UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32426
WEX Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
| Delaware | | 01-0526993 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | |
| 1 Hancock St., | Portland, | ME | | 04101 |
| (Address of principal executive offices) | | (Zip Code) |
(207) 773–8171
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | WEX | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
| Large Accelerated Filer | ☒ | | | Accelerated Filer | ☐ |
| Non-accelerated Filer | ☐ | | | Smaller Reporting Company | ☐ |
| | | | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).
☐ Yes ☒ No
Number of shares of common stock outstanding as of October 20, 202219, 2023 was 43,593,058.42,737,339.
TABLE OF CONTENTS
| | | | | | | | | | | |
| | | |
| | | |
| | |
| | |
| PART I—FINANCIAL INFORMATION |
| | | |
| Item 1. | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Item 2. | | | |
| Item 3. | | | |
| Item 4. | | | |
| | | |
| PART II—OTHER INFORMATION |
| | | |
| Item 1. | | | |
| Item 1A. | | | |
| Item 2. | | | |
| Item 5. | | | |
| Item 6. | | | |
| | |
| | |
Unless otherwise indicated or required by the context, the terms “we,” “us,” “our,” “WEX,” or the “Company,” in this Quarterly Report on Form 10–Q meanrefers to WEX Inc. and all of its subsidiaries that are consolidated under Generally Accepted Accounting Principles in the United States.
FORWARD–LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for statements that are forward-looking and are not statements of historical facts. This Quarterly Report includes forward-looking statements including, but not limited to, statements about management’s planplans and goals. Any statements in this Quarterly Report that are not statements of historical facts are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Forward-looking statements relate to our future plans, objectives, expectations and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors that may cause the actual results or performance to be materially different from future results or performance expressed or implied by these forward-looking statements. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report and in oral statements made by our authorized officers:
•the effects of general economic conditions, including a decline in demand for fuel, corporate payment services, travel related services, or healthcare related services,products and payment and transaction processing activity;services;
•the impact of the level of,failure to implement new technologies and fluctuations in, fuel prices and fuel spreads, including the resulting impact on the Company’s revenues and net income;
•the impact and size of credit losses, including losses attributable to fraud;products;
•breaches of, or other issues with, the Company’s technology systems or those of its third-party service providers and any resulting negative impact on its reputation, liabilities or relationships with customers or merchants;
•the actions of regulatory bodies, including banking and securities regulators, and the Company’s and its industrial bank’s responses thereto, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates;
•failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors;
•the failure to maintain or renew key customer and partner agreements and relationships, or to maintain volumes under such agreements;
•the impact and size of credit losses, including fraud losses, and other adverse effects if the Company fails to adequately assess and monitor credit risk or fraudulent use of our payment cards or systems;
•changes in interest rates, including those which we must pay for our deposits, and the rate of inflation;
•the effect of adverse financial conditions affecting the banking system;
•the failure to adequately safeguard custodial HSA assets;
•the failure of corporate investments to result in any anticipated economic or strategic value;
•the extent to which unpredictable events in the locations in which the Company or the Company’s customers operate or elsewhere may adversely affect the Company’s employees, ability to conduct business, results of operations and financial condition;
•the failure to comply with the applicable requirements of MasterCardMastercard or Visa contracts and rules;
•changes in interest rates and the rate of inflation;
•the failure to comply with the Treasury Regulations applicable to non-bank custodians;
•the extentability to which attract and retain employees;
•the COVID-19 pandemic, including emergenceability of new variants, and measures taken in response thereto impact the Company’s employees, business, results of operations and financial condition in excess of current expectations, particularly with respectCompany to demand for worldwide travel;protect its proprietary rights;
•the ability to attractincorporate artificial intelligence in our business successfully and retain employees;ethically;
•limitations on or compression of interchange fees;
•the effects of the Company’s business expansion and acquisition efforts;
•the failure to achieve commercial and financial benefits as a result of corporate investments to result in anticipatedour strategic value;
•potential adverse changes to business or employee relationships, including those resulting from the completion of an acquisition;
•uncertainty of the expected financial performance of the combined operations following completion of an acquisition;
•the failure to realize anticipated synergies and cost savings from the Company’s acquisitions;minority equity investments;
•the impact of changes to the Company’s credit standards;
•the impact of foreign currency exchange rates on the Company’s operations, revenue and income;income and other risks associated with operations outside the United States;
•the impact of the Company’s debt instruments on the Company’s operations;
•the impact of leverage on the Company’s operations, results or borrowing capacity generally, and as a result of acquisitions specifically;
•the impact of sales or dispositions of significant amounts of the Company’s outstanding common stock into the public market, or the perception that such sales or dispositions could occur;
•the impact of regulatory capital requirements and other regulatory requirements on the operations of WEX Bank or its ability to make payments to WEX Inc.;
•the possible dilution to the Company’s stockholders caused by the issuance of additional shares of common stock or equity-linked securities, whether as resultsecurities;
•the impact of the transition from LIBOR as a global benchmark to a replacement rate;
•the incurrence of impairment charges if the Company’s assessment of the fair value of certain of its reporting units changes;
•the uncertainties of litigation; as well as
•other risks and uncertainties identified in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on February 28, 2023, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023, filed with the SEC on April 27, 2023 and July 27, 2023, respectively, and subsequent filings with the Securities and Exchange Commission on March 1, 2022.Commission.
The Company’s forward-looking statements do not reflect the potential future impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date of the initial filing of this Quarterly Report and undue reliance should not be placed on these statements. The Company disclaims any obligation to update any forward-looking statements as a result of new information, future events or otherwise.
ACRONYMS AND ABBREVIATIONS
The acronyms and abbreviations identified below are used in this Quarterly Report, including the condensed consolidated financial statements and the notes thereto. The following is provided to aid the reader and provide a reference point when reviewing this Quarterly Report.
| | | | | |
| |
2016 Credit AgreementAdjusted free cash flow | Credit agreement entered into on July 1, 2016,A non-GAAP measure that is calculated as amendedcash flows from time to time, byoperating activities, adjusted for net purchases of current investment securities, capital expenditures, the change in net deposits, changes in borrowings under the BTFP and among the Companyborrowed federal funds and certain of its subsidiaries, as borrowers, and Bank of America, N.A., as administrative agent on behalf of the lenders.other adjustments. |
| Adjusted net income or ANI | A non-GAAP measure that adjusts net income (loss) attributable to shareholders to exclude unrealized gains and losses on financial instruments, net foreign currency gains and losses, change in fair value of contingent consideration, acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, other costs, impairment charges, debt restructuring and debt issuance cost amortization, similar adjustments attributable to our non-controlling interests and certain tax related items. |
| Amended and Restated Credit Agreement | TheCredit agreement entered into on July 1, 2016 Credit Agreement,(as amended from time to time) by and among the Company and certain of its subsidiaries, as borrowers, and Bank of America, N.A., as administrative agent on behalf of the lenders, as amended and restated on April 1, 2021. |
| |
ASC | Accounting Standards Codification2021 (and as amended from time to time thereafter). |
| |
| |
| |
| |
ASU | Accounting Standards Update |
| |
| |
| |
| |
| Ascensus Acquisition | The acquisition from Ascensus, LLC of certain entities, which comprised the health and benefits business of Ascensus. |
| Average number of SaaS accounts | Represents the number of active consumer-directed health, COBRA, and billing accounts on our SaaS platforms in the U.S. |
| B2B | Business-to-Business |
| |
benefitexpressBTFP | Benefit Express Services, LLC, a provider of highly configurable, cloud-based benefits administration technologies and services, and its indirect and direct parents,The Federal Reserve Bank Term Funding Program, which were acquired on June 1, 2021 and merged into WEX Health, Inc. on April 30, 2022.provides liquidity to U.S. depository institutions |
| CODM | Chief Operating Decision Maker |
| Company | WEX Inc. and all entities included in the consolidated financial statements. |
| Convertible Notes | Convertible senior unsecured notes due on July 15, 2027 in an aggregate principal amount of $310.0 million with a 6.5 percent interest rate, issued July 1, 2020.2020, which were repurchased by the Company and canceled by the trustee at the instruction of the Company on August 11, 2023. |
COVID-19Corporate Cash | An infectious disease caused byCalculated in accordance with the SARS-CoV-2 coronavirus. The World Health Organization declaredterms of our consolidated leverage ratio in the coronavirus outbreak a global pandemic on March 11, 2020.Company’s Amended and Restated Credit Agreement. |
| |
| Discovery Benefits | Discovery Benefits, Inc., an employee benefits administrator |
| DSUs | Deferred Stock Units held by non-employee directors. |
| |
| |
| |
eNett | eNett International (Jersey) Limited |
European Fleet business | (i) prior to January 1, 2022, WEX Fleet Europe and WEX Europe Services, collectively; and (ii) from January 1, 2022, WEX Europe Services. |
EVs | Electric Vehicles |
| |
| FDIC | Federal Deposit Insurance Corporation |
| Federal Reserve Bank Discount Window | Monetary policy that allows WEX to borrow funds on a short-term basis to meet temporary shortages of liquidity caused by internal or external disruptions. |
| |
| GAAP | Generally Accepted Accounting Principles in the United States |
| |
| |
| HSA | Health Savings Account |
| |
| |
| |
| |
| LIBOR | London Interbank Offered Rate |
| NAV | Net Asset Value |
| Net interchange rate | Represents the percentage of the dollar value of each payment processing transaction that WEX records as revenue from merchants, less certain discounts given to customers and network fees. |
| Net late fee rate | Net late fee rate represents late fee revenue as a percentage of fuel purchased by fleets that have a payment processing relationship with WEXWEX. |
| Net payment processing rate | The percentage of each payment processing $ of fuel that the Company records as revenue from merchants less certain discounts given to customers and network fees. |
| |
| |
| |
Notes | $400.0 million senior notes with a 4.75 percent fixed rate, issued on January 30, 2013, which were redeemed in full by the Company on March 15, 2021. |
| |
| |
| |
| Operating cash flow | Net cash provided by (used for) operating activities |
| Operating interest | Interest expense incurred on the operating debt obtained to provide liquidity for the Company’s short-term receivables or used for investing purposes in fixed income debt securities. |
Optal | Optal Limited |
| Over-the-road | Typically, heavy trucks traveling long distances. |
| Payment processing $ of fuel | Total dollar value of the fuel purchased by fleets that have a payment processing relationship with WEX. |
| |
| Payment processing transactions | Total number of purchases made by fleets that have a payment processing relationship with the Company where the Company maintains the receivable for the total purchase. |
| |
| |
| PO Holding | PO Holding, LLC, a wholly-owned subsidiary of WEX Inc. and the direct parent of WEX Health. |
PPG | Price Per Gallon of fuel |
| Processing costs | Expenses related to processing transactions, servicing customers and merchants and costs of goods sold related to hardware and other product sales. |
| |
| Purchase volume | Purchase volume in the Corporate Payments segment represents the total dollar value of all WEX-issued transactions that use WEX corporate card products and virtual card products. Purchase volume in the Benefits segment represents the total dollar value of all transactions where interchange is earned by WEX.
|
| Redeemable non-controlling interest | The portion of the U.S. HealthBenefits business’ net assets owned by a non-controlling interest holder, SBI, prior to the March 7, 2022 acquisition of SBI’s remaining interest in PO Holding. |
| |
| SaaS | Software-as-a-Service |
| | | | | |
SaaS | Software-as-a-Service |
| SBI | SBI Investments, Inc., which is owned by State Bankshares, Inc., and was a minority interest holder in PO Holding, LLC., a subsidiary of WEX Inc. and the direct parent of WEX Health. |
| SEC | Securities and Exchange Commission |
| Segment adjusted operating income | A non-GAAP measure that adjusts operating income to exclude specified items that the Company’s management excludes in evaluating segment performance, including unallocated corporate expenses, acquisition-related intangible amortization and other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, impairment charges and other costs. |
| Service fees | Costs incurred from third-party networks utilized to deliver payment solutions and other third-parties utilized in performing services directly related to generating revenue. |
| |
| |
| SOFR | Secured Overnight Financing Rate |
| Topic 606 | ASC Section 606, Revenue from Contracts with Customers |
| Total volume | Includes purchases on WEX-issued accounts as well as purchases issued by others, but using a WEX platform. |
| |
| UDFI | Utah Department of Financial Institutions |
| |
U.S. HealthBenefits business | (i) prior to March 31, 2021, WEX Health, Inc. and Discovery Benefits, LLC., collectively, (ii) from March 31, 2021 to June 1, 2021, WEX Health, Inc., (iii) from June 1, 2021 to April 30, 2022, WEX Health, Inc. and benefitexpress, collectively, and (iv) from April 30, 2022, WEX Health, Inc. |
| WEX | WEX Inc., unless otherwise indicated or required by the context |
| WEX Australia | WEX Card Holdings Australia Pty Ltd and its subsidiaries |
| WEX Bank | An industrial bank organized under the laws of the State of Utah, and wholly owned subsidiary of WEX, Inc. |
| WEX Europe Services | WEX Europe Service Limited, a European FleetMobility business |
WEX Fleet Europe | A fleet business in Europe acquired from EG Group and merged into WEX Europe Services on January 1, 2022. |
| WEX Health | WEX Health, Inc., the Company’s healthcare technology and administration solutions provider/business. |
| |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,millions, except per share data)
(unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Revenues | Revenues | | | | | | | | Revenues | | | | | | | |
| Payment processing revenue | Payment processing revenue | $ | 309,032 | | | $ | 226,126 | | | $ | 860,815 | | | $ | 627,941 | | Payment processing revenue | $ | 313.3 | | | $ | 309.0 | | | $ | 901.9 | | | $ | 860.8 | |
| Account servicing revenue | Account servicing revenue | 138,324 | | | 137,724 | | | 415,903 | | | 389,344 | | Account servicing revenue | 161.5 | | | 138.3 | | | 475.1 | | | 415.9 | |
| Finance fee revenue | Finance fee revenue | 96,698 | | | 67,769 | | | 260,590 | | | 179,421 | | Finance fee revenue | 77.1 | | | 96.7 | | | 234.2 | | | 260.6 | |
| Other revenue | Other revenue | 72,075 | | | 51,145 | | | 194,593 | | | 156,298 | | Other revenue | 99.5 | | | 72.1 | | | 273.5 | | | 194.6 | |
| Total revenues | Total revenues | 616,129 | | | 482,764 | | | 1,731,901 | | | 1,353,004 | | Total revenues | 651.4 | | | 616.1 | | | 1,884.7 | | | 1,731.9 | |
| Cost of services | Cost of services | | Cost of services | |
| Processing costs | Processing costs | 146,316 | | | 121,207 | | | 416,258 | | | 347,177 | | Processing costs | 156.4 | | | 146.3 | | | 451.7 | | | 416.3 | |
| Service fees | Service fees | 16,614 | | | 14,246 | | | 47,220 | | | 39,151 | | Service fees | 18.5 | | | 16.6 | | | 54.7 | | | 47.2 | |
| Provision for credit losses | Provision for credit losses | 54,030 | | | 14,127 | | | 121,856 | | | 32,148 | | Provision for credit losses | 9.4 | | | 54.0 | | | 77.5 | | | 121.9 | |
| Operating interest | Operating interest | 7,887 | | | 2,124 | | | 13,384 | | | 7,019 | | Operating interest | 25.3 | | | 7.9 | | | 57.6 | | | 13.4 | |
| Depreciation and amortization | Depreciation and amortization | 27,265 | | | 28,226 | | | 79,900 | | | 83,871 | | Depreciation and amortization | 25.5 | | | 27.3 | | | 75.9 | | | 79.9 | |
| Total cost of services | Total cost of services | 252,112 | | | 179,930 | | | 678,618 | | | 509,366 | | Total cost of services | 235.1 | | | 252.1 | | | 717.4 | | | 678.6 | |
| General and administrative | General and administrative | 86,506 | | | 79,486 | | | 248,651 | | | 245,460 | | General and administrative | 116.6 | | | 86.5 | | | 311.7 | | | 248.7 | |
| Sales and marketing | Sales and marketing | 80,882 | | | 82,225 | | | 235,267 | | | 246,177 | | Sales and marketing | 82.8 | | | 80.9 | | | 241.6 | | | 235.3 | |
| | Depreciation and amortization | Depreciation and amortization | 38,855 | | | 40,301 | | | 118,186 | | | 118,360 | | Depreciation and amortization | 42.0 | | | 38.9 | | | 125.4 | | | 118.2 | |
| Impairment charges | Impairment charges | 136,486 | | | — | | | 136,486 | | | — | | Impairment charges | — | | | 136.5 | | | — | | | 136.5 | |
| Operating income | Operating income | 21,288 | | | 100,822 | | | 314,693 | | | 233,641 | | Operating income | 174.9 | | | 21.3 | | | 488.6 | | | 314.7 | |
| Financing interest expense | Financing interest expense | (34,419) | | | (32,493) | | | (95,928) | | | (98,250) | | Financing interest expense | (41.6) | | | (34.4) | | | (122.4) | | | (95.9) | |
| Change in fair value of contingent consideration | Change in fair value of contingent consideration | (30,300) | | | 2,800 | | | (135,100) | | | (44,900) | | Change in fair value of contingent consideration | (3.2) | | | (30.3) | | | (6.2) | | | (135.1) | |
| Other income | — | | | 3,617 | | | — | | | 3,617 | | |
| | Loss on extinguishment of Convertible Notes | | Loss on extinguishment of Convertible Notes | (70.1) | | | — | | | (70.1) | | | — | |
| Net foreign currency loss | Net foreign currency loss | (23,445) | | | (9,962) | | | (37,847) | | | (11,375) | | Net foreign currency loss | (7.8) | | | (23.4) | | | (9.4) | | | (37.8) | |
| Net unrealized gain on financial instruments | 23,540 | | | 6,424 | | | 90,261 | | | 19,470 | | |
| Net unrealized (loss) gain on financial instruments | | Net unrealized (loss) gain on financial instruments | (7.8) | | | 23.5 | | | (20.1) | | | 90.3 | |
| | (Loss) income before income taxes | (43,336) | | | 71,208 | | | 136,079 | | | 102,203 | | |
| Income (loss) before income taxes | | Income (loss) before income taxes | 44.4 | | | (43.3) | | | 260.4 | | | 136.1 | |
| Income tax expense | Income tax expense | 809 | | | 19,340 | | | 57,309 | | | 16,924 | | Income tax expense | 26.0 | | | 0.8 | | | 78.7 | | | 57.3 | |
| Net (loss) income | (44,145) | | | 51,868 | | | 78,770 | | | 85,279 | | |
| Net income (loss) | | Net income (loss) | 18.4 | | | (44.1) | | | 181.7 | | | 78.8 | |
| Less: Net income from non-controlling interests | Less: Net income from non-controlling interests | — | | | 134 | | | 268 | | | 1,099 | | Less: Net income from non-controlling interests | — | | | — | | | — | | | 0.3 | |
| Net (loss) income attributable to WEX Inc. | (44,145) | | | 51,734 | | | 78,502 | | | 84,180 | | |
| Net income (loss) attributable to WEX Inc. | | Net income (loss) attributable to WEX Inc. | 18.4 | | | (44.1) | | | 181.7 | | | 78.5 | |
| Change in value of redeemable non-controlling interest | Change in value of redeemable non-controlling interest | — | | | (3,416) | | | 34,245 | | | (72,283) | | Change in value of redeemable non-controlling interest | — | | | — | | | — | | | 34.2 | |
| Net (loss) income attributable to shareholders | $ | (44,145) | | | $ | 48,318 | | | $ | 112,747 | | | $ | 11,897 | | |
| Net income (loss) attributable to shareholders | | Net income (loss) attributable to shareholders | $ | 18.4 | | | $ | (44.1) | | | $ | 181.7 | | | $ | 112.7 | |
| | Net (loss) income attributable to shareholders per share: | | |
| Net income (loss) attributable to shareholders per share: | | Net income (loss) attributable to shareholders per share: | |
| Basic | Basic | $ | (1.00) | | | $ | 1.08 | | | $ | 2.53 | | | $ | 0.27 | | Basic | $ | 0.43 | | | $ | (1.00) | | | $ | 4.23 | | | $ | 2.53 | |
| Diluted | Diluted | $ | (1.00) | | | $ | 1.07 | | | $ | 2.51 | | | $ | 0.26 | | Diluted | $ | 0.42 | | | $ | (1.00) | | | $ | 4.18 | | | $ | 2.51 | |
| Weighted average common shares outstanding: | Weighted average common shares outstanding: | | Weighted average common shares outstanding: | |
| Basic | Basic | 44,229 | | | 44,861 | | | 44,644 | | | 44,664 | | Basic | 42.9 | | | 44.2 | | | 43.0 | | | 44.6 | |
| Diluted | Diluted | 44,229 | | | 45,279 | | | 44,972 | | | 45,334 | | Diluted | 43.4 | | | 44.2 | | | 43.5 | | | 45.0 | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)millions)
(unaudited)
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Net (loss) income | $ | (44,145) | | | $ | 51,868 | | | $ | 78,770 | | | $ | 85,279 | | |
| Net income (loss) | | Net income (loss) | $ | 18.4 | | | $ | (44.1) | | | $ | 181.7 | | | $ | 78.8 | |
| | Other comprehensive loss, net of tax: | Other comprehensive loss, net of tax: | | Other comprehensive loss, net of tax: | |
| | Unrealized losses on available-for-sale debt securities | Unrealized losses on available-for-sale debt securities | (56,764) | | | — | | | (150,495) | | | — | | Unrealized losses on available-for-sale debt securities | (55.8) | | | (56.8) | | | (63.5) | | | (150.5) | |
| Foreign currency translation | Foreign currency translation | (42,331) | | | (20,368) | | | (83,769) | | | (29,927) | | Foreign currency translation | (22.0) | | | (42.3) | | | (15.7) | | | (83.8) | |
| Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | (99,095) | | | (20,368) | | | (234,264) | | | (29,927) | | Other comprehensive loss, net of tax | (77.8) | | | (99.1) | | | (79.2) | | | (234.3) | |
| | Comprehensive (loss) income | Comprehensive (loss) income | (143,240) | | | 31,500 | | | (155,494) | | | 55,352 | | Comprehensive (loss) income | (59.4) | | | (143.2) | | | 102.5 | | | (155.5) | |
| Less: Comprehensive income attributable to non-controlling interests | Less: Comprehensive income attributable to non-controlling interests | — | | | 134 | | | 268 | | | 781 | | Less: Comprehensive income attributable to non-controlling interests | — | | | — | | | — | | | 0.3 | |
| Comprehensive (loss) income attributable to WEX Inc. | Comprehensive (loss) income attributable to WEX Inc. | $ | (143,240) | | | $ | 31,366 | | | $ | (155,762) | | | $ | 54,571 | | Comprehensive (loss) income attributable to WEX Inc. | $ | (59.4) | | | $ | (143.2) | | | $ | 102.5 | | | $ | (155.8) | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands,millions, except per share data)
(unaudited)
| | | September 30,
2022 | | December 31,
2021 | | September 30,
2023 | | December 31,
2022 |
| Assets | Assets | | | | Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 759,375 | | | $ | 588,923 | | Cash and cash equivalents | $ | 957.8 | | | $ | 922.0 | |
| Restricted cash | Restricted cash | 942,132 | | | 667,915 | | Restricted cash | 1,159.1 | | | 937.8 | |
| Accounts receivable (net of allowances of $102,260 in 2022 and $66,306 in 2021) | 3,830,178 | | | 2,891,242 | | |
| Accounts receivable, net | | Accounts receivable, net | 4,053.5 | | | 3,275.7 | |
| Investment securities | Investment securities | 1,379,411 | | | 948,677 | | Investment securities | 2,625.2 | | | 1,395.3 | |
| Securitized accounts receivable, restricted | Securitized accounts receivable, restricted | 143,252 | | | 125,186 | | Securitized accounts receivable, restricted | 147.2 | | | 143.2 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 144,379 | | | 77,569 | | Prepaid expenses and other current assets | 189.0 | | | 143.3 | |
| Total current assets | Total current assets | 7,198,727 | | | 5,299,512 | | Total current assets | 9,131.8 | | | 6,817.1 | |
| Property, equipment and capitalized software (net of accumulated depreciation of $514,607 in 2022 and $458,093 in 2021) | 186,819 | | | 179,531 | | |
| Property, equipment and capitalized software (net of accumulated depreciation of $592.6 in 2023 and $529.9 in 2022) | | Property, equipment and capitalized software (net of accumulated depreciation of $592.6 in 2023 and $529.9 in 2022) | 228.9 | | | 202.2 | |
| Goodwill | Goodwill | 2,702,998 | | | 2,908,057 | | Goodwill | 2,796.9 | | | 2,728.9 | |
| Other intangible assets (net of accumulated amortization of $1,123,052 in 2022 and $1,009,601 in 2021) | 1,513,689 | | | 1,643,296 | | |
| Other intangible assets (net of accumulated amortization of $1,302.5 in 2023 and $1,173.2 in 2022) | | Other intangible assets (net of accumulated amortization of $1,302.5 in 2023 and $1,173.2 in 2022) | 1,443.4 | | | 1,473.6 | |
| Investment securities | Investment securities | 36,005 | | | 39,650 | | Investment securities | 46.8 | | | 48.0 | |
| Deferred income taxes, net | Deferred income taxes, net | 20,667 | | | 5,635 | | Deferred income taxes, net | 11.6 | | | 13.4 | |
| Other assets | Other assets | 250,243 | | | 231,147 | | Other assets | 241.0 | | | 246.0 | |
| | Total assets | Total assets | $ | 11,909,148 | | | $ | 10,306,828 | | Total assets | $ | 13,900.4 | | | $ | 11,529.2 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | Liabilities and Stockholders’ Equity | | | |
| Accounts payable | Accounts payable | $ | 1,561,033 | | | $ | 1,021,911 | | Accounts payable | $ | 1,742.7 | | | $ | 1,365.8 | |
| Accrued expenses | 567,036 | | | 476,971 | | |
| Accrued expenses and other current liabilities | | Accrued expenses and other current liabilities | 745.1 | | | 643.9 | |
| Restricted cash payable | Restricted cash payable | 942,153 | | | 668,014 | | Restricted cash payable | 1,158.4 | | | 937.1 | |
| Short-term deposits | Short-term deposits | 3,145,770 | | | 2,026,420 | | Short-term deposits | 4,252.8 | | | 3,144.6 | |
| Short-term debt, net | Short-term debt, net | 156,483 | | | 155,769 | | Short-term debt, net | 957.3 | | | 202.6 | |
| Other current liabilities | 41,782 | | | 50,614 | | |
| | | Total current liabilities | Total current liabilities | 6,414,257 | | | 4,399,699 | | Total current liabilities | 8,856.3 | | | 6,294.1 | |
| Long-term debt, net | Long-term debt, net | 2,644,478 | | | 2,695,365 | | Long-term debt, net | 2,650.1 | | | 2,522.2 | |
| Long-term deposits | Long-term deposits | 489,942 | | | 652,214 | | Long-term deposits | 115.5 | | | 334.2 | |
| Deferred income taxes, net | Deferred income taxes, net | 155,536 | | | 192,965 | | Deferred income taxes, net | 140.5 | | | 142.2 | |
| Other liabilities | Other liabilities | 573,849 | | | 273,706 | | Other liabilities | 441.7 | | | 587.1 | |
| Total liabilities | Total liabilities | 10,278,062 | | | 8,213,949 | | Total liabilities | 12,204.1 | | | 9,879.7 | |
| Commitments and contingencies (Note 16) | | |
| Redeemable non-controlling interest | — | | | 254,106 | | |
| | Stockholders’ Equity | Stockholders’ Equity | | Stockholders’ Equity | |
| Common stock $0.01 par value; 175,000 shares authorized; 49,512 shares issued in 2022 and 49,255 in 2021; 44,130 shares outstanding in 2022 and 44,827 in 2021 | 495 | | | 492 | | |
| Common stock $0.01 par value; 175.0 shares authorized; 49.9 shares issued in 2023 and 49.6 in 2022; 42.7 shares outstanding in 2023 and 43.2 in 2022 | | Common stock $0.01 par value; 175.0 shares authorized; 49.9 shares issued in 2023 and 49.6 in 2022; 42.7 shares outstanding in 2023 and 43.2 in 2022 | 0.5 | | | 0.5 | |
| Additional paid-in capital | Additional paid-in capital | 907,486 | | | 844,051 | | Additional paid-in capital | 1,018.3 | | | 928.0 | |
| Retained earnings | Retained earnings | 1,401,836 | | | 1,289,089 | | Retained earnings | 1,672.2 | | | 1,490.5 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (356,781) | | | (122,517) | | Accumulated other comprehensive loss | (385.5) | | | (306.3) | |
| Treasury stock at cost; 5,382 and 4,428 shares in 2022 and 2021, respectively | (321,950) | | | (172,342) | | |
| Treasury stock at cost; 7.1 and 6.3 shares in 2023 and 2022, respectively | | Treasury stock at cost; 7.1 and 6.3 shares in 2023 and 2022, respectively | (609.2) | | | (463.2) | |
| | Total stockholders’ equity | Total stockholders’ equity | 1,631,086 | | | 1,838,773 | | Total stockholders’ equity | 1,696.3 | | | 1,649.5 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 11,909,148 | | | $ | 10,306,828 | | Total liabilities and stockholders’ equity | $ | 13,900.4 | | | $ | 11,529.2 | |
|
See notes to the unaudited condensed consolidated financial statements.
WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)millions)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Issued | | Additional
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Retained
Earnings | | Non-Controlling Interest | | Total Stockholders’
Equity |
| | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance at January 1, 2022 | 49,255 | | | $ | 492 | | | $ | 844,051 | | | $ | (122,517) | | | $ | (172,342) | | | $ | 1,289,089 | | | $ | — | | | $ | 1,838,773 | |
| Stock issued under share-based compensation plans | 154 | | | 2 | | | 770 | | | — | | | — | | | — | | | — | | | 772 | |
| Share repurchases for tax withholdings | — | | | — | | | (12,178) | | | — | | | — | | | — | | | — | | | (12,178) | |
| Stock-based compensation expense | — | | | — | | | 23,682 | | | — | | | — | | | — | | | — | | | 23,682 | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | (51,668) | | | — | | | — | | | — | | | (51,668) | |
| Change in value of redeemable non-controlling interest, net of $3.5 million of tax expense | — | | | — | | | — | | | — | | | — | | | 34,245 | | | — | | | 34,245 | |
| | | | | | | | | | | | | | | |
| Foreign currency translation | — | | | — | | | — | | | 4,306 | | | — | | | — | | | — | | | 4,306 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 88,518 | | | — | | | 88,518 | |
| Balance at March 31, 2022 | 49,409 | | | $ | 494 | | | $ | 856,325 | | | $ | (169,879) | | | $ | (172,342) | | | $ | 1,411,852 | | | $ | — | | | $ | 1,926,450 | |
| Stock issued under share-based compensation plans | 73 | | | 1 | | | 2,324 | | | — | | | — | | | — | | | — | | | 2,325 | |
| Share repurchases for tax withholdings | — | | | — | | | (3,053) | | | — | | | — | | | — | | | — | | | (3,053) | |
| Purchase of shares of treasury stock | | | — | | | — | | | — | | | (80,599) | | | — | | | — | | | (80,599) | |
| Stock-based compensation expense | — | | | — | | | 24,922 | | | — | | | — | | | ��� | | | — | | | 24,922 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | (42,063) | | | — | | | — | | | — | | | (42,063) | |
| Foreign currency translation | — | | | — | | | — | | | (45,744) | | | — | | | — | | | — | | | (45,744) | |
| Net income | — | | | — | | | — | | | — | | | — | | | 34,129 | | | — | | | 34,129 | |
| Balance at June 30, 2022 | 49,482 | | | $ | 495 | | | $ | 880,518 | | | $ | (257,686) | | | $ | (252,941) | | | $ | 1,445,981 | | | $ | — | | | $ | 1,816,367 | |
| Stock issued under share-based compensation plans | 30 | | | — | | | 682 | | | — | | | — | | | — | | | — | | | 682 | |
| Share repurchases for tax withholdings | — | | | — | | | (1,870) | | | — | | | — | | | — | | | — | | | (1,870) | |
| Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | (69,009) | | | — | | | — | | | (69,009) | |
| Stock-based compensation expense | — | | | — | | | 28,156 | | | — | | | — | | | — | | | — | | | 28,156 | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | (56,764) | | | — | | | — | | | — | | | (56,764) | |
| Foreign currency translation | — | | | — | | | — | | | (42,331) | | | — | | | — | | | — | | | (42,331) | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (44,145) | | | — | | | (44,145) | |
| Balance at September 30, 2022 | 49,512 | | | $ | 495 | | | $ | 907,486 | | | $ | (356,781) | | | $ | (321,950) | | | $ | 1,401,836 | | | $ | — | | | $ | 1,631,086 | |
See notes to the unaudited condensed consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock Issued | | Additional
Paid-in
Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | | | Total Stockholders’
Equity |
| Shares | | Amount | | | | |
| Balance at January 1, 2023 | 49.6 | | | $ | 0.5 | | | $ | 928.0 | | | $ | 1,490.5 | | | $ | (306.3) | | | $ | (463.2) | | | | | $ | 1,649.5 | |
| Stock issued under share-based compensation plans | 0.1 | | | — | | | 6.3 | | | — | | | — | | | — | | | | | 6.3 | |
| Share repurchases for tax withholdings | — | | | — | | | (8.8) | | | — | | | — | | | — | | | | | (8.8) | |
| Stock-based compensation expense | — | | | — | | | 25.3 | | | — | | | — | | | — | | | | | 25.3 | |
| Unrealized gain on available-for-sale debt securities | — | | | — | | | — | | | — | | | 22.2 | | | — | | | | | 22.2 | |
| Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | — | | | (92.8) | | | | | (92.8) | |
| Foreign currency translation | — | | | — | | | — | | | — | | | 0.8 | | | — | | | | | 0.8 | |
| Net income | — | | | — | | | — | | | 68.0 | | | — | | | — | | | | | 68.0 | |
| Balance at March 31, 2023 | 49.7 | | | $ | 0.5 | | | $ | 950.8 | | | $ | 1,558.5 | | | $ | (283.3) | | | $ | (556.0) | | | | | $ | 1,670.5 | |
| Stock issued under share-based compensation plans | 0.1 | | | — | | | 1.2 | | | — | | | — | | | — | | | | | 1.2 | |
| Share repurchases for tax withholdings | — | | | — | | | (6.6) | | | — | | | — | | | — | | | | | (6.6) | |
| Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | — | | | (3.2) | | | | | (3.2) | |
| Stock-based compensation expense | — | | | — | | | 35.9 | | | — | | | — | | | — | | | | | 35.9 | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | — | | | (29.9) | | | — | | | | | (29.9) | |
| Foreign currency translation | — | | | — | | | — | | | — | | | 5.5 | | | — | | | | | 5.5 | |
| Net income | — | | | — | | | — | | | 95.3 | | | — | | | — | | | | | 95.3 | |
| Balance at June 30, 2023 | 49.8 | | | $ | 0.5 | | | $ | 981.3 | | | $ | 1,653.8 | | | $ | (307.7) | | | $ | (559.2) | | | | | $ | 1,768.7 | |
| Stock issued under share-based compensation plans | 0.1 | | | — | | | 8.1 | | | — | | | — | | | — | | | | | 8.1 | |
| Share repurchases for tax withholdings | — | | | — | | | (1.6) | | | — | | | — | | | — | | | | | (1.6) | |
| Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | — | | | (50.0) | | | | | (50.0) | |
| Stock-based compensation expense | — | | | — | | | 30.5 | | | — | | | — | | | — | | | | | 30.5 | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | — | | | (55.8) | | | — | | | | | (55.8) | |
| Foreign currency translation | — | | | — | | | — | | | — | | | (22.0) | | | — | | | | | (22.0) | |
| Net income | — | | | — | | | — | | | 18.4 | | | — | | | — | | | | | 18.4 | |
| Balance at September 30, 2023 | 49.9 | | | $ | 0.5 | | | $ | 1,018.3 | | | $ | 1,672.2 | | | $ | (385.5) | | | $ | (609.2) | | | | | $ | 1,696.3 | |
WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(in thousands)millions)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock Issued | | Additional
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Retained
Earnings | | Non-Controlling Interest | | Total Stockholders’
Equity |
| Shares | | Amount | | | | |
| Balance at January 1, 2021 | 48,616 | | | $ | 485 | | | $ | 830,729 | | | $ | (82,935) | | | $ | (172,342) | | | $ | 1,288,952 | | | $ | 13,022 | | | $ | 1,877,911 | |
| Stock issued under share-based compensation plans | 394 | | | 4 | | | 22,555 | | | — | | | — | | | — | | | — | | | 22,559 | |
| Share repurchases for tax withholdings | — | | | — | | | (21,062) | | | — | | | — | | | — | | | — | | | (21,062) | |
| Stock-based compensation expense | — | | | — | | | 17,886 | | | — | | | — | | | — | | | — | | | 17,886 | |
| Change in value of redeemable non-controlling interest | — | | | — | | | — | | | — | | | — | | | (25,044) | | | — | | | (25,044) | |
| Foreign currency translation | — | | | — | | | — | | | (6,558) | | | — | | | — | | | (319) | | | (6,877) | |
| Net income | — | | | — | | | — | | | — | | | — | | | 22,479 | | | 374 | | | 22,853 | |
| Balance at March 31, 2021 | 49,010 | | | $ | 489 | | | $ | 850,108 | | | $ | (89,493) | | | $ | (172,342) | | | $ | 1,286,387 | | | $ | 13,077 | | | $ | 1,888,226 | |
| Stock issued under share-based compensation plans | 214 | | | 2 | | | 20,479 | | | — | | | — | | | — | | | — | | | 20,481 | |
| Share repurchases for tax withholdings | — | | | — | | | (884) | | | — | | | — | | | — | | | — | | | (884) | |
| Stock-based compensation expense | — | | | — | | | 20,629 | | | — | | | — | | | — | | | — | | | 20,629 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Acquisition of non-controlling interest | — | | | — | | | (81,631) | | | (2,284) | | | — | | | — | | | (13,077) | | | (96,992) | |
| Change in value of redeemable non-controlling interest | — | | | — | | | — | | | — | | | — | | | (43,823) | | | — | | | (43,823) | |
| Foreign currency translation | — | | | — | | | — | | | (2,682) | | | — | | | — | | | — | | | (2,682) | |
| Net income | — | | | — | | | — | | | — | | | — | | | 9,967 | | | — | | | 9,967 | |
| Balance at June 30, 2021 | 49,224 | | | $ | 491 | | | $ | 808,701 | | | $ | (94,459) | | | $ | (172,342) | | | $ | 1,252,531 | | | $ | — | | | $ | 1,794,922 | |
| Stock issued under share-based compensation plans | 21 | | | — | | | 704 | | | — | | | — | | | — | | | — | | | 704 | |
| Share repurchases for tax withholdings | — | | | — | | | (1,066) | | | — | | | — | | | — | | | — | | | (1,066) | |
| Stock-based compensation expense | — | | | — | | | 21,735 | | | — | | | — | | | — | | | — | | | 21,735 | |
| Change in value of redeemable non-controlling interest | — | | | — | | | — | | | — | | | | | (3,416) | | | | | (3,416) | |
| Foreign currency translation | — | | | — | | | — | | | (20,368) | | | — | | | — | | | — | | | (20,368) | |
| Net income | — | | | — | | | — | | | — | | | — | | | 51,734 | | | — | | | 51,734 | |
| Balance at September 30, 2021 | 49,245 | | | $ | 491 | | | $ | 830,074 | | | $ | (114,827) | | | $ | (172,342) | | | $ | 1,300,849 | | | $ | — | | | $ | 1,844,245 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Issued | | Additional
Paid-in
Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | | | Total Stockholders’
Equity |
| | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance at January 1, 2022 | 49.3 | | | $ | 0.5 | | | $ | 844.1 | | | $ | 1,289.1 | | | $ | (122.5) | | | $ | (172.3) | | | | | $ | 1,838.8 | |
| Stock issued under share-based compensation plans | 0.2 | | | — | | | 0.8 | | | — | | | — | | | — | | | | | 0.8 | |
| Share repurchases for tax withholdings | — | | | — | | | (12.2) | | | — | | | — | | | — | | | | | (12.2) | |
| Stock-based compensation expense | — | | | — | | | 23.7 | | | — | | | — | | | — | | | | | 23.7 | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | — | | | (51.7) | | | — | | | | | (51.7) | |
| Change in value of redeemable non-controlling interest, net of $3.5 million of tax expense | — | | | — | | | — | | | 34.2 | | | — | | | — | | | | | 34.2 | |
| Foreign currency translation | — | | | — | | | — | | | — | | | 4.3 | | | — | | | | | 4.3 | |
| Net income | — | | | — | | | — | | | 88.5 | | | — | | | — | | | | | 88.5 | |
| Balance at March 31, 2022 | 49.4 | | | $ | 0.5 | | | $ | 856.3 | | | $ | 1,411.9 | | | $ | (169.9) | | | $ | (172.3) | | | | | $ | 1,926.5 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Stock issued under share-based compensation plans | 0.1 | | | — | | | 2.3 | | | — | | | — | | | — | | | | | 2.3 | |
| Share repurchases for tax withholdings | — | | | — | | | (3.1) | | | — | | | — | | | — | | | | | (3.1) | |
| Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | — | | | (80.6) | | | | | (80.6) | |
| Stock-based compensation expense | — | | | — | | | 24.9 | | | — | | | — | | | — | | | | | 24.9 | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | — | | | (42.1) | | | — | | | | | (42.1) | |
| Foreign currency translation | — | | | — | | | — | | | — | | | (45.7) | | | — | | | | | (45.7) | |
| Net income | — | | | — | | | — | | | 34.1 | | | — | | | — | | | | | 34.1 | |
| Balance at June 30, 2022 | 49.5 | | | $ | 0.5 | | | $ | 880.5 | | | $ | 1,446.0 | | | $ | (257.7) | | | $ | (252.9) | | | | | $ | 1,816.4 | |
| Stock issued under share-based compensation plans | — | | | — | | | 0.7 | | | — | | | — | | | — | | | | | 0.7 | |
| Share repurchases for tax withholdings | — | | | — | | | (1.9) | | | — | | | — | | | — | | | | | (1.9) | |
| Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | — | | | (69.0) | | | | | (69.0) | |
| Stock-based compensation expense | — | | | — | | | 28.2 | | | — | | | — | | | — | | | | | 28.2 | |
| Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | — | | | (56.8) | | | — | | | | | (56.8) | |
| Foreign currency translation | — | | | — | | | — | | | — | | | (42.3) | | | — | | | | | (42.3) | |
| Net loss | — | | | — | | | — | | | (44.1) | | | — | | | — | | | | | (44.1) | |
| Balance at September 30, 2022 | 49.5 | | | $ | 0.5 | | | $ | 907.5 | | | $ | 1,401.8 | | | $ | (356.8) | | | $ | (322.0) | | | | | $ | 1,631.1 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)millions)
(unaudited) | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| Cash flows from operating activities | | | |
| Net income | $ | 78,770 | | | $ | 85,279 | |
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | |
| Change in fair value of contingent consideration | 135,100 | | | 44,900 | |
| Stock-based compensation | 76,760 | | | 60,250 | |
| Depreciation and amortization | 198,086 | | | 202,231 | |
| Gain on sale of equity investment | — | | | (3,617) | |
| Amortization of premiums on investment securities | 3,958 | | | — | |
| Debt issuance cost amortization and accretion expense | 12,595 | | | 13,315 | |
| Deferred tax benefit | (54,085) | | | (8,829) | |
| Provision for credit losses | 121,856 | | | 32,148 | |
| Impairment charges | 136,486 | | | — | |
| | | |
| Other non-cash gains | (58,159) | | | (7,499) | |
| Changes in operating assets and liabilities, net of effects of business acquisitions: | | | |
| Accounts receivable and securitized accounts receivable | (1,147,791) | | | (1,138,233) | |
| Prepaid expenses and other current and other long-term assets | (11,233) | | | 13,212 | |
| Accounts payable | 568,438 | | | 517,455 | |
| Accrued expenses and restricted cash payable | 389,896 | | | 211,855 | |
| Income taxes | 10,838 | | | (12,363) | |
| Other current and other long-term liabilities | (4,871) | | | (20,459) | |
| | | |
| Net cash provided by (used for) operating activities | 456,644 | | | (10,355) | |
| Cash flows from investing activities | | | |
| Purchases of property, equipment and capitalized software | (75,476) | | | (55,484) | |
| | | |
| Cash proceeds from sale of equity investment | — | | | 3,117 | |
| Purchases of equity securities | (267) | | | (250) | |
| Maturities of equity securities | — | | | 130 | |
| Purchases of available-for-sale debt securities | (632,782) | | | — | |
| Sales and maturities of available-for-sale debt securities | 47,972 | | | — | |
| Acquisition of intangible assets | (3,338) | | | — | |
| Acquisitions, net of cash and restricted cash acquired | — | | | (558,247) | |
| Net cash used for investing activities | (663,891) | | | (610,734) | |
| Cash flows from financing activities | | | |
| Repurchase of share-based awards to satisfy tax withholdings | (17,101) | | | (23,012) | |
| Purchase of treasury shares | (149,608) | | | — | |
| Proceeds from stock option exercises | 3,779 | | | 43,744 | |
| Net change in deposits | 960,551 | | | 558,042 | |
| | | |
| Net activity on other debt | 28,448 | | | 21,500 | |
| Borrowings on revolving credit facility | 1,825,400 | | | 1,176,300 | |
| Repayments on revolving credit facility | (1,856,999) | | | (962,900) | |
| Borrowings on term loans | — | | | 112,819 | |
| Repayments on term loans | (47,506) | | | (47,824) | |
| Redemption of Notes | — | | | (400,000) | |
| Debt issuance costs | — | | | (8,934) | |
| Net change in securitized debt | 6,417 | | | 8,004 | |
| Net cash provided by financing activities | 753,381 | | | 477,739 | |
| Effect of exchange rates on cash, cash equivalents and restricted cash | (101,465) | | | (24,037) | |
| Net change in cash, cash equivalents and restricted cash | 444,669 | | | (167,387) | |
| | | |
Cash, cash equivalents and restricted cash, beginning of period(a) | 1,256,838 | | | 1,329,653 | |
Cash, cash equivalents and restricted cash, end of period(a) | $ | 1,701,507 | | | $ | 1,162,266 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
| Cash flows from operating activities | | | |
| Net income | $ | 181.7 | | | $ | 78.8 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Change in fair value of contingent consideration | 6.2 | | | 135.1 | |
| Stock-based compensation | 91.7 | | | 76.8 | |
| Depreciation and amortization | 201.3 | | | 198.1 | |
| | | |
| | | |
| | | |
| Deferred tax benefit | (0.4) | | | (54.1) | |
| Provision for credit losses | 77.5 | | | 121.9 | |
| Impairment charges | — | | | 136.5 | |
| | | |
| Loss on extinguishment of Convertible Notes | 70.1 | | | — | |
| Other non-cash adjustments | 43.7 | | | (41.6) | |
| Changes in operating assets and liabilities, net of effects of business acquisitions: | | | |
| Accounts receivable and securitized accounts receivable | (842.0) | | | (1,147.8) | |
| Prepaid expenses and other current and other long-term assets | (27.7) | | | (11.2) | |
| Accounts payable | 387.4 | | | 568.4 | |
| Accrued expenses and other current and long-term liabilities | (12.6) | | | 34.9 | |
| Income taxes | (30.9) | | | 10.8 | |
| | | |
| | | |
| Net cash provided by operating activities | 146.0 | | | 106.6 | |
| | | |
| Cash flows from investing activities | | | |
| Purchases of property, equipment and capitalized software | (101.7) | | | (75.5) | |
| Purchase of other investments | (5.0) | | | — | |
| | | |
| | | |
| | | |
| Purchases of available-for-sale debt securities | (1,448.6) | | | (633.0) | |
| Sales and maturities of available-for-sale debt securities | 144.1 | | | 48.0 | |
| Acquisition of intangible assets | (4.5) | | | (3.3) | |
| Acquisitions, net of cash and restricted cash acquired | (155.7) | | | — | |
| Net cash used for investing activities | (1,571.4) | | | (663.9) | |
| | | |
| Cash flows from financing activities | | | |
| | | |
| Purchase of treasury shares | (152.6) | | | (149.6) | |
| | | |
| Net change in deposits | 889.9 | | | 960.6 | |
| | | |
| Net change in restricted cash payable | 213.1 | | | 350.1 | |
| Borrowings on revolving credit facility | 2,479.7 | | | 1,825.4 | |
| Repayments on revolving credit facility | (2,008.1) | | | (1,857.0) | |
| | | |
| Repayments on term loans | (47.5) | | | (47.5) | |
| | | |
| | | |
| Repurchase of Convertible Notes | (368.9) | | | — | |
| Borrowings on BTFP | 750.0 | | | — | |
| Repayments on BTFP | (250.0) | | | — | |
| Net change in borrowed federal funds | 260.1 | | | — | |
| | | |
| Net borrowings on other debt | (4.8) | | | 34.9 | |
| Payments of deferred and contingent consideration | (52.2) | | | — | |
| | | |
| Other financing activities | (3.4) | | | (13.3) | |
| Net cash provided by financing activities | 1,705.3 | | | 1,103.5 | |
| Effect of exchange rates on cash, cash equivalents and restricted cash | (22.8) | | | (101.5) | |
| Net change in cash, cash equivalents and restricted cash | 257.1 | | | 444.7 | |
| | | |
Cash, cash equivalents and restricted cash, beginning of period(a) | 1,859.8 | | | 1,256.8 | |
Cash, cash equivalents and restricted cash, end of period(a) | $ | 2,116.9 | | | $ | 1,701.5 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in millions)
(unaudited)
The following tablestable provides supplemental disclosure of non-cash investing and financing activities:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| Capital expenditures incurred but not paid | $ | 7,364 | | | $ | 5,451 | |
| Initial deferred liability from acquisition of remaining interest in PO Holding | 216,594 | | | — | |
| | | |
| Non-cash contribution from non-controlling interest | — | | | 12,457 | |
| Deferred cash consideration as part of asset acquisition | — | | | 47,408 | |
| Contingent consideration as part of asset acquisition | — | | | 27,200 | |
| Promissory note received in exchange for sale of equity investment | — | | | 500 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| Capital expenditures incurred but not paid | $ | 9.0 | | | $ | 7.4 | |
| | | |
| Maturities of available-for-sale debt securities, unsettled as of period-end | 15.0 | | | — | |
| Initial deferred liability from acquisition of remaining interest in PO Holding | — | | | 216.6 | |
| | | |
| | | |
| | | |
| | | |
| | | |
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our condensed consolidated balance sheets to amounts within our condensed consolidated statements of cash flows.
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | $ | 588,923 | | | $ | 852,033 | | Cash and cash equivalents at beginning of period | $ | 922.0 | | | $ | 588.9 | |
| Restricted cash at beginning of period | Restricted cash at beginning of period | 667,915 | | | 477,620 | | Restricted cash at beginning of period | 937.8 | | | 667.9 | |
| Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | $ | 1,256,838 | | | $ | 1,329,653 | | Cash, cash equivalents and restricted cash at beginning of period | $ | 1,859.8 | | | $ | 1,256.8 | |
| | Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 759,375 | | | $ | 533,830 | | Cash and cash equivalents at end of period | $ | 957.8 | | | $ | 759.4 | |
| Restricted cash at end of period | Restricted cash at end of period | 942,132 | | | 628,436 | | Restricted cash at end of period | 1,159.1 | | | 942.1 | |
| Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 1,701,507 | | | $ | 1,162,266 | | Cash, cash equivalents and restricted cash at end of period | $ | 2,116.9 | | | $ | 1,701.5 | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Basis of Presentation
The accompanying condensed consolidated financial statements, which include the accounts of WEX Inc. and its subsidiaries, have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10–Q and Rule 10–01 of Regulation S–X. Accordingly, they exclude certain disclosures required by GAAP for a complete set of financial statements. These condensed consolidated financial statements should be readUnless the context suggests otherwise, references in conjunction with the consolidated financial statements that are included in the Company’s Annualthis Quarterly Report on Form 10–K for10-Q to “WEX,” the year ended December 31, 2021, filed with the SEC on March 1, 2022. “Company,” “we” or “our” refer to WEX Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with GAAP, which are of a normal recurring nature, have been included. Operating results for the three and nine months ended September 30, 20222023 are not necessarily indicative of the results for any future periods or the year ending December 31, 2022.2023. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements that are included in the Company’s Annual Report on Form 10–K for the year ended December 31, 2022, filed with the SEC on February 28, 2023 (“2022 Annual Report”).
We have applied the same accounting policies in preparing these quarterly financial statements as we did in preparing our 20212022 annual financial statements. The Company rounds amounts in the condensed consolidated financial statements to thousandsmillions and calculates all percentages and per-share data from underlying whole-dollar amounts. Thus, certain amounts may not foot, crossfoot or recalculate based on reported numbers due to rounding. We have included certain terms and abbreviations used throughout this Quarterly Report on Form 10-Q within “Acronyms and Abbreviations” in the front of this document.
In connection with a rebranding initiative, during the first quarter of 2023 the Company renamed its existing reportable segments. The Fleet Solutions segment was renamed to Mobility, the Travel and Corporate Solutions segment was renamed to Corporate Payments and the Health and Employee Benefits Solutions segment was renamed to Benefits. These notes to the condensed consolidated financial statements incorporate these changes. There were no changes to the composition of our reportable segments.
Reclassifications
Beginning December 31, 2022, within the condensed consolidated statements of cash flows, accrued expenses are combined with other current and long-term liabilities within cash flows from operating activities and the change in restricted cash payable is presented separately. The change in restricted cash payable, which had previously been presented within cash flows from operating activities, is now reflected within cash flows from financing activities. Prior period amounts have been reclassified to conform to the current period presentation, which includes the reclassification of restricted cash payable inflows of $350.1 million from operating cash flows to financing cash flows for the nine months ended September 30, 2022.
| | | | | |
| 2. | RecentSignificant Accounting Pronouncements and Supplemental InformationPolicies |
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements as of and for the nine months ended September 30, 2023, are consistent with those discussed in “Note 1, Basis of Presentation and Summary of Significant Accounting Policies” to the consolidated financial statements in our 2022 Annual Report.
Recent Accounting Pronouncements
The following table provides a brief description of (i)There are no recent accounting pronouncements adopted during the nine months ended September 30, 2022 and (ii) those2023, or not yet adopted as of September 30, 2023, that could have a material effect on our financial statements.
| | | | | | | | | | | | | | | | | | | | |
Standard | | Description | | Date of Adoption | | Method of adoptions and effect on financial statements or other significant matters |
Adopted During the Nine Months Ended September 30, 2022 | | | | | | |
ASU 2021-08, Business Combinations |
| | This standard requires acquirers within the scope of Subtopic 805-10, Business Combinations to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. This will generally result in an acquirer recognizing and measuring acquired contract assets and liabilities consistent with how they were recognized and measured in an acquiree’s financial statements if such financial statements were prepared in accordance with GAAP. Previously, contract assets and contract liabilities acquired were recognized at their fair value on the acquisition date. | | Effective for fiscal years beginning after December 15, 2022. | | The Company early adopted this ASU effective January 1, 2022. Adoption had no material effect on the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2022. The guidelines of this ASU will be applied prospectively for business combinations in the scope of ASC 805. |
Not Adopted as of September 30, 2022 |
ASU 2020–04, Reference Rate Reform
and
ASU 2021–01, Reference Rate Reform: Scope | | These standards provide optional guidance for a limited period of time to ease the potential financial reporting burden in accounting for (or recognizing the effects of) the discontinuation of LIBOR resulting from reference rate reform. The amendments provide optional expedients and exceptions for applying GAAP to contracts and other transactions impacted by reference rate reform. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. | | Election is optional and available through December 31, 2022. | | The Company is currently evaluating the implications of these amendments to its current efforts for reference rate reform implementation and any impact the adoption of these ASUs would have on its financial condition and results of operations. The Company has not yet determined if it will adopt these standards, which are not expected to have a material effect on the Company’s condensed consolidated financial statements. |
| | | | | | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Impairment of Goodwill
Our goodwill is tested for impairment annually as of October 1, or more frequently, if events or conditions indicate the carrying amount of goodwill may not be recoverable. During the third quarter of 2022, certain triggering events were identified in our international fleet reporting units, including increasing interest rates, decreasing market valuations and inflationary pressures, leading to a decline in projected cash flows primarily in Europe, requiring us to perform an interim impairment test. We compared the carrying value of each reporting unit with assigned goodwill to its fair value, which was estimated using a combination of an income-based discounted cash flow method and a market-based guideline public company method. As a result of the financial impacts of the identified triggering events, our test concluded that the carrying value of two of our reporting units exceeded their estimated fair value, resulting in the recognition of an estimated impairment charge of $136.5 million to our Fleet Solutions segment. No triggering events were identified during the third quarter of 2022 with respect to our other reporting units.
In accordance with Topic 606, revenue is recognized when, or as, performance obligations are satisfied as defined by the terms of the contract, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services provided.
The following tables disaggregate the Company’s consolidated revenues, substantially all of which relate to services transferred to the customer over time:
| | | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2023 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total | |
| (In millions) | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Topic 606 revenues | Topic 606 revenues | | | | | | | | Topic 606 revenues | | | | | | | |
| Payment processing revenue | Payment processing revenue | $ | 188,586 | | | $ | 101,533 | | | $ | 18,913 | | | $ | 309,032 | | Payment processing revenue | $ | 176.9 | | | $ | 115.8 | | | $ | 20.6 | | | $ | 313.3 | |
| Account servicing revenue | Account servicing revenue | 4,718 | | | 10,748 | | | 85,944 | | | 101,410 | | Account servicing revenue | 5.4 | | | 10.5 | | | 108.5 | | | 124.4 | |
| Other revenue | Other revenue | 21,337 | | | 66 | | | 7,511 | | | 28,914 | | Other revenue | 24.7 | | | — | | | 6.9 | | | 31.6 | |
| Total Topic 606 revenues | Total Topic 606 revenues | $ | 214,641 | | | $ | 112,347 | | | $ | 112,368 | | | $ | 439,356 | | Total Topic 606 revenues | $ | 207.0 | | | $ | 126.3 | | | $ | 136.0 | | | $ | 469.3 | |
| | Non-Topic 606 revenues | Non-Topic 606 revenues | 163,453 | | | 1,628 | | | 11,692 | | | 176,773 | | Non-Topic 606 revenues | 143.1 | | | 8.9 | | | 30.1 | | | 182.1 | |
| | Total revenues | Total revenues | $ | 378,094 | | | $ | 113,975 | | | $ | 124,060 | | | $ | 616,129 | | Total revenues | $ | 350.1 | | | $ | 135.2 | | | $ | 166.1 | | | $ | 651.4 | |
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total | |
| (In millions) | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Topic 606 revenues | Topic 606 revenues | | | | | | | | Topic 606 revenues | | | | | | | |
| Payment processing revenue | Payment processing revenue | $ | 130,006 | | | $ | 79,815 | | | $ | 16,305 | | | $ | 226,126 | | Payment processing revenue | $ | 188.6 | | | $ | 101.5 | | | $ | 18.9 | | | $ | 309.0 | |
| Account servicing revenue | Account servicing revenue | 4,457 | | | 10,908 | | | 83,145 | | | 98,510 | | Account servicing revenue | 4.7 | | | 10.7 | | | 85.9 | | | 101.4 | |
| Other revenue | Other revenue | 21,376 | | | (636) | | | 5,909 | | | 26,649 | | Other revenue | 21.3 | | | 0.1 | | | 7.5 | | | 28.9 | |
| Total Topic 606 revenues | Total Topic 606 revenues | $ | 155,839 | | | $ | 90,087 | | | $ | 105,359 | | | $ | 351,285 | | Total Topic 606 revenues | $ | 214.6 | | | $ | 112.3 | | | $ | 112.4 | | | $ | 439.4 | |
| | Non-Topic 606 revenues | Non-Topic 606 revenues | 130,522 | | | 915 | | | 42 | | | 131,479 | | Non-Topic 606 revenues | 163.5 | | | 1.6 | | | 11.7 | | | 176.8 | |
| | Total revenues | Total revenues | $ | 286,361 | | | $ | 91,002 | | | $ | 105,401 | | | $ | 482,764 | | Total revenues | $ | 378.1 | | | $ | 114.0 | | | $ | 124.1 | | | $ | 616.1 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Topic 606 revenues | | | | | | | |
| Payment processing revenue | $ | 520.6 | | | $ | 310.6 | | | $ | 70.7 | | | $ | 901.9 | |
| Account servicing revenue | 14.3 | | | 31.7 | | | 319.8 | | | 365.8 | |
| Other revenue | 69.2 | | | — | | | 20.9 | | | 90.1 | |
| Total Topic 606 revenues | $ | 604.1 | | | $ | 342.3 | | | $ | 411.4 | | | $ | 1,357.8 | |
| Non-Topic 606 revenues | 428.5 | | | 19.6 | | | 78.8 | | | 526.9 | |
| Total revenues | $ | 1,032.6 | | | $ | 361.9 | | | $ | 490.2 | | | $ | 1,884.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Topic 606 revenues | | | | | | | |
| Payment processing revenue | $ | 542.9 | | | $ | 255.2 | | | $ | 62.7 | | | $ | 860.8 | |
| Account servicing revenue | 13.6 | | | 31.9 | | | 256.1 | | | $ | 301.6 | |
| Other revenue | 63.5 | | | 0.5 | | | 23.9 | | | 87.9 | |
| Total Topic 606 revenues | $ | 620.0 | | | $ | 287.6 | | | $ | 342.8 | | | $ | 1,250.3 | |
| Non-Topic 606 revenues | 456.5 | | | 4.1 | | | 21.1 | | | 481.6 | |
| Total revenues | $ | 1,076.5 | | | $ | 291.6 | | | $ | 363.8 | | | $ | 1,731.9 | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total |
| Topic 606 revenues | | | | | | | |
| Payment processing revenue | $ | 542,851 | | | $ | 255,216 | | | $ | 62,748 | | | $ | 860,815 | |
| Account servicing revenue | 13,620 | | | 31,906 | | | 256,062 | | | 301,588 | |
| Other revenue | 63,511 | | | 461 | | | 23,940 | | | 87,912 | |
| Total Topic 606 revenues | $ | 619,982 | | | $ | 287,583 | | | $ | 342,750 | | | $ | 1,250,315 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Non-Topic 606 revenues | 456,474 | | | 4,053 | | | 21,059 | | | 481,586 | |
| | | | | | | |
| Total revenues | $ | 1,076,456 | | | $ | 291,636 | | | $ | 363,809 | | | $ | 1,731,901 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total |
| Topic 606 revenues | | | | | | | |
| Payment processing revenue | $ | 367,032 | | | $ | 205,345 | | | $ | 55,564 | | | $ | 627,941 | |
| Account servicing revenue | 13,162 | | | 32,817 | | | 230,572 | | | $ | 276,551 | |
| Other revenue | 64,044 | | | 2,820 | | | 18,763 | | | 85,627 | |
| Total Topic 606 revenues | $ | 444,238 | | | $ | 240,982 | | | $ | 304,899 | | | $ | 990,119 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Non-Topic 606 revenues | 360,348 | | | 2,424 | | | 113 | | | 362,885 | |
| | | | | | | |
| Total revenues | $ | 804,586 | | | $ | 243,406 | | | $ | 305,012 | | | $ | 1,353,004 | |
Contract Balances
The majority of the Company’s receivables, which are excluded from the table below, are either due from cardholders who have not been deemed our customer as it relates to interchange income, or from revenues earned outside of the scope of Topic 606. The Company’s contract assets consist of upfront payments to customers under long-term contracts and are recorded upon the later of when the Company recognizes revenue for the transfer of the related goods or services or when the Company pays or promises to pay the consideration. The resulting asset is amortized against revenue as the Company satisfies its performance obligations under these arrangements. The Company’s contract liabilities consist of customer payments received before the Company has satisfied the associated performance obligations.
The following table provides information about these contract balances:
| | (In thousands) | | |
| (In millions) | | (In millions) | |
| Contract balance | Contract balance | | Location on the condensed consolidated balance sheets | | September 30, 2022 | | December 31, 2021 | Contract balance | | Location on the condensed consolidated balance sheets | | September 30, 2023 | | December 31, 2022 |
| Receivables | | Accounts receivable, net | | $ | 47,917 | | | $ | 49,303 | | |
Receivables1 | | Receivables1 | | Accounts receivable, net | | $ | 39.3 | | | $ | 53.6 | |
| Contract assets | Contract assets | | Prepaid expenses and other current assets | | 19,406 | | | 8,975 | | Contract assets | | Prepaid expenses and other current assets | | 17.4 | | | 13.6 | |
| Contract assets | Contract assets | | Other assets | | 35,005 | | | 40,718 | | Contract assets | | Other assets | | 34.6 | | | 37.9 | |
| Contract liabilities | Contract liabilities | | Other current liabilities | | 5,301 | | | 9,123 | | Contract liabilities | | Accrued expenses and other current liabilities | | 15.3 | | | 8.1 | |
| Contract liabilities | Contract liabilities | | Other liabilities | | 71,721 | | | 58,900 | | Contract liabilities | | Other liabilities | | 80.5 | | | 87.0 | |
|
1 The significant decrease in receivables is due to the sale of certain accounts receivable invoices under our Benefits securitization facility, which is described more fully within Note 11, Off-Balance Sheet Arrangements.
During the three and nine months ended September 30, 2022,2023, the Company recognized revenue of $9.6$2.2 million and $18.7$4.8 million, respectively, related to contract liabilities existing as of December 31, 2021.2022.
Remaining Performance Obligations
The Company’s unsatisfied or partially unsatisfied performance obligations as of September 30, 20222023 represent the remaining minimum monthly fees on a portion of contracts across the lines of business, deferred revenue associated with stand ready payment processing obligations and contractually obligated professional services yet to be provided by the Company.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
the Company’s future revenue, as they relate to a small portion of the Company’s operations.The following table includes revenue expected to be recognized related to remaining performance obligations at the end of the indicated reporting period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Remaining 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total |
Minimum monthly fees1 | $ | 18,273 | | | $ | 45,106 | | | $ | 27,442 | | | $ | 14,298 | | | $ | 4,885 | | | $ | 3,687 | | | $ | 1,500 | | | $ | 115,191 | |
Professional services2 | 2,083 | | | 2,249 | | | 4 | | | 4 | | | 1 | | | — | | | — | | | 4,341 | |
Other3 | 375 | | | 3,472 | | | 8,453 | | | 18,478 | | | 27,313 | | | 35,943 | | | 5,929 | | | 99,963 | |
| Total remaining performance obligations | $ | 20,731 | | | $ | 50,827 | | | $ | 35,899 | | | $ | 32,780 | | | $ | 32,199 | | | $ | 39,630 | | | $ | 7,429 | | | $ | 219,495 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Remaining 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total |
Minimum monthly fees1 | $ | 16.6 | | | $ | 39.7 | | | $ | 19.6 | | | $ | 7.2 | | | $ | 4.3 | | | $ | 2.8 | | | $ | 0.8 | | | $ | 91.0 | |
Other2 | 5.6 | | | 17.1 | | | 25.0 | | | 33.3 | | | 36.0 | | | 5.9 | | | — | | | 122.9 | |
| Total remaining performance obligations | $ | 22.3 | | | $ | 56.7 | | | $ | 44.5 | | | $ | 40.5 | | | $ | 40.3 | | | $ | 8.7 | | | $ | 0.8 | | | $ | 213.9 | |
1 The transaction price allocated to the remaining performance obligations represents the minimum monthly fees on certain service contracts, which contain substantive termination penalties that require the counterparty to pay the Company for the aggregate remaining minimum monthly fees upon an early termination for convenience.
2 Includes software development projects and other services sold subsequent to the core offerings, to which the customer is contractually obligated.
3 RepresentsSubstantially represents deferred revenue and contractual minimums associated with payment processing service obligations. Consideration associated with certain relationships is variable and the measurement and estimation of contract consideration is contingent upon payment processing volumes and maintaining volume shares, among others.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | |
| 4. | Acquisitions and Other Investments |
2022 Transactions
AssetBusiness Acquisition
During June 2022,On September 1, 2023, WEX Health completed the Company entered into a definitive agreement to purchase a portfolioacquisition from Ascensus, LLC (the “Ascensus Acquisition”) of certain entities (the “Ascensus Acquired Entities”), which comprised the health and benefits business of Ascensus and are technology-enabled providers of employee health benefit accounts including HSAs, FSAs, and other benefit accounts. The Ascensus Acquisition expands WEX’s current footprint in the Benefits segment, while also enhancing and expanding Affordable Care Act compliance and verification capabilities. Pursuant to the terms of the agreement, WEX Health consummated the acquisition for total consideration of approximately $182.3 million, subject to certain working capital and other adjustments.
