# WEX Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [WEX Inc.](/companies/wex.md) (CIK 1309108)
- Form: 10-Q
- Filed: 2023-10-27
- Accepted by EDGAR: Oct 27, 2023, 12:04 ET
- Period: 2023-09-30
- Accession: 0001309108-23-000183
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1309108/000130910823000183/wex-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1309108/000130910823000183/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $469.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.36bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $235.1m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $717.4m | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $174.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $488.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $26.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $78.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $18.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $181.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.42 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.18 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.43 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 43,400,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 43,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $146.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $101.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $152.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $957.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $9.13bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $13.90bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $8.86bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $12.20bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $2.65bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $55.9m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2023-09-30 | $957.3m | us-gaap:ShortTermBorrowings |

## Management's discussion and analysis

As filed, 65,789 characters.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information that will assist the reader with understanding our financial statements, the changes in key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting estimates affect our financial statements. The discussion also provides information about the financial results of the three segments of our business to provide a better understanding of how those segments and their results affect our financial condition and results of operations as a whole. Additionally, certain corporate costs not allocated to our operating segments are discussed herein.

Our MD&A is presented in the following sections:

- Executive Overview
- Company Highlights
- Results of Operations
- Liquidity and Capital Resources
- Critical Accounting Policies and Estimates
- Recently Adopted Accounting Standards

This discussion should be read in conjunction with our audited consolidated financial statements as of December 31, 2022, the notes accompanying those financial statements and MD&A as contained in our Annual Report on Form 10–K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 28, 2023, and in conjunction with the condensed consolidated financial statements and notes in Part I – Item 1 of this report.

### Executive Overview

WEX Inc. is the global commerce platform that simplifies the business of running a business. We own and operate a B2B ecosystem that helps our customers overcome highly manual processes and reconciliations, navigate the complexity of consumer driven healthcare benefits, and solve their administrative challenges. WEX offers the marketplace a unique combination of capabilities to simplify complexity, including:

- *Global commerce platform.* Our technology is engineered and operated with global scale and reliability. Using our technology, our customers have trusted us to conduct hundreds of billions worth of money movements in more than 20 currencies.
- *Personalized solutions, seamlessly embedded.* Our solutions are shaped by customer focused innovation and deep industry expertise. Both in our direct-to-corporate and partner channels, our solutions focus on simplifying the business of running a business by deeply embedding our solutions within our end customer workflows.
- *Insights that power success.* WEX provides a powerful combination of specialized expertise and rich data to assist customers in driving better decisions, moving more quickly, and in dealing with risk, putting control in the hands of our customers.

Leveraging these unique capabilities, WEX offers solutions that organizations use to drive efficiencies and manage risk. These solutions, which share and benefit from our underlying capabilities such as payment processing, data analytics, and WEX Bank, are provided across three business segments: Mobility, Corporate Payments and Benefits. Within our Mobility segment, WEX reimagines mobility across fleets of all sizes, as a leader in fleet vehicle payment solutions, transaction processing, and information management services. Our Corporate Payments segment focuses on the complex payment environment of global B2B payments, allowing businesses to centralize purchasing, simplify complex supply chain processes, and eliminate the paper check writing associated with traditional purchase order programs. Our Benefits segment simplifies the business of administering and managing employee benefit plans, providing software-as-a service, or "SaaS", software with embedded payment solutions and plan administration services for consumer directed health benefits, COBRA accounts, and benefit enrollment and administration. In addition, WEX Inc. is an IRS-designated non-bank custodian of Health Saving Account assets.

### Company Highlights

The following table presents a summarized view of selected results for the three and nine months ended September 30, 2023, shown comparative to the prior year periods. Operating cash flow and adjusted cash flow information is presented on a year to-date basis, and shown comparative to the prior year to-date. The other key metric included below provides additional data underlying our financial performance. A recurring, more extensive list of key performance indicators is included by segment within the *Results of Operations* section later in this MD&A.

*(in millions, except per share data)*

| September 30, 2023 GAAP Measures: | Three Months Ended September 30, 2022 | September 30, 2023 | Nine Months Ended September 30, 2022 |  |
| --- | ---: | ---: | ---: | ---: |
| Total revenues | **$651.4** | $616.1 | **$1,884.7** | $1,731.9 |
| Net income (loss) attributable to shareholders | **$18.4** | $(44.1) | **$181.7** | $112.7 |
| Net income (loss) attributable to shareholders per diluted share | **$0.42** | $(1.00) | **$4.18** | $2.51 |
| Net cash provided by operating activities2 |  |  | **$146.0** | $106.6 |
| **Non-GAAP Measures1** |  |  |  |  |
| Adjusted net income attributable to shareholders | **$176.8** | $157.8 | **$481.9** | $458.2 |
| Adjusted net income attributable to shareholders per diluted share | **$4.05** | $3.51 | **$10.99** | $10.09 |
| Adjusted free cash flow |  |  | **$391.6** | $406.8 |
| **Other Key Metric:** |  |  |  |  |
| Total volume across the Company3 | **$61,880** | $57,528 | **$169,479** | $158,927 |

1 Adjusted net income attributable to shareholders, adjusted net income attributable to shareholders per diluted share, and adjusted free cash flow are supplemental non-GAAP financial measures of operating performance. Refer to the sections titled *Non–GAAP Financial Measures That Supplement GAAP Measures* and *Liquidity and Capital Resources* later in this MD&A for more information and a reconciliation of the non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.

2 Restricted cash payable inflows of $350.1 million for the nine months ended September 30, 2022 have been reclassified from operating activities to financing activities to conform to the current period presentation. Refer to Item 1 - Note 1, Basis of Presentation for more information.

3 Total volume across the Company includes purchases on WEX-issued accounts as well as purchases issued by others using a WEX platform.

### Results of Operations

The following includes information that our management believes is material to an understanding of our results of operations. Any significant changes, unusual or infrequent events or significant economic changes that materially affect our results of operations are discussed below.

