WEX Inc. (WEX) Earnings & Analysis

Latest quarter

WEX reported third-quarter revenue of $780.1 million, above the consensus estimate of $757.0 million. Adjusted earnings per share of $6.13 also exceeded the consensus estimate of $5.67. Revenue rose 12.8% from $691.8 million a year earlier, while diluted earnings per share increased to $3.88 from $2.30.

The company’s filing attributes much of the Mobility revenue increase to higher U.S. fuel prices, which lifted payment-processing and late-fee revenue. WEX said Benefits revenue grew partly because higher health savings account cash balances generated more investment income. The filing attributes Corporate Payments revenue growth primarily to improved network pricing under a contract amendment.

WEX reported an operating margin of 30.6%, compared with 26.5% a year earlier. Free cash flow was −$58.2 million, versus $341.6 million a year earlier, while adjusted free cash flow was $234.3 million. The filing says fuel prices and purchase volumes affect working-capital requirements because WEX funds customer receivables in most Mobility and Corporate Payments transactions.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Melissa Smith said sales investments and pricing changes were contributing to improvement in local fleet business. Asked about demand, she said, “We did see softer volume in our over the road business,” attributing it to elevated diesel prices and some movement of freight to rail. Smith said WEX had renewed a major direct over-the-road customer during the quarter.

CFO Jagtar Narula said Mobility organic growth, which excludes fuel prices and foreign exchange, accelerated to 4.4% year over year, helped by pricing initiatives and new business. In response to an analyst’s question about late fees, he said customers had partly returned to normal payment behavior after fuel prices rose; WEX had also increased credit limits for some customers with available credit capacity.

Narula said companywide adjusted operating margin expanded 90 basis points year over year on a macro-neutral basis. Asked about the second half, he said WEX remained on track for the margin expansion it had previously discussed and expected Mobility pricing actions not yet fully implemented to help in the fourth quarter.

In Corporate Payments, Smith said DirectAP volume grew 24%, above the company’s mid-teens expectation, following investment in sales capabilities. Asked about embedded payments, she said implementations were taking longer than anticipated because customers needed to develop integrations with WEX’s systems. She also said Middle East travel disruption had affected customers concentrated in the region.

Smith said WEX was testing AI tools for fleet recommendations and piloting AI-driven account management for smaller fleets. Narula said WEX repurchased $200 million of shares in the quarter and another $75 million through October 26, and planned to continue repurchases through the rest of the quarter.

Guidance

Narula said WEX now expects full-year revenue of $2.97 billion to $2.99 billion and adjusted earnings per diluted share of $21.28 to $21.48. He attributed the increases from the previous guidance midpoints to higher fuel price assumptions and third-quarter performance.

For Mobility, Narula said WEX now expects full-year organic revenue growth of 3% to 5%, compared with the 1% to 3% expectation set at the beginning of the year. He said Corporate Payments revenue growth is now expected at 4% to 6%, versus the initial 5% to 7% range, after accounting for the travel impact of the Middle East conflict.