The table below summarizes the preliminary allocation of fair value to the assets consisting primarily of branded commercial fleet cards from a third-party. During September 2022, the Company closedacquired and liabilities assumed on the acquisitiondate of these receivables, paying the seller a preliminary purchase price of $45.1 million, consisting of the face value of the account balances as of the valuation date, plus certain customary adjustments, as defined in the purchase agreement. The actual amount of accounts receivable purchased was less than the balances as of the valuation date, therefore, the Company expects to receive back within the next twelve months approximately $4.3 million in excess funds transferred at closing from the seller. We accounted for this transactionacquisition under the asset acquisition method of accountingaccounting. These fair values may continue to be revised during the measurement period as third-party valuations on the intangible assets are finalized, further information becomes available and additional analyses are performed, and those adjustments could have allocateda material impact on the total cost of the acquisition as follows:purchase price allocation.
| | | | | | | | |
(In thousands)millions) | | |
Cash consideration transferred to seller | | $ | 45,083 | |
Add: transaction costs | | 819 | |
Total consideration | | $ | 45,902 | |
| | |
Accounts receivable, net of allowance1, 2
| | $ | 38,282 | |
Receivable due back from seller1, 2
| | 4,282 | |
Customer relationship intangible asset3
| | 3,338 | |
| | $ | 45,902 | |
1 Recorded within accounts receivable in the condensed consolidated balance sheet.
2 The accounts receivable purchased have been included within operating activities in the condensed consolidated statement of cash flows.
3 The intangible asset will be amortized to expense over a three-year life.
Acquisition of Remaining Interest in PO Holding
On March 7, 2022, WEX Inc. and SBI entered into a share purchase agreement (the “Share Purchase Agreement”) whereby WEX Inc. purchased SBI’s remaining 4.53 percent interest in PO Holding for a purchase price of $234.0 million plus any interest accruing pursuant to the terms of the Share Purchase Agreement. The purchase price is payable in three installments of $76.7 million in each of March 2024, 2025 and 2026, with a final payment of $4.0 million also payable in March 2026. Pursuant to the Share Purchase Agreement, WEX Inc. owes SBI interest on the outstanding purchase price balance from March 2024 to March 2025 at the 12-month Secured Overnight Financing Rate (“SOFR”) (as determined on March 1, 2024) plus 1.25 percent and on the outstanding balance from March 2025 to March 2026 at the 12-month SOFR rate (as determined on March 3, 2025) plus 2.25 percent, except that no interest accrues on the $4.0 million payment due in March 2026.
Using a discount rate of 3.4 percent as of the acquisition date, the Company recorded the deferred liability under this Share Purchase Agreement at its initial net present value of $216.6 million. The associated discount relative to the purchase price is being amortized as interest expense using the effective interest method over the repayment term.
This transaction makes PO Holding, the direct parent of WEX Health, a wholly owned subsidiary of WEX Inc. to which the Company is solely entitled to the economic benefits. See Note 14, Redeemable Non-Controlling Interest, for more information.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
2021 Transactions
Asset Acquisition
On April 1, 2021, WEX Inc. completed the acquisition of certain contractual rights to serve as custodian or sub-custodian to over $3 billion of HSAs from the HealthcareBank division of Bell Bank, which is owned by State Bankshares, Inc. This acquisition increased the Company’s role in its customer-directed healthcare ecosystem and aligns with its growth strategy. On the closing of the acquisition, WEX Inc. paid Bell Bank initial cash consideration of $200.0 million. The Company is required to make two additional cash payments to Bell Bank in association with this acquisition of $25.0 million in July 2023 and $12.5 million in January 2024, which are reflected within accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheet as of September 30, 2022.
The purchase agreement also includes potential additional consideration payable to Bell Bank annually that is calculated on a quarterly basis and is contingent, and based, upon any future increases in the Federal Funds rate. The contingent payment period began on July 1, 2021 and extends until the earlier of (i) the year ending December 31, 2030, or (ii) the date when the cumulative amount paid as contingent consideration equals $225.0 million.
Given the acquisition does not meet the definition of a business, the Company accounted for this transaction as an asset acquisition, recognizing $263.4 million as a definite-lived intangible rights asset as of the acquisition date, with a weighted average life of 5.6 years. As part of this acquisition WEX Inc. allocated $11.2 million of the initial cash consideration to the repurchase of SBI’s then non-controlling interest in the U.S. Health business, reducing SBI’s ownership percentage to 4.53 percent at that time. Additionally, the Company recorded an initial deferred liability of $47.4 million equal to the present value of the deferred cash payments and a derivative liability of $27.2 million related to the additional consideration contingent upon future increases in the Federal Funds rate. See Note 13, Fair Value, for further information on the valuation of the derivative liability. Transaction costs related to the acquisition were immaterial and expensed as incurred.
Acquisition of Remaining Interest in WEX Europe Services
On April 13, 2021, the Company acquired the remaining interest in WEX Europe Services, which consisted of 25 percent of the issued ordinary share capital, for a purchase price of $97.0 million. As a result of the transaction, the Company now owns 100 percent of the issued ordinary share capital of WEX Europe Services, which operates as our European Fleet business. This transaction further streamlines the European Fleet business in order to create revenue synergies and increases our ability to manage the associated cost structure. Given the Company had a controlling interest in WEX Europe Services prior to the transaction, the acquisition has been accounted for as an equity transaction, resulting in a reduction of additional paid-in capital by $81.6 million, a $13.1 million elimination of the 25 percent non-controlling interest in WEX Europe Services and a reduction of accumulated other comprehensive income by $2.3 million.
benefitexpress Acquisition
On June 1, 2021, WEX Inc.’s subsidiary, WEX Health, completed the acquisition of Cirrus Holdings, LLC, the indirect owner of Benefit Express Services, LLC, a provider of highly configurable, cloud-based benefits administration technologies and services doing business under the name benefitexpress (the “benefitexpress Acquisition”). The transaction expanded the Company’s role in the healthcare ecosystem, bringing benefit administration, compliance services, and consumer-directed health and lifestyle spending accounts together to form a full-service benefits marketplace. Pursuant to the terms of the definitive purchase agreement, WEX Health consummated the benefitexpress Acquisition for total consideration of approximately $275 million, subject to certain working capital and other adjustments.
The benefitexpress Acquisition has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their respective fair values on the acquisition date. The table below summarizes the allocation of such fair value of assets acquired and liabilities assumed. No measurement period adjustments were recorded during the six months ended June 30, 2022, when the purchase accounting for the acquisition became final. The following is a summary of the final allocation of the purchase price to the assets and liabilities acquired, based on the fair value at the date of acquisition:
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | |
(In thousands) | | | | | | |
Cash consideration transferred, net of $15.0$26.7 million in cash and restricted cash acquired | | $ | 259,061155.7 | | | | | |
| Less: | | | | | | |
| Accounts receivable | | 3,1037.3 | | | | | |
| | | | | | |
| | | | | | |
Customer relationships(1)(4)(5) | | 84,40052.7 | | | | | |
Developed technologiestechnology(2)(4)(5) | | 19,6006.6 | | | | | |
Non-competeStrategic partner relationships(3)(4)(5)
| | 2,15014.0 | | | | | |
Custodial rights(4)(5) | | | | | 23.2 | |
| Other assets | | 4,3873.8 | | | | | |
| | | | | | |
| Accrued expenses and other current liabilities | | (3,498)(6.5) | | |
| | |
| Restricted cash payable | | (14,328)(25.7) | | | | | |
| | | | | | |
| | | | | | |
| Other liabilities | | (5,177)(2.7) | | | | | |
| Recorded goodwill | | $ | 168,42483.0 | | | | | |
(1) Weighted average life - 9.3 years.5.3 years
(2) Weighted average life - 3.6 years.2.2 years
(3)Weighted average life - 2.5 years.1.2 years
(4) Weighted average life - 4.9 years
(5) The weighted average useful life of the $106.2 million ofall amortizable intangible assets acquired in this business combination is 8.14.4 years.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring the businesses.business. The goodwill recognized as a result of the acquisition is expected to be deductible for tax purposes.
Since the acquisition date through September 30, 2023, the Ascensus Acquired Entities have not contributed significantly to the Company’s total revenues and net income before taxes. No pro forma information has been included in these financial statements, as the operations of benefitexpressthe Ascensus Acquired Entities for the period that they were not part of the Company are not material to the Company’s revenues, net income andor earnings per share.
The Company incurred and expensed costs directly related to completed acquisitions of $4.3 million during the three and nine months ended September 30, 2023. Acquisition-related costs are included within general and administrative expenses in the condensed consolidated statement of operations.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Asset Acquisition
On January 3, 2023, the Company completed its acquisition of 100 percent of the equity of a newly formed Indian entity, created to carve out the workforce of an existing computer software design and development business. In exchange for total consideration of $6.0 million, the Company acquired an assembled workforce of approximately 180 employees and miscellaneous other assets. This assembled workforce represents additional resources to advance our technological capabilities and service offerings to our customers. Consideration of $4.5 million was payable upon the closing date, with up to $1.5 million payable within eighteen months following the acquisition date, dependent on the calculation of employee attrition as defined per the share purchase agreement. This acquisition has been accounted for as an asset acquisition, resulting in the capitalization of a workforce intangible asset of $8.1 million, inclusive of a $2.1 million gross up resulting from the recognition of a deferred tax liability related to the acquisition date difference between the assigned value of the intangible asset and its tax basis. The workforce intangible asset has an estimated useful life of 4.0 years. Acquisition costs were immaterial.
Other Investments
During the nine months ended September 30, 2023, the Company made minority equity investments in EV-focused companies totaling $5.0 million, over which we do not exert significant influence. Due to the lack of a readily determinable fair value, these investments will be measured at cost less any impairment until a specific remeasurement event occurs. The equity investments are recorded within other assets on our condensed consolidated balance sheets.
| | | | | |
| 5. | Accounts Receivable, Net of Allowances |
Accounts receivable consists of amounts billed to and due from customers across a wide range of industries and other third parties. The Company often extends short-term credit to cardholders by paying the merchant for the purchase price less the fees it retains and records as revenue, then subsequently collecting the total purchase price from the cardholder. The Company also extends revolving credit to certain small fleets. The Company had approximately $182.6$156.1 million and $93.7$157.8 million in gross receivables with revolving credit balances as of September 30, 20222023 and December 31, 2021,2022, respectively. The gross receivables balance as of September 30, 2022 is inclusive of the accounts acquired as part of the asset acquisition discussed in Note 4, Acquisitions.
The allowance for accounts receivable consists of reserves for both credit and fraud losses, reflecting management’s current estimate of uncollectible balances on its accounts receivable.
The following tables present changes in the accounts receivable allowances by portfolio segment:
| | | Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2023 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total | |
| (In millions) | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| | Balance, beginning of period | Balance, beginning of period | $ | 89,224 | | | $ | 10,396 | | | $ | 987 | | | $ | 100,607 | | Balance, beginning of period | $ | 96.2 | | | $ | 14.5 | | | $ | 1.3 | | | $ | 112.0 | |
Net provision for credit losses1 | 53,002 | | | 684 | | | 344 | | | 54,030 | | |
Provision for credit losses1 | | Provision for credit losses1 | 12.2 | | | (3.9) | | | 1.1 | | | 9.4 | |
Charges to other accounts2 | Charges to other accounts2 | 11,296 | | | — | | | — | | | 11,296 | | Charges to other accounts2 | 6.8 | | | — | | | 0.5 | | | 7.3 | |
| Charge-offs | Charge-offs | (65,093) | | | (787) | | | (164) | | | (66,044) | | Charge-offs | (32.1) | | | (0.5) | | | (0.2) | | | (32.8) | |
| Recoveries of amounts previously charged-off | Recoveries of amounts previously charged-off | 3,572 | | | — | | | 8 | | | 3,580 | | Recoveries of amounts previously charged-off | 5.6 | | | — | | | — | | | 5.6 | |
| | Currency translation | Currency translation | (637) | | | (572) | | | — | | | (1,209) | | Currency translation | (0.3) | | | (0.2) | | | — | | | (0.5) | |
| Balance, end of period | Balance, end of period | $ | 91,364 | | | $ | 9,721 | | | $ | 1,175 | | | $ | 102,260 | | Balance, end of period | $ | 88.4 | | | $ | 9.9 | | | $ | 2.7 | | | 101.0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| | | | | | | |
| | | | | | | |
| Balance, beginning of period | $ | 89.2 | | | $ | 10.4 | | | $ | 1.0 | | | $ | 100.6 | |
Provision for credit losses1 | 53.0 | | | 0.7 | | | 0.3 | | | 54.0 | |
Charges to other accounts2 | 11.3 | | | — | | | — | | | 11.3 | |
| Charge-offs | (65.1) | | | (0.8) | | | (0.2) | | | (66.0) | |
| Recoveries of amounts previously charged-off | 3.6 | | | — | | | — | | | 3.6 | |
| Currency translation | (0.6) | | | (0.6) | | | — | | | (1.2) | |
| Balance, end of period | $ | 91.4 | | | $ | 9.7 | | | $ | 1.2 | | | $ | 102.3 | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | Three Months Ended September 30, 2021 | |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total | |
| | | Nine Months Ended September 30, 2023 |
| | (In millions) | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Balance, beginning of period | Balance, beginning of period | $ | 49,716 | | | $ | 7,519 | | | $ | 536 | | | $ | 57,771 | | Balance, beginning of period | $ | 94.6 | | | $ | 14.4 | | | $ | 0.8 | | | $ | 109.9 | |
Provision for credit losses1 | Provision for credit losses1 | 10,231 | | | 3,816 | | | 80 | | | 14,127 | | Provision for credit losses1 | 78.5 | | | (2.5) | | | 1.5 | | | 77.5 | |
Charges to other accounts2 | Charges to other accounts2 | 4,046 | | | 5 | | | — | | | 4,051 | | Charges to other accounts2 | 22.1 | | | — | | | 0.6 | | | 22.6 | |
| Charge-offs | Charge-offs | (10,872) | | | (602) | | | (92) | | | (11,566) | | Charge-offs | (122.8) | | | (2.0) | | | (0.2) | | | (125.0) | |
| Recoveries of amounts previously charged-off | Recoveries of amounts previously charged-off | 1,691 | | | 163 | | | 53 | | | 1,907 | | Recoveries of amounts previously charged-off | 16.3 | | | — | | | — | | | 16.3 | |
| | Currency translation | Currency translation | (392) | | | (206) | | | — | | | (598) | | Currency translation | (0.3) | | | — | | | — | | | (0.3) | |
| Balance, end of period | Balance, end of period | $ | 54,420 | | | $ | 10,695 | | | $ | 577 | | | $ | 65,692 | | Balance, end of period | $ | 88.4 | | | $ | 9.9 | | | $ | 2.7 | | | $ | 101.0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total |
| | | | | | | |
| | | | | | | |
| Balance, beginning of period | $ | 55,758 | | | $ | 9,931 | | | $ | 617 | | | $ | 66,306 | |
Provision for credit losses1 | 118,672 | | | 2,105 | | | 1,079 | | | 121,856 | |
Charges to other accounts2 | 29,913 | | | 169 | | | (101) | | | 29,981 | |
| Charge-offs | (120,388) | | | (1,234) | | | (438) | | | (122,060) | |
| Recoveries of amounts previously charged-off | 8,802 | | | — | | | 18 | | | 8,820 | |
| | | | | | | |
| Currency translation | (1,393) | | | (1,250) | | | — | | | (2,643) | |
| Balance, end of period | $ | 91,364 | | | $ | 9,721 | | | $ | 1,175 | | | $ | 102,260 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total | |
| | (In millions) | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Balance, beginning of period | Balance, beginning of period | $ | 49,267 | | | $ | 9,610 | | | $ | 270 | | | $ | 59,147 | | Balance, beginning of period | $ | 55.8 | | | $ | 9.9 | | | $ | 0.6 | | | $ | 66.3 | |
Provision for credit losses1 | Provision for credit losses1 | 26,359 | | | 5,568 | | | 221 | | | 32,148 | | Provision for credit losses1 | 118.7 | | | 2.1 | | | 1.1 | | | 121.9 | |
Charges to other accounts2 | Charges to other accounts2 | 12,267 | | | 5 | | | — | | | 12,272 | | Charges to other accounts2 | 29.9 | | | 0.2 | | | (0.1) | | | 30.0 | |
| Charge-offs | Charge-offs | (37,239) | | | (4,462) | | | (120) | | | (41,821) | | Charge-offs | (120.4) | | | (1.2) | | | (0.4) | | | (122.1) | |
| Recoveries of amounts previously charged-off | Recoveries of amounts previously charged-off | 4,572 | | | 176 | | | 206 | | | 4,954 | | Recoveries of amounts previously charged-off | 8.8 | | | — | | | — | | | 8.8 | |
| Currency translation | Currency translation | (806) | | | (202) | | | — | | | (1,008) | | Currency translation | (1.4) | | | (1.3) | | | — | | | (2.6) | |
| Balance, end of period | Balance, end of period | $ | 54,420 | | | $ | 10,695 | | | $ | 577 | | | $ | 65,692 | | Balance, end of period | $ | 91.4 | | | $ | 9.7 | | | $ | 1.2 | | | $ | 102.3 | |
1 The provision is comprised of estimated credit losses based on the Company’s loss-rate experience and includes adjustments required for forecasted credit loss information. The provision for credit losses reported within this table also includes the provision for fraud losses.
2 Consists primarily of charges to other accounts. The Company earns revenue by assessing monthly finance fees on accounts with overdue balances. These fees are recognized as revenue at the time the fees are assessed. The finance fee is calculated using the greater of a minimum charge or a stated late fee rate multiplied by the outstanding balance that is subject to a late fee charge. On occasion, these fees are waived to maintain relationship goodwill. Charges to other accounts substantially represent the offset against the late fee revenue recognized when the Company establishes a reserve for such waived amounts.
Concentration of Credit Risk
The receivables portfolio primarily consists of a large group of homogeneous balances across a wide range of industries, which are collectively evaluated for impairment. No individual customer had a receivable balance representing 10 percent or more of the outstanding receivables balance at September 30, 20222023 or December 31, 2021.2022. The following table
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
presents the outstanding balance of trade accounts receivable that are less than 30 and 60 days past due, shown in each case as a percentage of total trade accounts receivable:
| | Delinquency Status | Delinquency Status | September 30, 2022 | | December 31, 2021 | Delinquency Status | September 30, 2023 | | December 31, 2022 |
| Less than 30 days past due | Less than 30 days past due | 98 | % | | 98 | % | Less than 30 days past due | 98 | % | | 98 | % |
| Less than 60 days past due | Less than 60 days past due | 99 | % | | 99 | % | Less than 60 days past due | 99 | % | | 99 | % |
| | | | | |
| 6. | Repurchases of Common Stock |
Under share buyback plans, which may be authorized by our board of directors from time to time, the Company may repurchase up to specified dollar values of shares of its common stock through open market purchases, privately negotiated transactions, block trades or otherwise.
During the three and nine months ended September 30, 2023, the Company repurchased approximately 0.3 million and 0.8 million shares, respectively, pursuant to a previously approved and announced repurchase program. The numbertotal repurchases were recorded as treasury stock of shares repurchased$146.0 million in our condensed consolidated balance sheet. Such cost reflects the applicable one percent excise tax imposed by the Company duringInflation Reduction Act of 2022 on the net value of certain stock repurchases made after December 31, 2022. During the three and nine months ended September 30, 2022, the Company repurchased approximately 0.4 million and 1.0 million shares, respectively, pursuant to a previously approved and announced repurchase programs have beenprogram, which was collectively recorded as treasury stock of $149.6 million in our condensed consolidated balance sheet and are included in the following table. There were no shares repurchased pursuant to repurchase programs during the three and nine months ended September 30, 2021.sheet.
| | | | | | | | | | | | | | | | | |
| (In thousands, except for per share amounts) | Shares | | Total Cost | | Average Cost Per Share |
| Treasury stock purchased during the three months ended September 30, 2022 | 434 | | $ | 69,009 | | | $ | 158.79 | |
| Treasury stock purchased during the nine months ended September 30, 2022 | 954 | | $ | 149,608 | | | $ | 156.76 | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Basic earnings per share is computed by dividing net (loss) income attributable to shareholders by the weighted average number of shares of common stock and vested DSUs outstanding during the year. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that diluted earnings per share includes the numerator is increased for tax effected interest expense associated with our Convertible Notes and the denominator is increased for the assumed issuanceimpact of common shares upon conversion of the Convertible Notesconvertible securities under the “if-converted” method unlessif the effect is anti-dilutive. Additionally, diluted earnings per shareof such securities would be dilutive and includes the assumed exercise of dilutive options, the assumed issuance of unvested restricted stock units,RSUs, performance-based awards for which the performance condition has been met as of the date of determination and contingently issuable shares that would be issuable if the end of the reporting period was the end of the contingency period, using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes that proceeds, including cash received from the exercise of employee stock options and the average unrecognized compensation expense for unvested share-based compensation awards, would be used to purchase the Company’s common stock at the average market price during the period.
The following table summarizes net (loss) income attributable to shareholders and reconciles basic and diluted shares outstanding used in the earnings per share computations:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
| Net (loss) income attributable to shareholders | $ | (44,145) | | | $ | 48,318 | | | $ | 112,747 | | | $ | 11,897 | |
| | | | | | | |
| Weighted average common shares outstanding – Basic | 44,229 | | | 44,861 | | | 44,644 | | | 44,664 | |
Dilutive impact of share-based compensation awards1 | — | | | 418 | | | 328 | | | 670 | |
| | | | | | | |
Weighted average common shares outstanding – Diluted 2, 3 | 44,229 | | | 45,279 | | | 44,972 | | | 45,334 | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
| | | | | | | |
| Net income (loss) attributable to shareholders | $ | 18.4 | | | $ | (44.1) | | | $ | 181.7 | | | $ | 112.7 | |
| | | | | | | |
| Weighted average common shares outstanding – Basic | 42.9 | | | 44.2 | | | 43.0 | | | 44.6 | |
Dilutive impact of share-based compensation awards1 | 0.5 | | | — | | | 0.5 | | | 0.3 | |
| | | | | | | |
Weighted average common shares outstanding – Diluted 2 | 43.4 | | | 44.2 | | | 43.5 | | | 45.0 | |
1 For both the three and nine months ended September 30, 2022, 0.32023, 0.4 million incremental shares, which would otherwise have been dilutive but for the Company’s net loss position, areof outstanding share-based compensation awards were excluded from the table abovecomputation of diluted earnings per share under the treasury stock method, as the effect of including those shares would be anti-dilutive.
2 For During both the three and nine months ended September 30, 2022, 0.6 million of outstanding share-based compensation awards were excluded from the computation of diluted earnings per share under the treasury stock method, as the effect of including these awardsthose shares would be anti-dilutive. ForAdditionally, 0.3 million incremental shares, which would otherwise have been dilutive but for the Company’s net loss position, are excluded from the table above for the three and nine months ended September 30, 2021, 0.7 million and 0.9 million, respectively, of outstanding share-based compensation awards were excluded from the computation of diluted earnings per share under the treasury stock method,2022 as the effect of including these awardsthose shares would be anti-dilutive.
32 It is the Company’s current intention to settle all conversions of the Convertible Notes in shares of the Company’s common stock. Under the “if-converted” method, approximately 1.6 million shares of the Company’s common stock associated with the assumed conversion of the Convertible Notes as of the beginning of the period have beenwere excluded from diluted shares outstanding for the three and nine months ended September 30, 20222023 and 20212022 as the effect of including such shares would behave been anti-dilutive. During August 2023, the Company repurchased all of the Company’s outstanding Convertible Notes. For further information regarding the Convertible Notes and their repurchase and cancellation, see Note 10, Financing and Other Debt.
The Company is exposed to certain market risks relating to its ongoing business operations. From time to time, the Company enters into derivative instrument arrangements to manage various risks including interest rate risk.
Interest rate swap contracts
The Company has entered into interest rate swap contracts to manage the interest rate risk associated with its outstanding variable-interest rate borrowings. Such contracts are intended to economically hedge the LIBORreference rate component of future interest payments associated with outstanding borrowings under the Company’s Amended and Restated Credit Agreement.
On April 26, 2023, the Company’s existing interest rate swap contracts were amended primarily to change the floating rate index from the one-month USD LIBOR to the one-month Term SOFR. In conjunction with the amendments to the floating rate index, the fixed interest rates payable by WEX under the contracts were also adjusted. There were no changes to notional amounts or maturity dates as a result of these amendments.
A summary of the Company’s amended interest rate swap contracts with a collective notional amount of $1.9$1.1 billion outstanding as of September 30, 20222023 is as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Contract Inception | | Contract End | | Fixed Interest Rates1 | | Notional Amount at inception (in thousands) | |
| December 2017 | | December 2022 | | 2.204% | | $ | 300,000 | | |
| March 2020 | | March 2023 | | 1.954% | | 150,000 | | |
| March 2019 | | March 2023 | | 1.956% | | 100,000 | | |
| March 2019 | | March 2023 | | 2.413% | | 200,000 | | |
| March 2020 | | December 2023 | | 1.862% | | 200,000 | | |
| May 2021 | | May 2024 | | 0.435% | | 150,000 | | |
| May 2021 | | May 2024 | | 0.440% | | 150,000 | | |
| May 2021 | | May 2025 | | 0.678% | | 300,000 | | |
| May 2021 | | May 2026 | | 0.909% | | 150,000 | | |
| May 2021 | | May 2026 | | 0.910% | | 150,000 | | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contract Inception | | Contract End | | Fixed Interest Rates Payable by WEX (prior to amendment)1 | | Fixed Interest Rates Payable by WEX
(post amendment) | | Notional Amount (in millions) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| March 2020 | | December 2023 | | 1.862% | | 1.789%2 | | $ | 200.0 | | |
| May 2021 | | May 2024 | | 0.435% | | 0.459%3 | | $ | 150.0 | | |
| May 2021 | | May 2024 | | 0.440% | | 0.367%2 | | $ | 150.0 | | |
| May 2021 | | May 2025 | | 0.678% | | 0.648%2 | | $ | 300.0 | | |
| May 2021 | | May 2026 | | 0.909% | | 0.836%2 | | $ | 150.0 | | |
| May 2021 | | May 2026 | | 0.910% | | 0.883%2 | | $ | 150.0 | | |
1 Fixed interest rates payable by WEX. Counterparties paid floating rate equal to the one-month USD LIBOR.2 Counterparties pay floating rate equal to the one-month USD LIBOR.USD-SOFR CME Term.
3 Counterparty pays floating rate equal to the one-month USD-SOFR CME Term, plus a spread of 0.114 percent.
The following table presents information on the location and amounts of interest rate swap gains and losses:
| | (In thousands) | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| (In millions) | | (In millions) | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Derivatives Not Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | | Location of Gain (Loss) Recognized in the Condensed Consolidated Statement of Operations | | 2022 | | 2021 | | 2022 | | 2021 | Derivatives Not Designated as Hedging Instruments | Location of (Loss) Gain Recognized in the Condensed Consolidated Statement of Operations | | 2023 | | 2022 | | 2023 | | 2022 |
| | Interest rate swap contracts – unrealized portion | Interest rate swap contracts – unrealized portion | | Net unrealized gain on financial instruments | | $ | 24,610 | | | $ | 6,527 | | | $ | 93,481 | | | $ | 20,008 | | Interest rate swap contracts – unrealized portion | | Net unrealized gain (loss) on financial instruments | | $ | (6.9) | | | $ | 24.6 | | | $ | (19.4) | | | $ | 93.5 | |
| Interest rate swap contracts – realized portion | Interest rate swap contracts – realized portion | | Financing interest expense | | $ | 3,721 | | | $ | (7,037) | | | $ | (5,191) | | | $ | (18,575) | | Interest rate swap contracts –
realized portion | | Financing interest expense | | $ | 12.3 | | | $ | 3.7 | | | $ | 36.0 | | | $ | (5.2) | |
|
Derivative instruments and their related gains and losses are reported within cash flows from operating activities within the condensed consolidated statements of cash flows. See Note 13, Financial Instruments − Fair Value and Concentrations of Credit Risk, for more information regarding the valuation of the Company’s derivatives.
WEX Bank’s regulatory status enables it to raise capital to fund the Company’s working capital requirements by issuing deposits, subject to FDIC rules governing minimum financial ratios. See Note 19, Supplementary Regulatory Capital Disclosure, for further information concerning these FDIC requirements.
WEX Bank accepts its deposits through certain customers as required collateral for credit that has been extended (“customer deposits”) and contractual arrangements for brokered and non-brokered certificate of deposit and money market deposit products. Additionally, WEX Bank holds deposits for the benefit of WEX Inc.’s HSA deposits.customers subject to the terms of a deposit agreement.
Customer deposits are generally non-interest bearing, certificates of deposit are issued at fixed rates, money market deposits are issued at both fixed and variable interest rates based on LIBOR or the Federal Funds rate and HSA deposits are issued at rates as defined within the consumer account agreements.
The following table presents the composition of deposits, which are classified as short-term or long-term based on their contractual maturities:
| | | | | | | | | | | |
| (In thousands) | September 30, 2022 | | December 31, 2021 |
| Customer deposits | $ | 142,700 | | | $ | 129,180 | |
Contractual deposits with maturities within 1 year1,2 | 706,971 | | | 566,427 | |
Interest-bearing money market deposits1 | 226,097 | | | 370,813 | |
HSA deposits3 | 2,070,002 | | | 960,000 | |
| Short-term contractual deposits | 3,145,770 | | | 2,026,420 | |
Contractual deposits with maturities greater than 1 year and less than 5 years1,2 | 489,942 | | | 652,214 | |
| Total deposits | $ | 3,635,712 | | | $ | 2,678,634 | |
| | | |
| Weighted average cost of HSA deposits outstanding | 0.05 | % | | 0.03 | % |
| Weighted average cost of funds on contractual deposits outstanding | 1.41 | % | | 0.48 | % |
| Weighted average cost of interest-bearing money market deposits outstanding | 3.10 | % | | 0.20 | % |
| | | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | |
| (In millions) | September 30, 2023 | | December 31, 2022 |
| Customer deposits | $ | 227.6 | | | $ | 146.7 | |
Contractual deposits with maturities within 1 year1,2 | 1,037.3 | | | 770.7 | |
Interest-bearing money market deposits1 | 217.9 | | | 157.2 | |
HSA deposits3 | 2,770.0 | | | 2,070.0 | |
| Short-term contractual deposits | $ | 4,252.8 | | | $ | 3,144.6 | |
Contractual deposits with maturities greater than 1 year and less than 5 years1,2 | 115.5 | | | 334.2 | |
| Total deposits | $ | 4,368.3 | | | $ | 3,478.8 | |
| | | |
| Weighted average cost of HSA deposits outstanding | 0.11 | % | | 0.04 | % |
| Weighted average cost of funds on contractual deposits outstanding | 4.34 | % | | 1.48 | % |
| Weighted average cost of interest-bearing money market deposits outstanding | 5.47 | % | | 4.45 | % |
| | | |
1 As of September 30, 20222023 and December 31, 2021,2022, all certificates of deposit and money market deposits were in denominations of $250,000 or less, corresponding to FDIC deposit insurance limits.
2 Includes certificates of deposit and certain money market deposits, which have a fixed maturity and substantially fixed interest rate.rates.
3 Deposits held associated with the HSA custodial assets. HSA deposits are recorded within short-term deposits on the condensed consolidated balance sheetsheets as the funds can be withdrawn by the account holders at any time.
| | | | | |
| 10. | Financing and Other Debt |
The following tables summarize the Company’s total outstanding debt as of September 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2023 | | As of December 31, 2022 |
| (In millions) | Balance Outstanding | | Interest Rate | | Balance Outstanding | | Interest Rate |
| Short term debt: | | | | | | | |
| Securitized debt | $ | 99.9 | | | 5.80 | % | | $ | 110.6 | | | 3.83 | % |
| Participation debt | 41.5 | | | 7.72 | % | | 39.0 | | | 6.64 | % |
| Borrowed federal funds | 760.0 | | | 5.43 | % | | — | | | — | % |
| Current portion of long-term debt (net of $7.5 million in unamortized debt issuance costs/discounts) | 55.9 | | | ** | | 53.1 | | | ** |
| Total short term debt, net | $ | 957.3 | | | | | $ | 202.6 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
** Provided for the total Amended and Restated Credit Agreement borrowings below.
| | | | | | | | | | | |
| Balance Outstanding at: |
| (In millions) | September 30, 2023 | | December 31, 2022 |
| Long-term debt: | | | |
| Amended and Restated Credit Agreement: | | | |
Tranche A Term Loans due April 20261 | $ | 856.1 | | | $ | 892.8 | |
Tranche B Term Loans due April 20282 | 1,406.0 | | | 1,416.8 | |
Borrowings on Revolving Credit Facility due April 20261 | 471.6 | | | — | |
Total borrowings under the Amended and Restated Credit Agreement3 | 2,733.7 | | | 2,309.6 | |
| 6.5% Convertible Notes due July 2027 | — | | | 310.0 | |
Total long-term debt4 | 2,733.7 | | | 2,619.6 | |
| Less total unamortized debt issuance costs/discounts | (27.7) | | | (44.3) | |
| Less current portion of long-term debt (net of $7.5 million in unamortized debt issuance costs/discounts) | (55.9) | | | (53.1) | |
| Long-term debt, net | $ | 2,650.1 | | | $ | 2,522.2 | |
1 Bears interest at variable rates, at the Company’s option, plus an applicable margin determined based on demand.the Company’s consolidated leverage ratio. Outstanding borrowings under the Revolving Credit Facility are classified as long-term given they can be rolled forward with interest rate resets through maturity.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
In accordance2 Bears interest at variable rates, at the Company’s option, plus an applicable margin, which is fixed at 1.25 percent for base rate borrowings and 2.25 percent with regulatory requirements, WEX Bank normally maintains reserves against a portionrespect to Term SOFR borrowings.
3 As of its outstanding customer deposits by keeping balances with the Federal Reserve Bank, however, due to currently relaxed Federal Reserve requirements enacted in response to the COVID-19 pandemic, there was no required reserve at September 30, 20222023 and December 31, 2021.2022, amounts outstanding under the Amended and Restated Credit Agreement bore a weighted average effective interest rate of 7.3 percent and 6.4 percent, respectively. The Company maintains interest rate swap contracts to manage the interest rate risk associated with its outstanding variable-interest rate borrowings. See Note 8, Derivative Instruments for further discussion.
| | | | | |
10. | Financing and Other Debt |
The following table summarizes the Company’s total outstanding debt by type as of September 30, 2022 and December 31, 2021.
| | | | | | | | | | | |
| (In thousands) | September 30, 2022 | | December 31, 2021 |
| Term loans: | | | |
| Tranche A Term Loans | $ | 905,050 | | | $ | 941,742 | |
| Tranche B Term Loans | 1,420,370 | | | 1,431,185 | |
| Total term loans | $ | 2,325,420 | | | $ | 2,372,927 | |
| Borrowings on Revolving Credit Facility | 88,200 | | | 119,800 | |
| Convertible Notes | 310,000 | | | 310,000 | |
| Securitized debt | 93,896 | | | 100,861 | |
| Participation debt | 29,948 | | | 1,500 | |
Total gross debt1 | $ | 2,847,464 | | | $ | 2,905,088 | |
| | | |
| | | |
| | | |
1 4See Note 13, Financial Instruments − Fair Value and Concentrations of Credit Risk for information regarding the fair value of the Company’s debt.
