Wex at KBW Fintech Payments Conference: Cautious Optimism Amid Challenges

On Wednesday, 12 November 2025, Wex Inc. (NYSE:WEX) presented at the KBW Fintech Payments Conference 2025, outlining its strategic initiatives amidst a mixed economic landscape. The company acknowledged challenges, particularly within its Mobility segment, but expressed confidence in its growth strategies across key areas such as Corporate Payments and Benefits.

Key Takeaways

• WEX's Mobility segment faces macroeconomic headwinds, but shows signs of stabilization.
• Corporate Payments is recovering, with mid-single-digit growth expected.
• The Benefits segment outperforms, driven by strong product offerings and innovation.
• WEX prioritizes organic growth, debt reduction, and future share buybacks.
• Margin stability is anticipated, with potential for expansion beyond 2026.

Financial Results

Mobility:

• The Mobility segment experienced negative volume growth in Q3, mirroring Q2 challenges.
• Small and medium-sized business (SMB) new business volume rose 12% year over year.
• WEX anticipates a $4 return for every dollar invested in sales and marketing within Mobility.

Corporate Payments:

• The segment returned to growth, with direct accounts payable (AP) business seeing 20% volume growth in recent quarters.
• Expected growth in the mid-single digits, driven by investments in embedded payments and direct AP solutions.

Benefits:

• Health Savings Account (HSA) accounts grew by 7%, outperforming the market.
• Market growth is estimated at about 5%.

Operational Updates

Mobility:

• Introduction of the 10-4 product for owner-operators, offering $300 in fuel savings.
• Progress with the Pacer acquisition, focusing on HVAC customers.
• Secured BP as a client, completing the inclusion of all top 10 fuel brands in the U.S. on the WEX platform.

Corporate Payments:

• Emphasis on expanding embedded payments beyond the travel sector.
• New front-end investment for direct AP to enhance customer experience.

Benefits:

• Developing in-house capabilities for HSA investment products.
• Improved front-end capabilities for benefits administration.

Future Outlook

Mobility:

• Stabilization expected in the over-the-road (OTR) segment, with ongoing monitoring.

Corporate Payments:

• Continued mid-single-digit growth anticipated, driven by strategic investments.

Benefits:

• Leveraging the "big beautiful bill" to expand HSA eligibility, potentially adding 3-4 million accounts.
• Positive indications from the current open enrollment season.

Capital Allocation:

• Focus on debt repayment, targeting a leverage ratio of three times by Q3 next year.
• Potential for resuming a buyback program and pursuing mergers and acquisitions (M&A) after debt reduction.

Q&A Highlights

• A strategic review reaffirmed the benefits of maintaining business synergies and diversification.
• WEX is committed to organic growth and future programmatic share buybacks.
• Investments in AI and claims automation are expected to support margin expansion.

Readers are encouraged to refer to the full transcript for a detailed account of WEX's strategic insights and financial performance.

Full transcript - KBW Fintech Payments Conference 2025:

Sanjay, Interviewer: Everybody, let's get seated. We're going to get started. Sorry, I know it's past lunchtime. Up next, we're joined by Jagtar Narula, CFO of WEX. Jagtar took on the role of CFO in May of 2022. He brings two decades of financial leadership experience. Prior to WEX, he served as CFO of 3D Systems and held senior roles at Blackbaud, Xerox, GE, and other global firms. Jagtar, thank you for being with us today.

Jagtar Narula, CFO, WEX: Thanks for having me.

Sanjay, Interviewer: Appreciate it. Maybe we start with mobility. The macro environment remains pretty choppy. OTR volumes softened a little bit further this quarter. Are you seeing any signs of stabilization?

