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 refers 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 on Form 10-Q includes forward-looking statements including, but not limited to, statements about management’s plans 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”“will,” “positions,” “confidence,” 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 impact of fluctuations in demand for fuel and the volatility and prices of fuel, including fuel spreads in the Company’s international markets, and the resulting impact on the Company’s margins, revenues, and net income; •the effects of general economic conditions, including a decline in demand for fuel, corporate payment services, travel related services, or healthcare related products and services; •failure to implement new technologies and 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, 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;
•the failure to maintaincomply with the applicable requirements of Mastercard or renew key customerVisa contracts 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;rules;
•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 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; •the impact of changes to the Company’s credit standards; •limitations on, or compression of, interchange fees; •the effect of adverse financial conditions affecting the banking system; •the impact of increasing scrutiny with respect to our environmental, social and governance practices; •failure to comply with the applicable requirements of Mastercard or Visa contractsimplement new technologies and rules;products; •the failure to comply withrealize or sustain the Treasury Regulations applicableexpected benefits from our cost and organizational operational efficiencies initiatives; •the failure to non-bank custodians;compete effectively in order to maintain or renew key customer and partner agreements and relationships, or to maintain volumes under such agreements; •the ability to attract and retain employees; •the ability of the Company to protect its proprietary rights; •the ability to incorporate artificial intelligence in our business successfully and ethically;
•limitations on or compression of interchange fees;
•the effects ofexecute the Company’s business expansion and acquisition efforts;efforts and realize the benefits of acquisitions we have completed;
•the failure to achieve commercial and financial benefits as a result of our strategic 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 and other risks associated with our operations outside the United States;
•the impact of the Company’s debt instruments on the Company’s operations;failure to adequately safeguard custodial HSA assets; •the impactincurrence of leverage onimpairment charges if the Company’s operations, results or borrowing capacity generally, and as a resultassessment of acquisitions specifically;the fair value of certain of its reporting units changes; •the impactuncertainties of sales or dispositions of significant amountsinvestigations and litigation; •the ability of the Company’s outstanding common stock into the public market, or the perception that such sales or dispositions could occur;Company to protect its intellectual property and other proprietary rights; •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;
•the incurrenceimpact of impairment charges if the Company’s assessment ofdebt instruments on the fair value of certain of its reporting units changes;Company’s operations; •the uncertaintiesimpact of litigation;leverage on the Company’s operations, results or borrowing capacity generally; •changes in interest rates, including those which we must pay for our deposits, and the rate of inflation; •the ability to refinance certain indebtedness or obtain additional financing; •the actions of regulatory bodies, including tax, banking and securities regulators, or possible changes in tax, banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates; •the failure to comply with the Treasury Regulations applicable to non-bank custodians; •the impact from 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 the Company’s reputation, liabilities or relationships with customers or merchants; •the impact of regulatory developments with respect to privacy and data protection; •the impact of any disruption to the technology and electronic communications networks we rely on; •the ability to incorporate artificial intelligence in our business successfully and ethically; •the ability to maintain effective systems of internal controls; •the impact of provisions in our charter documents, Delaware law and applicable banking laws that may delay or prevent our acquisition by a third party; 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, 2022,2023, 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,23, 2024 and subsequent filings with the Securities and Exchange Commission. 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 disclaimsWe disclaim 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. | | | | | | | | | Adjusted free cash flow | A non-GAAP measure that 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. | | Adjusted net income or ANI | A non-GAAP measure that adjusts net income (loss) attributable to shareholders to exclude all items excluded in segment adjusted operating income except unallocated corporate expenses, further excluding 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, debt restructuring and debt issuance cost amortization, similar adjustments attributable to our non-controlling intereststax related items and certain tax related items.other non-operating items, as applicable depending on the period presented. | | Amended and Restated Credit Agreement | Amended and Restated Credit agreementAgreement entered into on JulyApril 1, 20162021 (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 (and as amended from time to time thereafter).lenders. | | | | | | | | | | | | | | | | | | | | Ascensus Acquisition | The acquisition from Ascensus, LLC of certain entities, which comprised the health and benefits business of Ascensus. | | ASU | Accounting Standards Update | | Average number of SaaS accounts | Represents the average number of active consumer-directed health, COBRA, and billing accounts on our SaaS platformsplatforms. SaaS accounts include HSA accounts for which WEX Inc. serves as the non-bank custodian under designation by the U.S. Department of Treasury. | | B2B | Business-to-Business | | benefitexpress | Benefit Express Services, LLC, a provider of highly configurable, cloud-based benefits administration technologies and services, and its indirect and direct parents, which were acquired on June 1, 2021 and merged into WEX Health, Inc. on April 30, 2022. | | BTFP | The Federal Reserve Bank Term Funding Program, which provides liquidity to U.S. depository institutionsinstitutions. | | 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, which were repurchased by the Company and canceled by the trustee at the instruction of the Company on August 11, 2023. | | Corporate Cash | Calculated in accordance with the terms of our consolidated leverage ratio in the 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. | | FASB | | | | | | | | | | | | | Financial Accounting Standards Board | | FDIC | Federal Deposit Insurance CorporationCorporation. | | Federal Reserve Bank Discount Window | Monetary policy that allows WEX Bank to borrow funds on a short-term basis to meet temporary shortages of liquidity caused by internal or external disruptions. | | FSA | Flexible Spending Accounts | | 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 WEX. |
| | | | | | | 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. | | | | | | | | | | | | | | | | 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. | | | | 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. | | | | 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.
| | | | Revolving Credit Facility | The Company’s secured revolving credit facility under the Amended and Restated Credit Agreement | Redeemable non-controlling interestRSUs | The portion of the U.S. Benefits 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.Restricted stock units | | | | 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 | SegmentService 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 | | SPE | Wholly-owned special purpose entity | | Topic 606 | Accounting Standards Codification Section 606, Revenue from Contracts with Customers | | Total 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, impairmentother costs and certain non-recurring or non-cash operating charges and other costs. | Service fees | Costs incurred from third-party networks utilizedthat are not core 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 Customersour operations, as applicable depending on the period presented. | | 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. Benefits 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., and all of its subsidiaries that are consolidated under accounting principles generally accepted in the United States, unless otherwise indicated or required by the contextcontext. | | 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 Mobility business | | | | 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 OPERATIONSInc. Condensed Consolidated Statements of Operations
(in millions, except per share data) (unaudited) | | Three Months Ended March 31, | | | Three Months Ended March 31, | | | Three Months Ended March 31, | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | 2023 | | 2022 | | 2023 | | 2022 | | Revenues | Revenues | | | | | | | | | Revenues | | | Revenues | | | Payment processing revenue | | | Payment processing revenue | | | Payment processing revenue | Payment processing revenue | $ | 313.3 | | | $ | 309.0 | | | $ | 901.9 | | | $ | 860.8 | | | Account servicing revenue | Account servicing revenue | 161.5 | | | 138.3 | | | 475.1 | | | 415.9 | | | Account servicing revenue | | | Account servicing revenue | | | Finance fee revenue | | | Finance fee revenue | | | Finance fee revenue | Finance fee revenue | 77.1 | | | 96.7 | | | 234.2 | | | 260.6 | | | Other revenue | Other revenue | 99.5 | | | 72.1 | | | 273.5 | | | 194.6 | | | Other revenue | | | Other revenue | | | Total revenues | | | Total revenues | | | Total revenues | Total revenues | 651.4 | | | 616.1 | | | 1,884.7 | | | 1,731.9 | | | Cost of services | Cost of services | | | Cost of services | | | Cost of services | | | Processing costs | | | Processing costs | | | Processing costs | Processing costs | 156.4 | | | 146.3 | | | 451.7 | | | 416.3 | | | Service fees | Service fees | 18.5 | | | 16.6 | | | 54.7 | | | 47.2 | | | Service fees | | | Service fees | | | Provision for credit losses | | | Provision for credit losses | | | Provision for credit losses | Provision for credit losses | 9.4 | | | 54.0 | | | 77.5 | | | 121.9 | | | Operating interest | Operating interest | 25.3 | | | 7.9 | | | 57.6 | | | 13.4 | | | Operating interest | | | Operating interest | | | Depreciation and amortization | | | Depreciation and amortization | | | Depreciation and amortization | Depreciation and amortization | 25.5 | | | 27.3 | | | 75.9 | | | 79.9 | | | Total cost of services | Total cost of services | 235.1 | | | 252.1 | | | 717.4 | | | 678.6 | | | Total cost of services | | | Total cost of services | | | General and administrative | | | General and administrative | | | General and administrative | General and administrative | 116.6 | | | 86.5 | | | 311.7 | | | 248.7 | | | Sales and marketing | Sales and marketing | 82.8 | | | 80.9 | | | 241.6 | | | 235.3 | | | Sales and marketing | | | Sales and marketing | | | Depreciation and amortization | | | Depreciation and amortization | | | Depreciation and amortization | | | | Depreciation and amortization | 42.0 | | | 38.9 | | | 125.4 | | | 118.2 | | | Impairment charges | — | | | 136.5 | | | — | | | 136.5 | | | Operating income | Operating income | 174.9 | | | 21.3 | | | 488.6 | | | 314.7 | | | Financing interest expense | (41.6) | | | (34.4) | | | (122.4) | | | (95.9) | | | | Operating income | | | | Operating income | | | Financing interest expense, net of financial instruments | | | Financing interest expense, net of financial instruments | | | Financing interest expense, net of financial instruments | | | Change in fair value of contingent consideration | | | Change in fair value of contingent consideration | | | Change in fair value of contingent consideration | Change in fair value of contingent consideration | (3.2) | | | (30.3) | | | (6.2) | | | (135.1) | | | | Loss on extinguishment of Convertible Notes | (70.1) | | | — | | | (70.1) | | | — | | | | Net foreign currency loss | Net foreign currency loss | (7.8) | | | (23.4) | | | (9.4) | | | (37.8) | | | 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 | | | | Net foreign currency loss | | | | Net foreign currency loss | | | Income before income taxes | | | Income before income taxes | | | Income before income taxes | | | Income tax expense | Income tax expense | 26.0 | | | 0.8 | | | 78.7 | | | 57.3 | | | Net income (loss) | 18.4 | | | (44.1) | | | 181.7 | | | 78.8 | | | Less: Net income from non-controlling interests | — | | | — | | | — | | | 0.3 | | | Net income (loss) attributable to WEX Inc. | 18.4 | | | (44.1) | | | 181.7 | | | 78.5 | | | Change in value of redeemable non-controlling interest | — | | | — | | | — | | | 34.2 | | | Net income (loss) attributable to shareholders | $ | 18.4 | | | $ | (44.1) | | | $ | 181.7 | | | $ | 112.7 | | | Income tax expense | | | Income tax expense | | | Net income | | | Net income | | | Net income | | | | Net income (loss) attributable to shareholders per share: | | | | Net income per share: | | | | Net income per share: | | | | Net income per share: | | | Basic | | | Basic | | | Basic | Basic | $ | 0.43 | | | $ | (1.00) | | | $ | 4.23 | | | $ | 2.53 | | | Diluted | Diluted | $ | 0.42 | | | $ | (1.00) | | | $ | 4.18 | | | $ | 2.51 | | | Diluted | | | Diluted | | | Weighted average common shares outstanding: | | | Weighted average common shares outstanding: | | | Weighted average common shares outstanding: | Weighted average common shares outstanding: | | | Basic | Basic | 42.9 | | | 44.2 | | | 43.0 | | | 44.6 | | | Basic | | | Basic | | | Diluted | Diluted | 43.4 | | | 44.2 | | | 43.5 | | | 45.0 | | | Diluted | | | Diluted | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)Inc. Condensed Consolidated Statements of Comprehensive Income
(unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2023 | | 2022 | | 2023 | | 2022 | | Net income (loss) | $ | 18.4 | | | $ | (44.1) | | | $ | 181.7 | | | $ | 78.8 | | | | | | | | | | | Other comprehensive loss, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized losses on available-for-sale debt securities | (55.8) | | | (56.8) | | | (63.5) | | | (150.5) | | | Foreign currency translation | (22.0) | | | (42.3) | | | (15.7) | | | (83.8) | | | Other comprehensive loss, net of tax | (77.8) | | | (99.1) | | | (79.2) | | | (234.3) | | | | | | | | | | | Comprehensive (loss) income | (59.4) | | | (143.2) | | | 102.5 | | | (155.5) | | | Less: Comprehensive income attributable to non-controlling interests | — | | | — | | | — | | | 0.3 | | | Comprehensive (loss) income attributable to WEX Inc. | $ | (59.4) | | | $ | (143.2) | | | $ | 102.5 | | | $ | (155.8) | |
| | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | | | | | 2024 | | 2023 | | | | | | Net income | $ | 65.8 | | | $ | 68.0 | | | | | | | | | | | | | | | Other comprehensive (loss) income, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized (loss) gain on available-for-sale debt securities | (25.7) | | | 22.2 | | | | | | | Foreign currency translation | (21.6) | | | 0.8 | | | | | | | Other comprehensive (loss) income, net of tax | (47.3) | | | 23.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income | $ | 18.5 | | | $ | 91.0 | | | | | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC. CONDENSED CONSOLIDATED BALANCE SHEETSInc. Condensed Consolidated Balance Sheets
(in millions, except per share data) (unaudited) | | September 30,
2023 | | December 31,
2022 | | March 31,
2024 | | | March 31,
2024 | | December 31,
2023 | | Assets | Assets | | | | | Cash and cash equivalents | | | Cash and cash equivalents | | | Cash and cash equivalents | Cash and cash equivalents | $ | 957.8 | | | $ | 922.0 | | | Restricted cash | Restricted cash | 1,159.1 | | | 937.8 | | | Accounts receivable, net | Accounts receivable, net | 4,053.5 | | | 3,275.7 | | | Investment securities | Investment securities | 2,625.2 | | | 1,395.3 | | | Securitized accounts receivable, restricted | Securitized accounts receivable, restricted | 147.2 | | | 143.2 | | | Prepaid expenses and other current assets | Prepaid expenses and other current assets | 189.0 | | | 143.3 | | | Total current assets | Total current assets | 9,131.8 | | | 6,817.1 | | | Property, equipment and capitalized software (net of accumulated depreciation of $592.6 in 2023 and $529.9 in 2022) | 228.9 | | | 202.2 | | | Property, equipment and capitalized software (net of accumulated depreciation of $570.0 in 2024 and $544.2 in 2023) | | | Goodwill | Goodwill | 2,796.9 | | | 2,728.9 | | | 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 | | | Other intangible assets (net of accumulated amortization of $1,406.0 in 2024 and $1,359.1 in 2023) | | | Investment securities | Investment securities | 46.8 | | | 48.0 | | | Deferred income taxes, net | Deferred income taxes, net | 11.6 | | | 13.4 | | | Other assets | Other assets | 241.0 | | | 246.0 | | | | Total assets | Total assets | $ | 13,900.4 | | | $ | 11,529.2 | | | Total assets | | | Total assets | | | Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | | Accounts payable | | | Accounts payable | | | Accounts payable | Accounts payable | $ | 1,742.7 | | | $ | 1,365.8 | | | Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 745.1 | | | 643.9 | | | Restricted cash payable | Restricted cash payable | 1,158.4 | | | 937.1 | | | Short-term deposits | Short-term deposits | 4,252.8 | | | 3,144.6 | | | Short-term debt, net | Short-term debt, net | 957.3 | | | 202.6 | | | | | Total current liabilities | | | | Total current liabilities | | | | Total current liabilities | Total current liabilities | 8,856.3 | | | 6,294.1 | | | Long-term debt, net | Long-term debt, net | 2,650.1 | | | 2,522.2 | | | Long-term deposits | Long-term deposits | 115.5 | | | 334.2 | | | Deferred income taxes, net | Deferred income taxes, net | 140.5 | | | 142.2 | | | Other liabilities | Other liabilities | 441.7 | | | 587.1 | | | Total liabilities | Total liabilities | 12,204.1 | | | 9,879.7 | | | | Stockholders’ Equity | Stockholders’ Equity | | | 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 | | | | Stockholders’ Equity | | | | Stockholders’ Equity | | | Common stock $0.01 par value; 175.0 shares authorized; 50.3 shares issued in 2024 and 49.9 in 2023; 41.9 shares outstanding in 2024 and 2023 | | | Common stock $0.01 par value; 175.0 shares authorized; 50.3 shares issued in 2024 and 49.9 in 2023; 41.9 shares outstanding in 2024 and 2023 | | | Common stock $0.01 par value; 175.0 shares authorized; 50.3 shares issued in 2024 and 49.9 in 2023; 41.9 shares outstanding in 2024 and 2023 | | | Additional paid-in capital | Additional paid-in capital | 1,018.3 | | | 928.0 | | | Retained earnings | Retained earnings | 1,672.2 | | | 1,490.5 | | | Accumulated other comprehensive loss | Accumulated other comprehensive loss | (385.5) | | | (306.3) | | | Treasury stock at cost; 7.1 and 6.3 shares in 2023 and 2022, respectively | (609.2) | | | (463.2) | | Treasury stock at cost; 8.4 and 8.0 shares in 2024 and 2023, respectively | | | | Total stockholders’ equity | Total stockholders’ equity | 1,696.3 | | | 1,649.5 | | | | Total stockholders’ equity | | | | Total stockholders’ equity | | | Total liabilities and stockholders’ equity | 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’ EQUITYInc. Condensed Consolidated Statements of Stockholders’ Equity
(in millions) (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 millions)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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) | | | Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | — | | | (92.8) | | | | | (92.8) | | | Stock-based compensation expense | — | | | — | | | 25.3 | | | — | | | — | | | — | | | | | 25.3 | | | Unrealized gain on available-for-sale debt securities | — | | | — | | | — | | | — | | | 22.2 | | | — | | | | | 22.2 | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at January 1, 2024 | 49.9 | | | $ | 0.5 | | | $ | 1,053.0 | | | $ | 1,757.1 | | | $ | (229.2) | | | $ | (760.8) | | | | | $ | 1,820.6 | | | Stock issued under share-based compensation plans | 0.4 | | | — | | | 12.3 | | | — | | | — | | | — | | | | | 12.3 | | | Share repurchases for tax withholdings | — | | | — | | | (28.2) | | | — | | | — | | | — | | | | | (28.2) | | | Purchase of shares of treasury stock | — | | | — | | | — | | | — | | | — | | | (73.6) | | | | | (73.6) | | | Stock-based compensation expense | — | | | — | | | 28.1 | | | — | | | — | | | — | | | | | 28.1 | | | Unrealized loss on available-for-sale debt securities | — | | | — | | | — | | | — | | | (25.7) | | | — | | | | | (25.7) | | | Foreign currency translation | — | | | — | | | — | | | — | | | (21.6) | | | — | | | | | (21.6) | | | Net income | — | | | — | | | — | | | 65.8 | | | — | | | — | | | | | 65.8 | | | Balance at March 31, 2024 | 50.3 | | | $ | 0.5 | | | $ | 1,065.2 | | | $ | 1,822.9 | | | $ | (276.5) | | | $ | (834.4) | | | | | $ | 1,777.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSInc. Condensed Consolidated Statements of Cash Flows
(in millions) (unaudited) | | | | | | | | | | | | | | 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 table provides supplemental disclosure of non-cash investing and financing activities:
| | | | | | | | | | | | | 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 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Three Months Ended March 31, | | | 2024 | | 2023 | | Cash flows from operating activities | | | | | Net income | $ | 65.8 | | | $ | 68.0 | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Change in fair value of contingent consideration | 1.7 | | | 1.8 | | | Stock-based compensation | 28.1 | | | 25.3 | | | Depreciation and amortization | 78.4 | | | 66.8 | | | | | | | | | | | | | | | | | | | Provision for credit losses | 22.4 | | | 45.4 | | | | | | | | | | | | | | | Other non-cash adjustments | 10.1 | | | 11.7 | | | | | | | Net change in operating assets and liabilities, net of effects of business acquisitions | (359.8) | | | (191.9) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash (used for) provided by operating activities | (153.3) | | | 27.1 | | | | | | | Cash flows from investing activities | | | | | Purchases of property, equipment and capitalized software | (34.0) | | | (30.6) | | | | | | | | | | | | | | | | | | | Purchases of available-for-sale debt securities | (391.7) | | | (1,107.4) | | | Sales and maturities of available-for-sale debt securities | 108.8 | | | 80.5 | | | Acquisition of intangible assets | — | | | (4.5) | | | Other investing activities | (0.9) | | | — | | | | | | | Net cash used for investing activities | (317.8) | | | (1,062.0) | | | | | | | Cash flows from financing activities | | | | | | | | | Purchase of treasury shares | (73.6) | | | (100.9) | | | | | | | Net change in deposits | 133.6 | | | 967.4 | | | | | | | Net change in restricted cash payable | 69.3 | | | 12.5 | | | Borrowings on revolving credit facility | 1,041.9 | | | 704.4 | | | Repayments on revolving credit facility | (774.1) | | | (582.0) | | | | | | | Repayments on term loans | (15.8) | | | (15.8) | | | | | | | | | | | | | | | Borrowings on BTFP | 1,570.0 | | | — | | | Repayments on BTFP | (1,585.0) | | | — | | | Net change in borrowed federal funds | 80.0 | | | 100.0 | | | | | | | Net borrowings (repayments) on other debt | 10.3 | | | (12.1) | | | Payments of deferred and contingent consideration | (86.6) | | | (27.2) | | | | | | | Other financing activities | (15.9) | | | (2.5) | | | Net cash provided by financing activities | 354.1 | | | 1,043.8 | | | Effect of exchange rates on cash, cash equivalents and restricted cash | (31.3) | | | 11.7 | | | Net change in cash, cash equivalents and restricted cash | (148.3) | | | 20.6 | | | | | | Cash, cash equivalents and restricted cash, beginning of period(a) | 2,230.0 | | | 1,859.8 | | Cash, cash equivalents and restricted cash, end of period(a) | $ | 2,081.7 | | | $ | 1,880.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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, | | | 2023 | | 2022 | | Cash and cash equivalents at beginning of period | $ | 922.0 | | | $ | 588.9 | | | Restricted cash at beginning of period | 937.8 | | | 667.9 | | | Cash, cash equivalents and restricted cash at beginning of period | $ | 1,859.8 | | | $ | 1,256.8 | | | | | | | Cash and cash equivalents at end of period | $ | 957.8 | | | $ | 759.4 | | | Restricted cash at end of period | 1,159.1 | | | 942.1 | | | Cash, cash equivalents and restricted cash at end of period | $ | 2,116.9 | | | $ | 1,701.5 | |
| | | | | | | | | | | | | | Three Months Ended March 31, | | | 2024 | | 2023 | | Cash and cash equivalents at beginning of period | $ | 975.8 | | | $ | 922.0 | | | Restricted cash at beginning of period | 1,254.2 | | | 937.8 | | | Cash, cash equivalents and restricted cash at beginning of period | $ | 2,230.0 | | | $ | 1,859.8 | | | | | | | Cash and cash equivalents at end of period | $ | 779.6 | | | $ | 921.7 | | | Restricted cash at end of period | 1,302.1 | | | 958.7 | | | Cash, cash equivalents and restricted cash at end of period | $ | 2,081.7 | | | $ | 1,880.4 | |
See notes to the unaudited condensed consolidated financial statements.
WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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. Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “WEX,” the “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, 2023March 31, 2024 are not necessarily indicative of the results for any future periods or the year ending December 31, 2023.2024. 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, 2022,2023, filed with the SEC on February 28, 23, 2024 (“2023 (“2022 Annual Report”). We have applied the same accounting policies in preparing these quarterly financial statements as we did in preparing our 20222023 annual financial statements. The Company rounds amounts in the condensed consolidated financial statements to millions 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, duringChange in Reporting Presentation
Previously, realized gains and losses from periodic settlements on our interest rate swap contracts were included within financing interest expense, while the firstquarterly unrealized gains and losses from the noncash mark-to-market of our swaps were separately presented on the face of the consolidated statement of operations. During the fourth quarter of 2023, the Company renamed its existing reportable segments. The Fleet Solutions segment was renamedmade a voluntary change in accounting presentation to Mobility,reflect the Travelunrealized gains and Corporate Solutions segment was renamed to Corporate Payments andlosses from changes in 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 compositionvalue of our reportable segments. Reclassifications
Beginning December 31, 2022,swaps within the condensed consolidated statementsfinancing interest expense, net 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.financial instruments. Prior period amounts have been reclassified to conform to the current period presentation, which includes the reclassification of restrictedyear presentation.
Certain prior year amounts within cash payable inflows of $350.1 millionflows from operating activities in the condensed consolidated statement of cash flows have been aggregated to financing cash flows forconform to the nine months ended September 30, 2022.
| | | | | | | 2. | Significant Accounting Policies |
Significant Accounting Policies The significant accounting policies used in preparation of these condensed consolidated financial statements as of and for the ninethree months ended September 30, 2023,March 31, 2024, are consistent with those discussed in “Note 1, Basis of Presentation and Summary of Significant Accounting Policies” to the consolidated financial statements in our 20222023 Annual Report. Recent Accounting Pronouncements
There are no recent accounting pronouncements adopted during the nine months ended September 30, 2023, or not yet adopted as of September 30, 2023, that could have a material effect on our financial statements.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
Recent Accounting Pronouncements The Company evaluates all ASUs recently issued by the FASB for consideration of their applicability. Any recently issued ASUs not listed in the following table were assessed and determined to either not be applicable, or have not had, or are not expected to have, a material impact on our condensed consolidated financial statements. The Company did not adopt any accounting standards during the three months ended March 31, 2024. | | | | | | | | | | | | | | | | | | | | | | Standard | | Description | | Date/Method of Adoption | | Effect on financial statements or other significant matters | | | | | | | | | | | ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | | The amendments in this ASU require enhanced disclosures about significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss. In addition, this ASU expands certain annual disclosures about a reportable segment’s profit or loss and assets to interim periods. | | The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 31, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. | | The Company is currently evaluating this ASU to determine its impact on the Company’s disclosures. The adoption of this ASU is not expected to have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows. | | ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures | | Updates income tax disclosures related to the rate reconciliation and requires disclosure of income taxes paid by jurisdiction. | | The amendments are effective for annual periods beginning after December 31, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis, however, retrospective application is permitted. | | The Company is currently evaluating this ASU to determine its impact on the Company’s disclosures. The adoption of this ASU is not expected to have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows. |
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
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, 2023 | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Three Months Ended March 31, 2024 | | | Three Months Ended March 31, 2024 | | (in millions) | | (in millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Topic 606 revenues | Topic 606 revenues | | | | | | | | | Payment processing revenue | | | Payment processing revenue | | | Payment processing revenue | Payment processing revenue | $ | 176.9 | | | $ | 115.8 | | | $ | 20.6 | | | $ | 313.3 | | | Account servicing revenue | Account servicing revenue | 5.4 | | | 10.5 | | | 108.5 | | | 124.4 | | | Other revenue | Other revenue | 24.7 | | | — | | | 6.9 | | | 31.6 | | | Total Topic 606 revenues | Total Topic 606 revenues | $ | 207.0 | | | $ | 126.3 | | | $ | 136.0 | | | $ | 469.3 | | | | Non-Topic 606 revenues | Non-Topic 606 revenues | 143.1 | | | 8.9 | | | 30.1 | | | 182.1 | | | | | Non-Topic 606 revenues | | | | Non-Topic 606 revenues | | | | Total revenues | Total revenues | $ | 350.1 | | | $ | 135.2 | | | $ | 166.1 | | | $ | 651.4 | | | Total revenues | | | Total revenues | |
| | Three Months Ended September 30, 2022 | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Three Months Ended March 31, 2023 | | | Three Months Ended March 31, 2023 | | (in millions) | | (in millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Topic 606 revenues | Topic 606 revenues | | | | | | | | | Payment processing revenue | | | Payment processing revenue | | | Payment processing revenue | Payment processing revenue | $ | 188.6 | | | $ | 101.5 | | | $ | 18.9 | | | $ | 309.0 | | | Account servicing revenue | Account servicing revenue | 4.7 | | | 10.7 | | | 85.9 | | | 101.4 | | | Other revenue | Other revenue | 21.3 | | | 0.1 | | | 7.5 | | | 28.9 | | | Total Topic 606 revenues | Total Topic 606 revenues | $ | 214.6 | | | $ | 112.3 | | | $ | 112.4 | | | $ | 439.4 | | | | Non-Topic 606 revenues | Non-Topic 606 revenues | 163.5 | | | 1.6 | | | 11.7 | | | 176.8 | | | | | Non-Topic 606 revenues | | | | Non-Topic 606 revenues | | | | Total revenues | Total revenues | $ | 378.1 | | | $ | 114.0 | | | $ | 124.1 | | | $ | 616.1 | | | Total revenues | | | Total revenues | |
| | | | | | | | | | | | | | | | | | | | | | | | | 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)
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 millions) | | | | | | | | Contract balance | | Location on the condensed consolidated balance sheets | | September 30, 2023 | | December 31, 2022 | Receivables1 | | Accounts receivable, net | | $ | 39.3 | | | $ | 53.6 | | | Contract assets | | Prepaid expenses and other current assets | | 17.4 | | | 13.6 | | | Contract assets | | Other assets | | 34.6 | | | 37.9 | | | Contract liabilities | | Accrued expenses and other current liabilities | | 15.3 | | | 8.1 | | | 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.
| | | | | | | | | | | | | | | | | | | | | | (in millions) | | | | | | | | Contract balance | | Location on the condensed consolidated balance sheets | | March 31, 2024 | | December 31, 2023 | | Receivables | | Accounts receivable, net | | $ | 63.3 | | | $ | 59.1 | | | Contract assets | | Prepaid expenses and other current assets | | 17.7 | | | 11.5 | | | Contract assets | | Other assets | | 30.6 | | | 33.1 | | | Contract liabilities | | Accrued expenses and other current liabilities | | 14.0 | | | 12.4 | | | Contract liabilities | | Other liabilities | | 79.2 | | | 83.0 | | | | | | | | |
During the three and nine months ended September 30, 2023,March 31, 2024, the Company recognized revenue of $2.2$7.6 million and $4.8 million, respectively, related to contract liabilities existing as of December 31, 2022.2023.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
Remaining Performance Obligations The Company’s unsatisfied or partially unsatisfied performance obligations as of September 30, 2023March 31, 2024 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. The total remaining performance obligations below are not indicative of the Company’s future revenue, as they relate to a smallan insignificant 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 millions) | Remaining 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total | | (in millions) | | (in millions) | Remaining 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | Thereafter | | Total | Minimum monthly fees1 | Minimum monthly fees1 | $ | 16.6 | | | $ | 39.7 | | | $ | 19.6 | | | $ | 7.2 | | | $ | 4.3 | | | $ | 2.8 | | | $ | 0.8 | | | $ | 91.0 | | Other2 | Other2 | 5.6 | | | 17.1 | | | 25.0 | | | 33.3 | | | 36.0 | | | 5.9 | | | — | | | 122.9 | | | Total remaining performance obligations | Total remaining performance obligations | $ | 22.3 | | | $ | 56.7 | | | $ | 44.5 | | | $ | 40.5 | | | $ | 40.3 | | | $ | 8.7 | | | $ | 0.8 | | | $ | 213.9 | |
1 (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. These obligations will be recognized within account servicing revenue.