The following table summarizes the Company’s total outstanding debt by balance sheet classification:
| | | | | | | | | | | |
| (In thousands) | September 30, 2022 | | December 31, 2021 |
| Current portion of gross debt | $ | 166,452 | | | $ | 165,703 | |
| Less: Unamortized debt issuance costs/debt discount | (9,969) | | | (9,934) | |
| Short-term debt, net | $ | 156,483 | | | $ | 155,769 | |
| | | |
| Long-term portion of gross debt | $ | 2,681,012 | | | $ | 2,739,385 | |
| Less: Unamortized debt issuance costs/debt discount | (36,534) | | | (44,020) | |
| Long-term debt, net | $ | 2,644,478 | | | $ | 2,695,365 | |
| | | |
| Supplemental information: | | | |
Letters of credit1 | $ | 30,988 | | | $ | 51,392 | |
Remaining borrowing capacity on Revolving Credit Facility2 | $ | 810,812 | | | $ | 758,808 | |
| | | | | | | | | | | |
| (In millions) | September 30, 2023 | | December 31, 2022 |
| Supplemental information under Amended and Restated Credit Agreement: | | | |
Letters of credit1 | $ | 33.2 | | | $ | 31.1 | |
Remaining borrowing capacity on Revolving Credit Facility2 | $ | 925.2 | | | $ | 898.9 | |
1 Credit support for lease agreements, virtual card and fuel paymentPrimarily collateralizing Corporate Payments processing activity at the Company’s foreign subsidiaries.activity.
2 ContingentSeptember 30, 2023 balance is reflective of the increased commitments resulting from the Third Amendment to Amended and Restated Credit Agreement entered into September 26, 2023. Borrowing capacity is contingent on maintaining compliance with the financial covenants as defined in the Company’s Amended and Restated Credit Agreement. The Company pays a quarterly commitment fee at a rate per annum ranging from 0.25 percent to 0.50 percent of the daily unused portion of the Revolving Credit Facility (which was 0.25 percent at September 30, 2023 and 0.30 percent at December 31, 2022) determined based on the Company’s consolidated leverage ratio.
Amended and Restated Credit Agreement
As part of the Amended and Restated Credit Agreement, we have senior secured tranche A term loans (the “Tranche A Term Loans”), senior secured tranche B term loans (the “Tranche B Term Loans”) and revolving credit commitments. On September 26, 2023, the Company entered into the Third Amendment to Amended and Restated Credit Agreement, which increased the revolving credit commitments infrom an aggregate amount of $930.0 million to $1,430.0 million under the Company’s secured revolving credit facility (the “Revolving Credit Facility”). PriorNo other substantive changes were made to maturity, the Tranche A Term LoansAmended and Tranche B Term Loans require scheduled quarterly paymentsRestated Credit Agreement as part of $12.2this amendment.
On April 24, 2023, the Company’s Amended and Restated Credit Agreement was amended solely for the purpose of replacing the current reference rate with the USD LIBOR successor rate, SOFR (including an applicable credit spread adjustment). On August 10, 2023, the Amended and Restated Credit Agreement was further amended solely to modify the definition of Operating Indebtedness (as defined in the Amended and Restated Credit Agreement) to include any indebtedness incurred by certain subsidiaries of the Company pursuant to the BTFP. Under the Amended and Restated Credit Agreement, Operating Indebtedness is excluded from our Consolidated Funded Indebtedness, which is used to calculate the Company’s Consolidated Leverage Ratio (all capitalized terms in this sentence are as defined in the Amended and Restated Credit Agreement). No other substantive changes were made to the Amended and Restated Credit Agreement as part of these amendments.
Convertible Notes
On August 11, 2023 (the “Repurchase Date”), the Company entered into a privately negotiated repurchase agreement with the holder of our Convertible Notes, WP Bronco Holdings, LLC (the “Seller”), an affiliate of funds managed by Warburg Pincus LLC (a related party), to repurchase all of the outstanding $310.0 million aggregate principal amount of the Company’s Convertible Notes at 119 percent of par for a total purchase price of $370.4 million, inclusive of accrued and $3.6unpaid interest from and including July 15, 2023, to, but excluding, the Repurchase Date. At the time of repurchase, the net carrying amount of the Convertible Notes was $298.8 million, respectively, dueresulting in a loss on extinguishment of $70.1 million, which has been recorded within nonoperating expense on the last daycondensed consolidated statement of each March, June,operations for the three and nine months ended September 30, 2023. Upon repurchase, the obligations of the Company to the Seller of the Notes were satisfied in full and December. Borrowings under the Revolving Credit Facility can generally be rolled forward withConvertible Notes were canceled by the trustee at the instruction of the Company.
As of December 31, 2022, unamortized debt issuance costs and debt discount were $12.7 million. The Convertible Notes had an effective interest rate resetsof 7.5 percent at December 31, 2022 and through maturity.
the Repurchase Date. The Revolving Credit Facility andfollowing table sets forth total interest expense recognized for the Tranche A Term Loans bear interest at variable rates, at the Company’s option, plus an applicable margin determined based on the Company’s consolidated leverage ratio. The Tranche B Term Loans bear interest at variable rates, at the Company’s option, plus an applicable margin, which is fixed at 1.25 percent for base rateConvertible Notes:
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
borrowings and 2.25 percent with respect to eurocurrency rate borrowings. As of September 30, 2022 and December 31, 2021, amounts outstanding under the Amended and Restated Credit Agreement bore a weighted average effective interest rate of 5.2 percent and 2.2 percent, respectively. The Company maintains interest rate swap contracts to manage the interest rate risk associated with its outstanding variable-interest rate borrowings. See Note 8, Derivative Instruments, for further discussion. In addition, the Company pays a quarterly commitment fee at a rate per annum ranging, as of September 30, 2022, from 0.25 percent to 0.50 percent of the daily unused portion of the Revolving Credit Facility (which was 0.30 percent and 0.40 percent at September 30, 2022 and December 31, 2021, respectively) determined based on the Company’s consolidated leverage ratio.
Debt issuance costs incurred and capitalized in conjunction with the Amended and Restated Credit Agreement are being amortized into interest expense over the term of the Amended and Restated Credit Agreement using the effective interest method.
Convertible Notes | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Interest on 6.5 percent coupon | $ | 2.3 | | | $ | 5.0 | | | $ | 12.4 | | | $ | 15.1 | |
| Amortization of debt discount and debt issuance costs | 0.3 | | | 0.6 | | | 1.5 | | | 1.7 | |
| $ | 2.6 | | | $ | 5.6 | | | $ | 13.9 | | | $ | 16.8 | |
The Company has issuedFor additional information regarding the Company’s Convertible Notes, see Part II - Item 8 - Note 16, Financing and Other Debt, in an aggregate principal amount of $310.0 million dueour Annual Report on July 15, 2027 to an affiliate of Warburg Pincus LLC (together with its affiliate, “Warburg Pincus”). Interest onForm 10-K for the Convertible Notes is calculated at a fixed rate of 6.5 percent per annum, payable semi-annually in arrears on January 15 and July 15 of each year. At the Company’s option, interest is either payable in cash, through accretion to the principal amount of the Convertible Notes, or a combination of cash and accretion.year ended December 31, 2022.
The Convertible Notes may be converted at the option of the holders at any time prior to maturity, or earlier redemption or repurchase of the Convertible Notes, based upon an initial conversion price of $200 per share of common stock, subject to customary adjustments as set forth in the indenture. The Company may settle conversions of Convertible Notes, at its election, in cash, shares of the Company’s common stock, or a combination thereof. Based on the closing price of the Company’s common stock as ofDebt Securitization Facilities
Through September 30, 2022, the “if-converted” value of the Convertible Notes was less than the respective principal amount.
The Company will have the right, at any time after July 1, 2023, to redeem the Convertible Notes in whole or in part if the closing price of WEX’s common stock exceeds certain thresholds, as defined within the indenture. In the event of certain fundamental change transactions, including certain change of control transactions and delisting events involving the Company holders of the Convertible Notes will have the right to require the Company to repurchase its Convertible Notes at 105 percent of the outstanding principal amount of the Convertible Notes, plus the present value of future interest payments through the date of maturity. No such repurchase has occurred through September 30, 2022.
The Company accounts for the Convertible Notes and its conversion feature as a single unit of account. The debt discount and debt issuance costs associated with the Convertible Notes are amortized to interest expense using the effective interest rate method over the seven-year contractual life of the Convertible Notes. As of both September 30, 2022 and December 31, 2021, the Convertible Notes had an effective interest rate of 7.5 percent.
The Convertible Notes consist of the following:
| | | | | | | | | | | | | | |
| (In thousands) | | September 30, 2022 | | December 31, 2021 |
Principal1 | | $ | 310,000 | | | $ | 310,000 | |
| Less: Unamortized discounts | | (11,391) | | | (12,844) | |
| Less: Unamortized issuance cost | | (1,834) | | | (2,068) | |
| Net carrying amount of Convertible Notes | | $ | 296,775 | | | $ | 295,088 | |
| | | | |
| | | | |
| | | | |
1 Recorded within long-term debt, net on the condensed consolidated balance sheets, offset by the long-term portion of unamortized discounts and issuance cost.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table sets forth total interest expense recognized for the Convertible Notes:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Interest on 6.5 percent coupon | $ | 5,038 | | | $ | 5,038 | | | $ | 15,113 | | | $ | 15,113 | |
| Amortization of debt discount and debt issuance costs | 553 | | | 512 | | | 1,687 | | | 1,566 | |
| $ | 5,591 | | | $ | 5,550 | | | $ | 16,800 | | | $ | 16,679 | |
Securitization Facilities
The Company iswas party to two securitized debt agreements with MUFG Bank, Ltd., both throughwhich expire in April 2023.2024, unless otherwise agreed to in writing by the parties. Under the terms of these agreements, each month on a revolving basis, the Company sells certain of its Australian and European receivables to bankruptcy-remote subsidiaries consolidated by the Company, which in turn use the receivables as collateral to issue securitized debt, which is recorded in short-term debt, net on the condensed consolidated balance sheets.debt. Amounts collected on the securitized receivables are restricted to pay the securitized debt and are not available for general corporate purposes.
The Company pays interest on the outstanding balance of the securitized debt based on variable interest rates plus an applicable margin. The effective
During the third quarter of 2023, the Company entered into a new securitized debt facility with Australia and New Zealand Banking Group Limited (“ANZ”). During October 2023, the Company terminated its existing Australian securitized debt agreement with MUFG Bank, Ltd. and the new facility with ANZ became effective. Under the new facility, the Company will continue to pay interest on the outstanding balance of the securitized debt based on a variable interest rate on the total outstanding securitized debt balance was 2.39 percent and 0.91 percent as of September 30, 2022 and December 31, 2021, respectively.plus an applicable margin.
Participation Debt
From time to time, WEX Bank enters into participation agreements with third-party banks to fund customers’ balances that exceed WEX Bank’s lending limit to individual customers. Associated unsecured borrowings generally carry a variable interest rate set according to an applicable reference rate plus a margin, which ranged from 2.25 percent to 2.50 percent as of September 30, 2023 and December 31, 2022.
As of September 30, 2022,2023, the Company had outstandingCompany’s participation agreements allow for the borrowingtotal borrowings of up to $60.0 million through May 31, 2023 and expire at various points up to $40.0 million thereafter through December 31, 2023. As of September 30, 2022 and December 31, 2021, there was $29.9 million and $1.5 million borrowed against these participation agreements, respectively. Outstanding participation debt of $9.2 million and $1.5 million was recorded within short-term debt, net onMay 2024, unless otherwise agreed to in writing by the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively, with the remaining outstanding balance of $20.7 million as of September 30, 2022 recorded within long-term debt, net. As of September 30, 2022 and December 31, 2021, the average interest rate on these agreements was 5.50 percent and 2.54 percent, respectively.parties.
Borrowed Federal Funds
WEX Bank borrows from short-term uncommitted federal funds lines to supplement the financing of the Company’s accounts receivable. There were noWEX Bank had $260.0 million in outstanding borrowings under these federal funds lines of credit as of September 30, 20222023 and no borrowings as of December 31, 2021.2022.
OtherOn March 12, 2023, the Federal Reserve Board announced the BTFP, which provides liquidity to U.S. depository institutions. Under the BTFP, WEX Bank is able to refinance outstanding obligations without penalty. During the third quarter of 2023, the Company refinanced certain outstanding borrowings through the repayment and subsequent borrowing of $250.0 million. As of September 30, 2023, WEX Bank had $500.0 million in outstanding borrowings under the BTFP, $250.0 million due in June of 2024 with an interest rate of 5.39 percent and $250.0 million due in July of 2024 with an interest rate of 5.36 percent. At September 30, 2023, debt securities with a par value of $800.3 million and fair value of $688.3 million were pledged as collateral.
As of September 30, 2022,2023, WEX Bank pledged $266.4$249.1 million of fleet customer receivables held by WEX Bank to the Federal Reserve Bank as collateral for potential borrowings through the Federal Reserve Bank Discount Window. Amounts that can be borrowed are based on the amount of collateral pledged and were $210.3 million and $268.6was $202.3 million as of September 30, 2022 and December 31, 2021, respectively.2023. WEX Bank had no borrowings outstanding on this line of credit through the Federal Reserve Bank Discount Window as of September 30, 20222023 and December 31, 2021.2022.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | |
| 11. | Off-Balance Sheet Arrangements |
WEX Europe Services and WEX Bank Accounts Receivable Factoring
WEX Europe Services and WEX Bank are each party to separate accounts receivable factoring arrangements with unrelated third-party financial institutions to sell certain of their accounts receivable balances. Each subsidiary continues to service these receivables post-transfer with no participating interest. The Company obtained true-sale opinions from independent attorneys, stating that each respective factoring agreement provides legal isolation upon bankruptcy or receivership
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
under local law. As such, transfers under these arrangements are treated as a sale and are accounted for as a reduction in trade accounts receivable because effective control of the receivables is transferred to the buyers. Proceeds received, which are recorded net of applicable costs or negotiated discount rates, are recorded in operating activities in the condensed consolidated statements of cash flows. Losses on factoring were $3.0 million and $7.4 million for the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, losses on factoring were immaterial. Losses on factoring are recorded within cost of services in the condensed consolidated statements of operations.
The WEX Europe Services agreement automatically renews each January 1 unless either party gives not less than 90 days written notice of their intention to withdraw. Under this agreement, accounts receivable are sold without recourse to the extent that the customer balances are maintained at or below the credit limit established by the buyer. If customer receivable balances exceed the buyer’s credit limit, theThe Company maintains the risk of default.default on any customer receivable balances in excess of the buyer’s credit limit, which were immaterial as of September 30, 2023. The Company sold $139.6 million and $422.9 million of accounts receivable during the three and nine months ended September 30, 2023, respectively, and sold $149.6 million and $454.2 million of accounts receivable during the three and nine months ended September 30, 2022, respectively, and $148.0 million and $411.6 million during the three and nine months ended September 30, 2021, respectively, under this arrangement. Losses on factoring were insignificant for both the three months ended September 30, 2022 and 2021. For the nine months ended September 30, 2022 and 2021, the losses on factoring were $2.3 million and $2.0 million, respectively. As of September 30, 2022 and December 31, 2021, the amounts of outstanding transferred receivables in excess of established credit limits were immaterial. Charge-backs on balances in excess of the credit limits during each of the three and nine months ended September 30, 2022 and 2021 were immaterial.
The WEX Bank agreement extends through July 2023,August 1, 2024, after which the agreement can be renewed for successive one-year periods assuming WEX Bank provides advance written notice that is accepted by the purchaser. The Company sold $2.3$4.0 billion and $4.6$9.1 billion of trade accounts receivable during the three and nine months ended September 30, 2022, respectively,2023 and $1.3$2.3 billion and $1.9$4.6 billion during the three and nine months ended September 30, 2021,2022, respectively, under this arrangement.
Benefits Securitization
In April 2023, WEX Health, through a wholly-owned special purpose entity (“SPE”), entered into a receivable securitization facility with an unrelated financial institution. Under the facility, WEX Health sells eligible trade accounts receivables to the SPE, which is a bankruptcy-remote subsidiary. The lossesreceivables, once sold to the SPE, are no longer available to satisfy creditors of the Company or its subsidiaries in the event of bankruptcy.
In turn, the SPE sells undivided ownership interests in certain of these receivables to the financial institution in exchange for cash equal to the gross receivables transferred. The receivables sold are fully guaranteed by the SPE, which also pledges any unsold receivables as collateral for such obligation.
While WEX Health continues to service the receivables sold to the financial institution under the facility, WEX does not retain effective control of the transferred receivables, derecognizes the assets and accounts for these transfers as sales. The revolving limit of the facility is $35.0 million, with an initial term through April 2026, which can be extended for an additional period of up to three years. The SPE can voluntarily terminate the facility at any time, subject to 30 days’ notice. The SPE pays interest on factoring werethe amount funded by the financial institution based on variable interest rates, which was immaterial for the three months ended September 30, 2022 and 2021. The losses on factoring were $1.1 million for the nine months ended September 30, 20222023 and immaterialreflected within operating interest on the condensed consolidated statements of operations.
The third-party financial institution has a first priority security interest in all assets of the SPE, and the SPE has not granted a security interest to any other parties. In addition, WEX Inc. has provided a performance guarantee to the third-party financial institution with respect to WEX Health’s obligations as originator and servicer under the facility.
The Company sold approximately $43.9 million and $126.1 million of receivables under the securitization facility for the three and nine months ended September 30, 2021.
The Company’s investment securities consist of (i) custodial assets deposited with, managed and invested by WEX Bank through an investment manager, which are reflected within current assets on the condensed consolidated balance sheets and (ii) securities purchased and held by WEX Bank primarily to meet the requirements of the Community Reinvestment Act, which are reflected within non-current assets on the condensed consolidated balance sheets. Investment securities are reflected at fair value and are classified as current or long-term based on management’s determination of whether such securities are available for use in current operations, regardless of the securities’ stated maturity dates. Accrued interest on investment securities is recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets. As of September 30, 2022 and December 31, 2021, accrued interest on investment securities was $9.2 million and $4.2 million,2023, respectively. The cost basis of investment securities is based on the specific identification method. Purchases, sales and maturities associated with investment securities are treated as investing activities within the condensed consolidated statements of cash flows.
The Company’s amortized cost and estimated fair value of investment securities as of September 30, 2022 and December 31, 2021 are presented below:
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Amortized Cost | | Total
Unrealized
Gains | | Total
Unrealized
Losses | | Fair Value1 |
| As of September 30, 2022 | | | | | | | |
| Current: | | | | | | | |
| | | | | | | |
| Debt securities: | | | | | | | |
| U.S. treasury notes | $ | 405,690 | | | — | | | 44,449 | | | 361,241 | |
| Corporate debt securities | 537,393 | | | — | | | 59,020 | | | 478,373 | |
| Municipal bonds | 53,024 | | | — | | | 7,893 | | | 45,131 | |
| Asset-backed securities | 200,730 | | | — | | | 10,438 | | | 190,292 | |
| Mortgage-backed securities | 338,688 | | | 12 | | | 34,326 | | | 304,374 | |
| | | | | | | |
| Total | $ | 1,535,525 | | | $ | 12 | | | $ | 156,126 | | | $ | 1,379,411 | |
| | | | | | | |
| Non-current: | | | | | | | |
| | | | | | | |
| Debt securities: | | | | | | | |
| Municipal bonds | $ | 2,951 | | | $ | — | | | $ | 498 | | | $ | 2,453 | |
| Asset-backed securities | 140 | | | 1 | | | — | | | 141 | |
| Mortgage-backed securities | 114 | | | — | | | 1 | | | 113 | |
| Fixed income mutual fund | 28,265 | | | — | | | 3,967 | | | 24,298 | |
| Pooled investment fund | 9,000 | | | — | | | — | | | 9,000 | |
| Total | $ | 40,470 | | | $ | 1 | | | $ | 4,466 | | | $ | 36,005 | |
Total investment securities2 | $ | 1,575,995 | | | $ | 13 | | | $ | 160,592 | | | $ | 1,415,416 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Amortized Cost | | Total
Unrealized
Gains | | Total
Unrealized
Losses | | Fair Value1 |
| As of December 31, 2021 | | | | | | | |
| Current: | | | | | | | |
| Debt securities: | | | | | | | |
| U.S. treasury notes | $ | 308,058 | | | $ | 250 | | | $ | 1,113 | | | $ | 307,195 | |
| Corporate debt securities | 355,102 | | | 30 | | | 3,289 | | | 351,843 | |
| Municipal bonds | 31,273 | | | 44 | | | 149 | | | 31,168 | |
| Asset-backed securities | 120,774 | | | 24 | | | 587 | | | 120,211 | |
| Mortgage-backed securities | 139,590 | | | 11 | | | 1,341 | | | 138,260 | |
| Total | $ | 954,797 | | | $ | 359 | | | $ | 6,479 | | | $ | 948,677 | |
| | | | | | | |
| Non-current: | | | | | | | |
| | | | | | | |
| Debt securities: | | | | | | | |
| Municipal bonds | $ | 3,107 | | | $ | 1 | | | $ | — | | | $ | 3,108 | |
| Asset-backed securities | 167 | | | 1 | | | — | | | 168 | |
| Mortgage-backed securities | 121 | | | 2 | | | — | | | 123 | |
| Fixed income mutual fund | 27,999 | | | — | | | 748 | | | 27,251 | |
| Pooled investment fund | 9,000 | | | — | | | — | | | 9,000 | |
| Total | $ | 40,394 | | | $ | 4 | | | $ | 748 | | | $ | 39,650 | |
Total investment securities2 | $ | 995,191 | | | $ | 363 | | | $ | 7,227 | | | $ | 988,327 | |
The Company’s amortized cost and estimated fair value of investment securities as of September 30, 2023 and December 31, 2022 are presented below. Accrued interest on investment securities of $26.7 million and $9.3 million, respectively, as of September 30, 2023 and December 31, 2022, is excluded from total investment securities and recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Amortized Cost | | Total
Unrealized
Gains | | Total
Unrealized
Losses | | Fair Value1 |
| As of September 30, 2023 | | | | | | | |
| Current: | | | | | | | |
| | | | | | | |
| Debt securities: | | | | | | | |
| U.S. treasury notes | $ | 390.9 | | | — | | | 45.3 | | | 345.6 | |
| Corporate debt securities | 969.6 | | | — | | | 71.0 | | | 898.6 | |
| Municipal bonds | 70.8 | | | — | | | 8.8 | | | 62.0 | |
| Asset-backed securities | 538.0 | | | 1.7 | | | 6.7 | | | 533.0 | |
| Mortgage-backed securities | 859.6 | | | — | | | 73.6 | | | 786.0 | |
| | | | | | | |
| Total | $ | 2,828.9 | | | $ | 1.7 | | | $ | 205.4 | | | $ | 2,625.2 | |
| | | | | | | |
| Non-current: | | | | | | | |
| | | | | | | |
Debt securities3 | $ | 15.1 | | | $ | — | | | $ | 1.4 | | | $ | 13.7 | |
| | | | | | | |
| | | | | | | |
| Mutual fund | 28.8 | | | — | | | 4.7 | | | 24.1 | |
| Pooled investment fund | 9.0 | | | — | | | — | | | 9.0 | |
| Total | $ | 52.9 | | | $ | — | | | $ | 6.1 | | | $ | 46.8 | |
Total investment securities2 | $ | 2,881.8 | | | $ | 1.7 | | | $ | 211.5 | | | $ | 2,672.0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Amortized Cost | | Total
Unrealized
Gains | | Total
Unrealized
Losses | | Fair Value1 |
| As of December 31, 2022 | | | | | | | |
| Current: | | | | | | | |
| Debt securities: | | | | | | | |
| U.S. treasury notes | $ | 405.7 | | | $ | — | | | $ | 41.7 | | | $ | 364.1 | |
| Corporate debt securities | 547.2 | | | 0.2 | | | 49.5 | | | 497.8 | |
| Municipal bonds | 53.0 | | | — | | | 8.0 | | | 45.0 | |
| Asset-backed securities | 199.8 | | | — | | | 9.1 | | | 190.7 | |
| Mortgage-backed securities | 330.4 | | | — | | | 32.7 | | | 297.7 | |
| Total | $ | 1,536.1 | | | $ | 0.2 | | | $ | 141.1 | | | $ | 1,395.3 | |
| | | | | | | |
| Non-current: | | | | | | | |
| | | | | | | |
| | | | | | | |
Debt securities3 | $ | 15.2 | | | $ | 0.1 | | | $ | 0.7 | | | $ | 14.5 | |
| | | | | | | |
| | | | | | | |
| Mutual fund | 28.4 | | | — | | | 3.9 | | | 24.5 | |
| Pooled investment fund | 9.0 | | | — | | | — | | | 9.0 | |
| Total | $ | 52.6 | | | $ | 0.1 | | | $ | 4.7 | | | $ | 48.0 | |
Total investment securities2 | $ | 1,588.7 | | | $ | 0.3 | | | $ | 145.8 | | | $ | 1,443.3 | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
1 The Company’s methods for measuring the fair value of its investment securities are discussed in Note 13, Financial Instruments − Fair Value.Value and Concentrations of Credit Risk.
2 Excludes $10.5$12.4 million and $11.3$11.1 million in equity securities as of September 30, 20222023 and December 31, 2021,2022, respectively, included in prepaid expenses and other current assets and other assets on the condensed consolidated balance sheets.
3 Substantially comprised of municipal bonds.
The following table presents estimated fair value and gross unrealized losses of debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by security category. There are no expected credit losses that have been recorded against our investment securities as of September 30, 20222023 and December 31, 2021.2022.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2023 | | | | |
| | Less than one year | | One year or longer | | Total | | | | |
| (In millions) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Investment-grade rated debt securities: | | | | | | | | | | | | | | | | | | | |
| U.S. treasury notes | $ | — | | | $ | — | | | $ | 345.6 | | | $ | 45.3 | | | $ | 345.6 | | | $ | 45.3 | | | | | | | | | |
| Corporate debt securities | 420.0 | | | 23.6 | | | 471.2 | | | 47.4 | | | 891.2 | | | 71.0 | | | | | | | | | |
| Municipal bonds | 35.5 | | | 1.6 | | | 40.0 | | | 8.6 | | | 75.5 | | | 10.2 | | | | | | | | | |
| Asset-backed securities | 187.9 | | | 1.2 | | | 137.0 | | | 5.5 | | | 324.9 | | | 6.7 | | | | | | | | | |
| Mortgage-backed securities | 527.5 | | | 34.9 | | | 258.7 | | | 38.7 | | | 786.2 | | | 73.6 | | | | | | | | | |
| Total debt securities | $ | 1,170.9 | | | $ | 61.3 | | | $ | 1,252.5 | | | $ | 145.5 | | | $ | 2,423.4 | | | $ | 206.8 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 | | | | | | | | |
| Less than one year | | One year or longer | | Total | | | | |
| Investment-grade rated debt securities: | | | | | | | | | | | | | | | | | | | |
| U.S. treasury notes | $ | 123.7 | | | $ | 12.5 | | | $ | 240.4 | | | $ | 29.2 | | | $ | 364.1 | | | $ | 41.7 | | | | | | | | | |
| Corporate debt securities | 196.9 | | | 15.1 | | | 289.9 | | | 34.4 | | | 486.8 | | | 49.5 | | | | | | | | | |
| Municipal bonds | 28.1 | | | 3.8 | | | 19.1 | | | 5.0 | | | 47.2 | | | 8.8 | | | | | | | | | |
| Asset-backed securities | 117.7 | | | 4.3 | | | 70.2 | | | 4.8 | | | 187.9 | | | 9.1 | | | | | | | | | |
| Mortgage-backed securities | 198.1 | | | 16.4 | | | 96.5 | | | 16.3 | | | 294.6 | | | 32.7 | | | | | | | | | |
| Total debt securities | $ | 664.4 | | | $ | 52.2 | | | $ | 716.1 | | | $ | 89.7 | | | $ | 1,380.5 | | | $ | 141.8 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Balance at September 30, 2022 | | Balance at December 31, 2021 | | | | |
| | | | | |
| (In thousands) | Fair Value | | Gross Unrealized Losses1 | | Fair Value | | Gross Unrealized Losses1 | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Investment-grade rated debt securities: | | | | | | | | | | | |
| U.S. treasury notes | $ | 361,241 | | | $ | 44,449 | | | $ | 268,839 | | | $ | 1,113 | | | | | |
| Corporate debt securities | $ | 478,373 | | | $ | 59,020 | | | $ | 336,777 | | | $ | 3,289 | | | | | |
| Municipal bonds | $ | 47,574 | | | $ | 8,391 | | | $ | 24,049 | | | $ | 149 | | | | | |
| Asset-backed securities | $ | 190,292 | | | $ | 10,438 | | | $ | 101,983 | | | $ | 587 | | | | | |
| Mortgage-backed securities | $ | 301,260 | | | $ | 34,327 | | | $ | 132,737 | | | $ | 1,341 | | | | | |
1 All investments above have been in a continuous unrealized loss position for less than 12 months.
The above table includes 355 securities526 investment positions at September 30, 2022,2023, where the current fair value is less than the related amortized cost. Unrealized losses on the Company’s debt securities included in the above table are not considered to be credit-related based upon an analysis that considered the extent to which the fair value is less than the amortized basis of a security, adverse conditions specifically related to the security, changes to credit rating of the instrument subsequent to Company purchase, and the strength of the underlying collateral, if any. Additionally, the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases.
The following table summarizes the contractual maturity dates of the Company’s debt securities.
| | | | | September 30, 2022 | | | September 30, 2023 | |
| (In thousands) | Amortized Cost | | Fair Value | | |
| (In millions) | | (In millions) | Amortized Cost | | Fair Value | |
| | Due within one year | | Due within one year | $ | 47.5 | | | $ | 46.6 | | |
| Due after 1 year through year 5 | Due after 1 year through year 5 | 489,539 | | | 447,301 | | | Due after 1 year through year 5 | 640.1 | | | 588.4 | | |
| Due after 5 years through year 10 | Due after 5 years through year 10 | 582,727 | | | 510,215 | | | Due after 5 years through year 10 | 791.2 | | | 723.7 | | |
| Due after 10 years | Due after 10 years | 466,464 | | | 424,602 | | | Due after 10 years | 1,365.2 | | | 1,280.2 | | |
| Total | Total | $ | 1,538,730 | | | $ | 1,382,118 | | | Total | $ | 2,844.0 | | | $ | 2,638.9 | | |
|
Changes in the fair value of the Company’s equity securities are recognized within net unrealized gain on financial instruments on the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021. During the three and nine months ended September 30, 2022, unrealized losses recognized on equity securities still held as of September 30, 2022 approximated $1.1 million and $3.2 million, respectively. During the three and nine months ended September 30, 2021, unrealized gains and losses related to equity securities still held as of September 30, 2021 were immaterial.
Certain of the Company’s financial assets and liabilities are recorded at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market quotes are not readily accessible or available. Various factors are considered in determining the fair value of the Company’s assets and liabilities, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options and derivatives; price activity for equivalent instruments; and the Company’s own credit standing. These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
•Level 1 – Quoted prices for identical instruments in active markets.
•Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 – Instruments whose significant value drivers are unobservable.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Assets and liabilities measured at fair value are classifiedChanges in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significanceCompany’s equity securities are recognized within net unrealized (loss) gain on financial instruments on the condensed consolidated statements of a particular input tooperations. During the fair value measurement in its entirety requires judgmentthree and considers factors specific to the asset or liability.nine months ended September 30, 2023 and 2022, unrealized gains and losses recognized on equity securities still held as of those dates were immaterial.
Assets and Liabilities
| | | | | |
| 13. | Financial Instruments − Fair Value and Concentrations of Credit Risk |
Financial Instruments Measured at Fair Value on a Recurring Basis
The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis:basis, as classified within the three-level fair value hierarchy:
| (In thousands) | Fair Value Hierarchy | September 30, 2022 | | December 31, 2021 | |
(In millions) | | (In millions) | Fair Value Hierarchy | September 30, 2023 | | December 31, 2022 |
| Assets: | Assets: | | | | Assets: | | | |
Money market mutual funds1 | Money market mutual funds1 | 1 | $ | 17,437 | | | $ | 3,670 | | Money market mutual funds1 | 1 | $ | 9.6 | | | $ | 35.1 | |
| | | Investment securities, current: | Investment securities, current: | | Investment securities, current: | |
| Debt securities: | Debt securities: | | Debt securities: | |
| U.S. treasury notes | U.S. treasury notes | 2 | $ | 361,241 | | | $ | 307,195 | | U.S. treasury notes | 2 | $ | 345.6 | | | $ | 364.1 | |
| Corporate debt securities | Corporate debt securities | 2 | 478,373 | | | 351,843 | | Corporate debt securities | 2 | 898.6 | | | 497.8 | |
| Municipal bonds | Municipal bonds | 2 | 45,131 | | | 31,168 | | Municipal bonds | 2 | 62.0 | | | 45.0 | |
| Asset-backed securities | Asset-backed securities | 2 | 190,292 | | | 120,211 | | Asset-backed securities | 2 | 533.0 | | | 190.7 | |
| Mortgage-backed securities | Mortgage-backed securities | 2 | 304,374 | | | 138,260 | | Mortgage-backed securities | 2 | 786.0 | | | 297.7 | |
| Total | Total | | $ | 1,379,411 | | | $ | 948,677 | | Total | | $ | 2,625.2 | | | $ | 1,395.3 | |
| | Investment securities, non-current: | Investment securities, non-current: | | Investment securities, non-current: | |
| Debt securities: | | |
| Municipal bonds | 2 | $ | 2,453 | | | $ | 3,108 | | |
| Asset-backed securities | 2 | 141 | | | 168 | | |
| Mortgage-backed securities | 2 | 113 | | | 123 | | |
| Fixed-income mutual fund | 1 | 24,298 | | | 27,251 | | |
| Debt securities | | Debt securities | 2 | $ | 13.7 | | | $ | 14.5 | |
| | Mutual fund | | Mutual fund | 1 | 24.1 | | | 24.5 | |
Pooled investment fund measured at NAV2 | Pooled investment fund measured at NAV2 | | 9,000 | | | 9,000 | | Pooled investment fund measured at NAV2 | | 9.0 | | | 9.0 | |
| Total | Total | | $ | 36,005 | | | $ | 39,650 | | Total | | $ | 46.8 | | | $ | 48.0 | |
| Executive deferred compensation plan trust3 | Executive deferred compensation plan trust3 | 1 | $ | 10,503 | | | $ | 11,303 | | Executive deferred compensation plan trust3 | 1 | $ | 12.4 | | | $ | 11.1 | |
Interest rate swaps4 | Interest rate swaps4 | 2 | $ | 88,529 | | | $ | 15,031 | | Interest rate swaps4 | 2 | $ | 62.0 | | | $ | 81.4 | |
| | Liabilities | Liabilities | | Liabilities | |
Interest rate swaps4 | 2 | $ | — | | | $ | 19,982 | | |
| Contingent consideration5 | Contingent consideration5 | 3 | $ | 202,400 | | | $ | 67,300 | | Contingent consideration5 | 3 | $ | 183.9 | | | $ | 206.4 | |
1 The fair value is recorded in cash and cash equivalents.
2 The fair value of this security is measured at NAV as a practical expedient and has not been classified within the fair value hierarchy. The amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets.
