Q4 2023 WEX Inc Earnings Call
Operator: Thank you for standing by. Welcome to the WEX Q4 2023 earnings call. I would now like to welcome Steve Elder, SVP of Global Investor Relations, to begin the call. Steve, over to you. Thank you, operator. And good morning, everyone.
Thank you for standing by and welcome to the works Q4 2023 earnings call.
I would now like to welcome Steve Elder S. P. P of global Investor Relations to begin the call Steve over to you.
Steven Alan Elder: Thank you operator, and good morning, everyone with me today is Melissa Smith, our chairman and CEO and Jack turned the ruler our CFO.
Steven Alan Elder: With me today is Melissa Smith, our chair and CEO, and Jagtar Narula, our CFO. The press release we issued earlier this morning, 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 has also been included in an 8K we filed with the SEC earlier. As a reminder, we will be discussing non-GAAP methods.
Steven Alan Elder: The press release, we issued earlier this morning, a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at <unk> Dot com.
Steven Alan Elder: Copy of the release has also been included in an 8-K, we filed with the SEC earlier this morning.
As a reminder, we will be discussing non-GAAP metrics.
Steven Alan Elder: Specifically, Adjusted Net Income Attributable to Shareholders, which we refer to as Adjusted Net Income, or ANI; Adjusted Operating Income and Related Margins, as well as adjusted free cash flow during our call. Please see Exhibit 1 of the press release for an explanation and reconciliation of these non-GAAP measures. The company provides revenue guidance on a gap-based basis and Earnings Guidance on a Non-Gap Basis due to the uncertainty and the indeterminate amount of certain elements that are included in the reported gap. I would also like to remind you that we are permitted to 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, the various factors..., including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023, and in 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, With that, I'll turn the call over to Melissa.
Steven Alan Elder: Typically adjusted net income attributable to shareholders, which we refer to as adjusted net income or <unk>.
Steven Alan Elder: Adjusted operating income and related margin.
Steven Alan Elder: Well as adjusted free cash flow during our call.
Steven Alan Elder: Please see exhibit one of the press release for an explanation and reconciliation of these non-GAAP measures.
Steven Alan Elder: The company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis due to the uncertainty and the indeterminate amount of certain elements that are included in reported GAAP earnings.
Steven Alan Elder: I would also like to remind you that we will discuss forward looking statements under the private Securities Litigation Reform Act of 1995.
Steven Alan Elder: Actual results may differ materially from those forward looking statements.
Steven Alan Elder: As a result of various factors.
Steven Alan Elder: Including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28 2023.
Steven Alan Elder: And in our quarterly report on Form 10-Q, and subsequent SEC filings.
Steven Alan Elder: While we may update forward looking statements in the future we disclaim any obligation to do so.
Steven Alan Elder: You should not place undue reliance on these forward looking statements all of which speak only as of today.
Steven Alan Elder: With that I'll turn the call over to Melissa.
Melissa D. Smith: Thank you, Steve, and good morning, everyone. We appreciate you joining us today. Before diving into our results, I'd like to take a moment to reflect on 2023. As I've said in prior quarters, our business model is resilient, and it delivers strong results in a variety of environments. This is true over the past 10 years, during which time we have delivered a revenue kegger of 14%. I am very proud of what we've accomplished in 2023 as we continue to achieve our long-term growth targets, despite macroeconomic uncertainty, higher interest rates, higher inflation rates, a freight recession, and lower fill prices. Our incredible team of WEXers has consistently risen to the occasion, further positioning WEX for long-term success and demonstrating our ability to grow, deliver that growth profitably, and advance our strategic priorities. Let me start with the full year results.
Melissa D. Smith: Thank you, Steve and good morning, everyone. We appreciate you joining us today.
Melissa D. Smith: Before diving into our results I'd like to take a moment to reflect on 2023.
Melissa D. Smith: As I've said in prior quarters, our business model is resilient and it delivered strong results in a variety of environments. This is true over the past 10 years during which time, we have delivered a revenue CAGR of 14% I am very proud of what we've accomplished in 2023 as we continue to achieve our.
Melissa D. Smith: Long term growth target, despite macroeconomic uncertainty higher interest rates higher inflation rate, a freight recession and lower fuel prices.
Melissa D. Smith: Our incredible team of Webster's consistently risen to the occasion further positioning <unk> for long term success and demonstrating our ability to grow to deliver that growth profitably and to advance our strategic priorities.
Melissa D. Smith: Let me start with the full year results.
Melissa D. Smith: Revenue of $2.5 billion for the year was a new record high and grew 8% compared to the prior year. Full year total volume processed was $225 billion, an increase of 6% year over year. Adjusted net income per share grew 9% year over year. However, excluding the impact of lower fuel prices and foreign exchange rate differences, revenue grew 13%, and adjusted net income per share grew 21%. Both of these growth rates were within or above our long-term target ranges as we continue to deliver strong results in the face of the headwinds I just mentioned. I'm particularly pleased about the strong performance in benefits and corporate payments, which further demonstrates the resilience of our model across many environments. Now turning to fourth-quarter results, we delivered revenue of $663 million for the quarter, an increase of 7%. Excluding the impact of fluctuations in fuel prices and foreign exchange rates, Q4 revenue grew 11%. Total volume processed across the organization in the fourth quarter grew 6% year-over-year to $56 billion, driven by the strong performance in corporate payments and benefits.
Melissa D. Smith: Revenue of $2 $5 billion for the year with a new record high and grew 8% compared to the prior year, despite a headwind of 5% from fuel prices and foreign exchange rates.
Melissa D. Smith: Full year total volume processed with 225 billion.
Melissa D. Smith: An increase of 6% year over year.
Steven Alan Elder: Adjusted net income per share grew 9% year over year.
Steven Alan Elder: Coding the impact of lower fuel prices and foreign exchange rate differences revenue grew 13% and adjusted net income per share grew 21%.
Steven Alan Elder: Both of these growth rates were within or above our long term target ranges as we continued to deliver strong results in the face of the headwinds I just mentioned.
Steven Alan Elder: I am, particularly pleased about the strong performance and benefits and corporate payments, which further demonstrates the resilience of our model across many environments.
Steven Alan Elder: Now turning to fourth quarter results, we delivered revenue of $663 million for the quarter, an increase of 7%.
Steven Alan Elder: Excluding the impact of fluctuations in fuel prices and foreign exchange rates Q4 revenue grew 11%.
Steven Alan Elder: Total volume processed across the organization in the fourth quarter grew 6% year over year 56 billion.
Steven Alan Elder: Driven by the strong performance in corporate payments and benefits.
Melissa D. Smith: Strong Quarterly Revenue, High Margin Drop Through in Volumes, and Share Repurchase resulted in adjusted net income for diluted shares of $3.82, an increase of 11% compared to the same quarter last year, excluding the impact of fluctuations in steel prices and foreign exchange rates. Q4 Adjusted ETS Group 23% In corporate payments, purchase volumes grew 33% year-over-year, primarily due to continued strength in our travel costs. We had a number of significant contract renewals in the quarter, including Kiwi and On the Beach in Europe and Flight Center in Australia. WEX continues to outpace the growth of the travel market.
Steven Alan Elder: Strong quarterly revenue high margin drop through on volumes and share repurchases.
Steven Alan Elder: Belted in adjusted net income per diluted share of $3 82.
Steven Alan Elder: An increase of 11% compared to the same quarter last year.
Steven Alan Elder: Excluding the impact of fluctuations in fuel prices and foreign exchange rates Q4, adjusted EPS grew 23%.
Steven Alan Elder: And corporate payments purchase volumes grew 33% year over year, primarily due to continued strength from our travel customers.
Steven Alan Elder: We have a number of significant contract renewals in the quarter, including E. Lee and on the Beach in Europe and flight Centre in Australia.
Steven Alan Elder: <unk> continues to outpace the growth of the travel market.
Melissa D. Smith: We're having success gaining additional pockets of spend within our existing customer base, and volume growth continues to benefit from the market transition to settling hotel transactions with virtual cars. In the benefits segment, the full transition to the public cloud positions us to improve our agility and platform strength going forward. Following open enrollment, we now have more than 8 million HSA accounts on our platform, making us one of the largest providers in the country.
Steven Alan Elder: We're having success gaining additional pockets of spend within our existing customer base and volume growth continues to benefit from the market transition to <unk>.
Steven Alan Elder: <unk> hotel transactions with virtual cards.
Steven Alan Elder: And the benefit segment, the full transition to the public cloud positions us to improve our agility and platform strength going forward.
Steven Alan Elder: All in open enrollment, we now have more than 8 million HSA accounts on our platform, making us one of the largest providers in the country.
Melissa D. Smith: Since we closed the Acquisition of Expenses, Health, and Benefits line of business in September, we have quickly integrated our team. The Census technology complements ours well, increasing our scale in the benefits space and expanding our benefit product offerings with our Affordable Care Act compliance and dependent verification capability. Finally, in our mobility segment, we continue to see the positive impact from our enhanced credit policies. We were also pleased with strong sales performance, including a number of e-contract wins and renewals in the quarter, adding approximately 121,000 new vehicles in signing wins with Smith Transport, Estes Express Lines, Quality Carriers, and Pods, to name a few. Overall, I'm proud of the strong progress we made executing against our strategic themes throughout 2023, which positions us for success in 2024 and beyond.
Steven Alan Elder: Since we closed the acquisition of expenses health and benefits line of business in September we have quickly integrated our team.
Steven Alan Elder: The sensus technology complements are as well increasing our scale in the benefits space and expanding our benefit product offerings, where they are affordable care Act compliance independent verification capabilities.
Steven Alan Elder: Finally in our mobility segment, we continue to see the positive impact from our enhanced credit policy, we will.
Steven Alan Elder: We're also pleased with strong sales performance, including a number of key contract wins and renewals in the quarter, adding approximately 121000, new vehicles in signing wins with Smith transport.
Steven Alan Elder: <unk> Express line quality carriers and pods to name a few.
Steven Alan Elder: Overall I'm proud of the strong progress we made executing against our strategic themes throughout 2023, which positions us for success in 2024 and beyond.
Melissa D. Smith: A top priority for us as a company is leading the energy transition for our mobility customers. Currently, we're focused on helping businesses navigate the energy transition and manage their vehicles in an increasingly complex mixed fleet world. With over 600,000 customers worldwide, including more than 19.3 million vehicles serviced globally as of the fourth quarter, our partners and customers will first look to WEX for help in simplifying the process of building and managing mixed fleets. While the pace of transition remains fluid, we are meeting our customers where they are on their EV journey. As part of our EV product suite, we have a new white-labeled offering to help fleet managers determine which vehicles and routes may make sense to transition to EVs in cases where it does make sense, like a sales rep driving a sedan and returning home to charge it even.
Steven Alan Elder: A top priority for us as a company is leading in the energy transition for our mobility customers.
Steven Alan Elder: Currently we're focused on helping businesses navigate the energy transition and manage their vehicles and an increasingly complex mixed fleet world with over 600000 customers worldwide, including more than $19 3 million vehicles service globally as of the fourth.
Steven Alan Elder: <unk>.
Steven Alan Elder: Our partners and customers will first look to wax for health and simplifying the process of building and managing mix fleets.
Steven Alan Elder: The pace of transition remains fluid we are meeting our customers where they are in their EV journeys as part of our EV product suite, we have a new white labeled offering help fleet managers determined which vehicle and routes may make sense to transition to evs and.
Steven Alan Elder: In cases, where it does make sense like a sales rep driving a sedan and returning home to charge at night.
Melissa D. Smith: There can be substantial savings for the fleet operator. Our understanding of these dynamics uniquely positions WEX to help customers both navigate the decision to transition and effectively manage their fleets once they do. We have also launched products in the market designed to help facilitate on-route charging at public locations, as well as at-home reimbursement capabilities. Later this year, we plan to launch depot charging solutions for companies that intend to use their own infrastructure. Our EV product suite gives our customers a simple, consolidated platform for mixed fleets, greatly simplifying the job of the fleet manager.
