WEX Inc. Bank of America SMID Cap Virtual Conference

Hi, everyone. Thanks for joining. Just wanted to welcome everyone to another session at our two-day mid-cap virtual event. Very happy to be joined by almost 20 corporates during our two-day event, hosted by our analysts who have really great breadth of coverage of mid caps. Our analysts here at BofA cover about 1,000 small and mid caps in the U.S. So the size segment, that's definitely seen more interest the last two years. Thank you so much for joining. If anyone needs the schedule or still wants to sign up for any additional sessions, it's not too late.

I've signed up some investors today, so feel free to reach out to me, Jill Hall, or to my colleagues, Madison or Ashley in Corporate Access, and we can make sure to get you on that, as well as if you need help connecting with any of our analysts after or to get signed up for any research. Thank you so much for joining, and I'll turn it over to Mihir.

Sure, Mihir. Thank you. Yeah, I think calling us a fuel card company does undersell us a bit. First of all, thank you for having us and having me here today, and thank you for the other folks on the call that are joining us. If we turn to the next slide, I think this is a good way to think about the business, and the statement on the top, I think resonates with me and hopefully it resonates with others that follow the company. Every day we're managing payments on behalf of our corporate clients that are not just any payments, but they tend to all have characteristics that are pretty similar. We manage payments that are complex, regulated, generally pretty mission-critical for our customers.

What we do is we bring together proprietary data, technology, controls around those payments, compliance capabilities, vertical knowledge, and the infrastructure of our wholly owned industrial bank to basically become very deeply embedded in how customers operate and simplify their ability to manage these payments and provide controls around them. If we go to the next slide, let me talk about where we do it. Last year we were about $2.7 billion in revenue. On the right here shows the makeup of our business. The first segment, roughly half of our business, is our Mobility segment, and that's where people may be when they think of us as a fuel card company. That is our fleet business. We're a leader in managing fleet payments on behalf of businesses. Companies have large fleets, fuel-related spend, vehicle movements.

They need to manage and track this very closely, and we have tools, payments capabilities, fraud management capabilities that allow them to do that, and we do this very efficiently and effectively. Our second business, comprising about 30% of our revenue, is our Benefits business. Here again, we're also managing effectively mission-critical payments at massive scale. In this particular case, it's benefits for employees. So think of health savings accounts, flexible spending accounts, Lifestyle Spending Account, COBRA. These are all payments that are going to insurers, providers, beneficiaries. They're regulated, so they require controls around it. Again, mission-critical, massive scale. Then the last business, about 20% of our revenue is our Corporate Payments business. Here we're really helping companies automate B2B payments. We've done this in the travel industry. We're doing it outside of travel and increasingly more and more outside of travel.

This is where we're using our virtual card platform and managing things like embedded payments. So this is high volume payments from a provider or business that needs to make a lot of payments, as well as kind of our direct accounts payable service. So this is going to an organization that has an AP file they need to process, and we're processing on their behalf. I think the common theme through all of this is our shared infrastructure within all three of our segments. We have deep relationships, we have technology, we have strong vertical expertise, regulatory capability, the bank. We bring that all to bear to address these segments. We go to the next slide. It's a little bit about our strategy. We think about it in three buckets, amplifying our core, expanding our reach, and accelerating innovation.

When we think about what we're doing, if you think about things like amplifying our core, this is looking at pricing on a regular basis, signing up new business, customer retention, working on margin expansion, things like that continues to expand our core business. But then we're also taking that core business and continuing to expand it. So in expand our reach, I would think of things like what we're doing in Corporate Payments to take that platform into new markets beyond travel. We've got a long-standing history of being the leader in the travel space. We've been moving into B2B payments outside of travel. Likewise, in our Benefits franchise, we've been expanding our benefits offering, and I would also consider that part of expand our reach. Then accelerate innovation is where we bring true innovation to bear.

A lot of things we talk about are AI, how do we embed AI in our products, how do we use it to drive more margin enhancement? What are new markets that we can go after? That would all fit under accelerate innovation. If we go to the next slide, let's talk a little bit about WEX from a capital allocation standpoint. It is worthwhile noting that we are a very high margin, high cash generative business. Our adjusted operating margin the last quarter was close to 40%, 39.6%. We generated close to $700 million of adjusted free cash flow over the last 12 months. And one of the things we've done recently is get leverage down below our 3 times target to 2.9 times.

We are within our target range, and as a result, and we highlighted this in our last earnings call, we are now devoting the vast majority of our free cash flow towards stock buybacks. We will continue to look at M&A, it will be part of the strategic mix. But at this particular point in time, we think our share price is a great buy, and we continue to devote the vast majority of our free cash flow to that. If we turn to the next page, if we think over the medium term, we are aiming for 5%-10% organic revenue growth, 10%-15% earnings growth.

We do believe we have a business with accelerating organic revenue growth, improving margins, and a high degree of cash generation that creates. We are disciplined about capital allocation, so we think these are all compounding effects to what is a great business model. I would be remiss if I didn't say something about artificial intelligence, since I know it is on a lot of people's minds these days. We think of our AI as a big opportunity for us. We think about it in 2 fronts. First is the obvious margin enhancement that we have as a company. We spend a lot of money in technology development. We spend a lot of money in customer care, whether that is processing claims or handling calls from employees in our Benefits business, for example, or depositors in our Benefits business.

We think AI is very well proven now from an ROI standpoint, both in customer care and product development, and we think that we will continue to see value add from that. But we also see opportunities in the product side. We essentially operate at the infrastructure layer of payments, right? We are processing those payments and all the regulatory and compliance needs that come with that. But in that, we are collecting a lot of data. We know how businesses use their vehicles. We know how consumers travel. We know how enterprises, what they are spending money on. We know how employees use their Benefits. That is a tremendous amount of data that we can use to help organizations make better decisions and automate those decisions as they are being made. And so we see that as a power of AI that will be increasingly embedded in our products.

So with that, Mihir, hopefully that was a good overview, and hopefully people see us as more than a fuel card company.