2 (2)Substantially 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 |
Business Combinations 2023 Payzer Acquisition On November 1, 2023, the Company closed on the acquisition of Payzer Holdings, Inc. (“Payzer”), a cloud-based, field service management software provider (the “Payzer Acquisition”). The acquisition is expected to advance WEX’s growth strategy of expanding its product suite and creating additional cross-sell opportunities by providing a new, scalable SaaS solution for its Mobility segment customers that operate field service management companies. Pursuant to the terms of the agreement, total consideration for the acquisition approximated $250.0 million ($5.5 million of which is deferred), with additional contingent consideration of up to $11.0 million based on certain performance metrics, subject to certain working capital and other adjustments. The table below summarizes the preliminary allocation of fair value to the assets acquired and liabilities assumed on the date of acquisition under the acquisition method of accounting. 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 a material impact on the purchase price allocation.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | | | | | | | | | | | | | | | | | | | | | (in millions) | | As Reported
December 31, 2023 | | Measurement Period Adjustments | | As Reported
March 31, 2024 | Cash consideration transferred, net of $4.5 million in cash acquired | | $ | 244.0 | | | $ | — | | | $ | 244.0 | | | Less: | | | | | | | | Accounts receivable | | 2.4 | | | — | | | 2.4 | | Customer relationships(1)(5) | | 40.4 | | | — | | | 40.4 | | Developed technology(2)(5) | | 17.2 | | | — | | | 17.2 | | Strategic partner relationships(3)(5) | | 4.5 | | | — | | | 4.5 | | Trademark(4)(5) | | 1.4 | | | — | | | 1.4 | | | Other current and long-term assets | | 1.4 | | | — | | | 1.4 | | | Accrued expenses and other current liabilities | | (1.8) | | | — | | | (1.8) | | | | | | | | | | Deferred tax liability | | (6.5) | | | (2.0) | | | (8.5) | | | Contingent/deferred consideration | | (7.1) | | | — | | | (7.1) | | | Other liabilities | | (0.9) | | | — | | | (0.9) | | | Recorded goodwill | | $ | 193.0 | | | $ | 2.0 | | | $ | 195.0 | |
(1)Weighted average useful life - 4.7 years (2)Weighted average useful life - 2.4 years (3)Weighted average useful life - 2.5 years (4)Weighted average useful life - 2.8 years (5)The weighted average useful life of all amortizable intangible assets acquired in this business combination is 3.9 years Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring the business. The goodwill recognized as a result of the Payzer Acquisition is not expected to be deductible for tax purposes. No pro forma information has been included in these financial statements, as the operations of Payzer for the period that it was not part of the Company is not material to the Company’s revenues, net income or earnings per share. 2023 Ascensus Acquisition On September 1, 2023, WEX Health completed the acquisition 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$185.5 million, subject to certainafter a $0.9 million working capital and other adjustments.adjustment paid by the Company during the first quarter of 2024.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
The table below summarizes the preliminary allocation of fair value to the assets acquired and liabilities assumed on the date of acquisition under the acquisition method of accounting. 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 a material impact on the purchase price allocation. | | | | | | | | | (In millions) | | | Cash consideration transferred, net of $26.7 million in cash and restricted cash acquired | | $ | 155.7 | | Less: | | | Accounts receivable | | 7.3 | | Customer relationships(1)(5)
| | 52.7 | | Developed technology(2)(5)
| | 6.6 | | Strategic partner relationships(3)(5)
| | 14.0 | | Custodial rights(4)(5)
| | 23.2 | | Other assets | | 3.8 | | Accrued expenses and other current liabilities | | (6.5) | | | | | Restricted cash payable | | (25.7) | | Other liabilities | | (2.7) | | Recorded goodwill | | $ | 83.0 | |
| | | | | | | | | | | | | | | | | | | | | | (in millions) | | As Reported
December 31, 2023 | | Measurement Period Adjustments | | As Reported
March 31, 2024 | | Cash consideration transferred, net of $26.7 million in cash and restricted cash acquired | | $ | 158.0 | | | $ | 0.9 | | | $ | 158.9 | | | Less: | | | | | | | | Accounts receivable | | 7.3 | | | — | | | 7.3 | | Customer relationships(1)(5) | | 52.1 | | | — | | | 52.1 | | Developed technology(2)(5) | | 6.6 | | | — | | | 6.6 | | Strategic partner relationships(3)(5) | | 14.0 | | | — | | | 14.0 | | Custodial rights(4)(5) | | 23.2 | | | — | | | 23.2 | | | Other assets | | 3.8 | | | — | | | 3.8 | | | Accrued expenses and other current liabilities | | (6.5) | | | — | | | (6.5) | | | | | | | | | | Restricted cash payable | | (25.7) | | | — | | | (25.7) | | | Other liabilities | | (2.7) | | | — | | | (2.7) | | | Recorded goodwill | | $ | 85.9 | | | $ | 0.9 | | | $ | 86.8 | |
(1)Weighted average life - 5.35.4 years (2)Weighted average life - 2.2 years (3)Weighted average life - 1.2 years (4)Weighted average life - 4.9 years (5)The weighted average useful life of all amortizable intangible assets acquired in this business combination is 4.4 years. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring the 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 the Ascensus Acquired Entities for the period that they were not part of the Company are not material to the Company’s revenues, net income or 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 |
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 $156.1$135.5 million and $157.8$133.3 million in gross receivables with revolving credit balances as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
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, 2023 | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total | | | | | | | | | | | | | | | | | | Balance, beginning of period | $ | 96.2 | | | $ | 14.5 | | | $ | 1.3 | | | $ | 112.0 | | Provision for credit losses1 | 12.2 | | | (3.9) | | | 1.1 | | | 9.4 | | Charges to other accounts2 | 6.8 | | | — | | | 0.5 | | | 7.3 | | | Charge-offs | (32.1) | | | (0.5) | | | (0.2) | | | (32.8) | | | Recoveries of amounts previously charged-off | 5.6 | | | — | | | — | | | 5.6 | | | | | | | | | | | Currency translation | (0.3) | | | (0.2) | | | — | | | (0.5) | | | 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 | |
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | Three Months Ended March 31, 2024 | | | Three Months Ended March 31, 2024 | | (in millions) | | (in millions) | Mobility | | Corporate Payments | | Benefits | | Total | | | | Balance, beginning of period | | | | Nine Months Ended September 30, 2023 | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Balance, beginning of period | Balance, beginning of period | $ | 94.6 | | | $ | 14.4 | | | $ | 0.8 | | | $ | 109.9 | | Provision for credit losses1 | 78.5 | | | (2.5) | | | 1.5 | | | 77.5 | | Charges to other accounts2 | 22.1 | | | — | | | 0.6 | | | 22.6 | | | | Balance, beginning of period | | Provision for credit losses(1) | | Charges to other accounts(2) | | | Charge-offs | Charge-offs | (122.8) | | | (2.0) | | | (0.2) | | | (125.0) | | | Recoveries of amounts previously charged-off | Recoveries of amounts previously charged-off | 16.3 | | | — | | | — | | | 16.3 | | | | Currency translation | Currency translation | (0.3) | | | — | | | — | | | (0.3) | | | Currency translation | | | Currency translation | | | Balance, end of period | Balance, end of period | $ | 88.4 | | | $ | 9.9 | | | $ | 2.7 | | | $ | 101.0 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2023 | | (in millions) | Mobility | | Corporate Payments | | Benefits | | Total | | | | | | | | | | | | | | | | | | Balance, beginning of period | $ | 94.6 | | | $ | 14.4 | | | $ | 0.8 | | | $ | 109.8 | | Provision for credit losses(1) | 44.8 | | | 0.4 | | | 0.2 | | | 45.4 | | Charges to other accounts(2) | 7.8 | | | — | | | 0.1 | | | 7.9 | | | Charge-offs | (49.4) | | | (0.6) | | | — | | | (50.0) | | | Recoveries of amounts previously charged-off | 4.5 | | | — | | | — | | | 4.5 | | | Currency translation | — | | | 0.2 | | | — | | | 0.2 | | | Balance, end of period | $ | 102.3 | | | $ | 14.4 | | | $ | 1.1 | | | $ | 117.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2022 | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Balance, beginning of period | $ | 55.8 | | | $ | 9.9 | | | $ | 0.6 | | | $ | 66.3 | | Provision for credit losses1 | 118.7 | | | 2.1 | | | 1.1 | | | 121.9 | | Charges to other accounts2 | 29.9 | | | 0.2 | | | (0.1) | | | 30.0 | | | Charge-offs | (120.4) | | | (1.2) | | | (0.4) | | | (122.1) | | | Recoveries of amounts previously charged-off | 8.8 | | | — | | | — | | | 8.8 | | | Currency translation | (1.4) | | | (1.3) | | | — | | | (2.6) | | | Balance, end of period | $ | 91.4 | | | $ | 9.7 | | | $ | 1.2 | | | $ | 102.3 | |
1(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(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, 2023March 31, 2024 or December 31, 2022.2023. The following table 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, 2023 | | December 31, 2022 | Delinquency Status | March 31, 2024 | | December 31, 2023 | | Less than 30 days past due | Less than 30 days past due | 98 | % | | 98 | % | Less than 30 days past due | 99 | % | | 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.other methods approved by our board of directors. During the three and nine months ended September 30, 2023,March 31, 2024, the Company repurchased approximately 0.30.4 million and 0.8 million shares respectively, pursuant to a previously approved and announced repurchase program. The total repurchases were recorded as treasury stock of $146.0
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
$73.6 million in our condensed consolidated balance sheet. Such cost reflectsDuring the three months ended March 31, 2023, the Company repurchased approximately 0.5 million shares pursuant to a previously approved and announced repurchase program, which was collectively recorded as treasury stock of $92.8 million in our condensed consolidated balance sheet. The above costs reflect the applicable one percent excise tax imposed by the Inflation 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 program, which was collectively recorded as treasury stock of $149.6 million in our condensed consolidated balance sheet.repurchases.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Basic earnings per share is computed by dividing net 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 impact of convertible securities under the “if-converted” method if the effect of such securities would be dilutive and includes the assumed exercise of dilutive options, the assumed issuance of unvested 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 summarizespresents net 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 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 | |
| | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | (in millions) | | | | | 2024 | | 2023 | | Net income | | | | | $ | 65.8 | | | $ | 68.0 | | | | | | | | | | | Weighted average common shares outstanding – Basic | | | | | 41.8 | | | 43.1 | | Dilutive impact of share-based compensation awards(1) | | | | | 0.6 | | | 0.5 | | | | | | | | | | Weighted average common shares outstanding – Diluted(2) | | | | | 42.4 | | | 43.6 | |
1 (1)For both the three and nine months ended September 30,March 31, 2024 and 2023, 0.3 million and 0.4 million, respectively, 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 those shares would be anti-dilutive. 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 those shares would be anti-dilutive. Additionally, 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 months ended September 30, 2022 as the effect of including those shares would be anti-dilutive.
2 (2)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 were excluded from diluted shares for the three and nine months ended September 30,March 31, 2023 and 2022 as the effect of including such shares would have 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. Interest Rate Swap Contracts
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 reference 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 $1.1 billion outstanding as of September 30, 2023 is as follows:
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 Counterparties paid floating rate equal to the one-month USD LIBOR.2 Counterparties pay floating rate equal to the one-month 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 millions) | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 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 | | Net unrealized gain (loss) on financial instruments | | $ | (6.9) | | | $ | 24.6 | | | $ | (19.4) | | | $ | 93.5 | | Interest rate swap contracts –
realized portion | | Financing interest expense | | $ | 12.3 | | | $ | 3.7 | | | $ | 36.0 | | | $ | (5.2) | | | | | | | | | | | | |
Derivativelosses incurred and recognized within financing interest expense, net of financial instruments and their related gains and losses are reported within cash flows from operating activities withinon the condensed consolidated statements of cash flows.operations for the three months ended March 31, 2023. The Company had no interest rate swap contracts outstanding during the three months ended March 31, 2024.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | (in millions) | | | | | | | | | March 31, 2023 | | | | | | | | | | | | | Unrealized loss on interest rate swaps | | | | | | | | | | $ | 14.9 | | | Realized gain on interest rate swaps | | | | | | | | | | (12.2) | | | Financing interest expense | | | | | | | | | | 50.2 | | | Financing interest expense, net of financial instruments | | | | | | | | | | $ | 52.9 | |
Contingent Consideration Derivative Liability At March 31, 2024 and December 31, 2023, the Company had a contingent consideration derivative liability associated with its asset acquisition from Bell Bank. See Note 13, Financial Instruments − Fair Value and Concentrations of Credit Risk, for further discussion of this derivative and 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 19,18, 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 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 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:
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited) | | | | | | | | | | | | | (in millions) | March 31, 2024 | | December 31, 2023 | | Customer deposits | $ | 181.4 | | | $ | 195.9 | | Contractual deposits with maturities within 1 year(1),(2) | 345.2 | | | 500.8 | | Interest-bearing money market deposits1 | 279.3 | | | 226.0 | | HSA deposits(3) | 3,270.0 | | | 3,020.0 | | | Short-term deposits | $ | 4,075.9 | | | $ | 3,942.8 | | Contractual deposits with maturities greater than 1 year(1),(2) | 129.7 | | | 129.8 | | | Total deposits | $ | 4,205.6 | | | $ | 4,072.6 | | | | | | | Weighted average cost of HSA deposits outstanding | 0.11 | % | | 0.11 | % | | Weighted average cost of funds on contractual deposits outstanding | 2.84 | % | | 3.53 | % | | Weighted average cost of interest-bearing money market deposits outstanding | 5.47 | % | | 5.47 | % | | | | |
| | | | | | | | | | | | | (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 (1)As of September 30, 2023March 31, 2024 and December 31, 2022,2023, all certificates of deposit and money market deposits were in denominations of $250,000 or less, corresponding to FDIC deposit insurance limits.
2 (2)Includes certificates of deposit and certain money market deposits, which have a fixed maturity and substantially fixed interest rates.
3 (3)HSA deposits are recorded within short-term deposits on the condensed consolidated balance sheets as the funds can be withdrawn by the account holders at any time.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | | | | | | 10. | Financing and Other Debt |
The following tables summarize the Company’s total outstanding debt as of September 30, 2023March 31, 2024 and December 31, 2022.2023. | | As of September 30, 2023 | | As of December 31, 2022 | | (In millions) | Balance Outstanding | | Interest Rate | | Balance Outstanding | | Interest Rate | | As of March 31, 2024 | | | As of March 31, 2024 | | As of December 31, 2023 | | (in millions) | | (in millions) | Balance Outstanding | | Interest Rate | | Balance Outstanding | | Interest Rate | | Short term debt: | Short term debt: | | | | | | | | | Securitized debt | | | Securitized debt | | | Securitized debt | Securitized debt | $ | 99.9 | | | 5.80 | % | | $ | 110.6 | | | 3.83 | % | $ | 102.3 | | | 5.84 | | 5.84 | % | | $ | 101.9 | | | 5.85 | | 5.85 | % | | Participation debt | Participation debt | 41.5 | | | 7.72 | % | | 39.0 | | | 6.64 | % | Participation debt | 45.5 | | | 7.74 | | 7.74 | % | | 39.1 | | | 7.62 | | 7.62 | % | | Borrowed federal funds | Borrowed federal funds | 760.0 | | | 5.43 | % | | — | | | — | % | Borrowed federal funds | 910.0 | | | 4.87 | | 4.87 | % | | 845.0 | | | 4.89 | | 4.89 | % | | Current portion of long-term debt (net of $7.5 million in unamortized debt issuance costs/discounts) | 55.9 | | | ** | | 53.1 | | | ** | Current portion of long-term debt(6) | | Current portion of long-term debt(6) | 55.2 | | | ** | | 55.1 | | | ** | | Total short term debt, net | 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) | March 31, 2024 | | December 31, 2023 | | Long-term debt: | | | | Amended and Restated Credit Agreement(4): | | | | Term A Loans due April 2026(1) | $ | 831.7 | | | $ | 843.9 | | Term B Loans due April 2028(2) | — | | | 1,402.3 | | Term B-1 Loans due April 2028(3) | 1,398.7 | | | — | | Borrowings on Revolving Credit Facility due April 2026(1) | 929.8 | | | 662.0 | | | | | | | | | | Total long-term debt(5) | 3,160.2 | | | 2,908.2 | | | Less total unamortized debt issuance costs/discounts | (23.5) | | | (25.6) | | Less current portion of long-term debt(6) | (55.2) | | | (55.1) | | | Long-term debt, net | $ | 3,081.5 | | | $ | 2,827.5 | |
| | | | | | | | | | | | | 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 (1)Bears interest at variable rates, at the Company’s option, plus an applicable margin determined based on 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)
2 (2)BearsBore interest at variable rates, at the Company’s option, plus an applicable margin, which iswas fixed at 1.25 percent for base rate borrowings and 2.25 percent with respect to Term SOFR borrowings.
3 (3)Bears interest at variable rates, at the Company’s option, plus an applicable margin, which is fixed at 1.00 percent for base rate borrowings and 2.00 percent with respect to Term SOFR borrowings.
(4)As of September 30, 2023March 31, 2024 and December 31, 2022,2023, amounts outstanding under the Amended and Restated Credit Agreement bore a weighted average effective interest rate of 7.1 percent and 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. 4(5)See Note 13, Financial Instruments − Fair Value and Concentrations of Credit Risk for information regarding the fair value of the Company’s debt.
(6)Current portion of long-term debt as of March 31, 2024 and December 31, 2023 is net of $8.2 million and $8.3 million, respectively, in unamortized debt issuance costs/discounts.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | | | | | | | | | | | | (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 | |
| | | | | | | | | | | | | (in millions) | March 31, 2024 | | December 31, 2023 | | Supplemental information under Amended and Restated Credit Agreement: | | | | Letters of credit(1) | $ | 36.8 | | | $ | 36.8 | | Remaining borrowing capacity on Revolving Credit Facility(2) | $ | 463.4 | | | $ | 731.2 | |
1(1)Primarily collateralizing Corporate Payments processing activity.
2(2) September 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, 2023March 31, 2024 and 0.30 percent at December 31, 2022)2023) determined based on the Company’s consolidated leverage ratio.
Amended and Restated Credit Agreement As part of December 31, 2023, under the Amended and Restated Credit Agreement, we havehad senior secured tranche A term loans (the “Tranche“Term A Term Loans”), senior secured tranche B term loans (the “Tranche“Term B Term Loans”) and revolving credit commitments. commitments under the Revolving Credit Facility. On September 26, 2023,January 22, 2024, the Company and certain of its subsidiaries entered into the ThirdFourth Amendment to the Amended and Restated Credit Agreement (the “Fourth Amendment”), which increasedamended certain terms of the revolving credit commitments from an aggregate amountAmended and Restated Credit Agreement, as in effect prior to January 22, 2024, including without limitation to reprice the Term B Loans existing on January 22, 2024 through the issuance of $930.0 million to $1,430.0 million undernew senior secured tranche B term loans (the “Term B-1 Loans”) in the same amount. The Term B-1 Loans bear interest at variable rates at the Company’s secured revolvingoption, plus an applicable margin, which is fixed at 1.00 percent for base rate borrowings and 2.00 percent with respect to Term SOFR borrowings, representing a reduction from the fixed applicable margins of 1.25 percent and 2.25 percent, respectively, for Term B Loans. Additionally, the Fourth Amendment removed the credit facility (the “Revolving Credit Facility”).spread adjustment applicable to the tranche B term loans. No other substantive changes were made to the Amended and Restated Credit Agreement as part of this amendment.the Fourth Amendment. On April 24, 2023,The Company may voluntarily prepay outstanding Term A Loans, Term B-1 Loans and borrowings on the Company’s Amended and RestatedRevolving Credit Agreement was amended solely forFacility from time to time (subject to certain conditions), without premium or penalty other than customary “breakage” costs with respect to prepayments of other than base rate borrowings, provided, however, that with respect to Term B-1 Loans, if on or prior to 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 subsidiariessix month anniversary of the effective date of the Fourth Amendment closing date, the Company pursuant toprepays any Term B-1 Loans in connection with a repricing transaction, the BTFP. UnderCompany must pay a prepayment premium of 1.00 percent of the Amended and Restated Credit Agreement, Operating Indebtedness is excluded from our Consolidated Funded Indebtedness, which is used to calculateaggregate principal amount of 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.Term B-1 Loans prepaid.
Convertible Notes The Company previously had issued Convertible Notes in an aggregate principal amount of $310.0 million to an affiliate of Warburg Pincus LLC. Interest on the Convertible Notes was 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. 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 repurchaserepurchased 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 unpaid interest from and including July 15, 2023, to, but excluding, the Repurchase Date.interest. At the time of repurchase, the net carrying amount of the Convertible Notes was $298.8 million, resulting in a loss on extinguishment of $70.1 million, which has beenwas recorded within nonoperating expense on the condensed consolidated statement of operations forduring the three and nine months ended September 30,third quarter of 2023. Upon repurchase, the obligations of the Company to the Seller of the NotesWarburg Pincus LLC were satisfied in full and the Convertible Notes were canceled by the trustee at the instruction of the Company. As of DecemberDuring the three months ended March 31, 2022, unamortized debt issuance costs and debt discount were $12.7 million. The Convertible Notes had an effective interest rate of 7.5 percent at December 31, 2022 and through the Repurchase Date. The following table sets forth total interest expense recognized for the Convertible Notes:
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 | | 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 | |
For additional information regarding the Company’s Convertible Notes, see Part II - Item 8 - Note 16, Financing and Other Debt, in our Annual Report on Form 10-K for the year ended December 31, 2022.
Debt Securitization Facilities
Through September 30, 2023, the Company was party to tworecognized interest expense of $5.7 million.
