Q3 revenue increased 6% year-over-year to a
record $651 million, driven by 34% growth in the Benefits segment
and 19% in the Corporate Payments segment
Q3 GAAP net income was $0.42 per diluted share;
Q3 adjusted net income was $4.05 per diluted share
Q3 GAAP operating income margin of 26.8% and
adjusted operating income margin of 41.8%
Raises full-year 2023 financial guidance
WEX (NYSE: WEX), the global commerce platform that simplifies
the business of running a business, today reported financial
results for the three months ended September 30, 2023.
“The third quarter marked another strong period of financial
results for WEX along with meaningful progress against our
strategic initiatives. I'm delighted to share that we were able to
deliver record highs for quarterly revenue and adjusted net income
per diluted share, even with fuel price headwinds, reflecting our
strong momentum and resilient business model,” said Melissa Smith,
WEX’s Chair, Chief Executive Officer, and President.
“I am also excited to announce that we entered into a definitive
agreement to purchase Payzer, a leader in field service management
software that will extend our ability to serve our current Mobility
customer base. In addition, we continue to advance our EV strategy,
including the expansion of our DriverDash™ mobile app to include EV
functionality. Overall, our performance this quarter positions us
well to drive growth across the business heading into the end of
the year.”
Third Quarter 2023 Financial Results
Total revenue for the third quarter of 2023 increased 6% to
$651.4 million from $616.1 million for the third quarter of 2022.
The revenue increase in the quarter includes a $31.9 million
unfavorable impact from fuel prices and spreads and a $5.3 million
favorable impact from foreign exchange rates.
Net income attributable to shareholders on a GAAP basis
increased by $62.5 million to a net income of $18.4 million, or
$0.42 per diluted share, for the third quarter of 2023, compared
with net loss of $44.1 million, or $1.00 per diluted share, for the
third quarter of 2022. The Company's adjusted net income
attributable to shareholders, which is a non-GAAP measure, was
$176.8 million for the third quarter of 2023, or $4.05 per diluted
share, up 15% per diluted share from $157.8 million, or $3.51 per
diluted share, for the same period last year. GAAP operating income
margin for the third quarter of 2023 was 26.8% compared to 3.5% for
the prior year comparable period. Adjusted operating income margin
was 41.8% in the third quarter of 2023 compared to 39.1% for the
prior year comparable period. See Exhibit 1 for a full explanation
and reconciliation of adjusted net income attributable to
shareholders, adjusted net income attributable to shareholders per
diluted share, and adjusted operating income to the most directly
comparable GAAP financial measures. See Exhibit 5 for information
on the calculation of adjusted operating income margin.
Third Quarter 2023 Performance Metrics
- Total volume across all segments was $61.9 billion, an increase
of 7.6% from the third quarter of 2022.
- Mobility payment processing transactions decreased 0.5% from
the third quarter of 2022 to 144.6 million.
- Average number of vehicles serviced was approximately 19.1
million, an increase of 4% from the third quarter of 2022.
- Benefits’ average number of Software-as-a-Service (SaaS)
accounts grew 9% to 19.9 million from 18.2 million in the third
quarter of 2022.
- Average HSA custodial cash assets in the third quarter of 2023
were $3.9 billion, which is 23% higher than $3.2 billion a year
ago.
- Corporate Payments’ purchase volume grew 35% to $27.9 billion
from $20.7 billion in the third quarter of 2022.
- Cash flows from operating activities through the third quarter
of this year were $146.0 million. Adjusted free cash flow, which is
a non-GAAP measure, was $391.6 million for the same period. Please
see Exhibit 1 for a reconciliation of cash flows from operating
activities to this non-GAAP measure.
“We continued to execute against our strategic initiatives and
drive strong financial results in the third quarter, all while
remaining resilient in an uncertain macroeconomic environment,”
said Jagtar Narula, WEX’s Chief Financial Officer. “We are in the
enviable position of deploying capital across a number of fronts,
including strategic efforts to grow the business, opportunistically
returning capital to our shareholders through stock buybacks, and
funding acquisitions that expand our addressable market. Because of
the significant amount of cash we generate, we are able to do all
of this while maintaining a solid balance sheet with low leverage.