Jagtar Narula, CFO, WEX: Hey, thanks, Sanjay. That's a good question. What we saw in Q3, it's been a choppy year for mobility from a same-store sales perspective. We saw negative volume growth in Q3. We had said it was pretty similar to Q2, where we also saw negative volume growth. That's reflective of challenges we've seen in the OTR segment, especially. We've had the challenges of a tough environment. We've seen the effects of tariffs and things like that. The good news is that Q3 was similar to Q2. While we haven't seen an improvement in the macro year over year yet, what we are seeing is stabilization. Things aren't getting worse, but it's something we continue to keep an eye on.

Sanjay, Interviewer: When we think about what's driving sort of the weakness, do you think it's just tariff? Is it tariff-related uncertainty? Is it just a macro softness? What do you think is driving it?

Jagtar Narula, CFO, WEX: I think it's a combination of both. If I take the mobility segment, divide it up into two segments, just a reminder for everybody about one-third of this segment is what we call over-the-road. Think of it as kind of the larger long-haul carrier trucks. Two-thirds of the segment is the local fleets. Think of the electrician, plumber, sales guy, things like that. If I take the over-the-road segment first, that segment has been challenged for a couple of years now. We had kind of the run-up into COVID with a lot of shipping volumes. We were all sitting at home ordering things from Amazon and the like that drove a lot of volume in the over-the-road segment. Since sort of post-COVID, we've seen overcapacity in that market. We've seen weakness there. We've seen that for going on a couple of years now.

This year, I think a lot of market participants had expected going into the year that we were going to start to see a turn in that segment. We were all surprised by Liberation Day and the weakness that ensued. That is what has been going on in the over-the-road space. On top of that, what you have seen in the kind of local fleet space, I think, is more indicative of a macro weakness. What we measure there is same-store sales. What we look at is how much volume did a customer, how many gallons did they pump in the prior year versus how many gallons was that same identical customer pumping this year. We have seen sort of a decline, which, when we have seen in the past, is more indicative of macroeconomic weakness. I would expect over time things would improve.

For where we are, where we sit right now, it's definitely a macroeconomic weakness there. There's been a couple of pieces, but they're both hitting at the same time.

Sanjay, Interviewer: Got it. So you've highlighted the SMB segment as one where you see share gain potential. Can you quantify how much SMB contributes to mobility revenues today and how big it could become over the next two to three years?

Jagtar Narula, CFO, WEX: Yeah. SMB is actually a pretty large segment today. If you think of our customers today, we have about 600,000 customers in the mobility segment. Customer size that large, a lot of those customers are in fact small and medium businesses. That is, from a market perspective, a relatively unpenetrated segment. That is where we continue to see a large area of opportunity. One of the things we've done this year is invest in more digital marketing in the mobility front to drive additional volume into that segment. We're seeing really good uptake on that. One of the things we've talked about in the last earnings call is that if you look at new business volume, new businesses have signed up with WEX. That has increased. SMB has increased 12% year over year. That is indicative of the positive momentum we've seen there.

On top of that, I'd say we've had a number of initiatives that are also additive to the SMB focus in the segment and should provide a good tailwind going forward. One of the ones we talked about in the last earnings call is 10-4. This is a product that we just introduced that's targeted at the owner-operator and those kind of long-haul trucking fleets. Think about the person that owns one truck and drives it around. That's historically not been a customer of WEX, but we've developed a solution now that provides them additional value. Someone that's using our 10-4 product, what we saw in our initial slate of customers, they're saving on the order of $300 in fuel. There's a big value proposition to them that requires no credit underwriting on our part.

It really allows us to serve a segment that we have not served before. There are on the order of 500,000 owner-operators out there. It is a sizable opportunity. We are really, really excited about that one. The other one is Pacer. We have talked about that in the past. We did that acquisition, I do not know, 18 months ago. That one was a little slower to get going than maybe we would have liked. It took us a while to get into the sales motions that we wanted up and running. We feel really good about where we are now. We think that is a long runway for WEX. A lot of kind of market participants have talked about the tie between payments and software. This one gives us a really strong software capability with payments functionality.