Securitization Facilities Under securitized debt agreements with MUFG Bank, Ltd., which expire in April 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. 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. During the third quarter of 2023, the Company entered into a newThe Company’s securitized debt facilityagreement for the securitization of its European receivables is with MUFG Bank, Ltd., has a maximum revolving borrowing limit of €55.0 million and expires April 2025, unless otherwise agreed to in writing by the
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
parties. The Company’s securitized debt agreement for the securitization of its Australian receivables is with Australia and New Zealand Banking Group Limited, (“ANZ”). Duringhas a maximum revolving borrowing limit of A$140.0 million and expires 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 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, 2023March 31, 2024 and December 31, 2022.2023. As of September 30, 2023,March 31, 2024, the Company’s participation agreements allow for total borrowings of up to $60.0$70.0 million and expire at various points up to Maythrough 2024, unless otherwise agreed to in writing by the parties. Borrowed Federal Funds WEX Bank borrows from short-term uncommitted federal funds lines to supplement the financing of the Company’s accounts receivable. WEX Bank had $260.0$150.0 million and $70.0 million in outstanding borrowings under these federal funds lines of credit as of September 30, 2023March 31, 2024 and no borrowings as of December 31, 2022.2023, respectively. On March 12, 2023, the Federal Reserve Board announced the BTFP, which providesprovided 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 borrowingsinstitutions through the repayment and subsequent borrowingoffering of $250.0 million.bank loans for up to one year in length, collateralized by the par value of qualifying assets. The BTFP ceased extending new loans on March 11, 2024. As of September 30, 2023,March 31, 2024, WEX Bank had $500.0$760.0 million in outstanding borrowings under the BTFP $250.0 million due in JuneJanuary of 20242025 with an interest rate of 5.39 percent and $250.04.76 percent. As of December 31, 2023, WEX Bank had $775.0 million due in July of 2024outstanding borrowings from the BTFP with an interest rate of 5.364.84 percent. At September 30, 2023,March 31, 2024, debt securities with a par value of $800.3$832.7 million and fair value of $688.3$740.3 million were pledged as collateral. Other As of September 30, 2023,March 31, 2024, WEX Bank had pledged $249.1$211.3 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 was $202.3$150.6 million as of September 30, 2023.March 31, 2024. WEX Bank had no borrowings outstanding on this line of credit through the Federal Reserve Bank Discount Window as of September 30, 2023March 31, 2024 and December 31, 2022.2023.
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 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,March 31, 2024, losses on factoring were immaterial.$3.1 million while losses on factoring were immaterial for the three months ended March 31, 2023. Losses on factoring are recorded within cost of services in the condensed consolidated statements of operations.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
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. The Company maintains the risk of default on any customer receivable balances in excess of the buyer’s credit limit, which were immaterial as of September 30, 2023. TheMarch 31, 2024. Under this arrangement, the Company sold $139.6$130.6 million and $422.9$140.4 million of accounts receivable during the three and nine months ended September 30,March 31, 2024 and 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, under this arrangement.respectively. The WEX Bank agreement extends through 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. TheUnder this arrangement, the Company sold $4.0$4.5 billion and $9.1$1.9 billion of trade accounts receivable during the three and nine months ended September 30,March 31, 2024 and 2023, and $2.3 billion and $4.6 billion during the three and nine months ended September 30, 2022, respectively, under this arrangement.respectively. Benefits Securitization In April 2023, WEX Health, through a wholly-owned special purpose entity (“SPE”), entered into a receivable securitization facility with a revolving limit of $35.0 million and an unrelated financial institution. initial term through April 2026, which can be extended for an additional period of up to three years and can be voluntarily terminated by the SPE at any time, subject to 30 days’ notice. During December 2023, the Company signed an amendment to the initial receivable securitization agreement, which suspends activities under the facility until such time as the parties agree in writing to reactivate it (the “Health Facility Amendment”). During this suspension period, the revolving limit of the facility is zero. Under the facility, and prior to the Health Facility Amendment, WEX Health sellssold eligible trade accounts receivables to the SPE, which is a bankruptcy-remote subsidiary. The receivables, once sold to the SPE, are no longer available to satisfy creditors of the Company or its subsidiariessubsidiary, and in the event of bankruptcy. In turn, the SPE sellssold 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 continuescontinued to service the receivables sold to the financial institution, under the facility,however, WEX doesdid not retain effective control of the transferred receivables, derecognizesderecognized the assets and accountsaccounted 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 the amount funded by the financial institution based on variable interest rates, which was immaterial for the three and nine months ended September 30, 2023 and reflected 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, 2023, respectively.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Non-Bank Custodial HSA Cash Assets As a non-bank custodian, we contractWEX Inc. contracts with depository partners to hold custodial cash assets on behalf of individual account holders. As of September 30, 2023 and DecemberMarch 31, 2022, we were2024, WEX Inc. was custodian to approximately $3.8 billion and $3.45$4.2 billion in HSA cash assets, respectively.assets. Of these custodial balances, $1.0approximately $0.9 billion and $1.4 billionof HSA cash assets at September 30, 2023 and DecemberMarch 31, 2022, respectively,2024 were deposited with orand managed by certain third-party partners and not recorded on our condensed consolidated balance sheets. Such third-party depository partners are regularly monitored by management for stability. The remaining balancesbalance of $2.8 billion and $2.1$3.3 billion in HSA cash assets as of September 30, 2023 and DecemberMarch 31, 2022, respectively, are2024 is deposited with and managed by WEX Bank and areis therefore reflected on our condensed consolidated balance sheets. See Note 9, Deposits, for further information about HSA deposits recorded on our condensed consolidated balance sheets.
The Company’s amortized cost and estimated fair value of investment securities as of September 30, 2023March 31, 2024 and December 31, 20222023 are presented below. Accrued interest on investment securities of $26.7$28.7 million and $9.3$24.7 million, respectively, as of September 30, 2023March 31, 2024 and December 31, 2022,2023, 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 | |
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | Amortized Cost | | Total
Unrealized
Gains | | Total
Unrealized
Losses | | Fair Value(1) | | As of March 31, 2024 | | | | | | | | | Current: | | | | | | | | | | | | | | | | Debt securities(2): | | | | | | | | | U.S. treasury notes | $ | 429.8 | | | $ | 0.5 | | | $ | 35.3 | | | $ | 395.0 | | | Corporate and sovereign debt securities | 1,221.7 | | | 9.1 | | | 33.4 | | | 1,197.4 | | | Municipal bonds | 70.9 | | | 0.2 | | | 5.3 | | | 65.8 | | | Asset-backed securities | 652.1 | | | 3.8 | | | 3.4 | | | 652.5 | | | Mortgage-backed securities | 1,035.2 | | | 2.8 | | | 43.8 | | | 994.2 | | | | | | | | | | | Total | $ | 3,409.7 | | | $ | 16.4 | | | $ | 121.2 | | | $ | 3,304.9 | | | | | | | | | | | Non-current: | | | | | | | | | | | | | | | | Debt securities(3) | $ | 28.7 | | | $ | 0.3 | | | $ | 1.2 | | | $ | 27.8 | | | | | | | | | | | | | | | | | | | Mutual fund | 29.2 | | | — | | | 3.8 | | | 25.4 | | | Pooled investment fund | 12.9 | | | — | | | — | | | 12.9 | | | Total | $ | 70.8 | | | $ | 0.3 | | | $ | 5.0 | | | $ | 66.1 | | Total investment securities(4) | $ | 3,480.5 | | | $ | 16.7 | | | $ | 126.2 | | | $ | 3,371.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | (in millions) | Amortized Cost | | Total
Unrealized
Gains | | Total
Unrealized
Losses | | Fair Value(1) | | As of December 31, 2023 | | | | | | | | | Current: | | | | | | | | | Debt securities: | | | | | | | | | U.S. treasury notes | $ | 410.1 | | | $ | 0.8 | | | $ | 32.3 | | | $ | 378.6 | | | Corporate and sovereign debt securities | 1,086.8 | | | 13.6 | | | 31.6 | | | 1,068.8 | | | Municipal bonds | 70.8 | | | 0.3 | | | 5.4 | | | 65.7 | | | Asset-backed securities | 582.6 | | | 3.2 | | | 4.2 | | | 581.6 | | | Mortgage-backed securities | 951.5 | | | 5.9 | | | 30.0 | | | 927.4 | | | Total | $ | 3,101.8 | | | $ | 23.8 | | | $ | 103.5 | | | $ | 3,022.1 | | | | | | | | | | | Non-current: | | | | | | | | | | | | | | | | | | | | | | | | Debt securities(3) | $ | 28.6 | | | $ | 0.6 | | | $ | 0.8 | | | $ | 28.4 | | | | | | | | | | | | | | | | | | | Mutual fund | 29.1 | | | — | | | 3.6 | | | 25.5 | | | Pooled investment fund | 12.9 | | | — | | | — | | | 12.9 | | | Total | $ | 70.6 | | | $ | 0.6 | | | $ | 4.4 | | | $ | 66.8 | | Total investment securities(4) | $ | 3,172.4 | | | $ | 24.4 | | | $ | 107.9 | | | $ | 3,088.9 | |
1(1)The Company’s methods for measuring the fair value of its investment securities are discussed in Note 13, Financial Instruments − Fair Value and Concentrations of Credit Risk.
2 (2)As of March 31, 2024, the Company has pledged debt securities with a fair value of $82.6 million as collateral against recurring settlement obligations owed in conjunction with its transactions processed through licensed card networks and $740.3 million as collateral against borrowings under the BTFP, as further discussed in Note 10, Financing and Other Debt.
(3)Substantially comprised of municipal bonds. (4)Excludes $12.4$15.9 million and $11.1$13.7 million in equity securities as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, included in prepaid expenses and other current assets and other assets on the condensed consolidated balance sheets. 3
Substantially comprised of municipal bonds.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
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, 2023March 31, 2024 and
December 31, 2022.2023. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, 2024 | | | | | | | 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 | $ | 7.1 | | | $ | — | | | $ | 355.7 | | | $ | 35.3 | | | $ | 362.8 | | | $ | 35.3 | | | | | | | | | | | Corporate debt securities | 208.0 | | | 1.8 | | | 523.6 | | | 31.6 | | | 731.6 | | | 33.4 | | | | | | | | | | | Municipal bonds | 13.9 | | | 0.3 | | | 42.3 | | | 6.2 | | | 56.2 | | | 6.5 | | | | | | | | | | | Asset-backed securities | 135.4 | | | 0.5 | | | 102.5 | | | 2.9 | | | 237.9 | | | 3.4 | | | | | | | | | | | Mortgage-backed securities | 561.5 | | | 15.5 | | | 258.8 | | | 28.3 | | | 820.3 | | | 43.8 | | | | | | | | | | | Total debt securities | $ | 925.9 | | | $ | 18.1 | | | $ | 1,282.9 | | | $ | 104.3 | | | $ | 2,208.8 | | | $ | 122.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2023 | | | | | | | | | | Less than one year | | One year or longer | | Total | | | | | | Investment-grade rated debt securities: | | | | | | | | | | | | | | | | | | | | | U.S. treasury notes | $ | — | | | $ | — | | | $ | 358.6 | | | $ | 32.3 | | | $ | 358.6 | | | $ | 32.3 | | | | | | | | | | | Corporate debt securities | 132.7 | | | 2.3 | | | 482.9 | | | 29.3 | | | 615.6 | | | 31.6 | | | | | | | | | | | Municipal bonds | 25.3 | | | 0.2 | | | 42.5 | | | 6.0 | | | 67.8 | | | 6.2 | | | | | | | | | | | Asset-backed securities | 55.0 | | | 0.2 | | | 131.1 | | | 4.0 | | | 186.1 | | | 4.2 | | | | | | | | | | | Mortgage-backed securities | 374.5 | | | 4.7 | | | 262.4 | | | 25.3 | | | 636.9 | | | 30.0 | | | | | | | | | | | Total debt securities | $ | 587.5 | | | $ | 7.4 | | | $ | 1,277.5 | | | $ | 96.9 | | | $ | 1,865.0 | | | $ | 104.3 | | | | | | | | | |
The above table includes 526521 investment positions at September 30, 2023,March 31, 2024, 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 primarily driven by the elevated interest rate environment and 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, 2023 | | | | (In millions) | Amortized Cost | | Fair Value | | | | | | | | | | | | | | Due within one year | $ | 47.5 | | | $ | 46.6 | | | | | | | Due after 1 year through year 5 | 640.1 | | | 588.4 | | | | | | | Due after 5 years through year 10 | 791.2 | | | 723.7 | | | | | | | Due after 10 years | 1,365.2 | | | 1,280.2 | | | | | | | Total | $ | 2,844.0 | | | $ | 2,638.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | March 31, 2024 | | | | (in millions) | Amortized Cost | | Fair Value | | | | | | | | | | | | | | Due within one year | $ | 80.5 | | | $ | 78.9 | | | | | | | Due after 1 year through year 5 | 709.6 | | | 673.3 | | | | | | | Due after 5 years through year 10 | 1,032.5 | | | 1,004.8 | | | | | | | Due after 10 years | 1,615.8 | | | 1,575.7 | | | | | | | Total | $ | 3,438.4 | | | $ | 3,332.7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Changes in the fair value of the Company’s equity securities are recognized within net unrealized (loss) gain on financial instruments on the condensed consolidated statements of operations. During the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, unrealized gains and losses recognized on equity securities still held as of those dates were immaterial.
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
Other Investments The Company’s other investments at March 31, 2024 and December 31, 2023, which include Federal Home Loan Bank stock and certain investments for which there is no readily determinable fair value, were $11.8 million and $11.7 million, respectively. | | | | | | | 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, as classified within the three-level fair value hierarchy: | (In millions) | Fair Value Hierarchy | September 30, 2023 | | December 31, 2022 | | (in millions) | | (in millions) | Fair Value Hierarchy | | March 31, 2024 | | December 31, 2023 | | Assets: | Assets: | | | | Money market mutual funds1 | 1 | $ | 9.6 | | | $ | 35.1 | | | Money market mutual funds(1) | | Money market mutual funds(1) | | Money market mutual funds(1) | | U.S. Treasury bills(1) | | | | Investment securities, current: | Investment securities, current: | | | Investment securities, current: | | | Investment securities, current: | | | Debt securities: | Debt securities: | | | Debt securities: | | | Debt securities: | | | U.S. treasury notes | | | U.S. treasury notes | | | U.S. treasury notes | U.S. treasury notes | 2 | $ | 345.6 | | | $ | 364.1 | | | Corporate debt securities | Corporate debt securities | 2 | 898.6 | | | 497.8 | | | Municipal bonds | Municipal bonds | 2 | 62.0 | | | 45.0 | | | Asset-backed securities | Asset-backed securities | 2 | 533.0 | | | 190.7 | | | Mortgage-backed securities | Mortgage-backed securities | 2 | 786.0 | | | 297.7 | | | Total | Total | | $ | 2,625.2 | | | $ | 1,395.3 | | | | Investment securities, non-current: | Investment securities, non-current: | | | Investment securities, non-current: | | | Investment securities, non-current: | | | Debt securities | | | Debt securities | | | Debt securities | Debt securities | 2 | $ | 13.7 | | | $ | 14.5 | | | | Mutual fund | Mutual fund | 1 | 24.1 | | | 24.5 | | Pooled investment fund measured at NAV2 | | 9.0 | | | 9.0 | | | | Mutual fund | | | | Mutual fund | | Pooled investment fund measured at NAV(2) | | | Total | Total | | $ | 46.8 | | | $ | 48.0 | | | Executive deferred compensation plan trust3 | 1 | $ | 12.4 | | | $ | 11.1 | | Interest rate swaps4 | 2 | $ | 62.0 | | | $ | 81.4 | | Executive deferred compensation plan trust(3) | | Executive deferred compensation plan trust(3) | | Executive deferred compensation plan trust(3) | | | | | Liabilities | Liabilities | | | Contingent consideration5 | 3 | $ | 183.9 | | | $ | 206.4 | | | Liabilities | | | | Liabilities | | | Contingent consideration(4) | | | Contingent consideration(4) | | | Contingent consideration(4) | |
1 (1)The fair value is recorded in cash and cash equivalents.
2 (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 (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, 2023, $1.6March 31, 2024, $2.2 million and $10.8$13.7 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. At December 31, 2022, $1.9 million and $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, 2023, $39.0$1.7 million and $23.0 million in fair value is recorded in prepaid expenses and other current assets and other assets, respectively. At December 31, 2022, $45.3 million and $36.1$12.0 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively.
5 (4)The fair value is recorded as current or long-term based on the timing of expected payments. At September 30, 2023,March 31, 2024, $63.5 million and $120.4$59.9 million in fair value is recorded within accrued expenses and other current liabilities and other liabilities, respectively. At December 31, 2022, $28.72023, $64.5 million and $177.7$121.7 million in fair value is recorded within accrued expenses and other current liabilities and other liabilities, respectively.
| | | | | | | PART I | 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. U.S. Treasury Bills From time to time, a portion of the Company’s cash and cash equivalents are invested in U.S. treasury bills with maturities of 30 days or less, which are classified as Level 2 in the fair value hierarchy because they are valued using quoted market prices for similar or identical instruments in a market that is not active. 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 to the fair value hierarchy. Pooled Investment Fund The pooled investment 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,March 31, 2024, the Company had no unfunded commitments with respect to the fund. Investments in the fund may be redeemed monthly with 30 days’ notice. Mutual Fund The Company determines the fair value of its mutual fund 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 SOFR curve, which are Level 2 inputs of the fair value hierarchy.