### Mobility

#### Revenues

The following table reflects comparative revenue and key operating statistics within Mobility:

*(In millions, except per gallon data)*

| Revenues1 | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Payment processing revenue | **$176.9** | $188.6 | $(11.7) | (6)% | **$520.6** | $542.9 | $(22.3) | (4)% |
| Account servicing revenue | **42.5** | 41.6 | 0.9 | 2% | **123.6** | 127.9 | (4.3) | (3)% |
| Finance fee revenue | **76.8** | 96.5 | (19.7) | (20)% | **233.5** | 260.0 | (26.5) | (10)% |
| Other revenue | **53.9** | 51.4 | 2.5 | 5% | **154.9** | 145.7 | 9.2 | 6% |
| Total revenues | **$350.1** | $378.1 | $(28.0) | (7)% | **$1,032.6** | $1,076.5 | $(43.9) | (4)% |

37

*(In millions, except per gallon data)*

| Key operating statistics | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Payment processing transactions | **144.6** | 145.3 | (0.7) | —% | **424.5** | 421.1 | 3.4 | 1% |
| Payment processing $ of fuel | **$14,945.1** | $17,205.4 | $(2,260.3) | (13)% | **$42,869.2** | $50,235.4 | $(7,366.2) | (15)% |
| Average price per gallon of fuel – Domestic – ($USD/gal) | **$3.97** | $4.54 | $(0.57) | (13)% | **$3.83** | $4.50 | $(0.67) | (15)% |
| Net payment processing rate2 | **1.18%** | 1.10% | 0.08% | 7% | **1.21%** | 1.08% | 0.13% | 12% |
| Net late fee rate | **0.44%** | 0.48% | (0.04)% | (7)% | **0.47%** | 0.43% | 0.04% | 10% |

1 Lower domestic fuel prices decreased revenue by $31.9 million for the three months ended September 30, 2023 and $83.5 million in the nine months ended September 30, 2023 as compared to the same periods in the prior year.

2 Our net payment processing rate for the three and nine months ended September 30, 2023 has benefited from lower average domestic fuel prices and the impact of interest rate escalator clauses contained in various merchant contracts, partly offset by negative European fuel price spreads.

Total Mobility revenue decreased $28.0 million for the third quarter of 2023 and $43.9 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decreases in total Mobility revenue were primarily driven by the impact of lower average fuel prices on stable levels of payment processing transactions year over year and lower finance fee revenue.

Finance fee revenue is comprised of the following components:

*(In millions)*

|  | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Finance income | **$66.4** | $83.2 | $(16.8) | (20)% | **$202.8** | $217.1 | $(14.3) | (7)% |
| Factoring fee revenue | **10.4** | 13.3 | (2.9) | (22)% | **30.7** | 42.8 | (12.1) | (28)% |
| **Finance fee revenue** | **$76.8** | $96.5 | $(19.7) | (20)% | **$233.5** | $260.0 | $(26.5) | (10)% |

Finance income primarily consists of late fees charged for receivables not paid within the terms of the customer agreement based upon the outstanding customer receivable balance, and to a lesser degree by finance charges earned on revolving portfolio balances. Late fee revenue is earned when a customer’s receivable balance becomes delinquent and is calculated using the greater of a minimum charge or a stated late fee rate multiplied by the outstanding balance that is subject to a late fee charge. Changes in the absolute amount of such outstanding balances can generally be attributed to: (i) changes in fuel prices; (ii) customer specific transaction volume; and (iii) customer specific delinquencies. Late fee revenue can also be impacted by: (i) changes in late fee rates; and (ii) increases or decreases in customer overdue balances.

Finance income decreased $16.8 million for the third quarter of 2023 as compared to the same period in the prior year, primarily due to the decline in average fuel prices driving down customer spend upon which late fees are earned, along with a decline in the number of late fee instances, reflective of tighter credit policies we have put in place. Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted to customers experiencing financial difficulties during the three and nine months ended September 30, 2023 and 2022.

The primary source of factoring fee revenue is calculated as a negotiated percentage fee of the receivable balance that we purchase. Factoring fee revenue decreased $2.9 million for the third quarter of 2023 and decreased $12.1 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. Decreased shipping demand in the over-the-road market, led to a decline in size and volume of factored invoices during the three and nine months ended September 30, 2023 as compared to the elevated demands of the same periods in the prior year.

#### Operating Expenses

The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for Mobility:

*(In millions)*

| Cost of services | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Processing costs | **$70.1** | $68.5 | $1.6 | 2% | **$208.4** | $193.0 | $15.4 | 8% |
| Service fees | **$1.9** | $2.1 | $(0.2) | (11)% | **$5.6** | $6.4 | $(0.8) | (13)% |
| Provision for credit losses | **$12.2** | $53.0 | $(40.8) | (77)% | **$78.5** | $118.7 | $(40.2) | (34)% |
| Operating interest | **$21.0** | $5.4 | $15.6 | 288% | **$47.0** | $8.4 | $38.6 | 460% |
| Depreciation and amortization | **$9.9** | $12.0 | $(2.1) | (17)% | **$29.4** | $35.7 | $(6.3) | (18)% |
| **Other operating expenses** |  |  |  |  |  |  |  |  |
| General and administrative | **$39.6** | $26.9 | $12.7 | 47% | **$100.4** | $76.5 | $23.9 | 31% |
| Sales and marketing | **$53.4** | $52.4 | $1.0 | 2% | **$156.4** | $154.1 | $2.3 | 2% |
| Depreciation and amortization | **$17.0** | $17.6 | $(0.6) | (4)% | **$51.4** | $54.2 | $(2.8) | (5)% |
| Impairment charges | **$—** | $136.5 | $(136.5) | NM | **$—** | $136.5 | $(136.5) | NM |
| **Operating income** | **$125.0** | $3.5 | $121.5 | NM | **$355.5** | $293.0 | $62.5 | 21% |
| **Segment adjusted operating income1** | **$159.6** | $174.5 | $(14.9) | (9)% | **$448.7** | $527.6 | $(78.9) | (15)% |
| **Segment adjusted operating income margin2** | **45.6%** | 46.2% | (0.6)% | (1)% | **43.5%** | 49.0% | (5.5)% | (11)% |

NM - Not meaningful

1 Our CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization and other acquisition and divestiture related items; (iii) stock-based compensation and (iv) other costs. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 2 for a reconciliation of operating income to total segment adjusted operating income. See also Part I – Item 1 – Note 18, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.

2 Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue. The nine months ended September 30, 2023 saw a decrease in segment adjusted operating income margin from the prior year comparable period, primarily reflecting the decline in average fuel prices and higher operating interest costs, offset by a significant decrease in credit and fraud losses. Such margin remained flat for the third quarter of 2023 compared to the prior year comparable period.

#### Cost of services

Provision for credit losses, which includes estimates for both credit and fraud losses, decreased by $40.8 million and $40.2 million, respectively, for the three and nine months ended September 30, 2023 as compared to the same periods in the prior year. The higher credit and fraud loss rates experienced during the three and nine months ended September 30, 2022 have improved during the three and nine months ended September 30, 2023 due in part to tighter credit policies put in place to reduce such losses. In addition, the elevated loss rates seen in the over-the-road trucking business for the past several quarters have moderated.

