Ladies and gentlemen, thank you for standing by. And welcome to the WEX Q4 2020 Earnings Conference 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 turn the call over to Steve Elder, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me today is Melissa Smith, our Chair and CEO; and our CFO, Roberto Simon. The press release we issued earlier today and a slide deck to walk through our prepared remarks have been posted to the Investor Relations section of our website at wexinc.com. A copy of the release and the slide deck have also been included in 8-Ks we submitted to the SEC. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income attributable to shareholders, which we refer to as adjusted net income or ANI. Adjustments for this year’s fourth quarter and full year GAAP results to arrive at these metrics include unrealized gains and losses on financial instruments, net foreign currency remeasurement gains and losses, acquisition-related intangible amortization, other acquisition and divestiture-related items, loss on the sale of the subsidiary, stock-based compensation, a legal settlement, restructuring and other costs, an impairment charge, debt restructuring and debt issuance cost amortization, non-cash adjustments related to our tax receivable agreement, similar adjustments attributable to non-controlling interests, and certain tax-related items as applicable. Please see Exhibit 1 of the press release for an explanation and reconciliation of adjusted net income attributable to shareholders to GAAP net income attributed 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, the risk factors identified in our 2019 annual report on Form 10-K filed with the SEC on February 28th, 2020, our quarterly reports on Form 10-Q and subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I'll turn the call over to Melissa Smith.

Good morning. And thank you for joining us today. I hope everyone is well and staying healthy. As we all know, 2020 proved to be a year like no other. WEX remained resilient and nimble, which allowed us to stack up a series of competitive wins and renewals, target our spending in areas that will drive benefit for years to come and build upon our robust technology capabilities. We ended 2020 with the purchase of eNett and Optal with a very favorable result and successfully navigated an extraordinarily complex set of circumstances in the process. I remain excited about strengthening our travel position and adding these two assets will enhance our global payment capability, creating value for our customers and our investors over the long-term. Our focus on the health and safety of our people, customers and partners and the communities in which we operate was paramount in 2020 and remains the same today. We're focused on WEX's next chapter of growth, enhancing our culture, extending our diversity and inclusion programs and implementing new programs to broader support ESG efforts. Before I dive into our results for the quarter, I want to express my gratitude and deep appreciation for the hard work and dedication of the entire WEX team under unprecedented circumstances, they executed extraordinarily well this past year. And once again have proven why they are the cornerstone of our organization. Turning to our results for the quarter and the year. The fourth quarter played out better than we had expected, given the expectations we had laid out on the last call. We generated $399 million of revenue and adjusted net income was $1.45 per diluted share. We've received a number of questions around the eNett and Optal acquisitions. So I'd like to hit this right off. We're very…

Thank you. And good morning, everyone. As Melissa just mentioned, WEX demonstrated remarkable resilience in 2020. We continue to execute on the strategic pillars, invest in high growth areas, and maintain high customer retention rates. I am proud of the way the company has adapted to the new environment and remain confident in the strength of the long-term strategy. I will start with a review of the full year, then moving to the details of Q4 and finally provide some commentary for 2021. Starting with the results for the full year on slide 10. WEX delivered total revenue of $1.56 billion, down 10% versus 2019. GAAP net loss attributable to shareholders was $5.56 per share. Adjusted net income per diluted share was $6.06 compared to $9.20 in 2019. Fuel prices and FX rates had a $63.2 million negative impact on revenue, as well as $0.74 on EPS. We were challenged in each of the segments. However, we saw positive trends. First, the US Health business grew revenue 18%, second, the corporate payment revenue grew 13%, and finally, the US OTR business increased gallon volumes by 6%. Now, let's move on to Q4 results, starting on slide 11. The quarter was better than we expected. Revenue was up approximately 4% sequentially primarily due to the strong growth in the US Health and Corporate Payment businesses as well as improvements in fuel prices. From an earnings perspective, we also performed better than anticipated. Adjusted net income declined sequentially. However, as we discussed last quarter, we intentionally placed larger investments in Q4, which were targeted in North American fleet, US Health and Technology to position the company to capture additional revenue in 2021 and beyond. Total revenue in the quarter was $399 million, a 9% decrease compared to prior year. GAAP net loss…

[Operator Instructions] Your first question comes from Darrin Peller with Wolfe Research. Your line is open.