To that end, I'm excited to share that we are again raising our
full year guidance for both revenue and earnings.”
Financial Guidance and Assumptions
The Company provides revenue guidance on a GAAP basis and
earnings guidance on a non-GAAP basis, due to the uncertainty and
the indeterminate amount of certain elements that are included in
reported GAAP earnings.
- For the fourth quarter of 2023, the Company expects revenue in
the range of $650 million to $660 million and adjusted net income
attributable to shareholders in the range of $3.65 to $3.75 per
diluted share.
- For the full year 2023, the Company now expects revenue in the
range of $2.53 billion to $2.54 billion, up from the prior guidance
range of $2.50 billion to $2.52 billion. Adjusted net income
attributable to shareholders is now expected to be in the range of
$14.64 to $14.74 per diluted share, an increase from the prior
guidance range of $14.15 to $14.35 per diluted share.
Fourth quarter and full year 2023 guidance is based on assumed
average U.S. retail fuel prices of $3.80 and $3.83 per gallon,
respectively. The fuel prices referenced above are based on the
applicable NYMEX futures price from the week of October 16, 2023.
Our guidance assumes approximately 44.4 million fully diluted
shares outstanding for the full year.
The Company's adjusted net income attributable to shareholders
guidance, which is a non-GAAP measure, excludes unrealized gains
and losses on financial instruments, net foreign currency gains and
losses, changes 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, and certain
tax related items. We are unable to reconcile our adjusted net
income attributable to shareholders guidance to the comparable GAAP
measure without unreasonable effort because of the difficulty in
predicting the amounts to be adjusted, including, but not limited
to, foreign currency exchange rates, unrealized gains and losses on
financial instruments, and acquisition and divestiture related
items, which may have a significant impact on our financial
results.
Payzer Acquisition
In a separate press release issued today, WEX announced the
signing of an agreement to acquire Payzer, a high growth,
cloud-based, field service management software provider. The
acquisition will 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 approximately
150,000 small business customers who operate field service
companies.
Additional Information
Management uses the non-GAAP measures presented within this
earnings release to evaluate the Company’s performance on a
comparable basis. Management believes that investors may find these
measures useful for the same purposes, but cautions that they
should not be considered a substitute for, or superior to,
disclosure in accordance with GAAP.
To provide investors with additional insight into its
operational performance, WEX has included in this earnings release:
in Exhibit 1, reconciliations of non-GAAP measures referenced in
this earnings release; in Exhibit 2, tables illustrating the impact
of foreign currency rates and fuel prices for each of our
reportable segments for the three and nine months ended September
30, 2023; and in Exhibit 3, a table of selected other metrics for
the quarter ended September 30, 2023 and the four preceding
quarters. See segment revenue for the three and nine months ended
September 30, 2023 and 2022 in Exhibit 4 and information regarding
segment adjusted operating income margin and adjusted operating
income margin in Exhibit 5.
Conference Call Details
In conjunction with this announcement, WEX will host a
conference call today, October 26, 2023, at 10:00 a.m. (ET). As
previously announced, the conference call will be webcast live on
the Internet, and can be accessed along with the accompanying
slides at the Investor Relations section of the WEX website,
www.wexinc.com. The live conference call also can be accessed by
dialing (888) 510-2008 or (646) 960-0306. The Conference ID number
is 2237921. A replay of the webcast and the accompanying slides
will be available on the Company's website.
About WEX
WEX (NYSE: WEX) is the global commerce platform that simplifies
the business of running a business. WEX has created a powerful
ecosystem that offers seamlessly embedded, personalized solutions
for its customers around the world. Through its rich data and
specialized expertise in simplifying benefits, reimagining
mobility, and paying and getting paid, WEX aims to make it easy for
companies to overcome complexity and reach their full potential.
For more information, please visit www.wexinc.com.
Forward-Looking Statements
This earnings release includes forward-looking statements
including, but not limited to, statements about management’s plans,
goals, and guidance and assumptions with respect to future
financial performance of the Company. Any statements in this
earnings release that are not statements of historical facts are
forward-looking statements. When used in this earnings release, the
words “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “plan,” “project”, “will” and similar
expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such words.
