# WEX Inc. (WEX) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from WEX Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1309108/000130910824000033/wex-20231231.htm
Accession: 0001309108-24-000033
Filing date: 2024-02-23
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WEX/
All MD&A years: /company/WEX/mda/
Previous year: /company/WEX/mda/fy2022/ (FY 2022)
Next year: /company/WEX/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion below focuses on the factors affecting our consolidated results of operations for the years ended December 31, 2023 and 2022, financial condition at December 31, 2023 and 2022 and, when appropriate, factors that may affect our future financial performance, unless stated otherwise. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements within Part II - Item 8 of this Annual Report on Form 10-K. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is presented in the following sections:•2023 Highlights and Year in Review •Our Segments•Results of Operations •Application of Critical Accounting Estimates •Recently Adopted and New Accounting Standards•Liquidity and Capital Resources

2023 Highlights and Year in Review

Company Highlights

The following graphs present a comparative, summarized view of selected results. The “Other Key Metric” included below is considered by Management to be of particular importance to our overall performance in 2023 as it provides enhanced information and data underlying our financial results. A recurring, more extensive list of key performance indicators is included by segment within the Results of Operations section later in this MD&A.

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GAAP Measures (in millions except per share data):

Total revenues

Net income attributable to shareholders

Net income attributable to shareholders per diluted share

Net cash provided by (used for) operating activities

Non-GAAP Measures (in millions except per share data):(1)

Adjusted net income attributable to shareholders

Adjusted net income attributable to shareholders per diluted share

Adjusted free cash flow

Other Key Metric (in millions):

Total volume processed across the Company(2)

(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)Total volume processed across the Company, which includes purchases on WEX-issued accounts as well as purchases issued by others using a WEX platform.

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Our Segments

WEX has three reportable segments: Mobility, Corporate Payments, and Benefits. Within our Mobility segment, we are a leader in fleet vehicle payment solutions, transaction processing, and information management services specifically designed for the needs of fleets of all sizes from small businesses to federal and state government fleets and over-the-road carriers. Our Corporate Payments segment focuses on the complex payment environment of global B2B payments, enabling customers to utilize our payments solutions to integrate into their own workflows and manage their accounts payable automation and spend management functions. Within our Benefits segment, we provide SaaS software with embedded payment solutions and plan administration services for consumer directed health benefits, COBRA accounts, and benefit enrollment and administration. Additionally, WEX Inc. and WEX Bank provide custodial and depository services, respectively, with respect to HSAs.

The Company’s segment-allocated operating expenses consist of the following:

Cost of Services

•Processing costs - The Company’s processing costs consist of expenses related to processing transactions, servicing customers and merchants and cost of goods sold related to hardware and other product sales.

•Service fees - The Company incurs costs from third-party networks utilized to deliver payment solutions. Additionally, other third-parties are utilized in performing services directly related to generating revenue.

•Provision for credit losses - Changes in the reserve for credit loss are the result of changes in management’s estimate of the losses in the Company’s outstanding portfolio of receivables, including losses from fraud.

•Operating interest - The Company incurs interest expense on operating debt and deposits, which provide liquidity to fund short-term receivables or are used to purchase fixed income securities.

•Depreciation and amortization - The Company has identified those tangible and intangible assets directly associated with providing a service that generates revenue and records the depreciation and amortization associated with those assets under this category. Such assets include processing platforms and related infrastructure, acquired developed technology intangible assets and other similar asset types.

Other Operating Expenses

•General and administrative - General and administrative includes compensation and related expenses for executive, finance and accounting, other information technology, human resources, legal, and other corporate functions. Also included are corporate facilities expenses, certain third-party professional service fees, and other corporate expenses.

•Sales and marketing - The Company’s sales and marketing expenses relate primarily to compensation, benefits, sales commissions, and related expenses for sales, marketing, and other related activities.

•Depreciation and amortization - The depreciation and amortization associated with tangible and intangible assets that are not considered to be directly associated with providing a service that generates revenue are recorded as other operating expenses. Such assets include corporate facilities and information technology assets, and acquired intangible assets other than those included in cost of services.

•Impairment charges - Represents non-cash goodwill impairment charges. See Part II – Item 8 – Note 9, Goodwill and Other Intangible Assets, of our consolidated financial statements for more information.

The Company does not allocate foreign currency gains and losses, financing interest expense, net of financial instruments, change in fair value of contingent consideration, loss on debt extinguishments, other income, income taxes, and adjustments attributable to non-controlling interests to our operating segments as management believes these items are unpredictable and can obscure a segment’s operating trends and results. In addition, 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.

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Results of Operations

Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022

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.

[[GREPCENT_TABLE]]
[["","Mobility"]]
[[/GREPCENT_TABLE]]

Revenues

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions, except per transaction and per gallon data)","2023","","2022","","Amount","Percent"],["Revenues(1),(2)"],["Payment processing revenue","$","695.0","","","$","720.2","","","$","(25.3)","","(4)","%"],["Account servicing revenue","168.6","","","169.2","","","(0.6)","","\u2014","%"],["Finance fee revenue","312.9","","","359.7","","","(46.7)","","(13)","%"],["Other revenue","206.2","","","194.6","","","11.6","","6","%"],["Total revenues","$","1,382.7","","","$","1,443.7","","","$","(61.0)","","(4)","%"],["Key performance indicators"],["Total volume","$","84,721.2","","","$","98,906.4","","","$","(14,185.2)","","(14)","%"],["Payment processing transactions","562.6","","","560.2","","","2.4","","\u2014","%"],["Payment processing $ of fuel","$","56,683.6","","","$","66,172.1","","","$","(9,488.5)","","(14)","%"],["Average U.S. fuel price (US$ / gal)","$","3.82","","","$","4.46","","","$","(0.64)","","(14)","%"],["Net payment processing rate(3)","1.23","%","","1.09","%","","0.14","%","13","%"],["Net late fee rate","0.48","%","","0.46","%","","0.02","%","3","%"]]
[[/GREPCENT_TABLE]]

(1)Foreign currency exchange rate fluctuations had an immaterial impact on Mobility revenue for the twelve months ended December 31, 2023, as compared to the prior year.

(2)Unfavorable impact from lower domestic fuel prices resulted in a decrease of $108.4 million in revenue for the year ended December 31, 2023, as compared to 2022.

(3)Our net payment processing rate has benefited from lower average domestic fuel prices and the impact from interest rate escalator clauses contained in various merchant contracts.

Total Mobility revenue decreased $61.0 million for 2023, as compared to 2022. The decrease in total Mobility revenue was primarily driven by lower finance fee revenue and the impact of lower average fuel prices on stable levels of payment processing transactions year over year.

