Wex, which provides card payments services for corporate and government car fleets, is benefiting from a rise in fuel prices and doubling down on the business.
The Portland, Maine company, which also provides payment services for corporate travel needs and employee healthcare benefits, reported last week that revenue and profit soared for the company’s second quarter ended June 30. Wex’s net income for the quarter more than tripled to $34.1 million compared to the quarter last year and revenue shot up 30% to $598.2 million, the company reported in an earnings press release on Thursday.
Customers in the fleet segment of Wex’s business include the federal government as well as oil companies such as Exxon and large construction companies. In the other segments of its business, Wex’s operation cuts across industries from healthcare to banking.
Wex is prospering despite a difficult economic environment. U.S. inflation has jumped to a 40-year high this year, partly due to an increase in gas prices, and the Federal Reserve is boosting interest rates in an effort to keep a lid on rising prices.
Wex rival FleetCor Technologies is likely to report similarly increased earnings when it provides results Wednesday. “While peaking fuel prices and a potential slowdown in truckload spot rates may cool the sentiment, we continue to favor WEX amid better execution, especially in the fuel segment,” Mizuho Securities analysts said in a July 27 note on the two companies.
Also on Thursday, Wex announced it would acquire the business card program portfolio of Exxon Mobil, buying the receivables of that credit card program mainly used by small business owners in the U.S. In an interview, Wex CEO Melissa Smith explained how the company profits from management of such card programs.
“The value proposition that we have around these portfolios is that we can show that under Wex, we have a very strong history of growing portfolios,” Smith said.
Wex payment volume also increased during the quarter, with payment volumes rising 60% to $56.6 billion over the year-ago quarter, the company said.
Wex is focused not only on winning new customers, but also diversifying its services offered and expanding its share of spending by clients. Exxon is part of that last category. “This is a mechanism for us to grow share of wallet, which is an important part of our long-term growth,” Smith said of the Exxon transaction. She declined to say what Wex expected to pay for the acquisition.
Wex’s long-term revenue growth goal is from 10% to 15% so it easily exceeded that for the current quarter. The scale of the business and its diversification have allowed the company to keep up growth, Smith said.
She doesn’t see any warning signs in the current economic environment that might throw the company off its plan. “We can see business activity and it has remained very strong in July,” she said.
Still, she does hear a different story from clients who are having trouble hiring enough employees. “They feel constrained about their ability to reach all of the opportunity because of the lack of access to talent,” Smith said. “And then on top of that, there is this overhang of energy costs.”