3 The fair value is recorded as current or long-term based on the timing of the Company’s executive deferred compensation plan payment obligations. At September 30, 2022, $1.82023, $1.6 million and $8.7$10.8 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. At December 31, 2021, $1.62022, $1.9 million and $9.7$9.2 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively.
4 The fair value is recorded as current or long-term depending on the timing of expected discounted cash flows. At September 30, 2022, $41.82023, $39.0 million and $46.7$23.0 million in fair value is recorded in prepaid expenses and other current assets and other assets, respectively. At December 31, 2021, $0.12022, $45.3 million and $14.9$36.1 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. At December 31, 2021, $17.6 million and $2.4 million in fair value is recorded within other current liabilities and other liabilities, respectively.
5 The fair value is recorded as current or long-term based on the timing of expected payments. At September 30, 2022, $24.22023, $63.5 million and $178.2$120.4 million in fair value is recorded within accrued expenses and other current liabilities and other liabilities, respectively. At December 31, 2021, $67.32022, $28.7 million and $177.7 million in fair value is recorded inwithin accrued expenses and other liabilities.current liabilities and other liabilities, respectively.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Money Market Mutual Funds
A portion of the Company’s cash and cash equivalents are invested in money market mutual funds that primarily consist of short-term government securities, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market prices for identical instruments in an active market.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Debt Securities
The Company determines the fair value of U.S. treasury notes using quoted market prices for similar or identical instruments in a market that is not active. For corporate debt securities, municipal bonds, and asset-backed and mortgage-backed securities, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally valued using Level 2 inputs.inputs to the fair value hierarchy.
Pooled Investment Fund
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Fair Value | | Unfunded Commitments | | Redemption Frequency | | Redemption Notice Period |
| | | | | | | |
Pooled investment fund, as of September 30, 2022 | $ | 9,000 | | | — | | | Monthly | | 30 days |
The pooled investment fund is a Community Reinvestment Act-eligible investment fund, which seeks to provide bank investors with current income consistent with the returns available in adjustable-rate government guaranteed financial products by investing in Community Development loans guaranteed by the Small Business Administration. The fund maintains individual capital accounts for each investor, which reflect each individual investor’s share of the NAV of the fund. As of September 30, 2023, the Company had no unfunded commitments with respect to the fund. Investments in the fund may be redeemed monthly with 30 days’ notice.
Fixed Income Mutual Fund
The Company determines the fair value of its fixed income mutual fund investment using quoted market prices for identical instruments in an active market; such inputs are classified as Level 1 of the fair value hierarchy.
Executive Deferred Compensation Plan Trust
The investments held in the executive deferred compensation plan trust, which consist primarily of mutual funds, are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted market prices for identical instruments in active markets.
Interest Rate Swaps
The Company determines the fair value of its interest rate swaps based on the discounted cash flows of the difference between the projected fixed payments on the swaps and the implied floating payments using the current LIBORSOFR curve, which are Level 2 inputs of the fair value hierarchy.
Contingent Consideration
As part of the asset acquisition from Bell Bank during 2021, the Company is obligated to pay additional consideration to Bell Bank contingent upon increases in the Federal Funds rate. The Company determined the fair value of this contingent consideration derivative liability based on discounted cash flows using the difference between the baseline Federal Funds rate in the purchase agreement with Bell Bank and future forecasted Federal Funds rates over the agreement term. The forecasted Federal Funds rates represent a Level 3 input within the fair value hierarchy. The resulting probability-weighted contingent consideration amounts were discounted using a discount rate, which was 3.754.51 percent as of September 30, 20222023 and 1.453.52 percent as of December 31, 2021. Significant2022. Due to significant increases or decreases in the Federal Funds rates could result in material increases or decreases, respectively, torate, the fair value of the Company’s contingent consideration derivative liability at September 30, 2023 is effectively measured at the present value of the maximum remaining contingent consideration payable under the arrangement and accordingly, the fair value could not materially increase. A significant decrease in the Federal Funds rate could result in a material decrease in the derivative liability.
The Company records changes in the estimated fair value of the contingent consideration in the condensed consolidated statements of operations. Changes in the contingent consideration derivative liability are measured at fair value on a recurring basis using unobservable inputs (Level 3)3 in the fair value hierarchy) and are as follows for the periods indicated:
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In thousands) | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| Beginning balance | $ | 172,100 | | | $ | 74,900 | | | $ | 67,300 | | | $ | — | |
| Fair value recorded as a result of the acquisition | — | | | — | | | — | | | 27,200 | |
| Change in fair value of contingent consideration | 30,300 | | | (2,800) | | | 135,100 | | | 44,900 | |
| Contingent consideration | $ | 202,400 | | | $ | 72,100 | | | $ | 202,400 | | | $ | 72,100 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Contingent consideration - beginning of period | $ | 180.7 | | | $ | 172.1 | | | $ | 206.4 | | | $ | 67.3 | |
| | | | | | | |
Payments of contingent consideration (1) | — | | | — | | | (28.7) | | | — | |
| Change in fair value of contingent consideration | 3.2 | | | 30.3 | | | 6.2 | | | 135.1 | |
| Contingent consideration - end of period | $ | 183.9 | | | $ | 202.4 | | | $ | 183.9 | | | $ | 202.4 | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
(1) The Company has presented $27.2 million of this payment, which represents the fair value of our non-financial assets and liabilities, which include goodwill, intangible assets and property, equipment and capitalized software, are measured on a non-recurring basis. Fair value adjustments are madethe contingent consideration at acquisition date, within net cash provided by financing activities in the period an impairment charge is recognized. During the threecondensed consolidated statement of cash flows. The remainder has been included in net cash provided by (used for) operating activities (specifically within changes in accrued expenses and nine months ended September 30, 2022, we recognized impairment charges of $136.5 million related to our goodwill. The fair value of our reporting units are classified as Level 3 within the fair value hierarchy due to the significant unobservable inputs developed using company-specific information. For additional information, see the discussion of our impairment charges in Note 2, Recent Accounting Pronouncementsother current and Supplemental Information, including the valuation methods and inputs used in the fair value measurements.long-term liabilities).
Assets and LiabilitiesFinancial Instruments Measured at Carrying Value, for which Fair Value is Disclosed
The fair value of the Company’s financial instruments, which are measured and reported at carrying value, is as follows for the periods indicated:
| | (In thousands) | | September 30, 2022 | | December 31, 2021 | |
| (In millions) | | (In millions) | | September 30, 2023 | | December 31, 2022 |
| | Carrying value | | Fair value | | Carrying value | | Fair value | | Carrying value | | Fair value | | Carrying value | | Fair value |
| Tranche A Term Loans1 | Tranche A Term Loans1 | | $ | 905,050 | | | $ | 884,687 | | | $ | 941,742 | | | ** | Tranche A Term Loans1 | | $ | 856.1 | | | ** | | $ | 892.8 | | | ** |
Tranche B Term Loans1 | Tranche B Term Loans1 | | 1,420,370 | | | 1,382,205 | | | 1,431,185 | | | ** | Tranche B Term Loans1 | | 1,406.0 | | | ** | | 1,416.8 | | | ** |
Outstanding borrowings on Revolving Credit Facility1 | Outstanding borrowings on Revolving Credit Facility1 | | 88,200 | | | ** | | 119,800 | | | ** | Outstanding borrowings on Revolving Credit Facility1 | | 471.6 | | | ** | | — | | | — | |
Convertible Notes2 | Convertible Notes2 | | 310,000 | | | 280,209 | | | 310,000 | | | 327,670 | | Convertible Notes2 | | — | | | — | | | 310.0 | | | 330.0 | |
Contractual deposits with maturities in excess of one year3 | Contractual deposits with maturities in excess of one year3 | | 489,942 | | | 452,950 | | | 652,214 | | | ** | Contractual deposits with maturities in excess of one year3 | | 115.5 | | | ** | | 334.2 | | | 308.1 | |
** Fair value approximates carrying value.
1 The Company determines the fair value of borrowings on the Revolving Credit Facility and Tranche A Term Loans and Tranche B Term Loans based on market rates for the issuance of the Company’s debt, which are Level 2 inputs in the fair value hierarchy.
2 The Company determinesdetermined the fair value of the Convertible Notes outstanding using our stock price and volatility, the conversion premium on the Convertible Notes and effective interest rates for similarly-rated credit issuances, all of which are Level 2 inputs in the fair value hierarchy. On August 11, 2023, the Company repurchased all of the outstanding aggregate principal amount of the Company’s Convertible Notes and the repurchased Convertible Notes were canceled by the trustee at the instruction of the Company.
3 The Company determines the fair value of its contractual deposits with maturities in excess of one year using current market interest rates for deposits of similar remaining maturities, which are Level 2 inputs in the fair value hierarchy.
Other Assets and Liabilities
The carrying value of certain of the Company’s financial instruments, other than those presented above, including cash, cash equivalents, restricted cash and restricted cash payable, short-term contractual deposits and HSA deposits, accounts receivable and securitized accounts receivable, accounts payable, accrued expenses and other current liabilities and other liabilities, approximate their respective fair values due to their short-term nature or maturities. The carrying value of certain other financial instruments, including interest-bearing money market deposits, securitized debt, participation debt, borrowed federal funds and deferred consideration associated with our acquisitions approximate their respective fair values due to stated interest rates being consistent with current market interest rates.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, investment securities, trade receivables and interest rate swap contracts.
Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically and industry diverse customers make up our customer base. See Note 5, Accounts Receivable, Net, for further information.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company’s cash and cash equivalents, restricted cash and interest rate swap contracts are transacted and maintained with financial institutions with high credit standing. Cash balances at many of these institutions regularly exceed FDIC insured limits; however, management regularly monitors the financial institutions and the composition of the Company’s accounts. We have not experienced any losses in such accounts and management believes that the financial institutions at which the Company’s cash is held are stable. We attempt to limit our exposure to credit risk with our investment securities by establishing strict investment policies as to minimum investment ratings, diversification of our portfolio and setting risk tolerance levels.
| | | | | |
| 14. | Redeemable Non-Controlling Interest |
On March 5, 2019, the Company acquired Discovery Benefits an employee benefits administrator. The seller of Discovery Benefits,from SBI, who obtained a 4.9 percent equity interest in PO Holding,Holding. The equity interest was puttable under the then newly formed parent companyagreement, making the non-controlling interest redeemable and therefore, it was classified as temporary equity outside of WEX
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Health and Discovery Benefits.stockholders’ equity. As part of WEX Inc.’s purchase of the HSA contractual rights from Bell Bank on April 1, 2021, as more fully described in Note 4, Acquisitions, SBI’s ownership percentage was reduced to 4.53 percent.
The original agreement provided SBI with a put right and the Company with a call right for the equity interest, which could be exercised no earlier than seven years following the date of acquisition. Upon exercise of the put or call right, the purchase price was to be calculated based on a revenue multiple of peer companies (as described in the operating agreement for PO Holding) applied to trailing twelve month revenues of the U.S. Health business. The put option made the non-controlling interest redeemable and, therefore, the non-controlling interest was classified as temporary equity outside of stockholders’ equity. Any resulting change in the value of the redeemable non-controlling interest was offset against retained earnings and impacted earnings per share.
On March 7, 2022, in complete satisfaction of any rights under the PO Holding operating agreement, WEX Inc. and SBI entered into the Share Purchase Agreement whereby WEX Inc. purchased SBI’s remaining 4.53 percent interest in PO Holding. TheHolding for a deferred purchase price for the shares in PO Holding wasof $234.0 million plus any interest accruing pursuant to the terms of the Share Purchase Agreement. The initialpurchase agreement and recorded the liability associated with the future payment of the purchase price was recorded at a net present value of $216.6 million, as more fully described in Note 4, Acquisitions.
million. The carrying value of the redeemable non-controlling interest immediately prior to the acquisition date was $254.4 million. Themillion and therefore, the $37.8 million excess carrying value as of the acquisition date was recorded within the change in value of redeemable non-controlling interest on the condensed consolidated statements of operations. This change in value of redeemable non-controlling interest wasoperations, offset by $3.5 million of deferred tax expense resulting from the difference between the book and tax bases of the deferred liability payable to SBI. As a result of the acquisition, the carrying value of the redeemable non-controlling interest was reduced to zero and WEX Inc. owns 100 percent of PO Holding.
The following table presents the changes in the Company’s redeemable non-controlling interest:
| | | | | | | | | | | |
| |
(In thousands) | 2022 | | 2021 |
| Balance at January 1 | $ | 254,106 | | | $ | 117,219 | |
| Net income attributable to redeemable non-controlling interest | 268 | | | 353 | |
| Change in value of redeemable non-controlling interest | (37,780) | | | 25,044 | |
| Repurchase of non-controlling interest | (216,594) | | | — | |
| Balance at March 31 | $ | — | | | $ | 142,616 | |
| | | |
| | | |
| | | |
| Net income attributable to redeemable non-controlling interest | — | | | 232 | |
| Repurchase of non-controlling interest | — | | | (11,191) | |
| Contribution from non-controlling interest | — | | | 12,457 | |
| Change in value of redeemable non-controlling interest | — | | | 43,823 | |
| Balance at June 30 | $ | — | | | $ | 187,937 | |
| Net income attributable to redeemable non-controlling interest | — | | | 134 | |
| Change in value of redeemable non-controlling interest | — | | | 3,416 | |
| Balance at September 30 | $ | — | | | $ | 191,487 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
The Company’s effective tax rate was 58.6 percent and 30.2 percent for the three and nine months ended September 30, 2023, respectively, and (1.9) percent and 42.1 percent for the three and nine months ended September 30, 2022, respectively, and 27.2 percent and 16.6 percent for the three and nine months ended September 30, 2021, respectively. Income tax expense is based on an estimated annual effective rate, which requires the Company to make its best estimate of annual pretax income or loss. The Company’s effective tax rate for the three and nine months ended September 30, 2023 was unfavorably impacted by the loss on extinguishment of Convertible Notes of $70.1 million, which was disallowed for tax purposes. This was partially offset for the nine months ended September 30, 2023 by a release in valuation allowance largely attributable to foreign tax credits and net operating losses in the U.K. recorded during the second quarter of 2023. Additionally, the Company recorded a discrete tax benefit of $2.5 million in the second quarter of 2023 thereby reversing a portion of an uncertain tax position of $7.5 million that originally adversely impacted the Company’s effective tax rate for the nine months ended September 30, 2022. The Company’s effective tax rates for the three and nine months ended September 30, 2022 were adversely impacted primarily by a discrete tax adjustment of $12.7 million relating to the establishment of a valuation allowance recorded against a portion of deferred tax assets resulting from goodwill impairment charges. The Company’s effective tax rate for the nine months ended September 30, 2022 was also adversely impacted by a discrete tax item of $7.5 million recorded during the first quarter of 2022, primarily associated with an uncertain tax position. The effective tax rate for the nine months ended September 30, 2021 was favorably impacted primarily by significant excess tax benefits arising from stock-based compensation.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $157.1$228.6 million and $133.0$159.9 million at September 30, 20222023 and December 31, 2021,2022, respectively. The Company continues to maintain its indefinite reinvestment assertion for its investments in foreign subsidiaries except for any historical undistributed earnings and future earnings for WEX Australia. Upon distributionThe total amount of theour foreign subsidiaries’ earnings in which the Company continues to assert indefinite reinvestment approximates $193.9 million at September 30, 2023. Upon distribution of these earnings, the Company would be subject to withholding taxes payable to foreign countries, where applicable, but would generally have no further federal income tax liability. It is not practicable to estimate the unrecognized deferred tax liability;liability associated with these undistributed earnings; however, it is not expected to be material.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | |
| 16. | Commitments and Contingencies |
Restructuring Activities
In connection with the acquisition of eNett and Optal, during the first quarter of 2021, the Company initiated a restructuring program within the Travel and Corporate Solutions segment. The restructuring initiative consisted of employee separation costs, which the Company determined were probable and reasonably estimable. As such, the Company recorded charges incurred under this initiative of $5.4 million during the nine months ended September 30, 2021, within general and administrative expenses on the condensed consolidated statements of operations. There were no accrued charges related to this initiative as of December 31, 2021 and no further charges were incurred during the nine months ended September 30, 2022.
Litigation and Regulatory Matters
The Company is subject to legal proceedingslitigation, claims and claimsregulatory matters in the ordinary course of business. As of the date of this filing, the current estimate of a reasonably possible loss contingency from all legal or regulatory proceedings is not material to the Company’s consolidated financial position, results of operations, cash flows or liquidity.
Commitments
Minimum Volume Commitments
During June 2022, the Company and its European fuel suppliers amended existing contracts, modifying both prior period and future minimum volume commitments through 2025. As a result of these amendments, the Company reversed previously accrued penalties totaling approximately $7 million as revenue within the condensed consolidated statement of operations during the nine months ended September 30, 2022. During the three and nine months ended September 30, 2022, the Company incurred shortfall penalties of approximately $0.6 million and $1.6 million, respectively, under the amended agreements.
Other Commitments
Other significantSignificant commitments and contingencies as of September 30, 20222023 are consistent with those discussed in Note 20, Commitments and Contingencies, to the consolidated financial statements in the Company’s Annual Report on Form 10–K for the year ended December 31, 2021.2022.
| | | | | |
| 17. | Stock–Based Compensation |
The Company regularly grants equity awards in the form of stock options, restricted stock, restricted stock units and other stock-based awards under its stockholder-approved Amended and Restated 2019 Equity and Incentive Plan to certain employees and directors. Stock-based compensation expense was $30.5 million and $91.7 million for the three and nine months ended September 30, 2023, respectively, and $28.2 million and $76.8 million for the three and nine months ended September 30, 2022, respectively, and $21.7 million and $60.3 million for the three and nine months ended September 30, 2021, respectively.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The Company determines its operating segments and reports segment information in accordance with how our Chief Executive Officer, the Company’s CODM, allocates resources and assesses performance. The Company’s CODM is its Chief Executive Officer. TheCompany has both three operating segments are aggregated into theand three reportable segments, as described below.
•Fleet SolutionsMobility provides payment processing, transaction processing, and information management services specifically designed for the needs of fleets of all sizes from small businesses to federal and state government fleets and over-the-road carriers.
•Travel and Corporate SolutionsPayments focuses on the complex payment environment of global B2B payments, enabling customers to utilize our payments solutions to integrate into their own workflows and manage their accounts payable automation and spend management functions.
•Health and Employee Benefit SolutionsBenefits provides a SaaS platform for consumer directed healthcare benefits and a full-service benefit enrollment solution, bringing together benefits administration, certain compliance services and consumer-directed and benefits accounts. Additionally, the CompanyWEX Inc. serves as the non-bank custodian to certain HSA assets.
The following tables present the Company’s reportable segment revenues:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee
Benefit Solutions | | Total |
| Payment processing revenue | $ | 188,586 | | | $ | 101,533 | | | $ | 18,913 | | | $ | 309,032 | |
| Account servicing revenue | 41,632 | | | 10,748 | | | 85,944 | | | 138,324 | |
| Finance fee revenue | 96,495 | | | 162 | | | 41 | | | 96,698 | |
| Other revenue | 51,381 | | | 1,532 | | | 19,162 | | | 72,075 | |
| Total revenues | $ | 378,094 | | | $ | 113,975 | | | $ | 124,060 | | | $ | 616,129 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total |
| Payment processing revenue | $ | 130,006 | | | $ | 79,815 | | | $ | 16,305 | | | $ | 226,126 | |
| Account servicing revenue | 43,671 | | | 10,908 | | | 83,145 | | | 137,724 | |
| Finance fee revenue | 67,529 | | | 200 | | | 40 | | | 67,769 | |
| Other revenue | 45,155 | | | 79 | | | 5,911 | | | 51,145 | |
| Total revenues | $ | 286,361 | | | $ | 91,002 | | | $ | 105,401 | | | $ | 482,764 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee
Benefit Solutions | | Total |
| Payment processing revenue | $ | 542,851 | | | $ | 255,216 | | | $ | 62,748 | | | $ | 860,815 | |
| Account servicing revenue | 127,935 | | | 31,906 | | | 256,062 | | | 415,903 | |
| Finance fee revenue | 259,967 | | | 519 | | | 104 | | | 260,590 | |
| Other revenue | 145,703 | | | 3,995 | | | 44,895 | | | 194,593 | |
| Total revenues | $ | 1,076,456 | | | $ | 291,636 | | | $ | 363,809 | | | $ | 1,731,901 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Payment processing revenue | $ | 176.9 | | | $ | 115.8 | | | $ | 20.6 | | | $ | 313.3 | |
| Account servicing revenue | 42.5 | | | 10.5 | | | 108.5 | | | 161.5 | |
| Finance fee revenue | 76.8 | | | 0.2 | | | 0.1 | | | 77.1 | |
| Other revenue | 53.9 | | | 8.7 | | | 36.9 | | | 99.5 | |
| Total revenues | $ | 350.1 | | | $ | 135.2 | | | $ | 166.1 | | | $ | 651.4 | |
| | | | | | | |
| | | | | | | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | Nine Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
| (In thousands) | Fleet Solutions | | Travel and Corporate Solutions | | Health and Employee Benefit Solutions | | Total | |
| (In millions) | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Payment processing revenue | Payment processing revenue | $ | 367,032 | | | $ | 205,345 | | | $ | 55,564 | | | $ | 627,941 | | Payment processing revenue | $ | 188.6 | | | $ | 101.5 | | | $ | 18.9 | | | $ | 309.0 | |
| Account servicing revenue | Account servicing revenue | 125,955 | | | 32,817 | | | 230,572 | | | 389,344 | | Account servicing revenue | 41.6 | | | 10.7 | | | 85.9 | | | 138.3 | |
| Finance fee revenue | Finance fee revenue | 178,627 | | | 693 | | | 101 | | | 179,421 | | Finance fee revenue | 96.5 | | | 0.2 | | | — | | | 96.7 | |
| Other revenue | Other revenue | 132,972 | | | 4,551 | | | 18,775 | | | 156,298 | | Other revenue | 51.4 | | | 1.5 | | | 19.2 | | | 72.1 | |
| Total revenues | Total revenues | $ | 804,586 | | | $ | 243,406 | | | $ | 305,012 | | | $ | 1,353,004 | | Total revenues | $ | 378.1 | | | $ | 114.0 | | | $ | 124.1 | | | $ | 616.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine Months Ended September 30, 2023 |
| (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Payment processing revenue | $ | 520.6 | | | $ | 310.6 | | | $ | 70.7 | | | $ | 901.9 | |
| Account servicing revenue | 123.6 | | | 31.7 | | | 319.8 | | | 475.1 | |
| Finance fee revenue | 233.5 | | | 0.5 | | | 0.2 | | | 234.2 | |
| Other revenue | 154.9 | | | 19.1 | | | 99.5 | | | 273.5 | |
| Total revenues | $ | 1,032.6 | | | $ | 361.9 | | | $ | 490.2 | | | $ | 1,884.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine Months Ended September 30, 2022 |
| (In millions) | Mobility | | Corporate Payments | | Benefits | | Total |
| Payment processing revenue | $ | 542.9 | | | $ | 255.2 | | | $ | 62.7 | | | $ | 860.8 | |
| Account servicing revenue | 127.9 | | | 31.9 | | | 256.1 | | | 415.9 | |
| Finance fee revenue | 260.0 | | | 0.5 | | | 0.1 | | | 260.6 | |
| Other revenue | 145.7 | | | 4.0 | | | 44.9 | | | 194.6 | |
| Total revenues | $ | 1,076.5 | | | $ | 291.6 | | | $ | 363.8 | | | $ | 1,731.9 | |
The CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization; (iii) other acquisition and divestiture related items; (iv) debt restructuring costs; (v) stock-based compensation; (vi)(v) other costs and (vii)(vi) impairment charges. Additionally, we do not allocate financing interestnon-operating income and expense foreign currency gains and losses, other income, change in fair value of contingent consideration and net unrealized gains and losses on financial instruments to our operating segments.
The following table reconciles total segment adjusted operating income to (loss) income before income taxes:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Segment adjusted operating income | | | | | | | |
| Fleet Solutions | $ | 174,521 | | | $ | 144,853 | | | $ | 527,591 | | | $ | 400,976 | |
| Travel and Corporate Solutions | 60,289 | | | 31,057 | | | 139,635 | | | 55,229 | |
| Health and Employee Benefit Solutions | 30,261 | | | 23,863 | | | 94,068 | | | 83,487 | |
| Total segment adjusted operating income | $ | 265,071 | | | $ | 199,773 | | | $ | 761,294 | | | $ | 539,692 | |
| | | | | | | |
| Reconciliation: | | | | | | | |
| Total segment adjusted operating income | $ | 265,071 | | | $ | 199,773 | | | $ | 761,294 | | | $ | 539,692 | |
| Less: | | | | | | | |
| Unallocated corporate expenses | 23,918 | | | 20,977 | | | 63,915 | | | 54,360 | |
| Acquisition-related intangible amortization | 42,486 | | | 46,965 | | | 127,743 | | | 134,713 | |
| Other acquisition and divestiture related items | 4,142 | | | 7,012 | | | 15,143 | | | 32,498 | |
| Debt restructuring costs | 72 | | | 120 | | | 43 | | | 6,056 | |
| Stock-based compensation | 27,873 | | | 22,166 | | | 78,360 | | | 62,771 | |
| Other costs | 8,806 | | | 1,711 | | | 24,911 | | | 15,653 | |
| Impairment charges | 136,486 | | | — | | | 136,486 | | | — | |
| Operating income | 21,288 | | | 100,822 | | | 314,693 | | | 233,641 | |
| Financing interest expense | (34,419) | | | (32,493) | | | (95,928) | | | (98,250) | |
| Net foreign currency loss | (23,445) | | | (9,962) | | | (37,847) | | | (11,375) | |
| | | | | | | |
| Other income | — | | | 3,617 | | | — | | | 3,617 | |
| Change in fair value of contingent consideration | (30,300) | | | 2,800 | | | (135,100) | | | (44,900) | |
| Net unrealized gain on financial instruments | 23,540 | | | 6,424 | | | 90,261 | | | 19,470 | |
| (Loss) income before income taxes | $ | (43,336) | | | $ | 71,208 | | | $ | 136,079 | | | $ | 102,203 | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| Segment adjusted operating income | | | | | | | |
| Mobility | $ | 159.6 | | | $ | 174.5 | | | $ | 448.7 | | | $ | 527.6 | |
| Corporate Payments | 82.9 | | | 60.3 | | | 198.4 | | | 139.6 | |
| Benefits | 58.8 | | | 30.3 | | | 182.6 | | | 94.1 | |
| Total segment adjusted operating income | $ | 301.3 | | | $ | 265.1 | | | $ | 829.7 | | | $ | 761.3 | |
| | | | | | | |
| Reconciliation: | | | | | | | |
| Total segment adjusted operating income | $ | 301.3 | | | $ | 265.1 | | | $ | 829.7 | | | $ | 761.3 | |
| Less: | | | | | | | |
| Unallocated corporate expenses | 29.1 | | | 23.9 | | | 76.8 | | | 63.9 | |
| Acquisition-related intangible amortization | 45.2 | | | 42.5 | | | 133.6 | | | 127.7 | |
| Other acquisition and divestiture related items | 5.1 | | | 4.1 | | | 7.6 | | | 15.1 | |
| | | | | | | |
| Stock-based compensation | 31.9 | | | 27.9 | | | 94.5 | | | 78.4 | |
| Other costs | 15.1 | | | 8.9 | | | 28.6 | | | 25.0 | |
| Impairment charges | — | | | 136.5 | | | — | | | 136.5 | |
| Operating income | 174.9 | | | 21.3 | | | 488.6 | | | 314.7 | |
| Financing interest expense | (41.6) | | | (34.4) | | | (122.4) | | | (95.9) | |
| Net foreign currency loss | (7.8) | | | (23.4) | | | (9.4) | | | (37.8) | |
| | | | | | | |
| Loss on extinguishment of Convertible Notes | (70.1) | | | — | | | (70.1) | | | — | |
| Change in fair value of contingent consideration | (3.2) | | | (30.3) | | | (6.2) | | | (135.1) | |
| Net unrealized (loss) gain on financial instruments | (7.8) | | | 23.5 | | | (20.1) | | | 90.3 | |
| Income (loss) before income taxes | $ | 44.4 | | | $ | (43.3) | | | $ | 260.4 | | | $ | 136.1 | |
| | | | | |
| 19. | Supplementary Regulatory Capital Disclosure |
The Company’s subsidiary, WEX Bank, is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, WEX Bank must meet specific capital guidelines that involve quantitative measures of WEX Bank’s assets, liabilities and certain off-balance sheet items. WEX Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can initiate certain
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
mandatory and possible additional discretionary actions by regulators that, if undertaken, could limit business activities and have a material effect on the Company’s business, results of operations and financial condition.
Quantitative measures established by regulation to ensure capital adequacy require WEX Bank to maintain minimum amounts and ratios as defined in the regulations. As of September 30, 2022, theThe most recent FDIC exam report categorized WEX Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events subsequent to that examination report that management believes have changed WEX Bank’s capital rating.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table presents WEX Bank’s actual and regulatory minimum capital amounts and ratios:
|
(In thousands) | Actual Amount | | Ratio | | Minimum for Capital Adequacy Purposes Amount | | Ratio | | Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions Amount | | Ratio | |
| September 30, 2022 | | | | | | | | | | | | |
(In millions) | |
(In millions) | Actual Amount | | Ratio | | Minimum for Capital Adequacy Purposes Amount | | Ratio | | Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions Amount | | Ratio |
| September 30, 2023 | | September 30, 2023 | | | | | | | | | | | |
| Total Capital to risk-weighted assets | Total Capital to risk-weighted assets | $ | 605,824 | | | 13.96 | % | | $ | 347,154 | | | 8.00 | % | | $ | 433,943 | | | 10.00 | % | Total Capital to risk-weighted assets | $ | 740.2 | | | 14.83 | % | | $ | 399.2 | | | 8.00 | % | | $ | 499.1 | | | 10.00 | % |
| Tier 1 Capital to average assets | Tier 1 Capital to average assets | $ | 551,526 | | | 9.49 | % | | $ | 232,525 | | | 4.00 | % | | $ | 290,656 | | | 5.00 | % | Tier 1 Capital to average assets | $ | 677.8 | | | 10.20 | % | | $ | 265.8 | | | 4.00 | % | | $ | 332.3 | | | 5.00 | % |
| Common equity to risk-weighted assets | Common equity to risk-weighted assets | $ | 551,526 | | | 12.71 | % | | $ | 195,274 | | | 4.50 | % | | $ | 282,063 | | | 6.50 | % | Common equity to risk-weighted assets | $ | 677.8 | | | 13.58 | % | | $ | 224.6 | | | 4.50 | % | | $ | 324.4 | | | 6.50 | % |
| Tier 1 Capital to risk-weighted assets | Tier 1 Capital to risk-weighted assets | $ | 551,526 | | | 12.71 | % | | $ | 260,366 | | | 6.00 | % | | $ | 347,154 | | | 8.00 | % | Tier 1 Capital to risk-weighted assets | $ | 677.8 | | | 13.58 | % | | $ | 299.4 | | | 6.00 | % | | $ | 399.2 | | | 8.00 | % |
| December 31, 2021 | | |
| December 31, 2022 | | December 31, 2022 | |
| Total Capital to risk-weighted assets | Total Capital to risk-weighted assets | $ | 402,406 | | | 12.63 | % | | $ | 254,984 | | | 8.00 | % | | $ | 318,731 | | | 10.00 | % | Total Capital to risk-weighted assets | $ | 595.6 | | | 15.16 | % | | $ | 314.4 | | | 8.00 | % | | $ | 393.0 | | | 10.00 | % |
| Tier 1 Capital to average assets | Tier 1 Capital to average assets | $ | 366,121 | | | 8.75 | % | | $ | 167,317 | | | 4.00 | % | | $ | 209,147 | | | 5.00 | % | Tier 1 Capital to average assets | $ | 546.2 | | | 10.22 | % | | $ | 213.7 | | | 4.00 | % | | $ | 267.1 | | | 5.00 | % |
| Common equity to risk-weighted assets | Common equity to risk-weighted assets | $ | 366,121 | | | 11.49 | % | | $ | 143,429 | | | 4.50 | % | | $ | 207,175 | | | 6.50 | % | Common equity to risk-weighted assets | $ | 546.2 | | | 13.90 | % | | $ | 176.8 | | | 4.50 | % | | $ | 255.4 | | | 6.50 | % |
| Tier 1 Capital to risk-weighted assets | Tier 1 Capital to risk-weighted assets | $ | 366,121 | | | 11.49 | % | | $ | 191,238 | | | 6.00 | % | | $ | 254,984 | | | 8.00 | % | Tier 1 Capital to risk-weighted assets | $ | 546.2 | | | 13.90 | % | | $ | 235.8 | | | 6.00 | % | | $ | 314.4 | | | 8.00 | % |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information that will assist the reader with understanding our financial statements, the changes in key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting estimates affect our financial statements. The discussion also provides information about the financial results of the three segments of our business to provide a better understanding of how those segments and their results affect our financial condition and results of operations as a whole. Additionally, certain corporate costs not allocated to our operating segments are discussed herein.
Our MD&A is presented in the following sections:
•Executive Overview
•SummaryCompany Highlights
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies and Estimates
•Recently Adopted Accounting Standards
This discussion should be read in conjunction with our audited consolidated financial statements as of December 31, 2021,2022, the notes accompanying those financial statements and MD&A as contained in our Annual Report on Form 10–K for the year ended December 31, 2021,2022, filed with the Securities and Exchange Commission on March 1, 2022,February 28, 2023, and in conjunction with the condensed consolidated financial statements and notes in Part I – Item 1 of this report.
