WEX Inc. Reports Fourth Quarter and Full Year 2022 Financial Results

The Company’s non-GAAP adjusted net income 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, similar 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, other costs, debt restructuring costs and impairment charges. Total segment adjusted operating income incorporates these same adjustments and further excludes unallocated corporate expenses.

Although adjusted net income, 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 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 basis that excludes the above items because:

• 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 quarters 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 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 quarters difficult to evaluate;
• The Company considers certain acquisition-related costs, including certain financing costs, investment banking fees, warranty and indemnity insurance, certain integration related expenses and amortization of acquired intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses on divestitures facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in our industry;
• Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time;
• Other costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. This also includes non-recurring professional service costs, costs related to certain identified initiatives, including restructuring and technology initiatives, to further streamline the business, improve the Company’s efficiency, create synergies and globalize the Company’s operations, all with an objective to improve scale and efficiency and increase profitability going forward. For the year ended December 31, 2021, other costs additionally include a penalty incurred on a vendor contract termination;
• Impairment charges represent non-cash asset write-offs, which do not reflect recurring costs that would be relevant to the Company’s continuing operations. The Company believes that excluding these nonrecurring expenses facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in its industry;
• Debt restructuring and debt issuance cost amortization 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 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, 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, 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, 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 generated from operations, less net purchases of current investment securities and capital expenditures plus the change in net deposits. 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 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; and (iii) 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 for the year ended December 31, 2022 and 2021.

Reconciliation of GAAP Operating Cash Flows to Adjusted Free Cash Flows
(in thousands)
(unaudited)
		Year ended December 31,
		2022				2021
Operating cash flow, as reported1		$	679,425			$	(42,579	)
Adjusted for certain investing and financing activities:
Increases in net deposits			801,592				1,620,284
Less: Purchases of current available-for-sale debt securities, net of sales and maturities			(585,754	)			(956,221	)
Less: Capital expenditures			(112,875	)			(86,041	)
Adjusted free cash flow		$	782,388			$	535,443

1 See Condensed Consolidated Statement of Cash Flows on page 6 of this release for further information regarding a reclassification affecting the prior year’s operating cash flow.

Exhibit 2 below shows the impact of certain macro factors on reported revenue and adjusted net income:

Exhibit 2
Segment Revenue Results
(in thousands)
(unaudited)
		Fleet Solutions							Travel and Corporate Solutions						Health and Employee Benefit Solutions						Total WEX Inc.
		Three months ended December 31,
		2022				2021			2022			2021			2022			2021			2022				2021
Reported revenue		$	367,208			$	306,829		$	110,672		$	81,512		$	140,730		$	109,197		$	618,610			$	497,538
FX impact (favorable) / unfavorable		$	4,589			$	—		$	4,087		$	—		$	—		$	—		$	8,676			$	—
PPG impact (favorable) / unfavorable		$	(34,163	)		$	—		$	—		$	—		$	—		$	—		$	(34,163	)		$	—
		Year ended December 31,
		2022				2021			2022			2021			2022			2021			2022				2021
Reported revenue		$	1,443,664			$	1,111,415		$	402,308		$	324,918		$	504,539		$	414,209		$	2,350,511			$	1,850,542
FX impact (favorable) / unfavorable		$	16,792			$	—		$	14,813		$	—		$	—		$	—		$	31,605			$	—
PPG impact (favorable) / unfavorable		$	(195,231	)		$	—		$	—		$	—		$	—		$	—		$	(195,231	)		$	—

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 2021 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 2021 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.

Segment Estimated Earnings Impact
(in thousands)
(unaudited)
		Fleet Solutions							Travel and Corporate Solutions						Health and Employee Benefit Solutions
		Three months ended December 31,
		2022				2021			2022			2021			2022			2021
FX impact (favorable) / unfavorable		$	2,132			$	—		$	1,106		$	—		$	48		$	—
PPG impact (favorable) / unfavorable		$	(22,418	)		$	—		$	—		$	—		$	—		$	—
		Year ended December 31,
		2022				2021			2022			2021			2022			2021
FX impact (favorable) / unfavorable		$	8,288			$	—		$	9,570		$	—		$	70		$	—
PPG impact (favorable) / unfavorable		$	(125,127	)		$	—		$	—		$	—		$	—		$	—

To determine the estimated earnings 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 2021 acquisitions for one year following the acquisition dates.

To determine the estimated earnings 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 2021 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 Non-Financial Metrics
		Q4 2022				Q3 2022				Q2 2022				Q1 2022				Q4 2021
Fleet Solutions:
Payment processing transactions (000s) (1)			139,156				145,257				143,163				132,663				132,894
Payment processing gallons of fuel (000s) (2)			3,610,168				3,729,664				3,690,875				3,549,865				3,569,979
Average US fuel price (US$ / gallon)		$	4.34			$	4.54			$	4.98			$	3.95			$	3.42
Payment processing $ of fuel (000s) (3)		$	15,936,630			$	17,205,436			$	18,639,733			$	14,390,257			$	12,600,745
Net payment processing rate (4)			1.11	%			1.10	%			1.09	%			1.06	%			1.16	%
Payment processing revenue (000s)		$	177,391			$	188,584			$	202,359			$	151,906			$	146,333
Net late fee rate (5)			0.56	%			0.48	%			0.38	%			0.44	%			0.48	%
Late fee revenue (000s) (6)		$	89,990			$	83,194			$	70,830			$	63,110			$	60,101
Travel and Corporate Solutions:
Purchase volume (000s) (7)		$	17,085,097			$	20,656,953			$	17,119,962			$	11,809,450			$	10,916,015
Net interchange rate (8)			0.58	%			0.49	%			0.52	%			0.55	%			0.63	%
Payment solutions processing revenue (000s)		$	98,532			$	101,533			$	88,608			$	65,075			$	68,747
Health and Employee Benefit Solutions:
Purchase volume (000s) (9)		$	1,374,373			$	1,350,466			$	1,514,004			$	1,630,218			$	1,146,436
Average number of SaaS accounts (000s) (10)			18,549				18,196				17,572				17,847				16,222