Hi. Thanks, guys. Can we just start off, now that eNett and Optal on the travel side, is there any change to the way that you're going to be managing that business, meaning more like if eNett and Optal were resolved earlier, would there be anything you would have done differently by now? And then just thinking of the fundamental changes in the your TE [ph] payment space from a competitive standpoint, any developing opportunities post-pandemic beyond rebounding volumes you can talk to? Just - we get a lot of questions on the overall corporate and travel segment as being a key highlight for you guys long term. So strategically, I'd love to hear your thoughts there. And then obviously, if you could just touch on the B2B side, the corporate side as well. Thanks, guys.

Sure. Good morning. On your first question around Travel, when we had originally intended to do the transaction, we had planned to split out the Travel group in terms of having it in separate management team focusing on the integration of the business and really focused on those customers. And so we really just carried forward with that after we settled the transaction. So we now have Anthony Hynes and his team that is in-charge of that part of the business, working very closely with Jay Dearborn, who runs our Corporate Payments business, and auto integration around the technology and the product set. But beyond that, we felt like we wanted to create a lot of focus because of the opportunity set and because of the amount of work we need to do on the integration. We think both parts of the business have really great long-term growth. So you were talking about the B2B space. In the B2B space, the place that we really have been having the most amount of success is this kind of concept of embedded payments, which we're doing it through partners. Some of those partners are financial institutions and some of those are fintech companies. They have different needs, but the fact that we have the underlying technology, our processing system that we developed was cloud-based. It's highly reliable. It's a nice selling point that we have within that marketplace. We also have a merchant portal and a number of different payment capabilities beyond our virtual payment capabilities. So the wins that we are having, the combination of the expertise that we have in the marketplace, the technology that we have. And again, we've been really primarily focused in the partner channel of that marketplace. It's a place we see continued growth opportunity, and we're excited about the prospects there. And I say equally, we're excited about the prospects we have in Travel, albeit that we expect to have more volatility in the short term there. It's a little bit less predictable what's going to happen with that customer set right now in terms of volume.

Okay. And then I guess when we look at the overall corporate side, just to think about the strategy of what you can do there? I mean, obviously, that's held up very well. Was any of that a bit of a pull-forward just given the pandemic? Or do you think that's really the sustainable run rate now plus some and strategically what - Melissa, you can give us a sense of what you may or maybe may not want to do on that? Thanks again guys.

Yeah. I think that we - as part of the business, we are getting a benefit in new contract signings in terms of our partners bringing on new business because of the digital needs in the marketplace right now. So there's a benefit of that. There's also been a headwind in this last year where some of the existing customers just aren't spending as much. So we've been able to overcome that through new contract signing. So we feel particularly bullish, I guess, about it right now because we're working against the headwind, we're still able to show some pretty significant growth there. So going forward into the marketplace is the place we're going to continue to put emphasis, continue to spend internal investment dollars, and we do see a long runway. It's also a huge market. And so we like - we've just said, it's a great market. It's huge. We have an ability to differentiate within the marketplace. And as a result, we think that, that can create some great growth potential for us long term.

And I will add to Melissa's point. If you think about the second quarter, we were flat in volume. Q3, we were over 10%, then Q4, over 20%. And as Melissa said, we expect a good 2021 when we are projecting with the things that are happening now.

All right. That's great to hear. Thanks, guys.

Your next question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

Hey, good morning. Thanks for the presentation. I wanted to ask, Melissa, just curious, obviously, good sales results. How did new sales land versus your original a 2020 target? And what are you thinking about this year sales targets for 2021?

Yeah. We had particularly strong sales in our over-the-road business. We have a tremendous amount of momentum coming into that business. And you can hear it in the contract wins that we've had throughout the course of this year. I'd also say, when we set up our targets as we go into each year, we are pretty aggressive about that. So we over delivered across a number of the different parts of the business. And as we go into 2021, it's the same thing. As we establish our targets, we established some pretty strong targets. We expect to continue to have momentum in the marketplace. Again, we've got a lot of momentum specifically in the over the road marketplace. We have a really good pipeline in Corporate Payments, and we have a really good pipeline in Health and said, one caveat with Health ahead is that talked about the fact that we are seeing some headwinds in that business because of unemployment rates. And so we think you're going to see that business be skewed towards the second half of the year, where enrollment season was strong for us competitively. But the growth rates going into the first part of the year are more than what we would normally see, again, because of the headwinds in unemployment. We have a really good pipeline in that part of the business. So we think you're going to see the benefit of that really coming through the second half of the year as we implement some of the customers that we've already closed, and we continue to close some of the ones that are in our pipeline.