Forward-looking statements relate to our future plans, objectives,
expectations and intentions and are not historical facts and
accordingly involve known and unknown risks and uncertainties and
other factors that may cause the actual results or performance to
be materially different from future results or performance
expressed or implied by these forward-looking statements. The
following factors, among others, could cause actual results to
differ materially from those contained in forward-looking
statements made in this earnings release 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 maintain or renew key customer and partner agreements
and relationships, or to maintain volumes under such agreements;
the impact and size of credit losses, including fraud losses, and
other adverse effects if the Company fails to adequately assess and
monitor credit risk or fraudulent use of our payment cards or
systems; changes in interest rates, including those which we must
pay for our deposits, and the rate of inflation; the effect of
adverse financial conditions affecting the banking system; the
failure to adequately safeguard custodial HSA assets; the failure
of corporate investments to result in any anticipated economic or
strategic value; the extent to which unpredictable events in the
locations in which the Company or the Company’s customers operate
or elsewhere may adversely affect the Company’s employees, ability
to conduct business, results of operations and financial condition;
the failure to comply with the applicable requirements of
Mastercard or Visa contracts and rules; the failure to comply with
the Treasury Regulations applicable to non-bank custodians; 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 of
the Company’s business expansion and acquisition efforts; 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 operations outside the United States;
the impact of the Company’s debt instruments on the Company’s
operations; the impact of leverage on the Company’s operations,
results or borrowing capacity generally, and as a result of
acquisitions specifically; the impact of sales or dispositions of
significant amounts of the Company’s outstanding common stock into
the public market, or the perception that such sales or
dispositions could occur; the impact of regulatory capital
requirements and other regulatory requirements on the operations of
WEX Bank or its ability to make payments to WEX Inc.; the possible
dilution to the Company’s stockholders caused by the issuance of
additional shares of common stock or equity-linked securities; the
incurrence of impairment charges if the Company’s assessment of the
fair value of certain of its reporting units changes; the
uncertainties of litigation; as well as other risks and
uncertainties identified in Item 1A of the Company’s Annual Report
on Form 10-K for the year ended December 31, 2022, filed with the
Securities and Exchange Commission 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 Securities and Exchange
Commission on April 27, 2023 and July 27, 2023, respectively, 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 earnings release and undue reliance should not be
placed on these statements. The Company disclaims any obligation to
update any forward-looking statements as a result of new
information, future events or otherwise.
WEX INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in millions, except per share
data)
(unaudited)
Three months ended September
30,
Nine months ended September
30,
2023
2022
2023
2022
Revenues
Payment processing revenue
$
313.3
$
309.0
$
901.9
$
860.8
Account servicing revenue
161.5
138.3
475.1
415.9
Finance fee revenue
77.1
96.7
234.2
260.6
Other revenue
99.5
72.1
273.5
194.6
Total revenues
651.4
616.1
1,884.7
1,731.9
Cost of services
Processing costs
156.4
146.3
451.7
416.3
Service fees
18.5
16.6
54.7
47.2
Provision for credit losses
9.4
54.0
77.5
121.9
Operating interest
25.3
7.9
57.6
13.4
Depreciation and amortization
25.5
27.3
75.9
79.9
Total cost of services
235.1
252.1
717.4
678.6
General and administrative
116.6
86.5
311.7
248.7
Sales and marketing
82.8
80.9
241.6
235.3
Depreciation and amortization
42.0
38.9
125.4
118.2
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
)
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
(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
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
Net income (loss) attributable to
shareholders per share:
Basic
$
0.43
$
(1.00
)
$
4.23
$
2.53
Diluted
$
0.42
$
(1.00
)
$
4.18
$
2.51
Weighted average common shares
outstanding:
Basic
42.9
44.2
43.0
44.6
Diluted
43.4
44.2
43.5
45.0
WEX INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in millions)
(unaudited)
September 30,
2023
December 31, 2022
Assets
Cash and cash equivalents
$
957.8
$
922.0
Restricted cash
1,159.1
937.8
Accounts receivable, net
4,053.5
3,275.7
Investment securities
2,625.2
1,395.3
Securitized accounts receivable,
restricted
147.2
143.2
Prepaid expenses and other current
assets