Starting with HVAC customers, it's a large small business-focused segment where even today we have over 20,000 customers. I think when you look at it together and you say, "Okay, there's a large fuel card opportunity in mobility that's relatively untapped where we have proven today we can go after it because we've got hundreds of thousands of customers today." When you look at the new products that we've introduced, like 10-4, and then doubling down on things like Pacer, I think there is a very large, very sizable SMB opportunity that we're pretty excited about.

Sanjay, Interviewer: That's fabulous. I guess when we think about the competitive backdrop for fleet cards, how do you see it sort of today and how do you see it maybe evolving over time? Maybe you could talk about your value prop and your moat in the industry.

Jagtar Narula, CFO, WEX: Yeah. In the fuel card segment today, we have a very strong value proposition. Let's start with sort of the recent evidence of a very large customer win in BP. We now have, with the win of BP, all 10 of the top 10 kind of fuel brands in the U.S. are on the WEX platform. That is indicative of the value proposition we provide and the fact that we have proven time and again our ability to take ownership of a branded fuel program and grow it. I think that reflects a number of pieces. One, it reflects the value proposition of the product, the ability to provide fraud controls, to provide analytics for customers. These are all things that are very important to fleet managers. WEX Solution offers that. We provide the volume to merchants, which they view as incredibly valuable.

That in itself creates a moat for us, both in having the kind of the buyers and sellers of fuel, plus all the value-added services we bring on top of that. I think when you bring those pieces together, it's really, really a strong value proposition for the market. I think we continue to be in a very, very strong competitive position as a result.

Sanjay, Interviewer: In the non-big fuel side, like the small business side, do you think there's a lot of fintechs that are sort of creating value props that might be?

Jagtar Narula, CFO, WEX: On the mobility segment?

Sanjay, Interviewer: On the mobility segment.

Jagtar Narula, CFO, WEX: I certainly think there's some fintechs that are trying, where there's some smaller customers that are, Visa's got their sort of Fleet 2.0, which they've tried to create a solution to provide kind of a value proposition to customers that rides on the Visa network. I would point out a couple of things. When you talk about the value proposition we provide with the controls and the analytics, I mean, we're years ahead of the competition because we've been doing this for decades. We know how to bring a fleet manager onto our platform, provide them the tools and capabilities they need to run an effective card program. That inherently gives us kind of a leg up. On top of that, we're not standing still from innovation. We just talked about BP a second ago.

One of the reasons that BP chose us is, in addition to our sort of closed-loop fuel card capabilities, which because we run our own closed loop, we're able to provide data that other networks historically have not been able to provide. On top of that, we've developed the capabilities to also ride on an open-loop network. Somebody that goes into a BP station that's pumping fuel that also wants to go buy lunch at the convenience store can go in and use a card to buy items from the convenience store. That was something that was pretty exciting to BP, one of the reasons they chose us. I think that's additional value proposition that we now put on top of the card. This program will be launching once we get the BP onboarded, and we'll see how it goes.

My expectation would be that as we see success in that program, some of our other fuel merchants may start to say, "We'd like to be in a similar card program as well.

Sanjay, Interviewer: Got it. As we think about, if we pull up and we think about the growth targets for this segment, 5%-10%, I'm sure you feel pretty comfortable in that range. I'm just curious, what leads to an outcome that's sort of at the midpoint or higher of that range?

Jagtar Narula, CFO, WEX: Yeah. I think it's a number of fronts. One is new business. We've invested more in new business this year because we saw pretty high returns on it. When I joined WEX, one of the things we did is look at our LTV to CACs across our business. Those of you involved in software are very familiar with this metric. What we saw is a high LTV to CAC across all of WEX's line of business, including mobility. We looked at that and said, "You have a large untapped market opportunity, especially on small business. You have a high LTV to CAC. Shouldn't we be investing more there?" That is one of the things we did this year, take up investment there.