Steven Alan Elder: There can be substantial savings for the fleet operator.
Steven Alan Elder: Our understanding of these dynamics uniquely positions wax sales customers, both navigate the decision to transition and effectively manage their fleets once they do.
Steven Alan Elder: We have also launched products in the market designed to help facilitate on route charging at public locations as well as that at home reimbursement capabilities.
Steven Alan Elder: Later this year, we plan to launch depot charging solutions for companies that intend to use their own infrastructure.
Steven Alan Elder: Our EV product suite gives our customers a simple consolidated platform for mixed fleets.
Steven Alan Elder: Greatly simplifying the job of the fleet manager.
Melissa D. Smith: Similar to the ED transition, a strategic priority has been to expand into near adjacent addressable markets, increasing our TAM. In November, we completed our acquisition of PASER, a leading cloud-native field service management software. As we integrate PASER into the WEX business, we expect the platform to strengthen our relationships with customers in our mobility vertical, allowing us to match our world-class payment capabilities with integrated software that creates durable value for our customer base. We're excited to deepen and expand our offerings to approximately 150,000 mobility customers that operate field service management companies. So far, we have completed the initial stage of integration and launched our first marketing efforts targeted at current WEX customers.
Steven Alan Elder: Similar to the EV transition our strategic priority has been to expand into near adjacent addressable market increasing our Tam.
Steven Alan Elder: In November we completed our acquisition of <unk>, a leading cloud native field service management software.
Steven Alan Elder: As we integrate <unk> into the wax business, we expect the platform to strengthen our relationships with customers and our mobility vertical.
Steven Alan Elder: Allowing us to match, our world class payment capabilities with integrated software that create durable value to our customer base.
Steven Alan Elder: Excited to deepen and expand our offerings to approximately a 150000 mobility customers that operate field service management companies.
Steven Alan Elder: So far we have completed the initial stage of integration and launched our first marketing efforts targeted at current works customers over the next few quarters, we will test and learn from this initiative and we will continue to be prudent in our decisions to allocate additional capital to this effort.
Melissa D. Smith: Over the next few quarters, we will test and learn from this initiative, and we will continue to be prudent in our decisions to allocate additional capital to this effort. That said, we're excited about the PASER opportunity, and I look forward to providing updates on our progress going forward. Across each of our businesses, we are focused not only on driving growth but on delivering that growth profitably. To that end, we remain well-positioned to generate $100 million in run rate cost savings exiting 2024. Last quarter, we said we were on track to achieve $75 million of cost savings on a run rate basis by the end of 2023. I am proud to say we have accomplished this goal, which was ahead of our original expectations. We have high confidence in achieving the full $100 million of cost savings in 2024.
Steven Alan Elder: That said, we're excited about the <unk> opportunity and I look forward to providing updates on our progress going forward.
Steven Alan Elder: Across each of our businesses, we are focused not only on driving growth, but on delivering that growth profitably.
Steven Alan Elder: To that end, we remain well positioned to generate $100 million and run rate cost savings exiting 2024.
Steven Alan Elder: Last quarter. We said we are on track to achieve 75 billion of cost savings on a run rate basis by the end of 2023 I am proud to say we have accomplished this goal, which was ahead of our original expectations.
Steven Alan Elder: We have high confidence in achieving the full $100 billion of cost savings in 2024.
Melissa D. Smith: With these savings, we plan to let half flow through to earnings, which we'll see in our expectations for 2024, and reinvest the remainder in the business to enhance our capabilities, including digital projects, technology, and risk management capabilities and tools. We also continue to drive technological innovation throughout the business. The work we are doing is delivering results, and we're receiving cost savings through our margins. In 2023, we focused heavily on determining how AI could both optimize our business and the business of our customers. We've invested in dozens of projects around developing these capabilities. For example, we are currently using internally developed AI technology to assist in making credit decisions and detecting fraud.
Steven Alan Elder: With these savings we plan to let half flow through to earnings, which you'll see in our expectations for 2024 and reinvest the remainder in the business to enhance our capabilities, including digital products technology and risk management capabilities and tools.
Steven Alan Elder: We also continued to drive technology innovation throughout the business.
Steven Alan Elder: Work, we are doing is delivering results and we're seeing cost savings coming through our margins.
Steven Alan Elder: In 2023, we focused heavily on determining how AI could both optimize our business and the business of our customers.
Steven Alan Elder: We have invested in dozens of projects around developing these capabilities.
Steven Alan Elder: Example, we are currently using internally developed AI technology to assist in making credit decisions and detecting fraud.
Melissa D. Smith: We believe this technology helped drive the substantial credit loss improvement that we have seen over the last two quarters. We're also piloting several new initiatives to enhance productivity and drive efficiencies in our sales teams by using AI to prioritize the leads most likely to convert and by prioritizing deals in the sales pipeline to maximize focus on impactful deals. We're also using AI to help process benefit claims, which drives efficiency and improves the customer experience by processing claims on the same day. We processed more than 350,000 claims last year and continue to expand use cases. We expect to process more than 800,000 claims this year using AI.
Steven Alan Elder: We believe this technology helped drive the substantial credit loss improvement we have seen over the last two quarters.
Steven Alan Elder: We're also piloting several new initiatives to enhance productivity and drive efficiencies in our sales team by using AI to prioritize believes most likely to convert and by prioritizing deals in the sales pipeline to maximize focus on impactful deals were all.
Steven Alan Elder: Also using AI to help process benefit claims, which drives efficiency and improved customer experience by processing claims on the same day.
Steven Alan Elder: The process greater than 350000 claims last year and continue to expand use cases.
Steven Alan Elder: We expect to process more than 800000 claims this year using AI beyond this we have a slate of digital products releases expected throughout 2024 and look forward to updating you on these developments over the coming months.
Melissa D. Smith: Beyond this, we have a slate of digital product releases expected throughout 2024 and look forward to updating you on these developments over the coming months. We expect these margin-accretive initiatives and others to further bolster our ability to generate significant cash flow conversions, and we continue to view share repurchases as an attractive proposition. We're in the privileged position to be able to make strategic growth investments in our business and buy back shares, all while maintaining a solid balance sheet with low leverage. JAGDR will provide more detail on our 2024 guidance in a moment, but I'd like to share a few high-level takeaways as we look ahead.
Steven Alan Elder: We expect these margin accretive initiatives and others to further bolster our ability to generate significant cash flow conversion and we continue to view share repurchases as an attractive proposition.
Steven Alan Elder: We're in the privileged position to be able to make strategic growth investments in our business and buy back shares.
Steven Alan Elder: All while maintaining a solid balance sheet with low leverage.
Steven Alan Elder: <unk> will provide more detail on our 2024 guidance in a moment, but I'd like to share a few high level takeaways as we look ahead.
Melissa D. Smith: First, WEX is incredibly resilient to economic conditions and is well positioned for continued strong revenue growth. However, you will note in our guidance that we have made assumptions that include continued headwinds, such as slower than normal U.S. GDP growth and further depressed fuel prices. Despite these headwinds, we expect 2024 revenue growth of 6 to 8%, including a 2% headwind for lower field. All segments of the business will benefit from the full year impact of our sales activity in 2023. Within our mobility segment, we expect continued strong sales momentum, benefit from pricing action, and stabilization in the portfolio from the credit policy changes made a year ago and the benefit of a full year of PASER growth.
Steven Alan Elder: First waxes incredibly resilient to economic conditions and is well positioned for continued strong revenue growth.
Steven Alan Elder: You will note in our guidance that we have made assumptions that include continued headwinds.
Steven Alan Elder: It's slower than normal U S GDP growth and further depressed steel prices.
Steven Alan Elder: Spite these headwinds we expect 2020 for revenue growth in the 6% to 8% range, including a 2% headwind for lower fuel prices.
Steven Alan Elder: All segments of the business will benefit from the full year impact of our sales activity in 2023.
Steven Alan Elder: Within our mobility segment, we expect continued strong sales momentum benefit from pricing actions.
Steven Alan Elder: <unk> in the portfolio from the credit policy changes made a year ago and the benefit of a full year of pacer growth.
Melissa D. Smith: Within our benefits segment, we expect continued sales through our distribution channel; we expect continued growth in custodial assets, and organic customer growth; and the Census Acquisition Committee. Last but certainly not least, we expect strong growth within our corporate payment segment built on continued strength in our embedded payment solution, inclusive of both share of wallet capture and our travel and partner businesses, as well as our investments in scaling our direct sales force to become more meaningful to the Fed. Second, we continue to be focused on delivering a creative ETF.
Steven Alan Elder: Within our benefits segment, we expect continued sales through our distribution channels we.
Steven Alan Elder: We expect continued growth in custodial assets.
Steven Alan Elder: And our organic customer growth.
Steven Alan Elder: The Sensus acquisition.
Steven Alan Elder: Last but certainly not least we expect strong growth within our corporate payments segment built on continued strength in our embedded payment solution inclusive of both share of wallet capture and our probable and partner businesses as well as our investments in scaling our direct salesforce, becoming more meaningful to the SEC.
Steven Alan Elder: <unk>.
Steven Alan Elder: Second we continue to be focused on delivering accretive EPS. This.
Melissa D. Smith: This includes the high marginal contribution of incremental revenue to our businesses, reengineering efforts that are delivering efficiencies across our enterprise, and pricing optimization work that yields strong drop-through to our bottom line. Finally, our strong, adjusted free cash flow underpins our ability to drive shareholder value. It enables us to invest in our market-leading products and solutions, as well as invest in our share repurchase program and our disciplined M&A program, all while maintaining a healthy balance. As I look across our business, I am confident in WEX's future, our momentum in the marketplace, and our continued ability to deliver our long-term aspirations. With that, I'll turn it over to Jack Parra to walk through this quarter's financial performance in more detail. Jack Huh?
Steven Alan Elder: This includes the high marginal contribution of incremental revenue to our businesses are.
Steven Alan Elder: Our reengineering efforts that are delivering efficiencies across their enterprise and pricing optimization work that yield strong drop through to our bottom line.
Steven Alan Elder: Finally, our strong adjusted free cash flow underpins, our ability to drive shareholder value.
Steven Alan Elder: It enables us to invest in our market, leading products and solutions as well as invest in our share repurchase program and our disciplined M&A program, all while maintaining a healthy balance sheet.
Steven Alan Elder: As I look across our business I am confident in <unk> future our momentum in the marketplace and our continued ability to deliver our long term aspirations.
Steven Alan Elder: I'll turn it over to Jack to walk through this quarters financial performance in more detail Deca.
Jagtar Narula: Thank you, Melissa, and good morning, everyone. As you just heard, we again delivered strong financial results this quarter, while continuing to make progress on our strategic objectives. The financial results in 2023 demonstrated the resiliency of the business in the face of a number of economic headwinds. Let's start with a quarterly result.
Jack: Thank you Melissa and good morning, everyone.
Jack: You just heard we again delivered strong financial results this quarter, while continuing to make progress on our strategic objectives.
Jack: The financial results in 2023 demonstrated the resiliency of the business in the face of a number of economic headwinds, let's start with the quarter results.
Jagtar Narula: Total revenue came in at $663.3 million, a 7.2% increase over Q4 2022, with more than 80% of revenue for the quarter recurring in April. This exceeded the midpoint of our guidance by $8 million. Half of this outperformance was due to the contribution of PASER, which closed on November 1st and was not included in our guidance, while the other half was a variety of small, beneficial items. In total, the adjusted operating income margin for the company was 39.6%, which is up from 38.5% last year. High incremental margins on corporate payments volume and interest earned on custodial cash balances, as well as significantly improved credit and fraud losses, were the primary drivers of the margin increase. From an earnings perspective, on a gap basis, we had net income attributable to shareholders of $84.9 million, or $1.98 per diluted share in Q4.
