Ladies and gentlemen, thank you for standing by, and welcome to the WEX Q3 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Steve Elder, VP of Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. With me today is Melissa Smith, our CEO; and our CFO, Roberto Simon. 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 and the slide deck have also been included in 8-Ks we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or ANI, during our call. Adjustments for this year’s third quarter to arrive at these metrics include unrealized gains on financial instruments, net foreign currency remeasurement losses, acquisition-related intangible amortization, other acquisition and divestiture-related items, loss on the sale of a subsidiary, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, ANI adjustments attributable to noncontrolling interests and certain tax-related items. Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income to GAAP net income attributable to shareholders. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our annual report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020; our quarterly reports on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020, filed with the SEC on May 11, 2020 and August 5, 2020, respectively; and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I’ll turn the call over to Melissa Smith.

Good morning, everyone, and thank you for joining us today. I hope everyone is doing well, and staying safe and healthy. I will start today’s call with an overview of our Q3 performance highlights and business update, segment trends, progress against our strategic initiatives and additional color around what we’re seeing as we move into the fourth quarter. Then, Roberto will provide more detail on our financial results as well as some balance sheet highlights before we open it up for questions. Before I dive in, I’d like to provide some perspective on how we’ve been navigating through this global pandemic. First and foremost, we focus on protecting the health and safety of our employees, customers and communities, which continues to be paramount to everything we do. Second, we ramped up our risk mitigation efforts to ensure WEX is prepared for anything and everything, during this period of uncertainty. Third, we proactively executed a number of cost containment and CapEx savings initiatives earlier this year to rescale parts of our business. Finally, we’re very-focused on returning the business to our long-term growth targets and plan to build upon the strong year-to-date sales momentum by resuming our full sales and marketing efforts that had been paused by the pandemic at full tilt in the fourth quarter. In addition, we will continue our current rate of R&D spending to further improve our leading product and technology position. We believe that these two efforts combined will position us for sustained growth and market share gains in the future. I’m pleased with the hard work our team has done to control what we could during these unprecedented times and deliver against these four key priorities this quarter. Let’s turn to our third quarter performance highlights on slide 3. As expected, the COVID-19 pandemic continues…

Thank you, Melissa, and good morning, everyone. The pandemic and its effect on the marketplace remain fluid, and the pace of recovery has slowed. Despite that, we remain confident in the Company’s business model and the ability to outpace the market as the economy improves. Along these lines, we are actively executing against the strategic pillars, improving profitability through the cost containment initiatives, providing best-in-class products and solutions to our customers and partners, we continue to invest in the future, and finally, we are proud of the hard work and continued productivity of our employees. Now, let’s take a look at the quarter results on slide number 9. For the third quarter, total revenue was $382.1 million, a 17% decrease year-over-year. GAAP net loss attributable to shareholders was $65.8 million. Non-GAAP adjusted net income was $70.9 million or $1.59 per diluted share. Turning to slide 10. We can see the overall revenue performance by segment. Breaking down the revenue. As we expected, fleet segment revenue declined 18%. Travel and Corporate Solutions posted a 35% decrease. And finally, the Health and Employee Benefit Solutions grew 7%. Now let’s move to segment results, starting with fleet on slide number 11. Total fleet solutions revenue for the quarter was $228.7 million, an 18% decline versus prior year, primarily due to fuel prices volumes and finance fees, which were partially offset by new customer wins and renewals. Payment processing transactions declined 11% when compared to last year. On a positive side, over-the-road transactions were up 8%, highlighting the strength of the trucking industry. This was offset by the North America fleet being down 11% and international. This is a significant improvement versus Q2. Along these lines, we saw progressive improvement in weekly volumes at the beginning of the quarter. However, midway through and into…

[Operator Instructions] Our first question comes from the line of Sanjay Sakhrani of KBW.

Fourth quarter revenue -- revenues remain flat, assumes a flattening out of the trends. Is there any risk to that or opportunity to that going forward? I mean, how are you guys dimensional -- is that just an assumption, or do you have more data that sort of suggests that this is the track? And then, as far as the expenses are concerned, I assume that means the EPS sequentially will be lower. And then, how should we think about the expenses into 2021? I know that’s like three questions in there. Sorry.

