ABOUT WEX
ABOUT WEX
WEX is a leading financial technology service provider. Since
our founding in 1983, we have expanded our scope to become
a global leader in payments solutions, providing diversified
financial technology solutions supporting customers around
the world. At WEX, our focus is to simplify the complexities of
payments systems through innovative technology, user-friendly
tools and industry-leading customer experience.
Our proprietary technology allows us to harness massive
amounts of data and deliver insights that help customers make
better business decisions. Our expertise within our Fleet, Travel,
Corporate Payments, and Health and Employee Benefit verticals
is complemented by our ability to deliver solutions tailored to
meet specific customer needs.
Through our products and services, we provide security, control
and intelligence for the payment transactions of more than
14.9 million fleet vehicles, $39.6 billion of Travel and Corporate
Solutions spend and 31.8 million healthcare consumers.
WEX currently operates its business in three segments: Fleet
Solutions, Travel and Corporate Solutions and Health and
Employee Benefit Solutions. WEX and its subsidiaries employ
more than 5,000 associates across our network of locations in
the United States, Australia, New Zealand, Brazil, the United
Kingdom, Italy, France, Germany, Norway and Singapore. The
company has been publicly traded since 2005, and is listed on
the New York Stock Exchange under the ticker symbol “WEX.”
1
DEAR FELLOW
S H A R E H O L D E R S
record year
2019 was another
for WEX,
underpinned by outstanding performance across
our business. We executed well against our strategic
pillars, delivering superior innovation and best-in-
class products and solutions to our customers that
enabled us to continue winning in the marketplace.
As of this publication, the magnitude and duration
of coronavirus (COVID-19) are still unfolding. We are
actively taking the appropriate steps to ensure the
health and safety of our employees, partners and
customers, which remain our top priority. We are
confident we will manage the business through this
stressful time.
Looking back on the year, I am particularly
pleased with the progress we made establishing a
platform for growth that is more resilient and more
diversified than ever before. While key areas of focus in
any market environment, resilience and diversification
have never been more important than now as we find
ourselves navigating unprecedented times.
this
Building off
strengthened platform, we
successfully integrated and ramped the Shell and
Chevron portfolios and achieved better-than-
expected results
from our Noventis, Discovery
Benefits and Go Fuel Card acquisitions. These
strategic acquisitions further accelerate our growth
profile, expand our geographic reach, diversify our
business and broaden our technology offerings and
capabilities.
Our commitment to innovation remains a
cornerstone to our success. In 2019, we accelerated
our digital transformation, including consolidating
implementing one
our over-the-road platforms,
of the largest product releases of our healthcare
business ever and deploying a host of tools internally
to help us scale. Importantly, we delivered on one
of our main goals outlined at our 2018 Investor Day:
moving WEX’s North American fleet platform to the
Cloud, marking our third significant technology
platform migration. We are focused on the migration
and development of Cloud technologies and will
continue to drive progress through 2020 and beyond.
Looking ahead, we remain committed to
building upon our best-in-class growth engine,
leading through superior technology, driving scale
through execution and leveraging our culture to
secure the best employees. We will continue to
strengthen our customer and partner relationships as
well as leverage WEX’s leading positions across core
markets. Importantly, we will build upon our best-
in-class technology that serves as the bedrock of our
business.
I want to personally thank our customers and partners
across the globe for entrusting WEX with their
business, our shareholders for their ongoing support
and most of all, our employees, whose hard work and
dedication drive WEX’s success. We continue to attract
and retain the best employees, and I’m proud to say
we maintained certification as a Great Place to Work
for the third consecutive year. We have established a
strong platform that is more resilient and diversified
than ever before, which positions us well to navigate
times like this without sacrificing our commitment
to long-term sustainable growth. I remain confident
in our ability to execute and look forward to a bright
future.