Jack: Total revenue came in at $663 3 million.
Jack: Seven 2% increase over Q4, 2022 with more than 80% of revenue for the quarter recurring in nature.
Jack: This exceeded the midpoint of our guidance by $8 million.
Jack: Half of this outperformance was due to the contribution of Taser, which closed on November one it was not included in our guidance.
Steven Alan Elder: While the other half was a variety of small beneficial items in.
Steven Alan Elder: Total adjusted operating income margin for the company was 39, 6%, which is up from 38, 5% last year.
Steven Alan Elder: High incremental margins on corporate payments volume and interest earned on custodial cash balances as well as significantly improved credit and fraud losses were the primary drivers of the margin increase.
Steven Alan Elder: From an earnings perspective on a GAAP basis, we had net income attributable to shareholders of $84 9 million or $1 98 per diluted share in Q4.
Jagtar Narula: Non-GAAP Adjusted Net Income was $163.9 million, or $3.82 per diluted year, and this represents an 11% increase over the prior year. I would like to take a moment to reflect on these results in the context of the overall macroeconomic environment. Fuel prices were down 13% year-over-year in Q4, while the federal funds rate was up 100 basis points from the end of Q4 2022 to the end of Q4 2023. Consequently, our cost of financing and operating interest was up almost $35 million year over year. Yet, we grew revenue and earnings significantly, which reflects the reduced impact of fuel prices and interest rate volatility on our overall results and demonstrates the resiliency we have talked about repeatedly. Now, let's move to segment results, starting with mobility. Mobility revenue for the quarter was $350.1 million, a 5% decrease compared to the prior year. The domestic fuel price in Q4 was $3.76 versus $4.34 in Q4 2020.
Steven Alan Elder: non-GAAP adjusted net income was $163 9 million.
Steven Alan Elder: We're at $3 82 per diluted share and this represents an 11% increase over the prior year.
Speaker Change: I would like to take a moment to reflect on these results in the context of the overall macroeconomic environment.
Speaker Change: Fuel prices were down 13% year over year in Q4, while the federal funds rate was up 100 basis points from the end of Q4 2022 to the end of Q4 2023.
Steven Alan Elder: Our cost of financing and operating interest was up almost $35 million year over year.
Steven Alan Elder: We grew revenue and earnings significantly, which reflects the reduced impact of fuel prices and interest rate volatility on our overall results and demonstrates the resiliency we have talked about repeatedly.
Steven Alan Elder: Now, let's move to segment results starting with mobility.
Steven Alan Elder: Mobility revenue for the quarter was $350 1 million.
Steven Alan Elder: A 5% decrease compared to the prior year.
Steven Alan Elder: The domestic fuel price in Q4 was $3 76.
Steven Alan Elder: Versus $4.34 in Q4 2022.
Jagtar Narula: This decline in fuel prices reduced segment revenue by approximately $24.9 million. In addition, mobility revenue growth was impacted by lower late fees, which I will discuss in a moment. These lower late fees reflect the changes we made to credit policies that have dramatically improved credit losses and financially outweigh the impact of lower late fee revenues. The net interchange rate in mobile was 1.26%, which is up 15 basis points from the prior year. The lower fuel prices compared to last year, contractual increases due to higher interest, and renegotiated contracts with some of our merchants led to the increase in the net worth. The increase in the net interchange rate, combined with growing volumes over the past several years, also means the sensitivity to changes in fuel prices is increasing, and now stands at $20 million of revenue impact and a $0.30 EPS impact for an annualized $0.10 change in fuel price.
Steven Alan Elder: This decline in fuel prices reduced segment revenue by approximately $24 9 million.
Steven Alan Elder: In addition, mobility revenue growth was impacted by lower late fees, which I will discuss in a moment.
Steven Alan Elder: These lower lease fees reflect the changes we made to credit policies that are dramatically improved credit losses.
Steven Alan Elder: Outweigh the impact of lower late fee revenue.
Steven Alan Elder: The net interchange rate in mobility was 126%, which is up 15 basis points from the prior year.
Steven Alan Elder: The lower fuel prices compared to last year contractual increases due to higher interest rates.
Steven Alan Elder: Renegotiated contracts with some of our merchants led to the increase in the net rate.
Steven Alan Elder: The increase in the net interchange rate combined with growing volumes over the past several years.
Steven Alan Elder: Also means the sensitivity to changes in fuel prices is increasing.
Steven Alan Elder: It now stands at $20 million of revenue impact.
Steven Alan Elder: The 30 cent EPS impact for annualized tends to change in fuel prices.
Jagtar Narula: It is important to note that despite the higher growth EPS sensitivity to fuel, which reflects the growth and success of our mobility business, our overall earnings sensitivity to fuel price is lower than in the past as non-fuel related revenue is an increasing portion of our overall earnings mix. As you can see in our metrics, while the net late fee rate increased versus Q3, it was below the prior year results.
Steven Alan Elder: It is important to note that despite the higher gross EPS sensitivity to fuel, which reflects the growth of <unk>.
Steven Alan Elder: Most of our mobility business, our overall, earning sensitivity to fuel price is lower than in the past as non fuel related revenue is increasing portion of our overall earnings mix.
Steven Alan Elder: As you see our metrics.
Steven Alan Elder: While the net late fee rate increased versus Q3. It was below the prior year result, overall finance fee revenue was down 20% due to lower fuel prices and 28% decline in the number of instances.
Jagtar Narula: Overall, finance fee revenue was down 20% due to lower fuel prices and a 28% decline in the number of late payments. Much of this decline is from a new portfolio that transitioned to us last year, which had higher late fee instances during the transition period, while the remainder we attribute to the stricter credit policies I mentioned earlier. Again emphasizing that the improvement in credit losses far outweighs this lost late fee revenue. The segment adjusted operating income margin for the quarter was down 2.1% compared to last year at 43.0%.
Steven Alan Elder: <unk>.
Steven Alan Elder: Much of this decline is from a new portfolio that transitioned to us last year, which had higher late fee instances during the transition period.
Steven Alan Elder: While the remainder we attribute to the stricter credit policies as I mentioned earlier again, emphasizing that the improvement in credit losses far outweighs the loss late fee revenue.
Steven Alan Elder: The segment adjusted operating income margin for the quarter was down two 1% compared to last year at 43 with zero percent.
Jagtar Narula: Lower fuel prices and higher interest rates hurt operating margins, although this was partially offset by significantly lower credit losses. In addition, the acquisition of PASER, which contributed $4.3 million in revenue with essentially zero adjusted operating expenses, decreased the segment margin by 60 basis points.
Steven Alan Elder: Lower fuel prices and higher interest rates hurt operating margins. Although this was partially offset by significantly lower credit loss rates.
Steven Alan Elder: In addition, the acquisition of Pacer, which contributed $4 $3 million in revenue with essentially zero adjusted operating income.
Steven Alan Elder: <unk> segment margin by 60 basis points.
Jagtar Narula: Turning now to corporate payments, total segment revenue for the quarter increased 22% from the prior year to $135 million. Purchase volume issued by WEX was $22.8 billion, which is an increase of 33% versus the prior year. The net interchange rate in this segment was up 10 basis points sequentially at 52 basis points, predominantly due to the recognition of network incentives based on full-year performance. Breaking this segment down further, travel-related customer volume was $16.2 billion and grew 40% compared to last year.
Steven Alan Elder: Turning now to corporate payments.
Steven Alan Elder: Total segment revenue for the quarter increased 22% from the prior year to $135 million.
Steven Alan Elder: Purchase volume issued by works was $22 8 billion.
Steven Alan Elder: Which is an increase of 33% versus prior year.
Steven Alan Elder: The net interchange rate in this segment was up 10 basis points sequentially at 52 basis points.
Steven Alan Elder: Predominantly due to the recognition of network incentives based on full year performance.
Steven Alan Elder: Breaking this segment further travel related customer volume was $16 2 billion.
Steven Alan Elder: And grew 40% compared to last year.
Jagtar Narula: Revenue from travel-related customers was up 39% versus last year. This reflects continued strength in consumer travel demand in the U.S. and Europe, as well as growing adoption of virtual cars and travel. We believe that there is more room for growth as our OTA customers continue to emphasize the merchant model and we expand the types of payments that we are able to support. Non-travel related customer purchase volume grew 21% versus last year, and revenue was up 5%.
Steven Alan Elder: Revenue from travel related customers was up 39% versus last year.
Steven Alan Elder: This reflects continued strength in consumer travel demand in the U S and Europe as well as growing adoption of virtual cards and travel.
Steven Alan Elder: We believe that there is more room for growth as our OTA customers continue to emphasize the merchant model.
Steven Alan Elder: We expand the types of payments that we are able to support.
Steven Alan Elder: Non travel related customer purchase volume grew 21% versus last year and revenue was up 5%.
Jagtar Narula: Volume growth was led by continuing strength in the partner channel, but importantly, approximately half the revenue growth came from our direct channel. Our direct business is an important channel that we have invested in over the last year, and we are starting to see the positive results of this effort. The segment adjusted operating income margin was up 10.5% over the last year to 58.4%.
Steven Alan Elder: Volume growth was led by continuing strength in the partner channel, but importantly, approximately half the revenue growth came from our direct channel.
Steven Alan Elder: Our direct business is an important channel that we have invested over the last year and we're starting to see the positive results of this effort.
Steven Alan Elder: The segment adjusted operating income margin was up 10, 5% over the last year to 58, 4%.
Jagtar Narula: There has been significant improvement in these margins during the year as volume accelerates. In fact, this is the second quarter in a row where more than 100% of the year-over-year revenue increase flowed through to Adjusted Operating Income.
Steven Alan Elder: There has been significantly improve these margins during the year as volume accelerated.
Steven Alan Elder: This is the second quarter in a row, where more than 100% year over year revenue increase flowed through to adjusted operating income margin.
Steven Alan Elder: Finally.
Jagtar Narula: Let's take a look at the benefits segment. We continued to drive strong growth in Q4 with revenue of $178.2 million. This represents an increase of $37.5 million, or 27% over the prior year. Approximately half the revenue growth is due to contributions from custodial assets, and the remainder is from the census acquisition, increases in the account base, and purchase volume growth. SAAS account growth was 7% in Q4 versus the prior year, and benefits segment purchase volume increased 10%, leading to a 5% increase in payment processing revenue. Custodial cash assets, including those on and off balance sheets, were $3.9 billion on average in Q4 versus $3.5 billion last year, representing an increase of 13%. Of the $3.9 billion total, approximately $1 billion was held at third-party banks, with the remainder held at WEX Bank.
Steven Alan Elder: Let's take a look at the benefits segment.
Steven Alan Elder: We continue to drive strong growth in Q4 with revenue of $178 2 million.
Steven Alan Elder: This represents an increase of $37 5 billion or 27% over the prior year.
Steven Alan Elder: Approximately half the revenue growth is due to contributions from custodial assets and the remainder is from the sensus acquisition increases in the account base and purchase volume growth.
Steven Alan Elder: SaaS account growth was 7% in Q4 versus the prior year.
Steven Alan Elder: Fifth segment purchase volume increased 10%, leading to a 5% increase in payment processing revenue.
Steven Alan Elder: Custodial cash assets, including those on and off balance sheet were $3 9 billion on average in Q4 versus $3 5 billion last year, representing an increase of 13%.
Steven Alan Elder: Of the $3 $9 billion total approximately $1 billion was held at third party banks with the remainder held at West Bank.
Jagtar Narula: We realized approximately $45.3 million in revenue in total from these deposits in Q4 versus $25.6 million last year. Although market interest rates declined during Q4, the blended yield of 4.6% was consistent with Q3. As compared to last year, the higher yield of those assets contributed $11.1 million in revenue, while the increase in balances contributed $8.6 million. In the first full quarter of ownership, the Census contributed $10.7 million in revenue, which was in line with our expectations for the quarter. The integration process is going well. Recall that Census was a customer prior to our acquisition. So all accounts were already on our technology platform, and we are working through the remainder of the integration plan during 2020. The benefit segment adjusted operating income margin was 33.2%, compared to 28.1% in 2022. The high flow-through of the revenue from the invested HSA deposits is the primary driver of the increase in markets.