Let me start with your first one. And I gave you some updates on what we’re seeing month-to-date in October. So, if you look across the portfolio, what we’ve said is, on the fleet part of the business we’ve got some really strong performance over-the-road, and we’re seeing a little bit more muted recovery in North American fleet in the international part of the business, if we’re aggregating that all together. So, you can see a little improvement as you’ve gone through October from Q3, but it’s generally flattening off. And so, that’s really what we’re trying to make sure that we’re signaling some of these trends. We saw some pretty steep increases coming out of the second quarter, but they’ve really kind of leveled off. And what we’re giving you information in October, just to give you as much clarity as we can. The other thing just to keep in mind is there is some seasonality in there too, which we’re also pointing out. There’s less business days in the fourth quarter. And that’s impacting, and it has historically the comparability to Q3.

And Sanjay, the other thing I will add on the fourth quarter is, normally fuel prices tend to go slightly down. And obviously, we are monitoring on a daily basis where we land on that.

Okay. And so, the EPS sequentially will be lower though, based on your guidance, right, is what you’re saying?

So, obviously, if you take the volumes and the projected -- the revenues that we are estimating to level off, and the fact that we are going to see some increases in a couple of areas in costs, you should expect EPS to go down sequentially.

Okay.

But you should not take that number in Q4 as -- what we should be projecting as we move into next year.

Okay. And so, the ramp-up in expenses is just for fourth quarter and shouldn’t continue out to 2021?

So, I would say two things. One of them is, we have delayed, as part of the cost containment initiatives, some marketing campaigns in fleet. And as Melissa has said, we are seeing great momentum. So, we are going to be spending some of the money in Q4 to get ready for the 2021. And then, the second thing is the sequential increase that always happens on the U.S. health business as we get into enrollment season. And as you know, our health business grew in the quarter 11%, and we feel very good on the pipeline. And we will continue doing what we always have done sequentially on that business.

So, just to add to that, as I think about the sales and marketing trends, we’re trying to make sure that we are appropriately spending on sales and marketing as part of the long-term growth rates of the Company. So, we’re looking at what’s happening within pipelines and redistributing some of the spending across the business but also increasing it where we think is appropriate. At the same time, all the other cost containment initiatives that we’re doing where we’re really pulling back on discretionary costs and pulling costs out of some parts of the business, those type of behaviors are things that we’re continuing to do.

Our next question comes from the line of Steven Wald of Morgan Stanley.

I was wondering if we could start out with some of your comments around the trends continuing. I know Sanjay has asked about it, but maybe in a different way, to look at, the trends continuing through year-end in a number of your businesses. And I’m curious what you’re thinking of in terms of impact on travel and how you would manage the business if we were going into another second wave kind of shutdown. It sounds like that’s not really what’s being contemplated in the base case. And if things were to continue into 2021, whether or not we get a vaccine, how are you thinking about toggling that in terms of managing leverage from here, managing the travel business, the risk of having to close? And do you feel like at this point -- I know you said in the current environment, you’ve got enough liquidity to manage through the environment, but if you were to have to close and then -- but we have some kind of improvement in conditions next year, are we sort of at the point where you feel like you can get to the other side without some kind of additional capital raise or anything like that? Could you talk us through how you’re thinking about the next, call it, 6 to 18 months on that -- on those few variables?

Sure. And thanks for the question. You’ve got a lot in there.

Sorry.

No. That’s all good. And so, just to start with, we feel really good about the liquidity position of the Company. And we really wanted to make sure we set the business up to anticipate the fact that there’s a lot of unknowns, what’s happening in the world right now. And so, we feel very comfortable about the position that we’re in. On top of that, you asked about kind of how we’re balancing some of the decision-making. I think, that’s -- it’s really core to what we’ve been thinking about. The way that the Company has grown organically has been if we think of this as three buckets. We look at what’s happening with our existing customers. And traditionally, we’ve gotten a little bit of net benefit from our existing customers and our partners. We managed to really reduce the amount of attrition we have with the existing customers. It’s always been a big focus of ours. And then, the majority of our growth comes from new customer adds. And so, when we are really making sure that we’re gearing the business for growth long term, we want to make sure that we’re continuing to invest in sales and marketing, because that will drive the organic growth engine of the Company. Now, the attrition rates continue to be very low. We’re getting really good new business coming through. We can see that both in our pipelines but also what we’ve implemented. The part that is least known right now is what’s happening with the existing customers. And I talked about that as latent demand, but what we can see and hear from our customers is that their behavior patterns right now are different. And I think you can experience that in your own lives. And so, as that rebounds, which we do believe it will, but we think that, that’s going to take some time. That’s going to be the third lever and pulling back to our overall organic growth. If we go into something where you see more of a shutdown to say right now what we’re seeing across the business is even in regions where they’re starting to have more COVID activity. We’re not seeing big huge swings and customer behavior like we did in the second quarter, so far, knowing that there’s a lot of unknown out there. But, what we’re seeing really is this almost like parts of the world are operating -- they’re operating so that essential businesses are continuing to happen, and a little bit more than that, but it’s already this muted level of activity that’s happening. And so, as a vaccine comes out, we do expect that you’re going to see that behavior pattern change, go back to the way it was before. But, as COVID activity increases, we’re already operating off a base where the activity has been more muted. So, we’re not seeing as much of a trend down.

