I'm required to inform you that a complete list of research disclosures or potential conflicts of interest can be found on our website, williamblair.com. With that, pleasure to introduce Melissa Smith, Chairman and CEO of WEX, as well as Steve Elder, who runs the company's IR. Melissa will walk us through a presentation. I suspect we'll have time for a little bit of Q&A in this room, and then there'll be a breakout session after.
That preamble made me think it was going to be a longer intro. Thank you. Thank you. Thank you for inviting us to be here at your 45th annual conference. We appreciate being there. For those of you who do not know me, I'm Melissa Smith. I'm the CEO of WEX. I'm going to talk a little bit about WEX. For those of you who do not know what we do, we're a global commerce platform that is, we have vertical solutions that are in corporate payments, benefits, and the mobility sectors. I'm going to talk a little bit about what we do, how we make money, and why we think we're well situated for long-term growth. I said our purpose is to simplify the business of running a business.
The way that we think about the business is that we are really focused on how we can use our payment intelligence. That is the core payments technology infrastructure that we have across the product sets and our ability to optimize workflows to remove complexity from our customers. We're very focused on how we can use the data quality and data assets we have to help businesses grow and thrive, and also to make sure that we are taking the work out of the workflows and helping our customers make smarter decisions in a very compliant way. All of what we do sits on our underlying technology stack and our proprietary payments capability. It also runs through a bank that we own, WEX Bank. When we think about how we face our customers, which is a very diverse set of customers, it is focused on those principles.
We have 6,500 employees, about $2.6 billion in revenue. We are operating across 16 different countries where employees are operated. The company has been around for 40 years. We have been public for about 20 of those. A little deeper, if you look at our individual segments, we are highly focused around how we can create verticalized solutions across these segments. For mobility, we have a closed-loop network that allows us to data capture the products that people are buying in a way that allows our customers to make really simplified decisions off a lot of data set. We are making sure that they are purchasing things that customers should be purchasing and that they are controlling those buying behaviors in the ways that are consistent with however that customer wants them to be enabled. Some customers prefer very strong controls upfront to eliminate misuse.
Other customers would like to see a bunch of data that points to where there has been unusual behavior and let them do it in more of a detective way in the back end of things. We are also really well positioned as we migrate into the EV space over time. What we know from our customers is that they are very focused around getting a single source of data associated with each of their transactions. If the energy source is an ICE vehicle or if it is an EV vehicle, they want all that information packaged together in a way that they can understand the total cost of ownership of that vehicle. Our products work both in the EV world and in the more traditional gas-powered way. If you go over into the benefits space, in that case, what we are looking at are transactions that are allowed by the IRS.
Think of an HSA or an FSA transaction. What we're trying to do is make sure that when people are purchasing things, and these are largely consumers, a little over 20 million consumers that use our products, that they are buying things that are allowed and that we're giving them information that helps them make better decisions in their purchasing. We do that for partners. We do that directly for employers. We also help manage kind of the lifestyle from an employee coming on board all the way to when they're exiting the company. We will help with benefits administration all the way through COBRA payments along the way. Corporate payments, we are, in this case, removing the complexity of facilitating a payment.
This is sitting on a technology stack that allows people to connect into our business through an API and facilitate a payment, largely virtual card payments, but they can use other modalities as well in a way that's highly integrated into their overall workflow. A high volume of activity goes through this part of our business, very frictionless in terms of execution. We have branched into accounts payable management as well. If you look across to each of these businesses, what we're focusing on is creating solutions that really help the bridge between software and payments across each of those verticals in a way that creates efficiency for the payment flow, control around the payment flow, and does that in a very compliant way, and at the same time removes some of the change that happens across the rest of the workflows that they have.
The majority of the business is where we first originated. A little bit over half the business is in our Mobility business. About 28% specifically is in our Benefits business and 19% in Corporate Payments. If you look across that $2.6 billion in revenue, the two primary sources of revenue for us are interchange, so payment processing revenue that's coming from the volume of spend that's going across our rails. The second thing for us are SaaS fees. That's the majority of our revenue. One based on the software and the other one based on the payment usage. If you look over time, the company has grown 13%, top line 15% on EPS. They have a long history of growth. We're very focused around continuing that long history of growth.
In the places when we are looking at the business where we've been thinking about as our strengths, in each of the segments we have, we have moats that sit across each of those segments. Those moats are built upon the fact that we have strong products and very strong technology and a high level of integration across everything that we do. If you think about anywhere from an over-the-road customer that's integrating into their HR system to an embedded payments customer that is facilitating a payment that is embedded in their workflow, there's a high degree of integration within our technology. We also operate across each of those segments at scale. They're all parts in the marketplace that have great growth potential.
