8-K
WEX Inc. (WEX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15\(d\) of the Securities Exchange Act of 1934
| Date of Report (Date of earliest event reported) | July 28, 2022 |
|---|
| WEX Inc. | ||
|---|---|---|
| (Exact name of registrant as specified in its charter) | ||
| Delaware | 001-32426 | 01-0526993 |
| --- | --- | --- |
| (State or other jurisdiction of<br><br> <br>incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 1 Hancock Street,<br> Portland, Maine | 04101 | |
| --- | --- | |
| Address of principal executive offices | Zip Code | |
| Registrant's telephone number, including area code | (207) 773-8171 | |
| --- | --- | |
| (Former name or former address if changes since last report) | ||
| --- |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.01 par value | WEX | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On July 28, 2022, WEX Inc. (the “Company”) issued a news release announcing its second-quarter 2022 results. A copy of the release is attached as Exhibit 99.1 and is incorporated by reference herein in its entirety.
The information in this item, including Exhibit 99.1, is being furnished, not filed. Accordingly, the information in this item will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identified as being incorporated into it by reference.
Item 7.01 Regulation FD Disclosure.
The Company is furnishing under this Item 7.01, a copy of a slide deck presentation to be made available in conjunction with the Company’s earnings call, on July 28, 2022, for the three months ended June 30, 2022. The presentation is incorporated by reference with this Form 8-K and has also been posted to the Company’s website. All information in Exhibit 99.2 is presented as of the particular date or dates referenced in it, and the Company does not undertake any obligation to, and disclaims any duty to, update any of the information provided.
The information in this item, including Exhibit 99.2, is being “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of such section. Furthermore, the information shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, unless specifically identified as being incorporated by reference.
Item 9.01 Financial Statements and Exhibits.
(c) See attached Exhibit Index.
EXHIBIT INDEX
| Exhibit No. | Description | |
|---|---|---|
| 99.1 | News release of WEX Inc. dated July 28, 2022 | |
| 99.2 | Investor Earnings Call Slide Deck Presentation |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WEX INC. | ||
|---|---|---|
| Date: July 28, 2022 | By: | /s/ Jagtar Narula |
| Jagtar Narula | ||
| Chief Financial Officer |
Exhibit 99.1
WEX Inc. Reports Second Quarter 2022 Financial Results
2Q revenue increased 30% year-over-year to a record $598 million
2Q GAAP net income per share increased to $0.76 per diluted share; 2Q adjusted net income per share increased 61% year-over-year to $3.71 per diluted share
2Q GAAP operating income margin of 28.6% and adjusted operating income margin of 42.3%
Total purchase volume increased 77% year-over-year to $37 billion
Raises full-year 2022 financial guidance
PORTLAND, Maine--(BUSINESS WIRE)--July 28, 2022--WEX (NYSE: WEX), the global commerce platform that simplifies the business of running a business, today reported financial results for the three and six months ended June 30, 2022.
“I am pleased to report that in the second quarter, we once again delivered record revenue and adjusted net income per share, driven by strong volume trends across the Company and favorable fuel prices,” said Melissa Smith, WEX’s Chair and Chief Executive Officer.
Ms. Smith added, “I'm proud of this performance, and it is a testament to our team's continued hard work that our results exceeded our high expectations. I believe we are well positioned as we continue to expand and diversify our offerings that businesses rely upon. We are also making targeted investments, which we believe will further solidify our market leadership position, accelerate our strategy, and enhance our speed to market.”
Second Quarter 2022 Financial Results
Total revenue for the second quarter of 2022 increased 30% to $598.2 million from $459.5 million for the second quarter of 2021. The revenue increase in the quarter includes a $64.2 million favorable impact from fuel prices and spreads and an $8.4 million negative impact from foreign exchange rates.
Net income attributable to shareholders on a GAAP basis increased by $68.0 million to net income of $34.1 million, or $0.76 per diluted share for the second quarter of 2022, compared with a net loss of $33.9 million, or $(0.76) per diluted share, for the second quarter of 2021. The Company's adjusted net income attributable to shareholders, which is a non-GAAP measure, was $169.4 million for the second quarter of 2022, or $3.71 per diluted share, up 61% per diluted share from $104.9 million or $2.31 per diluted share for the same period last year. GAAP operating income margin was 28.6%. Adjusted operating income margin was 42.3% in the second quarter of 2022 compared to 36.3% in the prior year. 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.
Second Quarter 2022 Performance Metrics
- Total volume across the Company totaled $56.6 billion, an increase of 60% from the second quarter of 2021.
- Fleet Solutions segment payment processing transactions increased 10% from the second quarter of 2021 to 143.2 million.
- Average number of vehicles serviced was approximately 17.5 million, an increase of 8% from the second quarter of 2021.
- Health and Employee Benefit Solutions' average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 7% to 17.6 million from 16.4 million in the second quarter of 2021.
- Travel and Corporate Solutions' segment purchase volume grew 96% to $17.1 billion from $8.7 billion in the second quarter of 2021.
- During Q2 the company purchased approximately 520,000 shares of its stock for a total cost of approximately $81 million.
“Building on the momentum we had after the first quarter, we delivered a record-breaking second quarter in terms of both revenue and adjusted earnings by a wide margin,” said Jagtar Narula, WEX’s Chief Financial Officer. “I’m pleased to share that we are raising our full year guidance, while simultaneously making targeted investments in specific areas of strategic focus, including cross-sell, additional enhancements to our technology, product innovation including EV’s and process simplification.”
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 third quarter of 2022, the Company expects revenue in the range of $580 million to $590 million and adjusted net income in the range of $152 million to $156 million, or $3.35 to $3.45 per diluted share.