Contingent Consideration
As part of thean 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 determineddetermines 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 4.51of 4.16 percent as of September 30, 2023March 31, 2024 and 3.523.84 percent as of December 31, 2022.2023. Due to significant increases in the Federal Funds rate, the fair value of the Company’s contingent consideration derivative liability at September 30, 2023March 31, 2024 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 in the fair value hierarchy) and are as follows for the periods indicated:
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | Three Months Ended | | Nine Months Ended | | (In millions) | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 | | Three Months Ended | | | Three Months Ended | | | Three Months Ended | | | (in millions) | | | (in millions) | | | (in millions) | | | Contingent consideration - beginning of period | | | Contingent consideration - beginning of period | | | Contingent consideration - beginning of period | Contingent consideration - beginning of period | $ | 180.7 | | | $ | 172.1 | | | $ | 206.4 | | | $ | 67.3 | | | Payments of contingent consideration (1) | Payments of contingent consideration (1) | — | | | — | | | (28.7) | | | — | | | Payments of contingent consideration (1) | | | Payments of contingent consideration (1) | | | Change in fair value of contingent consideration | | | Change in fair value of contingent consideration | | | Change in fair value of contingent consideration | Change in fair value of contingent consideration | 3.2 | | | 30.3 | | | 6.2 | | | 135.1 | | | Contingent consideration - end of period | Contingent consideration - end of period | $ | 183.9 | | | $ | 202.4 | | | $ | 183.9 | | | $ | 202.4 | | | Contingent consideration - end of period | | | Contingent consideration - end of period | |
(1)The Company has presented $27.2 million of thisthe payment made during the three months ended March 31, 2023, which represents the fair value of the contingent consideration at acquisition date, within net cash provided by financing activities in the condensed consolidated statement of cash flows. The remainder of the prior year payment, as well as the entirety of the current year payment, has been included in net cash provided by (used for) operating activities (specifically within changesnet change in accrued expensesoperating assets and other current and long-term liabilities)liabilities, net of effects of business acquisitions). Financial 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 millions) | | September 30, 2023 | | December 31, 2022 | | | Carrying value | | Fair value | | Carrying value | | Fair value | | | | | | | | | | Tranche A Term Loans1 | | $ | 856.1 | | | ** | | $ | 892.8 | | | ** | Tranche B Term Loans1 | | 1,406.0 | | | ** | | 1,416.8 | | | ** | Outstanding borrowings on Revolving Credit Facility1 | | 471.6 | | | ** | | — | | | — | | Convertible Notes2 | | — | | | — | | | 310.0 | | | 330.0 | | Contractual deposits with maturities in excess of one year3 | | 115.5 | | | ** | | 334.2 | | | 308.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | March 31, 2024 | | December 31, 2023 | | (in millions) | | Carrying value | | Fair value | | Carrying value | | Fair value | | | | | | | | | | Term A Loans(1) | | $ | 831.7 | | | ** | | $ | 843.9 | | | ** | Term B Loans(1) | | — | | | — | | | 1,402.3 | | | ** | Term B-1 Loans(1) | | 1,398.7 | | | ** | | — | | | — | | Outstanding borrowings on Revolving Credit Facility(1) | | 929.8 | | | ** | | 662.0 | | | ** | | | | | | | | | | Contractual deposits with maturities in excess of one year(2) | | 129.7 | | | ** | | 129.8 | | | ** |
** Fair value approximates carrying value. 1 (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 (2)The Company determined 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.
3The 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 and trade receivables and interest rate swap contracts. receivables. 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 and 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
| | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
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 from SBI, who obtained a 4.9 percent equity interest in PO Holding. The equity interest was puttable under the agreement, making the non-controlling interest redeemable and therefore, it was classified as temporary equity outside of stockholders’ equity. As part of WEX Inc.’s purchase of the HSA contractual rights from Bell Bank on April 1, 2021, SBI’s ownership percentage was reduced to 4.53 percent.
On March 7, 2022, WEX Inc. purchased SBI’s remaining 4.53 percent interest in PO Holding for a deferred purchase price of $234.0 million plus any interest accruing pursuant to the terms of the purchase agreement and recorded the liability at a net present value of $216.6 million. The carrying value of the redeemable non-controlling interest immediately prior to the acquisition date was $254.4 million 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, 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 Company’s effective tax rate was 58.6 percent and 30.226.9 percent for the three and nine months ended September 30, 2023, respectively,March 31, 2024 and (1.9) percent and 42.130.8 percent for the three and nine months ended September 30, 2022, respectively.March 31, 2023. 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, 2023March 31, 2024 was unfavorablyadversely 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 benefititem of $2.5$3.7 million in the second quarter of 2023 thereby reversing a portion ofprimarily associated with an uncertain tax position related to state income taxes, the vast majority of $7.5 million that originally adversely impacted thewhich was offset by excess tax benefits arising from stock-based compensation. The Company’s effective tax rate for the ninethree months ended September 30, 2022. The Company’s effective tax rates for the three and nine months ended September 30, 2022 wereMarch 31, 2023 was 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 resultingshortfall arising from goodwill impairment charges.stock-based compensation. Undistributed earnings of certain foreign subsidiaries of the Company amounted to $228.6$255.8 million and $159.9$231.6 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, 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. The total amount of our foreign subsidiaries’ earnings in which the Company continues to assert indefinite reinvestment approximates $193.9$225.7 million at September 30, 2023.March 31, 2024. 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 associated with these undistributed earnings; however, it is not expected to be material.
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | 16.15. | Commitments and Contingencies |
Litigation and Regulatory Matters TheFrom time to time, the Company is subject to litigation,legal proceedings, claims and regulatory matters in the ordinary course of business.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, 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 Significant commitments and contingencies as of September 30, 2023March 31, 2024 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, 2022.2023.
| | | | | | | | | | | PART I | WEX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) |
| | | | | | 17.16. | 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. The Company began granting market share units (“MSUs”) to employees in lieu of stock options during 2024. MSUs are market-based equity awards that represent a right to receive shares of the Company’s common stock at specified future dates if certain WEX stock price performance and vesting conditions are met. The number of MSUs that will be eligible to vest will be based on the performance of our stock price over the vesting period. The fair value of the MSUs was estimated using a Monte-Carlo valuation model and will be recognized as expense over each award’s requisite service period. Stock-based compensation expense was $30.5 million and $91.7$28.1 million for the three and nine months ended September 30, 2023, respectively,March 31, 2024 and $28.2 million and $76.8$25.3 million for the three and nine months ended September 30, 2022, respectively.March 31, 2023.
| | | | | | 18.17. | Segment Information |
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 has both three operating segments and three reportable segments, as described below. •Mobility 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. •Corporate Paymentsfocuses 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. •Benefitsprovides 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, WEX 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, 2023 | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Three Months Ended March 31, 2024 | | | Three Months Ended March 31, 2024 | | (in millions) | | (in millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Payment processing revenue | Payment processing revenue | $ | 176.9 | | | $ | 115.8 | | | $ | 20.6 | | | $ | 313.3 | | | Account servicing revenue | Account servicing revenue | 42.5 | | | 10.5 | | | 108.5 | | | 161.5 | | | Finance fee revenue | Finance fee revenue | 76.8 | | | 0.2 | | | 0.1 | | | 77.1 | | | Other revenue | Other revenue | 53.9 | | | 8.7 | | | 36.9 | | | 99.5 | | | Total revenues | Total revenues | $ | 350.1 | | | $ | 135.2 | | | $ | 166.1 | | | $ | 651.4 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2023 | | (in millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Payment processing revenue | $ | 171.5 | | | $ | 90.1 | | | $ | 26.5 | | | $ | 288.1 | | | Account servicing revenue | 40.3 | | | 10.6 | | | 109.8 | | | 160.7 | | | Finance fee revenue | 80.4 | | | 0.2 | | | 0.1 | | | 80.7 | | | Other revenue | 50.1 | | | 3.9 | | | 28.5 | | | 82.5 | | | Total revenues | $ | 342.3 | | | $ | 104.8 | | | $ | 164.9 | | | $ | 612.0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2022 | | (In millions) | Mobility | | Corporate Payments | | Benefits | | Total | | Payment processing revenue | $ | 188.6 | | | $ | 101.5 | | | $ | 18.9 | | | $ | 309.0 | | | Account servicing revenue | 41.6 | | | 10.7 | | | 85.9 | | | 138.3 | | | Finance fee revenue | 96.5 | | | 0.2 | | | — | | | 96.7 | | | Other revenue | 51.4 | | | 1.5 | | | 19.2 | | | 72.1 | | | Total revenues | $ | 378.1 | | | $ | 114.0 | | | $ | 124.1 | | | $ | 616.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | PART I | WEX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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)excludes unallocated corporate expenses; (ii)expenses, acquisition-related intangible amortization; (iii)amortization, other acquisition and divestiture related items; (iv)items, debt restructuring costs, stock-based compensation; (v)compensation, other costs and (vi) impairment charges. Additionally, we docertain non-recurring or non-cash operating charges that are not allocate non-operating income and expensecore to our operating segments.operations, as applicable depending on the period presented.
The following table reconciles total segment adjusted operating income to income before income taxes:
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 | |
| | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | | (in millions) | 2024 | | 2023 | | | | | | | | | | | | | | | | | | Segment adjusted operating income | | | | | | | | | | | | | Mobility | $ | 131.0 | | | | | $ | 138.8 | | | | | | | | | Corporate Payments | 64.6 | | | | | 49.2 | | | | | | | | | Benefits | 79.4 | | | | | 64.5 | | | | | | | | | Total segment adjusted operating income | $ | 274.9 | | | | | $ | 252.5 | | | | | | | | | | | | | | | | | | | | | Reconciliation: | | | | | | | | | | | | | Total segment adjusted operating income | $ | 274.9 | | | | | $ | 252.5 | | | | | | | | | Less: | | | | | | | | | | | | | Unallocated corporate expenses | 23.6 | | | | | 22.4 | | | | | | | | | Acquisition-related intangible amortization | 50.9 | | | | | 44.1 | | | | | | | | | Other acquisition and divestiture related items | 2.4 | | | | | 1.1 | | | | | | | | | | | | | | | | | | | | | Stock-based compensation | 26.7 | | | | | 26.1 | | | | | | | | | Other costs | 6.7 | | | | | 4.5 | | | | | | | | | | | | | | | | | | | | | Operating income | 164.5 | | | | | 154.3 | | | | | | | | | Financing interest expense, net of financial instruments | (60.3) | | | | | (52.9) | | | | | | | | | Net foreign currency loss | (12.5) | | | | | (1.4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in fair value of contingent consideration | (1.7) | | | | | (1.8) | | | | | | | | | | | | | | | | | | | | | Income before income taxes | $ | 90.0 | | | | | $ | 98.2 | | | | | | | |
| | | | | | 19.18. | 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 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. The 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)
| | | | | | | PART I | 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 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 | | | | | | | | | | | | | Total Capital to risk-weighted assets | $ | 740.2 | | | 14.83 | % | | $ | 399.2 | | | 8.00 | % | | $ | 499.1 | | | 10.00 | % | | Tier 1 Capital to average assets | $ | 677.8 | | | 10.20 | % | | $ | 265.8 | | | 4.00 | % | | $ | 332.3 | | | 5.00 | % | | Common equity to risk-weighted assets | $ | 677.8 | | | 13.58 | % | | $ | 224.6 | | | 4.50 | % | | $ | 324.4 | | | 6.50 | % | | Tier 1 Capital to risk-weighted assets | $ | 677.8 | | | 13.58 | % | | $ | 299.4 | | | 6.00 | % | | $ | 399.2 | | | 8.00 | % | | December 31, 2022 | | | | | | | | | | | | | Total Capital to risk-weighted assets | $ | 595.6 | | | 15.16 | % | | $ | 314.4 | | | 8.00 | % | | $ | 393.0 | | | 10.00 | % | | Tier 1 Capital to average assets | $ | 546.2 | | | 10.22 | % | | $ | 213.7 | | | 4.00 | % | | $ | 267.1 | | | 5.00 | % | | Common equity to risk-weighted assets | $ | 546.2 | | | 13.90 | % | | $ | 176.8 | | | 4.50 | % | | $ | 255.4 | | | 6.50 | % | | Tier 1 Capital to risk-weighted assets | $ | 546.2 | | | 13.90 | % | | $ | 235.8 | | | 6.00 | % | | $ | 314.4 | | | 8.00 | % |
On October 23, 2023, the Company signed a definitive agreement to acquire Payzer Holdings, Inc., a high growth, cloud-based, field service management software provider. The acquisition is expected to advance WEX’s growth strategy of expanding its product suite and creating additional cross-sell opportunities by providing a new, scalable SaaS solution for its small business customers who operate field service companies. Pursuant to the terms of the agreement, total consideration for the acquisition is expected to be approximately $250 million, with additional contingent consideration of up to $11 million based on certain performance metrics, subject to certain working capital and other adjustments. We expect the transaction to close before year end, subject to customary closing conditions. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Actual Amount | | Ratio | | Minimum
for Capital Adequacy Purposes Amount | | Ratio | | Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions Amount | | Ratio | | March 31, 2024 | | | | | | | | | | | | | Total Capital to risk-weighted assets | $ | 729.0 | | | 14.67 | % | | $ | 397.5 | | | 8.00 | % | | $ | 496.8 | | | 10.00 | % | | Tier 1 Capital to average assets | $ | 675.8 | | | 10.01 | % | | $ | 270.1 | | | 4.00 | % | | $ | 337.6 | | | 5.00 | % | | Common equity to risk-weighted assets | $ | 675.8 | | | 13.60 | % | | $ | 223.6 | | | 4.50 | % | | $ | 322.9 | | | 6.50 | % | | Tier 1 Capital to risk-weighted assets | $ | 675.8 | | | 13.60 | % | | $ | 298.1 | | | 6.00 | % | | $ | 397.5 | | | 8.00 | % | | December 31, 2023 | | | | | | | | | | | | | Total Capital to risk-weighted assets | $ | 727.2 | | | 16.27 | % | | $ | 357.5 | | | 8.00 | % | | $ | 446.9 | | | 10.00 | % | | Tier 1 Capital to average assets | $ | 675.2 | | | 10.21 | % | | $ | 264.4 | | | 4.00 | % | | $ | 330.5 | | | 5.00 | % | | Common equity to risk-weighted assets | $ | 675.2 | | | 15.11 | % | | $ | 201.1 | | | 4.50 | % | | $ | 290.5 | | | 6.50 | % | | Tier 1 Capital to risk-weighted assets | $ | 675.2 | | | 15.11 | % | | $ | 268.1 | | | 6.00 | % | | $ | 357.5 | | | 8.00 | % |
ItemITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.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 •Company 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, 2022,2023, 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, 2022,2023, filed with the Securities and Exchange Commission on February 28, 2023,23, 2024, and in conjunction with the condensed consolidated financial statements and notes in Part I – Item 1 of this report. Executive Overview WEX Inc.WEX’s mission is the global commerce platform that simplifiesfocused on simplifying the business of running a business. We own 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. We believe that WEX offers the marketplace a unique combination of capabilities to simplify complexity, thereby setting WEX’s offerings apart from those of our competition, including:
•Global commerce platform.Our technology is engineered and operated with global scale and reliability. We have invested heavily, and expect to continue to invest, in technology. Using our technology, our customers have trusted us to conduct hundreds of billions worth of dollars in money movements in more than 20 currencies. We believe that our products and services play integral roles in the infrastructure of businesses. •Personalized solutions, seamlessly embedded. OurWe believe WEX is a leader in our end markets with solutions are shaped by customer focused innovation and deep industry expertise. Both in our direct-to-corporate and partner 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. Customers look to WEX providesfor a powerful combination of specialized expertise and rich data to assist customersthem in driving better decisions, moving more quickly, and in dealing with risk, puttingrisk. We put 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 the following three business segments: Mobility, Corporate Payments and Benefits. Within our Mobility segment, WEX reimagines mobility across fleets of all sizes, aswe are a leader in fleet vehicle payment solutions, transaction processing, and information management services.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. Our Corporate Payments segment focuses on the complex payment environment of global B2B payments, allowing businessesenabling customers to centralize purchasing, simplify complex supply chain processes,utilize our payments solutions to integrate into their own workflows and eliminate the paper check writing associated with traditional purchase order programs. Ourmanage their accounts payable automation and spend management functions. Within our Benefits segment, simplifies the business of administering and managing employee benefit plans, providing software-as-a service, or "SaaS",we provide SaaS software with embedded payment solutions and plan administration services for consumer directed health benefits, COBRA accounts, and benefit enrollment and administration. In addition,Additionally, WEX Inc. is an IRS-designated non-bank custodian of Health Saving Account assets.and WEX Bank provide custodial and depository services, respectively, with respect to HSAs.
Company Highlights
The following table presents a summarized view of selected results for the three and nine months ended September 30, 2023,March 31, 2024, shown comparative to the prior year periods. Operatingperiod. Net cash flowprovided by operating activities and adjusted free 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 additionalenhanced information and data underlying our financial performance.results. A recurring, more extensive list of key performance indicators is included by segment within the Results of Operationssection 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 | |
| | | | | | | | | | | | | | | | | (in millions, except per share data) | | | Three Months Ended | | | | | March 31, 2024 | | March 31, 2023 | | GAAP Measures: | | | | | | | | | Total revenues | | | | | $ | 652.7 | | | $ | 612.0 | | | Net income | | | | | $ | 65.8 | | | $ | 68.0 | | | Net income per diluted share | | | | | $ | 1.55 | | | $ | 1.56 | | | Net cash (used for) provided by operating activities | | | | | $ | (153.3) | | | $ | 27.1 | | | | | | | | | | Non-GAAP Measures(1) | | | | | | | | | Adjusted net income | | | | | $ | 146.7 | | | $ | 145.8 | | | Adjusted net income per diluted share | | | | | $ | 3.46 | | | $ | 3.31 | | | Adjusted free cash flow | | | | | $ | (204.5) | | | $ | (61.4) | | | | | | | | | | | Other Key Metric: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total volume across the Company(2) | | | | | $ | 56,809 | | | $ | 52,308 | |
1 (1)Adjusted net income, attributable to shareholders, adjusted net income attributable to shareholders per diluted share, and adjusted free cash flow are supplemental non-GAAP financial measures of operating performance. Refer to the sections titled Non–GAAP Financial Measures That Supplement GAAP Measures andLiquidity 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 current period presentation. Refer to Item 1 - Note 1, Basis of Presentation for more information.
3 (2)Total volume across the Company, which includes purchases on WEX-issued accounts as well as purchases issued by others using a WEX 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.