We generally measure our loss performance by calculating fuel-related losses as a percentage of total fuel expenditures on payment processing transactions. This metric for provision for credit losses was 6.8 and 17.8 basis points of fuel expenditures for the three and nine months ended September 30, 2023, respectively. For the three and nine months ended September 30, 2022, provision for credit losses was 30.9 and 23.7 basis points of fuel expenditures, respectively.

Operating interest increased $15.6 million for the third quarter of 2023 and increased $38.6 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year, primarily reflective of higher interest rates and increased operating debt balances in support of working capital needs.

Depreciation and amortization decreased $6.3 million for the nine months ended September 30, 2023 compared to the prior year comparable period due to certain assets becoming fully depreciated during 2022.

#### Other operating expenses

General and administrative expenses increased $12.7 million and $23.9 million for the three and nine months ended September 30, 2023, respectively, as compared with the same periods in the prior year due to a third quarter 2023 write-off of certain costs associated with an abandoned IT development project and increased professional services expense in support of increasing operating efficiencies and business growth.

Impairment charges incurred during the three and nine months ended September 30, 2022 consisted of non-cash goodwill impairment charges of $136.5 million for two of our international Mobility reporting units.

### Corporate Payments

#### Revenues

The following table reflects comparative revenue and key operating statistics within Corporate Payments:

*(In millions)*

| Revenues1 | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Payment processing revenue | **$115.8** | $101.5 | $14.3 | 14% | **$310.6** | $255.2 | $55.4 | 22% |
| Account servicing revenue | **10.5** | 10.7 | (0.2) | (2)% | **31.7** | 31.9 | (0.2) | (1)% |
| Finance fee revenue | **0.2** | 0.2 | — | NM | **0.5** | 0.5 | — | NM |
| Other revenue | **8.7** | 1.5 | 7.2 | 468% | **19.1** | 4.0 | 15.1 | 378% |
| Total revenues | **$135.2** | $114.0 | $21.2 | 19% | **$361.9** | $291.6 | $70.3 | 24% |
| **Key operating statistics** |  |  |  |  |  |  |  |  |
| Purchase volume | **$27,860.1** | $20,657.0 | $7,203.1 | 35% | **$69,396.0** | $49,586.4 | $19,809.6 | 40% |
| Net interchange rate2 | **0.42%** | 0.49% | (0.07)% | (15)% | **0.45%** | 0.51% | (0.06)% | (12)% |

1 The impact of foreign currency exchange rate fluctuations on Corporate Payments increased revenues by $4.7 million and $3.9 million during the three and nine months ended September 30, 2023, respectively, compared to the prior year comparable periods.

2 Changes in customer and product mix, including the significant growth in travel-related purchase volumes, has reduced our net interchange rate during the three and nine months ended September 30, 2023 compared to the same periods of the prior year.

Total Corporate Payments revenue increased $21.2 million for the third quarter of 2023 and $70.3 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. These increases were primarily driven by continued strength in global consumer travel demand. Other revenue has increased due to higher interest revenue earned on restricted cash balances, due to a rise in interest rates, and average balances coinciding with increased travel volumes.

Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted to customers during the three and nine months ended September 30, 2023 and 2022.

#### Operating Expenses

The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for Corporate Payments:

*(In millions)*

| Cost of services | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Processing costs | **$17.8** | $18.7 | $(0.9) | (5)% | **$57.2** | $55.2 | $2.0 | 4% |
| Service fees | **$3.1** | $3.4 | $(0.3) | (10)% | **$9.8** | $10.6 | $(0.8) | (8)% |
| Provision for credit losses | **$(3.9)** | $0.7 | $(4.6) | NM | **$(2.5)** | $2.1 | $(4.6) | NM |
| Operating interest | **$2.7** | $2.2 | $0.5 | 23% | **$6.7** | $4.5 | $2.2 | 50% |
| Depreciation and amortization | **$6.2** | $5.6 | $0.6 | 10% | **$17.9** | $15.4 | $2.5 | 16% |

40

*(In millions)*

| Other operating expenses | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | **$18.1** | $17.1 | $1.0 | 6% | **$53.1** | $48.4 | $4.7 | 10% |
| Sales and marketing | **$14.9** | $14.6 | $0.3 | 2% | **$41.7** | $42.7 | $(1.0) | (2)% |
| Depreciation and amortization | **$6.7** | $6.0 | $0.7 | 12% | **$19.8** | $18.3 | $1.5 | 8% |
| **Operating income** | **$69.6** | $45.6 | $24.0 | 53% | **$158.2** | $94.5 | $63.7 | 67% |
| **Segment adjusted operating income1** | **$82.9** | $60.3 | $22.6 | 37% | **$198.4** | $139.6 | $58.8 | 42% |
| **Segment adjusted operating income margin2** | **61.3%** | 52.9% | 8.4% | 16% | **54.8%** | 47.9% | 6.9% | 14% |

NM - Not meaningful

1 Our CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization and other acquisition and divestiture related items; (iii) stock-based compensation and (iv) other costs. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 2 for a reconciliation of operating income to total segment adjusted operating income. See also Part I – Item 1 – Note 18, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.

2 Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue.

As a result of owning all of our technology and issuing capabilities, our Corporate Payments segment has a highly scalable and relatively fixed cost base resulting in largely comparable expenses year to year. As a result, the significant increase in 2023 revenues has also significantly contributed to the increased operating income, segment adjusted operating income and segment adjusted operating income margin for the three and nine months ended September 30, 2023.

The decreased provision for credit losses for the three and nine months ended September 30, 2023, as compared to the prior year comparable periods, reflects the impact of improved expectation of future economic conditions.

### Benefits

#### Revenues

The following table reflects comparative revenue and key operating statistics within Benefits:

*(In millions)*

| Revenues | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Payment processing revenue | **$20.6** | $18.9 | $1.7 | 9% | **$70.7** | $62.7 | $8.0 | 13% |
| Account servicing revenue | **108.5** | 85.9 | 22.6 | 26% | **319.8** | 256.1 | 63.7 | 25% |
| Finance fee revenue | **0.1** | — | 0.1 | NM | **0.2** | 0.1 | 0.1 | 92% |
| Other revenue | **36.9** | 19.2 | 17.7 | 93% | **99.5** | 44.9 | 54.6 | 122% |
| Total revenues | **$166.1** | $124.1 | $42.0 | 34% | **$490.2** | $363.8 | $126.4 | 35% |
| **Key operating statistics** |  |  |  |  |  |  |  |  |
| Purchase volume | **$1,501.3** | $1,350.5 | $150.8 | 11% | **$5,145.6** | $4,494.7 | $650.9 | 14% |
| Average number of SaaS accounts1 | **19.9** | 18.2 | 1.7 | 9% | **19.9** | 17.9 | 2.0 | 11% |
| Average HSA custodial cash assets | **3,908.5** | 3,177.7 | 730.8 | 23% | **3,821.0** | 3,079.1 | 741.9 | 24% |

1 Represents the number of active Consumer-Directed Health, COBRA, and billing accounts on our SaaS platforms. SaaS accounts include HSA accounts for which WEX Inc. serves as the non-bank custodian under designation by the U.S. Department of Treasury.