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Finance fee revenue is comprised of the following components:

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions)","2023","","2022","","Amount","Percent"],["Finance income","$","271.8","","","$","307.1","","","$","(35.3)","","(11)","%"],["Factoring fee revenue","41.1","","","52.5","","","(11.4)","","(22)","%"],["Finance fee revenue","$","312.9","","","$","359.7","","","$","(46.7)","","(13)","%"]]
[[/GREPCENT_TABLE]]

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 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. Late fee rates are determined and set based primarily on the risk associated with our customers, coupled with a strategic view of standard rates within our industry. We consider factors such as the Company’s overall financial model and strategic plan, the cost to our business from customers failing to pay timely and the impact such late payments have on our financial results. We typically conduct an assessment of our late fee rates at least annually but such assessment may occur more often depending on macro-economic factors. In addition, we periodically assess the market rates within our industry to determine appropriate late fee rates.

Finance income decreased $35.3 million in 2023 as compared to 2022, 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 generally 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 2023 or 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 for 2023 decreased $11.4 million as compared to 2022. Decreased shipping demand in the over-the-road market led to a decline in size and volume of factored invoices during 2023 as compared to the elevated demands in the prior year.

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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: 

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions, except with respect to margin)","2023","","2022","","Amount","Percent"],["Cost of services"],["Processing costs","$","283.9","","","$","254.1","","","$","29.8","","12","%"],["Service fees","$","7.6","","","$","8.4","","","$","(0.8)","","(9)","%"],["Provision for credit losses","$","87.1","","","$","172.7","","","$","(85.6)","","(50)","%"],["Operating interest","$","69.5","","","$","13.9","","","$","55.6","","399","%"],["Depreciation and amortization","$","40.8","","","$","46.1","","","$","(5.3)","","(12)","%"],["Other operating expenses"],["General and administrative","$","138.3","","","$","110.2","","","$","28.1","","25","%"],["Sales and marketing","$","212.4","","","$","203.3","","","$","9.1","","4","%"],["Depreciation and amortization","$","70.3","","","$","72.5","","","$","(2.3)","","(3)","%"],["Impairment charges","$","\u2014","","","$","136.5","","","$","(136.5)","","NM"],["Operating income","$","472.8","","","$","426.0","","","$","46.8","","11","%"],["Segment adjusted operating income(1)","$","599.4","","","$","693.4","","","$","(94.0)","","(14)","%"],["Segment adjusted operating income margin(2)","43.3","%","","48.0","%","","(4.7)","%","(10)","%"]]
[[/GREPCENT_TABLE]]

(1)Segment adjusted operating income excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs and certain non-recurring or non-cash operating charges that are not core to our operations, as applicable depending on the period presented. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 7 for a reconciliation of total segment adjusted operating income to income before income taxes. See also Part II – Item 8 – Note 24, Segment Information, of our 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 2023 decrease in segment adjusted operating income margin primarily reflects the decline in average fuel prices and higher operating interest costs, offset by a significant decrease in provision for credit losses and impairment charges.

NM - Not meaningful

Cost of Services

Processing costs increased $29.8 million due in part to higher employee compensation and other business support costs incurred.

Provision for credit losses, which includes estimates for both credit and fraud losses, decreased $85.6 million for 2023, as compared to 2022. The higher credit and fraud loss rates experienced during 2022 improved during 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 in past quarters moderated as the trucking market stabilized. Lower fuel prices additionally led to a decline in overall accounts receivable balances, which contributed to the decrease in estimated provision. 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 15.4 basis points of fuel expenditures for 2023, as compared to 26.0 basis points of fuel expenditures for 2022.

Operating interest expense increased $55.6 million in 2023, as compared to 2022. The increase is primarily reflective of higher interest rates and increased operating debt balances in support of working capital needs.

Depreciation and amortization decreased $5.3 million during 2023 compared to the prior year due to certain assets becoming fully depreciated during 2022.

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Other operating expenses

General and administrative expenses increased $28.1 million in 2023 as compared to 2022 due in part to increased compensation and professional services expense in support of increasing operating efficiencies and business growth along with a third quarter 2023 write-off of certain costs associated with an abandoned IT development project.

Impairment charges during 2022 consisted of non-cash goodwill impairment charges of $136.5 million for two of our international Mobility reporting units. No impairment to any of our reporting units was identified during the year ended December 31, 2023. See Part II – Item 8 – Note 9, Goodwill and Other Intangible Assets, of our consolidated financial statements for more information.

[[GREPCENT_TABLE]]
[["","Corporate Payments"]]
[[/GREPCENT_TABLE]]

Revenues

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions, except per transaction data)","2023","","2022","","Amount","Percent"],["Revenues(1)"],["Payment processing revenue","$","428.0","","","$","353.7","","","$","74.2","","21","%"],["Account servicing revenue","42.1","","","42.9","","","(0.8)","","(2)","%"],["Finance fee revenue","1.0","","","0.6","","","0.3","","53","%"],["Other revenue","25.8","","","5.1","","","20.8","","410","%"],["Total revenues","$","496.9","","","$","402.3","","","$","94.6","","24","%"],["Key performance indicators"],["Total volume","$","128,167.8","","","$","101,616.0","","","$","26,551.8","","26","%"],["Purchase volume","$","92,196.9","","","$","66,671.5","","","$","25,525.4","","38","%"],["Net interchange rate(2)","0.46","%","","0.53","%","","(0.07)","%","(13)","%"]]
[[/GREPCENT_TABLE]]

(1)Foreign currency exchange rate fluctuations had a $3.3 million favorable impact on Corporate Payments revenues in 2023, compared to the prior year.

(2)Changes in customer and product mix, including the significant growth in travel-related purchase volumes, has reduced our net interchange rate from 2022 to 2023.

Corporate Payments total revenue increased $94.6 million for 2023, as compared to 2022. The increase was primarily driven by continued strength in global consumer travel demand. Additionally, other revenue increased significantly 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 generally 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 to customers experiencing financial difficulties during either 2023 or 2022.

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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: 

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions, except with respect to margin)","2023","","2022","","Amount","Percent"],["Cost of services"],["Processing costs","$","76.7","","","$","72.9","","","$","3.8","","5","%"],["Service fees","$","12.6","","","$","13.2","","","$","(0.6)","","(4)","%"],["Provision for credit losses","$","(4.7)","","","$","6.5","","","$","(11.2)","","(173)","%"],["Operating interest","$","9.4","","","$","5.8","","","$","3.6","","62","%"],["Depreciation and amortization","$","24.1","","","$","21.6","","","$","2.5","","12","%"],["Other operating expenses"],["General and administrative","$","76.9","","","$","67.8","","","$","9.0","","13","%"],["Sales and marketing","$","56.6","","","$","56.3","","","$","0.3","","1","%"],["Depreciation and amortization","$","26.2","","","$","24.4","","","$","1.8","","7","%"],["Operating income","$","219.1","","","$","133.9","","","$","85.3","","64","%"],["Segment adjusted operating income(1)","$","277.2","","","$","192.7","","","$","84.5","","44","%"],["Segment adjusted operating income margin(2)","55.8","%","","47.9","%","","7.9","%","16","%"]]
[[/GREPCENT_TABLE]]

(1)Segment adjusted operating income excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs and certain non-recurring or non-cash operating charges that are not core to our operations, as applicable depending on the period presented. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 7 for a reconciliation of total segment adjusted operating income to income before income taxes. See also Part II – Item 8 – Note 24, Segment Information, of our 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. See below for an explanation of changes to our year over year segment adjusted operating margin.