Mobility Revenues The following table reflects comparative revenue and key operating statistics within Mobility: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 March 31, | | | | | | | Three Months Ended March 31, | | | | | | | Three Months Ended March 31, | | | Increase (Decrease) | | (in millions, except per gallon data) | | (in millions, except per gallon data) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | Revenues(1) | | | Payment processing revenue | | | Payment processing revenue | | | Payment processing revenue | | | | | | | | | | $ | 170.7 | | | $ | 171.5 | | | $ | (0.8) | | | — | % | | Account servicing revenue | | Account servicing revenue | | | | | | | | | 46.3 | | | 40.3 | | | 6.0 | | | 15 | % | | Finance fee revenue | | Finance fee revenue | | | | | | | | | 70.0 | | | 80.4 | | | (10.4) | | | (13) | % | | Other revenue | | Other revenue | | | | | | | | | 51.9 | | | 50.1 | | | 1.8 | | | 4 | % | | Total revenues | | Total revenues | | | | | | | | | $ | 339.0 | | | $ | 342.3 | | | $ | (3.3) | | | (1) | % | | | Key operating statistics | | | Key operating statistics | | | Key operating statistics | | | | | 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 | | | | Payment processing transactions | | | | Payment processing transactions | Payment processing transactions | 144.6 | | | 145.3 | | | (0.7) | | | — | % | | 424.5 | | | 421.1 | | | 3.4 | | | 1 | % | | | | | | | | | 136.9 | | | 137.5 | | 137.5 | | | (0.6) | | (0.6) | | | — | | — | % | | Payment processing $ of fuel | Payment processing $ of fuel | $ | 14,945.1 | | | $ | 17,205.4 | | | $ | (2,260.3) | | | (13) | % | | $ | 42,869.2 | | | $ | 50,235.4 | | | $ | (7,366.2) | | | (15) | % | Payment processing $ of fuel | | | | | | | | | $ | 13,061.0 | | | $ | | $ | 14,144.4 | | | $ | | $ | (1,083.4) | | | (8) | | (8) | % | | Average price per gallon of fuel – Domestic – ($USD/gal) | Average price per gallon of fuel – Domestic – ($USD/gal) | $ | 3.97 | | | $ | 4.54 | | | $ | (0.57) | | | (13) | % | | $ | 3.83 | | | $ | 4.50 | | | $ | (0.67) | | | (15) | % | Average price per gallon of fuel – Domestic – ($USD/gal) | | | | | | | | | $ | 3.56 | | | $ | | $ | 3.86 | | | $ | | $ | (0.30) | | | (8) | | (8) | % | Net payment processing rate2 | 1.18 | % | | 1.10 | % | | 0.08 | % | | 7 | % | | 1.21 | % | | 1.08 | % | | 0.13 | % | | 12 | % | Net payment processing rate(2) | | Net payment processing rate(2) | | | | | | | | | 1.31 | % | | 1.21 | % | | 0.10 | % | | 8 | % | | Net late fee rate | Net late fee rate | 0.44 | % | | 0.48 | % | | (0.04) | % | | (7) | % | | 0.47 | % | | 0.43 | % | | 0.04 | % | | 10 | % | Net late fee rate | | | | | | | | | 0.46 | % | | 0.50 | % | | (0.04) | % | | (8) | % |
1 (1)Lower domestic fuel prices decreased revenue by $31.9$20.5 million for the three months ended September 30, 2023 and $83.5 million in the nine months ended September 30, 2023 as compared to the same periods in the prior year.March 31, 2024.
2 (2)Our net payment processing rate for the three and nine months ended September 30, 2023March 31, 2024 has benefited from lower average domestic fuel prices and the impact of interest rate escalator clauses contained in various merchant contracts, partly offset by negative European fuel price spreads.
Total Mobility revenue decreased $28.0$3.3 million for the thirdfirst quarter of 2023 and $43.9 million for the nine months ended September 30, 20232024 as compared to the same periodsperiod in the prior year. The decreasesyear primarily due to a decrease in total Mobilityfinance fee revenue, were primarily drivenpartly offset by an increase in account servicing revenue resulting from the impact ofPayzer acquisition. While lower averagedomestic fuel prices on stable levels ofdecreased payment processing transactions year over year and lower finance fee revenue.
Finance fee revenue, which is comprised of the following components:components, is discussed below. | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent | | | | | | Three Months Ended March 31, | | | | | | | Three Months Ended March 31, | | | | | | | Three Months Ended March 31, | | | Increase (Decrease) | | (in millions) | | (in millions) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | | Finance income | Finance income | $ | 66.4 | | | $ | 83.2 | | | $ | (16.8) | | | (20) | % | | $ | 202.8 | | | $ | 217.1 | | | $ | (14.3) | | | (7) | % | Finance income | | | | | | | | | $ | 60.4 | | | $ | | $ | 70.1 | | | $ | | $ | (9.7) | | | (14) | | (14) | % | | Factoring fee revenue | Factoring fee revenue | 10.4 | | | 13.3 | | | (2.9) | | | (22) | % | | 30.7 | | | 42.8 | | | (12.1) | | | (28) | % | Factoring fee revenue | | | | | | | | | 9.6 | | | 10.3 | | 10.3 | | | (0.7) | | (0.7) | | | (7) | | (7) | % | | Finance fee revenue | Finance fee revenue | $ | 76.8 | | | $ | 96.5 | | | $ | (19.7) | | | (20) | % | | $ | 233.5 | | | $ | 260.0 | | | $ | (26.5) | | | (10) | % | Finance fee revenue | | | | | | | | | $ | 70.0 | | | $ | | $ | 80.4 | | | $ | | $ | (10.4) | | | (13) | | (13) | % |
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, 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. Finance income decreased $16.8$9.7 million for the thirdfirst quarter of 20232024 as compared to the same period in the prior year, primarily due to the decline in average fuel prices driving down customer spend upon which late fees are earned, along with a decline in the number of late fee instances, which is 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, 2023March 31, 2024 and 2022.
The primary source of factoring fee revenue is calculated as a negotiated percentage fee of the receivable balance that we purchase. Factoring fee revenue decreased $2.9 million for the thirdfirst quarter of 2023 and decreased $12.1 million for the nine months ended September 30, 2023 as compared to2024 remained consistent with that of the same periodsperiod in the prior year. Decreased shipping demand in the over-the-road market, led to a decline in size and volume of factored invoices during the three and nine months ended September 30, 2023 as compared to the elevated demands of the same periods in the prior 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 Mobility: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | $ | 70.1 | | | $ | 68.5 | | | $ | 1.6 | | | 2 | % | | $ | 208.4 | | | $ | 193.0 | | | $ | 15.4 | | | 8 | % | | Service fees | $ | 1.9 | | | $ | 2.1 | | | $ | (0.2) | | | (11) | % | | $ | 5.6 | | | $ | 6.4 | | | $ | (0.8) | | | (13) | % | | Provision for credit losses | $ | 12.2 | | | $ | 53.0 | | | $ | (40.8) | | | (77) | % | | $ | 78.5 | | | $ | 118.7 | | | $ | (40.2) | | | (34) | % | | Operating interest | $ | 21.0 | | | $ | 5.4 | | | $ | 15.6 | | | 288 | % | | $ | 47.0 | | | $ | 8.4 | | | $ | 38.6 | | | 460 | % | | Depreciation and amortization | $ | 9.9 | | | $ | 12.0 | | | $ | (2.1) | | | (17) | % | | $ | 29.4 | | | $ | 35.7 | | | $ | (6.3) | | | (18) | % | | | | | | | | | | | | | | | | | | Other operating expenses | | | | | | | | | | | | | | | | | General and administrative | $ | 39.6 | | | $ | 26.9 | | | $ | 12.7 | | | 47 | % | | $ | 100.4 | | | $ | 76.5 | | | $ | 23.9 | | | 31 | % | | Sales and marketing | $ | 53.4 | | | $ | 52.4 | | | $ | 1.0 | | | 2 | % | | $ | 156.4 | | | $ | 154.1 | | | $ | 2.3 | | | 2 | % | | Depreciation and amortization | $ | 17.0 | | | $ | 17.6 | | | $ | (0.6) | | | (4) | % | | $ | 51.4 | | | $ | 54.2 | | | $ | (2.8) | | | (5) | % | | Impairment charges | $ | — | | | $ | 136.5 | | | $ | (136.5) | | | NM | | $ | — | | | $ | 136.5 | | | $ | (136.5) | | | NM | | | | | | | | | | | | | | | | | | Operating income | $ | 125.0 | | | $ | 3.5 | | | $ | 121.5 | | | NM | | $ | 355.5 | | | $ | 293.0 | | | $ | 62.5 | | | 21 | % | | | | | | | | | | | | | | | | | Segment adjusted operating income1 | $ | 159.6 | | | $ | 174.5 | | | $ | (14.9) | | | (9) | % | | $ | 448.7 | | | $ | 527.6 | | | $ | (78.9) | | | (15) | % | Segment adjusted operating income margin2 | 45.6 | % | | 46.2 | % | | (0.6) | % | | (1) | % | | 43.5 | % | | 49.0 | % | | (5.5) | % | | (11) | % |
NM - Not meaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase (Decrease) | | (in millions) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | | Cost of services | | | | | | | | | | | | | | | | | Processing costs | | | | | | | | | $ | 78.4 | | | $ | 66.3 | | | $ | 12.1 | | | 18 | % | | Service fees | | | | | | | | | $ | 1.7 | | | $ | 1.6 | | | $ | 0.1 | | | 6 | % | | Provision for credit losses | | | | | | | | | $ | 20.8 | | | $ | 44.8 | | | $ | (24.0) | | | (54) | % | | Operating interest | | | | | | | | | $ | 19.2 | | | $ | 10.3 | | | $ | 8.9 | | | 86 | % | | Depreciation and amortization | | | | | | | | | $ | 12.7 | | | $ | 9.9 | | | $ | 2.8 | | | 28 | % | | | | | | | | | | | | | | | | | | Other operating expenses | | | | | | | | | | | | | | | | | General and administrative | | | | | | | | | $ | 31.4 | | | $ | 28.1 | | | $ | 3.3 | | | 12 | % | | Sales and marketing | | | | | | | | | $ | 57.2 | | | $ | 52.2 | | | $ | 5.0 | | | 10 | % | | Depreciation and amortization | | | | | | | | | $ | 18.4 | | | $ | 17.2 | | | $ | 1.2 | | | 7 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | | | | | | | $ | 99.3 | | | $ | 111.9 | | | $ | (12.6) | | | (11) | % | | | | | | | | | | | | | | | | | Segment adjusted operating income(1) | | | | | | | | | $ | 131.0 | | | $ | 138.8 | | | $ | (7.8) | | | (6) | % | Segment adjusted operating income margin(2) | | | | | | | | | 38.6 | % | | 40.5 | % | | (1.9) | % | | (5) | % |
1(1)Our CODM evaluates the financial performance of each segment using segmentSegment adjusted operating income which excludes: (i)excludes unallocated corporate expenses; (ii)expenses, acquisition-related intangible amortization, and other acquisition and divestiture related items; (iii)items, debt restructuring costs, stock-based compensation, other costs and (iv) other costs.certain non-recurring or non-cash operating charges that are not core to our operations, as applicable depending on the period presented. 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 18,17, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.
2(2)Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue. The ninethree months ended September 30, 2023March 31, 2024 saw a decrease in segment adjusted operating income margin from the prior year comparable period, primarily reflecting the decline in average fuel prices and higher operating interest costs, offset in part by a significant decrease in credit and fraud losses. Such margin remained flat for the third quarter of 2023 compared to the prior year comparable period.
Cost of services Processing costs increased $12.1 million for the first quarter of 2024 as compared to the same period in the prior year, primarily due to increased headcount across our technology departments. Provision for credit losses, which includes estimates for both credit and fraud losses, decreased by $40.8$24.0 million and $40.2 million, respectively, for the three and nine months ended September 30, 2023March 31, 2024 as compared to the same periodsperiod in the prior year. The higher credit and fraud loss rates experienced duringStabilization in the three and nine months ended September 30, 2022 have improved during the three and nine months ended September 30, 2023 due in part toover-the-road trucking market, tighter credit policies put in place to reduce such losses. In addition,losses, and lower than expected charge-offs in our U.S. fleet customers from macroeconomic factors have all contributed to the elevated loss rates seenreduction in the over-the-road trucking business for the past several quarters have moderated. provision year over year. 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 6.8 and 17.815.3 basis points of fuel expenditures for the three and nine months ended September 30, 2023, respectively.March 31, 2024. For the three and nine months ended September 30, 2022,March 31, 2023, provision for credit losses was 30.9 and 23.731.6 basis points of fuel expenditures, respectively.expenditures.
Operating interest increased $15.6$8.9 million for the thirdfirst quarter of 2023 and increased $38.6 million for the nine months ended September 30, 20232024 as compared to the same periodsperiod in the prior year, primarily reflective of higher interest rates and increasedon operating debt balances in support of working capital needs. Depreciation and amortization decreased $6.3increased $2.8 million for the ninethree months ended September 30, 2023March 31, 2024 compared to the prior year comparable period due in part to certainincreased capital expenditures to support growth, and the amortization of intangible assets becoming fully depreciated during 2022.
Other operating expenses General and administrative expenses increased $12.7 million and $23.9$3.3 million for the three and nine months ended September 30, 2023, respectively,March 31, 2024 as compared withto the same periodsperiod in the prior year due primarily to increased employee costs as a third quarter 2023 write-offresult of certain costs associated with an abandoned IT development projectthe Payzer acquisition. Sales and marketing expenses increased professional services expense in support of increasing operating efficiencies and business growth. Impairment charges incurred during$5.0 million for the three and nine months ended September 30, 2022 consistedMarch 31, 2024 as compared to the same period in the prior year primarily due to increased employee costs as a result of non-cash goodwill impairment charges of $136.5 million for two of our international Mobility reporting units.the Payzer acquisition.
Corporate Payments Revenues The following table reflects comparative revenue and key 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 | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase (Decrease) | | (in millions) | | (in millions) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | Revenues(1) | | | Payment processing revenue | | | Payment processing revenue | | | Payment processing revenue | Payment processing revenue | $ | 115.8 | | | $ | 101.5 | | | $ | 14.3 | | | 14 | % | | $ | 310.6 | | | $ | 255.2 | | | $ | 55.4 | | | 22 | % | | | | | | | | | $ | 103.2 | | | $ | | $ | 90.1 | | | $ | | $ | 13.1 | | | 15 | | 15 | % | | Account servicing revenue | Account servicing revenue | 10.5 | | | 10.7 | | | (0.2) | | | (2) | % | | 31.7 | | | 31.9 | | | (0.2) | | | (1) | % | Account servicing revenue | | | | | | | | | 10.0 | | | 10.6 | | 10.6 | | | (0.6) | | (0.6) | | | (6) | | (6) | % | | Finance fee revenue | Finance fee revenue | 0.2 | | | 0.2 | | | — | | | NM | | 0.5 | | | 0.5 | | | — | | | NM | Finance fee revenue | | | | | | | | | 0.2 | | | 0.2 | | 0.2 | | | — | | — | | | — | | — | % | | Other revenue | Other revenue | 8.7 | | | 1.5 | | | 7.2 | | | 468 | % | | 19.1 | | | 4.0 | | | 15.1 | | | 378 | % | Other revenue | | | | | | | | | 9.2 | | | 3.9 | | 3.9 | | | 5.3 | | 5.3 | | | 136 | | 136 | % | | Total revenues | Total revenues | $ | 135.2 | | | $ | 114.0 | | | $ | 21.2 | | | 19 | % | | $ | 361.9 | | | $ | 291.6 | | | $ | 70.3 | | | 24 | % | Total revenues | | | | | | | | | $ | 122.5 | | | $ | | $ | 104.8 | | | $ | | $ | 17.7 | | | 17 | | 17 | % | | | | | | | | | | | | | | | | | | | | | Key operating statistics | | | Key operating statistics | | | Key operating statistics | Key operating statistics | | | | Purchase volume | 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) | % | | | Purchase volume | | | | Purchase volume | | | | | | | | | | $ | 23,947.9 | | | $ | 18,634.7 | | | $ | 5,313.2 | | | 29 | % | Net interchange rate(2) | | Net interchange rate(2) | | | | | | | | | 0.43 | % | | 0.48 | % | | (0.05) | % | | (10) | % |
1(1)The impact of foreign currency exchange rate fluctuations on Corporate Payments increased revenues by $4.7 million and $3.9 millionwas immaterial during the three and nine months ended September 30, 2023, respectively, compared to the prior year comparable periods.March 31, 2024.
2(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, 2023March 31, 2024 compared to the same periodsperiod of the prior year.
Total Corporate Payments revenue increased $21.2$17.7 million for the thirdfirst quarter of 2023 and $70.3 million for the nine months ended September 30, 20232024 as compared to the same periodsperiod in the prior year. These increases wereThis increase was primarily driven by continued strengthvolume growth in global consumerboth travel demand.and corporate payments, offset in part by a net rate reduction due to a shift in customer mix. Other revenue has increased due to higher interest revenue earned on restricted cash balances due toas a result of a rise in interest rates and 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, 2023March 31, 2024 and 2022.2023.