189.0
143.3
Total current assets
9,131.8
6,817.1
Property, equipment and capitalized
software
228.9
202.2
Goodwill and other intangible assets
4,240.3
4,202.5
Investment securities
46.8
48.0
Deferred income taxes, net
11.6
13.4
Other assets
241.0
246.0
Total assets
$
13,900.4
$
11,529.2
Liabilities and Stockholders’
Equity
Accounts payable
$
1,742.7
$
1,365.8
Accrued expenses and other current
liabilities
745.1
643.9
Restricted cash payable
1,158.4
937.1
Short-term deposits
4,252.8
3,144.6
Short-term debt, net
957.3
202.6
Total current liabilities
8,856.3
6,294.1
Long-term debt, net
2,650.1
2,522.2
Long-term deposits
115.5
334.2
Deferred income taxes, net
140.5
142.2
Other liabilities
441.7
587.1
Total liabilities
12,204.1
9,879.7
Total stockholders’ equity
1,696.3
1,649.5
Total liabilities and stockholders’
equity
$
13,900.4
$
11,529.2
WEX INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Nine Months Ended September
30,
2023
2022
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 securities
(1,448.6)
(633.0)
Sales and maturities of 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
Other financing activities
(3.4)
(13.3)
Purchase of treasury shares
(152.6)
(149.6)
Net change in deposits
889.9
960.6
Net change in restricted cash payable
1
213.1
350.1
Payments of deferred and contingent
consideration
(52.2)
—
Repurchase of Convertible Notes
(368.9)
—
Net debt activity 2
1,179.4
(44.2)
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
1,859.8
1,256.8
Cash, cash equivalents and restricted
cash, end of period
$ 2,116.9
$ 1,701.5
1 The change in restricted cash payable for the nine months
ended September 30, 2022 has been reclassified from net cash
provided by operating activities to net cash provided by financing
activities to conform to the current period presentation.
2 Net activity on debt includes: borrowings on revolving credit
facility; repayments on revolving credit facility; repayments on
term loans; borrowings on BTFP; repayments on BTFP; net change in
borrowed federal funds; and net borrowings on other debt.
Exhibit 1
Reconciliation of Non-GAAP Measures (in millions, except per
share data)
(unaudited)
Reconciliation of GAAP Net Income
(Loss) Attributable to Shareholders to Adjusted Net Income
Attributable to Shareholders
Three Months Ended September
30,
2023
2022
per diluted share
per diluted share
Net income (loss) attributable to
shareholders
$
18.4
$
0.42
$
(44.1
)
$
(1.00
)
Unrealized loss (gain) on financial
instruments
7.8
0.18
(23.5
)
(0.53
)
Net foreign currency loss
7.8
0.18
23.4
0.53
Change in fair value of contingent
consideration
3.2
0.07
30.3
0.69
Acquisition-related intangible
amortization
45.2
1.04
42.5
0.96
Other acquisition and divestiture related
items
5.1
0.12
4.1
0.09
Stock-based compensation
31.9
0.74
27.9
0.63
Other costs
15.1
0.35
8.8
0.20
Impairment charges
—
—
136.5
3.09
Debt restructuring and debt issuance cost
amortization
74.4
1.71
4.7
0.11
Tax related items
(32.1
)
(0.74
)
(52.8
)
(1.19
)
Dilutive impact of stock awards1
—
—
—
(0.02
)
Dilutive impact of convertible debt2
—
(0.02
)
—
(0.05
)
Adjusted net income attributable to
shareholders
$
176.8
$
4.05
$
157.8
$
3.51
Nine Months Ended September
30,
2023
2022
per diluted share
per diluted share
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 U.S. Generally Accepted Accounting
Principles (“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 The dilutive impact of the Convertible Notes has been
calculated under the ‘if-converted’ method for the periods through
which they were outstanding. Under the ‘if-converted’ method,
interest expense, net of tax, associated with our Convertible Notes
of $1.8 million and $9.5 million and $3.8 million and $11.3 million
was added back to adjusted net income for the three and nine months
ended September 30, 2023 and 2022, respectively. For the reported
quarter-to-date and year-to-date periods of 2022 presented,
approximately 1.6 million shares of the Company’s common stock
associated with the assumed conversion of the Convertible Notes as
of the beginning of the period was included in the calculations of
adjusted net income per diluted share, as the effect of including
such adjustments was dilutive. For the three and nine months ended
September 30, 2023, approximately 0.7 million and 1.3 million
shares of the Company’s common stock associated with the assumed
conversion of the Convertible Notes (prior to repurchase and
cancellation) was included in the calculation of adjusted net
income per dilutive share, respectively, as the effect of including
such adjustments was dilutive. The total number of shares used in
calculating adjusted net income attributable to shareholders per
diluted share for the three and nine months ended September 30,
2023 was 44.1 million and 44.7 million, respectively. The total
number of shares used in calculating adjusted net income
attributable to shareholders per diluted share for the three and
nine months ended September 30, 2022 is 46.0 million and 46.5
million, respectively.
