WEX Inc. Reports Third Quarter 2022 Financial Results

3Q revenue increased 28% year-over-year to a record $616 million

3Q GAAP net loss was $1.00 per diluted share; 3Q adjusted net income increased 43% year-over-year to $3.51 per diluted share

3Q GAAP operating income margin of 3.5% and adjusted operating income margin of 39.1%

Total volume increased 41% year-over-year to $57.5 billion

Raises full-year 2022 financial guidance

PORTLAND, Maine, October 27, 2022--(BUSINESS WIRE)--WEX (NYSE: WEX), the global commerce platform that simplifies the business of running a business, today reported financial results for the three and nine months ended September 30, 2022.

"I am pleased to report that WEX had record third quarter revenue that exceeded our expectations. We continue to leverage our powerful growth engine to win new customers, expand on relationships with existing customers, and diversify our offerings with compelling new solutions that extend our addressable market," said Melissa Smith, WEX’s Chair and Chief Executive Officer.

Ms. Smith added, "As we move forward our ability to generate strong cash flows combined with the flexibility and diversity of our business model, gives us confidence in our capacity to invest in the business and return capital to shareholders."

Third Quarter 2022 Financial Results

Total revenue for the third quarter of 2022 increased 28% to $616.1 million from $482.8 million for the third quarter of 2021. The revenue increase in the quarter includes a $55.7 million favorable impact from fuel prices and spreads and an $11.7 million negative impact from foreign exchange rates.

Net income attributable to shareholders on a GAAP basis decreased by $92.5 million to a net loss of $44.1 million, or $1.00 per diluted share for the third quarter of 2022, compared with net income of $48.3 million, or $1.07 per diluted share, for the third quarter of 2021. The Company's adjusted net income attributable to shareholders, which is a non-GAAP measure, was $157.8 million for the third quarter of 2022, or $3.51 per diluted share, up 43% per diluted share from $111.1 million or $2.45 per diluted share for the same period last year. GAAP operating income margin for the third quarter of 2022 was 3.5% compared to 20.9% for the prior year comparable period. Adjusted operating income margin was 39.1% in the third quarter of 2022 compared to 37.0% for the prior year comparable period. See Exhibit 5 for information on the calculation of adjusted operating income margin. 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.

Third Quarter 2022 Performance Metrics

• Total volume across the Company totaled $57.5 billion, an increase of 41% from the third quarter of 2021.

• Fleet Solutions segment payment processing transactions increased 8% from the third quarter of 2021 to 145.3 million.

• Average number of vehicles serviced was approximately 18.3 million, an increase of 13% from the third quarter of 2021.

• Health and Employee Benefit Solutions’ average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 8% to 18.2 million from 16.9 million in the third quarter of 2021.

• Travel and Corporate Solutions’ segment purchase volume grew 61% to $20.7 billion from $12.8 billion in the third quarter of 2021.

• During the third quarter of 2022 the Company repurchased 434,582 shares of its stock for a total cost of approximately $69 million.

• Cash flow provided by operating activities through the third quarter of this year is $456.6 million. Adjusted free cash flow, which is a non-GAAP measure, is $406.8 million for the same period of time. Please see reconciliation of this non-GAAP measure to operating cash flow in exhibit 1.

"We delivered excellent third quarter results, achieving strong top-line growth while continuing to make good progress on our strategic objectives," said Jagtar Narula, WEX’s Chief Financial Officer. "As a result, I’m pleased to share that we are again raising our full year guidance."

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 2022, the Company expects revenue in the range of $570 million to $580 million and adjusted net income in the range of $3.15 to $3.25 per diluted share.

• For the full year 2022, the Company now expects revenue in the range of $2.302 billion to $2.312 billion, up from the prior guidance range of $2.250 billion to $2.280 billion. Adjusted net income is now expected to be in the range of $13.24 to $13.34 per diluted share, an increase from the prior guidance range of $13.05 to $13.30 per diluted share.

Fourth quarter and full year 2022 guidance is based on assumed average U.S. retail fuel prices of $4.00 and $4.38 per gallon, respectively. The fuel prices referenced above are based on the applicable NYMEX futures price from the week of October 17, 2022. Our guidance assumes approximately 46.3 million fully diluted shares outstanding for the full year.