For the full year 2022, the Company now expects revenue in the range of $2.250 billion to $2.280 billion, up from the prior guidance range of $2.155 billion to $2.195 billion. Adjusted net income is now expected to be in the range of $592 million to $603 million, or $13.05 to $13.30 per diluted share, an increase from the prior guidance range of $569 million to $588 million, or $12.40 to $12.80 per diluted share.
Third quarter and full year 2022 guidance is based on an assumed average U.S. retail fuel prices of $4.50 and $4.36 per gallon, respectively. The fuel prices referenced above are based on the applicable NYMEX futures price from the week of July 18, 2022. Our guidance assumes approximately 46.5 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, 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 six months ended June 30, 2022; and in Exhibit 3, a table of selected non-financial metrics for the quarter ended June 30, 2022 and the four preceding quarters. The Company is also providing segment revenue for the three and six months ended June 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, July 28, 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 contains forward-looking statements, including statements regarding: assumptions underlying the Company's future financial performance; future operations; future growth opportunities and expectations; expectations for future revenue performance; expectations for the macro environment; assumptions regarding future fuel prices; assumptions regarding Fleet credit loss; assumptions regarding our income tax rate; assumptions regarding the number of fully diluted shares outstanding; and expectations for volumes. Any statements that are not statements of historical facts may be deemed to be 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. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including: 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 fluctuations in fuel prices and fuel spreads, including the resulting impact on the Company’s revenues and net income; the failure to maintain or renew key customer and partner agreements and relationships, or to maintain volumes under such agreements; 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; the failure to comply with the applicable requirements of MasterCard or Visa contracts and rules; the extent to which the COVID-19 pandemic, including the 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 impact and size of credit losses, including losses attributable to fraud; failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors; changes in interest rates and the rate of inflation; 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; the failure to comply with the Treasury Regulations applicable to non-bank custodians; 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 complete or successfully integrate the Company’s acquisitions or to realize anticipated synergies and cost savings from such acquisitions; unexpected costs, charges, or expenses resulting from an acquired company or business; 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 of 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 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.<br><br> <br>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<br><br> <br>(in thousands, except per share data)<br><br> <br>(unaudited) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenues | ||||||||||||
| Payment processing revenue | $ | 312,305 | $ | 213,426 | $ | 551,783 | $ | 401,815 | ||||
| Account servicing revenue | 137,638 | 132,997 | 277,579 | 251,620 | ||||||||
| Finance fee revenue | 85,310 | 59,499 | 163,892 | 111,652 | ||||||||
| Other revenue | 62,984 | 53,561 | 122,518 | 105,153 | ||||||||
| Total revenues | 598,237 | 459,483 | 1,115,772 | 870,240 | ||||||||
| Cost of services | ||||||||||||
| Processing costs | 137,435 | 116,208 | 269,942 | 225,970 | ||||||||
| Service fees | 14,856 | 13,759 | 30,606 | 24,905 | ||||||||
| Provision for credit losses | 42,186 | 12,962 | 67,826 | 18,021 | ||||||||
| Operating interest | 3,197 | 2,271 | 5,497 | 4,895 | ||||||||
| Depreciation and amortization | 26,633 | 26,451 | 52,635 | 55,645 | ||||||||
| Total cost of services | 224,307 | 171,651 | 426,506 | 329,436 | ||||||||
| General and administrative | 83,482 | 79,543 | 162,145 | 165,974 | ||||||||
| Sales and marketing | 80,440 | 85,605 | 154,385 | 163,952 | ||||||||
| Depreciation and amortization | 38,877 | 40,406 | 79,331 | 78,059 | ||||||||
| Operating income | 171,131 | 82,278 | 293,405 | 132,819 | ||||||||
| Financing interest expense | (31,820 | ) | (32,473 | ) | (61,509 | ) | (65,757 | ) | ||||
| Change in fair value of contingent consideration | (88,200 | ) | (47,700 | ) | (104,800 | ) | (47,700 | ) | ||||
| Net foreign currency (loss) gain | (19,408 | ) | 1,342 | (14,402 | ) | (1,413 | ) | |||||
| Net unrealized gain on financial instruments | 16,894 | 6,013 | 66,721 | 13,046 | ||||||||
| Income before income taxes | 48,597 | 9,460 | 179,415 | 30,995 | ||||||||
| Income tax expense (benefit) | 14,468 | (746 | ) | 56,500 | (2,416 | ) | ||||||
| Net income | 34,129 | 10,206 | 122,915 | 33,411 | ||||||||
| Less: Net income from non-controlling interests | — | 239 | 268 | 965 | ||||||||
| Net income attributable to WEX Inc. | $ | 34,129 | $ | 9,967 | $ | 122,647 | $ | 32,446 | ||||