Chair and Chief Executive Officer • April 7, 2020
3
FINANCIAL HIGHLIGHTS
PERFORMANCE GRAPH
TOTAL REVENUE
($ in Millions)
1,249
1,012
854
TOTAL PURCHASE VOLUME
($ in Billions)
82.2
76.5
65.0
50.6
44.5
’15 ’16 ’17 ’18 ’19
’15 ’16 ’17 ’18 ’19
KEY FINANCIAL HIGHLIGHTS & RECONCILIATIONS
($ in thousands)
2019
2018
2017
Revenue
$
1,723,691
$
1,492,639
$
1,248,577
Reconciliation of Net Income Attributable to Shareholders to Adjusted Net Income ("ANI")
Net income attributable to shareholders
Unrealized loss (gain) on financial instruments
Net foreign currency remeasurement loss (gain)
Acquisition-related intangible amortization
Other acquisition and divestiture related items
Gain on divestiture
Stock-based compensation
Restructuring and other costs
Impairment charges
Debt restructuring and debt issuance cost amortization
Non-cash adjustments related to tax receivable agreement
ANI adjustments attributable to non-controlling interests
Tax related items
$
99,006
$
168,295
$
160,062
34,654
926
159,431
37,675
–
47,511
25,106
–
21,004
(932)
53,035
(74,743)
(2,579)
38,800
138,186
4,143
–
35,103
13,717
5,649
14,101
775
(1,370)
(53,918)
(1,314)
(31,487)
153,810
5,000
(20,958)
30,487
11,129
44,171
10,519
(15,259)
(1,563)
(115,278)
Adjusted net income attributable to shareholders
$
402,673
$
360,902
$
229,319
The Company’s non-GAAP adjusted net income excludes unrealized gains and losses on financial instruments, net foreign currency remeasurement gains and losses, acquisition-related intangible amortization,
other acquisition and divestiture related items, stock-based compensation, restructuring and other costs, gain on divestiture, impairment charges, debt restructuring and debt issuance cost amortization,
non-cash adjustments related to tax receivable agreement, similar adjustments attributable to our non-controlling interests and certain tax related items.
Although adjusted net income is not calculated in accordance with GAAP, this non-GAAP measure is integral to the Company’s reporting and planning processes and the chief operating decision maker of
the Company uses segment adjusted operating income to allocate resources among our operating segments. The Company considers this measure integral because it excludes the above-specified items that
the Company’s management excludes in evaluating the Company’s performance. Specifically, in addition to evaluating the Company’s performance on a GAAP basis, management evaluates the Company’s
performance on a basis that excludes the above items because:
• Exclusion of the non-cash, mark-to-market adjustments on financial instruments, including interest rate swap agreements and investment securities, helps management identify and assess trends in the
Company’s underlying business that might otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these financial instruments. Additionally, the non-cash, mark-to-market
adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future quarters difficult to evaluate.
• Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, accounts receivable and accounts payable balances, certain intercompany notes denominated
in foreign currencies and any gain or loss on foreign currency hedges relating to these items. The exclusion of these items helps management compare changes in operating results between periods that
might otherwise be obscured due to currency fluctuations.
• The 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 of divestitures facilitates the comparison of our financial results to the Company’s historical operating results and to other
companies in our industry.
• Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated
with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based on a stock-based compensation valuation methodology and
underlying assumptions that may vary over time.
• We exclude restructuring and other costs when evaluating our continuing business performance as such items are not consistently occurring and do not reflect expected future operating expense, nor do
they provide insight into the fundamentals of current or past operations of our business. This also includes costs related to certain identified initiatives, including technology initiatives, to further streamline
the business, improve the Company’s efficiency, create synergies and globalize the Company’s operations and remediate the prior year material weaknesses, 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 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, and non-cash adjustments related to the tax receivable agreement
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.
4
For the same reasons, WEX believes that adjusted net income may also be useful to investors when evaluating the Company’s performance. However, because adjusted net income is a non-GAAP measure,
it should not be considered as a substitute for, or superior to, net income as determined in accordance with GAAP. In addition, adjusted net income as used by WEX may not be comparable to similarly titled
measures employed by other companies.
The following graph assumes $100 invested December 31, 2014, and compares (a) the percentage change in the Company’s
cumulative total stockholder return on the common stock (as measured by dividing (i) the sum of (A) the cumulative amount of
dividends, assuming dividend reinvestment, during the periods presented, and (B) the difference between the Company’s share price
at the end and the beginning of the periods presented by (ii) the share price at the beginning of the periods presented) with (b) (i) the
S&P 500 Index and (ii) the S&P Data Processing & Outsourced Services Index.