Operating Expenses The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for 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 | | 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 millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent | | | | | | | | | | | Three Months Ended March 31, | | Increase (Decrease) | | (in millions) | | (in millions) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | | Cost of services | | | Processing costs | | | Processing costs | | | Processing costs | | | | | | | | | | $ | 20.6 | | | $ | 19.9 | | | $ | 0.7 | | | 4 | % | | Service fees | | Service fees | | | | | | | | | $ | 3.5 | | | $ | 3.6 | | | $ | (0.1) | | | (3) | % | | Provision for credit losses | | Provision for credit losses | | | | | | | | | $ | 1.3 | | | $ | 0.4 | | | $ | 0.9 | | | NM | | Operating interest | | Operating interest | | | | | | | | | $ | 3.2 | | | $ | 1.7 | | | $ | 1.5 | | | 88 | % | | Depreciation and amortization | | Depreciation and amortization | | | | | | | | | $ | 7.8 | | | $ | 5.8 | | | $ | 2.0 | | | 34 | % | | | Other operating expenses | Other operating expenses | | | Other operating expenses | | | Other operating expenses | | | General and administrative | | | General and administrative | | | General and administrative | General and administrative | $ | 18.1 | | | $ | 17.1 | | | $ | 1.0 | | | 6 | % | | $ | 53.1 | | | $ | 48.4 | | | $ | 4.7 | | | 10 | % | | | | | | | | | $ | 14.4 | | | $ | | $ | 16.2 | | | $ | | $ | (1.8) | | | (11) | | (11) | % | | Sales and marketing | Sales and marketing | $ | 14.9 | | | $ | 14.6 | | | $ | 0.3 | | | 2 | % | | $ | 41.7 | | | $ | 42.7 | | | $ | (1.0) | | | (2) | % | Sales and marketing | | | | | | | | | $ | 13.7 | | | $ | | $ | 13.7 | | | $ | | $ | — | | | — | | — | % | | Depreciation and amortization | Depreciation and amortization | $ | 6.7 | | | $ | 6.0 | | | $ | 0.7 | | | 12 | % | | $ | 19.8 | | | $ | 18.3 | | | $ | 1.5 | | | 8 | % | Depreciation and amortization | | | | | | | | | $ | 6.9 | | | $ | | $ | 6.6 | | | $ | | $ | 0.2 | | | 3 | | 3 | % | | | | Operating income | 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 | % | | Operating income | | | | Operating income | | | | | | | | | | $ | 51.1 | | | $ | 36.9 | | | $ | 14.2 | | | 38 | % | | Segment adjusted operating income(1) | | Segment adjusted operating income(1) | | Segment adjusted operating income(1) | | | | | | | | | | $ | 64.6 | | | $ | 49.2 | | | $ | 15.4 | | | 31 | % | Segment adjusted operating income margin(2) | | Segment adjusted operating income margin(2) | | | | | | | | | 52.7 | % | | 46.9 | % | | 5.8 | % | | 12 | % |
NM - Not meaningful 1(1)Our CODM evaluates the financial performance of each segment using segmentSegment adjusted operating income which excludes: (i)excludes unallocated corporate expenses; (ii)expenses, acquisition-related intangible amortization, and other acquisition and divestiture related items; (iii)items, debt restructuring costs, stock-based compensation, other costs and (iv) other costs.certain non-recurring or non-cash operating charges that are not core to our operations, as applicable depending on the period presented. 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 18,17, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.
2(2)Segment 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 2023first quarter 2024 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.March 31, 2024. 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 | | | | | | | | | | | Three Months Ended March 31, | | Increase (Decrease) | | (in millions) | | (in millions) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | | Revenues | Revenues | | | | | | | | | | | | | | | | | Payment processing revenue | | | Payment processing revenue | | | Payment processing revenue | Payment processing revenue | $ | 20.6 | | | $ | 18.9 | | | $ | 1.7 | | | 9 | % | | $ | 70.7 | | | $ | 62.7 | | | $ | 8.0 | | | 13 | % | | | | | | | | | $ | 28.1 | | | $ | | $ | 26.5 | | | $ | | $ | 1.6 | | | 6 | | 6 | % | | Account servicing revenue | Account servicing revenue | 108.5 | | | 85.9 | | | 22.6 | | | 26 | % | | 319.8 | | | 256.1 | | | 63.7 | | | 25 | % | Account servicing revenue | | | | | | | | | 117.0 | | | 109.8 | | 109.8 | | | 7.2 | | 7.2 | | | 7 | | 7 | % | | Finance fee revenue | Finance fee revenue | 0.1 | | | — | | | 0.1 | | | NM | | 0.2 | | | 0.1 | | | 0.1 | | | 92 | % | Finance fee revenue | | | | | | | | | 0.1 | | | 0.1 | | 0.1 | | | — | | — | | | — | | — | % | | Other revenue | Other revenue | 36.9 | | | 19.2 | | | 17.7 | | | 93 | % | | 99.5 | | | 44.9 | | | 54.6 | | | 122 | % | Other revenue | | | | | | | | | 46.0 | | | 28.5 | | 28.5 | | | 17.5 | | 17.5 | | | 61 | | 61 | % | | Total revenues | Total revenues | $ | 166.1 | | | $ | 124.1 | | | $ | 42.0 | | | 34 | % | | $ | 490.2 | | | $ | 363.8 | | | $ | 126.4 | | | 35 | % | Total revenues | | | | | | | | | $ | 191.2 | | | $ | | $ | 164.9 | | | $ | | $ | 26.3 | | | 16 | | 16 | % | | | Key operating statistics | Key operating statistics | | | Key operating statistics | | | Key operating statistics | | | | Purchase volume | 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 | % | | Purchase volume | | | | Purchase volume | | | | | | | | | | $ | 2,114.7 | | | $ | 1,928.5 | | | $ | 186.1 | | | 10 | % | | Average number of SaaS accounts(1) | | Average number of SaaS accounts(1) | | Average number of SaaS accounts(1) | | | | | | | | | | 20.3 | | | 20.3 | | | — | | | — | % | | Average HSA custodial cash assets | Average HSA custodial cash assets | 3,908.5 | | | 3,177.7 | | | 730.8 | | | 23 | % | | 3,821.0 | | | 3,079.1 | | | 741.9 | | | 24 | % | Average HSA custodial cash assets | | | | | | | | | 4,209.3 | | | 3,676.4 | | 3,676.4 | | | 532.9 | | 532.9 | | | 14 | | 14 | % |
1 (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$26.3 million for the thirdfirst quarter of 2023 and $126.4 million for the nine months ended September 30, 20232024 as compared to the same periodsperiod 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, significantlycoupled with increased revenues due to the Ascensus acquisition, substantially contributed to the increase in total revenues infor the third quarter and ninethree months ended September 30, 2023March 31, 2024 as 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 | | | | | | | | | | | Three Months Ended March 31, | | Increase (Decrease) | | (in millions) | | (in millions) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | | Cost of services | Cost of services | | | | | | | | | | | | | | | | | Processing costs | | | Processing costs | | | Processing costs | Processing costs | $ | 68.5 | | | $ | 59.0 | | | $ | 9.5 | | | 16 | % | | $ | 186.1 | | | $ | 168.1 | | | $ | 18.0 | | | 11 | % | | | | | | | | | $ | 70.1 | | | $ | | $ | 59.4 | | | $ | | $ | 10.7 | | | 18 | | 18 | % | | Service fees | Service fees | $ | 13.5 | | | $ | 11.0 | | | $ | 2.5 | | | 22 | % | | $ | 39.3 | | | $ | 30.2 | | | $ | 9.1 | | | 30 | % | Service fees | | | | | | | | | $ | 15.8 | | | $ | | $ | 13.1 | | | $ | | $ | 2.7 | | | 21 | | 21 | % | | Provision for credit losses | Provision for credit losses | $ | 1.1 | | | $ | 0.3 | | | $ | 0.8 | | | 220 | % | | $ | 1.5 | | | $ | 1.1 | | | $ | 0.4 | | | 39 | % | Provision for credit losses | | | | | | | | | $ | 0.3 | | | $ | | $ | 0.2 | | | $ | | $ | 0.1 | | | 50 | | 50 | % | | Operating interest | Operating interest | $ | 1.6 | | | $ | 0.3 | | | $ | 1.3 | | | NM | | $ | 3.9 | | | $ | 0.5 | | | $ | 3.4 | | | NM | Operating interest | | | | | | | | | $ | 1.1 | | | $ | | $ | 0.8 | | | $ | | $ | 0.3 | | | 38 | | 38 | % | | Depreciation and amortization | Depreciation and amortization | $ | 9.4 | | | $ | 9.7 | | | $ | (0.3) | | | (3) | % | | $ | 28.6 | | | $ | 28.8 | | | $ | (0.2) | | | (1) | % | Depreciation and amortization | | | | | | | | | $ | 10.7 | | | $ | | $ | 9.5 | | | $ | | $ | 1.2 | | | 13 | | 13 | % | | | Other operating expenses | Other operating expenses | | | Other operating expenses | | | Other operating expenses | | | General and administrative | | | General and administrative | | | General and administrative | General and administrative | $ | 13.1 | | | $ | 9.3 | | | $ | 3.8 | | | 40 | % | | $ | 39.5 | | | $ | 30.5 | | | $ | 9.0 | | | 30 | % | | | | | | | | | $ | 10.4 | | | $ | | $ | 11.1 | | | $ | | $ | (0.7) | | | (6) | | (6) | % | | Sales and marketing | Sales and marketing | $ | 14.5 | | | $ | 13.8 | | | $ | 0.7 | | | 5 | % | | $ | 43.5 | | | $ | 38.5 | | | $ | 5.0 | | | 13 | % | Sales and marketing | | | | | | | | | $ | 14.5 | | | $ | | $ | 14.0 | | | $ | | $ | 0.5 | | | 4 | | 4 | % | | Depreciation and amortization | Depreciation and amortization | $ | 17.9 | | | $ | 14.8 | | | $ | 3.1 | | | 21 | % | | $ | 52.0 | | | $ | 44.3 | | | $ | 7.7 | | | 17 | % | Depreciation and amortization | | | | | | | | | $ | 21.5 | | | $ | | $ | 17.0 | | | $ | | $ | 4.5 | | | 26 | | 26 | % | | | Operating income | Operating income | $ | 26.5 | | | $ | 5.8 | | | $ | 20.7 | | | 358 | % | | $ | 95.8 | | | $ | 21.9 | | | $ | 73.9 | | | 338 | % | | Operating income | | | Operating income | | | | | | | | | | $ | 46.7 | | | $ | 39.8 | | | $ | 6.9 | | | 17 | % | | 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 | % | Segment adjusted operating income(1) | | Segment adjusted operating income(1) | | Segment adjusted operating income(1) | | | | | | | | | | $ | 79.4 | | | $ | 64.5 | | | $ | 14.9 | | | 23 | % | Segment adjusted operating income margin(2) | | Segment adjusted operating income margin(2) | | | | | | | | | 41.5 | % | | 39.1 | % | | 2.4 | % | | 6 | % |
1(1)Our CODM evaluates the financial performance of each segment using segmentSegment adjusted operating income which excludes: (i)excludes unallocated corporate expenses; (ii)expenses, acquisition-related intangible amortization, and other acquisition and divestiture related items; (iii)items, debt restructuring costs, stock-based compensation, other costs and (iv) other costs.certain non-recurring or non-cash operating charges that are not core to our operations, as applicable depending on the period presented. 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 18,17, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.
2(2)Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue. The revenuesRevenue earned on HSA assets is highly accretive to earnings and as a result,is the primary driver of the increase in segment adjusted operating income margin for the three and nine months ended September 30, 2023 increased significantly fromMarch 31, 2024 as compared to the prior year comparable periods.
Cost of services Processing costs increased by $9.5$10.7 million and $18.0 million, respectively, for the three and nine months ended September 30, 2023March 31, 2024 as compared to the same period in the prior year, primarily due to an increase in professional services, card issuance and otherincreased employee costs in supportas a result of volume increases.the Ascensus Acquisition. Service fees increaseincreased by $2.7 million for the three and nine months ended September 30, 2023 were primarily driven by increased fees incurred on higher HSA deposits,March 31, 2024 in conjunction with the associated growth in revenues, as compared with the same period in the prior year. Other operating expenses GeneralDepreciation and administrative expensesamortization increased $3.8 million and $9.0$4.5 million for the three and nine months ended September 30, 2023, respectively, as compared with the same periods in the prior year primarily due to increased professional services expense in support of increasing operating efficiencies and business growth.
Expansion of the sales and marketing team drove the $5.0 million increase in sales and marketing expense for the nine months ended September 30, 2023,March 31, 2024 as compared to the prior year period.
Depreciation and amortization increased $3.1 million and $7.7 million, for the three and nine months ended September 30, 2023, respectively, as compared to the prior year periods,period, primarily due to higher relativethe amortization on HSA contractual rights coupled to a smaller degree by increased amortizationof intangible assets obtained as a resultpart of the 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) | | (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent | | Other operating expenses | | | | | | | | | | | | | | | | | General and administrative | $ | 45.8 | | | $ | 33.2 | | | $ | 12.6 | | | 38 | % | | $ | 118.7 | | | $ | 93.3 | | | $ | 25.4 | | | 27 | % | | Depreciation and amortization | $ | 0.4 | | | $ | 0.4 | | | $ | — | | | NM | | $ | 2.2 | | | $ | 1.5 | | | $ | 0.7 | | | NM |
NM - Not meaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Increase (Decrease) | | (in millions) | | | | | | | | | 2024 | | 2023 | | Amount | | Percent | | Other operating expenses | | | | | | | | | | | | | | | | | General and administrative | | | | | | | | | $ | 32.3 | | | $ | 33.5 | | | $ | (1.2) | | | (4) | % | | Depreciation and amortization | | | | | | | | | $ | 0.4 | | | $ | 0.8 | | | $ | (0.4) | | | (50) | % |
General and administrative expenses increased duringDuring the third quarter and ninethree months ended September 30, 2023 as compared toMarch 31, 2024, unallocated corporate expenses were generally consistent with the same periods inperiod of the prior 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.year.
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) | | (In millions) | 2023 | | 2022 | | Amount | | Percent | | 2023 | | 2022 | | Amount | | Percent | | Financing interest expense | $ | (41.6) | | | $ | (34.4) | | | $ | 7.2 | | | 21 | % | | $ | (122.4) | | | $ | (95.9) | | | $ | 26.5 | | | 28 | % | | Change in fair value of contingent consideration | $ | (3.2) | | | $ | (30.3) | | | $ | (27.1) | | | (89) | % | | $ | (6.2) | | | $ | (135.1) | | | $ | (128.9) | | | (95) | % | | | | | | | | | | | | | | | | | | Loss on extinguishment of Convertible Notes | $ | (70.1) | | | $ | — | | | $ | 70.1 | | | NM | | $ | (70.1) | | | $ | — | | | $ | 70.1 | | | NM | | Net foreign currency loss | $ | (7.8) | | | $ | (23.4) | | | $ | (15.6) | | | 67 | % | | $ | (9.4) | | | $ | (37.8) | | | $ | (28.4) | | | (75) | % | | Net unrealized (loss) gain on financial instruments | $ | (7.8) | | | $ | 23.5 | | | $ | (31.3) | | | (133) | % | | $ | (20.1) | | | $ | 90.3 | | | $ | (110.4) | | | (122) | % | | Income tax provision | $ | 26.0 | | | $ | 0.8 | | | $ | 25.2 | | | NM | | $ | 78.7 | | | $ | 57.3 | | | $ | 21.4 | | | 37 | % | | Net income from non-controlling interests | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | 0.3 | | | $ | (0.3) | | | (100) | % | | Change in value of redeemable non-controlling interest | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | 34.2 | | | $ | (34.2) | | | 100 | % |
NM - Not meaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | Absolute Dollar Change | | Effect of Change on Net Income | | | | | | (in millions) | | | | | | | | | 2024 | | 2023 | | | | | | | | Financing interest expense, net of financial instruments | | | | | | | | | $ | (60.3) | | | $ | (52.9) | | | $ | 7.4 | | | Reduction | | | | | | Change in fair value of contingent consideration | | | | | | | | | $ | (1.7) | | | $ | (1.8) | | | $ | 0.1 | | | Increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net foreign currency loss | | | | | | | | | $ | (12.5) | | | $ | (1.4) | | | $ | 11.1 | | | Reduction | | | | | | | | | | | | | | | | | | | | | | | | | | Income tax provision | | | | | | | | | $ | 24.2 | | | $ | 30.2 | | | $ | 6.0 | | | Increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financing interest expense, net of financial instruments increased primarily as a result of increased borrowings under our Revolving Credit Facility, coupled with higher net variable interest rates on our term loans, inclusive of amounts economically hedged viathereon, offset in part by a reduction in interest rate swap agreements. Due to the rising rate environment since we completed the acquisition of certain contractual rights from Bell Bank, the Company’s contingent consideration derivative liability is effectively reflected at the maximum contingent consideration payable under the purchase agreement. As a result, absent a significant decline in the Federal Funds futures 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 passagerepurchase and cancellation 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 outstanding aggregate principal amount of the Company’s Convertible Notes at a premium resulting in a loss on extinguishmentduring the third quarter of $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 repurchase of the Convertible Notes.2023.
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 losses incurred during the third
first quarter and nine months ended September 30, 2023,of 2024 resulted from the weakening of certain foreign currencies in which we transact, including the Euro, and the Australian and Canadian dollars, relative to the U.S. dollar. Due 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 during those periods. Comparatively, during 2023 forward yield curves on our interest rate swap financial instruments experienced only moderate changes.
The increasedecrease in income tax provision for the three and nine months ended September 30, 2023March 31, 2024 as compared to the prior year comparable periodsperiod is due primarily to an increase in income (loss) before income taxes, offset in part due to the changea decrease in the Company’s effective tax rates.rate, coupled with a decrease in income before income taxes. The Company’s effective tax ratesrate for the three and nine months ended September 30, 2023 were 58.6March 31, 2024 was 26.9 percent and 30.2 percent, respectively, compared to (1.9) percent and 42.130.8 percent for the three and nine months ended September 30, 2022, respectively.March 31, 2023. See Part I – Item 1 – Note 15,14, Income Taxes, to our condensed consolidated financial statements for more information regarding the drivers behind our effective tax 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.
Non–GAAP Financial Measures That Supplement GAAP Measures Total Segment Adjusted Operating Income and Adjusted Net Income In addition to evaluating the Company’s performance on a GAAP basis, Company management uses particular non-GAAP financial measures, which exclude the impact of certain costs, expenses, gains and losses, to evaluate our overall operating performance, including comparison across periods and with competitors. Our management team believes these non-GAAP measures are integral to our reporting and planning processes and uses them to assess operating performance because they generally exclude financial results that are outside the Company uses segment adjusted operating income, a non-GAAP measure,normal course of our business operations or management’s control. These measures are also used to allocate resources among our operating segments. The Company considers this measure, whichsegments and for internal budgeting and forecasting purposes for both short- and long-term operating plans. Total segment adjusted operating income excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs and impairmentcertain non-recurring or non-cash operating charges integral in evaluatingthat are not core to our operations, as applicable depending on the Company’s performance.period presented.