Total Benefits revenue increased $42.0 million for the third quarter of 2023 and $126.4 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. A rise in average balances and interest rates earned on the investment of HSA deposit balances held by WEX Bank, as reflected within other revenue, and increases in program fees earned on custodial services, as reflected within account servicing revenue, significantly contributed to the increase in total revenues in the third quarter and nine months ended September 30, 2023 compared to the prior year comparable periods. Increased spend volume driven by cardholder growth and increased SaaS participants also contributed to the increase in total revenues.

#### Operating Expenses

The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for Benefits:

*(In millions)*

| Cost of services | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Processing costs | **$68.5** | $59.0 | $9.5 | 16% | **$186.1** | $168.1 | $18.0 | 11% |
| Service fees | **$13.5** | $11.0 | $2.5 | 22% | **$39.3** | $30.2 | $9.1 | 30% |
| Provision for credit losses | **$1.1** | $0.3 | $0.8 | 220% | **$1.5** | $1.1 | $0.4 | 39% |
| Operating interest | **$1.6** | $0.3 | $1.3 | NM | **$3.9** | $0.5 | $3.4 | NM |
| Depreciation and amortization | **$9.4** | $9.7 | $(0.3) | (3)% | **$28.6** | $28.8 | $(0.2) | (1)% |
| **Other operating expenses** |  |  |  |  |  |  |  |  |
| General and administrative | **$13.1** | $9.3 | $3.8 | 40% | **$39.5** | $30.5 | $9.0 | 30% |
| Sales and marketing | **$14.5** | $13.8 | $0.7 | 5% | **$43.5** | $38.5 | $5.0 | 13% |
| Depreciation and amortization | **$17.9** | $14.8 | $3.1 | 21% | **$52.0** | $44.3 | $7.7 | 17% |
| **Operating income** | **$26.5** | $5.8 | $20.7 | 358% | **$95.8** | $21.9 | $73.9 | 338% |
| **Segment adjusted operating income1** | **$58.8** | $30.3 | $28.5 | 94% | **$182.6** | $94.1 | $88.5 | 94% |
| **Segment adjusted operating income margin2** | **35.4%** | 24.4% | 11.0% | 45% | **37.3%** | 25.9% | 11.4% | 44% |

NM - Not meaningful

1 Our CODM evaluates the financial performance of each segment using segment adjusted operating income, which excludes: (i) unallocated corporate expenses; (ii) acquisition-related intangible amortization and other acquisition and divestiture related items; (iii) stock-based compensation and (iv) other costs. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 2 for a reconciliation of operating income to total segment adjusted operating income. See also Part I – Item 1 – Note 18, Segment Information, to our condensed consolidated financial statements for more information regarding our segment determination.

2 Segment adjusted operating income margin is calculated by dividing segment adjusted operating income by segment revenue. The revenues earned on HSA assets is highly accretive to earnings and as a result, segment adjusted operating income margin for the three and nine months ended September 30, 2023 increased significantly from the prior year comparable periods.

#### Cost of services

Processing costs increased by $9.5 million and $18.0 million, respectively, for the three and nine months ended September 30, 2023 due to an increase in professional services, card issuance and other costs in support of volume increases.

Service fees increase for the three and nine months ended September 30, 2023 were primarily driven by increased fees incurred on higher HSA deposits, as compared with the same period in the prior year.

#### Other operating expenses

General and administrative expenses increased $3.8 million and $9.0 million for the three and nine months ended September 30, 2023, respectively, as compared with the same periods in the prior year primarily due to increased professional services expense in support of increasing operating efficiencies and business growth.

Expansion of the sales and marketing team drove the $5.0 million increase in sales and marketing expense for the nine months ended September 30, 2023, as compared to the prior year period.

Depreciation and amortization increased $3.1 million and $7.7 million, for the three and nine months ended September 30, 2023, respectively, as compared to the prior year periods, primarily due to higher relative amortization on HSA contractual rights coupled to a smaller degree by increased amortization as a result of the Ascensus Acquisition.

### Unallocated corporate expenses

Unallocated corporate expenses represent the portion of expenses relating to general corporate functions, including acquisition and divestiture expenses, certain finance, legal, information technology, human resources, administrative and executive expenses, and other expenses not directly attributable to a reportable segment.

The following table compares line items within operating income for unallocated corporate expenses:

*(In millions)*

| Other operating expenses | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | **$45.8** | $33.2 | $12.6 | 38% | **$118.7** | $93.3 | $25.4 | 27% |
| Depreciation and amortization | **$0.4** | $0.4 | $— | NM | **$2.2** | $1.5 | $0.7 | NM |

NM - Not meaningful

General and administrative expenses increased during the third quarter and nine months ended September 30, 2023 as compared to the same periods in the prior year, primarily due to increased headcount and related compensation expense, including stock compensation, coupled with an increase in costs incurred in connection with the Ascensus Acquisition.

### Non-operating income and expense

The following table reflects comparative results for certain amounts excluded from operating income:

*(In millions)*

|  | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Financing interest expense | **$(41.6)** | $(34.4) | $7.2 | 21% | **$(122.4)** | $(95.9) | $26.5 | 28% |
| Change in fair value of contingent consideration | **$(3.2)** | $(30.3) | $(27.1) | (89)% | **$(6.2)** | $(135.1) | $(128.9) | (95)% |
| Loss on extinguishment of Convertible Notes | **$(70.1)** | $— | $70.1 | NM | **$(70.1)** | $— | $70.1 | NM |
| Net foreign currency loss | **$(7.8)** | $(23.4) | $(15.6) | 67% | **$(9.4)** | $(37.8) | $(28.4) | (75)% |
| Net unrealized (loss) gain on financial instruments | **$(7.8)** | $23.5 | $(31.3) | (133)% | **$(20.1)** | $90.3 | $(110.4) | (122)% |
| Income tax provision | **$26.0** | $0.8 | $25.2 | NM | **$78.7** | $57.3 | $21.4 | 37% |
| Net income from non-controlling interests | **$—** | $— | $— | —% | **$—** | $0.3 | $(0.3) | (100)% |
| Change in value of redeemable non-controlling interest | **$—** | $— | $— | —% | **$—** | $34.2 | $(34.2) | 100% |

NM - Not meaningful

Financing interest expense increased as a result of higher net variable interest rates on our term loans, inclusive of amounts economically hedged via interest rate swap agreements.