Okay. Good to know. Just as my second quick follow-up, and I'll jump off. Just on the cloud update, which is, I know you all went through that pretty thoroughly in your Investor Day. You're at two thirds now. So do you see the potential for improvement in competitiveness? Or is this more of a benefit from a cost standpoint now as we think about getting into that last third of the migration that that's where you're going on the cloud side? Just trying to understand what the impact would be for the P&L? Thanks.

Yeah. I think the impact actually in three different ways. One has been around speed for us is something we care a lot about in the market now that their ability to move really rapidly. And as we have moved things into the cloud, it's a combination of moving into the cloud and then architectural work that - some of which were well underway, some of which were kind of in the middle part of doing. But as we finish that, just making sure that we can continue to move with speed, bringing products into the marketplace and being able to share across the different parts of our business as we bring forward features and product sets. That's really important to us competitively if we kind of think long-term about the competitive set. We also believe that you're going to see benefit from a cost perspective, as we continue to reduce the number of data centers that we're operating in. And so that will, over time, create some benefit for us. And then the final thing from a customer perspective, it just increases the overall reliability performance from a customer perspective, and that's something that's ultimately very important to us. So it really hits across all three categories for us.

Thanks for that. Appreciate it.

Your next question comes from Ramsey El-Assal with Barclays. Your line is open.

Hi. Good morning. And thanks for taking my question today. I wanted to first ask about the impact of fuel prices and how we should think about incorporating fuel into our models for 2021. It seems like the futures curve is up pretty dramatically quarter-over-quarter. In a typical cycle where you guys would guide, you'd give us that average fuel price, and it would flow into EPS. I'm just kind of curious if that - if there's - if we should be thinking about this in a consistent way as the past, where we just basically see what the RBOB curve has done and kind of take your last average fuel price and kind of mark it up basically in our models. If you can give any color on how fuel prices will impact 2021 in terms of your internal thinking would be super helpful for us.

Of course. Good morning. So obviously, as fuel prices increase, we are going to see the benefit, and we are very happy to see fuel oil prices going up. So I will start, you saw in the presentation, the year - the quarter-to-date, it's around 255. Obviously, the number has improved significantly from the average of those six weeks. So it's going to go up for the second half of February and also for March. If you recall from the past experience, so in 2019, for every $0.10 of a fuel price movement on a full year, we had approximately $0.20 of ANI EPS and $14 million in revenue. So as we go into 2021, you should see it's going to be very similar, maybe slightly lower than that $0.18 or $0.19 of ANI EPS because of the mix between OTR and North American fleet. But that's the number that you should be expecting when you compare 2020 actuals, where the average of fuel prices were around 230 overall, compared to where we are now in the month of February and where the curve is turning going into 2021.

Okay. That's actually really helpful. Thank you. And the other question I wanted to ask was about your Travel business. And putting aside the timing of a potential travel recovery because who knows, is there any reason to not think that your travel business and the eNett and Optal business as well will not get back to 2019 levels? Are there any -- is there any customer bankruptcies or any other kind of deteriorations in these businesses that would keep us from basically saying, look, when we look out to 2022 or even beyond, these businesses should get back really largely on track where they left off?

So when I talked about structural change in the travel marketplace, it's because I think of people, particularly businesses as they travel, I just think that it's going to be different going forward as a result of the pandemic. Most of the customer base, the end customers we deal with there are consumers, which is a benefit. So we do think that you're going to see that migrating back – that volume pattern migrating back. We also think that you're going to see hotels coming back sooner than you see airline travel. And so from just a timing perspective, we think you're going to see some variability in what's going to happen with the travel business, probably more than what you're seeing in other customer end markets. But it's really a question of when it returns. I talked about supporting our travel customers in this period of time. We know that they've been particularly hard hit. And so our focus has largely been working with them around how we can continue to innovate together, and we have more assets now than we have ever had with the combination of eNett and Optal and WEX and really looking across the portfolio of what we've got to look at ways we can help create even more product for them, which can be a benefit to them as well. And so I look at that marketplace. I think that there's great long-term opportunity for us, and we and a lot of work that we need to do with that customer set to make sure that we're putting together products the way that we have across the rest of WEX to bring into the marketplace even more unique and innovative offerings for the future.