Reconciliation of GAAP Operating Income
to Total Segment Adjusted Operating Income and Adjusted Operating
Income
Three Months Ended September
30,
Nine Months Ended September
30,
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
The Company's non-GAAP adjusted net income attributable to
shareholders excludes unrealized gains and losses on financial
instruments, net foreign currency gains and losses, change in fair
value of contingent consideration, acquisition-related intangible
amortization, other acquisition and divestiture related items,
stock-based compensation, other costs, impairment charges, debt
restructuring and debt issuance cost amortization, adjustments
attributable to our non-controlling interests, and certain tax
related items.
The Company's non-GAAP adjusted operating income excludes
acquisition-related intangible amortization, other acquisition and
divestiture related items, stock-based compensation, impairment
charges and other costs. Total segment adjusted operating income
incorporates these same adjustments and further excludes
unallocated corporate expenses.
Although adjusted net income attributable to shareholders,
adjusted operating income, and total segment adjusted operating
income are not calculated in accordance with GAAP, these non-GAAP
measures are integral to the Company's reporting and planning
processes and the chief operating decision maker of the Company
uses total segment adjusted operating income to allocate resources
among our operating segments. The Company considers these measures
integral because they exclude the above specified items that the
Company's management excludes in evaluating the Company's
performance. 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:
- 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 pro forma tax provision based upon the
Company’s adjusted net income before taxes as well as the impact
from certain discrete tax items. The methodology utilized for
calculating the Company’s adjusted net income attributable to
shareholders tax provision is the same methodology utilized in
calculating the Company’s GAAP tax provision; and
- The Company does not allocate certain corporate expenses to our
operating segments, as these items are centrally controlled and are
not directly attributable to any reportable segment.
For the same reasons, WEX believes that adjusted net income
attributable to shareholders, adjusted operating income and total
segment adjusted operating income may also be useful to investors
when evaluating the Company’s performance. However, because
adjusted net income attributable to shareholders, adjusted
operating income, and total segment adjusted operating income are
non-GAAP measures, they should not be considered as a substitute
for, or superior to, net income, operating income or cash flows
from operating activities as determined in accordance with GAAP. In
addition, adjusted net income attributable to shareholders,
adjusted operating income and total segment adjusted operating
income as used by WEX may not be comparable to similarly titled
measures employed by other companies.