Due to the rising rate environment since we completed the acquisition of certain contractual rights from Bell Bank, the Company’s contingent consideration derivative liability is effectively reflected at the maximum contingent consideration payable under the purchase agreement. As a result, absent a significant decline in the Federal Funds futures curve, changes in the fair value of contingent consideration in 2023 and beyond are expected to generally be limited to present value adjustments due to the passage of time. See Part I – Item 1 – Note 13, Financial Instruments − Fair Value and Concentrations of Credit Risk, to our condensed consolidated financial statements for further information on the valuation of this derivative liability.

During August 2023, we repurchased all of the outstanding aggregate principal amount of the Company’s Convertible Notes at a premium resulting in a loss on extinguishment of $70.1 million. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for further information on the repurchase of the Convertible Notes.

Our foreign currency exchange exposure is primarily related to the remeasurement of our cash, receivable and payable balances, including intercompany transactions that are denominated in foreign currencies. The losses incurred during the third quarter and nine months ended September 30, 2023, resulted from the weakening of certain foreign currencies in which we transact, including the Euro and the Australian and Canadian dollars, relative to the U.S. dollar.

Due to substantial increases in the LIBOR forward yield curve during the three and nine months ended September 30, 2022, we recognized significant unrealized gains on our interest rate swap financial instruments during those periods. Comparatively, during 2023 forward yield curves on our interest rate swap financial instruments experienced only moderate changes.

The increase in income tax provision for the three and nine months ended September 30, 2023 as compared to the prior year comparable periods is due primarily to an increase in income (loss) before income taxes, offset in part due to the change in the Company’s effective tax rates. The Company’s effective tax rates for the three and nine months ended September 30, 2023 were 58.6 percent and 30.2 percent, respectively, compared to (1.9) percent and 42.1 percent for the three and nine months ended September 30, 2022, respectively. See Part I – Item 1 – Note 15, Income Taxes, to our condensed consolidated financial statements for more information regarding the drivers behind our effective tax rates.

During the nine months ended September 30, 2022, the Company purchased the remaining non-controlling interest in PO Holding from SBI, reducing the carrying value of the redeemable non-controlling interest to zero. The transaction resulted in a $34.2 million gain, net of tax expense.

### Non–GAAP Financial Measures That Supplement GAAP Measures

#### Segment Adjusted Operating Income and Adjusted Net Income

In addition to evaluating the Company’s performance on a GAAP basis, management of the Company uses segment adjusted operating income, a non-GAAP measure, to allocate resources among our operating segments. The Company considers this measure, which excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs and impairment charges integral in evaluating the Company’s performance.

Our management also uses adjusted net income, a non-GAAP measure, to evaluate its performance. WEX believes that adjusted net income, which similarly excludes all items discussed in the paragraph above except unallocated corporate expenses, and further excludes unrealized gains and losses on financial instruments, net foreign currency gains and losses, change in fair value of contingent consideration, debt restructuring and debt issuance cost amortization, other adjustments attributable to non-controlling interests and tax related items, is also integral to the Company’s reporting and planning processes.

Segment adjusted operating income and adjusted net income may be useful to investors as a means of evaluating our performance. However, because segment adjusted operating income and adjusted net income are non-GAAP measures, they should not be considered as a substitute for, or superior to, operating income or net income as determined in accordance with GAAP. Segment adjusted operating income and adjusted net income as used by WEX may not be comparable to similarly titled measures employed by other companies.

Specifically, in addition to evaluating the Company’s performance on a GAAP basis, management evaluates the Company’s performance on a non-GAAP basis that excludes the items specified above for the reasons discussed below:

- Exclusion of the non-cash, mark-to-market adjustments on financial instruments, including interest rate swap agreements and investment securities, helps management identify and assess trends in the Company’s underlying business that might otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these financial instruments. Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future periods difficult to evaluate;
- Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, accounts receivable and accounts payable balances, certain intercompany notes denominated in foreign currencies and any gain

or loss on foreign currency economic hedges relating to these items. The exclusion of these items helps management compare changes in operating results between periods that might otherwise be obscured due to currency fluctuations;

- The change in fair value of contingent consideration, which is related to the acquisition of certain contractual rights to serve as custodian or sub-custodian to HSAs, is dependent upon changes in future interest rate assumptions and has no significant impact on the ongoing operations of the Company. Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future periods difficult to evaluate;
- The Company considers certain acquisition-related costs, including certain financing costs, investment banking fees, warranty and indemnity insurance, certain integration-related expenses and amortization of acquired intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses on divestitures facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in our industry;
- Stock-based compensation is different from other forms of compensation as it is a non-cash expense. For example, a cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time;
- Other costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. This also includes non-recurring professional service costs, costs related to certain identified initiatives, including restructuring and technology initiatives, to further streamline the business, improve the Company’s efficiency, create synergies and globalize the Company’s operations, all with an objective to improve scale and efficiency and increase profitability going forward.
- Impairment charges represent non-cash asset write-offs, which do not reflect recurring costs that would be relevant to the Company’s continuing operations. The Company believes that excluding these nonrecurring expenses facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in its industry;
- Debt restructuring and debt issuance cost amortization, which for the three and nine months ended September 30, 2023 includes the loss on extinguishment of Convertible Notes, are unrelated to the continuing operations of the Company. Debt restructuring costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. In addition, since debt issuance cost amortization is dependent upon the financing method, which can vary widely company to company, we believe that excluding these costs helps to facilitate comparison to historical results as well as to other companies within our industry;
- The adjustments attributable to non-controlling interests, including adjustments to the redemption value of a non-controlling interest, have no significant impact on the ongoing operations of the business;
- The tax related items are the difference between the Company’s GAAP tax provision and a pro forma tax provision based upon the Company’s adjusted net income before taxes as well as the impact from certain discrete tax items. The methodology utilized for calculating the Company’s adjusted net income attributable to shareholders tax provision is the same methodology utilized in calculating the Company’s GAAP tax provision; and
- The Company does not allocate certain corporate expenses to our operating segments, as these items are centrally controlled and are not directly attributable to any reportable segment.