| Change in value of redeemable non-controlling interest | — | (43,823 | ) | 34,245 | (68,867 | ) | ||||||
| Net income (loss) attributable to shareholders | $ | 34,129 | $ | (33,856 | ) | $ | 156,892 | $ | (36,421 | ) | ||
| Net income (loss) attributable to shareholders per share: | ||||||||||||
| Basic | $ | 0.76 | $ | (0.76 | ) | $ | 3.50 | $ | (0.82 | ) | ||
| Diluted | $ | 0.76 | $ | (0.76 | ) | $ | 3.47 | $ | (0.82 | ) | ||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 44,790 | 44,788 | 44,851 | 44,566 | ||||||||
| Diluted | 45,077 | 44,788 | 45,211 | 44,566 |
| WEX INC.<br><br> <br>CONDENSED CONSOLIDATED BALANCE SHEETS<br><br> <br>(in thousands)<br><br> <br>(unaudited) | ||||
|---|---|---|---|---|
| June 30, <br><br> 2022 | December 31, <br><br> 2021 | |||
| Assets | ||||
| Cash and cash equivalents | $ | 438,754 | $ | 588,923 |
| Restricted cash | 815,496 | 667,915 | ||
| Accounts receivable | 4,444,958 | 2,891,242 | ||
| Investment securities | 1,442,416 | 948,677 | ||
| Securitized accounts receivable, restricted | 171,415 | 125,186 | ||
| Prepaid expenses and other current assets | 112,995 | 77,569 | ||
| Total current assets | 7,426,034 | 5,299,512 | ||
| Property, equipment and capitalized software | 180,954 | 179,531 | ||
| Goodwill and other intangible assets | 4,428,374 | 4,551,353 | ||
| Investment securities | 37,253 | 39,650 | ||
| Deferred income taxes, net | 7,010 | 5,635 | ||
| Other assets | 243,296 | 231,147 | ||
| Total assets | $ | 12,322,921 | $ | 10,306,828 |
| Liabilities and Stockholders’ Equity | ||||
| Accounts payable | $ | 1,958,545 | $ | 1,021,911 |
| Accrued expenses | 529,865 | 476,971 | ||
| Restricted cash payable | 815,520 | 668,014 | ||
| Short-term deposits | 2,885,727 | 2,026,420 | ||
| Short-term debt, net | 175,834 | 155,769 | ||
| Other current liabilities | 33,387 | 50,614 | ||
| Total current liabilities | 6,398,878 | 4,399,699 | ||
| Long-term debt, net | 2,761,531 | 2,695,365 | ||
| Long-term deposits | 588,932 | 652,214 | ||
| Deferred income taxes, net | 181,448 | 192,965 | ||
| Other liabilities | 575,765 | 273,706 | ||
| Total liabilities | 10,506,554 | 8,213,949 | ||
| Redeemable non-controlling interest | — | 254,106 | ||
| Stockholders’ Equity | ||||
| Total stockholders’ equity | 1,816,367 | 1,838,773 | ||
| Total liabilities and stockholders’ equity | $ | 12,322,921 | $ | 10,306,828 |
| Exhibit 1 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reconciliation of Non-GAAP Measures<br><br> <br>(in thousands, except per share data)<br><br> <br>(unaudited) | ||||||||||||
| Reconciliation of GAAP Net Income (Loss) Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders | ||||||||||||
| Three Months Ended June 30, | ||||||||||||
| 2022 | 2021 | |||||||||||
| per diluted share | per diluted share | |||||||||||
| Net income (loss) attributable to shareholders | $ | 34,129 | $ | 0.76 | $ | (33,856 | ) | $ | (0.76 | ) | ||
| Unrealized gain on financial instruments | (16,894 | ) | (0.37 | ) | (6,013 | ) | (0.13 | ) | ||||
| Net foreign currency loss (gain) | 19,408 | 0.43 | (1,342 | ) | (0.03 | ) | ||||||
| Change in fair value of contingent consideration | 88,200 | 1.96 | 47,700 | 1.07 | ||||||||
| Acquisition–related intangible amortization | 42,538 | 0.94 | 45,294 | 1.01 | ||||||||
| Other acquisition and divestiture related items | 6,461 | 0.14 | 10,690 | 0.24 | ||||||||
| Stock–based compensation | 25,267 | 0.56 | 21,662 | 0.48 | ||||||||
| Other costs | 7,926 | 0.18 | 1,705 | 0.04 | ||||||||
| Debt restructuring and debt issuance cost amortization | 4,694 | 0.10 | 11,461 | 0.26 | ||||||||
| ANI adjustments attributable to non–controlling interests | — | — | 43,206 | 0.96 | ||||||||
| Tax related items | (42,348 | ) | (0.94 | ) | (35,613 | ) | (0.80 | ) | ||||
| Dilutive impact of stock awards^1^ | — | — | — | (0.03 | ) | |||||||
| Dilutive impact of convertible debt ^2^ | — | (0.05 | ) | — | — | |||||||
| Adjusted net income attributable to shareholders | $ | 169,381 | $ | 3.71 | $ | 104,894 | $ | 2.31 | ||||
| Six Months Ended June 30, | ||||||||||||
| 2022 | 2021 | |||||||||||
| per diluted share | per diluted share | |||||||||||
| Net income (loss) attributable to shareholders | $ | 156,892 | $ | 3.47 | $ | (36,421 | ) | $ | (0.82 | ) | ||
| Unrealized gain on financial instruments | (66,721 | ) | (1.48 | ) | (13,046 | ) | (0.29 | ) | ||||
| Net foreign currency loss | 14,402 | 0.32 | 1,413 | 0.03 | ||||||||
| Change in fair value of contingent consideration | 104,800 | 2.32 | 47,700 | 1.07 | ||||||||
| Acquisition–related intangible amortization | 85,257 | 1.89 | 87,748 | 1.97 | ||||||||
| Other acquisition and divestiture related items | 11,001 | 0.24 | 25,486 | 0.57 | ||||||||
| Stock–based compensation | 50,487 | 1.12 | 40,605 | 0.91 | ||||||||
| Other costs | 16,105 | 0.36 | 13,942 | 0.31 | ||||||||
| Debt restructuring and debt issuance cost amortization | 7,973 | 0.18 | 16,553 | 0.37 | ||||||||
| ANI adjustments attributable to non–controlling interests | (34,587 | ) | (0.77 | ) | 67,006 | 1.50 | ||||||
| Tax related items | (45,173 | ) | (1.00 | ) | (64,818 | ) | (1.45 | ) | ||||
| Dilutive impact of stock awards^1^ | — | — | — | (0.07 | ) | |||||||
| Dilutive impact of convertible debt ^2^ | — | (0.06 | ) | — | — | |||||||
| Adjusted net income attributable to shareholders | $ | 300,436 | $ | 6.59 | $ | 186,168 | $ | 4.10 |