Definitions and explanations:

⁽¹⁾ Payment processing transactions represents the total number of purchases made by fleets that have a payment processing relationship with WEX.

⁽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 dollars 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 the dollar value of each payment processing 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 US dollar value of all transactions where interchange is earned by WEX.

⁽¹⁰⁾ Average number of Health and Employee Benefit Solutions accounts represents the number of active Consumer Directed Health, COBRA, and billing accounts on our SaaS platforms in the United States.

Exhibit 4
Segment Revenue Information
(in thousands)
(unaudited)
		Three months ended December 31,						Increase (decrease)							Year ended December 31,						Increase (decrease)
Fleet Solutions		2022			2021			Amount				Percent			2022			2021			Amount				Percent
Payment processing revenue		$	177,391		$	146,333		$	31,058			21	%		$	720,242		$	513,365		$	206,877			40	%
Account servicing revenue			41,224			42,395			(1,171	)		(3	)%			169,159			168,350			809			—	%
Finance fee revenue			99,705			75,679			24,026			32	%			359,672			254,306			105,366			41	%
Other revenue			48,888			42,422			6,466			15	%			194,591			175,394			19,197			11	%
Total revenues		$	367,208		$	306,829		$	60,379			20	%		$	1,443,664		$	1,111,415		$	332,249			30	%
		Three months ended December 31,						Increase (decrease)							Year ended December 31,						Increase (decrease)
Travel and Corporate Solutions		2022			2021			Amount				Percent			2022			2021			Amount				Percent
Payment processing revenue		$	98,532		$	68,747		$	29,785			43	%		$	353,748		$	274,092		$	79,656			29	%
Account servicing revenue			10,944			11,340			(396	)		(3	)%			42,850			44,157			(1,307	)		(3	)%
Finance fee revenue			128			180			(52	)		(29	)%			647			873			(226	)		(26	)%
Other revenue			1,068			1,245			(177	)		(14	)%			5,063			5,796			(733	)		(13	)%
Total revenues		$	110,672		$	81,512		$	29,160			36	%		$	402,308		$	324,918		$	77,390			24	%
		Three months ended December 31,						Increase (decrease)							Year ended December 31,						Increase (decrease)
Health and Employee Benefit Solutions		2022			2021			Amount				Percent			2022			2021			Amount				Percent
Payment processing revenue		$	19,169		$	15,969		$	3,200			20	%		$	81,917		$	71,533		$	10,384			15	%
Account servicing revenue			101,213			83,779			17,434			21	%			357,275			314,351			42,924			14	%
Finance fee revenue			45			43			2			5	%			149			144			5			3	%
Other revenue			20,303			9,406			10,897			116	%			65,198			28,181			37,017			131	%
Total revenues		$	140,730		$	109,197		$	31,533			29	%		$	504,539		$	414,209		$	90,330			22	%

Exhibit 5
Segment Adjusted Operating Income and Adjusted Operating Income Margin Information
(in thousands)
(unaudited)
		Segment Adjusted Operating Income						Segment Adjusted Operating Income Margin(1)
		Three Months Ended December 31,						Three Months Ended December 31,
		2022			2021			2022			2021
Fleet Solutions		$	165,848		$	156,107		45.2	%		50.9	%
Travel and Corporate Solutions		$	53,030		$	31,631		47.9	%		38.8	%
Health and Employee Benefit Solutions		$	39,614		$	20,921		28.1	%		19.2	%
Total segment adjusted operating income		$	258,492		$	208,659		41.8	%		41.9	%
		Segment Adjusted Operating Income						Segment Adjusted Operating Income Margin(1)
		Year Ended December 31,						Year Ended December 31,
		2022			2021			2022			2021
Fleet Solutions		$	693,439		$	557,083		48.0	%		50.1	%
Travel and Corporate Solutions		$	192,665		$	86,860		47.9	%		26.7	%
Health and Employee Benefit Solutions		$	133,682		$	104,408		26.5	%		25.2	%
Total segment adjusted operating income		$	1,019,786		$	748,351		43.4	%		40.4	%

(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 December 31,								Year Ended December 31,
		2022				2021				2022				2021
Adjusted operating income		$	237,923			$	184,801			$	935,302			$	670,133
Adjusted operating income margin (1)			38.5	%			37.1	%			39.8	%			36.2	%

(1) Adjusted operating income margin is derived by dividing adjusted operating income by total revenue. 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/20230209005047/en/

News media:

WEX

Rob Gould, 207-523-7429

[email protected]

or

Investors:

WEX

Steve Elder, 207-523-7769

[email protected]

KEYWORDS: United States North America Maine

INDUSTRY KEYWORDS: Software Technology Professional Services Human Resources

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