Executive Overview
WEX Inc. is the global commerce platform that simplifies the business of running a business. We currentlyown and operate a B2B ecosystem that helps our customers overcome highly manual processes and reconciliations, navigate the complexity of consumer driven healthcare benefits, and solve their administrative challenges. WEX offers the marketplace a unique combination of capabilities to simplify complexity, including:
•Global commerce platform. Our technology is engineered and operated with global scale and reliability. Using our technology, our customers have trusted us to conduct hundreds of billions worth of money movements in three reportable segments: Fleet Solutions, Travelmore than 20 currencies.
•Personalized solutions, seamlessly embedded. Our solutions are shaped by customer focused innovation and Corporate Solutions,deep industry expertise. Both in our direct-to-corporate and Healthpartner channels, our solutions focus on simplifying the business of running a business by deeply embedding our solutions within our end customer workflows.
•Insights that power success. WEX provides a powerful combination of specialized expertise and Employee Benefit Solutions. The Fleet Solutions segment providesrich data to assist customers in driving better decisions, moving more quickly, and in dealing with risk, putting control in the hands of our customers.
Leveraging these unique capabilities, WEX offers solutions that organizations use to drive efficiencies and manage risk. These solutions, which share and benefit from our underlying capabilities such as payment processing, data analytics, and WEX Bank, are provided across three business segments: Mobility, Corporate Payments and Benefits. Within our Mobility segment, WEX reimagines mobility across fleets of all sizes, as a leader in fleet vehicle payment solutions, transaction processing, and information management services specifically designed for the needs of fleets of all sizes from small businesses to federal and state government fleets and over-the-road carriers. The Travel andservices. Our Corporate SolutionsPayments segment focuses on the complex payment environment of global B2B payments, enabling customersallowing businesses to utilize our paymentscentralize purchasing, simplify complex supply chain processes, and eliminate the paper check writing associated with traditional purchase order programs. Our Benefits segment simplifies the business of administering and managing employee benefit plans, providing software-as-a service, or "SaaS", software with embedded payment solutions to integrate into their own workflows and manage their accounts payable automation and spend management functions. The Health and Employee Benefit Solutions segment provides a SaaS platformplan administration services for consumer directed healthcarehealth benefits, COBRA accounts, and a full-service benefit enrollment solution, bringing together benefits administration, certain compliance services and consumer-directed and benefits accounts. Additionally,administration. In addition, WEX serves as theInc. is an IRS-designated non-bank custodian to certain HSAof Health Saving Account assets.
SummaryCompany Highlights
Key Performance Indicators
BelowThe following table presents a summarized view of selected results for the three and nine months ended September 30, 2023, shown comparative to the prior year periods. Operating cash flow and adjusted cash flow information is presented on a year to-date basis, and shown comparative to the prior year to-date. The other key metric included below provides additional data underlying our financial performance. A recurring, more extensive list of key performance indicators is included by segment within the Results of Operations section later in this MD&A.
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except per share data) | Three Months Ended | | Nine Months Ended |
| September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| GAAP Measures: | | | | | | | |
| Total revenues | $ | 651.4 | | | $ | 616.1 | | | $ | 1,884.7 | | | $ | 1,731.9 | |
| Net income (loss) attributable to shareholders | $ | 18.4 | | | $ | (44.1) | | | $ | 181.7 | | | $ | 112.7 | |
| Net income (loss) attributable to shareholders per diluted share | $ | 0.42 | | | $ | (1.00) | | | $ | 4.18 | | | $ | 2.51 | |
Net cash provided by operating activities2 | | | | | $ | 146.0 | | | $ | 106.6 | |
| | | | | | | |
Non-GAAP Measures1 | | | | | | | |
| Adjusted net income attributable to shareholders | $ | 176.8 | | | $ | 157.8 | | | $ | 481.9 | | | $ | 458.2 | |
| Adjusted net income attributable to shareholders per diluted share | $ | 4.05 | | | $ | 3.51 | | | $ | 10.99 | | | $ | 10.09 | |
| Adjusted free cash flow | | | | | $ | 391.6 | | | $ | 406.8 | |
| | | | | | | |
| Other Key Metric: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total volume across the Company3 | $ | 61,880 | | | $ | 57,528 | | | $ | 169,479 | | | $ | 158,927 | |
1 Adjusted net income attributable to shareholders, adjusted net income attributable to shareholders per diluted share, and adjusted free cash flow are key metricssupplemental non-GAAP financial measures of operating performance. Refer to the sections titled Non–GAAP Financial Measures That Supplement GAAP Measures and Liquidity and Capital Resources later in this MD&A for more information and a reconciliation of the non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
2 Restricted cash payable inflows of $350.1 million for the nine months ended September 30, 2022 have been reclassified from operating activities to financing activities to conform to the third quartercurrent period presentation. Refer to Item 1 - Note 1, Basis of 2022:Presentation for more information.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Increase (Decrease) |
| Q3 2022 | | Q3 2021 | | Amount | | Percent |
| | | | | | | |
| Total volume (in millions): | | | | | | | |
| Fleet Solutions | $ | 25,385.8 | | | 17,082.8 | | | 8,303.0 | | | 49 | % |
| Travel and Corporate Solutions | 29,508.4 | | | 21,213.6 | | | 8,294.8 | | | 39 | % |
| Health and Employee Benefit Solutions | 2,634.0 | | | 2,420.7 | | | 213.3 | | | 9 | % |
| Total volume (in millions) | $ | 57,528.2 | | | 40,717.1 | | | 16,811.1 | | | 41 | % |
| | | | | | | |
| Total purchase volume (in millions) | $ | 39,212.9 | | | 25,880.7 | | | 13,332.2 | | | 52 | % |
| | | | | | | |
| | | | | | | |
| Fleet Solutions | | | | | | | |
| | | | | | | |
| Payment processing transactions (in millions) | 145.3 | | | 134.0 | | | 11.3 | | | 8 | % |
| | | | | | | |
| Average vehicles serviced (in millions) | 18.3 | | | 16.2 | | | 2.1 | | | 13 | % |
| | | | | | | |
| Payment processing $ of fuel (in millions) | $ | 17,205.4 | | | $ | 11,907.2 | | | $ | 5,298.2 | | | 44 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Travel and Corporate Solutions | | | | | | | |
| Purchase volume (in millions) | $ | 20,657.0 | | | $ | 12,799.6 | | | $ | 7,857.4 | | | 61 | % |
| | | | | | | |
| | | | | | | |
| Health and Employee Benefit Solutions | | | | | | | |
| Purchase volume (in millions) | $ | 1,350.5 | | | $ | 1,173.9 | | | $ | 176.6 | | | 15 | % |
| Average number of U.S. SaaS accounts (in millions) | 18.2 | | | 16.9 | | | 1.3 | | | 8 | % |
3 Total volume processed across the Company which includes purchases on WEX-issued accounts as well as purchases issued by others using a WEX platform, increased 41 percent over the third quarter of 2021 to $57.5 billion for the third quarter of 2022. Total purchase volume across the Company in the third quarter of 2022, which includes payment processing $ of fuel in the Fleet Solutions segment and purchase volumes in the Travel and Corporate Solutions and Health and Employee Benefit Solutions segments, grew 52 percent from the same period in the prior year reflecting the strong performance in each of our segments, as further described below.
Fleet Solutions
•Payment processing transactions, which represents the total number of purchases made by fleets that have a payment processing relationship with WEX where the Company maintains the receivable for the total purchase, were up approximately 8 percent as compared to the same period last year, substantially as a result of increased transactions processed in North America.
•Average vehicles serviced increased 13 percent for the third quarter of 2022 from the same period last year.
•Payment processing $ of fuel, which represents the total dollar value of the fuel purchased by fleets that have a payment processing relationship with the Company, increased 44 percent for the third quarter of 2022 from the same period last year, driven primarily by higher fuel prices.
Travel and Corporate Solutions
•Purchase volume, which represents the total dollar value of all WEX-issued transactions that use WEX corporate card products and virtual card products, was $20.7 billion for the third quarter of 2022, representing an increase of 61 percent from the same period last year. This increase was primarily due to continued travel market recovery during the third quarter of 2022.
Health and Employee Benefit Solutions
•Purchase volume, which represents the total U.S. dollar value of all transactions where interchange is earned by WEX, was up approximately 15 percent as compared to the same period last year.
•Average number of U.S. SaaS accounts, which represents the number of active Consumer-Directed Health, COBRA, and billing accounts on our U.S. SaaS platforms, grew by approximately 1.3 million for the third quarter of 2022, an 8 percent increase from the same period in the prior year building off a strong open enrollment season.platform.
Results of Operations
The following includes information that our management believes is material to an understanding of our results of operations. Any significant changes, unusual or infrequent events or significant economic changes that materially affect our results of operations are discussed below.
Fleet SolutionsMobility
Revenues
The following table reflects comparative revenue and key operating statistics within Fleet Solutions:Mobility:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands, except per gallon data) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Revenues1 | | | | | | | | | | | | | | | |
| Payment processing revenue | $ | 188,586 | | | $ | 130,006 | | | $ | 58,580 | | | 45 | % | | $ | 542,851 | | | $ | 367,032 | | | $ | 175,819 | | | 48 | % |
| Account servicing revenue | 41,632 | | | 43,671 | | | (2,039) | | | (5) | % | | 127,935 | | | 125,955 | | | 1,980 | | | 2 | % |
| Finance fee revenue | 96,495 | | | 67,529 | | | 28,966 | | | 43 | % | | 259,967 | | | 178,627 | | | 81,340 | | | 46 | % |
| Other revenue | 51,381 | | | 45,155 | | | 6,226 | | | 14 | % | | 145,703 | | | 132,972 | | | 12,731 | | | 10 | % |
| Total revenues | $ | 378,094 | | | $ | 286,361 | | | $ | 91,733 | | | 32 | % | | $ | 1,076,456 | | | $ | 804,586 | | | $ | 271,870 | | | 34 | % |
| | | | | | | | | | | | | | | |
| Key operating statistics | | | | | | | | | | | | | | | |
| Payment processing revenue: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Payment processing transactions | 145,257 | | | 134,029 | | | 11,228 | | | 8 | % | | 421,082 | | | 382,522 | | | 38,560 | | | 10 | % |
| Payment processing $ of fuel | $ | 17,205,436 | | | $ | 11,907,220 | | | $ | 5,298,216 | | | 44 | % | | $ | 50,235,426 | | | $ | 32,079,597 | | | $ | 18,155,829 | | | 57 | % |
Average price per gallon of fuel –
Domestic – ($USD/gal) | $ | 4.54 | | | $ | 3.23 | | | $ | 1.31 | | | 41 | % | | $ | 4.50 | | | $ | 3.01 | | | $ | 1.49 | | | 50 | % |
Net payment processing rate2 | 1.10 | % | | 1.09 | % | | 0.01 | % | | 1 | % | | 1.08 | % | | 1.14 | % | | (0.06) | % | | (5) | % |
| Net late fee rate | 0.48 | % | | 0.45 | % | | 0.03 | % | | 7 | % | | 0.43 | % | | 0.43 | % | | — | % | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In millions, except per gallon data) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
Revenues1 | | | | | | | | | | | | | | | |
| Payment processing revenue | $ | 176.9 | | | $ | 188.6 | | | $ | (11.7) | | | (6) | % | | $ | 520.6 | | | $ | 542.9 | | | $ | (22.3) | | | (4) | % |
| Account servicing revenue | 42.5 | | | 41.6 | | | 0.9 | | | 2 | % | | 123.6 | | | 127.9 | | | (4.3) | | | (3) | % |
| Finance fee revenue | 76.8 | | | 96.5 | | | (19.7) | | | (20) | % | | 233.5 | | | 260.0 | | | (26.5) | | | (10) | % |
| Other revenue | 53.9 | | | 51.4 | | | 2.5 | | | 5 | % | | 154.9 | | | 145.7 | | | 9.2 | | | 6 | % |
| Total revenues | $ | 350.1 | | | $ | 378.1 | | | $ | (28.0) | | | (7) | % | | $ | 1,032.6 | | | $ | 1,076.5 | | | $ | (43.9) | | | (4) | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In millions, except per gallon data) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Key operating statistics | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Payment processing transactions | 144.6 | | | 145.3 | | | (0.7) | | | — | % | | 424.5 | | | 421.1 | | | 3.4 | | | 1 | % |
| Payment processing $ of fuel | $ | 14,945.1 | | | $ | 17,205.4 | | | $ | (2,260.3) | | | (13) | % | | $ | 42,869.2 | | | $ | 50,235.4 | | | $ | (7,366.2) | | | (15) | % |
| Average price per gallon of fuel – Domestic – ($USD/gal) | $ | 3.97 | | | $ | 4.54 | | | $ | (0.57) | | | (13) | % | | $ | 3.83 | | | $ | 4.50 | | | $ | (0.67) | | | (15) | % |
Net payment processing rate2 | 1.18 | % | | 1.10 | % | | 0.08 | % | | 7 | % | | 1.21 | % | | 1.08 | % | | 0.13 | % | | 12 | % |
| Net late fee rate | 0.44 | % | | 0.48 | % | | (0.04) | % | | (7) | % | | 0.47 | % | | 0.43 | % | | 0.04 | % | | 10 | % |
1 The impact of foreign currency exchange rate fluctuations on Fleet SolutionsLower domestic fuel prices decreased revenue by $5.3$31.9 million infor the third quarter of 2022three months ended September 30, 2023 and by $12.2$83.5 million in the nine months ended September 30, 2022, as compared to the same periods in the prior year. Favorable impact from domestic fuel prices increased revenue by $55.7 million and $161.1 million for the three and nine months ended September 30, 2022, respectively,2023 as compared to the same periods in the prior year.
2 The increase in fuel prices, offset in part by a release of minimum volume commitment penalty reserves during the first half of 2022, has substantially contributed to a decline in ourOur net payment processing rate for the three and nine months ended September 30, 2022, as compared to2023 has benefited from lower average domestic fuel prices and the same periodimpact of interest rate escalator clauses contained in the prior year. However, transactional shifting toward slightly smaller but more frequent transactions in our over-the-road business, where revenue is typically earned based on a fixed amount per transaction, has resulted in a slight benefit to our net payment processing rate during the third quarter of 2022.various merchant contracts, partly offset by negative European fuel price spreads.
Total Fleet SolutionsMobility revenue increased $91.7decreased $28.0 million for the third quarter of 20222023 and $271.9$43.9 million for the nine months ended September 30, 2022,2023 as compared to the same periods in the prior year. Revenue increasesThe decreases in total Mobility revenue were primarily reflect higherdriven by the impact of lower average fuel prices an increase in late feeson stable levels of payment processing transactions year over year and growth in our existing customer base.lower finance fee revenue.
Finance fee revenue is comprised of the following components:
| | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent | |
| (In millions) | | (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Finance income | Finance income | $ | 83,194 | | | $ | 53,103 | | | $ | 30,091 | | | 57 | % | | $ | 217,134 | | | $ | 139,488 | | | $ | 77,646 | | | 56 | % | Finance income | $ | 66.4 | | | $ | 83.2 | | | $ | (16.8) | | | (20) | % | | $ | 202.8 | | | $ | 217.1 | | | $ | (14.3) | | | (7) | % |
| Factoring fee revenue | Factoring fee revenue | 13,301 | | | 14,426 | | | (1,125) | | | (8) | % | | 42,833 | | | 39,139 | | | 3,694 | | | 9 | % | Factoring fee revenue | 10.4 | | | 13.3 | | | (2.9) | | | (22) | % | | 30.7 | | | 42.8 | | | (12.1) | | | (28) | % |
| Finance fee revenue | Finance fee revenue | $ | 96,495 | | | $ | 67,529 | | | $ | 28,966 | | | 43 | % | | $ | 259,967 | | | $ | 178,627 | | | $ | 81,340 | | | 46 | % | Finance fee revenue | $ | 76.8 | | | $ | 96.5 | | | $ | (19.7) | | | (20) | % | | $ | 233.5 | | | $ | 260.0 | | | $ | (26.5) | | | (10) | % |
Finance income primarily consists of late fees charged for receivables not paid within the terms of the customer agreement based upon the outstanding customer receivable balance. Thisbalance, and to a lesser degree by finance charges earned on revolving portfolio balances. Late fee revenue is earned when a customer’s receivable balance becomes delinquent and is calculated using the greater of a minimum charge or a stated late fee rate multiplied by the
outstanding balance that is subject to a late fee charge. Changes in the absolute amount of such outstanding balances can generally be attributed to: (i) changes in fuel prices; (ii) customer specific transaction volume; and (iii) customer specific delinquencies. Late fee revenue can also be impacted by: (i) changes in late fee rates; and (ii) increases or decreases in customer overdue balances. Late fee rates are determined and set based primarily on the risk associated with our customers, coupled with a strategic view of standard rates within our industry. We consider factors such as the Company’s overall financial model and strategic plan, the cost to our business from customers failing to pay timely and the impact such late payments have on our financial results. We typically conduct an assessment of our late fee rates at least annually but such assessment may occur more often depending on macro-economic factors. In addition, we periodically assess the market rates within our industry to determine appropriate late fee rates.
Finance income increased $30.1decreased $16.8 million for the third quarter of 2022 and $77.6 million for the nine months ended September 30, 2022,2023 as compared to the same periodsperiod in the prior year. These increases were driven by higher domesticyear, primarily due to the decline in average fuel prices and increaseddriving down customer delinquencies.spend upon which late fees are earned, along with a decline in the number of late fee instances, reflective of tighter credit policies we have put in place. Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted to customers experiencing financial difficulties during the three and nine months ended September 30, 20222023 and 2021.2022.
The primary source of factoring fee revenue is calculated as a negotiated percentage fee of the receivable balance that we purchase. A secondary source of factoring fee revenue is a flat rate service fee to our customers that request a non-contractual same day funding of the receivable balance. Factoring fee revenue increased $3.7decreased $2.9 million for the third quarter of 2023 and decreased $12.1 million for the nine months ended September 30, 2022,2023 as compared withto the same periodperiods in the prior year, due to increasedyear. Decreased shipping demand in the first quarter of 2022, leadingover-the-road market, led to an increasea decline in the size and volume of factored invoices. The softeninginvoices during the three and nine months ended September 30, 2023 as compared to the elevated demands of the spot rates, or uncontracted transactional market rates paid by a shipper to move a truckload of goods, in the over-the-road market during the third quarter of 2022 resulted in decreased factoring fee revenue from the comparable periodsame periods in the prior year, a trend which we expect to continue through the remainder of the year.
Operating Expenses
The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for Fleet Solutions:Mobility:
| | | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent | |
| (In millions) | | (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Cost of services | Cost of services | | | | | | | | | | | | | | | | Cost of services | | | | | | | | | | | | | | | |
| Processing costs | Processing costs | $ | 68,549 | | | $ | 55,638 | | | $ | 12,911 | | | 23 | % | | $ | 193,027 | | | $ | 160,528 | | | $ | 32,499 | | | 20 | % | Processing costs | $ | 70.1 | | | $ | 68.5 | | | $ | 1.6 | | | 2 | % | | $ | 208.4 | | | $ | 193.0 | | | $ | 15.4 | | | 8 | % |
| Service fees | Service fees | $ | 2,132 | | | $ | 2,008 | | | $ | 124 | | | 6 | % | | $ | 6,409 | | | $ | 5,710 | | | $ | 699 | | | 12 | % | Service fees | $ | 1.9 | | | $ | 2.1 | | | $ | (0.2) | | | (11) | % | | $ | 5.6 | | | $ | 6.4 | | | $ | (0.8) | | | (13) | % |
| Provision for credit losses | Provision for credit losses | $ | 53,002 | | | $ | 10,473 | | | $ | 42,529 | | | 406 | % | | $ | 118,672 | | | $ | 26,359 | | | $ | 92,313 | | | 350 | % | Provision for credit losses | $ | 12.2 | | | $ | 53.0 | | | $ | (40.8) | | | (77) | % | | $ | 78.5 | | | $ | 118.7 | | | $ | (40.2) | | | (34) | % |
| Operating interest | Operating interest | $ | 5,411 | | | $ | 1,505 | | | $ | 3,906 | | | 260 | % | | $ | 8,399 | | | $ | 5,410 | | | $ | 2,989 | | | 55 | % | Operating interest | $ | 21.0 | | | $ | 5.4 | | | $ | 15.6 | | | 288 | % | | $ | 47.0 | | | $ | 8.4 | | | $ | 38.6 | | | 460 | % |
| Depreciation and amortization | Depreciation and amortization | $ | 11,991 | | | $ | 12,398 | | | $ | (407) | | | (3) | % | | $ | 35,658 | | | $ | 37,523 | | | $ | (1,865) | | | (5) | % | Depreciation and amortization | $ | 9.9 | | | $ | 12.0 | | | $ | (2.1) | | | (17) | % | | $ | 29.4 | | | $ | 35.7 | | | $ | (6.3) | | | (18) | % |
| | Other operating expenses | Other operating expenses | | Other operating expenses | |
| General and administrative | General and administrative | $ | 26,924 | | | $ | 23,694 | | | $ | 3,230 | | | 14 | % | | $ | 76,520 | | | $ | 66,945 | | | $ | 9,575 | | | 14 | % | General and administrative | $ | 39.6 | | | $ | 26.9 | | | $ | 12.7 | | | 47 | % | | $ | 100.4 | | | $ | 76.5 | | | $ | 23.9 | | | 31 | % |
| Sales and marketing | Sales and marketing | $ | 52,446 | | | $ | 44,564 | | | $ | 7,882 | | | 18 | % | | $ | 154,069 | | | $ | 127,719 | | | $ | 26,350 | | | 21 | % | Sales and marketing | $ | 53.4 | | | $ | 52.4 | | | $ | 1.0 | | | 2 | % | | $ | 156.4 | | | $ | 154.1 | | | $ | 2.3 | | | 2 | % |
| Depreciation and amortization | Depreciation and amortization | $ | 17,644 | | | $ | 19,446 | | | $ | (1,802) | | | (9) | % | | $ | 54,201 | | | $ | 58,443 | | | $ | (4,242) | | | (7) | % | Depreciation and amortization | $ | 17.0 | | | $ | 17.6 | | | $ | (0.6) | | | (4) | % | | $ | 51.4 | | | $ | 54.2 | | | $ | (2.8) | | | (5) | % |
| Impairment charges | Impairment charges | $ | 136,486 | | | $ | — | | | $ | 136,486 | | | NM | | $ | 136,486 | | | $ | — | | | $ | 136,486 | | | NM | Impairment charges | $ | — | | | $ | 136.5 | | | $ | (136.5) | | | NM | | $ | — | | | $ | 136.5 | | | $ | (136.5) | | | NM |
| | Operating income | Operating income | $ | 3,509 | | | $ | 116,635 | | | $ | (113,126) | | | (97) | % | | $ | 293,015 | | | $ | 315,949 | | | $ | (22,934) | | | (7) | % | Operating income | $ | 125.0 | | | $ | 3.5 | | | $ | 121.5 | | | NM | | $ | 355.5 | | | $ | 293.0 | | | $ | 62.5 | | | 21 | % |
| Segment adjusted operating income1 | Segment adjusted operating income1 | $ | 174,521 | | | $ | 144,853 | | | $ | 29,668 | | | 20 | % | | $ | 527,591 | | | $ | 400,976 | | | $ | 126,615 | | | 32 | % | Segment adjusted operating income1 | $ | 159.6 | | | $ | 174.5 | | | $ | (14.9) | | | (9) | % | | $ | 448.7 | | | $ | 527.6 | | | $ | (78.9) | | | (15) | % |
Segment adjusted operating income margin2 | Segment adjusted operating income margin2 | 46 | % | | 51 | % | | (5) | % | | (10) | % | | 49 | % | | 50 | % | | (1) | % | | (2) | % | Segment adjusted operating income margin2 | 45.6 | % | | 46.2 | % | | (0.6) | % | | (1) | % | | 43.5 | % | | 49.0 | % | | (5.5) | % | | (11) | % |
NM - Not meaningful
1 Our CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization and other acquisition and divestiture related items; (iii) debt restructuring costs;stock-based compensation and (iv) stock-based compensation; (v) impairment charges and (vi) other costs. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 2 for a reconciliation of operating income to total segment adjusted operating income to income before income taxes.income. See also Part I – Item 1 – Note 18, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.
2 Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue. The third quarter and nine months ended September 30, 20222023 saw decreasesa decrease in segment adjusted operating income margin overfrom the prior year comparable periods. These decreases reflect unfavorabilityperiod, primarily reflecting the decline in average fuel prices and higher operating interest costs, offset by a significant decrease in credit and fraud losses, partly offset by operating leverage from higher revenues.losses. Such margin remained flat for the third quarter of 2023 compared to the prior year comparable period.
Cost of services
Processing costs increased by $12.9 million and $32.5 million for the three and nine months ended September 30, 2022, as compared with the same periods in the prior year. Such increases were driven in nearly equal parts by higher compliance costs incurred primarily in association with a consent order issued by the FDIC and UDFI, as further discussed within the Liquidity and Capital Resources section later in this MD&A, and by business support costs incurred as a result of the increased volumes experienced during the quarter and nine months ended September 30, 2022, as compared to the prior year comparable periods.
Provision for credit losses, which includes estimates for both credit and fraud losses, increaseddecreased by $42.5$40.8 million and $40.2 million, respectively, for the third quarter of 2022three and $92.3 million for the nine months ended September 30, 20222023 as compared to the same periods in the prior year. The higher credit and fraud loss rates experienced during the three and nine months ended September 30, 2022 have improved during the three and nine months ended September 30, 2023 due in part to tighter credit policies put in place to reduce such losses. In addition, the elevated loss rates seen in the over-the-road trucking business for the past several quarters have moderated.
We generally measure our loss performance by calculating fuel-related losses as a percentage of total fuel expenditures on payment processing transactions. This metric for provision for credit losses was 30.96.8 and 23.717.8 basis points of fuel expenditures for the three and nine months ended September 30, 2022, respectively, as compared to 5.9 and 6.7 basis points of fuel expenditures for the same periods in the prior year,2023, respectively. Estimated fraud losses contributed 11.8 and 9.4 basis points to the provision for credit losses totals noted above duringFor the three and nine months ended September 30, 2022, respectively, while not materially contributing to the totalsprovision for the comparable periodscredit losses was 30.9 and 23.7 basis points of 2021. The increases in both the credit-related and fraud-related loss metrics are in part driven by the economic effects of PPG rate increases. In addition, slower payments from small customers in our over-the-road business, likely due to declining spot shipping rates, led to the recording of a loss reserve during the third quarter of 2022.fuel expenditures, respectively.
Operating interest increased $3.9$15.6 million for the third quarter of 20222023 and $3.0increased $38.6 million for the nine months ended September 30, 20222023 as compared to the same periods in the prior year. These increases areyear, primarily reflective of higher interest rates onand increased operating debt balances and increased deposits in support of working capital needs as a result of volume and PPG increases.needs.
Service fee and depreciationDepreciation and amortization expensedecreased $6.3 million for the nine months ended September 30, 2023 compared to the prior year comparable period due to certain assets becoming fully depreciated during 2022.
Other operating expenses
General and administrative expenses increased $12.7 million and $23.9 million for the three and nine months ended September 30, 2022 were all generally consistent with those from the same periods in the prior year.
Other operating expenses
General and administrative expenses increased $3.2 million for the three months ended September 30, 2022 and $9.6 million for the nine months ended September 30, 2022,2023, respectively, as compared with the same periods in the prior year due to a third quarter 2023 write-off of certain costs associated with an abandoned IT development project and increased compensation, professional services and information technology expense in support of increasing operating efficiencies and business growth.
SalesImpairment charges incurred during the three and marketing expenses increased $7.9 million for the threenine months ended September 30, 2022 consisted of non-cash goodwill impairment charges of $136.5 million for two of our international Mobility reporting units.
Corporate Payments
Revenues
The following table reflects comparative revenue and $26.4key operating statistics within Corporate Payments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
Revenues1 | | | | | | | | | | | | | | | |
| Payment processing revenue | $ | 115.8 | | | $ | 101.5 | | | $ | 14.3 | | | 14 | % | | $ | 310.6 | | | $ | 255.2 | | | $ | 55.4 | | | 22 | % |
| Account servicing revenue | 10.5 | | | 10.7 | | | (0.2) | | | (2) | % | | 31.7 | | | 31.9 | | | (0.2) | | | (1) | % |
| Finance fee revenue | 0.2 | | | 0.2 | | | — | | | NM | | 0.5 | | | 0.5 | | | — | | | NM |
| Other revenue | 8.7 | | | 1.5 | | | 7.2 | | | 468 | % | | 19.1 | | | 4.0 | | | 15.1 | | | 378 | % |
| Total revenues | $ | 135.2 | | | $ | 114.0 | | | $ | 21.2 | | | 19 | % | | $ | 361.9 | | | $ | 291.6 | | | $ | 70.3 | | | 24 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Key operating statistics | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Purchase volume | $ | 27,860.1 | | | $ | 20,657.0 | | | $ | 7,203.1 | | | 35 | % | | $ | 69,396.0 | | | $ | 49,586.4 | | | $ | 19,809.6 | | | 40 | % |
Net interchange rate2 | 0.42 | % | | 0.49 | % | | (0.07) | % | | (15) | % | | 0.45 | % | | 0.51 | % | | (0.06) | % | | (12) | % |
1 The impact of foreign currency exchange rate fluctuations on Corporate Payments increased revenues by $4.7 million and $3.9 million during the three and nine months ended September 30, 2023, respectively, compared to the prior year comparable periods.
2 Changes in customer and product mix, including the significant growth in travel-related purchase volumes, has reduced our net interchange rate during the three and nine months ended September 30, 2023 compared to the same periods of the prior year.
Total Corporate Payments revenue increased $21.2 million for the third quarter of 2023 and $70.3 million for the nine months ended September 30, 2022,2023 as compared withto the same periods in the prior year. These increases were primarily driven by higher partner commissions due to fuel price increases and volume growth, coupled to a lesser extent with increased employee compensation in support of that growth.
Depreciation and amortization expense for the three and nine months ended September 30, 2022 remained generally consistent with the same periods in the prior year.
During the three months ended September 30, 2022, we recorded non-cash goodwill impairment charges of $136.5 million within our Fleet Solutions segment. See Part I – Item 1 – Note 2, Recent Accounting Pronouncements and Supplemental Information, to our condensed consolidated financial statements for more information.
Travel and Corporate Solutions
Revenues
The following table reflects comparative revenue and key operating statistics within Travel and Corporate Solutions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
Revenues1 | | | | | | | | | | | | | | | |
| Payment processing revenue | $ | 101,533 | | | $ | 79,815 | | | $ | 21,718 | | | 27 | % | | $ | 255,216 | | | $ | 205,345 | | | $ | 49,871 | | | 24 | % |
| Account servicing revenue | 10,748 | | | 10,908 | | | (160) | | | (1) | % | | 31,906 | | | 32,817 | | | (911) | | | (3) | % |
| Finance fee revenue | 162 | | | 200 | | | (38) | | | (19) | % | | 519 | | | 693 | | | (174) | | | (25) | % |
| Other revenue | 1,532 | | | 79 | | | 1,453 | | | 1,839 | % | | 3,995 | | | 4,551 | | | (556) | | | (12) | % |
| Total revenues | $ | 113,975 | | | $ | 91,002 | | | $ | 22,973 | | | 25 | % | | $ | 291,636 | | | $ | 243,406 | | | $ | 48,230 | | | 20 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Key operating statistics | | | | | | | | | | | | | | | |
| Payment processing revenue: | | | | | | | | | | | | | | | |
Purchase volume2 | $ | 20,656,953 | | | $ | 12,799,555 | | | $ | 7,857,398 | | | 61 | % | | $ | 49,586,365 | | | $ | 27,643,249 | | | $ | 21,943,116 | | | 79 | % |
| Net interchange rate | 0.49 | % | | 0.62 | % | | (0.13) | % | | (21) | % | | 0.51 | % | | 0.74 | % | | (0.24) | % | | (32) | % |
1 The impact of foreign currency exchange rate fluctuations on Travel and Corporate Solutions decreased revenues by $6.5 million and $10.7 million during the three and nine months ended September 30, 2022, respectively, compared to the prior year comparable periods.
2 Purchase volume in the Travel and Corporate Solutions segment represents the total dollar value of all WEX issued transactions that use WEX corporate card products and virtual card products.
Total Travel and Corporate Solutions revenue increased $23.0 million for the third quarter of 2022 and $48.2 million for the nine months ended September 30, 2022, as compared to the same periods in the prior year. The increases were primarily driven by continued strength in global consumer travel demand, which more than doubled travel-related revenues for the nine months ended September 30, 2022 compareddemand. Other revenue has increased due to the prior year comparable period,higher interest revenue earned on restricted cash balances, due to a rise in interest rates, and volume growth in the corporate payments partner channel. These revenue increases were partly offset by the impact of an accounting change in the fourth quarter of 2021, which required a shift from gross revenue presentation to net revenue presentation for one customer.average balances coinciding with increased travel volumes.
Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted to customers during the three and nine months ended September 30, 20222023 and 2021.2022.