If you look across our mobility business, there's kind of migration into EV, whether you're in the corporate payments space where you're seeing this transition into more digital payments, or within our benefits business where you've got this move to more remote work, younger generational workers that is creating an opportunity as account types continue to evolve. That has created an opportunity for us as well. We're also in each of those parts of the business, we operate at very high margins and generate a significant amount of cash flow, which allows us to continue to reinvest in those products and create further product differentiation. Our roadmap for growth, there's something that we've been very thoughtful about, increasing the amount of spend that we have in 2025 for sales and marketing. Very early in this process, we're seeing really great returns for those investments.
In our corporate payments business, we've been really focused around extending the TAM of what we're doing in that space from online travel companies into other parts of the marketplace. We have built products. We've released those products in the marketplace. We're seeing really good traction in that part of the space, which is leading to pipeline development and sales. In our mobility business, we've been very focused around increasing marketing our customers in that space. We've seen an 18% improvement year over year in application volume within a mobility segment. In benefits, we just went through a great open enrollment season. We're lining up now for the next one. If you look across to each of those businesses where we actually have been placing our bets, we're seeing really good signs of progress. We're also really focused around continuing to increase the speed of product innovation velocity.
That is sitting on the backbone of our technology house. As a result, you are starting to see more products getting released in the marketplace, so another place for us to monetize over time. We have been really thoughtful around capital allocation. When I think about kind of first priority for us, it is growth. We have been really focused on the things that can accelerate growth within the company. We have also been buying back stock as a way to distribute money back to shareholders. From a capital allocation perspective, this is going to continue to be a place that we are very thoughtful of where we want to spend our money that gets generated from the significant scale and profitability that we have in the business.
Okay.
It's my bit.
It's a great overview. Thank you. I'm happy to open up the floor to questions or start the conversation myself either way. Yeah, please.
What would you all say investors most misunderstand about the company? I'd say we've seen the stock price have been roughly maybe a little bit better than flat over the last decade. It's played a reasonable amount [audio distortion].
Yeah, I would say flat, but if you looked a year ago, our price was like $220, $230. There has been a lot of volatility in the price. A lot of the conversation, a lot of the narrative that I have is around our corporate payments business and the fact that there is more volatility in that space and has been since the pandemic. A lot of where we have been very focused is around how we can create more growth outside of travel in corporate payments and leverage the assets we have to actually bring on more business. That does two things for us. It increases the growth profile of that segment, which has been a huge focus, and also dilutes some of the volatility that you see within the travel part of the marketplace.
I'm really pleased with what we're seeing for early success of the products that we've been rolling into the marketplace. I'd say that's been a really big part of the conversation.
[audio distortion]
I would say a lot of the conversation ever since we announced the fact that one of the customers in that portfolio is insourcing a piece of the business, that that has caused a lot of conversation across what does that mean to the rest of the portfolio. We can look at that and say that that individual customer, first of all, is much bigger than what sits in the rest of the portfolio, but also has.
[audio distortion]
Bigger than other customers in the portfolio in terms of just.
[audio distortion]
Yes. Yep. Major customer. And they have a unique set of assets that is unlike what you see in the rest of the business and scale. We know that that customer has got a unique set of circumstances that allows them to in source, which is unique to the rest of the business. As we go through, that migration should start to anniversary in the third quarter and will be fully anniversary in the fourth quarter of this year. We feel like you're going to be able to see in Q3, you start to see a more normal comp. In Q4, you actually be able to see the benefit of everything that we're doing coming through.
What would a normal growth rate or what kind of growth are you all anticipating over the next two to five years?
We've talked about our long-term growth rates of 5%-10% top line growth organically. And as you go through each of the segments, each of them have different drivers that sit behind that. But our objective function is to be in that range.
[audio distortion] That was like an, accepting it, looks like you have net at the end of the year, you have $750 million of net cash. Is that correct? Or [audio distortion].
$750 million of net cash. You want to talk about that?
One of the features that Melissa mentioned is we own a bank. We are taking in customer deposits. Some of that is restricted, but some of that is just cash at our banking subsidiary too for cash flow, just day-to-day transactional kind of stuff. The way we look at it is we had, I think at the end of last quarter, about $150 million of what we call corporate cash kind of readily available and for whatever use we want to use it for. The rest, I would say, is kind of in one way or another restricted and not kind of generally available for the company to use.
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Sure. There is, yeah.
On a net basis.
On a net basis, we have about 3 1/2x leverage.
Okay.
You're not the only one who. It's very complex. If you look at valuation on most public, whether it's Bloomberg or FactSet, often the multiple is wrong because it takes into account all of that cash as opposed to just available corporate cash.
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2 1/2 to 3 1/2 is our target. Yes. Yeah. So we just did a pretty significant share buyback, which is what pushed us to the 3 1/2x . And we're focused on delevering right now.