Steven Alan Elder: We realized approximately $45 $3 million in revenue until these deposits in Q4 versus $25 $6 million last year.
Jagtar Narula: Although market interest rates declined during Q4, the blended yield of four 6% was consistent with Q3 <unk>.
Jagtar Narula: Compared to last year.
Steven Alan Elder: Higher yields on those assets contributed $11 1 billion in revenue, while the increase in balances contributed $8 6 million.
Steven Alan Elder: In the first full quarter of ownership the census contributed $10 $7 million of revenue, which was in line with our expectations for the quarter.
Steven Alan Elder: The integration process is going well.
Steven Alan Elder: <unk> census was a cluster prior to our acquisition.
So all accounts were already on our technology platform and we are working through the remainder of the integration plan during 2024.
Jagtar Narula: The benefits segment adjusted operating income margin was 33, 2% compared to 28, 1% in 2022.
Jagtar Narula: High flow through of the revenue from the divested HSA deposits as the primary driver of the increase in margin.
Jagtar Narula: Shifting gears now, I will provide an update on the balance sheet and our liquidity position. We remain in a healthy financial position and ended the quarter with $976 million in cash. We have $731 million of available borrowing capacity on the revolver, plus cash of $172 million as defined under the company's credit agreement at quarter end. The total outstanding balance on our revolving line of credit and term loans was $2.9 billion.
Speaker Change: Shifting gears now I will provide an update on the balance sheet and our liquidity position.
Steven Alan Elder: We remain in a healthy financial position and ended the quarter with $976 million in cash.
Jagtar Narula: We have $731 billion of available borrowing capacity on the revolver.
Jagtar Narula: Corporate cash of $172 million as defined under the company's credit agreement at quarter end.
Steven Alan Elder: The total outstanding balance under our revolving line of credit and term loans was $2 9 billion.
Jagtar Narula: The leverage ratio, as defined in the credit agreement, stands at two and a half times, which is at the bottom end of our long-term target of two and a half to three and a half times. In December, we exited our interest rate hedge positions, leading to an immediate cash benefit of $50 million. As discussed in prior calls, the company-wide net exposure to changes in interest rates has declined as we've grown the custodial cash assets in our benefits segment. As a result, we determined that these hedges were unnecessary, and we could exit them at favorable terms.
Jagtar Narula: The leverage ratio as defined in the credit agreement stands at two five times, which is at the bottom.
Steven Alan Elder: Our long term target of two and a half to three five times.
Jagtar Narula: In December.
Jagtar Narula: We exited our interest rate hedge positions leading to immediate cash benefit.
Steven Alan Elder: $50 million.
Jagtar Narula: As discussed in prior calls the company wide net exposure to changes in interest rates has declined as we've grown the custodial cash assets and there are benefits segment.
Jagtar Narula: As a result, we determined that these hedges were unnecessary that we could exit that at favorable terms.
Jagtar Narula: Exiting the hedges accelerated the cash benefit we expected to see from the hedges up front rather than over time, which we intend to return to shareholders through share repurchases, and we have already repurchased $35 million to date through the last week of 2024. As a result, we will see an increase in interest costs in 2024, especially in Q1 when rates are expected to be highest, and with the elimination of the hedges that were already set to expire in. I want to emphasize this reflects our belief in the time value of money benefit of receiving the cash earlier than we would have otherwise and returning this cash sooner to our shareholders. Going forward, we intend to continue to evaluate our overall interest rate exposures annually and make adjustments to our hedging strategy as, During January, we successfully repriced $1.4 billion of term loans, reducing the spread over SOFR by 25 basis points and eliminating the credit spread adjustment. This will lead to interest savings of more than $5 million in 2024 on this branch of debt. There were no other changes below the green line.
Steven Alan Elder: Exiting the hedges accelerated the cash benefit we expected to see from the hedges to upfront rather than over time, which we intend to return to shareholders through share repurchases and we have already repurchased $35 million to date through last week in 2024.
Steven Alan Elder: As a result, we will see increased interest costs in 2024.
Jagtar Narula: Especially in Q1 with rates are expected to be highest and with the elimination of the hedges that were already set to expire mid year.
Jagtar Narula: I want to emphasize this reflects our belief in the time value of money benefit of receiving the cash earlier than we would have otherwise.
Jagtar Narula: Turning to this cash sooner to our shareholders.
Jagtar Narula: Going forward, we intend to continue to evaluate our overall interest rate exposures annually.
Jagtar Narula: Make adjustments to our hedging strategy as necessary.
Jagtar Narula: During January we successfully repriced $1 $4 billion of term loans, reducing the spread over sulfur, but 25 basis points and removed the credit spread adjustments.
Jagtar Narula: This will lead to interest savings of more than $5 million in 2024 on this tranche of debt.
Jagtar Narula: There were no other changes below the agreement.
Jagtar Narula: Next, I would like to turn to cash flow. WEX generates a significant amount of cash, using our definition. Adjusted free cash flow is $570 million for 2022.
Speaker Change: Next I would like to turn to cash flow.
Jagtar Narula: <unk> generates a significant amount of cash using our definition.
Jagtar Narula: Adjusted free cash flow is $517 million for 2023.
Jagtar Narula: This compares to our just-in-debt income of $646 million. A reminder, as I have discussed previously, that rapid fuel price declines at the end of 2022 increased adjusted free cash flow by about $150 to $175 million, which reversed during 2020. Taking this into account, Adjusted Free Cash Flow for 2023 was slightly less than Adjusted Net Income, which is what we would normally expect. We are committed to driving strong cash generation and deploying it by both repurchasing our own shares and investing in our business, with an overall goal of maintaining strong long-term growth. For the year, we repurchased 1.7 million shares at a total cost of approximately $295 million, including approximately $150 million in the fourth quarter.
Jagtar Narula: This compares to our adjusted net income of $646 million.
Jagtar Narula: A reminder, as I have discussed previously that rapid fuel price declines at the end of 2022 increased adjusted free cash flow by about $150 million to $175 million that year, which reversed during 2023.
Jagtar Narula: Taking this into account adjusted free cash flow for 2023 was slightly less than adjusted net income, which is what we would normally expect.
Jagtar Narula: We are committed to driving strong cash generation and deployment by both repurchasing our own shares and investing in our business with an overall goal of maintaining strong long term growth rates for.
Jagtar Narula: For the year.
Jagtar Narula: We repurchased one 7 million shares at a total cost of approximately $295 million.
Jagtar Narula: Including approximately a $150 million in the fourth quarter.
Jagtar Narula: As a reminder, we also extinguished a $310 million convertible debt in Q3, which further reduced the fully diluted share count by 1.55 million in Q4 compared to the prior year. Going forward, we expect to continue to allocate a portion of adjusted free cash flow to repurchase warrants. Finally, let's move to 2024 Revenue and Earnings Guidance for the first quarter and the full year, starting with the first quarter. We expect to report revenue in the range of $650 million to $660 million. We expect adjusted net income EPS to be between $3.40 and $3.50 per diluted share. For the full year, we expect to report revenue in the range of $2.7 million. $2.74 billion
Jagtar Narula: As a reminder, we also extinguished at $310 million convertible debt in Q3.
Jagtar Narula: Which further reduced fully diluted share count by 155 billion in Q4 compared to the prior year.
Jagtar Narula: Going forward, we expect to continue to allocate a portion of adjusted free cash flow to repurchase shares.
Jagtar Narula: Finally, let's move to 2020 for revenue and earnings guidance for the fourth for the first quarter of the full year.
Jagtar Narula: Starting with the first quarter.
Jagtar Narula: We expect to report revenue in the range of 650 million to $660 million.
Jagtar Narula: We expect adjusted net income EPS to be between $3 40.
Jagtar Narula: $3 50 per diluted share.
Jagtar Narula: For the full year, we expect to report revenue in the range of two seven to $2 74 billion.
Jagtar Narula: We expect adjusted net income EPS to be between $15.90 and $16.40 per diluted share. Let me spend a couple of minutes going through some of the larger assumptions in our guidance. First, a couple of high-level macro... We are basing our guidance on U.S. GDP growth of around 1.5% for the year, which we have taken into account in our growth expectations. We're also expecting interest rates to decline in line with the market, which implies five quarterly point rate cuts during the year. We have not included any future M&A activity or share repurchases except as we have already announced. Mobility Revenue Group, excluding the change in fuel price, is expected to be at the high end of our long-term target, which is 4-8%, including approximately 2% for the contribution from PACE. Fuel prices are expected to be lower in 2024 than in 2023, which is a headwind to revenue and earnings that is embedded in our guidance. We are assuming an average fuel price of $3.50 in the first quarter and $3.55 for the year, which compares to $3.86 in Q1 2023 and $3.82 for the full year 2020.
Jagtar Narula: We expected adjusted net income EPS to be between $15 90.
Jagtar Narula: $16 40 per diluted share.
Jagtar Narula: Let me spend a couple of minutes going through some of the larger assumptions that Eric guidance.
Jagtar Narula: First a couple of high level macro assumptions were basically our guidance.
Jagtar Narula: GDP growth of around one 5% for the year.
Jagtar Narula: Which we have taken into account in our growth expectations.
Jagtar Narula: We're also expecting interest rates to decline in line with the market.
Jagtar Narula: Which implies five quarter point rate cuts during the year.
Jagtar Narula: We have not included any future M&A activity or share repurchases, except as we've already announced.
Jagtar Narula: Mobility revenue growth excluding.
Jagtar Narula: Excluding the change in fuel prices is expected to be at the high end of our long term targets, which is 4% to 8%, including approximately 2% for the contribution from Taser.
Jagtar Narula: Fuel prices are expected to be lower in 2020 for that in 2023, which is a headwind to revenue and earnings. So there is embedded in our guidance.
Jagtar Narula: We are assuming an average fuel price of $3 50 for the first quarter is $3 55 for the year, which compares to $3 86 for Q1 2023.
Jagtar Narula: $3 82 for the full year 2023.
Jagtar Narula: The fuel price decline is expected to reduce revenue and earnings per share by approximately $18 million and $0.27 per share in Q1, and $54 million and $0.81 per share for the full year compared to 2023 using the new sensitivity that I mentioned earlier. Again, this fuel price impact is already embedded in our discussion. Melissa mentioned some of our growth drivers earlier, which I will reiterate, including strong continuing sales, Pricing Optimist, the full year benefit impact of PAYS, and Stabilization in the Portfolio from the Credit Policy Changes made a year ago, which will also reduce the revenue drag from lower late fees that we saw in. The corporate payment segment is expected to grow high single-digit. Similar to 2023 results, we expect the net interchange rate to come down slightly, We see significant demand for travel and expect to improve non-travel revenue growth. Finally, the benefits segment is expected to grow 10 to 15%.
Jagtar Narula: The fuel price decline is expected to reduce revenue and earnings per share by approximately $18 million and 27 per share in Q1.
Jagtar Narula: And $54 million 81 per share for the full year compared to 2023, using the new sensitivities that I mentioned earlier.
Jagtar Narula: Again, this fuel price impact is already embedded in our guidance.
Jagtar Narula: Melissa mentioned in some of our growth drivers earlier, which I will reiterate including strong continuing sales engine.
Jagtar Narula: Pricing optimization full.
Jagtar Narula: <unk> full year benefit impacted taser.
Jagtar Narula: And stabilization in the portfolio the credit policy changes made a year ago, which will also reduce the revenue drag from lower late fees that we saw in 2023.
Jagtar Narula: The corporate payments segment is expected to grow high single digits.
Jagtar Narula: <unk> 2023 results, we expected net interchange rate to come down slightly mainly due to customer mix.
