Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEX Q4 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Steve Elder, Vice President of Investor Relations. You may begin your conference.

Thank you, operator. Good morning, everyone. With me today is Melissa Smith, our Chair and CEO; and our Interim CFO and Chief Accounting Officer, Jennifer Kimball. The press release we issued earlier today and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the release and the slide deck have also been included in 8-Ks we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically, adjusted net income attributable to shareholders which we refer to as adjusted net income, or ANI, and adjusted operating income. Adjustments for this year's fourth quarter and full year GAAP results to arrive at these metrics include unrealized gains on financial instruments, net foreign currency losses, acquisition-related intangible amortization, other acquisition and divestiture-related items, stock-based compensation, other costs, change in fair value of contingent consideration, debt restructuring and debt issuance cost amortization, similar adjustments attributable to non-controlling interests and certain tax-related items as applicable. The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis as we are unable to predict certain elements that are included in reported GAAP results. Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income attributable to shareholders to GAAP net income attributable to the shareholders and a reconciliation of operating income to adjusted operating income. I would also like to remind you that, we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release, the risk factors identified in our 2020 annual report on Form 10-K filed with the SEC on March 1, 2021, our quarterly reports on Form 10-Q and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa Smith.

Thanks, Steve, and good morning, everyone. We appreciate you joining us today. Before diving into our Q4 and full year results, I'd like to share my appreciation for our dedicated team members across the globe, who continue to execute admirably with the backdrop of the ongoing pandemic. As a result of their remarkable efforts, 2021 was a very strong year for WEX. In the fourth quarter, we delivered record revenue of $498 million, a year-over-year increase of 25% driven by the continued expansion of our platform. Approximately 12% of the increase in revenue was from higher fuel prices. So revenue grew approximately 13% for all other factors. Total purchase volume processed across the organization in the fourth quarter grew 79% year-over-year to $25 billion, reflecting the strong rebound and momentum we are seeing across each of our businesses. Worth noting that, while travel volumes have not yet returned to pre-pandemic levels, we have more than made up for the loss of revenue, powered by the underlying strength across all of our other solutions. Record quarterly revenue paired with a unique efficiency and scalability of our platform, resulted in adjusted net income per diluted share of $2.58, an increase of 78% compared to the same quarter last year. Before turning to the key drivers of our growth during the quarter, let me quickly touch on our full year 2021 results. On a full year basis, 2021 revenue increased 19% year-over-year. Approximately 8% of this increase was due to higher fuel prices and some benefit from foreign exchange rates, leaving approximately 11% growth for all other factors. Full year purchase volume of $88 billion was up 59% compared to 2020 and full year adjusted net income grew 51% reflecting many of the same benefits of scale and efficiency that I just mentioned.…

Thank you, Melissa and good morning, everyone. While I haven't had the opportunity to meet many of you, I'm really excited to join Melissa and be here with you today. First, I'll provide an overview of our strong fourth quarter results. We'll then shift to our outlook for the first quarter and full year 2022. We raised our fourth quarter and full year guidance in early January, and our results played out even better than expected. Feeding on both top line and adjusted earnings. To put this into perspective, this was one of the best quarters in WEX history. As Melissa mentioned, we ended 2021 with a great deal of momentum, which demonstrates the strength of our organic business and gives us a nice tailwind coming into this year. Let's start with the results for the full year on slide 11. We delivered total revenue of $1.85 billion, up 19% over prior year, GAAP earnings per share attributable to shareholders was breakeven. Adjusted net income per diluted share was $9.14, up 51% comparatively. Fuel prices and favorable foreign exchange rates added $125 million of revenue versus prior year. I'm pleased to report that each of our segments outperformed expectations. Full year revenue was a record high and above 2019 pre-pandemic levels by more than $125 million. Our fleet segment led the way with 21% growth over last year, followed by mid to high-teen growth in Travel and Corporate Payments and Health. Now let's move on to the quarter results. Starting on slide 12. Total revenue came in just about the high end of our range up 25% compared to prior year, reflecting healthy volume increases across each of our segments acquisitions and higher fuel prices. From an earnings standpoint, on a GAAP basis, Q4 had net loss attributable to shareholders…

[Operator Instructions] Your first question is from Ramsey El-Assal of Barclays. Please go ahead. Your line is open.

Thanks so much for taking my question. Good morning. You mentioned out that you signed a new agreement with Mastercard had broader acceptance proprietary programs...

Ramsey, I'm sorry, can you hear me?

I can hear you. Can you hear me okay?

