WEX Corporation's Growth and Focus on Electric Vehicles
2023-07-30
WEX Corporation held its Q1 2023 earnings call, where the company discussed strong financial results and the rebranding of its business segments. The meeting focused on the ongoing transformation of the company's business, with an emphasis on unifying product themes centered around data, payments, and digitization.
One of the most interesting topics discussed was WEX's approach to product evaluation and potential mergers and acquisitions (M&A). The CEO highlighted the company's careful analysis of whether to build, partner, or buy as part of their product evaluation process. Factors such as product adjacencies, scale plays, and geographic expansion capabilities are considered when evaluating potential assets. Notably, the company has a separate work stream dedicated to exploring opportunities in the electric vehicle (EV) space, indicating their active interest and potential investment in this area.
However, the CEO acknowledged a challenge in valuing potential acquisitions due to a disconnect between private and public multiples in the corporate payments space. This suggests that accurately assessing the value of potential acquisitions may be difficult for the company. Nonetheless, WEX remains committed to growth through M&A activities and actively seeks assets to add to their pipeline.
Regarding direct corporate payments offerings, the CEO mentioned that the company has been increasing investments in this area due to favorable market conditions. They have a clear product roadmap and are considering whether to continue building internally or explore opportunities to buy technology or partner with other companies. This strategic approach indicates WEX's commitment to expanding their corporate payments offerings.
The market outlook for the company is a mix of positive and negative indicators. While there has been a slowdown in the over-the-road customer base, other areas such as construction have shown growth. Same-store sales growth rates are slowing down but are not considered weak. The company's travel trend and fleet gallons have remained stable. WEX has recently secured significant customers in the benefits and corporate payments sectors, with revenue expected to be spread out over the next few years. Additionally, the company is actively seeking M&A opportunities for capital allocation.
During the meeting, the key drivers of WEX's business were identified as growth from the existing customer base, ramping on the direct side, benefit from existing partners, digital capability and customer experience, and the mobility segment and electric vehicles.
WEX plans to continue selling their embedded payments product to the fintech community in the United States. They also aim to ramp up sales of their AP direct product through a direct sales force. The company has already seen positive results, with 40 signings in the quarter, and expects to further increase sales in this area.
In terms of key performance indicators (KPIs), WEX reported a significant increase in revenue, with a year-over-year growth of 18% to $612 million. This growth was primarily driven by a 36% increase in the corporate payments and benefits segment. Organic revenue growth, excluding the impact of fuel prices and foreign exchange rates, was also strong at 19%. The company achieved an adjusted net income per diluted share of $3.31, representing a 15% increase compared to the same quarter last year. Additionally, the total volume processed across the organization grew by 17% year over year to $52.3 billion, driven by strong performance in the corporate payments and benefits segments.
Based on a strong first quarter, WEX raised its guidance for 2023. They expect revenue for the second quarter to be in the range of $613 million to $623 million and revenue for the full year to be in the range of $2.45 billion to $2.49 billion. The company also projects an adjusted net income per diluted share between $3.45 and $3.55 for the second quarter and between $13.85 and $14.25 for the full year. WEX expressed satisfaction with their Q1 results and believes they are executing well in terms of revenue growth and customer service efficiency.
WEX has made progress on several strategic initiatives, including signing a significant deal with a major healthcare system in the US for corporate payments. They have also seen positive returns from their direct sales force, with over 40 deals signed in the first quarter. Travel volume has rebounded globally, particularly in Europe, and the company has renewed a contract with a populous state. WEX is actively focusing on electric vehicle initiatives, such as expanding their mobile app to include EV charging stations and piloting an at-home reimbursement product for EVs in the mobility sector.
The participants of the earnings call included Melissa Smith, the chair, CEO, and president of WEX, Jagtar Narula, the CFO of the company, and Steve Elder, the Vice President of Investor Relations who hosted the call.
In conclusion, WEX Corporation had a strong start to the year, surpassing revenue expectations and exceeding adjusted net income per share guidance. The company's commitment to innovation, industry collaboration, and specialized solutions showcased at their annual SPARK conference positions them well for continued success in the future. With promising financial results and a strategic focus on growth areas such as corporate payments and electric vehicles, WEX is poised for further expansion and profitability.