The following tables reconcile net income (loss) attributable to shareholders to adjusted net income attributable to shareholders and related per share data:

*(In millions except per diluted share data)*

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| **Net income (loss) attributable to shareholders** | **$18.4** **$0.42** | $(44.1) $(1.00) |
| Unrealized loss (gain) on financial instruments | **7.8** **0.18** | (23.5) (0.53) |
| Net foreign currency loss | **7.8** **0.18** | 23.4 0.53 |
| Change in fair value of contingent consideration | **3.2** **0.07** | 30.3 0.69 |
| Acquisition-related intangible amortization | **45.2** **1.04** | 42.5 0.96 |
| Other acquisition and divestiture related items | **5.1** **0.12** | 4.1 0.09 |
| Stock-based compensation | **31.9** **0.74** | 27.9 0.63 |
| Other costs | **15.1** **0.35** | 8.8 0.20 |
| Impairment charges | **—** **—** | 136.5 3.09 |
| Debt restructuring and debt issuance cost amortization | **74.4** **1.71** | 4.7 0.11 |
| Tax related items | **(32.1)** **(0.74)** | (52.8) (1.19) |
| Dilutive impact of stock awards1 | **—** **—** | — (0.02) |
| Dilutive impact of convertible debt2 | **—** **(0.02)** | — (0.05) |
| **Adjusted net income attributable to shareholders** | **$176.8** **$4.05** | $157.8 $3.51 |
|  | **Nine Months Ended September 30,** |  |
|  | **2023** | 2022 |
| **Net income attributable to shareholders** | **$181.7** **$4.18** | $112.7 $2.51 |
| Unrealized loss (gain) on financial instruments | **20.1** **0.46** | (90.3) (2.01) |
| Net foreign currency loss | **9.4** **0.22** | 37.8 0.84 |
| Change in fair value of contingent consideration | **6.2** **0.14** | 135.1 3.00 |
| Acquisition-related intangible amortization | **133.6** **3.07** | 127.7 2.84 |
| Other acquisition and divestiture related items | **7.6** **0.17** | 15.1 0.34 |
| Stock-based compensation | **94.5** **2.17** | 78.4 1.74 |
| Other costs | **28.6** **0.66** | 24.9 0.55 |
| Impairment charges | **—** **—** | 136.5 3.03 |
| Debt restructuring and debt issuance cost amortization | **83.9** **1.93** | 12.7 0.28 |
| ANI adjustments attributable to non-controlling interests | **—** **—** | (34.6) (0.77) |
| Tax related items | **(83.7)** **(1.92)** | (98.0) (2.18) |
| Dilutive impact of convertible debt2 | **—** **(0.09)** | — (0.08) |
| **Adjusted net income attributable to shareholders** | **$481.9** **$10.99** | $458.2 $10.09 |

1 As the Company reported a net loss for the three months ended September 30, 2022 under GAAP, the diluted weighted average shares outstanding equals the basic weighted average shares outstanding for that period. The non-GAAP adjustments described above resulted in adjusted net income attributable to shareholders (versus a loss on a GAAP basis) for the three months ended September 30, 2022. Therefore, dilutive common stock equivalents have been included in the calculation of adjusted diluted weighted average shares outstanding to arrive at adjusted per share data.

2 The dilutive impact of the Convertible Notes has been calculated under the ‘if-converted’ method for the periods through which they were outstanding. Under the ‘if-converted’ method, interest expense, net of tax, associated with our Convertible Notes of $1.8 million and $9.5 million and $3.8 million and $11.3 million was added back to adjusted net income for the three and nine months ended September 30, 2023 and 2022, respectively. For the reported quarter-to-date and year-to-date periods of 2022 presented, approximately 1.6 million shares of the Company’s common stock associated with the assumed conversion of the Convertible Notes as of the beginning of the period was included in the calculations of adjusted net income per diluted share, as the effect of including such adjustments was dilutive. For the three and nine months ended September 30, 2023, approximately 0.7 million and 1.3 million shares of the Company’s common stock associated with the assumed conversion of the Convertible Notes (prior to repurchase and cancellation) was included in the calculation of adjusted net income per dilutive share, respectively, as the effect of including such adjustments was dilutive. The total number of shares used in calculating adjusted net income attributable to shareholders per diluted share for the three and nine months ended September 30, 2023 was 44.1 million and 44.7 million, respectively. The total number of shares used in calculating adjusted net income attributable to shareholders per diluted share for the three and nine months ended September 30, 2022 is 46.0 million and 46.5 million, respectively. For further information about the Convertible Notes and their repurchase and cancellation, see Note 10, Financing and Other Debt.

The following table reconciles operating income to total segment adjusted operating income and adjusted operating income:

*(In millions)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Operating income | **$174.9** | $21.3 | **488.6** | 314.7 |
| Unallocated corporate expenses | **29.1** | 23.9 | **76.8** | 63.9 |
| Acquisition-related intangible amortization | **45.2** | 42.5 | **133.6** | 127.7 |
| Other acquisition and divestiture related items | **5.1** | 4.1 | **7.6** | 15.1 |
| Stock-based compensation | **31.9** | 27.9 | **94.5** | 78.4 |
| Other costs | **15.1** | 8.9 | **28.6** | 25.0 |
| Impairment charges | **—** | 136.5 | **—** | 136.5 |
| Total segment adjusted operating income | **$301.3** | $265.1 | **$829.7** | $761.3 |
| Unallocated corporate expenses | **(29.1)** | (23.9) | **$(76.8)** | $(63.9) |
| Adjusted operating income | **$272.2** | $241.2 | **$752.9** | $697.4 |

#### Adjusted Free Cash Flow

The Company’s non-GAAP adjusted free cash flow is calculated as cash flows from operating activities, adjusted for net purchases of current investment securities, capital expenditures, the change in net deposits, changes in borrowings under the BTFP and borrowed federal funds and certain other adjustments which, for the nine months ended September 30, 2023, reflects an adjustment for contingent consideration paid to sellers in excess of acquisition-date fair value. Although non-GAAP adjusted free cash flow is not calculated in accordance with GAAP, WEX believes that adjusted free cash flow is a useful measure for investors to further evaluate our results of operations because (i) adjusted free cash flow indicates the level of cash generated by the operations of the business, which excludes consideration paid on acquisitions, after appropriate reinvestment for recurring investments in property, equipment and capitalized software that are required to operate the business; (ii) changes in net deposits occur on a daily basis as a regular part of operations; (iii) borrowings under the BTFP and borrowed federal funds are primarily used as a replacement for brokered deposits as part of our accounts receivable funding strategy; and (iv) purchases of current investment securities are made as a result of deposits gathered operationally. However, because adjusted free cash flow is a non-GAAP measure, it should not be considered as a substitute for, or superior to, operating cash flow as determined in accordance with GAAP. In addition, adjusted free cash flow as used by WEX may not be comparable to similarly titled measures employed by other companies.