^1^As the Company reported a net loss for the three and six months ended June 30, 2021 under U.S. Generally Accepted Accounting Principles (“GAAP”), the diluted weighted average shares outstanding equals the basic weighted average shares outstanding for those periods. The non-GAAP adjustments described above resulted in adjusted net income attributable to shareholders (versus a loss on a GAAP basis) for the three and six months ended June 30, 2021. 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 six months ended June 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 $7.6 million of interest expense associated with our convertible notes, net of tax, was added back to adjusted net income for the three and six months ended June 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 June 30, | Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Operating income | $ | 171,131 | $ | 82,278 | $ | 293,405 | $ | 132,819 | ||||
| Unallocated corporate expenses | 18,986 | 17,174 | 39,997 | 33,383 | ||||||||
| Acquisition-related intangible amortization | 42,538 | 45,294 | 85,257 | 87,748 | ||||||||
| Other acquisition and divestiture related items | 6,461 | 10,690 | 11,001 | 25,486 | ||||||||
| Stock-based compensation | 25,267 | 21,662 | 50,487 | 40,605 | ||||||||
| Other costs | 7,926 | 1,705 | 16,105 | 13,942 | ||||||||
| Debt restructuring costs | (17 | ) | 5,299 | (29 | ) | 5,936 | ||||||
| Total segment adjusted operating income | $ | 272,292 | $ | 184,102 | $ | 496,223 | $ | 339,919 | ||||
| Unallocated corporate expenses | (18,986 | ) | (17,174 | ) | (39,997 | ) | (33,383 | ) | ||||
| Adjusted operating income | $ | 253,306 | $ | 166,928 | $ | 456,226 | $ | 306,536 |
The Company's non-GAAP adjusted net income 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, 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 and debt restructuring costs. 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 health savings accounts, 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.
We exclude certain other costs when evaluating our continuing business performance when such items are not consistently occurring and do not reflect expected future operating expense, nor provide insight into the fundamentals of current or past operations of our business. These include costs related to certain identified initiatives (including 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 six months ended June 30, 2021, other costs additionally include a penalty incurred on a vendor contract termination.
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 U.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 U.S. GAAP tax provision.
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.
| Exhibit 2<br><br> <br>Impact of Certain Macro Factors on Reported Revenue and Adjusted Net Income<br><br> <br>(in thousands, except per share data)<br><br> <br>(unaudited) | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| The tables below show the impact of certain macro factors on reported revenue: | ||||||||||||||||||
| Segment Revenue Results | ||||||||||||||||||
| Fleet Solutions | Travel and Corporate Solutions | Health and Employee Benefit Solutions | Total WEX Inc. | |||||||||||||||
| Three months ended June 30, | ||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||
| Reported revenue | $ | 379,223 | $ | 274,388 | $ | 100,410 | $ | 81,762 | $ | 118,604 | $ | 103,333 | $ | 598,237 | $ | 459,483 | ||
| FX impact (favorable) / unfavorable | $ | 4,849 | $ | — | $ | 3,565 | $ | — | $ | — | $ | — | $ | 8,414 | $ | — | ||
| PPG impact (favorable) / unfavorable | $ | (64,203 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (64,203 | ) | $ | — |
| Segment Revenue Results | ||||||||||||||||||
| Fleet Solutions | Travel and Corporate Solutions | Health and Employee Benefit Solutions | Total WEX Inc. | |||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||
| Reported revenue | 698,362 | 518,225 | 177,661 | 152,404 | 239,749 | 199,611 | $ | 1,115,772 | $ | 870,240 | ||||||||
| FX impact (favorable) / unfavorable | $ | 6,933 | $ | — | $ | 4,259 | $ | — | $ | — | $ | — | $ | 11,192 | $ | — | ||
| PPG impact (favorable) / unfavorable | $ | (105,342 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (105,342 | ) | $ | — |
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 date.
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:
| Segment Estimated Adjusted Net Income Impact | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fleet Solutions | Travel and Corporate Solutions | Health and Employee Benefit Solutions | |||||||||||
| Three months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||
| FX impact (favorable) / unfavorable | $ | 2,081 | $ | — | $ | 2,529 | $ | — | $ | 16 | $ | — | |
| PPG impact (favorable) / unfavorable | $ | (40,347 | ) | $ | — | $ | — | $ | — | $ | — | $ | — |
| Segment Estimated Adjusted Net Income Impact | |||||||||||||
| Fleet Solutions | Travel and Corporate Solutions | Health and Employee Benefit Solutions | |||||||||||
| Six months ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||
| FX impact (favorable) / unfavorable | $ | 2,895 | $ | — | $ | 2,550 | $ | — | $ | 24 | $ | — | |
| PPG impact (favorable) / unfavorable | $ | (66,065 | ) | $ | — | $ | — | $ | — | $ | — | $ | — |
To determine the estimated adjusted net income 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 date.
