highlighting the participants and their roles. It will also mention the company's plans to release their third-quarter results in late October.