Operating Expenses
The following table compares line items within operating income (loss) and presents segment adjusted operating income and segment adjusted operating income margin for Travel and Corporate Solutions:Payments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Cost of services | | | | | | | | | | | | | | | |
| Processing costs | $ | 17.8 | | | $ | 18.7 | | | $ | (0.9) | | | (5) | % | | $ | 57.2 | | | $ | 55.2 | | | $ | 2.0 | | | 4 | % |
| Service fees | $ | 3.1 | | | $ | 3.4 | | | $ | (0.3) | | | (10) | % | | $ | 9.8 | | | $ | 10.6 | | | $ | (0.8) | | | (8) | % |
| Provision for credit losses | $ | (3.9) | | | $ | 0.7 | | | $ | (4.6) | | | NM | | $ | (2.5) | | | $ | 2.1 | | | $ | (4.6) | | | NM |
| Operating interest | $ | 2.7 | | | $ | 2.2 | | | $ | 0.5 | | | 23 | % | | $ | 6.7 | | | $ | 4.5 | | | $ | 2.2 | | | 50 | % |
| Depreciation and amortization | $ | 6.2 | | | $ | 5.6 | | | $ | 0.6 | | | 10 | % | | $ | 17.9 | | | $ | 15.4 | | | $ | 2.5 | | | 16 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
| Cost of services | | | | | | | | | | | | | | | |
| Processing costs | $ | 18,735 | | | $ | 15,360 | | | $ | 3,375 | | | 22 | % | | $ | 55,158 | | | $ | 50,900 | | | $ | 4,258 | | | 8 | % |
| Service fees | $ | 3,433 | | | $ | 3,924 | | | $ | (491) | | | (13) | % | | $ | 10,631 | | | $ | 11,711 | | | $ | (1,080) | | | (9) | % |
| Provision for credit losses | $ | 684 | | | $ | 3,575 | | | $ | (2,891) | | | (81) | % | | $ | 2,105 | | | $ | 5,568 | | | $ | (3,463) | | | (62) | % |
| Operating interest | $ | 2,202 | | | $ | 619 | | | $ | 1,583 | | | 256 | % | | $ | 4,454 | | | $ | 1,609 | | | $ | 2,845 | | | 177 | % |
| Depreciation and amortization | $ | 5,616 | | | $ | 6,425 | | | $ | (809) | | | (13) | % | | $ | 15,446 | | | $ | 19,267 | | | $ | (3,821) | | | (20) | % |
| | | | | | | | | | | | | | | |
| Other operating expenses | | | | | | | | | | | | | | | |
| General and administrative | $ | 17,069 | | | $ | 16,429 | | | $ | 640 | | | 4 | % | | $ | 48,384 | | | $ | 60,187 | | | $ | (11,803) | | | (20) | % |
| Sales and marketing | $ | 14,645 | | | $ | 26,128 | | | $ | (11,483) | | | (44) | % | | $ | 42,684 | | | $ | 88,516 | | | $ | (45,832) | | | (52) | % |
| Depreciation and amortization | $ | 5,983 | | | $ | 5,305 | | | $ | 678 | | | 13 | % | | $ | 18,250 | | | $ | 17,920 | | | $ | 330 | | | 2 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Operating income (loss) | $ | 45,608 | | | $ | 13,237 | | | $ | 32,371 | | | 245 | % | | $ | 94,524 | | | $ | (12,272) | | | $ | 106,796 | | | NM |
| | | | | | | | | | | | | | | |
Segment adjusted operating income1 | $ | 60,289 | | | $ | 31,057 | | | $ | 29,232 | | | 94 | % | | $ | 139,635 | | | $ | 55,229 | | | $ | 84,406 | | | 153 | % |
Segment adjusted operating income margin2 | 53 | % | | 34 | % | | 19 | % | | 56 | % | | 48 | % | | 23 | % | | 25 | % | | 109 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Other operating expenses | | | | | | | | | | | | | | | |
| General and administrative | $ | 18.1 | | | $ | 17.1 | | | $ | 1.0 | | | 6 | % | | $ | 53.1 | | | $ | 48.4 | | | $ | 4.7 | | | 10 | % |
| Sales and marketing | $ | 14.9 | | | $ | 14.6 | | | $ | 0.3 | | | 2 | % | | $ | 41.7 | | | $ | 42.7 | | | $ | (1.0) | | | (2) | % |
| Depreciation and amortization | $ | 6.7 | | | $ | 6.0 | | | $ | 0.7 | | | 12 | % | | $ | 19.8 | | | $ | 18.3 | | | $ | 1.5 | | | 8 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Operating income | $ | 69.6 | | | $ | 45.6 | | | $ | 24.0 | | | 53 | % | | $ | 158.2 | | | $ | 94.5 | | | $ | 63.7 | | | 67 | % |
| | | | | | | | | | | | | | | |
Segment adjusted operating income1 | $ | 82.9 | | | $ | 60.3 | | | $ | 22.6 | | | 37 | % | | $ | 198.4 | | | $ | 139.6 | | | $ | 58.8 | | | 42 | % |
Segment adjusted operating income margin2 | 61.3 | % | | 52.9 | % | | 8.4 | % | | 16 | % | | 54.8 | % | | 47.9 | % | | 6.9 | % | | 14 | % |
NM - Not meaningful
1 Our CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization and other acquisition and divestiture related items; (iii) debt restructuring costs;stock-based compensation and (iv) stock-based compensation; (v) impairment charges and (vi) other costs. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 2 for a reconciliation of operating income to total segment adjusted operating income. See also Part I – Item 1 – Note 18, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.
2Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue.
As a result of owning all of our technology and issuing capabilities, our Corporate Payments segment has a highly scalable and relatively fixed cost base resulting in largely comparable expenses year to year. As a result, the significant increase in 2023 revenues has also significantly contributed to the increased operating income, segment adjusted operating income and segment adjusted operating income margin for the three and nine months ended September 30, 2023.
The decreased provision for credit losses for the three and nine months ended September 30, 2023, as compared to the prior year comparable periods, reflects the impact of improved expectation of future economic conditions.
Benefits
Revenues
The following table reflects comparative revenue and key operating statistics within Benefits:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Revenues | | | | | | | | | | | | | | | |
| Payment processing revenue | $ | 20.6 | | | $ | 18.9 | | | $ | 1.7 | | | 9 | % | | $ | 70.7 | | | $ | 62.7 | | | $ | 8.0 | | | 13 | % |
| Account servicing revenue | 108.5 | | | 85.9 | | | 22.6 | | | 26 | % | | 319.8 | | | 256.1 | | | 63.7 | | | 25 | % |
| Finance fee revenue | 0.1 | | | — | | | 0.1 | | | NM | | 0.2 | | | 0.1 | | | 0.1 | | | 92 | % |
| Other revenue | 36.9 | | | 19.2 | | | 17.7 | | | 93 | % | | 99.5 | | | 44.9 | | | 54.6 | | | 122 | % |
| Total revenues | $ | 166.1 | | | $ | 124.1 | | | $ | 42.0 | | | 34 | % | | $ | 490.2 | | | $ | 363.8 | | | $ | 126.4 | | | 35 | % |
| | | | | | | | | | | | | | | |
| Key operating statistics | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Purchase volume | $ | 1,501.3 | | | $ | 1,350.5 | | | $ | 150.8 | | | 11 | % | | $ | 5,145.6 | | | $ | 4,494.7 | | | $ | 650.9 | | | 14 | % |
| | | | | | | | | | | | | | | |
Average number of SaaS accounts1 | 19.9 | | | 18.2 | | | 1.7 | | | 9 | % | | 19.9 | | | 17.9 | | | 2.0 | | | 11 | % |
| Average HSA custodial cash assets | 3,908.5 | | | 3,177.7 | | | 730.8 | | | 23 | % | | 3,821.0 | | | 3,079.1 | | | 741.9 | | | 24 | % |
1 Represents the number of active Consumer-Directed Health, COBRA, and billing accounts on our SaaS platforms. SaaS accounts include HSA accounts for which WEX Inc. serves as the non-bank custodian under designation by the U.S. Department of Treasury.
Total Benefits revenue increased $42.0 million for the third quarter of 2023 and $126.4 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. A rise in average balances and interest rates earned on the investment of HSA deposit balances held by WEX Bank, as reflected within other revenue, and increases in program fees earned on custodial services, as reflected within account servicing revenue, significantly contributed to the increase in total revenues in the third quarter and nine months ended September 30, 2023 compared to the prior year comparable periods. Increased spend volume driven by cardholder growth and increased SaaS participants also contributed to the increase in total revenues.
Operating Expenses
The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for Benefits:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Cost of services | | | | | | | | | | | | | | | |
| Processing costs | $ | 68.5 | | | $ | 59.0 | | | $ | 9.5 | | | 16 | % | | $ | 186.1 | | | $ | 168.1 | | | $ | 18.0 | | | 11 | % |
| Service fees | $ | 13.5 | | | $ | 11.0 | | | $ | 2.5 | | | 22 | % | | $ | 39.3 | | | $ | 30.2 | | | $ | 9.1 | | | 30 | % |
| Provision for credit losses | $ | 1.1 | | | $ | 0.3 | | | $ | 0.8 | | | 220 | % | | $ | 1.5 | | | $ | 1.1 | | | $ | 0.4 | | | 39 | % |
| Operating interest | $ | 1.6 | | | $ | 0.3 | | | $ | 1.3 | | | NM | | $ | 3.9 | | | $ | 0.5 | | | $ | 3.4 | | | NM |
| Depreciation and amortization | $ | 9.4 | | | $ | 9.7 | | | $ | (0.3) | | | (3) | % | | $ | 28.6 | | | $ | 28.8 | | | $ | (0.2) | | | (1) | % |
| | | | | | | | | | | | | | | |
| Other operating expenses | | | | | | | | | | | | | | | |
| General and administrative | $ | 13.1 | | | $ | 9.3 | | | $ | 3.8 | | | 40 | % | | $ | 39.5 | | | $ | 30.5 | | | $ | 9.0 | | | 30 | % |
| Sales and marketing | $ | 14.5 | | | $ | 13.8 | | | $ | 0.7 | | | 5 | % | | $ | 43.5 | | | $ | 38.5 | | | $ | 5.0 | | | 13 | % |
| Depreciation and amortization | $ | 17.9 | | | $ | 14.8 | | | $ | 3.1 | | | 21 | % | | $ | 52.0 | | | $ | 44.3 | | | $ | 7.7 | | | 17 | % |
| | | | | | | | | | | | | | | |
| Operating income | $ | 26.5 | | | $ | 5.8 | | | $ | 20.7 | | | 358 | % | | $ | 95.8 | | | $ | 21.9 | | | $ | 73.9 | | | 338 | % |
| | | | | | | | | | | | | | | |
Segment adjusted operating income1 | $ | 58.8 | | | $ | 30.3 | | | $ | 28.5 | | | 94 | % | | $ | 182.6 | | | $ | 94.1 | | | $ | 88.5 | | | 94 | % |
Segment adjusted operating income margin2 | 35.4 | % | | 24.4 | % | | 11.0 | % | | 45 | % | | 37.3 | % | | 25.9 | % | | 11.4 | % | | 44 | % |
NM - Not meaningful
1Our CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization and other acquisition and divestiture related items; (iii) stock-based compensation and (iv) other costs. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 2 for a reconciliation of operating income to income before income taxes.total segment adjusted operating income. See also Part I – Item 1 – Note 18, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.
2 Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue. The third quarterrevenues earned on HSA assets is highly accretive to earnings and nine months ended September 30, 2022 increases inas a result, segment adjusted operating income margin primarily reflect accelerated travel volumes and the benefit of an accounting change effective in the fourth quarter of 2021 from gross revenue presentation to net revenue presentation for one customer.
Cost of services
Processing costs for the three and nine months ended September 30, 20222023 increased $3.4 million and $4.3 million, respectively, compared to the comparable prior year periods due to business support costs incurred as a result of the increased volumes experienced.
Provision for credit losses for the three and nine months ended September 30, 2022 was not material to Travel and Corporate Solutions’ operations, decreasing $2.9 million and $3.5 million for the comparable prior year periods, respectively. Credit losses in the Travel and Corporate Solutions segment are sporadic and generally correlate closely with trends in consumer metrics.
Operating interest for the three and nine months ended September 30, 2022 increased $1.6 million and $2.8 million, respectively, as compared to the comparable prior year periods. These increases are reflective of higher interest rates and increased deposits in support of working capital needs as a result of volume increases.
Depreciation and amortization expense for the nine months ended September 30, 2022 decreased $3.8 million, as compared to the same period insignificantly from the prior year primarily due to the prior year amortization of developed technology intangible assets with a one-year life that were acquired as part of the eNett and Optal acquisition. Depreciation and amortization expense for the third quarter of 2022 remained consistent with the comparable prior year period.
Other operating expenses
General and administrative expense decreased $11.8 million for the nine months ended September 30, 2022, as compared to the same period in the prior year, primarily due to a vendor contract termination payment during the first quarter of 2021. General and administrative expense for the third quarter of 2022 remained consistent with the comparable period of the prior year.
Sales and marketing expenses decreased for the third quarter and nine months ended September 30, 2022 by $11.5 million and $45.8 million, respectively, as compared to the same periods in the prior year. These decreases were primarily due to a reduction in partner commissions as a result of the impact of an accounting change in the fourth quarter of 2021, which required a shift from gross revenue presentation to net revenue presentation for one customer.
Depreciation and amortization expense during the third quarter and nine months ended September 30, 2022 remained consistent with the same periods in the prior year.
Health and Employee Benefit Solutions
Revenues
The following table reflects comparative revenue and key operating statistics within Health and Employee Benefit Solutions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
| Revenues | | | | | | | | | | | | | | | |
| Payment processing revenue | $ | 18,913 | | | $ | 16,305 | | | $ | 2,608 | | | 16 | % | | $ | 62,748 | | | $ | 55,564 | | | $ | 7,184 | | | 13 | % |
| Account servicing revenue | 85,944 | | | 83,145 | | | 2,799 | | | 3 | % | | 256,062 | | | 230,572 | | | 25,490 | | | 11 | % |
| Finance fee revenue | 41 | | | 40 | | | 1 | | | 3 | % | | 104 | | | 101 | | | 3 | | | 3 | % |
| Other revenue | 19,162 | | | 5,911 | | | 13,251 | | | 224 | % | | 44,895 | | | 18,775 | | | 26,120 | | | 139 | % |
| Total revenues | $ | 124,060 | | | $ | 105,401 | | | $ | 18,659 | | | 18 | % | | $ | 363,809 | | | $ | 305,012 | | | $ | 58,797 | | | 19 | % |
| | | | | | | | | | | | | | | |
| Key operating statistics | | | | | | | | | | | | | | | |
| Payment processing revenue: | | | | | | | | | | | | | | | |
Purchase volume1 | $ | 1,350,466 | | | $ | 1,173,913 | | | $ | 176,553 | | | 15 | % | | $ | 4,494,688 | | | $ | 3,969,270 | | | $ | 525,418 | | | 13 | % |
| Account servicing revenue: | | | | | | | | | | | | | | | |
| Average number of SaaS accounts | 18,196 | | | 16,912 | | | 1,284 | | | 8 | % | | 17,871 | | | 16,268 | | | 1,603 | | | 10 | % |
1 Purchase volume in the Health and Employee Benefit Solutions segment represents the total U.S. dollar value of all transactions where interchange is earned by WEX.
Payment processing revenue increased $2.6 million during the third quarter of 2022 and $7.2 million for the nine months ended September 30, 2022, as compared to the same periods in the prior year, due to cardholder growth and increased cardholder spend volumes.
Account servicing revenue increased $25.5 million for the nine months ended September 30, 2022, as compared to the same period in the prior year. The increase was primarily due to increased revenues recognized as a result of the benefitexpress Acquisition along with account growth and an increased number of participants, offset in part by a reduction of revenue resulting from one-time COBRA related services provided as a result of the American Rescue Plan Act legislation during 2021. Account servicing revenue for the third quarter of 2022 remained generally consistent with the comparable period of the prior year.
Finance fee revenue was not material to Health and Employee Benefit Solutions’ operations for the three and nine months ended September 30, 2022 and 2021.
Other revenue increased $13.3 million for the third quarter of 2022 and $26.1 million for the nine months ended September 30, 2022, as compared to the same periods in the prior year. The increases were due primarily to interest income earned on the investment of HSA deposits obtained as a result of the April 2021 acquisition of contractual rights to serve as custodian to certain HSAs from Bell Bank, including the impact from higher rates.
Operating Expenses
The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for Health and Employee Benefit Solutions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent |
| Cost of services | | | | | | | | | | | | | | | |
| Processing costs | $ | 59,032 | | | $ | 50,209 | | | $ | 8,823 | | | 18 | % | | $ | 168,073 | | | $ | 135,749 | | | $ | 32,324 | | | 24 | % |
| Service fees | $ | 11,049 | | | $ | 8,314 | | | $ | 2,735 | | | 33 | % | | $ | 30,180 | | | $ | 21,730 | | | $ | 8,450 | | | 39 | % |
| Provision for credit losses | $ | 344 | | | $ | 79 | | | $ | 265 | | | 335 | % | | $ | 1,079 | | | $ | 221 | | | $ | 858 | | | 388 | % |
| Operating interest | $ | 274 | | | $ | — | | | $ | 274 | | | NM | | $ | 531 | | | $ | — | | | $ | 531 | | | NM |
| Depreciation and amortization | $ | 9,658 | | | $ | 9,403 | | | $ | 255 | | | 3 | % | | $ | 28,796 | | | $ | 27,081 | | | $ | 1,715 | | | 6 | % |
| | | | | | | | | | | | | | | |
| Other operating expenses | | | | | | | | | | | | | | | |
| General and administrative | $ | 9,333 | | | $ | 10,116 | | | $ | (783) | | | (8) | % | | $ | 30,469 | | | $ | 26,315 | | | $ | 4,154 | | | 16 | % |
| Sales and marketing | $ | 13,791 | | | $ | 11,533 | | | $ | 2,258 | | | 20 | % | | $ | 38,514 | | | $ | 29,942 | | | $ | 8,572 | | | 29 | % |
| Depreciation and amortization | $ | 14,787 | | | $ | 15,032 | | | $ | (245) | | | (2) | % | | $ | 44,283 | | | $ | 40,423 | | | $ | 3,860 | | | 10 | % |
| | | | | | | | | | | | | | | |
| Operating income | $ | 5,792 | | | $ | 715 | | | $ | 5,077 | | | 710 | % | | $ | 21,884 | | | $ | 23,551 | | | $ | (1,667) | | | (7) | % |
| | | | | | | | | | | | | | | |
Segment adjusted operating income1 | $ | 30,261 | | | $ | 23,863 | | | $ | 6,398 | | | 27 | % | | $ | 94,068 | | | $ | 83,487 | | | $ | 10,581 | | | 13 | % |
Segment adjusted operating income margin2 | 24 | % | | 23 | % | | 1 | % | | 4 | % | | 26 | % | | 27 | % | | (1) | % | | (4) | % |
NM - Not meaningful
1Our CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization and other acquisition and divestiture related items; (iii) debt restructuring costs; (iv) stock-based compensation; (v) impairment charges and (vi) other costs. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 2 for a reconciliation of total segment adjusted operating income to income before income taxes. See also Part I – Item 1 – Note 18, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.
2Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue. Segment adjusted operating income margin for both the three and nine months ended September 30, 2022 have remained relatively consistent with the prior year periods.
Cost of services
Processing costs increased $8.8by $9.5 million for the third quarter of 2022 and $32.3$18.0 million, for the nine months ended September 30, 2022, as compared to the same periods in the prior year. The increases in processing costs primarily resulted from higher customer service and technology costs to support partner growth, along with increased costs as a result of the benefitexpress Acquisition during the nine months ended September 30, 2022.
Service feesrespectively, for the three and nine months ended September 30, 2022 increased $2.7 million and $8.5 million, respectively, as compared with the same periods in the prior year. The2023 due to an increase in service fees for the three months ended September 30, 2022 was primarily related to greater interest-bearing HSA program fees incurred. For the nine months ended September 30, 2022, these HSA program fees contributed to the increaseprofessional services, card issuance and other costs in service fees along with increases due to the benefitexpress Acquisition andsupport of volume increases.
Provision for credit losses and operating interest were not material to Health and Employee Benefit Solutions’ operationsService fees increase for the three and nine months ended September 30, 2022 and 2021.
Depreciation and amortization expense for the three and nine months ended September 30, 2022 remained consistent2023 were primarily driven by increased fees incurred on higher HSA deposits, as compared with the same periodsperiod in the prior year.
Other operating expenses
General and administrative expenseexpenses increased $4.2$3.8 million and $9.0 million for the three and nine months ended September 30, 20222023, respectively, as compared towith the same periodperiods in the prior year primarily due to increased employee compensationprofessional services expense in support of increasing operating efficiencies and professional service fees. General and administrative expense for the third quarter of 2022 remained consistent with the comparable prior year period.business growth.
SalesExpansion of the sales and marketing expensesteam drove the $5.0 million increase in sales and marketing expense for the nine months ended September 30, 2023, as compared to the prior year period.
Depreciation and amortization increased $2.3$3.1 million and $8.6$7.7 million, duringfor the three and nine months ended September 30, 2022,2023, respectively, as compared to the same periods in the prior year due primarily to the expansion of the sales and marketing team, coupled with increased expense during the nine months ended September 30, 2022 due to the benefitexpress Acquisition and a return to in-person partner conferences.
Depreciation and amortization expense increased $3.9 million for the nine months ended September 30, 2022, as compared to the same period of the prior year,periods, primarily due to thehigher relative amortization of intangibleon HSA contractual rights obtainedcoupled to a smaller degree by increased amortization as a result of the April 2021 acquisition of contractual rights to serve as custodian of certain HSAs. Depreciation and amortization expense for the third quarter of 2022 remained consistent with the comparable prior year period.Ascensus Acquisition.
Unallocated corporate expenses
Unallocated corporate expenses represent the portion of expenses relating to general corporate functions, including acquisition and divestiture expenses, certain finance, legal, information technology, human resources, administrative and executive expenses, and other expenses not directly attributable to a reportable segment.
The following table compares line items within operating income for unallocated corporate expenses:
| | | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent | |
| (In millions) | | (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Other operating expenses | Other operating expenses | | | | | | | | | | | | | | | | Other operating expenses | | | | | | | | | | | | | | | |
| General and administrative | General and administrative | $ | 33,180 | | | $ | 29,247 | | | $ | 3,933 | | | 13 | % | | $ | 93,278 | | | $ | 92,013 | | | $ | 1,265 | | | 1 | % | General and administrative | $ | 45.8 | | | $ | 33.2 | | | $ | 12.6 | | | 38 | % | | $ | 118.7 | | | $ | 93.3 | | | $ | 25.4 | | | 27 | % |
| Depreciation and amortization | Depreciation and amortization | $ | 441 | | | $ | 518 | | | $ | (77) | | | (15) | % | | $ | 1,452 | | | $ | 1,574 | | | $ | (122) | | | (8) | % | Depreciation and amortization | $ | 0.4 | | | $ | 0.4 | | | $ | — | | | NM | | $ | 2.2 | | | $ | 1.5 | | | $ | 0.7 | | | NM |
General and administrative expenses increased $3.9 million forduring the third quarter of 2022 as compared to the same period in the prior year. The increase was due primarily to increased stock and other compensation expense. Increased stock and other compensation expense was substantially offset by a reduction in professional fees, including legal and arrangement fees incurred in connection with the amendment and restatement of our 2016 Credit Agreement during 2021, resulting in general and administrative expenses for the nine months ended September 30, 2022 remaining consistent with the prior year comparable period.
Unallocated depreciation and amortization for the three and nine months ended September 30, 2022 was comparable2023 as compared to the same periods in the prior year.year, primarily due to increased headcount and related compensation expense, including stock compensation, coupled with an increase in costs incurred in connection with the Ascensus Acquisition.
Non-operating income and expense
The following table reflects comparative results for certain amounts excluded from operating income:
| | | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | Amount | | Percent | | 2022 | | 2021 | | Amount | | Percent | |
| (In millions) | | (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent |
| Financing interest expense | Financing interest expense | $ | (34,419) | | | $ | (32,493) | | | $ | 1,926 | | | 6 | % | | $ | (95,928) | | | $ | (98,250) | | | $ | (2,322) | | | (2) | % | Financing interest expense | $ | (41.6) | | | $ | (34.4) | | | $ | 7.2 | | | 21 | % | | $ | (122.4) | | | $ | (95.9) | | | $ | 26.5 | | | 28 | % |
| Change in fair value of contingent consideration | Change in fair value of contingent consideration | $ | (30,300) | | | $ | 2,800 | | | $ | 33,100 | | | NM | | $ | (135,100) | | | $ | (44,900) | | | $ | 90,200 | | | 201 | % | Change in fair value of contingent consideration | $ | (3.2) | | | $ | (30.3) | | | $ | (27.1) | | | (89) | % | | $ | (6.2) | | | $ | (135.1) | | | $ | (128.9) | | | (95) | % |
| Other income | $ | — | | | $ | 3,617 | | | $ | (3,617) | | | (100) | % | | $ | — | | | $ | 3,617 | | | $ | (3,617) | | | (100) | % | |
| | Loss on extinguishment of Convertible Notes | | Loss on extinguishment of Convertible Notes | $ | (70.1) | | | $ | — | | | $ | 70.1 | | | NM | | $ | (70.1) | | | $ | — | | | $ | 70.1 | | | NM |
| Net foreign currency loss | Net foreign currency loss | $ | (23,445) | | | $ | (9,962) | | | $ | 13,483 | | | 135 | % | | $ | (37,847) | | | $ | (11,375) | | | $ | 26,472 | | | 233 | % | Net foreign currency loss | $ | (7.8) | | | $ | (23.4) | | | $ | (15.6) | | | 67 | % | | $ | (9.4) | | | $ | (37.8) | | | $ | (28.4) | | | (75) | % |
| Net unrealized gain on financial instruments | $ | 23,540 | | | $ | 6,424 | | | $ | 17,116 | | | 266 | % | | $ | 90,261 | | | $ | 19,470 | | | $ | 70,791 | | | 364 | % | |
| Net unrealized (loss) gain on financial instruments | | Net unrealized (loss) gain on financial instruments | $ | (7.8) | | | $ | 23.5 | | | $ | (31.3) | | | (133) | % | | $ | (20.1) | | | $ | 90.3 | | | $ | (110.4) | | | (122) | % |
| Income tax provision | Income tax provision | $ | 809 | | | $ | 19,340 | | | $ | (18,531) | | | (96) | % | | $ | 57,309 | | | $ | 16,924 | | | $ | 40,385 | | | 239 | % | Income tax provision | $ | 26.0 | | | $ | 0.8 | | | $ | 25.2 | | | NM | | $ | 78.7 | | | $ | 57.3 | | | $ | 21.4 | | | 37 | % |
| Net income from non-controlling interests | Net income from non-controlling interests | $ | — | | | $ | 134 | | | $ | (134) | | | (100) | % | | $ | 268 | | | $ | 1,099 | | | $ | (831) | | | (76) | % | Net income from non-controlling interests | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | 0.3 | | | $ | (0.3) | | | (100) | % |
| Change in value of redeemable non-controlling interest | Change in value of redeemable non-controlling interest | $ | — | | | $ | (3,416) | | | $ | 3,416 | | | 100 | % | | $ | 34,245 | | | $ | (72,283) | | | $ | 106,528 | | | 147 | % | Change in value of redeemable non-controlling interest | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | 34.2 | | | $ | (34.2) | | | 100 | % |
NM - Not meaningful
Financing interest expense for the third quarter of 2022 remained consistent with the prior year comparable period. During the nine months ended September 30, 2022, financing interest expense remained consistent with the comparable prior year period due to reductionsincreased as a result of the early redemptionhigher net variable interest rates on our term loans, inclusive of the Company’s $400.0 million senior notes and the write-off of certain deferred financing costs in conjunction with the amendment and restatement of the Company’s 2016 Creditamounts economically hedged via interest rate swap agreements.
Agreement, both during 2021, being offset substantially by increased expense relatedDue to the accretion of deferred payments associated withrising rate environment since we completed the acquisition of the remaining interest in PO Holding during March 2022.
During the three and nine months ended September 30, 2022,certain contractual rights from Bell Bank, the Company’s contingent consideration derivative liability increased asis effectively reflected at the maximum contingent consideration payable under the purchase agreement. As a result, of the steepening ofabsent a significant decline in the Federal Funds futures curve.curve, changes in the fair value of contingent consideration in 2023 and beyond are expected to generally be limited to present value adjustments due to the passage of time. See Part I – Item 1 – Note 13, Financial Instruments − Fair Value and Concentrations of Credit Risk, to our condensed consolidated financial statements for further information on the valuation of this derivative liability.
During August 2023, we repurchased all of the quarter ended September 30, 2021,outstanding aggregate principal amount of the Company recognized other incomeCompany’s Convertible Notes at a premium resulting in a loss on extinguishment of $3.6 million resulting from a gain$70.1 million. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for further information on the salerepurchase of a fully impaired equity investment.the Convertible Notes.
Our foreign currency exchange exposure is primarily related to the remeasurement of our cash, receivable and payable balances, including intercompany transactions that are denominated in foreign currencies. The Companylosses incurred net foreign currency losses of $23.4 million induring the third quarter of 2022 and $37.8 million in the nine months ended September 30, 2022. The losses2023, resulted from the weakening of certain foreign currencies in which we transact, including the Australian dollar, the Euro and the British Pound sterling, in which we transactAustralian and Canadian dollars, relative to the U.S. dollar.
The Company incurredDue to substantial increases in the LIBOR forward yield curve during the three and nine months ended September 30, 2022, we recognized significant unrealized gains on our interest rate swap financial instruments of $23.5 million and $90.3 millionduring those periods. Comparatively, during 2023 forward yield curves on our interest rate swap financial instruments experienced only moderate changes.
The increase in income tax provision for the three and nine months ended September 30, 2022, respectively, substantially2023 as compared to the prior year comparable periods is due primarily to an increase in income (loss) before income taxes, offset in part due to significant increasesthe change in the LIBOR forward yield curve.Company’s effective tax rates. The net unrealized gains on financial instrumentsCompany’s effective tax rates for the three and nine months ended September 30, 2021 resulted primarily from a reduction in the interest rate swap liabilities due2023 were 58.6 percent and 30.2 percent, respectively, compared to a decrease in remaining future settlements.
The Company’s effective tax rate was (1.9) percent and 42.1 percent for the three and nine months ended September 30, 2022, respectively, as comparedrespectively. See Part I – Item 1 – Note 15, Income Taxes, to 27.2 percent and 16.6 percentour condensed consolidated financial statements for more information regarding the three and nine months ended September 30, 2021, respectively. Income tax expense is based on an estimated annual effective rate, which requires the Company to make its best estimate of annual pretax income or loss. The Company’sdrivers behind our effective tax rates for the three and nine months ended September 30, 2022 were adversely impacted primarily by a discrete tax adjustment of $12.7 million relating to the establishment of a valuation allowance recorded against a portion of deferred tax assets resulting from goodwill impairment charges. The Company’s effective tax rate for the nine months ended September 30, 2022 was also adversely impacted by a discrete tax item of $7.5 million recorded during the first quarter of 2022, primarily associated with an uncertain tax position. The effective tax rate for the nine months ended September 30, 2021 was favorably impacted primarily by significant excess tax benefits arising from stock-based compensation.
Net income from non-controlling interests was not material to Company operations for the three and nine months ended September 30, 2022 and 2021.rates.
During the nine months ended September 30, 2022, the Company purchased the remaining non-controlling interest in PO Holding from SBI, reducing the carrying value of the redeemable non-controlling interest to zero. The transaction resulted in a $34.2 million gain, net of tax expense. See Part I – Item 1 – Note 4, Acquisitions, to our condensed consolidated financial statements for further information.
Non–GAAP Financial Measures That Supplement GAAP Measures
Segment Adjusted Operating Income and Adjusted Net Income
In addition to evaluating the Company’s performance on a GAAP basis, the CODMmanagement of the Company uses segment adjusted operating income, a non-GAAP measure, to allocate resources among our operating segments. The Company considers this measure, which excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs and impairment charges and other costs integral in evaluating the Company’s performance.
Our management also uses adjusted net income, a non-GAAP measure, to evaluate its performance. WEX believes that adjusted net income, another non-GAAP measure thatwhich similarly excludes all items discussed in the paragraph above except unallocated corporate expenses, and further excludes unrealized gains and losses on financial instruments, net foreign currency gains and losses, change in fair value of contingent consideration, debt restructuring and debt issuance cost amortization, other adjustments attributable to non-controlling interests and tax related items, is also integral to the Company’s reporting and planning processes.
Segment adjusted operating income and adjusted net income may be useful to investors as a means of evaluating our performance. However, because segment adjusted operating income and adjusted net income are non-GAAP measures, they should not be considered as a substitute for, or superior to, operating income or net income as determined in accordance with GAAP. Segment adjusted operating income and adjusted net income as used by WEX may not be comparable to similarly titled measures employed by other companies.
Specifically, in addition to evaluating the Company’s performance on a GAAP basis, management evaluates the Company’s performance on a non-GAAP basis that excludes the items specified above items because:for the reasons discussed below:
•Exclusion of the non-cash, mark-to-market adjustments on financial instruments, including interest rate swap agreements and investment securities, helps management identify and assess trends in the Company’s underlying business that might otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these financial instruments. Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future quartersperiods difficult to evaluate;
•Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, accounts receivable and accounts payable balances, certain intercompany notes denominated in foreign currencies and any gain
or loss on foreign currency economic hedges relating to these items. The exclusion of these items helps management compare changes in operating results between periods that might otherwise be obscured due to currency fluctuations;
•The change in fair value of contingent consideration, which is related to the acquisition of certain contractual rights to serve as custodian or sub-custodian to HSAs, is dependent upon changes in future interest rate assumptions and has no significant impact on the ongoing operations of the Company. Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future quartersperiods difficult to evaluate;
•The Company considers certain acquisition-related costs, including certain financing costs, investment banking fees, warranty and indemnity insurance, certain integration-related expenses and amortization of acquired intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses on divestitures facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in our industry;
•Stock-based compensation is different from other forms of compensation as it is a non-cash expense. For example, a cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time;
•Other costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. This also includes non-recurring professional service costs, costs related to certain identified initiatives, including restructuring and technology initiatives, to further streamline the business, improve the Company’s efficiency, create synergies and globalize the Company’s operations, all with an objective to improve scale and efficiency and increase profitability going forward. For the nine months ended September 30, 2021, other costs additionally include a penalty incurred on a vendor contract termination;
•Impairment charges represent non-cash asset write-offs, which do not reflect recurring costs that would be relevant to the Company’s continuing operations. The Company believes that excluding these nonrecurring expenses facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in its industry;
•Debt restructuring and debt issuance cost amortization, which for the three and nine months ended September 30, 2023 includes the loss on extinguishment of Convertible Notes, are unrelated to the continuing operations of the Company. Debt restructuring costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. In addition, since debt issuance cost amortization is dependent upon the financing method, which can vary widely company to company, we believe that excluding these costs helps to facilitate comparison to historical results as well as to other companies within our industry;
•The adjustments attributable to non-controlling interests, including adjustments to the redemption value of a non-controlling interest, have no significant impact on the ongoing operations of the business;
•The tax related items are the difference between the Company’s GAAP tax provision and a pro forma tax provision based upon the Company’s adjusted net income before taxes as well as the impact from certain discrete tax items. The methodology utilized for calculating the Company’s adjusted net income attributable to shareholders tax provision is the same methodology utilized in calculating the Company’s GAAP tax provision; and
•The Company does not allocate certain corporate expenses to our operating segments, as these items are centrally controlled and are not directly attributable to any reportable segment.