Okay. All right. Thanks so much.

Your next question comes from Bob Napoli with William Blair. Your line is open.

Thank you. Good morning. Question on the, maybe first, same-store sales. What do – I mean, obviously, up 18% for the OTR, very strong. And I know you've won a lot of customers, but maybe could you give a little color on same-store sales between OTR and non-OTR?

Sure. Good morning. So on the OTR side, same-store sales are up about 5%, so getting a benefit in that part of the business. On the North American fleet side, down significantly in the order of around 15%, so still down. And I don't really have a lot of insights to add because it's really kind of across the board.

Thank you. And then on eNett, what was the – what are you assuming as far as to get to material, how dilutive is eNett, like in the first quarter on an EPS basis? And then what does it take to get it back to normal? What are you assuming on travel, getting back to – I mean, American Express throughout the consumer travel would be 70% of quarter of pre pandemic by the fourth quarter? Are you assuming something like that? Or – so how dilutive? And then what was eNett's revenue prior to pandemic?

Yeah. I'm going to start and I can see Roberto is eager to jump in here. On eNett and Optal, part of what we're looking at right now, and I've said this before in our prepared remarks of that we're refreshing the model around our synergies. And when we originally announced the transaction, it was in a different environment. And so as we've brought the assets in and have spent time with Anthony and his team, that's really we're pretty deep into that process right now. We know the $25 million that we've laid out before, I think of that as a baseline where we are targeting a number bigger than that. We historically have taken three years to go through an integration process and some of this will take some time for us. There's a lot of complexity around that. But we're eager to be pulling some of those forward, and that's part of why we talk about it being dilutive now and then being break in for the year is a lot to do with the synergy work that we have ahead of us right now. And with that, I'll let Roberto talk to you about the specifics.

Great. Yes, Bob. So just to give you some color in the 15 days of the fourth quarter, we had less than $2 million in revenues, so very material. And then the impact to the ANI EPS was $0.02 to $0.03. So as you get into Q1, obviously, we are going to see dilution, because obviously, revenues are still - or volumes are still down. But as Melissa said, so as we get from Q1 into Q2, we should see improvement. And then on the second half of the year, we should be being accretive and when you think about on a full year basis and based on the projections that we are seeing on volume, we should be on a, call it, no material impact on a full year basis from an ANI EPS point of view. But the cadence of the recovery is what Melissa also said, so we are going to start having synergies late in Q1, Q2 and then probably more run rate in the second half of the year. So it's going to be dilutive on the first half and accretive on the second half.

Anything on the revenue pre-pandemic from -- what do you see?

Yeah. So the revenue in 2019 was 100 - almost $160 million. That's what we had in revenue, and the volumes were around $20 billion of spend. And obviously, as Melissa said before, I mean, we don't know when we are going to get to the 2019 levels. What we know is what you have seen today on these six weeks where we are on the 60%, 65% down from last year. And we keep monitoring daily how things are improving. But it's hard to tell when we're going to get back to the 2019 levels.

Then real quick on the Healthcare acquisition, the HSA assets, is that going to get you -- enable you to earn the interest income? I mean, that's what is -- how accretive is that? And is that really, over the long-term, assuming the Fed raises interest rates, is that something that's really going to move the needle? I mean, it's obviously, HealthEquity makes a lot of money off of the float, off of the deposits.

Yeah. What we like about it is it gives us the control over that part of the economics. It also creates a better customer experience because we're streamlining the whole process. And so from both a customer perspective and an economic perspective, we think there's a benefit of this. It's going to be accretive this year, but it's not going to have a material impact, particularly if you compare it to the prior year. But what it does allow us to do in the future is have a lot more control, which will give us a benefit financially going forward.

Yeah. Thank you.