Reconciliation of GAAP Operating Cash Flow to Adjusted Free
Cash Flow
The Company’s non-GAAP adjusted free cash flow is calculated as
cash flows from operating activities, adjusted for net purchases of
current investment securities, capital expenditures, the change in
net deposits, changes in borrowings under the BTFP and borrowed
federal funds and certain other adjustments which, for the nine
months ended September 30, 2023, reflects an adjustment for
contingent consideration paid to sellers in excess of
acquisition-date fair value. Although non-GAAP adjusted free cash
flow is not calculated in accordance with GAAP, WEX believes that
adjusted free cash flow is a useful measure for investors to
further evaluate our results of operations because (i) adjusted
free cash flow indicates the level of cash generated by the
operations of the business, which excludes consideration paid on
acquisitions, after appropriate reinvestment for recurring
investments in property, equipment and capitalized software that
are required to operate the business; (ii) changes in net deposits
occur on a daily basis as a regular part of operations; (iii)
borrowings under the BTFP and borrowed federal funds are primarily
used as a replacement for brokered deposits as part of our accounts
receivable funding strategy; and (iv) purchases of current
investment securities are made as a result of deposits gathered
operationally. However, because adjusted free cash flow is a
non-GAAP measure, it should not be considered as a substitute for,
or superior to, operating cash flow as determined in accordance
with GAAP. In addition, adjusted free cash flow as used by WEX may
not be comparable to similarly titled measures employed by other
companies.
The following table reconciles GAAP cash flows from operating
activities to adjusted free cash flow:
Nine Months Ended September
30,
2023
2022
Cash flows from operating activities,
as reported
$
146.0
$
106.6
Adjustments to cash flows from operating
activities:
Other
1.5
—
Adjusted for certain investing and
financing activities:
Increases in net deposits
889.9
960.6
Increases in borrowings under the BTFP
500.0
—
Increases in borrowed federal funds
260.1
—
Less: Purchases of current investment
securities, net of sales and maturities
(1,304.2
)
(584.8
)
Less: Capital expenditures
(101.7
)
(75.5
)
Adjusted free cash flow
$
391.6
$
406.8
Exhibit 2 Impact of
Certain Macro Factors on Reported Revenue and Adjusted Net Income
Attributable to Shareholders (in millions, except per share
data) (unaudited)
The tables below show the impact of
certain macro factors on reported revenue:
Segment Revenue
Results
Mobility
Corporate Payments
Benefits
Total WEX Inc.
Three months ended September
30,
2023
2022
2023
2022
2023
2022
2023
2022
Reported revenue
$
350.1
$
378.1
$
135.2
$
114.0
$
166.1
$
124.1
$
651.4
$
616.1
FX impact (favorable) / unfavorable
$
(0.6
)
$
(4.7
)
$
—
$
(5.3
)
PPG impact (favorable) / unfavorable
$
31.9
$
—
$
—
$
31.9
Nine months ended September
30,
2023
2022
2023
2022
2023
2022
2023
2022
Reported revenue
$
1,032.6
$
1,076.5
$
361.9
$
291.6
$
490.2
$
363.8
$
1,884.7
$
1,731.9
FX impact (favorable) / unfavorable
$
2.7
$
(3.9
)
$
—
$
(1.3
)
PPG impact (favorable) / unfavorable
$
83.5
$
—
$
—
$
83.5
To determine the impact of foreign exchange translation (“FX”)
on revenue, revenue from entities whose functional currency is not
denominated in U.S. dollars, as well as revenue from purchase
volume transacted in non-U.S. denominated currencies, were
translated using the weighted average exchange rates for the same
period in the prior year, exclusive of revenue derived from
acquisitions for one year following the acquisition dates.
To determine the impact of price per gallon of fuel (“PPG”) on
revenue, revenue subject to changes in fuel prices was calculated
based on the average retail price of fuel for the same period in
the prior year for the portion of our business that earns revenue
based on a percentage of fuel spend, exclusive of revenue derived
from acquisitions for one year following the acquisition dates. For
the portions of our business that earn revenue based on margin
spreads, revenue was calculated utilizing the comparable margin
from the prior year.
The table below shows the impact of certain macro factors on
adjusted net income attributable to shareholders:
Segment Estimated Adjusted Net
Income Attributable to Shareholders Impact
Mobility
Corporate Payments
Benefits
Three months ended September
30,
2023
2022
2023
2022
2023
2022
FX impact (favorable) / unfavorable
$
0.8
$
(3.5
)
$
—
PPG impact (favorable) / unfavorable
$
21.5
$
—
$
—
Nine months ended September
30,
2023
2022
2023
2022
2023
2022
FX impact (favorable) / unfavorable
$
2.1
$
(3.8
)
$
0.1
PPG impact (favorable) / unfavorable
$
54.0
$
—
$
—
To determine the estimated adjusted net income attributable to
shareholders impact of FX on revenue and expenses from entities
whose functional currency is not denominated in U.S. dollars, as
well as revenue and variable expenses from purchase volume
transacted in non-U.S. denominated currencies, amounts were
translated using the weighted average exchange rates for the same
period in the prior year, net of tax, exclusive of revenue and
expenses derived from acquisitions for one year following the
acquisition dates.