Great, okay. Thank you for the robust comments there. I know I threw a lot at the wall. Maybe just a quick follow-up on the payments side, a bit of a bright spot there. I’m just curious how your partners are approaching the current environment, if they’re seeing a reason to be more aggressive in trying to sell new clients in the corporate payment side, seeing as that seems to be the strongest and largest area of growth for you guys?

Yes. On the corporate payment side, the partners are -- yes, so, they are also seeing interest, have good pipelines. We’ve got good momentum in those pipelines, and that is definitely additive to us. I’d say on top of that, just the pipeline of new partners that we have is really good right now. So, we feel good about the addition of new partners. Our partners continue to go out into the marketplace and sell, and having momentum from each of those things.

Your next question comes from the line of Ashish Sabadra of Deutsche Bank.

So, just a quick follow-up on the earlier question on corporate payment. The 32% growth that we saw in October, I was wondering if you could provide any more color on that. How much of it is coming through partner versus several new wins that you highlighted on the call today? Thanks.

Yes. The largest part of the growth is coming from our fintech channels. If I kind of split it into even smaller subsections, we’ve got our partner channel, which is growing I think more single digits right now, which are more traditional FI partners. The fintech piece is on fire and growing significantly higher pace. And then, the more traditional direct customers, which are a hodgepodge of use cases that sits in there is actually still down year-over-year as some of their spend just hasn’t recovered.

That’s very helpful color. And then, going back to the fuel segment, I just wanted to confirm that the new applications were up 15% in local and 21% in OTR. That’s really strong growth there in new wins. I was wondering if you could provide more color on the split between small versus larger fleet, and when should we see some of these applications contribute to revenues going forward? Thanks.

Yes. Look, bringing in new business is something that we’ve been doing throughout the last 12 months. And it’s a little bit hidden, I’d say, based on what we’re seeing with same-store sales trends. But, we’ve had some really good momentum. Why I was calling it out this quarter is because it’s particularly strong right now. And it’s part of why we want to make sure that we’re feeding into some of the sales and marketing activity that’s happening. I don’t think I can split it down between small and large for you specifically. But, what I can say is, it’s kind of across the board. The offerings that we have, the introduction of our edge product and combining that with the overall offering that we have within fleet is part of why we’re seeing an uptick in customer interest and pull-through rates. It’s also a piece of work that has happened within our marketing groups of creating a digital marketing platform, and we’re seeing benefit with the work associated with that. So, there’s a bunch of things around product and what we’re doing on the innovation side that’s contributing to that.

That’s very helpful. And maybe if I can sneak in one final clarification. I don’t know if you provided the same-store sales on the call. If not, can you provide that information?

Yes. It’s down about 20%. I don’t have it in front of me. And it is down, if you look across pretty much every SIC, it’s being impacted. So, again, this is same-store sales specifically for the North American fleet business.

Your next question comes from the line of Ramsey El-Assal of Barclays.

Melissa, in the fleet segment, you mentioned stronger new customer applications submitted and approved. Can you help us think how those new signings typically flow through to revenues? How fast do the customers ramp up? I know, we’re in a difficult climate with the pandemic impact. But, should we think of that as a leading indicator for good things to come, or is it more just sort of capacity that you’re opening up, and the macro environment has to sort of improve in order for that to sort of fill up?

Well, again, I think that it’s an important component to our growth, and in fact, it is the most important component to our growth in a normal environment. So, I do think it is a leading indicator in terms of just our sales performance, people’s interest in the products where we’re investing money. I think, all of those things are reassuring, based on what we’re seeing in terms of sales pull-through. But, if you look at our revenue growth overall, what’s happening with our existing customer base is the biggest driver of what’s happening for revenue in kind of that short-term period of time. So, both of them matter to us. I think, about our business, the things that we can control, we control limiting customer attrition. And so, we’ve been very focused on that, and we feel really good about the results of that. We can control how much new business that we sign and how quickly we implement that. And so, we’re very focused on that. The business activity, again, we think will come back as business behavior returns more to normal. But, we do think that’s going to take a little bit of time.