We expect, Melissa talked about it in the last earnings call, every dollar that we put in sales and marketing and mobility or in marketing mobility, we would expect kind of $4 return over the first two years that a customer onboards. That is a pretty high return. With the dollars we are putting in, we expect higher return that will drive up growth. We have very high retention rates in the segment, but we continue to invest there to improve retention rates. I would expect the delta between new business and retention to expand over time. I would expect on the order of one to two points there. We then have the new products that we are investing, whether it is 10-4, more aggressiveness in Pacer, things like that. Those new products will then add incremental additional growth that should push us up further in the range.

The big one now is the macro. You referenced the macro at the initial of the conversation. Right now, from a planning perspective, we're not changing our expectations of the macro. We're sort of expecting it to continue as we've seen for the last several quarters. With changes in the macro environment, we're not going to be in this macro environment forever. Trucking isn't going away. There will be a turn in the trucking market at some point. As we start to see that change in the macro, we'll go from where we are today, which is maybe the base growing at 1%-2%. We should see that grow incrementally higher. I think when you add up those pieces, you start to get to, "Okay, I can see how we get mobility further and further up into the targeted range.

Sanjay, Interviewer: These new areas that you're sort of targeting and taking share into, what are you displacing there? Like a competitor or is it, I mean, cash and check? What is it?

Jagtar Narula, CFO, WEX: Yeah. I think it depends on the area. When we go after SMB, by and large, those customers will use a general purpose card today, without the controls that we provide, without the analytics that we provide, so we're largely doing that. When you look at 10-4, owner-operators, what we're providing essentially is a fuel discount network, something that they do not have access to. Fuel is the largest component of their operating expense outside of the cost of paying for the truck. If you can provide meaningful fuel savings, that's very, very important to the owner-operator. In that case, we're providing something incrementally new that they're not necessarily coming from somewhere else today. Pacer, by and large, you're displacing them from using Excel or Google Sheets or pen and paper. These folks, sometimes you're taking them away from competitors.

We know there's competitors out in the market that do not exactly touch the segment that we're going after. As a result, we provide a more tailored solution. Or you're taking them away from historically running their business essentially manually, and you're providing a meaningful automation solution. I think in each case, we're taking away from something where they're not getting the level of quality and capability that WEX is now coming in and providing to them.

Sanjay, Interviewer: Got it. Okay. We're going to pause on mobility and move to corporate payments. Obviously, that's been another segment that's been going through its own set of ups and downs. Maybe we focus on the virtual card business, and then we sort of migrate to the other part. With Booking and Expedia headwinds now largely in the rearview mirror, how should we think about the baseline growth of corporate payments? Maybe just walk us through the long-term building blocks.

Jagtar Narula, CFO, WEX: Yeah, sure. So we've talked a lot about Booking and Expedia over the last year. The transition of Booking to kind of a new model with us was sort of a revenue drag over the last several quarters. We're now at the tail end of that. You saw with corporate payments returning to growth in the last quarter. Expedia was also a challenge because we had some sort of seasonality in Expedia or timing in Expedia going 2024 to 2025 that provided some sort of difficult comparisons when we were looking at it year over year that we're now kind of largely past that. As we move past that on the travel segment of corporate payments, I would expect that, which is about half the business today, I would expect that to move towards more kind of in line with overall OTA growth, online travel agency growth.

That's half the business. The other half of the business, we have sort of, this is a business that we're also pretty excited about. We've invested in capabilities that I think provide meaningful kind of upside and growth opportunity in the business, leveraging the platforms that we have today. The first is embedded payments. The way I like to characterize embedded payments, you talked about me joining WEX in 2022. At the time, one of the biggest questions I got was, "Hey, WEX, you're really successful in travel. What are you doing outside of travel? What are your next verticals outside of travel?" That in essence is what embedded payments is. It's basically taking what we've built in travel, we've built additional functionality that the product needed, and now we're moving it outside the travel vertical, starting with other fintechs.