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 increased operating income, segment adjusted operating income, and segment adjusted operating income margin in 2023. Instances in which our expenses in 2023 did not remain comparable to those of 2022 are described hereafter.

The decreased provision for credit losses for 2023, as compared to the prior year comparable period, reflects the impact of a reduction in forecasted losses internationally.

General and administrative expenses increased $9.0 million primarily due to increased professional services expense in support of increasing operating efficiencies and business growth.

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[[GREPCENT_TABLE]]
[["","Benefits"]]
[[/GREPCENT_TABLE]]

Revenues

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions)","2023","","2022","","Amount","Percent"],["Revenues"],["Payment processing revenue","$","90.7","","","$","81.9","","","$","8.8","","11","%"],["Account servicing revenue","435.7","","","357.3","","","78.5","","22","%"],["Finance fee revenue","0.3","","","0.1","","","0.1","","81","%"],["Other revenue","141.7","","","65.2","","","76.5","","117","%"],["Total revenues","$","668.4","","","$","504.5","","","$","163.9","","32","%"],["Key performance indicators"],["Total volume","$","12,441.8","","","$","11,205.3","","","$","1,236.5","","11","%"],["Purchase volume","$","6,655.6","","","$","5,869.1","","","$","786.5","","13","%"],["Average number of SaaS accounts","19.9","","","18.0","","","1.9","","11","%"],["Average HSA custodial cash assets","$","3,868.9","","","$","3,176.8","","","$","692.1","","22","%"]]
[[/GREPCENT_TABLE]]

Total Benefits revenue increased $163.9 million during 2023 as compared to the prior year. The increase was due primarily to an increase in program fees earned on custodial services, as reflected within account servicing revenue (such fees are variable and based in part on a benchmark reference rate), and 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. To a lesser extent, increased spend volume driven by cardholder growth and increased SaaS participants also contributed to the increase in total revenue.

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:

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions)","2023","","2022","","Amount","Percent"],["Cost of services"],["Processing costs","$","261.0","","","$","231.9","","","$","29.1","","13","%"],["Service fees","$","53.0","","","$","43.6","","","$","9.4","","22","%"],["Provision for credit losses","$","7.4","","","$","0.8","","","$","6.7","","NM"],["Operating interest","$","5.3","","","$","0.9","","","$","4.4","","NM"],["Depreciation and amortization","$","39.5","","","$","38.2","","","$","1.3","","3","%"],["Other operating expenses"],["General and administrative","$","55.7","","","$","41.2","","","$","14.6","","35","%"],["Sales and marketing","$","58.7","","","$","52.2","","","$","6.5","","13","%"],["Depreciation and amortization","$","72.8","","","$","59.1","","","$","13.7","","23","%"],["Operating income","$","114.8","","","$","36.7","","","$","78.1","","213","%"],["Segment adjusted operating income(1)","$","241.8","","","$","133.7","","","$","108.1","","81","%"],["Segment adjusted operating income margin(2)","36.2","%","","26.5","%","","9.7","%","37","%"]]
[[/GREPCENT_TABLE]]

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(1)Segment adjusted operating income excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs and certain non-recurring or non-cash operating charges that are not core to our operations, as applicable depending on the period presented. See “Non-GAAP Financial Measures That Supplement GAAP Measures” later in this Item 7 for a reconciliation of total segment adjusted operating income to income before income taxes. See also Part II – Item 8 – Note 24, Segment Information, of our 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 2023 increased significantly from 2022.

Cost of Services

Processing costs increased $29.1 million in 2023, as compared to 2022. The increase primarily resulted from an increase in employee compensation, including the impact from the Ascensus Acquisition.

Service fees increased $9.4 million in 2023, as compared to 2022. This increase was primarily driven by increased fees incurred on higher HSA deposits, as compared with the same period in the prior year.

Provision for credit losses increased $6.7 million primarily due to an expected loss associated with one customer’s outstanding receivable balance.

Other Operating Expenses

General and administrative expenses increased $14.6 million for 2023 as compared with the same period in the prior year primarily due to increased professional services expense in support of increasing operating efficiencies and business growth.

Sales and marketing expenses increased $6.5 million in 2023, as compared to 2022, due primarily to the expansion of the sales and marketing team, including the impacts of the Ascensus Acquisition.

Depreciation and amortization increased $13.7 million for 2023, as compared to the prior year period, primarily due to higher relative amortization on HSA contractual rights.

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:

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Increase (Decrease)"],["(in millions)","2023","","2022","","Amount","","Percent"],["Other operating expenses"],["General and administrative","$","157.1","","","$","124.7","","","$","32.4","","","26","%"],["Depreciation and amortization","$","2.6","","","$","2.0","","","$","0.6","","","29","%"]]
[[/GREPCENT_TABLE]]

General and administrative expenses increased $32.4 million during 2023 as compared to 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 business acquisitions.

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Non-Operating Income and Expense

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,","","Absolute Dollar Change","","","","Effect of Change on Net Income"],["(in millions)","2023","","2022"],["Financing interest expense, net of financial instruments","$","(204.6)","","","$","(47.5)","","","$","157.1","","","","","Reduction"],["Change in fair value of contingent consideration","$","(8.5)","","","$","(139.1)","","","$","130.6","","","","","Increase"],["Loss on extinguishment of Convertible Notes","$","(70.1)","","","$","\u2014","","","$","70.1","","","","","Reduction"],["Net foreign currency gain (loss)","$","4.9","","","$","(22.7)","","","$","27.6","","","","","Increase"],["Income tax provision","$","102.2","","","$","93.1","","","$","9.1","","","","","Reduction"],["Net income from non-controlling interests","$","\u2014","","","$","0.3","","","$","0.3","","","","","NM"],["Change in value of redeemable non-controlling interest","$","\u2014","","","$","34.2","","","$","34.2","","","","","NM"]]
[[/GREPCENT_TABLE]]

NM - Not meaningful

Due primarily to substantial increases in the LIBOR forward yield curve during 2022, we recognized significant unrealized gains on our interest rate swap financial instruments during 2022, which reduced financing interest expense, net of financial instruments for that year. Higher net variable interest rates on our term loans during 2023 further increased 2023 financing interest expense, relative to 2022.