Okay. And I also wanted to ask about the eNett Optal matter. Can you give us your thoughts on just sort of the timing and the process? I know anything can happen. But, I know there’s an appeals process happening now. Presumably after that, you’d get back to the sort of potential trial portion unless something else gives. Are we talking about like a Q1, first half, second half? I mean, how long do you anticipate this could kind of stretch out? And then, tacked on to that and then I’ll hop back in the queue is just an update on your fuel price sensitivity for the business. There’s been a lot of obviously COVID-related mix shifts in the business is an understatement. What is the way of thinking in terms of that nice ratio you provide us for fuel price sensitivity? I’ll hop back in the queue now. Thanks.

Sure. So, on eNett and Optal, we’re obviously happy that we prevailed on the main preliminary issues that were in dispute. I talked a little bit about the appeals. And the appeals process’s timing is really up to the court. And so, we’ve asked for it to be expedited, but we actually don’t know when that will be. And then, at the same time, the rest of the issues will proceed within the court system. But again, the timing of that is really more determinant based on the court and their availability. And then, Roberto is going to talk about fuel price sensitivity.

And so, just really quickly, so it could be -- it could happen a little quicker, given the expedited requests rather than what we think of -- and as analysts in the space, these legal matters, they can drag on for quite a long time. It seems like the timeline is a little more crisp at this point?

Relating to the appeals, specifically. Yes.

Just relating to appeals. Okay, fair enough.

I will give you the sensitivity on the fuel prices. And I will start what we disclosed and where we were last year. So, for every $0.10 of fuel price change on a full year basis, revenue was approximately $40 million and adjusted EPS was $0.20. When we were moving into 2020 pre-COVID, with the additions of Shell and Chevron, those numbers were increasing from $14 million in revenue to $15 million to $16 million, and ANI EPS from 20 to around 22. And obviously, as the volumes have gone down and there is a shift in the mix from any fleet to over-the-road, those numbers are, I would say, probably below the ‘19 levels. So probably, you should think about $13 million in revenue and around 18 on ANI EPS. But obviously, this is going to change as we move into next year and depending on how the businesses shift.

Your next question comes from the line of Bob Napoli of William Blair.

Just a numbers question, then a big picture question. Just to clarify, the consumer -- the travel business is essentially 100% consumer. You have little to no corporate travel in your travel payments business. Is that correct?

So, think of it as people that are using -- largely using online travel agencies. That’s the largest part of the business. So, it tends to be slanted towards consumers. I wouldn’t say that it’s exclusively consumer spend. Majority is consumers.

Is that like majority 80% or...

Yes. It is whatever is in the OTA’s portfolio.

Okay. Okay. Thank you. And then, just a big picture, Melissa, you’re standing here hopefully a year from today or not longer, the pandemic will be behind us, your balance sheet is in good shape, and you’re investing for growth. If you think about the long-term targets that you’ve given out in the past, high-single-digit, I guess, revenue growth, 10% to 15% with M&A, 15% to 20% EPS growth with M&A. As you look at the portfolio of -- the product portfolio, do those long-term targets post -- once we’re beyond this pandemic, still make sense? As you look at the segments, do you have the ability to grow within those types of ranges?

Yes. We feel really confident in our ability to hit our long-term growth targets. And just to add to that, I talked a lot about technology, but the -- so what around the technology is making sure that we’re continuing to add to the capabilities that we have, which allows us more optionality in the future for doing more than we have in the past. So, we actually do feel very good about that.

Which technology piece you’ve added is the most important? You talked a lot about technology this morning.

Yes. I don’t know that I would actually call out any one thing. I think that it’s the aggregate of what we’re doing that is having a pretty large impact. And then, the movement to the cloud combined with architectural changes around the system, so something like the technology platform that we’ve created, which is cloud based that we’re using for a transaction processing system. It’s market-leading in the market. So, it’s got market capability internally. It provides additional reliability in performance to our client base, and it’s at a significantly lower cost. And so, I look at that as something that has been instrumental in what we’re doing across our technology, but it’s just one component. What we’re doing on data and creating our data lake, and it is also really important to future product capability. So, I think about what we’re doing, we’re increasing our ability to move quickly. We’re doing it in a way that will long term be less expensive. And at the same time, we’re operating at a significant scale. And those things are for us important strategic advantages.

Ladies and gentlemen, we do not have time for any other questions. I turn the call back over to the presenters.

This is Steve. Thank you, everyone, for joining us today. And we’ll look forward to joining you again next quarter, and hope everyone stays safe and well.

This concludes today’s conference call. You may now disconnect.