WEX(WEX) - 2024 Q3 - Quarterly Results

I. Executive Summary WEX reported record Q3 revenue of $665.5 million with strong adjusted net income growth, despite macroeconomic headwinds in Mobility, and increased its share repurchase authorization to $1 billion 1.1 Q3 2024 Financial Highlights WEX achieved record Q3 revenue of $665.5 million, a 2% increase, with adjusted net income per share rising 7% to $4.35, alongside $370 million in share repurchases Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $665.5M | $651.4M | +2% | | GAAP Net Income per Diluted Share | $2.52 | $0.42 | +500% | | Adjusted Net Income per Diluted Share | $4.35 | $4.05 | +7% | | GAAP Operating Income Margin | 29.5% | 26.8% | +2.7 p.p. | | Adjusted Operating Income Margin | 44.0% | 41.8% | +2.2 p.p. | - The company spent $370 million on share repurchases in Q3, which included a $300 million accelerated share repurchase (ASR) agreement[1] - Revenue growth was negatively impacted by $21.2 million from fuel prices and spreads, but positively impacted by $2.2 million from foreign exchange rates[2] 1.2 Management Commentary Management noted Q3 performance fell short of expectations due to macroeconomic challenges in Mobility, but expressed confidence in long-term initiatives and a $1 billion share repurchase authorization - CEO Melissa Smith stated that Q3 performance fell short of expectations despite growth, attributing challenges to the macro environment[2] - CFO Jagtar Narula identified the guidance shortfall as primarily within the Mobility business, affected by declining fuel prices, same-store sales softness, and an unplanned charge to finance fee revenue[6] - The Board of Directors increased the share repurchase program authorization by $1 billion. Since 2022, the company has reduced its outstanding shares by 12%, reaching the lowest level in nearly a decade[6] 1.3 Q3 2024 Key Performance Metrics Total volume grew 1% to $62.3 billion, with Mobility transactions up 1% and Benefits SaaS accounts up 2%, while Corporate Payments purchase volume declined 16% Q3 2024 Operational Metrics vs. Q3 2023 | Metric | Segment | Q3 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Volume | All | $62.3B | +1% | | Payment Processing Transactions | Mobility | 146.5M | +1% | | Average Vehicles Serviced | Mobility | 19.7M | +3% | | Average SaaS Accounts | Benefits | 20.3M | +2% | | Average HSA Custodial Cash Assets | Benefits | $4.3B | +10% | | Purchase Volume | Corporate Payments | $23.4B | -16% | - Adjusted free cash flow for Q3 2024 was $189.5 million, while cash flow from operating activities was $3.3 million[5] II. Financial Guidance and Assumptions WEX revised its full-year 2024 financial outlook downwards, projecting revenue between $2.62 billion and $2.63 billion, based on specific fuel price and tax rate assumptions 2.1 Q4 and Full-Year 2024 Outlook WEX reduced its full-year 2024 outlook, now projecting revenue between $2.62 billion and $2.63 billion and adjusted net income per share between $15.21 and $15.31 Financial Guidance for 2024 | Period | Metric | Guidance Range | | :--- | :--- | :--- | | Q4 2024 | Revenue | $630M - $640M | | Q4 2024 | Adjusted Net Income per Diluted Share | $3.51 - $3.61 | | Full Year 2024 | Revenue | $2.62B - $2.63B | | Full Year 2024 | Adjusted Net Income per Diluted Share | $15.21 - $15.31 | 2.2 Guidance Assumptions Guidance assumes average U.S. retail fuel prices of $3.28/gallon for Q4 and $3.48/gallon for the full year, with a 25.0% adjusted net income effective tax rate - Guidance is based on assumed average U.S. retail fuel prices of $3.28 per gallon for Q4 and $3.48 for the full year 2024[8] - An adjusted net income effective tax rate of 25.0% is assumed[8] - Assumed fully diluted shares outstanding are approximately 40.5 million for Q4 and 41.4 million for the full year, excluding further share repurchases[8] III. Segment Performance Analysis The Mobility segment saw revenue growth, Benefits showed strong performance, while Corporate Payments