300
250
200
150
100
50
12/31/14 12/31/15 12/31/16 12/31/17 12/31/18
12/31/19
WEX
S&P 500
S&P DATA PROCESSING AND OUTSOURCED SERVICES
PERIOD ENDING DECEMBER 31
2014
2015
2016
2017
2018
2019
$
100.00
$
100.00
$
100.00
89.37
112.82
142.77
141.59
101.38
112.45
113.51
138.29
132.23
121.18
169.73
192.88
211.75
173.86
278.89
PERFORMANCE GRAPH
The following graph assumes $100 invested December 31, 2014, and compares (a) the percentage change in the Company’s
cumulative total stockholder return on the common stock (as measured by dividing (i) the sum of (A) the cumulative amount of
dividends, assuming dividend reinvestment, during the periods presented, and (B) the difference between the Company’s share
price at the end and the beginning of the periods presented by (ii) the share price at the beginning of the periods presented)
with (b) (i) the S&P 500 Index and (ii) the S&P Data Processing & Outsourced Services Index.
TOTAL RETURN PERFORMANCE
)
$
(
E
U
L
A
V
X
E
D
N
I
300
250
200
150
100
50
12/31/14 12/31/15 12/31/16 12/31/17 12/31/18
12/31/19
WEX
S&P 500
S&P DATA PROCESSING AND OUTSOURCED SERVICES
PERIOD ENDING DECEMBER 31
2015
2018
2016
2017
89.37
112.82
142.77
141.59
101.38
112.45
113.51
138.29
132.23
121.18
169.73
192.88
2014
$
100.00
$
100.00
$
100.00
2019
211.75
173.86
278.89
5
LEADERSHIP
TEAM
MELISSA D. SMITH
Chair and
Chief Executive Officer
DAVID COOPER
Chief Technology Officer
JOEL (JAY) DEARBORN
President, Corporate Payments
ROBERT DESHAIES
President, Health
KENNETH W. JANOSICK
Chief Portfolio Risk and
Operations Officer
NICOLA S. MORRIS
Chief Corporate Development
Officer
SCOTT PHILLIPS
President, Global Fleet
HILARY A. RAPKIN
Chief Legal Officer
ROBERTO SIMON
Chief Financial Officer
Cautionary Note Regarding Forward-Looking Statements
MELANIE TINTO
Chief Human Resources
Officer
This annual report contains forward-looking statements, including statements regarding: strategic, operational and financial plans; plans for business, technology and
commercial expansion; and future growth opportunities. Any statements that are not statements of historical facts may be deemed to be forward-looking statements.
When used in this annual report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” and similar expressions are
intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are subject to
a number of risks and uncertainties that could cause actual results to differ materially, including: the susceptibility of our industry and the markets addressed by our,
and our customers’, products and services to economic downturns, including as a result of widespread illness such as coronavirus (or COVID-19); the scope and severity
of the coronavirus (or COVID-19); the effects of general economic conditions on fueling patterns as well as payment and transaction processing activity; the impact of
foreign currency exchange rates on the Company’s operations, revenue and income; changes in interest rates; the impact of fluctuations in fuel prices; the effects of the
Company’s business expansion and acquisition efforts; potential adverse changes to business or employee relationships, including those resulting from the completion
of an acquisition; competitive responses to any acquisitions; uncertainty of the expected financial performance of the combined operations following completion of
an acquisition; the failure to successfully integrate the Company’s acquisitions; the ability to realize anticipated synergies and cost savings; unexpected costs, charges
or expenses resulting from an acquisition; the Company’s abilityto successfully acquire, integrate, operate and expand commercial fuel card programs; the failure of
corporate investments to result in anticipated strategic value; the impact and size of credit losses; the impact of changes to the Company’s credit standards; breaches
6
BOARD OF
DIRECTORS
MELISSA D. SMITH
Chair and
Chief Executive Officer
JACK VANWOERKOM
Vice Chairman and Lead Director, WEX
Former Executive Vice President and
General Counsel, The Home Depot
JOHN (JEB) E. BACHMAN
Former Partner, PwC
DANIEL (DON) CALLAHAN
Former Global Head of Operations and
Technology, Citigroup
MICHAEL E. DUBYAK
Former Chief Executive Officer, WEX
SHIKHAR GHOSH
Professor, Harvard Business School
ROWLAND T. MORIARTY
Chairman, CRA International, Inc.