The following table reconciles GAAP operating cash flow to adjusted free cash flow:

*(In millions)*

| 2023 | Nine Months Ended September 30, 2022 |  |
| --- | ---: | ---: |
| **Cash flows from operating activities, as reported** | **$146.0** | $106.6 |
| Adjustments to cash flows from operating activities: |  |  |
| Other | **1.5** | — |
| Adjusted for certain investing and financing activities: |  |  |
| Increases in net deposits | **889.9** | 960.6 |
| Increases in borrowings under the BTFP | **500.0** | — |
| Increases in borrowed federal funds | **260.1** | — |
| Less: Purchases of current investment securities, net of sales and maturities | **(1,304.2)** | (584.8) |
| Less: Capital expenditures | **(101.7)** | (75.5) |
| Adjusted free cash flow | **$391.6** | $406.8 |

### Liquidity and Capital Resources

We fund our business operations primarily via cash on hand, cash generated from operations, the issuance of deposits, and borrowings under our Amended and Restated Credit Agreement. As of September 30, 2023, we had cash and cash equivalents of $957.8 million, including Corporate Cash of $170.2 million, along with a remaining borrowing availability of

$925.2 million under the Revolving Credit Facility provided by our Amended and Restated Credit Agreement along with access to various sources of funds, including uncommitted federal funds lines of credit from other banks.

We believe that our current cash and cash equivalents, cash generating capabilities, financial condition and operations, and access to available funding sources will be sufficient to fund our cash needs for the next 12 months and the foreseeable future. The table below summarizes our primary sources and uses of cash:

| Sources of cash | Uses of cash1 |
| --- | --- |
| •Cash generated from operations •Borrowings and availability on our Amended and Restated Credit Agreement2 •Deposits3 •Accounts receivable securitization and factoring arrangements4 •Participation debt and borrowed federal funds5 | •Payments on our Amended and Restated Credit Agreement •Payments on maturities and withdrawals of deposits •Payments on borrowed federal funds and other short-term borrowings •Working capital needs of the business •Capital expenditures •Purchases of shares of treasury stock •Mergers and acquisitions |

1 Our long-term cash requirements consist primarily of amounts owed on our Amended and Restated Credit Agreement and various facilities lease agreements.

2 Under our Amended and Restated Credit Agreement, as of September 30, 2023 the Company had outstanding term loan principal borrowings of $2,262.1 million, borrowings of $471.6 million on the Revolving Credit Facility and letters of credit of $33.2 million drawn against the Revolving Credit Facility. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for more information regarding our Amended and Restated Credit Agreement.

3 WEX Bank’s regulatory status enables it to raise capital to fund the Company’s working capital requirements by issuing deposits, subject to FDIC rules governing minimum financial ratios. Additionally, WEX Bank holds deposits for the benefit of WEX Inc.’s HSA customers subject to the terms of a deposit agreement. As of September 30, 2023, we had $4,368.3 million in total deposits. See Part I – Item 1 – Note 9, Deposits, to our condensed consolidated financial statements for more information regarding our deposits.

4 The Company utilizes securitized debt agreements to finance a portion of our receivables, lower our cost of borrowing and more efficiently utilize capital. The Company had $99.9 million of securitized debt under these facilities as of September 30, 2023. We also utilize off-balance sheet factoring and securitization arrangements to sell certain of our accounts receivable to unrelated third-party financial institutions in order to accelerate the collection of the Company’s cash and reduce internal costs. Available capacity is dependent on the level of our trade accounts receivable eligible to be sold and the financial institutions’ willingness to purchase such receivables. However, the Company is not dependent on them to maintain its liquidity and capital resources. We are not aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on liquidity and capital resources. See Part I – Item 1 – Notes 10, Financing and Other Debt and 11, Off-Balance Sheet Arrangements, to our condensed consolidated financial statements for further information about the Company’s securitized debt and off-balance sheet arrangements.

5 From time to time, WEX Bank enters into participation agreements with third-party banks to fund customers’ balances that exceed WEX Bank’s lending limit to individual customers. There was $41.5 million borrowed against these participation agreements as of September 30, 2023. WEX Bank also borrows from uncommitted federal funds lines from time to time to supplement the financing of the Company’s accounts receivable. There were $260.0 million in outstanding borrowings under these lines of credit as of September 30, 2023. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for more information regarding these facilities.

#### Additional Sources of Cash Available

On March 12, 2023, the Federal Reserve Board announced the BTFP, which provides liquidity to U.S. depository institutions. This program allows bank loans for up to one year in length, collateralized by the par value of qualifying assets, including U.S. treasuries and mortgage-backed securities. Advances will be available until March 11, 2024, or longer if the program is extended. At any time under the BTFP, WEX Bank is able to refinance without penalty in order to obtain the most advantageous rate. WEX Bank has accessed $500.0 million of temporary, low-cost capital under the BTFP as of September 30, 2023, pledging securities with a par value of $800.3 million and market value of $688.3 million as collateral.

On August 11, 2023, the Company repurchased all of its outstanding Convertible Notes for a total purchase price of $370.4 million, inclusive of accrued and unpaid interest from and including July 15, 2023, to but excluding August 11, 2023. Subsequently, on September 26, 2023, the Company entered into the Third Amendment to Amended and Restated Credit Agreement, which increased the revolving credit commitments under the Company’s Revolving Credit Facility by $500.0 million. This amendment restored most of the revolver capacity used to repurchase the Convertible Notes and close the Ascensus Acquisition. See Part I – Item 1 – Note 10, Financing and Other Debt, and Note 4, Acquisitions and Other Investments, to our condensed consolidated financial statements for more information regarding the Convertible Notes repurchase, Third Amendment to Amended and Restated Credit Agreement and Ascensus Acquisition.

WEX Bank has the ability to borrow funds from the Federal Reserve Bank Discount Window. Borrowing limits fluctuate based on pledged assets, and as of September 30, 2023, the Company could borrow up to a maximum amount of $202.3 million. WEX Bank had no borrowings outstanding on this line of credit as of September 30, 2023. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for more information regarding this borrowing arrangement.

#### Cash Flows

The table below summarizes our cash activities and adjusted free cash flow:

*(In millions)*

| Net cash provided by (used for) | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities1 | **$146.0** | $106.6 |
| Investing activities | **$(1,571.4)** | $(663.9) |
| Financing activities1 | **$1,705.3** | $1,103.5 |
| **Non-GAAP financial measure:** |  |  |
| Adjusted free cash flow2 | **$391.6** | $406.8 |

1 Restricted cash payable inflows of $350.1 million for the nine month period ended September 30, 2022 have been reclassified from operating activities to financing activities to conform to the current period presentation. Refer to Item 1, Note 1, Basis of Presentation for more information.