To determine the estimated adjusted net income attributable to
shareholders impact of PPG, revenue and certain variable expenses
impacted by changes in fuel prices were adjusted based on the
average retail price of fuel for the same period in the prior year
for the portion of our business that earns revenue based on a
percentage of fuel spend, net of applicable taxes, exclusive of
revenue and expenses derived from acquisitions for one year
following the acquisition dates. For the portions of our business
that earn revenue based on margin spreads, revenue was adjusted to
the comparable margin from the prior year, net of non-controlling
interests and applicable taxes.
Exhibit 3 Selected
Other Metrics (in millions, except rate statistics)
(unaudited)
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
Mobility:
Payment processing transactions (1)
144.6
142.4
137.5
139.2
145.3
Payment processing gallons of fuel (2)
3,687.2
3,664.5
3,577.0
3,610.2
3,729.7
Average US fuel price (US$ / gallon)
$
3.97
$
3.68
$
3.86
$
4.34
$
4.54
Payment processing $ of fuel (3)
$
14,945.1
$
13,779.8
$
14,144.4
$
15,936.6
$
17,205.4
Net payment processing rate (4)
1.18
%
1.25
%
1.21
%
1.11
%
1.10
%
Payment processing revenue
$
176.9
$
172.1
$
171.5
$
177.4
$
188.6
Net late fee rate (5)
0.44
%
0.48
%
0.50
%
0.56
%
0.48
%
Late fee revenue (6)
$
66.4
$
66.3
$
70.2
$
90.0
$
83.2
Corporate Payments:
Purchase volume (7)
$
27,860.1
$
22,901.3
$
18,634.7
$
17,085.1
$
20,657.0
Net interchange rate (8)
0.42
%
0.46
%
0.48
%
0.58
%
0.49
%
Payment solutions processing revenue
$
115.7
$
104.8
$
90.1
$
98.5
$
101.5
Benefits:
Purchase volume (9)
$
1,501.3
$
1,715.9
$
1,928.5
$
1,374.4
$
1,350.5
Average number of SaaS accounts (10)
19.9
19.5
20.3
18.5
18.2
Definitions and explanations:
(1) Payment processing transactions represents the total number
of purchases made by fleets that have a payment processing
relationship with WEX where the Company maintains the receivable
for the total purchase.
(2) Payment processing gallons of fuel represents the total
number of gallons of fuel purchased by fleets that have a payment
processing relationship with WEX.
(3) Payment processing $ of fuel represents the total dollar
value of the fuel purchased by fleets that have a payment
processing relationship with WEX.
(4) Net payment processing rate represents the percentage of
each payment processing dollar of fuel transaction that WEX records
as revenue from merchants, less certain discounts given to
customers and network fees.
(5) Net late fee rate represents late fee revenue as a
percentage of fuel purchased by fleets that have a payment
processing relationship with WEX.
(6) Late fee revenue represents fees charged for payments not
made within the terms of the customer agreement based upon the
outstanding customer receivable balance.
(7) Purchase volume represents the total dollar value of all
WEX-issued transactions that use WEX corporate card products and
virtual card products.
(8) 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.
(9) Purchase volume represents the total dollar value of all
transactions where interchange is earned by WEX.
(10) Average number of SaaS accounts represents the number of
active consumer-directed health, COBRA, and billing accounts on our
SaaS platforms.