To determine the estimated adjusted net income 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<br><br> <br>Selected Non-Financial Metrics<br><br> <br>(unaudited) | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | |||||||||||
| Fleet Solutions: | |||||||||||||||
| Payment processing transactions (000s) ^(1)^ | 143,163 | 132,663 | 132,894 | 134,029 | 130,104 | ||||||||||
| Payment processing gallons of fuel (000s) ^(2)^ | 3,690,875 | 3,549,562 | 3,569,979 | 3,576,781 | 3,483,695 | ||||||||||
| Average US fuel price (US$ / gallon) | $ | 4.98 | $ | 3.95 | $ | 3.42 | $ | 3.23 | $ | 3.04 | |||||
| Payment processing $ of fuel (000s) ^(3)^ | $ | 18,639,733 | $ | 14,390,257 | $ | 12,600,745 | $ | 11,907,220 | $ | 10,995,418 | |||||
| Net payment processing rate ^(4)^ | 1.09 | % | 1.06 | % | 1.16 | % | 1.09 | % | 1.15 | % | |||||
| Payment processing revenue (000s) | $ | 202,359 | $ | 151,906 | $ | 146,333 | $ | 130,006 | $ | 126,450 | |||||
| Net late fee rate ^(5)^ | 0.38 | % | 0.44 | % | 0.48 | % | 0.45 | % | 0.41 | % | |||||
| Late fee revenue (000s) ^(6)^ | $ | 70,830 | $ | 63,110 | $ | 60,101 | $ | 53,104 | $ | 45,235 | |||||
| Travel and Corporate Solutions: | |||||||||||||||
| Purchase volume (000s) ^(7)^ | $ | 17,119,962 | $ | 11,809,450 | $ | 10,916,015 | $ | 12,799,555 | $ | 8,736,019 | |||||
| Net interchange rate ^(8)^ | 0.52 | % | 0.55 | % | 0.63 | % | 0.62 | % | 0.78 | % | |||||
| Payment solutions processing revenue (000s) | $ | 88,608 | $ | 65,075 | $ | 68,747 | $ | 79,815 | $ | 68,282 | |||||
| Health and Employee Benefit Solutions: | |||||||||||||||
| Purchase volume (000s) ^(9)^ | $ | 1,514,004 | $ | 1,630,218 | $ | 1,146,436 | $ | 1,173,913 | $ | 1,311,131 | |||||
| Average number of SaaS accounts (000s) ^(10)^ | 17,572 | 17,847 | 16,222 | 16,912 | 16,380 |
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 $ 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 in the Health and Employee Benefit Solutions segment 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<br><br> <br>Segment Revenue Information<br><br> <br>(in thousands)<br><br> <br>(unaudited) | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended June 30, | Increase (decrease) | Six months ended June 30, | Increase (decrease) | |||||||||||||||
| Fleet Solutions | 2022 | 2021 | Amount | Percent | 2022 | 2021 | Amount | Percent | ||||||||||
| Revenues | ||||||||||||||||||
| Payment processing revenue | $ | 202,359 | $ | 126,450 | $ | 75,909 | 60 | % | $ | 354,265 | $ | 237,026 | $ | 117,239 | 49 | % | ||
| Account servicing revenue | 43,860 | 42,293 | 1,567 | 4 | % | 86,303 | 82,284 | 4,019 | 5 | % | ||||||||
| Finance fee revenue | 85,067 | 59,258 | 25,809 | 44 | % | 163,472 | 111,098 | 52,374 | 47 | % | ||||||||
| Other revenue | 47,937 | 46,387 | 1,550 | 3 | % | 94,322 | 87,817 | 6,505 | 7 | % | ||||||||
| Total revenues | $ | 379,223 | $ | 274,388 | $ | 104,835 | 38 | % | $ | 698,362 | $ | 518,225 | $ | 180,137 | 35 | % | ||
| Three months ended June 30, | Increase (decrease) | Six months ended June 30, | Increase (decrease) | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Travel and Corporate Solutions | 2022 | 2021 | Amount | Percent | 2022 | 2021 | Amount | Percent | ||||||||||
| Revenues | ||||||||||||||||||
| Payment processing revenue | $ | 88,608 | $ | 68,282 | $ | 20,326 | 30 | % | $ | 153,683 | $ | 125,530 | $ | 28,153 | 22 | % | ||
| Account servicing revenue | 10,400 | 11,222 | (822 | ) | (7 | ) % | 21,158 | 21,909 | (751 | ) | (3 | ) % | ||||||
| Finance fee revenue | 216 | 199 | 17 | 9 | % | 357 | 493 | (136 | ) | (28 | ) % | |||||||
| Other revenue | 1,186 | 2,059 | (873 | ) | (42 | ) % | 2,463 | 4,472 | (2,009 | ) | (45 | ) % | ||||||
| Total revenues | $ | 100,410 | $ | 81,762 | $ | 18,648 | 23 | % | $ | 177,661 | $ | 152,404 | $ | 25,257 | 17 | % | ||
| Three months ended June 30, | Increase (decrease) | Six months ended June 30, | Increase (decrease) | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |
| Health and Employee Benefit Solutions | 2022 | 2021 | Amount | Percent | 2022 | 2021 | Amount | Percent | ||||||||||
| Revenues | ||||||||||||||||||
| Payment processing revenue | $ | 21,338 | $ | 18,694 | $ | 2,644 | 14 | % | $ | 43,835 | $ | 39,259 | $ | 4,576 | 12 | % | ||
| Account servicing revenue | 83,378 | 79,482 | 3,896 | 5 | % | 170,118 | 147,427 | 22,691 | 15 | % | ||||||||
| Finance fee revenue | 27 | 42 | (15 | ) | (36 | ) % | 63 | 61 | 2 | 3 | % | |||||||
| Other revenue | 13,861 | 5,115 | 8,746 | 171 | % | 25,733 | 12,864 | 12,869 | 100 | % | ||||||||
| Total revenues | $ | 118,604 | $ | 103,333 | $ | 15,271 | 15 | % | $ | 239,749 | $ | 199,611 | $ | 40,138 | 20 | % |
| Exhibit 5<br><br> <br>Segment Adjusted Operating Income and Adjusted Operating Income Margin Information<br><br> <br>(in thousands)<br><br> <br>(unaudited) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Segment Adjusted Operating Income | Segment Adjusted Operating Income Margin^(1)^ | |||||||
| Three Months Ended June 30, | Three Months Ended June 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Fleet Solutions | $ | 192,969 | $ | 137,865 | 50.9 | % | 50.2 | % |
| Travel and Corporate Solutions | $ | 51,016 | $ | 17,157 | 50.8 | % | 21.0 | % |
| Health and Employee Benefit Solutions | $ | 28,307 | $ | 29,080 | 23.9 | % | 28.1 | % |
| Total segment adjusted operating income | $ | 272,292 | $ | 184,102 | 45.5 | % | 40.1 | % |
| Segment Adjusted Operating Income | Segment Adjusted Operating Income Margin^(1)^ | |||||||
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Fleet Solutions | $ | 353,070 | $ | 256,123 | 50.6 | % | 49.4 | % |
| Travel and Corporate Solutions | $ | 79,346 | $ | 24,172 | 44.7 | % | 15.9 | % |
| Health and Employee Benefit Solutions | $ | 63,807 | $ | 59,624 | 26.6 | % | 29.9 | % |
| Total segment adjusted operating income | $ | 496,223 | $ | 339,919 | 44.5 | % | 39.1 | % |
^(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 total segment adjusted operating income to GAAP operating income.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Adjusted operating income | $ | 253,306 | $ | 166,928 | $ | 456,226 | $ | 306,536 | ||||
| Adjusted operating income margin ^(1)^ | 42.3 | % | 36.3 | % | 40.9 | % | 35.2 | % |
^(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.