JAMES NEARY
Managing Director, Warburg Pincus
STEPHEN (STEVE) SMITH
President and Chief Executive Officer,
L.L.Bean
SUSAN SOBBOTT
Former President of Global Commercial
Services, American Express
REGINA O. SOMMER
Financial and Business Consultant
of the Company’s technology systems or those of our third-party service providers and any resulting negative impact on our reputation, liabilities or relationships
with customers or merchants; the Company’s failure to maintain or renew key commercial agreements; failure to expand the Company’s technological capabilities
and service offerings as rapidly as the Company’s competitors; failure to successfully implement the Company’s information technology strategies and capabilities
in connection with its technology outsourcing and insourcing arrangements and any resulting cost associated with that failure; the actions of regulatory bodies,
including banking and securities regulators, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the Company as the
corporate parent or other subsidiaries or affiliates; the impact of the Company’s outstanding notes on its operations; the impact of increased leverage on the Company’s
operations, results or borrowing capacity generally, and as a result of acquisitions specifically; the incurrence of impairment charges if our assessment of the fair value
of certain of our reporting units changes; the uncertainties of litigation; as well as other risks and uncertainties identified in Item 1A of the Company’s annual report on
Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 28, 2020. The Company’s forward-looking statements
do not reflect the potential future impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date
of this annual report and undue reliance should not be placed on these statements. The Company disclaims any obligation to update any forward-looking statements
as a result of new information, future events or otherwise.
7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
to
.
Commission file number 001-32426
WEX INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1 Hancock St., Portland, ME
(Address of principal executive offices)
01-0526993
(I.R.S. Employer
Identification No.)
04101
(Zip Code)
(207) 773-8171
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Trading Symbol(s)
WEX
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b–2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
Forward–Looking Statements
ACRONYMS AND ABBREVIATIONS
TABLE OF CONTENTS
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act).
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming for the purpose of this
calculation, but without conceding, that all directors, officers and any 10 percent or greater stockholders are affiliates of the registrant) as of June 28, 2019, the
last business day of the registrant’s most recently completed second fiscal quarter, was $8,945,887,913 (based on the closing price of the registrant’s common
stock on that date as reported on the New York Stock Exchange).
There were 43,341,984 shares of the registrant’s common stock outstanding as of February 21, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this 10–K. With
the exception of the sections of the 2020 Proxy Statement specifically incorporated herein by reference, the 2020 Proxy Statement is not deemed to be filed as
part of the 10–K.
Yes
No
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Selected Financial Data
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Part I
Part II
Part III
Part IV
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10–K Summary
Signatures
1
2
3
17
34
34
34
34
35
36
37
59
61
113
114
117
117
117
117
117
117
118
118
122
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act).
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming for the purpose of this
calculation, but without conceding, that all directors, officers and any 10 percent or greater stockholders are affiliates of the registrant) as of June 28, 2019, the
last business day of the registrant’s most recently completed second fiscal quarter, was $8,945,887,913 (based on the closing price of the registrant’s common
Yes
No
stock on that date as reported on the New York Stock Exchange).
There were 43,341,984 shares of the registrant’s common stock outstanding as of February 21, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this 10–K. With
the exception of the sections of the 2020 Proxy Statement specifically incorporated herein by reference, the 2020 Proxy Statement is not deemed to be filed as
part of the 10–K.
Forward–Looking Statements
ACRONYMS AND ABBREVIATIONS
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Part III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part IV
Exhibits and Financial Statement Schedules
Form 10–K Summary
Signatures
1
2
3
17
34
34
34
34
35
36
37
59
61
113
114
117
117
117
117
117
117
118
118
122
Unless otherwise indicated or required by the context, the terms “we,” “us,” “our,” “WEX,” or the “Company,” in this
Annual Report on Form 10–K mean WEX Inc. and all of its subsidiaries that are consolidated under Generally Accepted Accounting
Principles in the United States.
FORWARD–LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for statements that are forward-looking
and are not statements of historical facts. This Annual Report includes forward-looking statements including, but not limited to,
statements about management’s plan and goals and statements of strategic priorities included within the “Strategy” section of
this Annual Report in Item 1. Any statements in this Annual Report that are not statements of historical facts are forward-looking
statements. When used in this Annual Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “project” and similar expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such words. Forward-looking statements relate to our future plans, objectives, expectations
and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors
that may cause the actual results or performance to be materially different from future results or performance expressed or implied
by these forward-looking statements. The following factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this Annual Report and in oral statements made by our authorized officers:
ACRONYMS AND ABBREVIATIONS
The acronyms and abbreviations identified below are used in this Annual Report including the accompanying consolidated
financial statements and the notes thereto. The following is provided to aid the reader and provide a reference point when reviewing
the Annual Report:
2013 Credit Agreement
Amended and restated credit agreement entered into on January 18, 2013 by and among the Company and certain of
our subsidiaries, as borrowers, and WEX Card Holdings Australia Pty Ltd., as specified designated borrower, with a
lending syndicate.