Two and a half?
Yes.
[audio distortion]
Yeah.
12%.
Yeah.
[audio distortion] or how did you make the quantitative decision to buy back [12% ]?
Yeah. It was a very active conversation from a board perspective, as you might imagine. We feel really confident in the future of the business. We felt like the stock was undervalued. We feel really confident at our cash flow. We've levered up before. We've done it historically for M&A transactions. We levered up to a point that we felt like was still reasonable. Bought back stock with the idea that we would then pay it down. It was really just a confidence.
[audio distortion]
At the point in time that we bought back stock, we felt really good about the fact that we were buying something that was undervalued. I would say even more so today. When we did the transaction, we did the Dutch auction, it was right before the tariff announcement. It was just, yeah, literally, I think two days before.
Melissa, maybe a couple of high-level questions just to try to frame up the opportunity in each of the three businesses. Can you kind of walk us through the TAM and how you do a TAM assessment in all three? I think benefits might be the easiest to see, at least from an account standpoint, but folks in the room may be less sort of familiar with the mobility segment. If you could talk about how many vehicles you have and how big you think the addressable market is. Also maybe touch on some of the EV solutions that WEX has brought to bear in the last couple of years.
Yeah, sure. If you go across the markets that we're in, it's about a $25 billion TAM in total. If you go across each of them, we believe we have about a 20% market share in mobility. If you look across the mobility segments, we continue to see lots of open ground, particularly with a smaller market. If you look at overall, our average size vehicle is a 15-vehicle fleet. It's part of the market we're actually quite accustomed to. It's a place that we've been adding in incremental investments because we see continued open market. With the enterprise accounts that are the larger accounts, it is much more penetrated, but it is a place we continue to add sales and see momentum in the marketplace, both in the over-the-road and our North American fleet business.
Our ability to grow, we think it comes from a combination of continuing to add price across the portfolio and continuing to add new customers and penetrate the market more fully. It's been an unusual period of time because if you look at the CAS index, it has shrunk the last couple of years.
The market's been really tough.
It's been really tough, right? There's been a little bit of looking like you're running in place. We're adding new accounts, but we're seeing more shrinkage, particularly in the over-the-road space than you have historically. That seems to have stabilized if the spot rates are more stable. We think that you've kind of hit this point where it's not great. Although same-store sales for us in that part of the marketplace was actually positive in the fourth quarter, we think some of that came from a pull forward in spend volume. We're still seeing some positivity, but it's more muted. In North American, you didn't ask this, but just to kind of complete the thought, the North American fleet marketplace, we said that was - 3.9% same-store sales growth in the first quarter.
We've seen that kind of trend pretty much continue, which is what we had expected. It has been a great year in terms of sales and retention. There is a little bit of muting that is happening overall in just the economic environment. Not horrible. It is not accelerated, but there is a little bit of negative that is coming through in that part. The rest of the business, we have about 5% market share in the benefit space. A lot of open market there. I am sure you are aware of the kind of the big, beautiful bill has the potential for expanding HSA, which would create even more market share for us. Their estimates are that that would increase HSA 20 million accounts. On a basis of right now, there are about 165 million people that are eligible for HSA accounts.
That would be a great tailwind if that comes through in the bill once this actually gets finally reconciled. Right now, we continue to see opportunity as we have added into sales across that portfolio. It has really strong LTV to CAC measures. We continue to think that we have a lot of market. The overall growth of HSAs has slowed, but we still have a lot of market to continue to penetrate. In corporate payments, we continue to add TAM to that. We have more penetration in the travel space and a lot more open market when you get outside of travel. It gets into a huge TAM potentially. Where we see an ability to have outsized growth is outside of travel.
We think that our travel portfolio will grow along and lined with travel over time and that outside of travel, we have very small market share and we have an ability to have a lot of success there, which is why we've been investing in that.
Just to sort of frame that up, the non-travel part of corporate is about 40% of that segment.
About 50% of revenue, but 40% of spend.
40% of spend and half the revenue. As you mentioned, that is a big opportunity. What are the specific things you're doing to drive more card-based B2B payments?
Yeah.
Can you talk maybe a little bit about, because there are two kind of components, right, of the B2B piece, the non-travel piece. One would be AP, AR, workflow automation and digitization. The other would actually be the payments. Can you elaborate a little bit on your current capabilities, where you'd like to take those capabilities, and then maybe specifically what the investments are aimed at driving that business? Just, again, for those in the room who may not be familiar, Visa, for example, puts cross-border commerce in somewhere in the neighborhood of $60 trillion. It's an enormous market that's mostly cash and ACH. The opportunity is huge. I think a lot of investors are trying to understand how companies like WEX and others, for that matter, are going to monetize in this space.