Contacts
News media contact:
WEX
Rob Gould, 207-523-7429
robert.gould@wexinc.com
or
**Investor contact:**
WEX
Steve Elder, 207-523-7769
Steve.Elder@wexinc.com
Exhibit 99.2
Q2 2022 Earnings July 28, 2022
These materials contain forward-looking statements, including statements regarding: assumptions underlying the Company's future financial performance; future operations; future growth opportunities and expectations; expectations for future revenue performance; expectations for the macro environment; assumptions regarding future fuel prices; assumptions regarding Fleet credit loss; assumptions regarding our income tax rate; assumptions regarding the number of fully diluted shares outstanding; and expectations for volumes. Any statements that are not statements of historical facts may be deemed to be 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. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including: 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 fluctuations in fuel prices and fuel spreads, including the resulting impact on the Company’s revenues and net income; the failure to maintain or renew key customer and partner agreements and relationships, or to maintain volumes under such agreements; 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; the failure to comply with the applicable requirements of MasterCard or Visa contracts and rules; the extent to which the COVID-19 pandemic, including the 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 impact and size of credit losses, including losses attributable to fraud; failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors; changes in interest rates and the rate of inflation; 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; the failure to comply with the Treasury Regulations applicable to non-bank custodians; 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 complete or successfully integrate the Company’s acquisitions or to realize anticipated synergies and cost savings from such acquisitions; unexpected costs, charges, or expenses resulting from an acquired company or business; 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 of 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 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. Non-GAAP Information: For additional important information and disclosure regarding our use of non-GAAP metrics, specifically adjusted net income, please see our most recent earnings release, issued on July 28, 2022. See the Appendix to this presentation for an explanation and reconciliation of (i) GAAP operating income to non-GAAP total segment adjusted operating income, (ii) GAAP operating income to non-GAAP adjusted operating income to GAAP operating income, (iii) non-GAAP adjusted net income attributable to shareholders (or "adjusted net income" or “ANI”) to GAAP net income attributable to shareholders and (iv) ANI per diluted share to GAAP net income per diluted share. Note: The Company rounds amounts in the consolidated financial statements to thousands and calculates all percentages and per-share data from underlying whole-dollar amounts. Thus, certain amounts may not foot, crossfoot, or recalculate exactly based on reported numbers due to rounding. Forward Looking Statements
Q2 2022 Highlights $598.2M Q2 2022 Revenue +30% vs. Q2 2021 $3.71 Q2 2022 Adjusted Net Income Per Diluted Share $56.6B Q2 2022 Total Volume* +60% vs. Q2 2021 +61% vs. Q2 2021 Quarterly Highlights Delivered record revenue - approximately $80M above previous record best - and record adjusted net income per diluted share Strong new customer signings in each line of business Revenue and adjusted net income growth above long term targets Launched Flume, a new integrated software and payment solution More than $12 billion in travel customer purchase volumes Increasing FY22 guidance at midpoint by $90 million for revenue and $0.57 for ANI EPS New Business Wins and Renewals *Total Volume includes purchases on WEX issued accounts as well as purchases issued by others, but using the WEX platform. 220,000 new vehicles added during Q2
4 Fleet Solutions Travel & Corporate Solutions Health & Employee Benefits Solutions WEX Q2 2022 Revenue and Adjusted Operating Income Margin by Segment 38% 23% 15% 30% * Slides 15 and 16 in the Appendix show a comparable revenue presentation for periods prior to Q4 2021 as if the revenue for one customer was presented on a net basis. On a comparable basis, revenue growth in Q2 was 64% *
Q2 2022 Financial Results
NM = Not meaningful Company Results Q2 2022 (In thousands except per share data) 2Q22 2Q21 $ ∆ Yr/Yr % ∆ Yr/Yr Total Revenue $598,237 $459,483 $138,754 30 % Net income (loss) attributable to shareholders $34,129 $(33,856) $67,985 NM Net income (loss) attributable to shareholders per diluted share $0.76 $(0.76) $1.52 NM Adjusted net income attributable to shareholders $169,381 $104,894 $64,487 61 % Adjusted net income attributable to shareholders per diluted share $3.71 $2.31 $1.40 61 %
Revenue Breakdown Q2 2022 In thousands unless otherwise noted Slides 15 and 16 in the Appendix show a comparable revenue presentation for periods prior to Q4 2021 as if the revenue for one customer was presented on a net basis. 2Q22 2Q21 $ ∆ Yr/Yr % ∆ Yr/Yr Total Revenue $598,237 $459,483 $138,754 30 % Segment Revenue: Fleet Solutions $379,223 $274,388 $104,835 38 % Travel and Corporate Solutions $100,410 $81,762 $18,648 23 % Health and Employee Benefit Solutions $118,604 $103,333 $15,271 15 % More than 80% of the total revenue is recurring in nature recurring revenue includes payment processing and account servicing revenue, revenue from our factoring business, transaction processing fees and other smaller items.