We're very excited about the pipeline there and the growth opportunity as a result of that. You then take the direct AP part of the business, which is about 20% of the segment today. That's also taking the same platform. What we've done with that platform is provided a new front end that now can be used by corporate customers to process payments. We've been seeing the last two quarters, we've seen 20% volume growth in direct AP. That provides evidence that it's having resonance in the market and the strategy is working. I think when you put all those pieces together, I think you're looking at a corporate payment segment that will grow in the mid-single digits range. I think we've got the building blocks and pieces in place, and we're pretty excited about it.

Sanjay, Interviewer: Just to clarify, the travel growth, industry growth, what do you think that growth rate is? How would you define that growth rate?

Jagtar Narula, CFO, WEX: Yeah, I would call that kind of the mid-single digits range, in line with Booking, Expedia, and the others.

Sanjay, Interviewer: Got it. All right. I guess the industry, so maybe just one last one around corporate payments, the direct AP business. Maybe just elaborate a little bit more on that because I know that's an area you're investing in. Where are we in the journey of that? And sort of what's your growth path expected for the next couple of years?

Jagtar Narula, CFO, WEX: I think there's a pretty sizable opportunity. This is a market segment that's pretty unpenetrated from an automation perspective and from the perspective of utilizing virtual cards to process payments. We provide meaningful capabilities to corporate customers to be able to automate their payments and to streamline their process. You move customers away from check, ACH, things like that, to we'll take your payment file and we'll automate it through the virtual card. We'll also give you the benefits of a portion of the interchange. I think we're in pretty early days there. As I mentioned a minute ago, we've seen 20% volume growth the last couple of quarters. We've hired up a sales team that we've expanded this year. We track that pretty closely in terms of the performance of the sales team. They are building really good pipelines, closing really good deals.

We continue to see momentum and volume build there. I continue to see that going forward.

Sanjay, Interviewer: Got it. When we think about who you're displacing again there, is it the competitors or the competition in that business that does this, or is it businesses that just don't use that?

Jagtar Narula, CFO, WEX: Today, it's largely businesses that don't use that. When you think about the AP process, usually there's some software process, ERP or something, that results at the end of the day in a payment file that's ready to be paid. That payment file today would be paid through a check, through an ACH, through some other mechanism where now we can take that AP file and say, "We'll process the payments and handle this for you." It provides meaningful automation to the customer where they didn't have that today. In addition to potentially reducing the size of their AP team or something, they'll get a more streamlined process. They'll also get meaningful rebate to the extent that we move some of the volume to a virtual card. There are multiple value propositions for the customer coming out of that.

Sanjay, Interviewer: Got it. All right. We're going to shift gears and talk about benefits. The industry for HSA and FSA has matured. As that has matured, what are you guys focusing on to sort of sustain the above-market growth in the benefit segment?

Jagtar Narula, CFO, WEX: We grow typically above market. I think we grow above market. Just a reminder to kind of everyone that's maybe new to the WEX story, about 20% or more of the HSAs in the United States run on the WEX platform. We go to market through a couple of different channels. We have a direct business, so we will go to employer and sell direct. We also have a very, very extensive partner network where we will have partners resell our product or they will actually offer our product as part of a bundled offering that they're offering to their customers. We have multiple routes to market, which basically means that we typically see a deal from multiple angles. The combination of having a market-leading product is evidenced by the large market share we have.

The scale of that platform, as well as the broad market coverage, provides us kind of a very, very meaningful way to be very competitive in this market. As a result, if you look at this last year, market growth is estimated about 5%. We've grown HSA, our market has grown about 7% in terms of HSA accounts. We've beat the market by a couple of percentage points. We've done that pretty consistently over the past couple of years. I would say on top of that, we continue to invest in the product. We have multiple products that we can sell. We've got HSAs, we've got FSAs, we've got flexible spending accounts, we've got lifestyle accounts. We're able to continue to grow that business by expanding wallet share with the customer. We're also able to grow that business by more effectively cross-selling.