2 The Company’s non-GAAP adjusted free cash flow is calculated as cash flows from operating activities, adjusted for net purchases of current investment securities, capital expenditures, the change in net deposits, changes in borrowings under the BTFP and borrowed federal funds and certain other adjustments. For a reconciliation to net cash provided by operating activities, the most closely comparable GAAP measure, and the reasons why we believe this is an important financial measure, please refer to the section titled *Non-GAAP Financial Measures That Supplement GAAP Measures.*

#### Operating Activities

We fund a customer’s entire receivable in the majority of our Mobility and Corporate Payment processing transactions, while the revenue generated by these transactions is only a small percentage of that amount. Consequently, cash flows from operations are impacted significantly by increases or decreases in fuel prices and purchase volumes, driving changes in accounts receivable and accounts payable balances, which directly impact our capital resource requirements.

Cash provided by operating activities for the nine months ended September 30, 2023 increased $39.4 million as compared to the same period in the prior year. The increase in cash provided by operating activities year over year was primarily the result of higher net income adjusted for non-cash items.

#### Investing Activities

Investing cash flows generally consist of capital expenditures, cash used for acquisitions and the investment of custodial cash assets.

Cash used for investing activities for the nine months ended September 30, 2023 increased $907.5 million as compared to the same period in the prior year, primarily resulting from higher relative investment of HSA deposits in available-for-sale debt securities and the Ascensus Acquisition, which closed on September 1, 2023. See Part I – Item 1 – Note 4, Acquisitions and Other Investments, to our condensed consolidated financial statements for more information regarding this acquisition.

#### Financing Activities

Financing cash flows generally consist of the issuance and repayment of debt and deposits, changes in restricted cash payable and purchases of our common stock. Repurchases of our common stock may vary based on management’s evaluation of market and economic conditions and other factors.

Cash provided by financing activities for the nine months ended September 30, 2023 increased $601.8 million, due primarily to net borrowings under the newly available BTFP and under our Revolving Credit Facility during the nine months ended September 30, 2023, offset in part by the repurchase of our Convertible Notes.

During the nine months ended September 30, 2023, the Company repurchased approximately 0.8 million shares of our common stock subject to an authorized and outstanding share buyback plan. Cash payments for share repurchases during the nine months ended September 30, 2023 totaled $152.6 million. As of the date of this filing, there is $363.5 million worth of common stock shares that are available to be purchased pursuant to the existing repurchase authorization.

#### Adjusted Free Cash Flow

The definition of adjusted free cash flow, and the reasons why we believe it to be an important financial measure, can be found in the section titled *Non-GAAP Financial Measures That Supplement GAAP Measures.*

Adjusted free cash flow decreased $15.2 million during the nine months ended September 30, 2023 as compared to the same period in the prior year, reflecting an increase in investments of HSA deposits in available-for-sale debt securities, partially offset by borrowings under the BTFP and borrowings of federal funds.

#### Financial Covenants

The Amended and Restated Credit Agreement contains customary affirmative and negative covenants affecting the Company and its subsidiaries, including covenants limiting the Company’s ability to, among other things, incur debt (including disqualified stock), grant liens, make certain investments, pay dividends, repurchase equity interests and sell assets, subject to certain exceptions. The Amended and Restated Credit Agreement also contains customary financial maintenance covenants, including a consolidated interest coverage ratio and a consolidated leverage ratio. The indenture associated with the Convertible Notes included customary covenants, including a debt incurrence covenant that restricted the Company from incurring certain indebtedness, including disqualified stock and preferred stock issued by the Company or its subsidiaries, subject to customary exceptions. In connection with the repurchase of our Convertible Notes, this indenture was discharged and, as such, the Company is no longer subject to the restrictions contained in the indenture governing the Convertible Notes. See Part I – Item 1 – Note 10, Financing and Other Debt, to our condensed consolidated financial statements for further information on the repurchase of the Convertible Notes. As of September 30, 2023, we were otherwise in compliance with such remaining covenants. See Part II – Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources and Part II – Item 8 – Note 16, Financing and Other Debt, in our Annual Report on Form 10-K for the year ended December 31, 2022 for more information regarding these covenants.

#### Other Commitments, Contingencies and Contractual Obligations

Other than commitments arising related to the upcoming Payzer acquisition, and impacts from the third quarter repurchase of our Convertible Notes and the 2023 borrowings on the BTFP, there were no material changes to our contractual obligations from the information previously provided in Item 7 of our Annual Report on Form 10–K for the year ended December 31, 2022.

### Regulatory Matters

WEX Bank is in the process of complying with a consent order issued by the FDIC and the UDFI (the “2022 Order”) on May 6, 2022 and a consent order issued by the FDIC on September 20, 2023 (the “2023 Order”). The 2022 Order requires WEX Bank to strengthen its Bank Secrecy Act/anti-money laundering compliance program and to address related matters, including with respect to controls. The terms of the 2022 Order will remain in effect and be enforceable until they are modified, terminated, suspended or set aside by the FDIC and the UDFI, however, we believe we have taken the appropriate actions to meet the requirements of the 2022 Order.

The 2023 Order requires WEX Bank to make certain improvements, which include corrections of certain issues identified in the 2023 Order and general enhancements to WEX Bank’s compliance management program. Customer impact and any resulting harm from the violations detailed in the 2023 Order have been identified and steps have been taken to remediate any such impact and harm. The terms of the 2023 Order will remain in effect and be enforceable until they are modified, terminated, suspended or set aside by the FDIC. Neither the matters identified in the 2022 Order nor the 2023 Order are expected to have a material effect on WEX Bank’s operations or the Company’s results of operations, financial condition or cash flows.

### Critical Accounting Estimates

We have no material changes to our critical accounting estimates discussed in our Annual Report on Form 10–K for the year ended December 31, 2022.

### Recently Adopted Accounting Standards

See Note 2, Significant Accounting Policies, to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10–Q.

## Market risk

As filed, 156 characters.

As of September 30, 2023, we have no material changes to the market risk disclosures in our Annual Report on Form 10–K for the year ended December 31, 2022.

## Controls and procedures

As filed, 1,590 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the principal executive officer and principal financial officer of WEX Inc., evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023. “Disclosure controls and procedures” are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,185 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10–K for the year ended December 31, 2022, and in Part II, “Item 1A. Risk Factors” in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023, which could materially affect our business, financial condition or future results. The risk factors disclosure in our Annual Report on Form 10-K for the year ended December 31, 2022 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023 is qualified by the information that is described in this Quarterly Report on Form 10-Q. The risks described in our Annual Report on Form 10–K for the year ended December 31, 2022 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Filed Oct 27, 2023.
Source: SEC EDGAR, the filing index for accession 0001309108-23-000183. Last ingested by Listed: Nov 10, 2026, 04:09 ET. No prices; not investment advice.