In thousands unless otherwise noted Fleet Solutions 2Q22 2Q21 $ ∆ Yr/Yr % ∆ Yr/Yr Total Segment Revenue ($) 379,223 274,388 104,835 38 % Payment Processing Revenue ($) 202,359 126,450 75,909 60 % Finance Fee Revenue ($) 85,067 59,258 25,809 44 % All Other Revenue ($) 91,797 88,680 3,117 4 % Total Volume ($)* 27,821,688 15,965,890 11,855,798 74 % Payment Processing Transactions 143,163 130,104 13,059 10 % Net Payment Processing Rate (%) 1.09 % 1.15 % -6 bps (5) % Average US Fuel Price ($/gallon) 4.98 3.04 1.94 64 % Net Late Fee Rate (%) 0.38 % 0.41 % -3 bps (7) % * Total Volume includes purchases on WEX issued accounts as well as purchases issued by others, but using the WEX platform.
Travel and Corporate Solutions In thousands unless otherwise noted Slides 15 and 16 in the Appendix show comparable revenue presentation for periods prior to Q4 2021 as if the revenue for one customer was presented on a net basis. 2Q22 2Q21 $ ∆ Yr/Yr % ∆ Yr/Yr Total Segment Revenue ($) 100,410 81,762 18,648 23 % Payment Processing Revenue ($) 88,608 68,282 20,326 30 % All Other Revenue ($) 11,802 13,480 (1,678) (12) % Total Volume ($)* 25,834,290 16,653,038 9,181,252 55 % Purchase Volume ($) 17,119,962 8,736,019 8,383,943 96 % Net Interchange Rate (%) 0.52 % 0.78 % -26 bps (34) % *Total Volume includes purchases on WEX issued accounts as well as purchases issued by others, but using the WEX platform.
In thousands unless otherwise noted Health and Employee Benefit Solutions 2Q22 2Q21 $ ∆ Yr/Yr % ∆ Yr/Yr Total Segment Revenue ($) 118,604 103,333 15,271 15 % Payment Processing Revenue ($) 21,338 18,694 2,644 14 % Account Servicing Revenue ($) 83,378 79,482 3,896 5 % All Other Revenue ($) 13,888 5,157 8,731 169 % Total Volume ($)* 2,910,208 2,654,288 255,920 10 % Purchase Volume ($) 1,514,004 1,311,131 202,873 15 % Average Number of SaaS Accounts 17,572 16,380 1,192 7 % *Total Volume includes purchases on WEX issued accounts as well as purchases issued by others, but using the WEX platform.
Selected Operating Expenses Key Takeaways Increase in Fleet Solutions segment adjusted operating income margin reflects revenue growth, including higher fuel prices and operating leverage in expense base Increase in Travel and Corporate Solutions segment adjusted operating income margin reflects additional benefits from eNett and Optal synergies, scale from increased revenue, and benefit from change to net revenue presentation for one significant customer Decrease in Health and Employee Benefit Solutions segment adjusted operating income margin reflects the reduction in COBRA revenue and profit from the prior year related to one time events Unallocated Corporate costs as a percentage of total revenue were relatively flat (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 for adjusted operating income margin). See the Appendix to the presentation for a reconciliation of GAAP operating income to total segment adjusted operating income and adjusted operating income. Adjusted and Segment Adjusted Operating Income Margin (1) Three months ended June 30, 2022 2021 Fleet Solutions 50.9% 50.2% Travel and Corporate Solutions 50.8% 21.0% Health and Employee Benefit Solutions 23.9% 28.1% Adjusted operating income margin 42.3% 36.3% Operating Expenses
Additional Balance Sheet Items 1 Corporate cash is calculated in accordance with the terms of our consolidated leverage ratio in the Company’s Amended and Restated Credit Agreement as filed with the SEC 2 Total financing debt includes drawn amounts on Revolving Line of Credit, Term A, Term B and Convertible Notes $ millions $ millions Key Takeaways Corporate cash1 balance was approximately $143 million Remaining borrowing capacity of $718 million on credit facility Leverage ratio, as defined in the credit agreement, was 3.0X, down from 3.4X in Q4 last year 2
Updated Guidance 1 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, debt restructuring and debt issuance cost amortization 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. Q3 2022 Outlook % Change Year over Year FY 2022 Outlook % Change Year over Year Change vs Prior FY Guidance at Midpoint Revenue (in millions) $580 - $590 20% - 22% $2,250 - $2,280 22% - 23% $90 Adjusted Net Income (in millions) 1 $152 - $156 37% - 41% $592 - $603 43% - 46% $19 Adjusted Net Income per Diluted Share 1 $3.35- $3.45 37% - 41% $13.05 - $13.30 43% - 46% $0.57 Assumed Average Domestic Fuel Price ($/Gallon) $4.50 39% $4.36 40% $0.23 Fleet Credit Loss (Basis Points) 17 - 22 18 - 20 Assumed Adjusted Net Income Tax Rate 25% - 26% 25% - 26% Assumed Number of Diluted Shares Outstanding 46.3 million 46.5 million
Appendix
Travel and Corporate Solutions Segment Revenue, Margin, Volume and Net Interchange Rate - Adjusted Key Takeaways For comparative purposes, graphs show revenue, net interchange rate and adjusted operating income margin in all periods as if a specific customer contract was reported on a net basis to reflect accounting change implemented in Q4 2021 Segment adjusted operating income margin in Q2 2022 was 50.8% up from 21.0% a year ago or 28.1% on a comparable basis for the change noted above Segment revenue increased significantly with the rebound in global travel volumes and strong growth in corporate payments volume Q2 2022 increase in operating income margin due primarily to revenue increases and synergy benefits from eNett / Optal acquisition