Our management also uses adjustedAdjusted net income a non-GAAP measure, to evaluate its performance. WEX believes that adjusted net income,, which similarly excludes the impact of all items discussedexcluded in the paragraph abovesegment adjusted operating income 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 toand certain other non-operating items, as applicable depending on 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 areFor the periods presented herein, the following items have been excluded in determining one or more 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 for the reasons discussed below:following reasons:
•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 periods 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 periods 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. •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 non-GAAP tax provision. Beginning in fiscal year 2024, the Company utilizes a fixed annual projected long-term non-GAAP tax rate in order to provide better consistency across reporting periods. To determine this long-term projected tax rate, the Company performs a pro forma tax provision based upon the Company’s projected adjusted net income before taxes as well astaxes. The fixed annual projected long-term non-GAAP tax rate could be subject to change in future periods for a variety of reasons, including the impact from certain discreterapidly evolving global tax items. The methodology utilized for calculating the Company’s adjusted net income attributableenvironment, significant changes in our geographic earnings mix including due to shareholders tax provision is the same methodology utilized in calculating the Company’s GAAP tax provision;acquisition activity, or other changes to our strategy or business operations; 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.
evaluating our performance. However, because total 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. Total segment adjusted operating income and adjusted net income as used by WEX may not be comparable to similarly titled measures employed by other companies. The following tables reconciletable reconciles net income (loss) attributable to shareholders to adjusted net income attributable to shareholders and related per share data: | | 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) | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | | | Three Months Ended March 31, | | | (in millions except per diluted share data) | | | (in millions except per diluted share data) | | | (in millions except per diluted share data) | | | Net income | | | Net income | | | Net income | | | Unrealized loss on financial instruments | | | Unrealized loss on financial instruments | | | Unrealized loss on financial instruments | | | Net foreign currency loss | | | Net foreign currency loss | | | Net foreign currency loss | Net foreign currency loss | 7.8 | | | 0.18 | | | 23.4 | | | 0.53 | | | | Change in fair value of contingent consideration | Change in fair value of contingent consideration | 3.2 | | | 0.07 | | | 30.3 | | | 0.69 | | | | Change in fair value of contingent consideration | | | Change in fair value of contingent consideration | | | Acquisition-related intangible amortization | | | Acquisition-related intangible amortization | | | Acquisition-related intangible amortization | Acquisition-related intangible amortization | 45.2 | | | 1.04 | | | 42.5 | | | 0.96 | | | | Other acquisition and divestiture related items | Other acquisition and divestiture related items | 5.1 | | | 0.12 | | | 4.1 | | | 0.09 | | | | Other acquisition and divestiture related items | | | Other acquisition and divestiture related items | | | Stock-based compensation | | | Stock-based compensation | | | Stock-based compensation | Stock-based compensation | 31.9 | | | 0.74 | | | 27.9 | | | 0.63 | | | | Other costs | Other costs | 15.1 | | | 0.35 | | | 8.8 | | | 0.20 | | | | Impairment charges | — | | | — | | | 136.5 | | | 3.09 | | | | Other costs | | | Other costs | | | | Debt restructuring and debt issuance cost amortization | | | | Debt restructuring and debt issuance cost amortization | | | | Debt restructuring and debt issuance cost amortization | Debt restructuring and debt issuance cost amortization | 74.4 | | | 1.71 | | | 4.7 | | | 0.11 | | | | | Tax related items | 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 | | | | | Tax related items | | | | Tax related items | | | Dilutive impact of convertible debt1 | | | Dilutive impact of convertible debt1 | | | Dilutive impact of convertible debt1 | | | Adjusted net income | | | Adjusted net income | | | Adjusted net income | | | | | 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 | | | | |
1 As the Company reported a net loss for the three months ended September 30, 2022 under GAAP, the diluted weighted average shares outstanding equals the basic weighted average shares outstanding for that period. The non-GAAP adjustments described above resulted in adjusted net income attributable to shareholders (versus a loss on a GAAP basis) for the three months ended September 30, 2022. Therefore, dilutive common stock equivalents have been included in the calculation of adjusted diluted weighted average shares outstanding to arrive at adjusted per share data.
2 (1)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.March 31, 2023. For the three and nine months ended September 30,March 31, 2023, approximately 0.7 million and 1.31.6 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,March 31, 2024 and 2023 was 44.1is 42.4 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 46.545.2 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 | |
| | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | | (in millions) | 2024 | | 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income | $ | 164.5 | | | $ | 154.3 | | | | | | | Unallocated corporate expenses | 23.6 | | | 22.4 | | | | | | | Acquisition-related intangible amortization | 50.9 | | | 44.1 | | | | | | | Other acquisition and divestiture related items | 2.4 | | | 1.1 | | | | | | | | | | | | | | | Stock-based compensation | 26.7 | | | 26.1 | | | | | | | Other costs | 6.7 | | | 4.5 | | | | | | | | | | | | | | | Total segment adjusted operating income | $ | 274.9 | | | $ | 252.5 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unallocated corporate expenses | (23.6) | | | (22.4) | | | | | | | Adjusted operating income | $ | 251.3 | | | $ | 230.1 | | | | | |
Adjusted Free Cash Flow
The Company’s non-GAAP adjusted free cash flow is calculated as operating cash flows from operating activities,flow, 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 ninethree months ended September 30,March 31, 2024 and 2023, reflects an adjustment for contingent and deferred 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: | | | | (in millions) | | | | (in millions) | | (in millions) | | Three Months Ended March 31, | | | | | 2024 | | 2023 | | Operating cash flow, as reported | | | Adjustments to operating cash flow: | | | Other | | | Other | | | Other | Other | | 1.5 | | | — | | | Adjusted for certain investing and financing activities: | Adjusted for certain investing and financing activities: | | | | Increases in net deposits | Increases in net deposits | | 889.9 | | | 960.6 | | | Increases in borrowings under the BTFP | | 500.0 | | | — | | | Increases in net deposits | | | Increases in net deposits | | | Net repayment of borrowings under the BTFP | | | Increases in borrowed federal funds | Increases in borrowed federal funds | | 260.1 | | | — | | | Less: Purchases of current investment securities, net of sales and maturities | Less: Purchases of current investment securities, net of sales and maturities | | (1,304.2) | | | (584.8) | | | Less: Capital expenditures | Less: Capital expenditures | | (101.7) | | | (75.5) | | | Adjusted free cash flow | 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. As of September 30, 2023,March 31, 2024, we had cash and cash equivalents of $957.8$779.6 million, including Corporate Cash of $170.2$176.0 million, along with aand remaining borrowing availability of
$925.2 $463.4 million under the Revolving 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.
Our short-term cash requirements consist primarily of funding the working capital needs of our business, payments on maturities of deposits, current principal and interest payments on the credit facilities under our Amended and Restated Credit Agreement, and payments on other short-term debt. Our long-term cash requirements consist primarily of amounts owed under our Amended and Restated Credit Agreement and various facilities lease agreements. We believe that our current cash and cash equivalents, cash generating capabilities, financial condition and operations, and access to available funding sources will be sufficientadequate to fund our cash needs for the next 12 months and the foreseeable future. The table below summarizes our primaryincludes a more comprehensive list of frequent sources and uses of cash: | | | | | | | | | | Sources of cash | | Uses of cash1 | •Cash generated from operations •Borrowings and availability on our Amended and Restated Credit Agreement21 •Deposits32 •Accounts receivable securitization and factoring arrangements43 •Participation debt and borrowed federal funds54
| | •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 •MergersMerger and acquisitionsacquisition activity |
1 Our long-term cash requirements consist primarily of amounts owed on our Amended and Restated Credit Agreement and various facilities lease agreements.
2 (1)Under our Amended and Restated Credit Agreement, as of September 30, 2023March 31, 2024 the Company had outstanding term loan principal borrowings of $2,262.1$2,230.4 million, borrowings of $471.6$929.8 million on the Revolving Credit Facility and letters of credit of $33.2$36.8 million drawn against the Revolving Credit Facility. 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 (2)WEX Bank’s regulatory status enables it to raise capital to fund the Company’s working capital requirements by issuing deposits, subject to various regulatory capital requirements administered by the FDIC rules governing minimum financial ratios.and the UDFI. 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,March 31, 2024, we had $4,368.3$4,205.6 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 (3)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$102.3 million of securitized debt under these facilities as of September 30, 2023.March 31, 2024. We also utilize 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. 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 – Notes 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 (4)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 $41.5$45.5 million borrowed against these participation agreements as of September 30, 2023.March 31, 2024. 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$150.0 million in outstanding borrowings under these lines of credit as of September 30, 2023.March 31, 2024. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for more information regarding these facilities.
Additional Sources of Cash Available On March 12, 2023, the Federal Reserve Board announced the BTFP, which providesprovided liquidity to U.S. depository institutions. This program allowsallowed bank loans for up to one year in length, collateralized by the par value of qualifying assets, including U.S. treasuries and mortgage-backed securities. Advances will bewere available for a one-year period until March 11, 2024, or longer if the program is extended. At anyat which time under the BTFP ceased making new loans. WEX Bank is able to refinance without penalty in order to obtain the most advantageous rate. WEX Bank has accessed $500.0$760.0 million of temporary, low-cost capital under the BTFP as of September 30, 2023,March 31, 2024, pledging held investment securities with a par value of $800.3$832.7 million and market value of $688.3$740.3 million as collateral. On August 11, 2023, the Company repurchased all
Table 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 condensed consolidated financial statements for more information regarding the Convertible Notes repurchase, Third Amendment to Amended and Restated Credit Agreement and Ascensus Acquisition.Contents 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,March 31, 2024, the Company could borrow up to a maximum amount of $202.3$150.6 million. WEX Bank had no borrowings outstanding on this line of credit as of September 30, 2023.March 31, 2024. 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 and adjusted free cash flow: | | | | | | | | | | | | | 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 | |
| | | | | | | | | | | | | Three Months Ended March 31, | | (in millions) | 2024 | | 2023 | | Net cash provided by (used for) |
| | | | Operating activities | $ | (153.3) | | | $ | 27.1 | | | Investing activities | $ | (317.8) | | | $ | (1,062.0) | | | Financing activities | $ | 354.1 | | | $ | 1,043.8 | | | Non-GAAP financial measure: | | | | Adjusted free cash flow1 | $ | (204.5) | | | $ | (61.4) | |
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 (1)The Company’s non-GAAP adjusted free cash flow is calculated as operating cash flows from operating activities,flow, 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.adjustments which, for the three months ended March 31, 2024, reflects an adjustment for contingent consideration paid to sellers in excess of acquisition-date fair value. 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 Mobility and Corporate 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 byused for operating activities for the ninethree months ended September 30, 2023March 31, 2024 increased $39.4$180.4 million as compared to the same period in the prior year. The increase in cash provided byused for operating activities year over year was primarily the result of higher net income adjusted for non-cash items.greater cash outflows due to changes in operating assets and liabilities in the current year, which includes the payment of $64.5 million on our contingent consideration owed to Bell Bank as part of an asset acquisition during 2021. Investing Activities Investing cash flows generally consist of capital expenditures, cash used for acquisitions and the investment of custodial cash assets. Cash used for investing activities for the ninethree months ended September 30, 2023 increased $907.5March 31, 2024 decreased $744.2 million as compared to the same period in the prior year, primarily resulting from higher relativethe investment of $391.7 million of HSA deposits in available-for-sale debt securities andas compared to $1.1 billion in the Ascensus Acquisition, which closed on September 1, 2023. See Part I – Item 1 – Note 4, Acquisitions and Other Investments, to our condensed consolidated financial statements for more information regarding this acquisition.prior year. Financing Activities Financing cash flows generally consist of the issuance and repayment of debt and deposits, changes in restricted cash payable and purchases of 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 ninethree months ended September 30, 2023 increased $601.8March 31, 2024 decreased $689.7 million, due primarily to a decrease in deposits, offset in part by higher net borrowings under the newly available BTFP and under our Revolving Credit Facility, duringas compared to the nine months ended September 30, 2023, offset in part by the repurchase of our Convertible Notes.period year comparable period. During the ninethree months ended September 30, 2023,March 31, 2024, the Company repurchased approximately 0.80.4 million shares of our common stock subject to an authorized and outstanding share buyback plan. Cash payments for share repurchases during the ninethree months ended September 30, 2023March 31, 2024 totaled $152.6$73.6 million. As of the date of this filing,March 31, 2024, there is $363.5was $539.8 million worth of common stock shares that are available to be purchased pursuant to the existing repurchase plan 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.Measures. Adjusted free cash flow decreased $15.2$143.1 million during the ninethree months ended September 30, 2023March 31, 2024 as compared to the same period in the prior year, reflecting an increaseyear. Certain short-term borrowings to finance receivables at March 31, 2024 were not transacted until the second quarter, resulting in investmentsthe decrease to adjusted free cash flow for the first quarter of HSA deposits in available-for-sale debt securities, partially offset by borrowings under2024 relative to the BTFP and borrowingssame period of federal funds.the prior year. Financial Covenants The Amended and Restated Credit Agreement contains customaryvarious affirmative and negative covenants affectingthat, subject to certain customary exceptions, limit the Company and its subsidiaries, includingcovenants limitingsubsidiaries’ (including, in certain limited circumstances, WEX Bank and the Company’s other regulated subsidiaries) ability to, among other things (i) incur additional debt, (including disqualified stock), grant liens, make certain investments,(ii) pay dividends or make other distributions on, redeem or repurchase equity interests andcapital stock, or make investments or other restricted payments, (iii) enter into transactions with affiliates, (iv) dispose of assets or issue stock of restricted subsidiaries or regulated subsidiaries, (v) create liens on assets, or (vi) effect a consolidation or merger or sell assets, subject to certain exceptions.all, or substantially all, of the Company’s assets. 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 included customary covenants, including a debt incurrence covenant that restricted the Company from incurring certain indebtedness, including disqualified stock and preferred stock issued by the Company or its subsidiaries, subject to customary exceptions. 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, 2023,March 31, 2024, we were otherwise in compliance with such remainingapplicable 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, 20222023 for more information regarding these covenants. Other Commitments, Contingencies and Contractual Obligations Other than commitments arising related to the upcoming Payzer acquisition, and impacts from the third quarter repurchase of our Convertible Notes and the 2023 borrowings on the BTFP, thereThere were no 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, 2022.2023.
Regulatory Matters WEX Bank is in the process of complying with a consent order issued by the FDIC and the UDFI (the “2022 Order”) on May 6, 2022 andsubject to 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, however, we believe we have taken the appropriate actions to meet the requirements of the 2022 Order. The 2023 Order, which 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 theThe matters identified in the 2022 Order nor the 2023 Order have not had, nor are they expected to have, a material effect on WEX Bank’s operations or the Company’s results of operations, financial condition or cash flows.
Critical Accounting Estimates We have no material changes to our critical accounting estimates discussed in our Annual Report on Form 10–K for the year ended December 31, 2022.2023. Recently Adopted Accounting Standards See Note 2, Significant Accounting 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, 2023,March 31, 2024, we have no material changes to the market risk disclosures in our Annual Report on Form 10–K for the year ended December 31, 2022.2023. 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, 2023.March 31, 2024. 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, 2023.March 31, 2024. “Disclosure controls and procedures” are controlsand 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, 2023,March 31, 2024, 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. From time to time, we are subject to legal proceedings, claims and claimsregulatory matters 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, 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, 2022 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, 2022 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 thirdfirst quarter of 2023:2024: | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | 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 | | January 1 - January 31, 2024 | 174,913 | | | $ | 198.11 | | | 174,913 | | | $ | 178,790,810 | | | February 1 - February 29, 2024 | 116,108 | | | $ | 214.87 | | | 116,108 | | | $ | 553,842,773 | | | March 1 - March 31, 2024 | 62,086 | | | $ | 225.85 | | | 62,086 | | | $ | 539,820,517 | | | Total | 353,107 | | | $ | 208.50 | | | 353,107 | | | |
1 (1)UnderOn February 15, 2024, the Company's board of directors authorized an amended share buyback plan approved by our board of directors, announced on October 27, 2022, and extending through December 31, 2025, the Company is authorized to repurchase program under which up to $650.0an additional $400.0 million worth of WEX's common stock may be repurchased by the Company in the open market and through various other means.means pursuant to the share repurchase plan, through December 31, 2025, expanding the total authorization from $650.0 million to $1.05 billion.
2 (2)Includes commissions paid on stock repurchases.
3 (3)The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible one percent excise tax on the net value of certain stock repurchases made after December 31, 2022.repurchases. All dollar amounts presented exclude such excise taxes, as applicable.
Item 5. Other Information. During the three months ended September 30, 2023, no directorMarch 31, 2024, none of our directors or officerofficers (as defined in Rule 16a-1(f) under the Exchange Act) of the Company) adopted, modified or terminated any contract, instructiona “Rule 10b5-1 trading arrangement” or written plan for the purchase or sale of Company securities that was“non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,”, except as defineddisclosed in Item 408the table following: | | | | | | | | | | | | | | | | Name and Title | Date Adopted (“A”), Modified (“M”) or
Terminated (“T”) | Character of Trading
Arrangement | Maximum Aggregate
Number of Shares of
Common Stock to be
Purchased or Sold
Pursuant to the Trading
Arrangement | Duration of Trading
Arrangement | Melissa Smith Chair, Chief Executive Officer and President | (A) February 29, 2024 | Rule 10b5-1 trading arrangement | Up to 48,109 shares to be sold(1)
| June 3, 2024 - May 27, 2025 | Joel Dearborn Chief Strategy Officer | (A) February 29, 2024 | Rule 10b5-1 trading arrangement | Up to 16,844 shares to be sold(2)
| May 30, 2024 - February 20, 2025 | | | | | |
(1)This number includes 28,109 shares to be acquired upon the exercise of Regulation S-K.employee stock options. (2)This number includes 10,389 shares to be acquired upon the exercise of employee stock options.
Item 6. Exhibits. | | | | | | | | | | | | | Exhibit No. | | Description | | 3.1 | | | | 3.2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10.1 | | | | 10.2 | | | | 10.3 | | | †*† | 10.410.2 | | | | †* | 10.3 | | | | †* | 10.4 | | | | †* | 10.5 | | | | †* | 10.6 | | | | * | 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 27, 2023April 25, 2024 | By: | | /s/ Jagtar Narula | | | | Jagtar Narula | | | Chief Financial Officer | | | (principal financial officer) | | | | | | | | | | | | | | | | | | |
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