Jagtar Narula: We see significant demand for travel and expect to improve non travel revenue growth in 2024.
Jagtar Narula: Finally, the benefits segment is expected to grow 10% to 15%.
Jagtar Narula: We have completed the open enrollment season, giving us confidence in the continued growth of this business. Anticipated growth in custodial assets and tailwinds from organic growth in the census acquisition are expected to more than offset the loss of an individual Medicare Advantage customer. We're on track to remove $100 million of operating costs on a run rate basis by the end of 2024, as we previously outlined. We expect adjusted operating income margins to trend up through the year as we get the benefit of these cost savings measures and the impact of pricing initiatives and scale that Melissa spoke about earlier. As I mentioned earlier, our decision to exit the swaps pulled cash forward but also resulted in a higher interest expense in 2024. The impact is $0.19 per share in Q1 and $0.52 per share for the full year.
Jagtar Narula: We've completed the open enrollment season, giving us confidence in the continued growth of this business.
Jagtar Narula: <unk> growth in custodial assets until woods for organic growth is the sensus acquisition are expected to more than offset the loss of the individual Medicare advantage customer.
Jagtar Narula: We are on track to remove $100 million of operating costs on a run rate basis by the end of 2024 as we've previously outlined.
Jagtar Narula: We expect adjusted operating income margins to trend up through the year as we get the benefit of these cost savings measures.
Jagtar Narula: Impact of pricing initiatives.
Jagtar Narula: Scale that Melissa spoke about earlier.
Jagtar Narula: As I mentioned earlier, our decision to exit the swaps pulled cash forward, but also results in higher interest expense in 2024.
Jagtar Narula: The impact is <unk> 19 per share in Q1, and 52 per share for the full year.
Jagtar Narula: Again, this is reflected in our guidance. As we have discussed, we aim to balance our fixed and floating rate assets and liabilities, such that we would not expect material changes to overall adjusted earnings this year if there are changes in benchmark interest rates, although there could be impacts on individual All of this leads to EPS growth in the range of 7 to 11%. Isolating out our fuel price degradation and FX, we would expect adjusted EPS growth to be in the range of 13 to 17.
Jagtar Narula: Again this is reflected in our guidance.
Jagtar Narula: As we have discussed we aim to balance our fixed and floating rate assets and liabilities such that we would not expect material changes to overall adjusted earnings. This year. If there are changes in benchmark interest rates, although there could be impacts to individual segments.
Jagtar Narula: All of this leads to EPS growth in the range of 7% to 11%.
Jagtar Narula: Isolating out our fuel price degradation and FX, we would expect adjusted EPS growth to be in the range of 13% to 17%.
Jagtar Narula: As I complete my prepared remarks, I would like to emphasize again how pleased we were with our results before and our outlook for 2020. We have great confidence in our ability to win new customers, expand with existing costs, and bring new products to market, all leading to continued long-term growth. With that operator, please open the line for questions. www.wexinc.com. The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.
Jagtar Narula: As I complete my prepared remarks, I would like to emphasize again.
Jagtar Narula: I'm pleased we were with our results Q4, and our outlook for 2024.
Jagtar Narula: We have great confidence in our ability to win new customers expand with existing customers and bring new products to market all leading to continued long term growth of the company.
Jagtar Narula: With that operator, please open the line for questions.
Jagtar Narula: The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.
Operator: We ask that you please limit yourself to one question and one follow-up question. We'll now take a moment to compile our list. Our first question comes from the line of Darren Peller with Wolf Research. Please go ahead.
Jagtar Narula: We ask that you please limit yourself to one question and one follow up question.
Darren Peller: We will now take a moment to compile a roster.
Darren Peller: Our first question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.
Melissa D. Smith: Thanks, guys. Um, maybe just touch a little more on the confidence in underlying just fundamentals given corporate payments yields fell a bit year over year. And maybe just a little more on the benefits segment. When you think about guidance relative to recent trends, I'd love to hear a little more color on that first, if you don't mind. Sure. Good morning.
Darren Peller: Thanks, guys.
Melissa D. Smith: Maybe just touch a little more on the confidence in underlying just fundamentals given corporate payments yields.
Melissa D. Smith: Fell a bit year over year, and maybe just a little more on the benefits segment. When you think about guidance relative to recent trend I'd love to hear a little more color on that first if you don't mind.
Speaker Change: Sure good morning.
Melissa D. Smith: And I'm going to start by, you know, with part of our confidence in next year's line of sight. We ended 2023, we grew revenue 13%, excluding field prices in FX, and if you look at the midpoint of our guidance for 24, it's 9% on the same basis. And going into that, I won't go into the segments now, Jack, if you want to, but across the business, and one of the most important things for us is to continue the sales momentum that we had in 2023. We'll get a benefit from the sales tale of what we sold this year, and we expect our sales professionals to continue to deliver in 2024. We also have pricing levers that we're going to continue to use, which we did in mobility in 2023, and we'll continue to do in 2024. We'll get the benefit of the annualization on the changes we made to our credit policies, which will give us a lift from a comparability standpoint, both on late fees and on attrition. And then we'll get a full year's benefit from the acquisitions. And specifically, you asked about corporate payments.
Speaker Change: And I'm going to start with.
Melissa D. Smith: Part of our confidence in next year.
Melissa D. Smith: Your line of sight. We ended 2023, we grew revenue, 13%, excluding fuel prices and FX and if you look at the midpoint of our guidance for 2004 at 9% on the same basis.
Speaker Change: And going into that and if you go into I won't go into the segments now Gyfer, Ken if he wants to but.
Melissa D. Smith: Across the business and one of the most important things for US is to continue the sales momentum that we had in 2023, we will get a benefit of the sales tailwind what we sold this year and we expect our sales professionals to continue to deliver in 2024.
Melissa D. Smith: So have pricing levers that we're going to continue to.
Melissa D. Smith: Use which we did in mobility in 'twenty, three and we will continue to in 'twenty four.
Melissa D. Smith: We will get the benefit of the utilization on the <unk>.
Melissa D. Smith: The changes we made.
Melissa D. Smith: Policies, which will give us a lift from a comparability standpoint, both on late fees.
Melissa D. Smith: And on attrition.
Melissa D. Smith: Attrition.
Melissa D. Smith: And then we will get a full year benefit of the acquisitions.
Melissa D. Smith: And specifically you asked about corporate payments on the prepayment side, we are expecting to see.
Melissa D. Smith: On the corporate payment side, we were expecting to see a lift in the non-travel part of our business, and you can see that has come true sequentially. Each quarter, we've come up a little bit over the last couple of quarters, and we're expecting that momentum to continue into 2024. And that comes from the pipeline that we have for our embedded payments product, as well as the success we've had with our direct sales force, which is becoming a more meaningful part of the business. And then we expect our travel business to become a little bit more muted from a growth perspective in 2024 compared to 23, which was bullish. We're coming off of 40% spend volume growth in the 4th quarter of 2023, and so we're expecting as you go through the course of 2024 that that growth will moderate. Okay. All right. That's great. Yeah. Go ahead, Jack. Sorry.
Melissa D. Smith: Lift on the non travel part of our business and you can see that has come through sequentially each quarter, we come up a little bit over the last couple of quarters. We are expecting that momentum to continue into 2024, and that's coming from the pipeline that we have on our embedded.
Melissa D. Smith: Payments product as well as the success, we've had with our direct sales force, which is becoming a more meaningful part of the business.
Melissa D. Smith: And then we expect our travel business can become.
Melissa D. Smith: A little bit more muted in 'twenty and then from a growth perspective in 2024 compared to 23, which was bullish we're coming off of 40% spend volume growth in the.
Melissa D. Smith: Fourth quarter of 2023, and two we are expecting as you go through the course of 2024 that that growth will moderate.
Jack: Alright, thats great yeah. Thanks, so much.
Jack: Go ahead sorry.
Jagtar Narula: No, just going to I think Melissa hit all the key points. I was just going to reiterate, I think, Darren, you were focused on benefits and corporate payments. And the question I would say benefits, right? In 23, we got a lot of benefit from interest rates. Of our 32% growth in 23, a little more than half of that came from interest rates, not expecting that to repeat in 24. So if you take that out, look at what's left, right?
Jack: No just because I think Melissa hit all the key points I was just going to reiterate I think.
Jagtar Narula: Darren you refocus on benefits in corporate payments and the question is I would say a benefit in 'twenty three we've got a lot of benefits from interest rates.
Jagtar Narula: Our <unk>.
Jagtar Narula: 32% growth in 'twenty three.
Jagtar Narula: On behalf of the cuprum rates.
Jagtar Narula: Not expecting that to repeat in 'twenty four so if you take that out.
Jagtar Narula: We've got a little bit of benefit from the census. I mentioned the customer that's leaving, but if you net those two out, what you find is the underlying business continues to perform as it did in 23. And then on the corporate payment side, right, as Melissa mentioned, a little more growth in our non-travel business, mainly because, you know, we've got good visibility for the partners that we work with, as well as increasing confidence in our direct business. I pointed out in my prepared remarks that direct business was about half the growth in the non-travel part this quarter. And so we're really pleased with the investments we've made there and expect that to continue into 2024. So we feel good about it.
Jagtar Narula: What's left right, we've got a little bit of benefit from a census, I've mentioned the customer that that's leaving but if you net those two out what you find is the underlying business continues to perform as it did in 'twenty three and we feel really good about that and then on the corporate payments side right as Melissa mentioned, a little more growth in our non trail.
Jagtar Narula: <unk> business.
Jagtar Narula: Mainly because we've got good visibility to the partners that we work with as well as increasing confidence in our direct business I pointed out in my prepared remarks.
Jagtar Narula: That the direct business was about half the growth in.
Jagtar Narula: On the non travel part this quarter and so we're really pleased with the investments we've made there and expect that to continue into 2024. So we feel good about it.
Melissa D. Smith: Thank you. I guess just my very quick follow up would be on the corporate payment side, just to make sure we're clear on the medium term targets. I mean, there's obviously a lot of puts and takes this year on the high single-digit corporate payments growth, but when we think about the medium targets, they'll still be 10 to 15%. If you could just make sure, you know, reiterate if you still have conviction in that, and then, you know, I guess with all these moving parts, it probably is clear why it would reaccelerate, but what would your conviction be in the driving forces of that back to 10 to 15 again?
Speaker Change: Thank you I guess, just my very quick follow up would be on the corporate payment side just to make sure. We're clear the medium term targets I mean, theres, obviously, a lot of puts and takes on this year.
Melissa D. Smith: On the high single digit core payments growth, but when we think about the medium targets still still 10% to 15%.
Melissa D. Smith: Just make sure reiterate a few still have conviction in that and then I guess with all these moving parts. It probably is clearer that why would reaccelerate, but what would be your conviction in the driving forces of that back to 10 to 15 again.
Melissa D. Smith: Yes, I would describe this as long term targets, the 10% to 15%.
Melissa D. Smith: As youre going into this year, you're moderating off from a really strong travel growth here and so that's our expectation is that that's going to decline and of course, there we'll see how that actually plays out but that's the assumption we haven't in our guidance. The answer is seeing really good ramp that's happening outside of travel.
Melissa D. Smith: Yeah, I would describe these as long-term targets, the 10 to 15 percent. But as you're going into this year, you're moderating off from a really strong travel growth year. And so our expectation is that that's going to decline in the course of the year.
Melissa D. Smith: So.
Melissa D. Smith: Ask about confidence on our ability to hit our long term growth targets because of the ramp we're seeing outside of travel as well.
Melissa D. Smith: We'll see how that actually plays out, but that's the assumption we have in our guidance. We also are seeing some really good growth that's happening outside of travel. So, you know, when you ask about confidence in our ability to hit our long-term growth targets, it's because of the ramp we're seeing outside of travel as well. OK. Great. Thanks guys. Our next question comes from the line of Sanjay Sakhrani with KBW. Please go ahead.