The following table reconcilestables reconcile net income (loss) income attributable to shareholders to adjusted net income attributable to shareholders:shareholders and related per share data:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Net (loss) income attributable to shareholders | $ | (44,145) | | | $ | 48,318 | | | $ | 112,747 | | | $ | 11,897 | |
| Unrealized gain on financial instruments | (23,540) | | | (6,424) | | | (90,261) | | | (19,470) | |
| Net foreign currency loss | 23,445 | | | 9,962 | | | 37,847 | | | 11,375 | |
| | | | | | | |
| Change in fair value of contingent consideration | 30,300 | | | (2,800) | | | 135,100 | | | 44,900 | |
| Acquisition-related intangible amortization | 42,486 | | | 46,965 | | | 127,743 | | | 134,713 | |
| Other acquisition and divestiture related items | 4,142 | | | 3,395 | | | 15,143 | | | 28,881 | |
| | | | | | | |
| Stock-based compensation | 27,873 | | | 22,166 | | | 78,360 | | | 62,771 | |
| Other costs | 8,806 | | | 1,711 | | | 24,911 | | | 15,653 | |
| Impairment charges | 136,486 | | | — | | | 136,486 | | | — | |
| Debt restructuring and debt issuance cost amortization | 4,704 | | | 2,879 | | | 12,677 | | | 19,432 | |
| | | | | | | |
| ANI adjustments attributable to non-controlling interests | — | | | 2,848 | | | (34,587) | | | 69,854 | |
| Tax related items | (52,804) | | | (17,904) | | | (97,977) | | | (82,722) | |
| Adjusted net income attributable to shareholders | $ | 157,753 | | | $ | 111,116 | | | $ | 458,189 | | | $ | 297,284 | |
The following table reconciles total segment adjusted operating income to (loss) income before income taxes:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Segment adjusted operating income | | | | | | | |
| Fleet Solutions | $ | 174,521 | | | $ | 144,853 | | | $ | 527,591 | | | $ | 400,976 | |
| Travel and Corporate Solutions | 60,289 | | | 31,057 | | | 139,635 | | | 55,229 | |
| Health and Employee Benefit Solutions | 30,261 | | | 23,863 | | | 94,068 | | | 83,487 | |
| Total segment adjusted operating income | $ | 265,071 | | | $ | 199,773 | | | $ | 761,294 | | | $ | 539,692 | |
| | | | | | | |
| Reconciliation: | | | | | | | |
| Total segment adjusted operating income | $ | 265,071 | | | $ | 199,773 | | | $ | 761,294 | | | $ | 539,692 | |
| Less: | | | | | | | |
| Unallocated corporate expenses | 23,918 | | | 20,977 | | | 63,915 | | | 54,360 | |
| Acquisition-related intangible amortization | 42,486 | | | 46,965 | | | 127,743 | | | 134,713 | |
| Other acquisition and divestiture related items | 4,142 | | | 7,012 | | | 15,143 | | | 32,498 | |
| Debt restructuring costs | 72 | | | 120 | | | 43 | | | 6,056 | |
| Stock-based compensation | 27,873 | | | 22,166 | | | 78,360 | | | 62,771 | |
| Other costs | 8,806 | | | 1,711 | | | 24,911 | | | 15,653 | |
| Impairment charges | 136,486 | | | — | | | 136,486 | | | — | |
| Operating income | 21,288 | | | 100,822 | | | 314,693 | | | 233,641 | |
| Financing interest expense | (34,419) | | | (32,493) | | | (95,928) | | | (98,250) | |
| Net foreign currency loss | (23,445) | | | (9,962) | | | (37,847) | | | (11,375) | |
| Other income | — | | | 3,617 | | | | | 3,617 | |
| | | | | | | |
| Change in fair value of contingent consideration | (30,300) | | | 2,800 | | | (135,100) | | | (44,900) | |
| Net unrealized gain on financial instruments | 23,540 | | | 6,424 | | | 90,261 | | | 19,470 | |
| (Loss) income before income taxes | $ | (43,336) | | | $ | 71,208 | | | $ | 136,079 | | | $ | 102,203 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | | | |
| (In millions except per diluted share data) | 2023 | | 2022 | | | | | | | | |
| Net income (loss) attributable to shareholders | $ | 18.4 | | | $ | 0.42 | | | $ | (44.1) | | | $ | (1.00) | | | | | | | | | |
| Unrealized loss (gain) on financial instruments | 7.8 | | | 0.18 | | | (23.5) | | | (0.53) | | | | | | | | | |
| Net foreign currency loss | 7.8 | | | 0.18 | | | 23.4 | | | 0.53 | | | | | | | | | |
| Change in fair value of contingent consideration | 3.2 | | | 0.07 | | | 30.3 | | | 0.69 | | | | | | | | | |
| Acquisition-related intangible amortization | 45.2 | | | 1.04 | | | 42.5 | | | 0.96 | | | | | | | | | |
| Other acquisition and divestiture related items | 5.1 | | | 0.12 | | | 4.1 | | | 0.09 | | | | | | | | | |
| Stock-based compensation | 31.9 | | | 0.74 | | | 27.9 | | | 0.63 | | | | | | | | | |
| Other costs | 15.1 | | | 0.35 | | | 8.8 | | | 0.20 | | | | | | | | | |
| Impairment charges | — | | | — | | | 136.5 | | | 3.09 | | | | | | | | | |
| Debt restructuring and debt issuance cost amortization | 74.4 | | | 1.71 | | | 4.7 | | | 0.11 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Tax related items | (32.1) | | | (0.74) | | | (52.8) | | | (1.19) | | | | | | | | | |
Dilutive impact of stock awards1 | — | | | — | | | — | | | (0.02) | | | | | | | | | |
Dilutive impact of convertible debt2 | — | | | (0.02) | | | — | | | (0.05) | | | | | | | | | |
| Adjusted net income attributable to shareholders | $ | 176.8 | | | $ | 4.05 | | | $ | 157.8 | | | $ | 3.51 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | | | | |
| 2023 | | 2022 | | | | | | | | |
| Net income attributable to shareholders | $ | 181.7 | | | $ | 4.18 | | | $ | 112.7 | | | $ | 2.51 | | | | | | | | | |
| Unrealized loss (gain) on financial instruments | 20.1 | | | 0.46 | | | (90.3) | | | (2.01) | | | | | | | | | |
| Net foreign currency loss | 9.4 | | | 0.22 | | | 37.8 | | | 0.84 | | | | | | | | | |
| Change in fair value of contingent consideration | 6.2 | | | 0.14 | | | 135.1 | | | 3.00 | | | | | | | | | |
| Acquisition-related intangible amortization | 133.6 | | | 3.07 | | | 127.7 | | | 2.84 | | | | | | | | | |
| Other acquisition and divestiture related items | 7.6 | | | 0.17 | | | 15.1 | | | 0.34 | | | | | | | | | |
| Stock-based compensation | 94.5 | | | 2.17 | | | 78.4 | | | 1.74 | | | | | | | | | |
| Other costs | 28.6 | | | 0.66 | | | 24.9 | | | 0.55 | | | | | | | | | |
| Impairment charges | — | | | — | | | 136.5 | | | 3.03 | | | | | | | | | |
| Debt restructuring and debt issuance cost amortization | 83.9 | | | 1.93 | | | 12.7 | | | 0.28 | | | | | | | | | |
| ANI adjustments attributable to non-controlling interests | — | | | — | | | (34.6) | | | (0.77) | | | | | | | | | |
| Tax related items | (83.7) | | | (1.92) | | | (98.0) | | | (2.18) | | | | | | | | | |
| | | | | | | | | | | | | | | |
Dilutive impact of convertible debt2 | — | | | (0.09) | | | — | | | (0.08) | | | | | | | | | |
| Adjusted net income attributable to shareholders | $ | 481.9 | | | $ | 10.99 | | | $ | 458.2 | | | $ | 10.09 | | | | | | | | | |
| | | | | | | | | | | | | | | |
2 The dilutive impact of the Convertible Notes has been calculated under the ‘if-converted’ method for the periods through which they were outstanding. Under the ‘if-converted’ method, interest expense, net of tax, associated with our Convertible Notes of $1.8 million and $9.5 million and $3.8 million and $11.3 million was added back to adjusted net income for the three and nine months ended September 30, 2023 and 2022, respectively.For the reported quarter-to-date and year-to-date periods of 2022 presented, approximately 1.6 million shares of the Company’s common stock associated with the assumed conversion of the Convertible Notes as of the beginning of the period was included in the calculations of adjusted net income per diluted share, as the effect of including such adjustments was dilutive. For the three and nine months ended September 30, 2023, approximately 0.7 million and 1.3 million shares of the Company’s common stock associated with the assumed conversion of the Convertible Notes (prior to repurchase and cancellation) was included in the calculation of adjusted net income per dilutive share, respectively, as the effect of including such adjustments was dilutive. The total number of shares used in calculating adjusted net income attributable to shareholders per diluted share for the three and nine months ended September 30, 2023 was 44.1 million and 44.7 million, respectively. The total number of shares used in calculating adjusted net income attributable to shareholders per diluted share for the three and nine months ended September 30, 2022 is 46.0 million and 46.5 million, respectively. For further information about the Convertible Notes and their repurchase and cancellation, see Note 10, Financing and Other Debt.
The following table reconciles operating income to total segment adjusted operating income and adjusted operating income:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (In millions) | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Operating income | $ | 174.9 | | | $ | 21.3 | | | 488.6 | | | 314.7 | |
| Unallocated corporate expenses | 29.1 | | | 23.9 | | | 76.8 | | | 63.9 | |
| Acquisition-related intangible amortization | 45.2 | | | 42.5 | | | 133.6 | | | 127.7 | |
| Other acquisition and divestiture related items | 5.1 | | | 4.1 | | | 7.6 | | | 15.1 | |
| | | | | | | |
| Stock-based compensation | 31.9 | | | 27.9 | | | 94.5 | | | 78.4 | |
| Other costs | 15.1 | | | 8.9 | | | 28.6 | | | 25.0 | |
| Impairment charges | — | | | 136.5 | | | — | | | 136.5 | |
| Total segment adjusted operating income | $ | 301.3 | | | $ | 265.1 | | | $ | 829.7 | | | $ | 761.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Unallocated corporate expenses | (29.1) | | | (23.9) | | | $ | (76.8) | | | $ | (63.9) | |
| Adjusted operating income | $ | 272.2 | | | $ | 241.2 | | | $ | 752.9 | | | $ | 697.4 | |
Adjusted Free Cash Flow
The Company’s non-GAAP adjusted free cash flow is calculated as cash flows from operating activities, adjusted for net purchases of current investment securities, capital expenditures, the change in net deposits, changes in borrowings under the BTFP and borrowed federal funds and certain other adjustments which, for the nine months ended September 30, 2023, reflects an adjustment for contingent consideration paid to sellers in excess of acquisition-date fair value. Although non-GAAP adjusted free cash flow is not calculated in accordance with GAAP, WEX believes that adjusted free cash flow is a useful measure for investors to further evaluate our results of operations because (i) adjusted free cash flow indicates the level of cash generated by the operations of the business, which excludes consideration paid on acquisitions, after appropriate reinvestment for recurring investments in property, equipment and capitalized software that are required to operate the business; (ii) changes in net deposits occur on a daily basis as a regular part of operations; (iii) borrowings under the BTFP and borrowed federal funds are primarily used as a replacement for brokered deposits as part of our accounts receivable funding strategy; and (iv) purchases of current investment securities are made as a result of deposits gathered operationally. However, because adjusted free cash flow is a non-GAAP measure, it should not be considered as a substitute for, or superior to, operating cash flow as determined in accordance with GAAP. In addition, adjusted free cash flow as used by WEX may not be comparable to similarly titled measures employed by other companies.
The following table reconciles GAAP operating cash flow to adjusted free cash flow:
| | | | | | | | | | | | | | |
(In millions) | | Nine Months Ended September 30, |
| | | 2023 | | 2022 |
| Cash flows from operating activities, as reported | | | | $ | 146.0 | | | $ | 106.6 | |
| Adjustments to cash flows from operating activities: | | | | | | |
| Other | | | | 1.5 | | | — | |
| Adjusted for certain investing and financing activities: | | | | | | |
| Increases in net deposits | | | | 889.9 | | | 960.6 | |
| Increases in borrowings under the BTFP | | | | 500.0 | | | — | |
| Increases in borrowed federal funds | | | | 260.1 | | | — | |
| Less: Purchases of current investment securities, net of sales and maturities | | | | (1,304.2) | | | (584.8) | |
| Less: Capital expenditures | | | | (101.7) | | | (75.5) | |
| Adjusted free cash flow | | | | $ | 391.6 | | | $ | 406.8 | |
Liquidity and Capital Resources
We fund our business operations primarily via cash on hand, cash generated from operations, the issuance of deposits, and borrowings under our Amended and Restated Credit Agreement, our participation debt and our accounts receivable factoring and securitization arrangements.Agreement. As of September 30, 2022,2023, we had cash and cash equivalents of $759.4$957.8 million, andincluding Corporate Cash of $170.2 million, along with a remaining borrowing availability of $810.8
$925.2 million under the revolving credit facilityRevolving Credit Facility provided by our Amended and Restated Credit Agreement along with access to various sources of funds, including uncommitted federal funds lines of credit from other banks.
We believe that our current cash and cash equivalents, cash generating capabilities, financial condition and operations, and access to available funding sources will be sufficient to fund our cash needs for the next 12 months and the foreseeable future. The table below summarizes our primary sources and uses of cash:
| | | | | | | | |
| Sources of cash | | Uses of cash1 |
•Cash generated from operations •Borrowings and availability on our Amended and Restated Credit Agreement2 •Deposits3 •Accounts receivable securitization and factoring arrangements4 •Participation debt and borrowed federal funds5
| | •Payments on our Amended and Restated Credit Agreement •Payments on maturities and withdrawals of deposits •Payments on borrowed federal funds and other short-term borrowings •Working capital needs of the business •Capital expenditures •Purchases of shares of treasury stock •Mergers and acquisitions |
1 Our long-term cash requirements consist primarily of amounts owed on our Amended and Restated Credit Agreement provides for a secured revolving credit facility (the “Revolvingand various facilities lease agreements.
2 Under our Amended and Restated Credit Facility”), senior secured tranche A term loans (the “Tranche A Term Loans”) and senior secured tranche B term loans (the “Tranche B Term Loans”). AsAgreement, as of September 30, 2022,2023 the Company had an outstanding term loan principal amount of $905.1 million on the Tranche A Term Loans, an outstanding principal amount of $1,420.4 million on the Tranche B Term Loans, borrowings of $88.2$2,262.1 million, borrowings of $471.6 million on the Revolving Credit Facility and letters of credit of $31.0$33.2 million drawn against the Revolving Credit Facility.
As of September 30, 2022, the Company had outstanding $310.0 million in principal amount of Convertible Notes, issued in a private placement with Warburg Pincus. At the Company’s option, interest is either payable in cash, through accretion to the principal amount of the Convertible Notes, or a combination of cash and accretion. The Company has paid, and expects to continue to pay interest in cash as it comes due.
The Company is also party to two securitized debt agreements. Under these agreements, the Company sells certain of its Australian and European trade accounts receivable to bankruptcy-remote subsidiaries consolidated by the Company, which in turn use the receivables as collateral to issue securitized debt. Amounts collected on the securitized receivables are restricted to pay the securitized debt and are not available for general corporate purposes. The Company had $93.9 million of securitized debt under these facilities as of September 30, 2022. In addition, from time to time, WEX Bank enters into participation agreements with third-party banks to fund customers’ balances that exceed WEX Bank’s lending limit to individual customers. There was $29.9 million borrowed against these participation agreements as of September 30, 2022. WEX Bank also borrows from uncommitted federal funds lines to supplement the financing of the Company’s accounts receivable. There were no outstanding borrowings under these lines of credit as of September 30, 2022. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for more information regarding our Amended and Restated Credit Agreement.
3 WEX Bank’s regulatory status enables it to raise capital to fund the Company’s working capital requirements by issuing deposits, subject to FDIC rules governing minimum financial ratios. Additionally, WEX Bank holds deposits for the benefit of WEX Inc.’s HSA customers subject to the terms of a deposit agreement. As of September 30, 2023, we had $4,368.3 million in total deposits. See Part I – Item 1 – Note 9, Deposits, to our condensed consolidated financial statements for more information regarding our deposits.
4 The Company utilizes securitized debt agreements to finance a portion of our receivables, lower our cost of borrowing and more efficiently utilize capital. The Company had $99.9 million of securitized debt under these facilities.
facilities as of September 30, 2023. We also utilize two off-balance sheet factoring and securitization arrangements to sell certain of our accounts receivable to unrelated third-party financial institutions in order to accelerate the collection of the Company’s cash and reduce internal costs. Under the arrangements, the factored receivables have been transferred without recourse. Available capacity is dependent on the level of our trade accounts receivable eligible to be sold and the financial institutions’ willingness to purchase such receivables. However, the Company is not dependent on them to maintain its liquidity and capital resources. We are not aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on liquidity and capital resources. See Part I – Item 1 – NoteNotes 10, Financing and Other Debt and 11, Off-Balance Sheet Arrangements, to our condensed consolidated financial statements for further information about the Company’s securitized debt and off-balance sheet arrangements.
5 From time to time, WEX Bank enters into participation agreements with third-party banks to fund customers’ balances that exceed WEX Bank’s regulatory status enables itlending limit to raise capital to fund the Company’s working capital requirements by issuing deposits, subject to FDIC rules governing minimum financial ratios. Asindividual customers. There was $41.5 million borrowed against these participation agreements as of September 30, 2022, we had $3,635.72023. WEX Bank also borrows from uncommitted federal funds lines from time to time to supplement the financing of the Company’s accounts receivable. There were $260.0 million in deposits.outstanding borrowings under these lines of credit as of September 30, 2023. See Part I – Item 1 – Note 9, Deposits,10, Financing and Other Debt, to our condensed consolidated financial statements for more information regarding our deposits.these facilities.
We believe that our current cash
Additional Sources of Cash Available
On March 12, 2023, the Federal Reserve Board announced the BTFP, which provides liquidity to U.S. depository institutions. This program allows bank loans for up to one year in length, collateralized by the par value of qualifying assets, including U.S. treasuries and cash equivalents, cash generating capabilities, financial condition and operations, and access to available funding sourcesmortgage-backed securities. Advances will be adequateavailable until March 11, 2024, or longer if the program is extended. At any time under the BTFP, WEX Bank is able to fundrefinance without penalty in order to obtain the most advantageous rate. WEX Bank has accessed $500.0 million of temporary, low-cost capital under the BTFP as of September 30, 2023, pledging securities with a par value of $800.3 million and market value of $688.3 million as collateral.
On August 11, 2023, the Company repurchased all of its outstanding Convertible Notes for a total purchase price of $370.4 million, inclusive of accrued and unpaid interest from and including July 15, 2023, to but excluding August 11, 2023. Subsequently, on September 26, 2023, the Company entered into the Third Amendment to Amended and Restated Credit Agreement, which increased the revolving credit commitments under the Company’s Revolving Credit Facility by $500.0 million. This amendment restored most of the revolver capacity used to repurchase the Convertible Notes and close the Ascensus Acquisition. See Part I – Item 1 – Note 10, Financing and Other Debt, and Note 4, Acquisitions and Other Investments, to our cash needscondensed consolidated financial statements for more information regarding the next 12 months and the foreseeable future. The table below summarizes our primary sources and uses of cash:
| | | | | | | | |
Sources of cash | | Uses of cash1
|
•Borrowings and availability on our Amended and Restated Credit Agreement
•Convertible Notes
•Deposits
•Borrowed federal funds
•Participation debt
•Accounts receivable factoring and securitization arrangements
| | •Payments on our Amended and Restated Credit Agreement
•Payments on maturities and withdrawals of deposits
•Payments on borrowed federal funds
•Working capital needs of the business
•Capital expenditures
•Purchases of shares of treasury stock
|
1 Our long-term cash requirements consist primarily of amounts owed on ourConvertible Notes repurchase, Third Amendment to Amended and Restated Credit Agreement and various facilities lease agreements.Ascensus Acquisition.
WEX Bank has the ability to borrow funds from the Federal Reserve Bank Discount Window. Borrowing limits fluctuate based on pledged assets, and as of September 30, 2023, the Company could borrow up to a maximum amount of $202.3 million. WEX Bank had no borrowings outstanding on this line of credit as of September 30, 2023. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for more information regarding this borrowing arrangement.
Cash Flows
The table below summarizes our cash activities:activities and adjusted free cash flow: | | | | | | | | | | | |
| Nine Months Ended September 30, |
| (In thousands) | 2022 | | 2021 |
| Cash flows provided by (used for) operating activities | $ | 456,644 | | | $ | (10,355) | |
| Cash flows used for investing activities | $ | (663,891) | | | $ | (610,734) | |
| Cash flows provided by financing activities | $ | 753,381 | | | $ | 477,739 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| (In millions) | 2023 | | 2022 |
| Net cash provided by (used for) | | | |
Operating activities1 | $ | 146.0 | | | $ | 106.6 | |
| Investing activities | $ | (1,571.4) | | | $ | (663.9) | |
Financing activities1 | $ | 1,705.3 | | | $ | 1,103.5 | |
| Non-GAAP financial measure: | | | |
Adjusted free cash flow2 | $ | 391.6 | | | $ | 406.8 | |
1 Restricted cash payable inflows of $350.1 million for the nine month period ended September 30, 2022 have been reclassified from operating activities to financing activities to conform to the current period presentation. Refer to Item 1, Note 1, Basis of Presentation for more information.
2 The Company’s non-GAAP adjusted free cash flow is calculated as cash flows from operating activities, adjusted for net purchases of current investment securities, capital expenditures, the change in net deposits, changes in borrowings under the BTFP and borrowed federal funds and certain other adjustments. For a reconciliation to net cash provided by operating activities, the most closely comparable GAAP measure, and the reasons why we believe this is an important financial measure, please refer to the section titled Non-GAAP Financial Measures That Supplement GAAP Measures.
Operating Activities
We fund a customer’s entire receivable in the majority of our fleetMobility and travel paymentCorporate Payment processing transactions, while the revenue generated by these transactions is only a small percentage of that amount. Consequently, cash flows from operations are impacted significantly by increases or decreases in fuel prices and purchase volumes, driving changes in accounts receivable and accounts payable balances, which directly impact our capital resource requirements.
Cash provided by operating activities for the nine months ended September 30, 20222023 increased $467.0$39.4 million as compared to the same period in the prior year. The increase in cash provided by operating activities year over year was primarily the result of higher net income adjusted for non-cash items as well as an increase in restricted cash payable.items.
Investing Activities
Investing cash flows generally consist of capital expenditures, cash used for acquisitions and the investment of eligible custodial cash assets.
Cash used for investing activities for the nine months ended September 30, 20222023 increased $53.2$907.5 million as compared to the same period in the prior year, primarily resulting from thehigher relative investment of $632.8 million of transferred HSA deposits in available-for-sale debt securities duringand the nine months endedAscensus Acquisition, which closed on September 30, 2022, offset substantially by $558.3 million of payments made1, 2023. See Part I – Item 1 – Note 4, Acquisitions and Other Investments, to our condensed consolidated financial statements for acquisitions during the nine months ended September 30, 2021.more information regarding this acquisition.
Financing Activities
Financing cash flows generally consist of the issuance and repayment of debt and deposits, and proceeds from employee exercises of stock optionschanges in restricted cash payable and purchases of treasury shares.our common stock. Repurchases of our common stock may vary based on management’s evaluation of market and economic conditions and other factors.
Cash provided by financing activities for the nine months ended September 30, 2022 totaled $753.42023 increased $601.8 million, due primarily to an increase in deposits of $960.6 million, partially offset by $149.6 million of share repurchases ofnet borrowings under the newly available BTFP and under our common stock and $47.5 million of repayments on our term loans. Cash provided by financing activities for the nine months ended September 30, 2021 totaled $477.7 million due primarily to an increase in deposits of $558.0 million. The early redemption of the Company’s $400.0 million of NotesRevolving Credit Facility during the nine months ended September 30, 2021 was substantially2023, offset in part by additional term loan borrowingsthe repurchase of $65.0 million, net of quarterly repayments, and net borrowings of $213.4 million against our Revolving Credit Facility.Convertible Notes.
During the nine months ended September 30, 2022,2023, the Company repurchased approximately 10.8 million shares of our common stock subject to a $150.0 million share buyback plan previouslyan authorized and outstanding as of December 31, 2021 for a total cost of $149.6 million. During August 2022, our board of directors terminated the substantially exhausted plan and authorized a new share buyback planplan. Cash payments for the repurchase of up to $150.0 million of our outstanding shares through August 2026, under which the Company repurchased 0.5 million of sharesshare repurchases during the month of October 2022, at a total cost of $75.0nine months ended September 30, 2023 totaled $152.6 million. On October 27, 2022, the Company announced that our board of directors approved an increase of $500.0 million to the share buyback plan, resulting in a total repurchase authorization of $650.0 million, and shortened the duration of the plan to December 31, 2025. As of the date of this filing, there is $575.0$363.5 million in sharesworth of common stock shares that are available to be purchased pursuant to the existing repurchase authorization.
Adjusted Free Cash Flow
The definition of adjusted free cash flow, and the reasons why we believe it to be an important financial measure, can be found in the section titled Non-GAAP Financial Measures That Supplement GAAP Measures.
Adjusted free cash flow decreased $15.2 million during the nine months ended September 30, 2023 as compared to the same period in the prior year, reflecting an increase in investments of HSA deposits in available-for-sale debt securities, partially offset by borrowings under the BTFP and borrowings of federal funds.
Financial Covenants
The Amended and Restated Credit Agreement contains customary affirmative and negative covenants affecting the Company and its subsidiaries, including covenants limiting the Company’s ability to, among other things, incur debt (including disqualified stock), grant liens, make certain investments, pay dividends, repurchase equity interests and sell assets, subject to certain exceptions. The Amended and Restated Credit Agreement also contains customary financial maintenance covenants, including a consolidated interest coverage ratio and a consolidated leverage ratio.The indenture associated with the Convertible Notes also includesincluded customary covenants, including a debt incurrence covenant that restrictsrestricted the Company from incurring certain indebtedness, including disqualified stock and preferred stock issued by the Company or its subsidiaries, subject to customary exceptions.At In connection with the repurchase of our Convertible Notes, this indenture was discharged and, as such, the Company is no longer subject to the restrictions contained in the indenture governing the Convertible Notes. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for further information on the repurchase of the Convertible Notes. As of September 30, 2022,2023, we were otherwise in compliance with such remaining covenants. See Part II – Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources and Part II – Item 8 – Note 16, Financing and Other Debt, in our Annual Report on Form 10-K for the year ended December 31, 20212022 for more information regarding these covenants.
Undistributed Earnings
Undistributed earnings of certain foreign subsidiaries of the Company amounted to an estimated $157.1 million and $133.0 million as of September 30, 2022 and December 31, 2021, respectively. The Company continues to maintain its indefinite reinvestment assertion for its investments in foreign subsidiaries except for any historical undistributed earnings and future earnings for WEX Australia. Upon distribution of the foreign subsidiaries’ earnings in which the Company continues to assert indefinite reinvestment, the Company would be subject to withholding taxes payable to foreign countries, where applicable, but would generally have no further federal income tax liability. It is not practicable to estimate the unrecognized deferred tax liability, however, it is not expected to be material.
Other Commitments, Contingencies and Contractual Obligations
During June 2022,Other than commitments arising related to the Companyupcoming Payzer acquisition, and its European fuel suppliers amended existing contracts, modifying both prior periodimpacts from the third quarter repurchase of our Convertible Notes and future minimum volume commitments through 2025. As a result of these amendments, the Company reversed previously accrued penalties totaling approximately $7 million as revenue within the condensed consolidated statement of operations during the nine months ended September 30, 2022. During the three and nine months ended September 30, 2022, the Company incurred shortfall penalties of approximately $0.6 million and $1.6 million, respectively, under the amended agreements.
During June 2022, the Company entered into a definitive agreement to purchase a portfolio of certain assets, consisting primarily of branded commercial fleet cards from a third-party. During September 2022, the Company closed2023 borrowings on the acquisition of these receivables, paying the seller a preliminary purchase price of $45.1 million, consisting of the face value of the account balances as of the valuation date, plus certain customary adjustments, as defined in the purchase agreement. The actual amount of accounts receivable purchased was less than the balances as of the valuation date, therefore, the Company expectsBTFP, there were no material changes to receive back approximately $4.3 million in excess funds transferred at closingour contractual obligations from the seller.information previously provided in Item 7 of our Annual Report on Form 10–K for the year ended December 31, 2022.
Regulatory Matters
WEX Bank is working to resolve mattersin the process of complying with the FDIC and the UDFI, including with respect to a consent order issued by the FDIC and the UDFI (the “Order”“2022 Order”) on May 6, 2022.2022 and a consent order issued by the FDIC on September 20, 2023 (the “2023 Order”). The 2022 Order requires WEX Bank to strengthen its Bank Secrecy Act/anti-money laundering compliance program and to address related matters, including with respect to controls. The terms of the 2022 Order will remain in effect and be enforceable until they are modified, terminated, suspended or set aside by the FDIC and the UDFI. UDFI, however, we believe we have taken the appropriate actions to meet the requirements of the 2022 Order.
The 2023 Order requires WEX Bank to make certain improvements, which include corrections of certain issues identified in the 2023 Order and general enhancements to WEX Bank’s compliance management program. Customer impact and any resulting harm from the violations detailed in the 2023 Order have been identified and steps have been taken to remediate any such impact and harm. The terms of the 2023 Order will remain in effect and be enforceable until they are modified, terminated, suspended or set aside by the FDIC. Neither the matters identified in the 2022 Order nor the 2023 Order are not expected to have a material adverse effect on ourWEX Bank’s operations or the Company’s results of operations, financial condition or cash flows.
On March 7, 2022, WEX Inc. and SBI entered into the Share Purchase Agreement whereby WEX Inc. purchased SBI’s remaining 4.53 percent interest in PO Holding for a purchase price of $234.0 million plus any interest accruing pursuant to the terms of the Share Purchase Agreement. The purchase price is payable in three installments of $76.7 million in each of March of 2024, 2025 and 2026, with a final payment of $4.0 million payable in March 2026. Pursuant to the Share Purchase Agreement, WEX Inc. owes SBI interest on the outstanding purchase price balance from March 2024 to March 2025 at the 12-month SOFR rate (as determined on March 1, 2024) plus 1.25 percent and on the outstanding balance from March 2025 to March 2026 at the 12-month SOFR rate (as determined on March 3, 2025) plus 2.25 percent, except that no interest accrues on the $4.0 million payment due in March 2026. For further information regarding this transaction refer to Part I - Item 1 - Note 4, Acquisitions, to the condensed consolidated financial statements.
There were no other material changes to our contractual obligations from the information previously provided in Item 7 of our Annual Report on Form 10–K for the year ended December 31, 2021.
Critical Accounting Policies and Estimates
We have no material changes to our critical accounting policies and estimates discussed in our Annual Report on Form 10–K for the year ended December 31, 2021.2022.
Recently Adopted Accounting Standards
See Note 2, RecentSignificant Accounting Pronouncements and Supplemental Information,Policies, to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10–Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of September 30, 2022,2023, we have no material changes to the market risk disclosures in our Annual Report on Form 10–K for the year ended December 31, 2021.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the principal executive officer and principal financial officer of WEX Inc., evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2022.2023. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022.2023. “Disclosure controls and procedures” are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended September 30, 2022,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As of the date of this filing, we are not involved in any material legal proceedings. We also were not involved in any material legal proceedings that were terminated during the three months ended September 30, 2022. From time to time, we are subject to legal proceedings and claims in the ordinary course of business, including but not limited to: commercial disputes; contract disputes; employment litigation; disputes regarding our intellectual property rights; alleged infringement or misappropriation by us of intellectual property rights of others; and, matters relating to our compliance with applicable laws and regulations. As of the date of this filing, we are not involved in any material legal proceedings and there are no material proceedings known to be contemplated by governmental authorities. We also were not involved in any material legal proceedings that were terminated during the three months ended September 30, 2023.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10–K for the year ended December 31, 2021,2022, and in Part II, “Item 1A. Risk Factors” in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023, which could materially
affect our business, financial condition or future results. The risk factors disclosure in our Annual Report on Form 10-K for the year ended December 31, 20212022 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023 is qualified by the information that is described in this Quarterly Report on Form 10-Q. The risks described in our Annual Report on Form 10–K for the year ended December 31, 20212022 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table presents the Company’s common stock repurchases during each month of the third quarter of 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| July 1 - July 31, 2022 | 409,017 | | | $ | 158.42 | | | 409,017 | | | $ | 4,603,213 | | 1 |
| August 1 - August 31, 2022 | 25,565 | | | $ | 164.71 | | | 25,565 | | | $ | 150,000,000 | | 2 |
| September 1 - September 30, 2022 | — | | | $ | — | | | — | | | $ | 150,000,000 | | 2 |
| Total | 434,582 | | | $ | 158.79 | | | 434,582 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share2, 3 | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1 |
| July 1 - July 31, 2023 | — | | | $ | — | | | — | | | $ | 413,465,103 | |
| August 1 - August 31, 2023 | 177,260 | | | $ | 189.24 | | | 177,260 | | | $ | 379,919,555 | |
| September 1 - September 30, 2023 | 83,122 | | | $ | 198.02 | | | 83,122 | | | $ | 363,459,997 | |
| Total | 260,382 | | | $ | 192.05 | | | 260,382 | | | |
1 Under aan amended share buyback plan approved by our board of directors, and announced on August 26, 2021,October 27, 2022, and extending through December 31, 2025, the Company wasis authorized to repurchase up to $150.0$650.0 million in sharesworth of its common stock in the open market and through various other means pursuant to the share buyback plan, through September 30, 2025. During August 2022, our board of directors terminated this share buyback plan, under which the Company had repurchased an aggregate of $149.6 million in shares of its common stock out of the $150.0 million authorized.means.
2 Under a share buyback plan approved by our boardIncludes commissions paid on stock repurchases.
3 The Inflation Reduction Act of directors and announced2022, which was enacted into law on August 23,16, 2022, imposed a nondeductible one percent excise tax on the Company is authorized to repurchase up to $150.0 million in shares of its common stock, in the open market and through various other means pursuant to the share buyback plan, through August 23, 2026. See Part I – Item 2, Liquidity and Capital Resources for information on changes to this plan, including thenet value of shares authorized for repurchase, subsequent to September 30,certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.
Item 5. Other Information.
During the three months ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K.
Item 6. Exhibits.
| | | | | | | | | | | |
| Exhibit No. | | Description |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| | | |
| | | |
| 10.1 | | |
| 10.2 | | |
| 10.3 | | |
| *† | 10.4 | | |
| *† | 10.5 | | |
| * | 31.1 | | |
| * | 31.2 | | |
| * | 32.1 | | |
| * | 32.2 | | |
| * | 101.INS | | Inline XBRL Instance Document |
| * | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| * | 101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document |
| * | 101.LAB | | Inline XBRL Taxonomy Label Linkbase Document |
| * | 101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document |
| * | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| * | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
| | | | | |
| * | These exhibits have been filed with this Quarterly Report on Form 10–Q. |
| † | Denotes a management contract or compensatory plan or arrangement. |
| |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| WEX INC. |
| | |
October 28, 202227, 2023 | By: | | /s/ Jagtar Narula |
| | | Jagtar Narula |
| | Chief Financial Officer |
| | (principal financial officer) |
| | | |
| | | |
| | | |
| | |
| | |