You're cutting in and out. I heard you ask -- this is Melissa. I heard you ask about MasterCard, but you were cutting in and out.

Yes. Let me try to change my charger. Hold on.

Thank you

Is that any better?

Much better. Thank you.

Okay. Let me -- that's exactly right. I was asking about Mastercard and that new arrangement and whether you could help us think through the size of it and also kind of the distribution strategy, how does it roll out?

Yes, sure. So we find that when our customers come on to the fleet program, part of the attraction for them is the ability to lock down their controls. It really particularly like the idea that they can lock down to very specific things like fuel moves. And then we find over time with that customer base, they are interested as they build trust with us to be able to actually purchase more readily. And so this arrangement we have with MasterCard is really allowing the best of both worlds, where we'll embed the open loop capability, where our proprietary network doesn't extend. And so customers, if they want, would be able to actually use our proprietary network in our locations and then purchase on top of that. And where we find that to be particularly interesting is with our smaller fleet customers who have a desire to continue to have more capability with us. They want to have it integrated within their systems within one point. And so we see this as just a nice extension of the product capability we have right now. And in terms of opportunity this is -- we'll see better as we go into the marketplace. What we're hearing from customers and what we're seeing for demand, we think this will actually give us a nice little less.

Okay. And my second question is about the take rate in Travel and Corporate Payments. There's a lot of moving parts. I guess, the first question I wanted to ask on that was, will we see any incremental kind of yield compression from the large new travel renewal you called out? And I guess -- you also talked about some renewal with the networks. And I'm just wondering if that creates sort of an offset. So how should we think about that take rate sort of trending over the next stretch with these inputs?

Yes. Yes. Look, on Page 22 in the deck, we actually added in some detail around this because we know that the change would -- that one customer going from gross to net adds a little bit of complexity. So we showed that on a comparable basis on both Page 22 and Page 23. And what you can see is that Travel and Corporate Payments volume was up 120% over Q4 of last year. And then we also showed the rate. So the net rate went from 52 basis points when you adjust it for that gross to net change to 63 basis points in the fourth quarter. So it went up actually 11 basis points. That's largely due to true-up adjustments that we make in the normal course at the end of the year. So what I would say is, if you parse the rate out and you were to look at it split between travel and corporate payments, we expect the travel rate to look pretty consistent to the average of the full year for 2021. And we expect the Corporate Payments rate as we bring on more embedded payments customers to trend that rate down through the course of 2022. And that you can see the margin on there as well. So we're showing the margin adjusted by quarter for movement of that customer from gross to net. And you can see we've seen some pretty significant margin improvement with a 39% operating margin in the fourth quarter. So we expect to see a continued nice drop-through in terms of profitability as we bring on that additional volume. And Jen talked about that when we gave our guidance expectations for this segment, we expect revenue to be in our long-term range of 10% to 15%. And spend to come in around the mid-20s.

Your next question is from Sanjay Sakhrani of KBW. Please go ahead. Your line is open.

I'm curious if there's a way to think about where the key segments are across the business relative to pre-pandemic levels. I know there's been a lot of mix differences, some parts of the business have come back and others haven't. Maybe, Melissa, is there a way to sort of parse through that? And then when we think about the guidance, how much of a rebound are you assuming inside those specific verticals?

Yes. Let me talk about guidance for a minute to just to make sure that, that's clear. So if you look at our guidance for 2022, the midpoint, we're guiding up revenue growth of 12% and ANI EPS growth of 25%. Some of the things that affect comparability from year to year. We mentioned the fact that we have the customer that's going from gross to net, which would have brought down our 2021 revenue number by $52 million to make it comparable. And then we added in between $60 million and $65 million for additional fuel prices year-over-year and a little bit of offset in FX. I mean, we kind of take that all into account, you manufacture in the same place. We have about 12% revenue growth at the midpoint when adjusted out for all of those factors. If you look within our guidance itself, we have an expectation that we have a really strong sales tail going into 2022. And that's one of the things as we look at what our growth is going to be, how much would we actually sign up for our customers that are just in the implementation phase. We feel pretty strongly about that. And that's part of why we're leading to that midpoint guide. There's probably about a 1% pickup to your original question around what's happening from just additional volume that's untapped from pre-pandemic levels. You could see across the business, our North American fleet business volume is now higher than it was in the fourth quarter of 2019. The over-the-road business has been higher for a while. You kind of run across the business and see that we've had a lot of volume pick up gradually over the last 1.5 years, and that's been reflected in the numbers today.