Due to the rising rate environment since we completed the acquisition of certain contractual rights from Bell Bank in April 2021, the Company’s contingent consideration derivative liability has been effectively reflected at the maximum contingent consideration payable under the purchase agreement since 2022. As a result, absent a significant decline in the Federal Funds futures curve, changes in the fair value of contingent consideration are expected to generally be limited to annual cash payments and present value adjustments due to the passage of time. See Part II – Item 8 – Note 18, Fair Value of our 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 II – Item 8 – Note 16, Financing and Other Debt of our 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. During 2023, net foreign currency gain was $4.9 million, as compared to a loss of $22.7 million in 2022. The gain in 2023 resulted from the strengthening of certain foreign currencies in which we transact, including the Euro and the British Pound sterling, relative to the U.S. dollar.

The increase in income tax provision for 2023 as compared to the prior year comparable period is due primarily to an increase in income before income taxes, offset in part due to the change in the Company’s effective tax rates. The Company’s effective tax rate for 2023 was 27.7 percent compared to 35.7 percent for 2022. See Part II – Item 8 – Note 14, Income Taxes of our consolidated financial statements for more information regarding the drivers behind our effective tax rates.

During March 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. See Part II – Item 8 – Note 4, Acquisitions, to our consolidated financial statements for further information.

Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021

Discussion and analysis of the year ended December 31, 2022 compared to the year ended December 31, 2021 is included under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10–K for the year ended December 31, 2022, as filed with the SEC on February 28, 2023 and is incorporated by reference herein.

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Non-GAAP Financial Measures That Supplement GAAP Measures

In addition to evaluating the Company’s performance on a GAAP basis, Company management uses particular non-GAAP financial measures, which exclude the impact of certain costs, expenses, gains and losses, to evaluate our overall operating performance, including comparison across periods and with competitors. Our management team believes these non-GAAP measures are integral to our reporting and planning processes and uses them to assess operating performance because they generally exclude financial results that are outside the normal course of our business operations or management’s control. These measures are also used to allocate resources among our operating segments and for internal budgeting and forecasting purposes for both short- and long-term operating plans.

Segment Adjusted Operating Income and Adjusted Net Income

Segment adjusted operating income excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, debt restructuring costs, stock-based compensation, other costs and certain non-recurring or non-cash operating charges that are not core to our operations, as applicable depending on the period presented.

Adjusted net income, which similarly excludes the impact of all items excluded in segment adjusted operating income except unallocated corporate expenses, further excludes unrealized gains and losses on financial instruments, net foreign currency gains and losses, debt issuance cost amortization, tax related items, and certain other non-operating items, as applicable depending on the period presented.

For the periods presented herein, the following items have been excluded in determining one or more non-GAAP measures for the following reasons:

•Exclusion of the non-cash, mark-to-market adjustments on financial instruments, including interest rate swap agreements and investment securities, helps management identify and assess trends in the Company’s underlying business that might otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these financial instruments. Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future quarters difficult to evaluate;

•Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, accounts receivable and accounts payable balances, certain intercompany notes denominated in foreign currencies and any gain or loss on foreign currency hedges relating to these items. The exclusion of these items helps management compare changes in operating results between periods that might otherwise be obscured due to currency fluctuations;

•The change in fair value of contingent consideration, which is related to the acquisition of certain contractual rights to serve as custodian or sub-custodian to HSAs, is dependent upon changes in future interest rate assumptions and has no significant impact on the ongoing operations of the Company. Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future quarters difficult to evaluate;

•The Company considers certain acquisition-related costs, including certain financing costs, investment banking fees, warranty and indemnity insurance, certain integration related expenses and amortization of acquired intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses on divestitures facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in our industry;

•Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time;

•Other costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. This also includes non-recurring professional service costs, costs related to certain identified initiatives, including restructuring and technology initiatives, to further streamline the business, improve the Company’s efficiency, create synergies and globalize the Company’s operations, all with an objective to improve scale and efficiency and increase profitability going forward. For the year ended December 31, 2021, other costs additionally include a penalty incurred on a vendor contract termination;

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•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 year ended December 31, 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 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.

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.

The following table reconciles net income attributable to shareholders to adjusted net income attributable to shareholders and related per share data:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["(in millions)","2023","","2022","","2021"],["Net income attributable to shareholders","$","266.6","","","$","6.16","","","$","201.4","","","$","4.50","","","$","0.1","","","$","\u2014"],["Unrealized loss (gain) on financial instruments","30.4","","","0.70","","","(83.2)","","","(1.86)","","","(39.2)","","","(0.86)"],["Net foreign currency (gain) loss","(4.9)","","","(0.11)","","","22.7","","","0.51","","","12.3","","","0.27"],["Change in fair value of contingent consideration","8.5","","","0.20","","","139.1","","","3.11","","","40.1","","","0.88"],["Acquisition-related intangible amortization","184.0","","","4.25","","","170.5","","","3.81","","","181.7","","","4.01"],["Other acquisition and divestiture related items","6.6","","","0.15","","","17.9","","","0.40","","","36.9","","","0.81"],["Stock-based compensation","131.6","","","3.04","","","100.7","","","2.25","","","76.6","","","1.70"],["Other costs","45.6","","","1.05","","","38.4","","","0.86","","","23.2","","","0.52"],["Impairment charges","\u2014","","","\u2014","","","136.5","","","3.05","","","\u2014","","","\u2014"],["Debt restructuring and debt issuance cost amortization","89.4","","","2.06","","","17.3","","","0.39","","","21.8","","","0.48"],["ANI adjustments attributable to non-controlling interests","\u2014","","","\u2014","","","(34.6)","","","(0.77)","","","132.0","","","2.91"],["Tax related items","(112.1)","","","(2.59)","","","(115.8)","","","(2.59)","","","(71.5)","","","(1.58)"],["Dilutive impact of convertible debt(1)","\u2014","","","(0.10)","","","\u2014","","","(0.13)","","","\u2014","","","\u2014"],["Adjusted net income attributable to shareholders","$","645.8","","","$","14.81","","","$","611.0","","","$","13.53","","","$","414.1","","","$","9.14"]]
[[/GREPCENT_TABLE]]

(1)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, $9.5 million and $15.1 million of interest expense, net of tax, associated with the Convertible Notes was added back to adjusted net income for the years ended December 31, 2023 and 2022, respectively. Approximately 0.9 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 diluted share for the year ended December 31, 2023, as the effect of including such adjustments was dilutive. For the year ended December 31, 2022, 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 calculation of adjusted net income per diluted share, as the effect of including such adjustments was dilutive.