Melissa D. Smith: Okay.
Melissa D. Smith: Okay.
Sanjay Sakhrani: Thanks, guys.
Sanjay Sakhrani: Our next question comes from the line of Sanjay Sac Ronnie was key BW. Please go ahead.
Sanjay Sakhrani: Thanks, Good morning.
Sanjay Sakhrani: I guess first question just on the guide and sort of the macro forecast. It sounds like you guys are being pretty conservative with the GDP outlook I'm, just curious if theres something youre seeing or is that just being intentionally conservative just trying to get a little color there. Thanks.
Melissa D. Smith: Thanks, good morning. Um, my first question just on the guide and sort of the macro forecast sounds like you guys are being pretty conservative with the GDP outlook. I'm just curious if there's something you're seeing or if you're intentionally being intentionally conservative, just trying to get a little color there.
Sanjay Sakhrani: Yes, so what we do during our planning process as we go out to a pretty large bank group.
Melissa D. Smith: <unk>.
Melissa D. Smith: Moody's S&P referred other institutions that are that are publishing GDP.
Melissa D. Smith: GDP forecast and so when we could average that up against the 20 institutions that we service, we see about one 5% as the average and so we use that in our planning process. We're not trying to kind of make up what we think GDP is going to do we really use a base point with external the external parties are saying.
Melissa D. Smith: So what we do during our planning process is we go out to a pretty large bank group, economists at Moody's, S&P, the Fed, and other institutions that are publishing GDP forecasts. And so when we average that up against the 20 institutions that we survey, we see about 1.5% is the average. And so we use that in our planning process. We're not trying to make up what we think GDP is going to do. We really use it based on what external parties are saying, and I guess like what you've seen year-to-date with the weather and stuff. I mean, there's nothing that has led you to be more cautious or anything like that.
Melissa D. Smith: And I guess like what you've seen year to date with the weather and stuff I mean, there's nothing that has led you to be more cautious or anything like that.
Melissa D. Smith: No.
Melissa D. Smith: And then from a trend perspective, there's nothing that we've seen same store sales was down in the fourth quarter in North American fleet, which was included in our numbers by one 5% over the road bend down through the course of the year for 2%.
Melissa D. Smith: Mr. Assuming that deal with raws market is stable.
Melissa D. Smith: No, from a trend perspective, there's nothing that we've seen. Same-store sales were down in the fourth quarter of the North American fleet, which was included in our numbers by 1.5% over the road spend down, you know, throughout the course of the year by 2%. And we just are assuming that the over-the-road market is stable in our numbers, as opposed to seeing, you know, a significant rebound. So, you know, there's a little bit, I would say, just a little bit of weakness that is coming through.
Melissa D. Smith: Our numbers.
Melissa D. Smith: As opposed to seeing significant rebound so.
Melissa D. Smith: A little bit I would say just a little bit of weakness coming through some of that we think is weather related.
Melissa D. Smith: No more as you see that play out in the first quarter, but anything that we've seen coming through January.
Melissa D. Smith: With expectations in January yes.
Melissa D. Smith: Got it and then Melissa.
Melissa D. Smith: You sort of talked about the benefit of the annualized benefit of the acquisitions, maybe you could just talk a little bit about the contribution and then pays or I know.
Melissa D. Smith: Some of that we think is weather-related, and we'll know more as you see that play out in the first quarter. But anything that we've seen coming through January, you know, is up. So far, it's been in line with expectations in January.
Melissa D. Smith: It wasn't really added to earnings, but maybe sort of what you guys expect in 2024.
Melissa D. Smith: Yes.
Melissa D. Smith: Sure.
Speaker Change: Pedro yourself.
Melissa D. Smith: Expecting that to continue to grow at the rate it was.
Melissa D. Smith: And then, Melissa, you sort of talked about the benefit of, the annualized benefit of the acquisitions. Maybe you could just talk a little bit about the contribution and then, you know, Pazer, I know, wasn't really out of earnings, but maybe sort of what you guys expect in 2024. Thanks, store.
Melissa D. Smith: Plus 20% and our guidance in.
Melissa D. Smith: In 2024, when you accumulate.
Melissa D. Smith: Both the acquisitions in our long term target that 2% 3%.
Melissa D. Smith: <unk>.
Melissa D. Smith: Overall revenue growth and it really is not material to earnings.
Melissa D. Smith: Because peyser came in we talked about the fact that Stewart is last year that.
Melissa D. Smith: Moving it to accretion during the course of the year.
Melissa D. Smith: PASER itself, we are expecting that to continue to grow at the rate it was, you know, so, you know, plus 20% in our guidance for 2024. When you accumulate, you know, both the acquisitions, it's in our long-term target at 2 to 3% of overall revenue growth, and it really is not material to earnings because PASER came in. We talked about the fact that it was diluted last year, that moving it to accretions during the course of the year, so it didn't really have much of an impact on earnings per share, but it's giving us a 2 to Thank you. Our next question comes from a line from Ramsey El Assel with Barclays. Please go ahead.
Melissa: So it didn't really have much of an impact from an earnings perspective that is giving us a 2% to 3% lift in revenue.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ramsey El <unk> with Barclays. Please go ahead.
Speaker Change: Hi, Thanks for taking my question this morning.
Speaker Change: I wanted to ask in the non travel part of corporate payments.
Speaker Change: How much exposure you have to political AD spending in 2024.
Speaker Change: Recall that that was a vertical that you were exposed to I belief and I'm. Just curious how much you think thats going to benefit you. This year given it wasn't really a numbers last year as there wasn't a lot of political spending.
Speaker Change: It's actually really good memory. It was part of our model many years ago.
Speaker Change: It is actually.
Speaker Change: Part of our model now and so we really don't expect are not planning to have any meaningful impact based on the election.
Melissa D. Smith: Hi, thanks for taking my question this morning. I wanted to ask about the non-travel part of corporate payment. How much exposure do you have to political ad spending in 2024? I recall that that was a vertical that you were exposed to, I believe. And I'm just curious how much you think that's going to benefit you this year, given it wasn't really in the numbers last year, as there wasn't a lot of political spending. It's actually a really good memory.
Melissa D. Smith: Okay.
Melissa D. Smith: And then.
Melissa D. Smith: I also wanted to ask about the strong sales momentum in mobility and.
Melissa D. Smith: Just.
Melissa D. Smith: Ask you to kind of.
Melissa D. Smith: Break that down a little bit for us in terms of what's driving that it seems like youre, having some success in the marketplaces that.
Melissa D. Smith: Sales investment incentive structures is it are there other factors that might be.
Melissa D. Smith: Helping you to convert some customers out there in the marketplace.
Melissa D. Smith: Yeah.
Melissa D. Smith: It was part of our model many years ago, but it is actually not part of our model now. And so we really don't expect or aren't planning to have any meaningful impact based on the election.
Melissa D. Smith: Been a long legacy of Iris and to deliver from a sales perspective.
Melissa D. Smith: Across the business, but in mobility.
Melissa D. Smith: We've had a multichannel approach.
Melissa D. Smith: Okay. And then I also wanted to ask about the strong sales momentum in mobility and just ask you to kind of break that down a little bit for us in terms of what's driving that. It seems like you're having some success in the marketplace. Is that sales investment, or incentive structures?
Melissa D. Smith: We're pulling in business for our partners.
Melissa D. Smith: With which there is no over 20 branded relationships that names you would recognize and then on top of that on your direct channels.
Melissa D. Smith: I would say for it in the course of the last couple of years, there's been a significant conversion where that business is coming from where it's much more is coming through the business digitally and so a lot of.
Melissa D. Smith: Is it other factors that might be, you know, helping you to convert some customers out there in the marketplace? Yeah, it's been a long legacy of ours to deliver on a sales perspective across the business. But in mobility, we've had a multi-channel approach, where we're pulling in business for our partners, with whom there are, you know, over 20 branded relationships, the names that you would recognize, and then on top of that, through direct channels.
Melissa D. Smith: The work and changing work has come from increasing our marketing effort.
Melissa D. Smith: Changing the ways that the business comes through so it's coming through.
Melissa D. Smith: Fluidly through our digital channels.
Melissa D. Smith: And so we've seen that in and the benefit of that with the fact that we are actually bringing in more with less sales cost associated with that.
Melissa D. Smith: What I would say over the course of the last couple of years is that there's been a significant conversion where that business is coming from, where much more is coming through the business digitally. And so a lot of the work and change in work has come from increasing our marketing effort, changing the ways that the business comes in, so it's coming more fluidly through our digital channels. And so we've seen that the benefit of that was the fact that we were actually bringing in more with less sales costs associated with that. And so when I talk about the success of that, I feel like we did a great job of pivoting and marketing in a different way into that part of the business. And we changed our credit practices in the course of the last year, and so that really required us to reboot our applications volume activity during the course of the year.
Melissa D. Smith: And so when I talk about the successes that I feel like we've done a great job pivoting and marketing in a different way into that part of the business and we changed our credit practices in the course of the last year, and so that really required us to reboot.
Melissa D. Smith: Application volume activity in the course of the year and you can see the benefit of that has come through really every quarter improved applications that are coming from some of the smaller accounts are getting.
Melissa D. Smith: Have grown the size of the customers that are coming on are larger than they were a year ago and therefore, we believe more profitable and so we.
Melissa D. Smith: Feel good about not just the numbers that were being from sales perspective, but the quality of what we're bringing in.
Speaker Change: Terrific. Thank you.
Melissa D. Smith: Our next question comes from the line of Andrew Jeffrey with Truest Securities. Please go ahead.
Melissa D. Smith: And you can see the benefit of that has come through really every quarter. The approved applications that are coming from the smaller accounts are growing. The size of the customers that are coming in is larger than they were a year ago, and therefore, we believe them to be more profitable. And so we, you know, I feel good about not just the numbers that we're bringing in from a sales perspective but the quality of what we're bringing in. Terrific, thank you.
Speaker Change: Hi, Good morning, listen Jack I appreciate you taking the questions.
Speaker Change: Moshe I am curious about your comments about the card attach in.
Melissa D. Smith: In travel.
Speaker Change: And I Wonder if you could could talk about different use case and I know the merchant model is one of the drivers but are there other use cases to which you are referring that that's driving attach and then I wonder if you can expand a little bit in the same vein just incorporate.
Melissa D. Smith: Our next question comes from a line from Andrew Jeffrey with Truist Securities; please go ahead. Hi, good morning, Melissa and Jagtar. I'm curious about your comments about the card attached to travel.
Andrew Jeffrey: We saw good volume growth and a little bit slower revenue growth this quarter, although better than the <unk> and just sort of the dynamics of the card acceptance and attach and in that segment would be really helpful.
Andrew Jeffrey: Yes on your last point better than Q2, Q3, Q I think you can look sequentially each quarter.
Melissa D. Smith: And I wonder if you could talk about different use cases. I know the merchant model is one of the drivers, but are there other use cases to which you're referring that are driving Attach? And then I wonder if you can expand a little bit in the same vein, just in corporate, you know, the you saw good volume growth and a little bit slower revenue growth this quarter, although better than 3Q, and just sort of the dynamics of vCard acceptance and Attach in that segment would be really helpful. Yeah, and your last point, better than 2Q and 3Q, like you can look sequentially, it's improved each quarter. Going back to the travel question, there are two primary drivers of the volume growth that we're seeing within travel that we were trying to highlight.
Melissa D. Smith: Going back to the travel question.
Melissa D. Smith: There are two primary drivers of the volume growth that we're seeing within travel that we were trying to highlight one is the fact that we've been working with our partners to shift volume to us and most of our partners or many of them use multiple providers and so.
Melissa D. Smith: We've been working with them to make sure that were setup in a way that creates the value to them to move to move volume to US and then the second part of that isn't migration that you are talking about which is largely this migration to the merchant model where.
Melissa D. Smith: We are the virtual card transaction actually is in play otherwise people are paying the hotel directly.