Okay. And I guess, just a follow up on Ramsey's question. I think you answered this, but just to be clear. That travel renewal shouldn't have a meaningful impact on the travel part of the yield? And you mentioned sort of the scale and efficiency gains. How do we dimensionalize that the efficiency gains on a go-forward basis, specifically in the segment and maybe broadly speaking, for the company?

Yes. Again, if you go back and look at the rate, what we're saying is we expect to see rate stability within the Travel segment, I should say segment, but within the travel customer base of the Travel and Corporate Payments segment for 2022 compared to the full year rate for 2021. And so I guess, it's the one way of saying yes we don't expect to have a material change net-net of what we're seeing across that customer base. And in terms of how we dimensionalize the volume, you can actually see on page 22, you can see margin improvement each period as volume has increased through the business. So I think actually, we've got -- that graph gives you a pretty good sense of how much brought through we're seeing as we have incremental volume. And then the broader of that business -- yes, and that should continue. Yes.

Yes.

Yes. Okay.

The nature of that should continue to go up.

It will continue. Yes.

Yes. And is there a way to sort of range that? Like is it just a complete drop-through or there's some assets to that.

Well, so that segment, the pre-pandemic operating margin was in the 40s. We're approaching that. So we do feel like we're going to continue to see drop through of incremental revenue that goes through operating margins. But we've seen huge step improvements during the course of 2021. We think you'll see incremental improvements as you go through 2022. And then the last big part that we talked about is that we still have a significant synergy remaining for the integration of eNett and Optal as we consolidate the platforms together. We've talked about the fact that we have $30 million worth of run rate synergies that we've recognized so far, and we have another $10 million hanging out there that will come in 2023.

Your next question is from Bob Napoli of William Blair. Please go ahead. Your line is open.

Thank you. Good luck to Roberto, and welcome, Jen, to the calls here. I guess congratulations on the performance and the execution too, I guess, to the WEX team. It’s really nice to see. And the margin improvements -- what exactly is -- I mean a very impressive margin improvement. What is driving that? I know you've been making significant investments in your tech stack, but you'll go to our incremental margins for that business and what have you done to improve incremental margins, if you would?

Within the Travel and Corporate Payments segment -- and this is Melissa, improvements came from three different things that came together during the course of 2021. The first was the synergy realization that we had with eNett and Optal. As we went through that process, if you recall, we closed the business at the beginning of the period. And so, we rapidly went through a process of making sure that we can rationalize what those two businesses look like together. And so you can see the benefit of that throughout the course of the year. The second thing is we saw volume increase through the course of the year. And that leads to my third point, which we've done a lot of work over the last several years around the platform, making sure that it was scalable. You saw the negative of that happened in the middle of the pandemic, but we're seeing the positive of that we really had done a lot of work to set up the cost structure so that it could be highly scalable. We know the embedded payments product in the marketplace that having a best-in-class product, having high reliability is really important to our customers. But also being able to make sure that we can participate in the market at the appropriate cost structure makes sense because it's more of an infrastructure play, where a lot of what we're doing on top of that is embedding other services and other capabilities at more of a premium price.

Thank you. To follow-up on the health care business, very nice growth in the SaaS accounts the revenue growth is growing faster than accounts at a, revenue per account going up as well. And nice to see the $900 million vest benefit starting to benefit the investment income. But if you could comment on the revenue per account the improvement in revenue per account, and the $900 million, is that the full -- so is there more to go? And does that -- will your interest income go up in step with the Fed rate increases on that investment portfolio?

Hi. This is Melissa. I'll answer the first part, and Jen will answer the second part of that. The revenue increase is a combination of the fact that we continue to offer other services to our customers. So as they come on we are offering the ability to provide their undetermined technology. We earn a recurring revenue stream in SaaS fees. And that's still 70% of the revenue, 70%, 75% of the revenue in that part of the business. But on top of that, we provide services where our customers are interested in having us doing some of their outsourced services for them. And on top of that, is the new revenue that we're getting from our deposits. Jen, if you want to elaborate on that?

Yes. So there is opportunity, there's, certainly additional deposits that we could bring into WEX Bank, just keeping in mind kind of the regulatory capital requirements that we have there, but certainly going to continue to look at that opportunity as we move forward.

Your next question is from James Faucette of Morgan Stanley. Please go ahead. Your line is open.

Thanks a lot. Good morning everybody. I wanted to follow-up on the margin question there. And just wondering how you're kind of thinking about your OpEx and investment going forward and particularly the trade-off between investing for growth versus maximizing profits, particularly given that we've seen other players in this space indicate that they're planning to increase their OpEx. Just wondering, like, how you're trying to walk that very fine line.