Yeah. Yeah. We think about it as two core products that we have in the marketplace. I'll start with embedded payments because that's the place we've been heavily investing in product. Embedded payments would be I'm going to take our virtual card payment stack is world-class. We have a tremendous volume and scale that goes through that. We have 165 different product types in a global compliance structure, which is what the online travel agencies are very interested in because we can do so many different configurations around the world. World-class. We've been looking at how do we increase sales of that type of capability outside of travel. The way that we've thought about this is we've added in flexible funding capability, which allows our customers to maximize their working capital.
If you're a business, you want the least amount that gets captured or stuck as part of that transaction, either a deposit or collateral or something like that. From our perspective, we want the least amount of risk and exposure associated with that because there's a tremendous amount of volume that goes through. We have added functionality that allows people to maximize that. We're out into the marketplace selling that capability outside of travel. What we're finding is that really strong success. The product's really new in the marketplace. We've got a pipeline that continues to develop. We're seeing really strong sales. That's been our first focus. We have said that's a core differentiated asset that we have a pure right to win in that space.
Anything we do in embedded payments helps our travel customers, but also helps our AP products as well. That is a growth avenue for us. On the AP side, we sit on that back end of the payment. Facilitating the payment, you give me your AP file. I will facilitate that on your behalf. We have continued to build a sales force and also have had success in selling that capability. Part of the sale for us, the reason why we win, is because we have operated at such large scale that we can maximize the financials that sit behind everything else we do and package that back to a customer in a way that we can, in a very stable, reliable way, fulfill their payments, but also do it in a way that is economically advantageous to them.
We are continuing to build on that capability we have. Our first focus was on embedded payments, but now it is to continue to build the capability we have in AP because we see that as another area to expand TAM. Even what we've already done has expanded what we're able to sell into as we add additional features that will continue to build upon that. We think of those as like we're opening up more and more space.
Is it right to think about in that segment as you anniversary this one particular revenue transition and maybe start to see some traction, I should say, in some of these other businesses? Can that be sort of how do I think about that in the 5-10% medium-term revenue growth or long-term revenue growth target? Does that have the capability unto itself to take you toward the high end of that target growth range?
Yeah, I think that for sure. I'd like to, over time, our intention is to go beyond that. The thing for us right now is to be thoughtful of their smaller parts of the segment. The travel itself will probably grow at more like a travel growth rate. We have to, and that's half of the revenue. It's going to take some time for these other pieces of the business to come through even when they're growing at an accelerated rate. Over time, we think that we have tremendous growth capability.
It'll be interesting to get and hear about KPIs in that business as you make some progress.
Yeah.
I did want to come back briefly in the last couple of minutes to, and it does not come up in investor conversations nearly as much as it used to, but the EV transition and the shift to hybrid fleets. You have talked about the economics of your EV solutions. Can you just talk a little bit about sort of how you are helping customers hybridize and what that means for the model over time, recognizing that a shift to a full EV sort of truck fleet is probably not going to happen, not in my lifetime.
Yeah, the fact that it's a mixed fleet actually works to our advantage because what people want is an integrated solution. As people make this migration, what they're doing is migrating a piece of their fleet. They want to understand their gas-powered vehicle and their EV vehicles together. It actually puts us in a really good pull position. What we're finding is that there's still continued movement with government fleets. It's slowed down, but has continued. In that case, what we're doing is giving them a host of solutions. We have the ability so they can access a network of our products, which is EV charging. They have an ability to do at-home reimbursement if they want to. They have an ability for depot charging. They can access all of that. That customer segment continues to actually go through the sales pipeline.
We're seeing them go through implementation cycles slower than we originally would have thought, but it's still happening. The other place that we're seeing a lot of interest within the enterprise accounts, and I was actually just at a dinner with a bunch of our customers, they're still trying to work through sustainability reporting requirements. The assets we have have the ability to help them with that so that as they go through the process of determining what their footprint looks like for reporting purposes, they still need that capability. We have that capability. There's a lot more consultative work that we do with the large end of the marketplace and with the government. I would say it's in government, including states, it's actually seeing migration onto the platform.
What we know so far is that each of these products we have have an ability to charge a subscription fee. We like it in the fact that it creates a different source of revenue. It is higher on aggregate than an average ICE vehicle is. It has less volatility with fuel prices. It is a lot of positives as you make this migration. I think that we had less questions because the economics seem to have proven out not just for us, but other people in the space. It is just a question of now, what is the migration cycle look like?
Okay. Great. Thank you very much.
Yeah, no problem.
Appreciate it. We've got a breakout. Let's see. Figure out which one you sent. I'll tell you in a second.
Richardson.
Thank you. See, I don't care.