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GAAP operating income was $647.1 million, $469.8 million and $342.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. For a reconciliation of GAAP operating income to total segment adjusted operating income, please see the following table:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["(in millions)","2023","","2022","","2021"],["Segment adjusted operating income"],["Mobility","$","599.4","","","$","693.4","","","$","557.1"],["Corporate Payments","277.2","","","192.7","","","86.9"],["Benefits","241.8","","","133.7","","","104.4"],["Total segment adjusted operating income","$","1,118.4","","","$","1,019.8","","","$","748.4"],["Reconciliation:"],["Total segment adjusted operating income","$","1,118.4","","","$","1,019.8","","","$","748.4"],["Less:"],["Unallocated corporate expenses","103.0","","","84.5","","","78.2"],["Acquisition-related intangible amortization","184.0","","","170.5","","","181.7"],["Other acquisition and divestiture related items","6.6","","","17.9","","","40.5"],["Impairment charges","\u2014","","","136.5","","","\u2014"],["Debt restructuring costs","\u2014","","","\u2014","","","6.2"],["Stock-based compensation","131.6","","","100.7","","","76.6"],["Other costs","46.1","","","39.9","","","23.2"],["Operating income","$","647.1","","","$","469.8","","","$","342.0"]]
[[/GREPCENT_TABLE]]

Adjusted Free Cash Flow

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 year ended December 31, 2023, reflects an adjustment for contingent consideration paid to sellers in excess of acquisition-date fair value, an adjustment for proceeds received of $76.0 million from the return of a collateral deposit, and an adjustment for proceeds received of $50.0 million on the termination of our interest rate swap agreements. 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 certain non-recurring transactions, 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.

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The following table reconciles GAAP operating cash flow to adjusted free cash flow for the years ended December 31, 2023, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["(in millions)","","","","2023","","2022","","2021"],["Operating cash flow, as reported","","","","$","907.9","","","$","679.4","","","$","(42.6)"],["Adjustments to cash flows from operating activities:"],["Other","","","","(124.5)","","","\u2014","","","\u2014"],["Adjusted for certain investing and financing activities:"],["Increases in net deposits","","","","593.1","","","801.6","","","1,620.3"],["Increases in borrowings under the BTFP","","","","775.0","","","\u2014","","","\u2014"],["Increases in borrowed federal funds","","","","70.0","","","\u2014","","","\u2014"],["Less: Purchases of current investment securities, net of sales and maturities","","","","(1,561.0)","","","(585.8)","","","(956.2)"],["Less: Capital expenditures","","","","(143.6)","","","(112.9)","","","(86.0)"],["Adjusted free cash flow","","","","$","516.9","","","$","782.4","","","$","535.4"]]
[[/GREPCENT_TABLE]]

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments about certain items and future events that affect reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities at the date of the financial statements. Our significant accounting policies are described in Part II – Item 8 – Note 1, Basis of Presentation and Summary of Significant Accounting Policies. The accounting policies that we believe are most dependent on the application of critical accounting estimates and assumptions, or those that are most important to the portrayal of our financial condition and operating results and require management’s most subjective judgments, are related to the determination of:

•Credit loss reserves;

•The valuation of the Company’s contingent consideration derivative liability;

•The valuation of the Company’s business combinations and asset acquisitions;

•Goodwill impairment; and

•Income taxes, in particular the recoverability of our deferred tax assets.

These accounting policies require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of operations and cash flows could be materially affected.

Credit Loss Reserves

The allowance for expected credit losses is primarily calculated by analytical models using actual loss-rate experience and management discretion. Receivables exhibiting elevated credit risk characteristics from homogenous pools are assessed and reserved on an individual basis for expected credit losses. We assess these receivables for individual expected credit loss estimates utilizing credit scoring and other information including the occurrence of disputes, conversations with customers, or other significant credit loss events. Management monitors the credit quality of accounts receivable in making judgments necessary to estimate expected credit losses by analyzing delinquency reports, loss-rate trends, changes in customer payment patterns, economic indicators and recent trends in competitive, legal, and regulatory environments. When such indicators are forecasted to deviate from historical actual results, the Company qualitatively assesses what impact, if any, the trends are expected to have on the reserve for credit losses. Assumptions regarding expected credit losses are reviewed each reporting period and may be impacted by actual performance of accounts receivable and changes in any of the factors discussed above.

To the extent calculated expected credit losses are not indicative of future performance, actual loss experience and our results of operations could differ significantly from management’s judgments and expectations, resulting in either higher or lower future provisions for credit losses, as applicable. As of December 31, 2023, we have an estimated reserve for credit losses that is 2.6 percent of the total gross accounts receivable balance as compared to December 31, 2022, when our

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estimated reserve for credit losses was 3.2 percent of gross accounts receivable. An increase or decrease to the 2023 reserve by 0.5 percent of the total gross accounts receivable balance would increase or decrease the provision for credit losses by $17.6 million.

For additional information on credit losses, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Contingent Consideration Derivative Liability

In April 2021, we completed the acquisition of certain contractual rights to serve as custodian or sub-custodian to certain HSA assets. In addition to cash consideration paid by WEX upon closing, the purchase agreement also included additional consideration that is contingent upon any future increases in the Federal Funds rate post closing. The contingent payment period began on July 1, 2021 and extends until the earlier of (i) the year ending December 31, 2030, or (ii) the date when the cumulative amount paid as contingent consideration equals $225.0 million. Contingent payments are calculated quarterly and are paid and settled annually.

Given the agreement’s term extends through the end of 2030, there is not sufficient, observable market data in Federal Funds futures contracts to use Level 1 or Level 2 input-based methodologies for determining the fair value. Accordingly, we have determined the fair value of our contingent consideration liability using a mathematical method of modeling the movement of interest rates, which is considered a Level 3 (unobservable) input-based methodology, to estimate a future Federal Funds rate curve, which is used in a discounted cash flow model to determine the present value of our expected payment obligations.

The fair value of our contingent consideration liability is highly sensitive to current and future changes in the Federal Funds rate and increases or decreases in such rate could have a significant effect on our results of operations. However, any changes in the Federal Funds rate will only affect future calculable payments. While the final amount to be paid by WEX through 2030 could change significantly from our estimations, given the $225.0 million payment ceiling, the actual liability cannot exceed our current estimate as of December 31, 2023 by more than $10.0 million. As of December 31, 2023, the fair value of our contingent liability includes $64.5 million of liability related to calendar 2023, no longer subject to estimation and payable during January 2024.

For additional information on the contingent consideration derivative liability, see Part II – Item 8 – Note 18, Fair Value.

