WEX: Navigating Near-Term Headwinds While Investing in Digital Growth

The contemporary operating landscape is increasingly defined by both resilience and vulnerability.

These two themes were central to WEX Inc.’s third-quarter 2024 earnings call on Thursday (Oct. 24). The company, which provides payment processing, fleet management and benefits solutions, told investors it continues to navigate a complex macroeconomic environment that affected its performance in key segments.

However, executives remain committed to WEX’s long-term growth strategy, driven by investments in artificial intelligence (AI) and product development.

“We continued to deliver growth and strong profitability in the third quarter, driven by healthy sales, high customer retention, and expanding margins. That said, our performance ultimately fell short of our expectations,” said WEX Chair, Chief Executive Officer and President Melissa Smith.

“Although the third quarter was challenged by the macro environment, I believe that we have the right initiatives in place throughout the organization to drive strong performance over the long-term. Underpinned by our solid balance sheet with low leverage, we will continue to make the necessary investments in the business to position WEX for sustained growth while remaining committed to creating value for our shareholders,” Smith said.

But with investments in AI and product innovation, WEX is positioning itself to better serve its customers and differentiate its offerings. As the company balances immediate pressures with long-term opportunities, shareholders and customers alike will be watching closely to see how these efforts translate into future performance.

See also: WEX: How Companies Are Slashing Costs by Optimizing Business Payments

Mobility Impacted by Fuel Prices, but Benefits Show Growth

WEX posted total revenue of $665.5 million for Q3 2024, a modest 2% increase from $651.4 million in Q3 2023. While the revenue uptick reflects strong customer retention and expansion, it also faced headwinds. Specifically, fuel prices and spreads resulted in a $21.2 million unfavorable impact, partially offset by a $2.2 million favorable impact from foreign exchange rates.

“While our results came in below expectations, it is important to note that we achieved record high third quarter revenue and continued to grow adjusted net income per share,” said WEX Chief Financial Officer Jagtar Narula. “The guidance shortfall was primarily within our Mobility business, which showed healthy underlying growth but was ultimately impacted by macro trends including declining fuel prices and same-store sales, along with an isolated unplanned charge to finance fee revenue.”

Still, the company’s outlook disappointed investors and the share was trading down mid-single digits as of reporting.

But the company’s strengths also shone during the quarter. WEX’s benefits business showed continued expansion, with the average number of software-as-a-service (SaaS) accounts growing 2% to 20.3 million year-over-year. Health savings account (HSA) custodial cash assets also grew, reaching $4.3 billion, a 10% increase from Q3 2023, showcasing the segment’s steady growth trajectory.

WEX’s corporate payments segment saw mixed results, with purchase volume decreasing 16% to $23.4 billion from $27.9 billion a year ago. However, the total volume processed, including transactions where WEX does not earn interchange revenue, increased by 6.2%, reaching $39.1 billion. This divergence indicates that while the company is processing more transactions, revenue generation from these activities may be facing headwinds.

Read more: WEX Sees Embedded Experiences Impacting Supply Chains

AI and Innovation: A Catalyst for Future Growth

Despite the challenges, WEX is betting on AI as a transformative force for its business. Smith expressed optimism about leveraging AI to enhance customer experiences and drive future product development, a focus that aligns with WEX’s broader strategy to differentiate its offerings and increase customer loyalty.

“We’re particularly excited about the use of AI to enhance the user experience … future product development will allow us to retain and expand with existing customers, as well as win new customers,” said Smith.

In an interview posted Wednesday (Oct. 23), WEX Chief Digital Officer Karen Stroup told PYMNTS that  AI is not just a “solution looking for a problem” but a tool for addressing customer pain points. For example, WEX has used AI to build fraud prevention — not just detection — systems that help drivers in its commercial fleet networks fuel vehicles without delays. Within three months of implementing these systems, WEX saw a 41% reduction in fraud instances, benefiting businesses and consumers.