No, it's a great question. If you look again at the midpoint of our guidance range when you exclude the impact of fuel prices, FX and this movement -- some customer from gross to net, then you'll see midpoint revenue guidance is 12%, midpoint ANI EPS guidance is about 15%. Yes. So I feel like actually we are balancing those things. We are intending to spend about 6% of our revenue in CapEx. And keep in mind that we've been on a journey for a number of years of transforming the company. And so we're not in a position that we have to pivot or play catch-up. We're actually just building on the momentum that we've created. And you can see that, actually, we've got products now that we're able to put in the marketplace where we're going into beta launches really quickly. And that's really the power of the movements we've made over many years into the cloud. I feel actually very comfortable about the fact that we are balancing both the need to invest and have a number of years with the ability to actually do that profitably.

Yes. Yes. No. I think that's pretty clear. And then another investment-related question. Obviously, EVs have been a topic for quite a while. You mentioned during the call, a partnership. But how are you thinking about the investment strategy, particularly into that segment? And what are the things that you're looking at to determine where, when and how much you should invest to increase capabilities there?

Sure. The concept of expanding our solutions is one of our key concepts as we go into 2022 and EV is certainly a very important part of that. I reminded the fact that we had extended our relationship with ChargePoint because that gives us access to over 200,000 charge points in the US and in Europe. And so it extends our network capability. We already have customers that are using the product that we have in the marketplace now. We announced last quarter that we've extended that with a relationship with Element. We're learning as our customers are using that product. And we built out our expectation of what we're going to deliver into the marketplace. And we talked about the fact we want to have a home charging model in the wild charging model and then a depot charging model. So our product teams are working in earnest to continue to build up functionality. You'll see us deliver that incrementally as we do other products through the course of the year. And we think that this creates a great opportunity for us. We're in this unique position with our customers who have 17 million vehicles are coming to us as they go through this transition period and looking for us to help satisfy some of the needs that get created that weren't there before, just because of the increased complexity that comes with having a mixed fleet. So I feel like our ability to continue to build into this marketplace is something that we're already active in the marketplace on that we're continuing to build upon that creates opportunity for us. To the extent that we saw an ability to do more here, we would not be shy to move more money into this category. It's clearly important to us.

Your next question is from Nik Cremo of Credit Suisse. Please go ahead. Your line is open.

Great. Thanks for taking my question. So would it be possible to get the breakout of what's embedded in the 2022 mid-20s Travel and Corporate payments volume guidance between travel and corporate individually. Because it looks like travel is implied to be about 30% below 2019 levels approximately.

So I will tell you, in the fourth quarter, what we saw for split about 60% of the volume was and about 40% of the revenue is Travel distillate. And in terms of what's going to happen in the course of the year, next year, we do expect to continue to see growth in both areas, both in Travel and in Corporate payments. I talked about the fact that we intend to or are in the process of implementing Avid. The pace of that implementation will affect what you see from a volume perspective sequentially. And then on the Travel side, what we saw is we go into the fourth quarter of this year was a little bit of dip that happened at the very end of the year. You can see that on the graph, which was on the con. We've seen a little bit of impact in the first quarter of 2022, but still significant growth year-over-year.

Great. And thank you very much for the color. And then would it be possible just to get a sense of how you're thinking about like the various like growth components of the Corporate Payments business between like the various channels, just like directionally between like FI partner, direct? Or should they grow generally similar?

No. Historically, for us, the FI channel has been a slower goer -- slower grower, sorry. The embedded payments products that we have in the marketplace have been the highest growth in terms of -- from a volume perspective. And then that being said, we've been ramping our sales force. So the direct part of the business, it will -- if you kind of play out the course of the year, that will become an important part of the business as we exit 2022. But we do anticipate that the largest amount of growth is coming from the embedded payments products in 2022.

Your next question is from Trevor Williams of Jefferies. Please go ahead. Your line is open.