The Company's adjusted net income 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, impairment charges, debt restructuring and debt issuance cost amortization, adjustments attributable to our non-controlling interests and certain tax related items. We are unable to reconcile our adjusted net income 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.

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, 2022; and in Exhibit 3, a table of selected non-financial metrics for the quarter ended September 30, 2022 and the four preceding quarters. The Company is also providing segment revenue for the three and nine months ended September 30, 2022 and 2021 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 27, 2022, 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 include forward-looking statements including, but not limited to, statements about management’s plan and goals. 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 effects of general economic conditions, including a decline in demand for fuel, travel related services, or healthcare related services, and payment and transaction processing activity; the impact of the level of, and fluctuations in, fuel prices and fuel spreads, including the resulting impact on the Company’s revenues and net income; the impact and size of credit losses, including losses attributable to fraud; breaches of, or other issues with, the Company’s technology systems or those of its third-party service providers and any resulting negative impact on its reputation, liabilities or relationships with customers or merchants; the actions of regulatory bodies, including banking and securities regulators, and the Company’s and its industrial bank’s responses thereto, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates; failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors; the failure to maintain or renew key customer and partner agreements and relationships, or to maintain volumes under such agreements; the failure to comply with the applicable requirements of MasterCard or Visa contracts and rules; changes in interest rates and the rate of inflation; the failure to comply with the Treasury Regulations applicable to non-bank custodians; the extent to which the COVID-19 pandemic, including emergence of new variants, and measures taken in response thereto impact the Company’s employees, business, results of operations and financial condition in excess of current expectations, particularly with respect to demand for worldwide travel; the ability to attract and retain employees; limitations on or compression of interchange fees; the effects of the Company’s business expansion and acquisition efforts; the failure of corporate investments to result in anticipated strategic value; potential adverse changes to business or employee relationships, including those resulting from the completion of an acquisition; uncertainty of the expected financial performance of the combined operations following completion of an acquisition; the failure to realize anticipated synergies and cost savings from the Company’s acquisitions; 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; 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 possible dilution to the Company’s stockholders caused by the issuance of additional shares of common stock or equity-linked securities, whether as result of the Company’s convertible notes or otherwise; the impact of the transition from LIBOR as a global benchmark to a replacement rate; the incurrence of impairment charges if the Company’s assessment of the fair value of certain of its reporting units changes; the uncertainties of litigation; as well as other risks and uncertainties identified in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 1, 2022. The Company's forward-looking statements do not reflect the potential future impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date of the initial filing of this 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 thousands, except per share data)
(unaudited)
	Three months ended September 30,								Nine months ended September 30,
	2022				2021				2022				2021
Revenues
Payment processing revenue	$	309,032			$	226,126			$	860,815			$	627,941
Account servicing revenue		138,324				137,724				415,903				389,344
Finance fee revenue		96,698				67,769				260,590				179,421
Other revenue		72,075				51,145				194,593				156,298
Total revenues		616,129				482,764				1,731,901				1,353,004
Cost of services
Processing costs		146,316				121,207				416,258				347,177
Service fees		16,614				14,246				47,220				39,151
Provision for credit losses		54,030				14,127				121,856				32,148
Operating interest		7,887				2,124				13,384				7,019
Depreciation and amortization		27,265				28,226				79,900				83,871
Total cost of services		252,112				179,930				678,618				509,366
General and administrative		86,506				79,486				248,651				245,460
Sales and marketing		80,882				82,225				235,267				246,177
Depreciation and amortization		38,855				40,301				118,186				118,360
Impairment charges		136,486				—				136,486				—
Operating income		21,288				100,822				314,693				233,641
Financing interest expense		(34,419	)			(32,493	)			(95,928	)			(98,250	)
Change in fair value of contingent consideration		(30,300	)			2,800				(135,100	)			(44,900	)
Other income		—				3,617				—				3,617
Net foreign currency loss		(23,445	)			(9,962	)			(37,847	)			(11,375	)
Net unrealized gain on financial instruments		23,540				6,424				90,261				19,470
(Loss) income before income taxes		(43,336	)			71,208				136,079				102,203
Income tax expense		809				19,340				57,309				16,924
Net (loss) income		(44,145	)			51,868				78,770				85,279
Less: Net income from non-controlling interests		—				134				268				1,099
Net (loss) income attributable to WEX Inc.	$	(44,145	)		$	51,734			$	78,502			$	84,180
Change in value of redeemable non-controlling interest		—				(3,416	)			34,245				(72,283	)
Net (loss) income attributable to shareholders	$	(44,145	)		$	48,318			$	112,747			$	11,897
Net (loss) income attributable to shareholders per share:
Basic	$	(1.00	)		$	1.08			$	2.53			$	0.27
Diluted	$	(1.00	)		$	1.07			$	2.51			$	0.26
Weighted average common shares outstanding:
Basic		44,229				44,861				44,644				44,664
Diluted		44,229				45,279				44,972				45,334

WEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
	September 30, 2022			December 31, 2021
Assets
Cash and cash equivalents	$	759,375		$	588,923
Restricted cash		942,132			667,915
Accounts receivable		3,830,178			2,891,242
Investment securities		1,379,411			948,677
Securitized accounts receivable, restricted		143,252			125,186
Prepaid expenses and other current assets		144,379			77,569
Total current assets		7,198,727			5,299,512
Property, equipment and capitalized software		186,819			179,531
Goodwill and other intangible assets		4,216,687			4,551,353
Investment securities		36,005			39,650
Deferred income taxes, net		20,667			5,635
Other assets		250,243			231,147
Total assets	$	11,909,148		$	10,306,828
Liabilities and Stockholders’ Equity
Accounts payable	$	1,561,033		$	1,021,911
Accrued expenses		567,036			476,971
Restricted cash payable		942,153			668,014
Short-term deposits		3,145,770			2,026,420
Short-term debt, net		156,483			155,769
Other current liabilities		41,782			50,614
Total current liabilities		6,414,257			4,399,699
Long-term debt, net		2,644,478			2,695,365
Long-term deposits		489,942			652,214
Deferred income taxes, net		155,536			192,965
Other liabilities		573,849			273,706
Total liabilities		10,278,062			8,213,949
Redeemable non-controlling interest		—			254,106
Total stockholders’ equity		1,631,086			1,838,773
Total liabilities and stockholders’ equity	$	11,909,148		$	10,306,828

WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
	Nine Months Ended September 30,
	2022				2021
Cash flows from operating activities
Net income	$	78,770			$	85,279
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Change in fair value of contingent consideration		135,100				44,900
Stock-based compensation		76,760				60,250
Depreciation and amortization		198,086				202,231
Gain on sale of equity investment		—				(3,617	)
Amortization of premiums on investment securities		3,958				—
Debt issuance cost amortization and accretion expense		12,595				13,315
Deferred tax benefit		(54,085	)			(8,829	)
Provision for credit losses		121,856				32,148
Impairment charges		136,486				—
Other non-cash gains		(58,159	)			(7,499	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and securitized accounts receivable		(1,147,791	)			(1,138,233	)
Prepaid expenses and other current and other long-term assets		(11,233	)			13,212
Accounts payable		568,438				517,455
Accrued expenses and restricted cash payable		389,896				211,855
Income taxes		10,838				(12,363	)
Other current and other long-term liabilities		(4,871	)			(20,459	)
Net cash provided by (used for) operating activities		456,644				(10,355	)
Cash flows from investing activities
Purchases of property, equipment and capitalized software		(75,476	)			(55,484	)
Cash proceeds from sale of equity investment		—				3,117
Purchases of equity securities		(267	)			(250	)
Maturities of equity securities		—				130
Purchases of available-for-sale debt securities		(632,782	)			—
Sales and maturities of available-for-sale debt securities		47,972				—
Acquisitions, net of cash and restricted cash acquired		(3,338	)			(558,247	)
Net cash used for investing activities		(663,891	)			(610,734	)
Cash flows from financing activities
Repurchase of share-based awards to satisfy tax withholdings		(17,101	)			(23,012	)
Purchase of treasury shares		(149,608	)			—
Proceeds from stock option exercises		3,779				43,744
Net change in deposits		960,551				558,042
Net activity on other debt		28,448				21,500
Borrowings on revolving credit facility		1,825,400				1,176,300
Repayments on revolving credit facility		(1,856,999	)			(962,900	)
Borrowings on term loans		—				112,819
Repayments on term loans		(47,506	)			(47,824	)
Redemption of Notes		—				(400,000	)
Debt issuance costs		—				(8,934	)
Net change in securitized debt		6,417				8,004
Net cash provided by financing activities		753,381				477,739
Effect of exchange rates on cash, cash equivalents and restricted cash		(101,465	)			(24,037	)
Net change in cash, cash equivalents and restricted cash		444,669				(167,387	)
Cash, cash equivalents and restricted cash, beginning of period(a)		1,256,838				1,329,653
Cash, cash equivalents and restricted cash, end of period(a)	$	1,701,507			$	1,162,266

