Q2 2024 Earnings Summary
- WEX's aggressive share repurchase program demonstrates strong management confidence in the company's intrinsic value and growth prospects. They repurchased $174 million of shares in the first half of the year, $70 million in July, and are planning a $300 million accelerated share repurchase agreement, representing almost 5% of shares outstanding when combined with the July purchases.
- Positive signs in the fleet segment with customers becoming more optimistic and same-store sales stabilizing, indicating potential growth in the Mobility segment. Melissa Smith noted that customers are starting to be a little more bullish, and same-store sales were flat in the quarter, a good sign for that segment.
- WEX exceeded its annual cost savings target, realizing approximately $106 million in cost savings on a run-rate basis—exceeding its goal of $100 million—and plans to reinvest half of these savings into high-return areas, such as enhancing sales teams and technology across all segments to drive long-term growth.
- Reduction in Revenue Guidance Due to Softness in Travel-related Volumes: WEX reduced its revenue guidance for the remainder of the year, primarily due to softness in travel-related volumes, particularly among smaller online travel agencies (OTAs) and lower-than-expected growth in airline-related spend. Travel-related customer purchase volume grew 12% year-over-year, which is down significantly from previous growth rates, indicating potential challenges in the Corporate Payments segment's growth trajectory. , ,
- Impact of Booking.com's Transition to a New Insourcing Arrangement: Booking.com began transitioning to a new insourcing arrangement, with approximately $1 billion of volume processed under the new model in Q2. The transition is expected to accelerate, with 30% of their volumes in Q3 and 40% in Q4 moving to the new model. This shift may negatively impact WEX's volumes and revenue from this significant customer. ,
- Purchase Volume Weakness Among Large Customers: WEX is experiencing purchase volume weakness in some large customers with multiple payment options who are balancing out their spend in the second half of the year. This suggests potential competitive pressures and risks to revenue from key clients.
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Travel Segment Weakness Q: What's causing lower growth in corporate payments? A: The guidance for corporate payments growth decreased from high single digits to low single digits, now expecting about 2% growth. This is due to softness in the travel segment, especially among smaller online travel agencies (OTAs) and airline spend in Europe. A $5 million impact came from Booking.com's faster-than-expected transition to a new model, and lower volume growth from smaller OTAs.
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Cost Savings and Margins Q: Can margins keep expanding despite tough comps? A: Management plans to add another $10 million in cost savings this year, on top of the $106 million run rate exiting Q2, contributing incrementally to margins in the second half. They had front-loaded some reinvestments, leading to more margin pickup later in the year.
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HSA Account Growth Q: Will HSA growth reaccelerate? A: They saw 8% growth in HSA accounts year-over-year. Sales are ahead of last year, and they expect slight acceleration with mid-single-digit growth in the second half. They are confident about next year's growth prospects.
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Share Buyback Plans Q: What's your capital allocation strategy now? A: They remain focused on organic growth and strategic M&A but have been aggressive with share buybacks due to confidence in the company's prospects. They repurchased $174 million earlier this year, another $70 million in July, and announced a $300 million accelerated repurchase program.
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Mobility Adjacencies and EVs Q: What are new opportunities in mobility? A: The company is expanding offerings for fleet customers, including products for maintenance purchases and electric vehicles (EVs). They have a pipeline of 50,000 EVs, much larger than the current hundreds. They are well-positioned to assist government fleets and large companies with ESG commitments in transitioning to EVs.
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Non-Travel Yield Improvement Q: What drove improved yield in non-travel payments? A: Yield improved due to a mix effect; a large low-rate customer processed less volume, boosting the rate. They expect take rates to remain roughly flat for the rest of the year. The direct segment saw 25% year-over-year growth, and they plan to continue investing in this area.
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Expense Leverage Q: Need more cost cuts due to slower growth? A: Confident in managing costs through scaling and ongoing efficiencies via technology and AI. They've baked in $10–15 million in cost savings in the second half in response to travel weakness, focusing on strategic long-term cost actions.
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Travel Weakness Impact Q: Will small OTA weakness affect larger ones? A: The softness in smaller OTAs, especially airline spend down 7%, is not expected to impact larger OTAs, which focus mainly on hotel spend. They anticipate travel volumes will return to normal trends over time.
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Interest Rate Sensitivity Q: How will lower rates affect you? A: A 100 basis point change in interest rates impacts revenue by about $35 million, with approximately $15 million affecting the mobility segment.
Research analysts covering WEX.