experienced a revenue decline, reflecting varied segment-level dynamics 3.1 Mobility Segment Mobility segment revenue grew 2% to $357.2 million, driven by a 15% rise in account servicing, with adjusted operating income reaching $167.1 million and a 46.8% margin Mobility Segment Revenue (Q3 2024 vs Q3 2023) | Revenue Line | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Payment processing | $183.2M | $176.9M | +4% | | Account servicing | $49.0M | $42.5M | +15% | | Finance fee | $70.2M | $76.8M | -9% | | Other | $54.7M | $53.9M | +2% | | Total Revenues | $357.2M | $350.1M | +2% | Mobility Segment Adjusted Operating Income | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Adjusted Operating Income | $167.1M | $159.6M | | Adjusted Operating Income Margin | 46.8% | 45.6% | 3.2 Corporate Payments Segment Corporate Payments revenue declined 6% to $126.9 million, mainly due to a 10% drop in payment processing, with adjusted operating income at $71.5 million and a 56.4% margin Corporate Payments Segment Revenue (Q3 2024 vs Q3 2023) | Revenue Line | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Payment processing | $104.8M | $115.8M | -10% | | Account servicing | $15.5M | $10.5M | +48% | | Other | $6.4M | $8.7M | -27% | | Total Revenues | $126.9M | $135.2M | -6% | Corporate Payments Segment Adjusted Operating Income | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Adjusted Operating Income | $71.5M | $82.9M | | Adjusted Operating Income Margin | 56.4% | 61.3% | 3.3 Benefits Segment Benefits segment revenue grew 9% to $181.5 million, driven by a 34% increase in 'Other revenue', with adjusted operating income rising to $78.4 million and a 43.2% margin Benefits Segment Revenue (Q3 2024 vs Q3 2023) | Revenue Line | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Payment processing | $21.9M | $20.6M | +6% | | Account servicing | $110.0M | $108.5M | +1% | | Other | $49.4M | $36.9M | +34% | | Total Revenues | $181.5M | $166.1M | +9% | Benefits Segment Adjusted Operating Income | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Adjusted Operating Income | $78.4M | $58.8M | | Adjusted Operating Income Margin | 43.2% | 35.4% | IV. Consolidated Financial Statements Q3 2024 saw a 2% revenue increase to $665.5 million and a significant rise in GAAP net income, while cash flow from operations shifted to a net use of $157.0 million for the nine months 4.1 Condensed Consolidated Statements of Operations Q3 2024 total revenues increased 2% to $665.5 million, with operating income growing to $196.4 million and GAAP net income significantly rising to $102.9 million Q3 2024 Statement of Operations Highlights (in millions) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Total Revenues | $665.5 | $651.4 | | Total Cost of Services | $249.2 | $235.1 | | Operating Income | $196.4 | $174.9 | | Income Before Income Taxes | $141.1 | $44.4 | | Net Income | $102.9 | $18.4 | | Diluted EPS | $2.52 | $0.42 | 4.2 Condensed Consolidated Balance Sheets As of September 30, 2024, total assets were $13.96 billion, total liabilities $12.28 billion, and stockholders' equity decreased to $1.68 billion due to share repurchases Balance Sheet Highlights (in millions) | Line Item | Sept 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $9,109.4 | $8,935.3 | | Total Assets | $13,961.4 | $13,882.1 | | Total Current Liabilities | $8,718.1 | $8,519.2 | | Total Liabilities | $12,284.0 | $12,061.5 | | Total Stockholders' Equity | $1,677.5 | $1,820.6 | 4.3 Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, operating activities used $157.0 million cash, investing activities used $724.0 million, and financing activities used $41.1 million, including $543.6 million in share repurchases Nine Months Ended Sept 30 Cash Flow Highlights (in millions) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Cash flows from operating activities | $(157.0) | $146.0 | | Net cash used for investing activities | $(724.0) | $(1,571.4) | | Net cash (used for) provided by financing activities | $(41.1) | $1,705.3 | | Repurchases of common stock | $(543.6) | $(152.6) | | Net change in cash, cash equivalents and restricted cash | $(918.2) | $257.1 | V. Non-GAAP Financial Measures & Reconciliations WEX provided reconciliations from GAAP to Non-GAAP measures, including adjusted net income, adjusted operating income, and adjusted free cash flow, with a revised cash flow methodology 5.1 Reconciliation of Net Income to Adjusted Net Income WEX reconciled Q3 2024 GAAP Net Income of $102.9 million to Adjusted Net Income of $177.5 million, with key adjustments for intangible amortization and stock-based compensation Q3 2024 GAAP to Non-GAAP Net Income Reconciliation (in millions) | Description | Amount | | :--- | :--- | | GAAP Net Income | $102.9 | | Acquisition-related intangible amortization | +$50.4 | | Stock-based compensation | +$29.8 | | Other costs | +$12.6 | | Tax related items | -$20.9 | | Other adjustments | +$3.9 | | Adjusted Net Income | $177.5 | 5.2 Reconciliation of Operating Income to Adjusted Operating Income The company reconciled Q3 2024 GAAP Operating Income of $196.4 million to Adjusted Operating Income of $293.0 million, primarily adjusting for intangible amortization and stock-based compensation Q3 2024 GAAP to Non-GAAP Operating Income Reconciliation (in millions) | Description | Amount | | :--- | :--- | | GAAP Operating Income | $196.4 | | Acquisition-related intangible amortization | +$50.4 | | Stock-based compensation | +$29.8 | | Other costs | +$14.8 | | Unallocated corporate expenses | +$24.1 | | Other acquisition and divestiture related items | +$1.6 | | Total Segment Adjusted Operating Income | $317.1 | | Less: Unallocated corporate expenses | -$24.1 | | Adjusted Operating Income | $293.0 | 5.3 Reconciliation of Operating Cash Flow to Adjusted Free Cash Flow WEX reported Q3 2024 adjusted free cash flow of $189.5 million, reconciled from GAAP operating cash flow of $3.3 million, with a new methodology including WEX Bank cash balances - Beginning in Q3 2024, the definition of adjusted free cash flow was updated to include an adjustment for the change in WEX Bank cash balances[24] Q3 2024 Operating Cash Flow to Adjusted Free Cash Flow (in millions) | Description | Amount | | :--- | :--- | | Operating cash flow | $3.3 | | Change in WEX Bank cash balances | +$125.3 | | Net Funding Activity | +$372.2 | | Less: Net purchases of current investment securities | -$276.3 | | Less: Capital expenditures | -$35.0 | | Adjusted free cash flow | $189.5 | VI. Supplemental Information Macroeconomic factors, particularly fuel prices, negatively impacted Q3 revenue and adjusted net income, while key operational metrics showed mixed trends across segments 6.1 Impact of Macroeconomic Factors Macroeconomic factors had a mixed Q3 impact, with unfavorable fuel prices negatively affecting revenue by $21.2 million and adjusted net income by $13.5 million, while FX rates were favorable Q3 2024 Macro Factor Impact on Revenue (in millions) | Factor | Mobility | Corporate Payments | Total WEX Inc. | | :--- | :--- | :--- | :--- | | FX Impact | $(0.5) | $(1.7) | $(2.2) | | PPG Impact | $21.2 | $0.0 | $21.2 | Q3 2024 Macro Factor Impact on Adjusted Net Income (in millions) | Factor | Mobility | Corporate Payments | Benefits | | :--- | :--- | :--- | :--- | | FX Impact | $(0.6) | $(1.2) | $(0.1) | | PPG Impact | $13.5 | $0.0 | $0.0 | 6.2 Selected Quarterly Metrics Q3 2024 Mobility payment processing transactions increased to 146.5 million, while Corporate Payments purchase volume declined to $23.4 billion, and Benefits SaaS accounts remained stable at 20.3 million Key Metrics Trend (Q3 2023 - Q3 2024) | Metric (in millions, except rates) | Q3 2024 | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Mobility: Payment processing transactions | 146.5 | 144.9 | 136.9 | 138.1 | 144.6 | | Corporate Payments: Purchase volume ($) | 23,394.4 | 25,756.2 | 23,947.9 | 22,800.8 | 27,860.1 | | Benefits: Average number of SaaS accounts | 20.3 | 20.0 | 20.3 | 19.9 | 19.9 |