Impacts of Amended Contract on Travel and Corporate Solutions Segment Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Reported: Volume $ 8,736,019 $ 12,799,555 $ 10,916,015 $ 11,809,450 $ 17,119,962 Net interchange rate** 0.78 % 0.62 % 0.63 % 0.55 % 0.52 % Revenue $ 81,762 $ 91,002 $ 81,512 $ 77,251 $ 100,410 Adjusted operating expenses $ 64,605 $ 59,945 $ 49,881 $ 48,921 $ 49,394 Adjusted operating income $ 17,157 $ 31,057 $ 31,631 $ 28,330 $ 51,016 % margin** 21.0 % 34.1 % 38.8 % 36.7 % 50.8 % Adjusted: Volume $ 8,736,019 $ 12,799,555 $ 10,916,015 $ 11,809,450 $ 17,119,962 Net interchange rate** 0.55 % 0.52 % 0.63 % 0.55 % 0.52 % Revenue $ 61,133 $ 77,713 $ 81,512 $ 77,251 $ 100,410 Adjusted operating expenses $ 43,976 $ 46,656 $ 49,881 $ 48,921 $ 49,394 Adjusted operating income $ 17,157 $ 31,057 $ 31,631 $ 28,330 $ 51,016 % margin** 28.1 % 40.0 % 38.8 % 36.7 % 50.8 % ** Accounting presentation changed in Q4 2021 from gross revenue recognition to net, with a corresponding change in sales and marketing costs for one significant customer. This table reflects the contract calculated under both accounting presentations. To make the adjusted calculation, the following numbers, which represent the effect of the accounting presentation change, were subtracted from both the Revenue and Adjusted operating expenses line items in the Reported table to arrive at the numbers in the same line items on the Adjusted table: $20,629 in Q2 2021 and $13,289 in Q3 2021. Key Takeaways Accounting presentation changed in Q4 2021 from gross revenue recognition to net, with a corresponding change in sales and marketing costs for one significant customer There is no impact on earnings from this change
Non-GAAP Reconciliation Reconciliation of GAAP Operating Income to Total Segment Adjusted Operating Income and Adjusted Operating Income Three months ended June 30, In thousands 2022 2021 Operating income $ 171,131 $ 82,278 Unallocated corporate expenses 18,986 17,174 Acquisition-related intangible amortization 42,538 45,294 Other acquisition and divestiture related items 6,461 10,690 Stock-based compensation 25,267 21,662 Other costs 7,926 1,705 Debt restructuring costs (17) 5,299 Total Segment adjusted operating income $ 272,292 $ 184,102 Unallocated corporate expenses (18,986) (17,174) Adjusted operating income $ 253,306 $ 166,928
Non-GAAP Reconciliation Three Months Ended June 30, 2022 2021 In thousands except per diluted share data per diluted share per diluted share Net income (loss) attributable to shareholders $ 34,129 $ 0.76 $ (33,856) $ (0.76) Unrealized gain on financial instruments (16,894) (0.37) (6,013) (0.13) Net foreign currency loss (gain) 19,408 0.43 (1,342) (0.03) Change in fair value of contingent consideration 88,200 1.96 47,700 1.07 Acquisition–related intangible amortization 42,538 0.94 45,294 1.01 Other acquisition and divestiture related items 6,461 0.14 10,690 0.24 Stock–based compensation 25,267 0.56 21,662 0.48 Other costs 7,926 0.18 1,705 0.04 Debt restructuring and debt issuance cost amortization 4,694 0.10 11,461 0.26 ANI adjustments attributable to non–controlling interests — — 43,206 0.96 Tax related items (42,348) (0.94) (35,613) (0.80) Dilutive impact of stock awards1 — — — (0.03) Dilutive impact of convertible debt 2 — (0.05) — — Adjusted net income attributable to shareholders $ 169,381 $ 3.71 $ 104,894 $ 2.31 2 During the quarter ended June 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 interest expense associated with our convertible notes, net of tax, was added back to adjusted net income for the three months ended June 30, 2022 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 period were included in the calculation of adjusted net income per diluted share, as the effect of including such adjustments was dilutive. 1 As the Company reported a net loss for the three months ended June 30, 2021 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 for the three months ended June 30, 2021. 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.
The Company's non-GAAP adjusted net income excludes acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs, unrealized gains and losses on financial instruments, net foreign currency gains and losses, change in fair value of contingent consideration, debt issuance cost amortization, other adjustments attributable to non-controlling interests and tax related items. The Company's non-GAAP adjusted operating income excludes acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation and other costs. 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 costs related to certain identified initiatives, including 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 six months ended June 30, 2021, other costs additionally include a penalty incurred on a vendor contract termination; 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. Non-GAAP Reconciliation