That's one of the strategies of the business. Mobility customers are a big opportunity for us. We continue to focus on that. We layer on top of that continued innovation. Things that we're doing now, like a new investment product, today we outsource that functionality. We're actually building the capability so that if you're an employee, you have a sizable HSA account, you want to invest a portion of that, not just keep it in cash. We've got capability for you to do that as well. I think it's the combination of market coverage, multiple products, and continued innovation that sustains the growth in that segment.

Sanjay, Interviewer: The big beautiful bill is expanding HSA eligibility and contribution limits. Maybe you could just help us frame the size and scale of the benefit to WEX and sort of how you intend to capitalize on this opportunity.

Jagtar Narula, CFO, WEX: Yeah. With the big beautiful bill, it opened up about 7 million accounts or 7 million individuals that will now be eligible for HSAs. We translate that 7 million individuals into about 3 or 4 million accounts. A sizable increase in the number of accounts. The good news here is that we do not need to do anything to the product. This product is ready to sell to customers. It is the same product that we sell today. We have already got the routes to market. We will continue to get our fair share of this expanded market. It will not all happen. This will go into effect January 1, 2026 in terms of eligibility. I would not expect all 3-4 million to sign up on day one. There will be an education period.

Also, our partners will work to get these customers signed up and moving forward with HSA accounts. I would expect over time that you'll see that those 3-4 million, you'll see a substantial portion of them move on to an HFC account of some sort.

Sanjay, Interviewer: Okay. Great. So we're in open enrollment season now. Any early reads or updates on how it's going?

Jagtar Narula, CFO, WEX: I feel good about where we are. Two pieces to how it goes. One is how are we doing with selling new customers onto the WEX platform? Obviously, that's something that goes on all year. We feel really, really good about today. We know what deals we've signed that will be going live. If gone live now, will be going live in the new year. The sales signings from where we stand from a signing standpoint is pretty much on top of where we expected to be for the year. That's going really well. The second piece of it is the open enrollment piece, which is I'm an employee, I'm making benefit elections, am I signing up for an HSA today? We are right in the thick of it. All indications are positive. It's been a pretty consistent growth over the last few years.

There's nothing that suggests that this year will be any different than any other. We feel really good. Obviously, we'll get more data as we go through the open enrollment period. For where we stand right now, all indications are positive and that we should see consistency with what we've seen the last few years.

Sanjay, Interviewer: It seems like when you add it all up, the benefit segment can be sort of at the mid to higher end of the range that you guys have talked about over the long term. Would you agree with that? Or maybe what else needs to be done for the growth to be faster because it has been historically?

Jagtar Narula, CFO, WEX: I think doing what I just said is what's going to drive growth. We need to continue to sell and earn our fair share or more than our fair share of the market. That's signing up new partners, new employers, hence why we've added sales resources to that business. Historically, that business grew heavily through the partner channel, which is kind of less in our control because it's dependent on what partners sell. We supplemented that with direct, and then we added meaningful sales resources on top of that. That gives us more control over how much is sold and therefore how fast that business grows. Second piece of that is getting people to sign up for HSA accounts. What we've done there is to invest meaningfully in front-end capabilities so that we can help employees understand what's best for them.

Oftentimes what is best for them is an HSA account. For example, we have a benefits admin platform. That is front-end capability. That is the platform that employers use to help employees sign up for benefits. We have added analytics and AI capabilities on top of that to take employee data and help them make the right decisions for them. I think as we expand that platform, that will help the market grow. On top of that are the things that I talked about: continued new innovation, new capabilities, and expanding cross-sell share of wallet because we have so many different products we can sell. The more that we can sell into an existing account or more accounts that we can get to take multiple products provides meaningful growth on top of what we are doing today.