Melissa D. Smith: And we have benefited both of those things and you can see that coming through the 40% increase in travel spend we saw in the fourth quarter.
Melissa D. Smith: One is the fact that we've been working with our partners to shift volume to us, and most of our partners, or many of them, use multiple providers. And so we've been working with them to make sure that we're set up in a way that creates value for them to move volume to us. And then the second part of that is the migration that you're talking about, which is largely this migration to the merchant model, where the virtual card transaction actually is in play. Otherwise, people are paying the hotel directly.
Melissa D. Smith: And then on the non travel side I would say.
Melissa D. Smith: As I mentioned earlier.
Melissa D. Smith: We saw really good results out of our out of our direct investment. So we did get good volume growth overall.
Melissa D. Smith: A lot of that volume growth wasn't the partner channel.
Melissa D. Smith: Our partners performing well.
Melissa D. Smith: We had started making investments in the direct business.
Melissa D. Smith: 22 accelerating into 'twenty three.
Melissa D. Smith: And we have benefited from both of those things, and you can see that coming through the 40% increase in travel spend we saw in the fourth quarter. And then on the non-travel side, I would say, you know, as I mentioned earlier, we saw really good results out of our direct investment. And so we did get good volume growth overall. A lot of that volume growth was in the partner channel, and that's just our partners performing well. But we had started making investments in the direct business, you know, late 22, accelerating into 23. And so, you know, we expected to start to see the impact of that as we got through 23. And so in the fourth quarter, we did, you know, what we expected was start to see impact. And, you know, the rate's a little higher or a bit higher on the direct channel.
Melissa D. Smith: So we expected to start to see the impact of that as we got through 'twenty three and so in the fourth quarter. We did we did what we expected to start to see impact.
Melissa D. Smith: And the rate.
Melissa D. Smith: The rates, a little higher or a bit higher on the direct channel. So that drove like I said half the revenue.
Melissa D. Smith: Benefit in the fourth quarter, the non travel side. So it's an area that we continue to invest and we continue to watch and we continue to be excited about.
Speaker Change: Thank you.
Melissa D. Smith: Our next question comes from the line of Dave Koning with Baird. Please go ahead.
Speaker Change: Yeah, Hey, guys.
Melissa D. Smith: Good job.
Melissa D. Smith: On the mobility segment guidance.
Melissa D. Smith: High end of the range I guess two questions first of all how do you kind of see that through the year I assume Q1 starts a little lower.
Jagtar Narula: So that drove, you know, like I said, half the revenue benefit in the fourth quarter on the non-travel side. So it's an area that we continue to invest in. We continue to watch.
Melissa D. Smith: And then secondly gallons and transactions have been pretty flat. The last few quarters is that what's going to accelerate or is it something else around yield or account fees or finance revenue.
Operator: We continue to be excited about it. Our next question comes from a line from Dave Koning with Baird. Please go ahead.
David John Koning: Yes, So let me first your question about how they go through the year. So youre absolutely right, we expect that to accelerate over the course of the year I would say there is.
David John Koning: Yeah, hey guys, and good job. On the mobility segment guidance, the high end of the range, I guess I have two questions. First of all, how do you kind of see that through the year?
David John Koning: There's a few things driving the mill mobility segments. The first is the acquisition of <unk> I think Melissa mentioned this earlier, that's about two points of the growth right.
Jagtar Narula: I assume Q1 starts a little lower. And then secondly, gallons and transactions have been pretty flat the last few quarters. Is that what's going to accelerate? Or is it something else around yield or account fees or finance?
Jagtar Narula: If you back off or pays or there is a couple of things that we saw in 2003 that we think we start to lap in 'twenty four so the first thing we saw was lower late fees that was roughly.
Jagtar Narula: Yeah, so let me first answer your question about how that goes for the year. So, you're absolutely right, we expect that to accelerate over the course of the year. I'd say there are a few things driving the mobility segment. The first is the acquisition of PASER.
Jagtar Narula: 3% ish.
Jagtar Narula: Drag on 'twenty three revenue in the mobility segment.
Jagtar Narula: And that was the result of.
Jagtar Narula: The new <unk>.
Jagtar Narula: Tighter credit that we had in 2023.
Jagtar Narula: As I said in my prepared remarks, we think that was a good decision because the credit benefit outweighed the drag and late fees, but as we get through 'twenty. Four we're not further tightening credit policies. So we'll start to lap the left that won't be a drag that also same thing also impacted gallons in 2023, because we were tight.
Jagtar Narula: And I think Melissa mentioned this earlier, that adds about two points to the growth, right? If you back off of PASER, there's a couple of things that we saw in 23 that we think we start to see in 24. So the first thing we saw was lower late fees. That was, you know, roughly a 3%-ish drag on 23 revenue in the mobility segment. And that was, you know, the result of the new, you know, tighter credit that we had in 2023. Obviously, as I said in my prepared remarks, we think that was a good decision because the credit benefit outweighed the drag on late fees. But as we get through 24, you know, we're not further tightening credit policy.
Jagtar Narula: <unk> credit for certain customers.
Jagtar Narula: Combined with weakness in the OTR segment, we saw some logo and volume growth in 2023, again Thats something we will start to lap those items and 24, hence our assumption of acceleration in 'twenty four.
Jagtar Narula: Both go through revenue.
Speaker Change: Gotcha, Yeah that was very helpful. And then secondly, it looks like Theres no buybacks in the guidance just based on how you kind of guided Q1, and then full year being higher.
Speaker Change: Whats the plan for use of cash this year I mean is it just to pay down debt given the higher rates now without the swaps.
Jagtar Narula: So we'll start to lap that, and that won't be a drag. That also, same thing, also impacted gallons in 2023 because we were tightening credit for certain customers. Combined with, you know, weakness in the OTR segment, we saw some low-gallon volume growth in 2023.
Jagtar Narula: So our intention is to use the cash both for acquisitions and for share buyback and obviously we've.
Jagtar Narula: <unk> been buying back stock.
Jagtar Narula: We bought back one 7 million shares last year, and so we have like a <unk>.
Jagtar Narula: Insistently believes that our stock is still at a good value and will continue to.
Jagtar Narula: Again, that's something we will start to lap those items in 24, hence our assumption of acceleration in 24 on both gallons and revenue. Gotcha. Yeah, that was very helpful. And then secondly, it looks like there's no buybacks in the guidance just based on how you kind of guided Q1 and then full year being higher. What's the plan for the use of cash this year? I mean, is it just to pay down debt given the higher rates now without the swaps?
Speaker Change: This emphasis there.
Jagtar Narula: That being said we will also at the same time look at pipelines for M&A transactions and evaluate that as another use of capital.
Speaker Change: Great well, thanks, it's great to see it's not guidance, it's kind of an upside driver. So thanks for all that.
Speaker Change: Yes, yes. Thank you.
Jagtar Narula: Our next question comes from the line of Trevor Williams with Jefferies. Please go ahead.
Speaker Change: Great. Thanks, Good morning, I wanted to ask on benefits Melissa maybe if you could revisit the longer term growth algorithm.
Melissa D. Smith: So our intention is to use the cash both for acquisitions and for share buybacks. And obviously, as we've been buying back stock, we bought back 1.7 million shares last year. And so we have a, you know, like a strong emphasis that we believe that our stock is still at a good value, and we'll continue to place emphasis there. That being said, we will also, at the same time, look at pipelines for M&A transactions and evaluate that as another use of capital. Great. Well, thanks. It's great to see it's not in guidance. It's kind of an upside driver.
Speaker Change: 15% to 20% target you guys had laid out earlier in 2023 and account growth has slowed the last couple of quarters. I'm curious if you think high single digit account growth is kind of the right normalized level that we should be thinking about going forward and just if that's the case, how we bridge from that to the 15%.
Melissa D. Smith: Longer term target. Thanks.
Melissa D. Smith: Sure. If you look at <unk> last report they've got long term HSA growth at 10% so still in the double digits I think theyre.
Melissa D. Smith: Theyre also cycles for that and then what we found going trend. This.
Melissa D. Smith: So thanks for all that. Yes. Yes. Thank you. Our next question comes from the line of Trevor Williams with Jeffries. Please go ahead. Great, thanks. Good morning. I want to ask about benefits.
Trevor Williams: Most recent open enrollment season, as we had more non decisions. So we did the year before which is I would say it was like a really strong sales cycle and so I think theyre going to have anomalies within each of the sales cycles.
Melissa D. Smith: Melissa, maybe you could revisit the longer-term growth algorithm and the 15 to 20% targets you guys had laid out earlier in 2023, and account growth has slowed in the last couple of quarters. I'm curious if you think high single-digit account growth is kind of the right normalized level that we should be thinking about going forward. And if that's the case, how do we bridge from that to the 15% plus longer term target? Thanks.
Melissa D. Smith: But over the long term.
Melissa D. Smith: Do feel good about our ability to grow account.
Melissa D. Smith: And then on top of that what we're seeing now, which we think will continue is that the custodial asset base will outpace the growth of the account.
Melissa D. Smith: And.
Melissa D. Smith: And that.
Melissa D. Smith: A meaningful shift in as we've added that capability to revenue per account.
Melissa D. Smith: It's gone up pretty significantly and so.
Melissa D. Smith: The ability to create a new source of revenue.
Melissa D. Smith: Sure. If you look at Debonair's last report, they've got long-term HSA growth at 10%, so still in the double digits. I think that there are also cycles for that.
Melissa D. Smith: That is a multiplier effect to the base of our portfolio.
Melissa D. Smith: And then on top of that.
Melissa D. Smith: We are continuing to cross sell into that customer base. The products that we've added which are co.
Melissa D. Smith: And what we found going through this most recent open enrollment season is that we had more non-decisions than we did the year before, which I would say was a really strong sales cycle. And so I think they're going to have anomalies within each of the sales cycles. But over the long term, we do feel good about our ability to grow accounts. And then, on top of that, what we're seeing now, which we think will continue, is that the custodial asset base will outpace the growth of the account. And that, you know, is a meaningful shift, you know, as we've added that capability, the revenue per account has gone up pretty significantly. And so there's the ability to create a new source of revenue that is a multiplier effect on the, you know, base of our portfolio.
Melissa D. Smith: Cobra product our benefits administration product most recently the census capability and so when you aggregate all of those pieces and then the expectation that healthcare costs are going to go up into the spend balances are going to increase.
Melissa D. Smith: Meaning the actual purchase volume will also be higher than accounts.
Melissa D. Smith: Drove our expectation of the long term.
Melissa D. Smith: Growth rates in this segment, which is something that we'll keep talking about is the course of the year and obviously, we're guiding below that.
Melissa D. Smith: 2024 based on what we're seeing right now.
Melissa D. Smith: We do feel very good.
Melissa D. Smith: Brokerage, though competitively that we are winning our fair share in the marketplace.
Melissa D. Smith: That's helpful. Thanks, and for Jaguar, the payment processing rate in fuel for the year that was up about 14 basis points and you've referenced the last couple of quarters the benefit that <unk> gotten from the escalators tied to interest rates could you give us a sense for how much of a tailwind.
Melissa D. Smith: And then on top of that, we are continuing to cross-sell into that customer base the products that we've added, which are our COBRA product, our benefit registration product, and most recently, the census capability. And so when you aggregate all those pieces, and then add the expectations that health care costs are going to go up, and so the spend balances are going to increase, meaning the actual purchase volume will also be higher than accounts, those are what drove our expectation of the long-term growth rates of this segment, which is something that we'll keep talking about over the course of the year. Now, obviously, we're guiding below that in 2024 based on what we're seeing right now. We do feel very good competitively that we are winning, you know, our fair share in the marketplace. That's helpful.
Melissa D. Smith: The interest rate escalators were for the year and with what Youre expecting in terms of interest rates for 2020 for just how much of that tailwind you would expect to reverse this year. Thanks.