Business Combinations and Asset Acquisitions

The accounting for business combinations and asset acquisitions requires estimates and judgment as to expectations for future cash flows of the acquired business or assets, and the allocation of those cash flows to identifiable assets, including intangible assets and goodwill. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including projected financial information, effective income tax rates, present value discount factors and long-term growth expectations. The determined fair value of intangible assets and the respective useful lives assigned thereto impacts the amount and timing of future amortization expense. Further, a significant difference in the estimated useful life, which is based on the term over which we expect to benefit from the underlying assets, versus the actual period over which we benefit from the assets, could lead to future impairments.

The significance of management’s estimates and assumptions are relative to the size of each individual acquisition. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. For additional information regarding the accounting for our acquisitions, see Note 4, Acquisitions, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Goodwill Impairment

Our quantitative goodwill impairment test is performed at least annually as of October 1, or more frequently, if events or conditions indicate the carrying amount of goodwill may not be recoverable. The test consists of a comparison of the carrying value of each reporting unit with assigned goodwill to its estimated fair value. The fair value of each reporting unit is estimated using a combination of an income-based DCFM valuation model and a market-based GPCM valuation model.

The key assumptions that drive fair value of our reporting units are the WACC and projected financial information (i.e. growth rates and the amount and timing of expected future cash flows) within the DCFM and relevant comparable company earnings multiples within the GPCM, all of which require significant management judgment. In the DCFM, as the

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WACC increases, fair value decreases because market participants would require a higher rate of return. Therefore, for example, if the current economic environment were to deteriorate, and as a result the WACC were to increase, the fair value of our reporting units would decrease. Additionally, the profitability of individual reporting units may suffer periodically from downturns in customer demand or other economic factors. Individual reporting units may be more greatly impacted than the Company as a whole, given the different market sectors and geographies in which we operate. As a result, demand for the services of one or more of the reporting units could decline, which could adversely affect the key inputs to our estimated fair value of the Company’s reporting units. If actual reporting unit growth rates were to fall short of previous estimates or delays in the timing of future cash flows were to occur, the fair value of a reporting unit could be negatively impacted. The GPCM requires us to identify a population of publicly traded companies with similar operations and key attributes to those of our reporting units (“GPCs”), which involves a certain degree of judgment as no two companies are entirely alike. Various revenue and earnings based multiples from these GPCs are then used in our fair value calculation. In selecting appropriate multiples to apply to each reporting unit, we perform a comparative analysis between the reporting units and GPCs, considering revenue growth, profitability and the size of the reporting unit compared to the GPCs. Significant increases or decreases in these multiples would result in an increase or decrease, respectively, in the fair value of the reporting unit.

Our annual goodwill impairment test performed as of October 1, 2023 identified no impairments. One of our reporting units, for which we took an impairment during 2022, had $95.3 million of goodwill as of December 31, 2023. Future impairment of this reporting unit may occur if financial results or macroeconomic conditions deteriorate versus our current expectations. Our annual goodwill impairment test indicated excesses of estimated fair value over the respective carrying values of our other reporting units ranging from approximately 130 percent to greater than 200 percent. We have performed sensitivity analyses on the key inputs into the fair value calculations and we validate the results of our impairment test through a reconciliation of the fair value of all our reporting units to our overall market capitalization. Unforeseen events, changes in circumstances and market conditions and differences in estimates of future cash flows could adversely affect the fair value of our assets and could result in future impairment charges.

For additional information on the accounting for goodwill and goodwill impairments recorded, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies and Note 9, Goodwill and Other Intangible Assets, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Income Taxes

Valuation allowance

We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized, the determination of which requires significant judgment. In evaluating the ability to recover deferred tax assets, we consider all available positive and negative evidence including past operating results, the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. Our valuation allowance at December 31, 2023 decreased to $100.7 million from $131.4 million at December 31, 2022, resulting in deferred tax liabilities, net, of $115.8 million as of December 31, 2023. Changes in the expectations regarding the realization of deferred tax assets and liabilities could materially impact income tax expense in future periods.

For additional information on income taxes, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies, and Note 14, Income Taxes, to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Recently Adopted and New Accounting Standards

See Part II – Item 8 – Note 2, Recent Accounting Pronouncements, for a complete discussion of recently issued accounting standards adopted and not yet adopted.

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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 December 31, 2023, we had cash and cash equivalents of $975.8 million, including Corporate Cash of $171.9 million, and remaining borrowing availability of $731.2 million under the Revolving Credit Facility along with access to various sources of funds, including uncommitted federal funds lines of credit from other banks.

Our short-term cash requirements consist primarily of funding the working capital needs of our business, payments on maturities of deposits, current principal and interest payments on the credit facilities under our Amended and Restated Credit Agreement, and payments on other short-term debt. Our long-term cash requirements consist primarily of amounts owed under our Amended and Restated Credit Agreement and various facilities lease agreements. For more information on our debt and deposit commitments refer to Part II – Item 8 – Note 16, Financing and Other Debt and Note 11, Deposits, respectively, in this report. For more information on our future lease payments, including our minimum lease payment schedule as of December 31, 2023, refer to Part II – Item 8 – Note 15, Leases.

We believe that our current cash and cash equivalents, cash generating capabilities, financial condition and operations, and access to available funding sources will be adequate to fund our cash needs for the next 12 months and the foreseeable future. The table below includes a more comprehensive list of frequent sources and uses of cash:

[[GREPCENT_TABLE]]
[["Sources of cash","","Uses of cash"],["\u2022Cash generated from operations\u2022Borrowings and availability on our Amended and Restated Credit Agreement1\u2022Deposits2\u2022Participation debt and borrowed federal funds3\u2022Accounts receivable factoring and securitization arrangements4","","\u2022Payments on our Amended and Restated Credit Agreement\u2022Payments on maturities of deposits\u2022Payments on borrowed federal funds and other short-term borrowings\u2022Working capital needs of the business\u2022Capital expenditures\u2022Purchases of shares of treasury stock\u2022Merger and acquisition activity"]]
[[/GREPCENT_TABLE]]

(1)Under our Amended and Restated Credit Agreement, as of December 31, 2023, we had outstanding term loan principal borrowings of $2,246.2 million, borrowings of $662.0 million on the Revolving Credit Facility and letters of credit of $36.8 million drawn against the Revolving Credit Facility. The letters of credit are issued on our behalf in favor of third-party beneficiaries and primarily collateralize Corporate Payments processing activity. Subject to the terms of the Amended and Restated Credit Agreement, these irrevocable letters of credit are secured and are renewed on an annual basis unless the Company chooses not to renew them. The Tranche A Term Loans and Tranche B Term Loans require scheduled quarterly payments through the April 1, 2026 and April 1, 2028 respective maturity dates. See Part II – Item 8 – Note 16, Financing and Other Debt, in this report for more information regarding our applicable interest rates on our Amended and Restated Credit Agreement.

