WEX Eyes Corporate Payments M&A Push To Reach Beyond Fleet
WEX released its third-quarter 2018 earnings data on Wednesday morning (Oct. 31), beating analyst expectations in posting $382.7 million total revenues, an 18 percent year-over-year increase, with earnings at $2.19 per share.
Fleet payments, WEX’s flagship focus, grew with a 7 percent increase in total fuel transactions processed during the quarter compared to Q3 2017, with a 22 percent increase in fuel prices accelerating value for the company. WEX inked new agreements with Chevron and Fleetcor that shifts the Chevron portfolio to WEX, the company noted, also bolstering growth in its fleet card and fuel payments operations.
Overall, WEX’s fleet solutions portfolio saw a 17.7 percent year-over-year revenue increase for Q3, reaching $249.6 million.
But it’s not just the fuel market that’s powering WEX’s growth, according to CEO Melissa Smith, who spoke during the earnings call about the company’s recent acquisition of bill payments solution provider Noventis, announced last month. The acquisition represents WEX’s M&A strategy to grow beyond fleet cards and fuel payment processing,
“When we look at where we want to deploy capital, we’re interested in spaces that diversify against fuel, and that have high-growth profiles,” Smith said, noting that WEX’s focus includes both corporate payments and healthcare.
“If you look at the business-to-business payables market, it’s a $9 trillion market,” Smith continued. “It’s got excellent growth profile. The place that Noventis plays in, which is consumer online bill pay, is itself $1.4 trillion worth of spend. You’re talking about a really large market opportunity, which are places we like to play.”
WEX posted a 35.7 percent year-over-year revenue increase for its travel and corporate solutions operations, with revenues hitting $82.8 million. Transaction revenues for this segment increased 11 percent from Q3 2017 to $9.66 billion, the company said.
Its health and employee benefits solutions saw a 1.2 percent increase in revenues to reach $50.3 million for the quarter, with a 16 percent increase in average number of U.S. SaaS accounts, hitting 11.1 million. While both its corporate payments and healthcare segments are significantly smaller than WEX’s core fleet solutions operations, Smith signaled that future M&A will aim to continue growth in these areas, particularly as WEX looks to capitalize on its significant growth in corporate payments.
While the company is looking to continue expansion beyond fleet, Smith emphasized that the true value in acquisitions for the company, as signaled with the Noventis acquisition, is in purchasing companies whose solutions can be combined and integrated with WEX’s existing offerings.
“We think [Noventis] in itself is a good business, but beyond what they’re doing now, we think there’s the capability of attaching it to the integrated payables offering we have in our business,” she said during the call. “We like the multi-layer effect of it. That’s what we’re looking at, more broadly, where we can take one-plus-one and make it into something even greater.
“If that’s in healthcare, we’re definitely interested. If that’s in corporate payments or travel, that’s a place we’re interested in as well,” she added.
WEX released its third-quarter stats the same day it announced a new partnership with Japanese payments company JCB, a collaboration showing WEX’s continued focus on expansion through collaborative efforts beyond M&A, as well as its attention to markets outside the U.S.
Smith noted that the Asia Pacific payments market is fragmented, presenting an opportunity for firms like WEX to step in.
“Asia Pacific is a place where there are a few holes in network capabilities,” she said during the earnings call, adding that collaboration with payments firms overseas is important to WEX’s global client base.
The JCB partnership will see WEX issue virtual cards on the JCB network. In a statement, WEX President of Corporate Payments Jay Dearborn said the deal “is a continuation of WEX’s long-term strategy and goal to be the only technology partner in virtual payments that offers multiple payment schemes to businesses.”
WEX expects to begin launching their joint program in the second half of 2019.