Melissa D. Smith: Yeah, So I would say the increase in the interchange rate in mobility was a mix between the tailwind of interest rates and also.
Melissa D. Smith: Price negotiations, we've had with merchant vendors, where we've been able to.
Melissa D. Smith: <unk> price and Melissa talked about pricing optimization earlier, so it's a combination of the two.
Melissa D. Smith: We expect next year I'd mentioned, the assumptions around five quarters right.
Melissa D. Smith: Great reduction so we expect that to be a slight drag on mobility revenue next year.
Jagtar Narula: Thanks. And for Jagtar, the payment processing rate for fuel for the year was up about 14 basis points, and you've referenced in the last couple of quarters the benefit that you've gotten from the escalators tied to interest rates. Could you give us a sense of just how much of a tailwind the interest rate escalators were for the year and with what you're expecting in terms of interest rates for 2024? And just how much of that tailwind you would expect to reverse this year?
Melissa D. Smith: The way I think about it as a 100 basis point movement in rates on an annualized basis is about a $15 million impact on on.
Jagtar Narula: Mobility revenue.
Jagtar Narula: So that's the way I would model it.
Speaker Change: Okay perfect. Thank you.
Jeans: Our next question comes from the line of Jeans, a faucet with Morgan Stanley. Please go ahead.
Jagtar Narula: Great. Thank you so much just a couple of follow up questions for me first within mobility in the fleet business.
Jagtar Narula: Can you talk about what youre seeing on a on a same store.
Jagtar Narula: And what are the drivers there and can you give us any color on how what variance you might be seeing in cross customer sites.
Jagtar Narula: Thanks. Yeah, so I would say the increase in interchange rate mobility was a mix between the tailwind of interest rates and also price price negotiations we've had with merchant vendors where we've been able to improve prices, and Melissa talked about pricing optimization earlier, so it's a combination of the two. We expect next year, I mentioned the assumptions around five quarter point rate reduction, so we expect that to be a slight drag on mobility revenue next year. The way I think about it is a hundred basis point movement in rates on an analyzed basis is about a fifteen million dollar impact on mobility revenue. So that's the way I would model it.
Jagtar Narula: In the fourth quarter numbers, we saw a negative one 5% same store sales in North American fleet and negative 2% over the road on same store sales.
Jagtar Narula: I said this earlier, but one of the things that we are curious about is whether weather had an impact on that.
Jagtar Narula: We will see how that plays out in the course of this year.
Jagtar Narula: Because it was pretty broad brush it wasn't.
Jagtar Narula: <unk>.
Jagtar Narula: You look across the various fics pre.
Jagtar Narula: Pretty much the same.
Jagtar Narula: Across every category, which is unusual.
Melissa D. Smith: Okay, perfect. Thank you. Our next question comes from the line of James Fawcett with Morgan Stanley. Please go ahead.
Jagtar Narula: And so from our perspective, we think that was probably more weather related on the over the road side and that we continue to hear from our customers the same.
Melissa D. Smith: Great, thank you so much. Um, just a couple of follow-up questions for me. First, within mobility and the fleet business. Can you talk about what you're seeing on a daily basis at the same store? And who are the drivers there?
Jim Schneider: Things have stabilized.
Jim Schneider: They are coming off.
Melissa D. Smith: Better comps.
Melissa D. Smith: But we're not and we're not anticipating.
Jim Schneider: Are you seeing a big rebound anytime soon and that's what we factored into our guidance just this idea of stability.
Speaker Change: Yeah got it makes sense and thanks for that and then just like I know, it's small super early but just.
Melissa D. Smith: And can you give us any color on what Behrings may be seeing across customer sets? In the fourth quarter numbers, we saw a negative one and a half percent of same store sales in North American Fleet and a negative 2% in over the road same store sales. You know, I said this earlier, but one of the things that we're curious about is whether weather has an impact on that. So we'll see how that plays out over the course of this year. Because it was a pretty broad brush, you know, it wasn't, it was, you know, if you look across the various SICs, it was pretty much the same across every category, which is unusual.
Melissa D. Smith: Since you launched the venture capital fund.
Melissa D. Smith: That's kind of an interesting opportunity and exercise for wax just.
Melissa D. Smith: Any early views are learnings as you start to go down that in and the types of.
Melissa D. Smith: Central investments that Youre looking at.
Melissa D. Smith: Prasad to reinforce the idea that that was the right path.
Melissa D. Smith: Because you've got a lot of early stage companies that are out there. Many of them are pre revenue and it's given us an ability to learn.
Melissa D. Smith: In that marketplace.
Melissa D. Smith: Putting a lot of capital into it and so.
Melissa D. Smith: So far I would say what we.
Speaker Change: We have.
Melissa D. Smith: Maybe just a few investments companies that we've invested in.
Melissa D. Smith: And so, from our perspective, we think that was probably more weather-related. On the over the road side, you know, we continue to hear from our customers that, you know, that same, you know, things have stabilized. They're coming off, you know, better comp, but we're not, they're not anticipating, you know, seeing a big rebound anytime soon. And that's what we factored in our guidance, just this idea of stability. Yeah, I got it. It makes sense.
Melissa D. Smith: Are still out there in the marketplace.
Melissa D. Smith: Proving out their value propositions, they all have interesting ones.
Melissa D. Smith: That are solving very specific niches in the marketplace and what we're able to do is then expose that to our customers and get a sense.
Melissa D. Smith: What's going to get traction what isn't.
Melissa D. Smith: Our objective is to have.
Melissa D. Smith: They opened network, where we're exposing through api's many different types of functionality. So much will own from Richard we're partnering with others on and these investments allow us an avenue to do that.
Melissa D. Smith: And then, just like I know it's small and super early, but just since you launched the Venture Capital Fund, I always think that that's kind of an interesting opportunity and exercise for WEX. Any early views or learnings as you start to go down that road and the types of potential investments that you're looking at?
Speaker Change: Great Thanks for that.
Melissa D. Smith: Our final question comes from the line of Cris Kennedy with William Blair. Please go ahead.
Speaker Change: Good morning, Thanks for squeezing me in just a quick one on pricing. It's been mentioned a few times. This morning, but can you talk about kind of what the impact was last year and some of the levers that you have going into 2024. Thank you.
Melissa D. Smith: For us, it's to reinforce the idea that it was the right path, because you've got a lot of early-stage companies that are out there, many of them are pre-revenue, and it's given us an ability to learn in that marketplace without putting a lot of capital into it. And so far, I would say we have made just a few investments. Companies that we've invested in are still out there in the marketplace, proving out their value propositions. We all have interesting ones that are solving very specific niches in the marketplace.
Melissa D. Smith: Yes, the place we were talking about pricing.
Melissa D. Smith: Really specific as in our mobility segment, it's the place that.
Melissa D. Smith: We continue to experiment within that customer segment, a different ways of packaging and pricing.
Melissa D. Smith: And what we're able to do is then expose that to our customers and get a sense of what's going to get traction and what isn't. And so our objective is to have an open network where we expose, through APIs, many different types of functionality, some of which we'll own, some of which we're partnering with others on, and these investments allow us an avenue to do that. Great, thanks for that Melissa. Our final question comes from a line from Chris Kennedy with William Blair. Please go ahead. Good morning.
Melissa D. Smith: To those customers.
Melissa D. Smith: So you've seen the benefit of renegotiation of merchant rates and so as we've gone into contract renewals with.
Melissa D. Smith: R.
Melissa D. Smith: Our.
Chris Kennedy: <unk>, we've been able to on average negotiated up on rates and as Jack said, we've also got the benefit of interest rate escalators that we are in there as well and so when we talk about pricing.
Chris Kennedy: The idea that we think that will continue to get benefit on the merchant rate. We also will continue to experiment with different ways of pricing into our existing customer base.
Chris Kennedy: Thanks for squeezing me in. Just a quick one on pricing. It's been mentioned a few times this morning, but can you talk about kind of what the impact was last year and some of the levers that you have going into 2024? Thank you. Yeah, the place we're talking about pricing, just really specific is in our mobility segment; it's the place where we continue to experiment within that customer segment or different ways of packaging and pricing for those customers. And also, you've seen the benefit of renegotiation of merchant rates. And so as we've gone into contract renewals with our merchants, we've been able to, on average, negotiate higher rates. And as Jack Dar said, we've also got the benefit of interest rate escalators that were in there as well. And so when we talk about pricing, it's this idea that we think that we'll continue to get a benefit on the merchant rates. We also will continue to experiment with different ways of pricing for our existing customer base.
Chris Kennedy: And we will get a lift of that course of the year, yes that would add some heads.
Speaker Change: Is it to give out the specific dollar amount related to pricing impact.
Chris Kennedy: But what I would say from from a dollars perspective, we expect a similar impact in 'twenty four.
Chris Kennedy: We saw in 2003 from from pricing.
Chris Kennedy: Most a lot of which is almost all of which is already baked in because we've completed those negotiations from price changes.
Speaker Change: Great. Thanks for taking the question.
Speaker Change: Thank you.
Chris Kennedy: I would now like to turn the call over to Steve Elder for closing remarks.
Speaker Change: Yes, just wanted to say, thank you to everyone for hanging with US a few extra minutes this morning and.
Speaker Change: Look forward to speaking with you again.
Chris Kennedy: Next quarter.
Speaker Change: This concludes today's call you may now disconnect.
Chris Kennedy: Please wait the conference will begin shortly.
Chris Kennedy: [music].
Melissa D. Smith: And we'll get a lift from that over the course of the year. Yeah, and I would add, so I'm hesitant to give out a specific dollar amount related to pricing impact. But what I would say from the dollar's perspective, we expect a similar impact in 24 that we saw in 23 from pricing.
Melissa D. Smith: Yes.
Melissa D. Smith: Okay.
Speaker Change: Thank you.
Melissa D. Smith: Yes.
Melissa D. Smith: Okay.
Speaker Change: Thank you.
Jagtar Narula: And most, a lot of which is, almost all of which is already baked in because we've completed those negotiations and price changes. Thanks for taking the question. Thank you. I would now like to turn the call over to Steve Elder for closing remarks. Yeah, just want to say thank you to everyone for hanging with us for a few extra minutes this morning and look forward to speaking with you again next quarter. This concludes today's call. You may now disconnect.
Melissa D. Smith: Yes.
Melissa D. Smith: Okay.
Jagtar Narula: Yes.
Jagtar Narula: Yes.
Jagtar Narula: Okay.
Jagtar Narula: Yes.
Jagtar Narula: Okay.
Jagtar Narula: [music].
Jagtar Narula: No.
Jagtar Narula: Thanks.
Jagtar Narula: [music].
Jagtar Narula: No.
Jagtar Narula: Yes.
Jagtar Narula: Yes.
Jagtar Narula: Yes.
Jagtar Narula: [music].
Jagtar Narula: No.
Jagtar Narula: Thanks.
Jagtar Narula: [music].
Jagtar Narula: No.
Jagtar Narula: Sure.
Jagtar Narula: Thanks.
Jagtar Narula: [music].
Jagtar Narula: Yes.
Jagtar Narula: Yeah.
Jagtar Narula: Okay.
Jagtar Narula: Okay.
Jagtar Narula: Yes.
Jagtar Narula: Sure.
Jagtar Narula: Okay.
Jagtar Narula: Okay.
Jagtar Narula: Yes.
Steven Alan Elder: Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.
Jagtar Narula: Yes.
Steven Alan Elder: Okay.
Steven Alan Elder: Okay.
Steven Alan Elder: [music].
Steven Alan Elder: No.
Steven Alan Elder: Thanks.
Steven Alan Elder: Yes.
Steven Alan Elder: [music].
Steven Alan Elder: Yes.
Steven Alan Elder: No.
Steven Alan Elder: Yes.
Steven Alan Elder: Yes.
Steven Alan Elder: Yes.
Steven Alan Elder: Okay.
Steven Alan Elder: Okay.
Steven Alan Elder: Yes.