(2)WEX Bank’s regulatory status enables it to raise capital to fund the Company’s working capital requirements by issuing deposits, subject to various regulatory capital requirements administered by the FDIC and the UDFI. WEX Bank accepts its deposits through certain customers as required collateral for credit that has been extended (“customer deposits”) and contractual arrangements for brokered and non-brokered certificate of deposit and money market deposit products. Additionally, WEX Bank holds deposits for the benefit of WEX Inc.’s HSA customers subject to the terms of a deposit agreement. Customer deposits are generally non-interest bearing, certificates of deposit are issued at fixed rates, money market deposits are issued at both fixed and variable rates based on the Federal Funds rate and HSA deposits are issued at rates as defined within the consumer account agreements. Certificates of deposit and certain fixed term money market deposit products have fixed contractual maturities. Money market deposits without fixed terms may be withdrawn by the holder at any time, although the allowed number of transactions may be limited and notification may be required. Customer deposits are released at the termination of the relationship, net of any customer receivable, or upon reevaluation of the customer’s credit in limited instances. HSA funds can be withdrawn by the account holders at any time. We believe that our deposits are paying competitive yields and that the brokered deposit market remains liquid. As of December 31, 2023, we had $4.1 billion in deposits. See Part II – Item 8 – Note 11, Deposits, in this report for more information regarding our deposits.

(3)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 $39.1 million borrowed against these participation agreements as of December 31, 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 $70.0 million in outstanding borrowings under these lines of credit as of December 31, 2023. See Part II – Item 8 – Note 16, Financing and Other Debt, in this report for more information regarding these facilities.

(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 $101.9 million of securitized debt under these facilities as of December 31, 2023. See Part II – Item 8 – Note 16, Financing and Other Debt, in this report for more information regarding these facilities. We also utilize off-balance sheet factoring and receivable securitization facilities to sell certain of our accounts receivable to unrelated third-party financial institutions in order to accelerate

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the collection of the Company’s cash and reduce internal costs. Available capacity is generally dependent on the level of our trade accounts receivable eligible to be sold and the financial institution’s willingness to purchase such receivables. However, the Company is not dependent on them to maintain its liquidity and capital resources. See Part II – Item 8 – Note 16, Financing and Other Debt and Note 13, Off-Balance Sheet Arrangements, in this report for further information about the Company’s securitized debt and off-balance sheet arrangements.

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 $775.0 million of temporary, low-cost capital under the BTFP as of December 31, 2023, pledging securities with a par value of $775.7 million and market value of $704.1 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 (the “Third Amendment”), which increased the revolving credit commitments under the Company’s Revolving Credit Facility by $500.0 million. Pursuant to the terms of the Third Amendment, the revolving commitments under our Amended and Restated Credit Agreement were increased, which created capacity sufficient to restore amounts borrowed to repurchase the Convertible Notes and to consummate the Ascensus Acquisition. See Part II – Item 8 – Note 16, Financing and Other Debt and Note 4, Acquisitions, in this report for more information regarding the Convertible Notes repurchase, the Third Amendment and the 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 December 31, 2023, the Company could borrow up to a maximum amount of $151.8 million. WEX Bank had no borrowings outstanding on this line of credit as of December 31, 2023. See Part II – Item 8 – Note 16, Financing and Other Debt, in this report for more information regarding this borrowing arrangement.

Cash Flows

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

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["(in millions)","2023","","2022","","2021"],["Net cash provided by (used for):"],["Operating activities","$","907.9","","","$","679.4","","","$","(42.6)"],["Investing activities","$","(2,138.3)","","","$","(716.7)","","","$","(1,601.1)"],["Financing activities","$","1,573.3","","","$","681.3","","","$","1,596.2"],["Non-GAAP financial measure:"],["Adjusted free cash flow(1)","$","516.9","","","$","782.4","","","$","535.4"]]
[[/GREPCENT_TABLE]]

(1)The Company’s non-GAAP adjusted free cash flow is calculated as cash generated from operations, less 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 Payments 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.

The majority of the Company’s trade receivables provide for payment terms of 30 days or less and receivables not paid within the terms of the agreement are generally subject to late fees based upon the outstanding receivable balance. The Company also extends revolving credit to certain small fleets. Such accounts are also subject to late fees and interest

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charges based on a revolving balance. The Company had approximately $133.3 million and $157.8 million of receivables with revolving credit balances as of December 31, 2023 and 2022, respectively.

The receivables portfolio consists of a large group of homogeneous smaller balances across a wide range of industries. No one customer receivable balance represented 10 percent or more of the outstanding receivables balance at December 31, 2023 or December 31, 2022. At December 31, 2023, approximately 98 percent and 99 percent of the outstanding balance of total trade accounts receivable was less than 30 days and 60 days past due, respectively.

•Net cash provided by operating activities for 2023 increased $228.5 million as compared to the prior year, primarily attributable to the favorable impact on working capital resulting from a decrease in fuel prices during 2023 relative to the prior year.

•Net cash provided by operating activities for 2022 increased $722.0 million as compared to the prior year, primarily attributable to a decreased change in accounts receivable, net of a corresponding increased change in accounts payable, as well as higher net income adjusted for non-cash items.

For the year ended December 31, 2023, net cash provided by operating activities includes a $76.0 million receipt from the return of a collateral deposit as well as the $50.0 million receipt of proceeds upon the termination of all of the Company’s outstanding swaps with a collective notional amount of $1.1 billion, which the Company had used to manage the interest rate risk associated with its outstanding variable-interest rate borrowings.

Investing Activities

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

•Net cash used for investing activities for 2023 increased $1,421.6 million as compared to the prior year, primarily resulting from an increase in net purchases of available-for-sale debt securities and cash paid for acquisitions. See Part II – Item 8 – Note 4, Acquisitions, in this report for more information regarding the Ascensus and Payzer acquisitions.

•Net cash used for investing activities for 2022 decreased $884.5 million as compared to the prior year, primarily resulting from a reduction in payments made for acquisitions as well as a reduction in net purchases of available-for-sale debt securities.

Financing Activities

Financing cash flows generally consist of the issuance and repayment of debt, deposits and proceeds from employee exercises of stock options, 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.

•Net cash provided by financing activities during 2023 increased $892.0 million as compared to the prior year, due primarily to net borrowings under the newly available BTFP and under our Revolving Credit Facility, offset in part by the repurchase of our Convertible Notes.

•Net cash provided by financing activities during 2022 decreased $915.0 million as compared to the prior year, primarily resulting from lower relative deposit issuances and purchases of our common stock.

During 2023 the Company repurchased approximately 1.7 million shares of our common stock subject to an authorized and outstanding share repurchase plan. Cash payments for share repurchases totaled $303.4 million. As of December 31, 2023, there was $213.4 million worth of common stock shares available to be purchased pursuant to the repurchase plan authorization. For information regarding an increase to such share repurchase plan authorization made during 2024, see Part II – Item 8 – Note 28, Subsequent Events.