Melissa, I just wanted to ask on the strategy within Corporate Payments specifically. I mean you've had some good wins in the partner channel but if we think of how the business is positioned, just give us a sense for where you feel best competitively about the assets you have, how you get comfort around virtual card issuance, particularly in the partner channel, not becoming commoditized longer term? And correct me if I'm wrong, it sounds like for 2022, you're expecting the take rate on corporate pay volume to come down, which I'm assuming has to do with the ramp in AvidXchange. But any color you can give us just on how you're balancing volume growth against pricing longer term would be really helpful. Thanks

Yes, sure. And when we think about our Corporate Payments business, we do lump it into two different categories of products. One is embedded payments, which -- the beauty of embedded payment is that you can give an API to a partner. They can embed it in a work stream. And as their business grows, they're benefiting from the infrastructure that we have from the product capability we have and what we benefit from is a partner channel that can have some really nice growth rates associated with that. When we do -- when we are utilizing the embedded payments, this comes from the technology conversation we had earlier. We've done a lot of work to make that technology highly scalable. And so the incremental cost when we enable that product were actually really quite low. And so it is highly profitable even though it has a lower take rate. Then if you go to the other side of our product set, where we're doing AP automation, a lot of that work we're doing directly with our customers. And as a result, there's just more book that we're doing on behalf of that customer. It tends to be a little bit more individualized. And so it's got a higher take rate. But from a profitability perspective, both of us -- both are good for us from a business perspective. And where we see this going, I talked a lot earlier about the fact that we are exposing more of our capability across the business. And it's one of the benefits of going to our new org structure is this idea that not only we're looking at bringing in new customers, but how can we create more wallet share across the portfolio and do more for our customers. And Corporate Payments is a great example of that. We have been cross-selling that product into our fleet customers. We're starting to do that in a much more digital way now and it's early but are interested in that is a model as well. So I think that the way that we have historically gone as the market has been thinking about this as two discrete products. As we go through 2022, as you'll see that becoming much more of a digital offering into our customer base with the ability to actually think about this across the whole portfolio of customers we have.

Okay. No, that's really helpful colour. Thanks. And then, just as a quick follow-up on your capital allocation this year between M&A, potentially starting to buy back stock or just continuing to pay down debt? Just any colour there on how you're kind of stack ranking priorities for this year would be great. Thanks.

Sure. So, yes, the first priority for us has been internal use of capital. And as I said before, we've actually increased the allocation. And so we are intended to spend about 6% of our revenue in CapEx. And then, beyond that, you to continue to have a very strong orientation towards long-term growth, and type of assets that we continue to look for are those that extend our scale, extend geographic capability or give us product extensions in that we've been very disciplined about when we utilize the capital to criteria and hurdles that we need to hit as well as obviously making sure that it meets our strategic criteria. And then, we have a $150 million share repurchase program in place, which we intend to use opportunistically to buy back stock.

Your next question is from Darrin Peller of Wolfe Research. Please go ahead. Your line is open.

Can I just follow-up on the Corporate and Travel side for a minute, when we think about really, the assets you've added and built into the travel side in particular, I think the -- between and Optal and even your extensions in the Corporate side, you're arsenal moving into a better reopening especially on travel should be pretty robust. So can you talk about the strategy now having all those assets in place, what the difference is today and what you can do as we get more travel resume versus what you were able to do in 2018 and 2019 before? And what that can mean for both revenue growth rates and profitability for the segment, let's call it, medium term?

Sure. Yes. Sure. As you said, the fact that we're embedded within our customers is really important as you see rebounds from a spend perspective. With the offering that we have within our Travel base is a combination of an embedded payment trend, the bunch currency capability. These are global customers that are interested in their ability to be able to settle and issue all over the world, that comes with that, that we eliminate. We do that in a very integrated way that allows them to think about things like chargebacks in a highly automated way. All of that is really important from a future growth perspective and it's a place that we will continue to build upon. So as you mentioned, we will benefit, as you see travel come back. And so we do expect that we'll continue to see nice both revenue growth and volume growth that comes as the travel market rebounds. And our ability to build upon that really gets at this idea of thinking about a product set as an ecosystem. So the ability to actually extend our capability and offer more to that sort of customers just like any of our other customers is part of the embedded strategy that they have. So when we think about long-term growth rates, we've talked about 10% to 15% is the long-term growth rate in that segment. I mean, that's thinking about the long-term growth rate coming from a normalized period of time.

Both sides, right? Just to remind us, I mean, if we were to get to, let's call it, 100%, 120% of 2019 levels from a travel standpoint. Can you just -- anyway you can give us a sensitivity or what you would expect to see path-through in terms of revenue and earnings potential for the company overall?

Well, I think that, again, you can look at operating margins that we've had in that business, have been in the 40. And so the expectation longer term is that we've given you that the actual take rate that we're seeing within that business and that, that would drop through somewhere around that 40-ish percent rate, maybe a little bit higher.

We have completed the allotted time for questions. I will now turn the call over to Steve Elder for closing remarks.

Yes. Thanks, Shar. I just want to thank everyone for joining us once again, and we look forward to speaking with you with our first quarter earnings release.

This concludes today's conference call. Thank you for your participation. You may now disconnect.