2016 Credit Agreement
Credit agreement entered into on July 1, 2016, as amended from time to time, by and among the Company and certain
of its subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as designated borrower, and Bank of America,
N.A., as administrative agent on behalf of the lenders.
2017 Tax Act
Tax Cuts and Jobs Act of 2017
Adjusted Net Income or ANI
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the effects of general economic conditions on fueling patterns as well as payment and transaction processing activity;
the impact of foreign currency exchange rates on the Company’s operations, revenue and income;
changes in interest rates;
the impact of fluctuations in fuel prices;
the effects of the Company’s business expansion and acquisition efforts;
potential adverse changes to business or employee relationships, including those resulting from the completion of an
acquisition;
competitive responses to any acquisitions;
uncertainty of the expected financial performance of the combined operations following completion of an acquisition;
the failure to successfully integrate the Company’s acquisitions;
the ability to realize anticipated synergies and cost savings;
unexpected costs, charges or expenses resulting from an acquisition;
the Company’s failure to successfully acquire, integrate, operate and expand commercial fuel card programs;
the failure of corporate investments to result in anticipated strategic value;
the impact and size of credit losses;
the impact of changes to the Company’s credit standards;
breaches of the Company’s technology systems or those of our third-party service providers and any resulting negative
impact on our reputation, liabilities or relationships with customers or merchants;
the Company’s failure to maintain or renew key commercial agreements;
failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors;
failure to successfully implement the Company’s information technology strategies and capabilities in connection with
its technology outsourcing and insourcing arrangements and any resulting cost associated with that failure;
the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking or financial
regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or
affiliates;
the impact of the Company’s outstanding notes on its operations;
the impact of increased leverage on the Company’s operations, results or borrowing capacity generally, and as a result
of acquisitions specifically;
the incurrence of impairment charges if our assessment of the fair value of certain of our reporting units changes;
the uncertainties of litigation; as well as
other risks and uncertainties identified in Item 1A of this Annual Report and in connection with such forward-looking
statements.
Our forward-looking statements and these factors do not reflect the potential future impact of any alliance, merger,
acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date of the initial filing of this
Annual Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-
looking statements as a result of new information, future events or otherwise.
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•
•
•
•
•
•
A non-GAAP measure that adjusts net income attributable to shareholders to exclude unrealized gains and losses on
financial instruments, net foreign currency remeasurement gains and losses, acquisition-related intangible
amortization, other acquisition and divestiture related items, stock-based compensation, restructuring and other costs,
impairment charges, gain on divestiture, debt restructuring and debt issuance cost amortization, non-cash adjustments
related to tax receivable agreement, adjustments attributed to our non-controlling interests and certain tax related
items.
AOC Solutions and one of its affiliate companies, 3Delta Systems, Inc.
Accounting Standards Codification
Accounting Standards Update No. 2014–09 Revenue from Contracts with Customers (Topic 606)
Accounting Standards Update No. 2016–01 Financial Instruments–Overall (Subtopic 825–10): Recognition and
Measurement of Financial Assets and Financial Liabilities
Accounting Standards Update No. 2016–02 Leases (Topic 842)
Accounting Standards Update No. 2016–13 Financial Instruments–Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments
Goodwill Impairment
Accounting Standards Update 2017–04–Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for
Benaissance, a provider of integrated SaaS technologies and services for healthcare premium billing, payment and
workflow management, acquired by the Company on November 18, 2015.
Consumer-directed healthcare
WEX Inc. and all entities included in the consolidated financial statements
Consumer Financial Protection Bureau
Discovery Benefits, Inc.
Deferred stock units
A non-GAAP measure that adjusts income before income taxes to exclude interest, depreciation and amortization
Electronic Funds Source, LLC, a provider of customized corporate payment solutions for fleet and corporate customers
with a focus on the large and mid-sized over-the-road fleets. On July 1, 2016, the Company acquired WP Mustang
Topco LLC, the indirect parent of Electronic Funds Source, LLC and Warburg Pincus Private Equity XI (Lexington),
LLC, an affiliated entity, from investment funds affiliated with Warburg Pincus LLC.