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 $265.5 million during 2023 from 2022 reflecting an increase in net purchases of available-for-sale debt securities, partially offset by borrowings under the BTFP and increasing cash inflows from operating activities.

•Adjusted free cash flow increased $246.9 million during 2022 from 2021 reflecting a significant increase in operating cash flows and decrease in purchases of current investment securities, offset in part by the reduction in cash provided by net deposits as compared to the prior year.

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Undistributed Earnings

Undistributed earnings of certain foreign subsidiaries of the Company amounted to $231.6 million at December 31, 2023. The Company continues to maintain its indefinite reinvestment assertion for its investments in foreign subsidiaries except for any historical undistributed earnings and future earnings for WEX Australia. Upon distribution of the foreign subsidiaries’ earnings in which the Company continues to assert indefinite reinvestment, which approximates $203.5 million at December 31, 2023, the Company would be subject to withholding taxes payable to foreign countries, where applicable, but would generally have no further federal income tax liability.

Earnings outside of the United States are accompanied by certain financial risks, such as changes in foreign currency exchange rates. Changes in foreign currency exchange rates may reduce the reported value of our foreign currency revenues, net of expenses and cash flows. We cannot predict changes in currency exchange rates, the impact of currency exchange rate changes nor the degree to which we will be able to manage the impact of currency exchange rate changes.

Financial Covenants

The Amended and Restated Credit Agreement contains various affirmative and negative covenants that, subject to certain customary exceptions, limit the Company and its subsidiaries’ (including, in certain limited circumstances, WEX Bank and the Company’s other regulated subsidiaries) ability to, among other things (i) incur additional debt, (ii) pay dividends or make other distributions on, redeem or repurchase capital stock, or make investments or other restricted payments, (iii) enter into transactions with affiliates, (iv) dispose of assets or issue stock of restricted subsidiaries or regulated subsidiaries, (v) create liens on assets, or (vi) effect a consolidation or merger or sell all, or substantially all, of the Company’s assets.

The Amended and Restated Credit Agreement also requires, solely for the benefit of the lenders of the Tranche A Term Loan and lenders under the Revolving Credit Facility, that the Company maintain at the end of each fiscal quarter the following financial ratios:

•a consolidated interest coverage ratio (as defined in the Amended and Restated Credit Agreement) of no less than 3.00 to 1.00; and

•a consolidated leverage ratio (as defined in the Amended and Restated Credit Agreement) of no more than 4.75 to 1.00 as of December 31, 2023 and thereafter.

We were in compliance with these covenants and restrictions at December 31, 2023.

Commitments and Contingencies

Commitments to Extend Credit

We have entered into commitments to extend credit in the ordinary course of business. We had approximately $9.4 billion of unused commitments to extend credit at December 31, 2023, as part of established customer agreements, which are off-balance sheet arrangements. These amounts may increase or decrease during 2024 as we increase or decrease credit to customers, subject to appropriate credit reviews, as part of our lending product agreements. Many of these commitments are not expected to be utilized. We can adjust most of our customers’ credit lines at our discretion at any time. Therefore, we do not believe total unused credit available to customers and customers of strategic relationships represents future cash requirements. We believe that we can adequately fund actual cash requirements related to these credit commitments through the sources of cash described above.

Deferred Payments on Acquisition

We have deferred cash payments and additional consideration owed pursuant to previously completed acquisitions. In association with the March 2022 acquisition of SBI’s remaining interest in PO Holding, the Company owes SBI a purchase price of $234.0 million, payable in the amount of $76.7 million in each of March 2024 and 2025 and $80.6 million in March 2026, along with interest payable in accordance with the terms of the purchase agreement. For additional information with respect to interest owed on these deferred payments, see Part II – Item 8 – Note 4, Acquisitions. In addition, the Company is required to make a cash payment to Bell Bank of $12.5 million in January 2024 in association with the April 2021 acquisition of certain contractual rights to serve as custodian or sub-custodian to over $3 billion of HSAs. The asset purchase agreement with Bell Bank also includes the potential for additional consideration payable annually by WEX that is calculated on a quarterly basis and is contingent, and based, upon any future changes in the Federal Funds rate. The

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contingent payment period extends through the earlier of December 31, 2030, or the date when the cumulative amount paid as contingent consideration equals $225.0 million. Through December 31, 2023, $93.2 million of consideration has been incurred, $64.5 million of which is unpaid as of December 31, 2023 and is payable during the first quarter of 2024. Assuming no further changes to the Federal Funds rate as of December 31, 2023, however, the Company expects that it will incur the full $225.0 million in contingent consideration, the remainder of which is payable over the next two years in average annual increments of approximately $66 million based on the Federal Funds rate in effect as of December 31, 2023.

Other Contractual Commitments

We have purchase obligations that include agreements and purchase orders to acquire goods or services that are contractually enforceable and that specify all significant terms, including fixed or minimum quantities, pricing, and approximate timing of purchases. As of December 31, 2023, we had approximately $27.4 million in material cash requirements under purchase obligations due in 2024. Our material cash requirements under purchase obligations due beyond 2024 are approximately $26.7 million. These purchase obligations do not include amounts recorded on our consolidated balance sheet as of December 31, 2023. The expected timing of payments of our purchase obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.

Under existing contractual arrangements, the Company is required to purchase a minimum amount of fuel from certain fuel suppliers on an annual basis. Upon failing to meet these minimum commitments, a penalty is assessed as defined under the contracts. If the Company were not to purchase any fuel under these commitments after December 31, 2023, it would pay penalties of approximately $4.3 million during 2024 and approximately $14.5 million after 2024. See Part II – Item 8 – Note 20, Commitments and Contingencies, for more information.

In addition to these contractual commitments, the Company has unfunded commitments to provide loans of up to $11.3 million under a nonprofit community development program and to invest up to $10.0 million in certain limited partnership funds under subscription and limited partnership agreements. For more information on these unfunded commitments as of December 31, 2023 and the term over which funding can be expected, see Part II – Item 8 – Note 20, Commitments and Contingencies.

Regulatory Matters

A consent order issued by the FDIC and the UDFI on May 6, 2022 (the “2022 Order”), which required WEX Bank to strengthen its Bank Secrecy Act/anti-money laundering compliance program and to address related matters, including with respect to controls was terminated by the UDFI and the FDIC on November 8, 2023 and November 21, 2023, respectively, after we adequately satisfied the requirements of the 2022 Order.

WEX Bank is also subject to a consent order issued by the FDIC on September 20, 2023 (the “2023 Order”), which 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 have had nor are expected to have a material effect on WEX Bank’s operations or the Company’s results of operations, financial condition or cash flows.

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