Exhibit 4 Segment Revenue
Information (in millions) (unaudited)
Three months ended September
30,
Increase (decrease)
Nine months ended September
30,
Increase (decrease)
Mobility
2023
2022
Amount
Percent
2023
2022
Amount
Percent
Revenues
Payment processing revenue
$
176.9
$
188.6
$
(11.7
)
(6
)%
$
520.6
$
542.9
$
(22.3
)
(4
)%
Account servicing revenue
$
42.5
41.6
0.9
2
%
123.6
127.9
(4.3
)
(3
)%
Finance fee revenue
$
76.8
96.5
(19.7
)
(20
)%
233.5
260.0
(26.5
)
(10
)%
Other revenue
$
53.9
51.4
2.5
5
%
154.9
145.7
9.2
6
%
Total revenues
$
350.1
$
378.1
$
(28.0
)
(7
)%
$
1,032.6
$
1,076.5
$
(43.9
)
(4
)%
Three months ended September
30,
Increase (decrease)
Nine months ended September
30,
Increase (decrease)
Corporate Payments
2023
2022
Amount
Percent
2023
2022
Amount
Percent
Revenues
Payment processing revenue
$
115.8
$
101.5
$
14.3
14
%
$
310.6
$
255.2
$
55.4
22
%
Account servicing revenue
10.5
10.7
(0.2
)
(2
)%
31.7
31.9
(0.2
)
(1
)%
Finance fee revenue
0.2
0.2
—
NM
0.5
0.5
—
NM
Other revenue
8.7
1.5
7.2
468
%
19.1
4.0
15.1
378
%
Total revenues
$
135.2
$
114.0
$
21.2
19
%
$
361.9
$
291.6
$
70.3
24
%
Three months ended September
30,
Increase (decrease)
Nine months ended September
30,
Increase (decrease)
Benefits
2023
2022
Amount
Percent
2023
2022
Amount
Percent
Revenues
Payment processing revenue
$
20.6
$
18.9
$
1.7
9
%
$
70.7
$
62.7
$
8.0
13
%
Account servicing revenue
108.5
85.9
22.6
26
%
319.8
256.1
63.7
25
%
Finance fee revenue
0.1
—
0.1
NM
0.2
0.1
0.1
92
%
Other revenue
36.9
19.2
17.7
93
%
99.5
44.9
54.6
122
%
Total revenues
$
166.1
$
124.1
$
42.0
34
%
$
490.2
$
363.8
$
126.4
35
%
NM = not meaningful
Exhibit 5 Segment Adjusted
Operating Income and Adjusted Operating Income Margin Information
(in millions) (unaudited)
Segment Adjusted Operating
Income
Segment Adjusted Operating
Income Margin(1)
Three Months Ended September
30,
Three Months Ended September
30,
2023
2022
2023
2022
Mobility
$
159.6
$
174.5
45.6
%
46.2
%
Corporate Payments
82.9
60.3
61.3
%
52.9
%
Benefits
58.8
30.3
35.4
%
24.4
%
Total segment adjusted operating
income
$
301.3
$
265.1
46.3
%
43.0
%
Segment Adjusted Operating
Income
Segment Adjusted Operating
Income Margin(1)
Nine Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Mobility
$
448.7
$
527.6
43.5
%
49.0
%
Corporate Payments
198.4
139.6
54.8
%
47.9
%
Benefits
182.6
94.1
37.3
%
25.9
%
Total segment adjusted operating
income
$
829.7
$
761.3
44.0
%
44.0
%
(1) Segment adjusted operating income margin is derived by
dividing segment adjusted operating income by the revenue of the
corresponding segment (or the entire Company in the case of total
segment adjusted operating income). See Exhibit 1 for a
reconciliation of GAAP operating income to total segment adjusted
operating income.
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Adjusted operating income
$
272.2
$
241.2
$
752.9
$
697.4
Adjusted operating income margin (1)
41.8
%
39.1
%
39.9
%
40.3
%
(1) Adjusted operating income margin is derived by dividing
adjusted operating income by total revenues of the entire Company
as shown on the Condensed Consolidated Statement of Operations. See
Exhibit 1 for a reconciliation of GAAP operating income to adjusted
operating income.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231026012296/en/
News media: WEX Julie Lydon, 415-816-9397
Julie.Lydon@wexinc.com
or
Investors: WEX Steve Elder, 207-523-7769
Steve.Elder@wexinc.com
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