AOC
ASC
ASU 2014–09
ASU 2016–01
ASU 2016–02
ASU 2016–13
ASU 2017–04
Australian Securitization Subsidiary
Southern Cross WEX 2015-1 Trust, a special purpose entity consolidated by the Company
Benaissance
CDH
Company
CFPB
Discovery Benefits
DSUs
EBITDA
EFS
eNett
eNett International (Jersey) Limited
European Fleet business
European commercial fleet card portfolio acquired from ExxonMobil
European Securitization Subsidiary
Gorham Trade Finance B.V., a special purpose entity consolidated by the Company
Evolution1
EB Holdings Corp. and its subsidiaries which includes Evolution1, Inc., acquired by the Company on July 16, 2014
FASB
FCPA
FDIC
FinCEN
FRA
FSA
GAAP
GILTI
Financial Crimes Enforcement Network of the U.S. Department of the Treasury
Financial Accounting Standards Board
U.S. Foreign Corrupt Practices Act
Federal Deposit Insurance Corporation
Federal Reserve Act
Flexible Spending Accounts
Generally Accepted Accounting Principles in the United States
Global Intangible Low Taxed Income
Go Fuel Card
A European Fleet business acquired from EG Group on July 1, 2019
HRA
HSA
ICS
Health Reimbursement Arrangements
Health Savings Accounts
Insured Cash Sweep
1
2
Unless otherwise indicated or required by the context, the terms “we,” “us,” “our,” “WEX,” or the “Company,” in this
Annual Report on Form 10–K mean WEX Inc. and all of its subsidiaries that are consolidated under Generally Accepted Accounting
Principles in the United States.
FORWARD–LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for statements that are forward-looking
and are not statements of historical facts. This Annual Report includes forward-looking statements including, but not limited to,
statements about management’s plan and goals and statements of strategic priorities included within the “Strategy” section of
this Annual Report in Item 1. Any statements in this Annual Report that are not statements of historical facts are forward-looking
statements. When used in this Annual Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “project” and similar expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such words. Forward-looking statements relate to our future plans, objectives, expectations
and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors
that may cause the actual results or performance to be materially different from future results or performance expressed or implied
by these forward-looking statements. The following factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this Annual Report and in oral statements made by our authorized officers:
the effects of general economic conditions on fueling patterns as well as payment and transaction processing activity;
the impact of foreign currency exchange rates on the Company’s operations, revenue and income;
changes in interest rates;
the impact of fluctuations in fuel prices;
acquisition;
competitive responses to any acquisitions;
the effects of the Company’s business expansion and acquisition efforts;
potential adverse changes to business or employee relationships, including those resulting from the completion of an
uncertainty of the expected financial performance of the combined operations following completion of an acquisition;
the failure to successfully integrate the Company’s acquisitions;
the ability to realize anticipated synergies and cost savings;
unexpected costs, charges or expenses resulting from an acquisition;
the failure of corporate investments to result in anticipated strategic value;
the impact and size of credit losses;
the impact of changes to the Company’s credit standards;
the Company’s failure to successfully acquire, integrate, operate and expand commercial fuel card programs;
breaches of the Company’s technology systems or those of our third-party service providers and any resulting negative
impact on our reputation, liabilities or relationships with customers or merchants;
the Company’s failure to maintain or renew key commercial agreements;
failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors;
failure to successfully implement the Company’s information technology strategies and capabilities in connection with
its technology outsourcing and insourcing arrangements and any resulting cost associated with that failure;
the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking or financial
regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or
affiliates;
the impact of the Company’s outstanding notes on its operations;
the impact of increased leverage on the Company’s operations, results or borrowing capacity generally, and as a result
the incurrence of impairment charges if our assessment of the fair value of certain of our reporting units changes;
other risks and uncertainties identified in Item 1A of this Annual Report and in connection with such forward-looking
of acquisitions specifically;
the uncertainties of litigation; as well as
statements.