Sanjay, Interviewer: What you just alluded to was sort of doing more inside of benefits enrollment. Are there areas inside benefits enrollment that you'd still want to be part of that you aren't part of now?

Jagtar Narula, CFO, WEX: I think our biggest focus right now is that front-end benefit administration capability. Continuing to enhance the tool that we have today to make it a very, very critical piece for an employer to say, "I want a good experience for my employee." I want them to come in and be able to understand what the benefit options are and to make good benefit elections that'll be good for them. I will help me as the employer understand what my employees are doing and provide me meaningful data. Enhancing our capabilities to do that, I think, is a critical piece of the puzzle.

Sanjay, Interviewer: Okay. Maybe shifting gears and talking about investments. I feel like 2025 was an investment year that put pressure on your margins. On the third quarter call, you mentioned margins will stay stable year over year versus expansion. Maybe you could just clarify or provide more color on the drivers influencing your outlook.

Jagtar Narula, CFO, WEX: Yeah, sure. Let me clarify one thing because I've learned since there was some confusion on what I said during the call. I think I said something to the effect of I expect 2026 to be similar to 2025.

Sanjay, Interviewer: You did.

Jagtar Narula, CFO, WEX: Some people thought that to mean that margin trajectory in 2025 was lower than 2024. Maybe I'm saying that 2026 is going to be lower than 2025, which is not the case. What I was trying to signal is kind of exactly what you just said, which is, and keep in mind, we're still in the budgeting process here. From where I sit right now, at the very least, we're going to be kind of margin flat next year to this year. Obviously, still working on what do we need to do to make that better. The puts and the takes. By and large, let me start with the puts. By and large, our business is characterized by high incremental margins as we grow. Incremental margins on mobility, typically very strong. Incremental margins on our corporate payment segment.

When you think about that business, we run a platform, more volume runs through the platform, not necessarily incremental costs. So a very good margin profile of that business. In the benefit segment, obviously the float piece of this, very high incremental margins. The non-float side of it, the traditional side, does come with some cost as you grow revenue. But it's also an area where we've been investing heavily to get costs down. Things like AI, Melissa talked about in the last earnings call, the claims automation capability that we've built. To the extent we are able to drive that into our claims operation or employee call centers, that improves the margin profile of that business. The puts of the business is that revenue grow, the margin profile is very, very good. What's the takes? Why aren't we seeing that next year?

A couple of pieces. We just talked about the innovation. Investing in innovation has been an important capital allocation priority for WEX. If you look at the numbers the last couple of years, CapEx has been up. We capitalize software development. That has resulted in kind of higher depreciation like this year versus last year. We are expecting one more year of that before it starts to flatline. That is just reflective of us driving innovation so we can hit the revenue opportunities we talked about. Also, earlier this year, I think it was on the Q4 earnings call, I had indicated that as we thought about investments this year, and this year was a meaningful year of investments, we wanted to get those investments in place while protecting as much of the P&L as possible.

We took some cost actions this year that were kind of one-time in nature. I'd indicated that there's savings this year that are going to come back next year. We're now into next year and some of those costs are going to come back. We're doing it in a fashion where we can at least keep margins flat year over year. The idea is continue to drive momentum of the business, get the incremental margins as the revenue grows in a period where we're reinvesting a portion of that in the business that will continue to help drive revenue growth going forward.

As we move out of 2026, I would expect to see that momentum that the business has of we've got the new products, we're growing the business, it flows through at high margins, and we see a margin expansion as a result. Some puts and takes in 2026, but that builds us momentum in future years.

Sanjay, Interviewer: Just generally, what kind of margin profile do you think WEX is in terms of margin expansion story annually? Any thoughts on that?

Jagtar Narula, CFO, WEX: Yeah. If I were to look next year, if I were looking to.

Sanjay, Interviewer: Past next year.