Your next question comes from Ashish Sabadra with Deutsche Bank. Your line is open.

Thanks for taking my question. Maybe just a quick question on fleet. How do we think about any benefit from a potential infrastructure spending bill? Can you talk about some of your end markets that could potentially benefit from the infrastructure spending? And maybe just a quick question on fleet also is the recent weather in Texas. Could we see any impact on the fleet business near term? Thanks.

Sure. So I'm going to answer your second – the question first, so it's top of mind. Yeah, where we did see weakness during the weather in the – within the southern part of the state and so that was reflected in Roberto's commentary that when he was giving a framework for what was going to happen in the first quarter. I was anticipating that so both – we both expect that to have an impact in Fleet, but also in Health. We saw a little bit of an impact on consumers going out and spending money on their routine medical costs as a result of what was happening with the weather. On the infrastructure spending question, we do think that there's a benefit to us. If you look across our customer categories, a big part of our North American fleet business are in the construction trades, and that includes infrastructure type of trades. And so we do think that we would get a benefit of that.

That's very helpful color. And maybe if I can just ask a quick question on the Corporate Payment side, obviously, very strong momentum there. A lot of it is partner-driven. I was wondering if you could provide more color on your direct business, the Noventis acquisition? And how do we think about your ability to sell into your existing small business customer base? Thanks.

Sure. On the direct side, that actually really has where our primary focus has been to cross-sell within our existing customer base. We have a relatively small sales force that has been executing against that. They've been doing well. They were – they have a primary customer. Their ability to cross-sell has been actually quite strong. So it's a place that we look at as an area that we may want to expand. But right now, it's the smaller part of where the corporate payments revenue is coming from the larger part is coming from the partner channel.

Thanks, Melissa. And congrats on the good results.

Your next question comes from Dave Koning with Baird. Your line is open.

Yeah. Hey, guys. Thank you. And I just wanted to dig in a little more. I think you said revenue up 0% to 2% sequentially. Is that right, first of all?

That's correct, compared to the fourth quarter results, yes.

Yeah. And so I guess my question is, I would have thought normally, Health is seasonally strong in Q1 from what I remember. And then you have the full quarter of eNett, Optal coming on as well. So it seems like those two are going to provide, just alone, much better than 0% to 2% growth to the total company. And then fleet, you have fuel prices getting better, too. So I'm wondering is something in core and fleet going down? Or is there something else in the core business that's coming down sequentially that I'm just missing when I think through that?

Well, I will start with the fleet. So the fleet fuel prices last year in the first quarter were 2.57. And what we gave you today is year-to-date is 2.55. So from a fuel price point of view, when we get to the end of the quarter, it's going to be, probably, breakeven. Obviously, as Melissa has shared and we have shared in the presentation, the volumes are still down in fleet. So when you put the fleet, everything together, you are not going to see an improvement sequentially. And obviously, on the Travel and Corporate Payment side, so you also have seen the progress in the volumes. We have a very strong corporate payment volume growth on the first six weeks. But the travel is still being impacted from the first quarter of last year, and we are still down on the 60%. So when you put all the pieces together and what we are seeing the 0% to 2% improvement sequentially. It's -- we believe it's the right guidance if we want to call, but we feel good with that. And obviously, that continues to improve now from where we were in Q3, Q4 and getting into the first quarter of 2021.

Okay. Good enough. Thank you. And then just my follow-up on Healthcare, I think you said up 8% to 12% for the year. How much of that is from the acquisition? And does the acquisition just hit the yield on accounts? And maybe how much does that yield go up? How much should we think for that?

So the acquisition, as Melissa said, is not going to have a material impact, neither in revenue nor in ANI. Yes, it's going to be accretive, but it's going to be small. And it's not going to change the number of accounts that we have because we were managing. We were reporting already all the accounts. What is giving us is what Melissa said, is going to give us a much greater opportunity as we think in the future from an economic point of view. And for the customers and our customers, it's going to be better because we are going to be managing everything with them.

Got you. Great. Well, thanks guys. Nice job.

Okay. And I would now like to turn the call back over to Steve Elder for closing remarks.

I just want to thank everyone once again for listening to the call this morning, and we'll look forward to updating you again in a couple of months after our first quarter results.

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