Exhibit 1 Reconciliation of Non-GAAP Measures (in thousands, except per share data) (unaudited)
Reconciliation of GAAP Net Income Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders
	Three Months Ended September 30,
	2022				2021
			per diluted share				per diluted share
Net (loss) income attributable to shareholders	$ (44,145)		$ (1.00)		$ 48,318		$ 1.07
Unrealized gain on financial instruments	(23,540)		(0.53)		(6,424)		(0.14)
Net foreign currency loss	23,445		0.53		9,962		0.22
Change in fair value of contingent consideration	30,300		0.69		(2,800)		(0.06)
Acquisition–related intangible amortization	42,486		0.96		46,965		1.04
Other acquisition and divestiture related items	4,142		0.09		3,395		0.07
Stock–based compensation	27,873		0.63		22,166		0.49
Other costs	8,806		0.20		1,711		0.04
Impairment charges	136,486		3.09		—		—
Debt restructuring and debt issuance cost amortization	4,704		0.11		2,879		0.06
ANI adjustments attributable to non–controlling interests	—		—		2,848		0.06
Tax related items	(52,804)		(1.19)		(17,904)		(0.40)
Dilutive impact of stock awards1	—		(0.02)		—		—
Dilutive impact of convertible debt2	—		(0.05)		—		—
Adjusted net income attributable to shareholders	$ 157,753		$ 3.51		$ 111,116		$ 2.45
	Nine Months Ended September 30,
	2022				2021
			per diluted share				per diluted share
Net income attributable to shareholders	$ 112,747		$ 2.51		$ 11,897		$ 0.26
Unrealized gain on financial instruments	(90,261)		(2.01)		(19,470)		(0.43)
Net foreign currency loss	37,847		0.84		11,375		0.25
Change in fair value of contingent consideration	135,100		3.00		44,900		0.99
Acquisition–related intangible amortization	127,743		2.84		134,713		2.97
Other acquisition and divestiture related items	15,143		0.34		28,881		0.64
Stock–based compensation	78,360		1.74		62,771		1.38
Other costs	24,911		0.55		15,653		0.35
Impairment charges	136,486		3.03		—		—
Debt restructuring and debt issuance cost amortization	12,677		0.28		19,432		0.43
ANI adjustments attributable to non–controlling interests	(34,587)		(0.77)		69,854		1.54
Tax related items	(97,977)		(2.18)		(82,722)		(1.82)
Dilutive impact of convertible debt2	—		(0.08)		—		—
Adjusted net income attributable to shareholders	$ 458,189		$ 10.09		$ 297,284		$ 6.56

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 During the three and nine months ended September 30, 2022, the dilutive impact of convertible notes has been calculated under the 'if-converted' method in accordance with GAAP. Under such method, $3.8 million and $11.3 million of interest expense associated with our convertible notes, net of tax, was added back to adjusted net income for the three and nine months ended September 30, 2022, respectively, and 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 periods were included in the calculation of adjusted net income per diluted share, as the effect of including such adjustments was dilutive.

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,
	2022				2021				2022				2021
Operating income	$	21,288			$	100,822			$	314,693			$	233,641
Unallocated corporate expenses		23,918				20,977				63,915				54,360
Acquisition-related intangible amortization		42,486				46,965				127,743				134,713
Other acquisition and divestiture related items		4,142				7,012				15,143				32,498
Stock-based compensation		27,873				22,166				78,360				62,771
Other costs		8,806				1,711				24,911				15,653
Debt restructuring costs		72				120				43				6,056
Impairment charges		136,486				—