Jagtar Narula, CFO, WEX: Past next year. I would say on the order of, I mean, we would expect a 50 basis point improvement every year. It is going to be dependent on how do we think about reinvestment versus taking it to the bottom line. I think a 50 basis point margin improvement every year is very doable.

Sanjay, Interviewer: Got it. Obviously, all else equal with fuel prices and such.

Jagtar Narula, CFO, WEX: Yeah, I mean, exactly. I would say these are all macro, excluding macro. So you've got fuel prices.

Sanjay, Interviewer: All future disclaimers in there for you.

Jagtar Narula, CFO, WEX: Interest rates, things like that, but macro neutral.

Sanjay, Interviewer: Okay. I got a couple more. First is you guys completed the strategic review and the verdict was it's best to keep the business together. Maybe you could just talk about what the argument is to keep it together because it seems like some of your pieces could be valued higher relative to where your peers trade. I mean, I'll use benefits as an example. Maybe you could just talk about the rationale a little bit, broaden out sort of the explanation around that.

Jagtar Narula, CFO, WEX: Yeah. Just in terms of what we did. We did the strategic review or portfolio review, whatever you want to call it. Just to remind you, it's something we do, we pretty much have done it every year. It's good hygiene for the company to consistently look at its portfolio and say, are we doing the right thing for the business and for our shareholders? This year, we brought two investment banks in, Melissa mentioned them on the earnings call, Bank of America and JP Morgan. Didn't tell each of them about the other one. Analysis was completely independent. This was heavily supervised by the board. The board, a lot of access to the bankers, lots of questions, lots of follow-up. In each case, both those banks came to almost exactly, well, not almost, exactly the same conclusion.

Both those banks looked at kind of multiple scenarios for the business. The conclusion they came to was the one that you just highlighted, which is WEX for you right now, it does not make sense to break up the business. The value creation is not necessarily there because, one, you get a lot of synergies being together as a business. You leverage the bank, you leverage common technology, you leverage the compliance infrastructure we built, the regulatory infrastructure we built. There is a benefit to we have got a business that is subject to fuel price swings being stabilized to a business that does not have that effect. When you look at it all together, the conclusion from these banks was the value creation was not there. They provided a lot of numbers and data behind their analysis.

Now, I would also say it will continue to be something we look at in the future. The portfolio composition today, I think, like I said, it's something we've looked at every year. I would expect that it's something we will always keep a more open mind to. For where we are right now and the analysis we've done, it does not make sense to divest the benefits or any other part of the business.

Sanjay, Interviewer: Fair. Last question, capital allocation. Maybe you could just talk a little bit about sources and uses of capital, sort of what you expect to do in terms of priorities short term.

Jagtar Narula, CFO, WEX: Yeah. So we generate a lot of cash, north of $500 million every year. We have, as I just mentioned, increased CapEx the last couple of years because we view organic growth as the highest and best use of cash. Beyond that, for the moment of time that we're in now, we ended the quarter 3.25 levered, a little bit above the midpoint of the range that we put out there of two and a half to three and a half. We would like to get at least to the midpoint of that range. We are focused for the time now on paying down debt. I estimate it'll take us until second half of next year, call it Q3, before we're down to about three times. Short-term capital allocation, pay down debt.

Once you move beyond that, I think that's when we start talking about, okay, reinitiating a buyback program, M&A. We will continue to look at those options. I think we will be much more programmatic on the buyback front going forward. I know we've done a couple of sizable buybacks with an ASR in 2024 and then a Dutch tender this year. I think going forward, it'll be a bit more programmatic. I would expect that to be how it plays out over the next, call it 12 months, 12 to 18 months.

Sanjay, Interviewer: Perfect. We've run out of time.

Jagtar Narula, CFO, WEX: Thank you so much.

Sanjay, Interviewer: Thank you so much.

Jagtar Narula, CFO, WEX: Appreciate it. Thanks for the time.

Sanjay, Interviewer: All right. Take care.

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