Our forward-looking statements and these factors do not reflect the potential future impact of any alliance, merger,
acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date of the initial filing of this
Annual Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-
looking statements as a result of new information, future events or otherwise.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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ACRONYMS AND ABBREVIATIONS
The acronyms and abbreviations identified below are used in this Annual Report including the accompanying consolidated
financial statements and the notes thereto. The following is provided to aid the reader and provide a reference point when reviewing
the Annual Report:
2013 Credit Agreement
2016 Credit Agreement
Amended and restated credit agreement entered into on January 18, 2013 by and among the Company and certain of
our subsidiaries, as borrowers, and WEX Card Holdings Australia Pty Ltd., as specified designated borrower, with a
lending syndicate.
Credit agreement entered into on July 1, 2016, as amended from time to time, by and among the Company and certain
of its subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as designated borrower, and Bank of America,
N.A., as administrative agent on behalf of the lenders.
2017 Tax Act
Tax Cuts and Jobs Act of 2017
Adjusted Net Income or ANI
AOC
ASC
ASU 2014–09
ASU 2016–01
ASU 2016–02
ASU 2016–13
ASU 2017–04
A non-GAAP measure that adjusts net income attributable to shareholders to exclude unrealized gains and losses on
financial instruments, net foreign currency remeasurement gains and losses, acquisition-related intangible
amortization, other acquisition and divestiture related items, stock-based compensation, restructuring and other costs,
impairment charges, gain on divestiture, debt restructuring and debt issuance cost amortization, non-cash adjustments
related to tax receivable agreement, adjustments attributed to our non-controlling interests and certain tax related
items.
AOC Solutions and one of its affiliate companies, 3Delta Systems, Inc.
Accounting Standards Codification
Accounting Standards Update No. 2014–09 Revenue from Contracts with Customers (Topic 606)
Accounting Standards Update No. 2016–01 Financial Instruments–Overall (Subtopic 825–10): Recognition and
Measurement of Financial Assets and Financial Liabilities
Accounting Standards Update No. 2016–02 Leases (Topic 842)
Accounting Standards Update No. 2016–13 Financial Instruments–Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments
Accounting Standards Update 2017–04–Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment
Australian Securitization Subsidiary
Southern Cross WEX 2015-1 Trust, a special purpose entity consolidated by the Company
Benaissance
CDH
Company
CFPB
Discovery Benefits
DSUs
EBITDA
EFS
Benaissance, a provider of integrated SaaS technologies and services for healthcare premium billing, payment and
workflow management, acquired by the Company on November 18, 2015.
Consumer-directed healthcare
WEX Inc. and all entities included in the consolidated financial statements
Consumer Financial Protection Bureau
Discovery Benefits, Inc.
Deferred stock units
A non-GAAP measure that adjusts income before income taxes to exclude interest, depreciation and amortization
Electronic Funds Source, LLC, a provider of customized corporate payment solutions for fleet and corporate customers
with a focus on the large and mid-sized over-the-road fleets. On July 1, 2016, the Company acquired WP Mustang
Topco LLC, the indirect parent of Electronic Funds Source, LLC and Warburg Pincus Private Equity XI (Lexington),
LLC, an affiliated entity, from investment funds affiliated with Warburg Pincus LLC.
eNett
eNett International (Jersey) Limited
European Fleet business
European commercial fleet card portfolio acquired from ExxonMobil
European Securitization Subsidiary
Gorham Trade Finance B.V., a special purpose entity consolidated by the Company
Evolution1
EB Holdings Corp. and its subsidiaries which includes Evolution1, Inc., acquired by the Company on July 16, 2014
FASB
FCPA
FDIC
FinCEN
FRA
FSA
GAAP
GILTI
Financial Accounting Standards Board
U.S. Foreign Corrupt Practices Act
Federal Deposit Insurance Corporation
Financial Crimes Enforcement Network of the U.S. Department of the Treasury
Federal Reserve Act
Flexible Spending Accounts
Generally Accepted Accounting Principles in the United States
Global Intangible Low Taxed Income
Go Fuel Card
A European Fleet business acquired from EG Group on July 1, 2019
HRA
HSA
ICS
Health Reimbursement Arrangements
Health Savings Accounts
Insured Cash Sweep
1
2
Indenture
NAV
The Notes were issued pursuant to an indenture dated as of January 30, 2013 among the Company, the guarantors
listed therein, and The Bank of New York Mellon Trust Company, N.A., as trustee
Net asset value
Net payment processing rate
The percentage of the dollar value of each payment processing transaction that the Company records as revenue from
merchants less certain discounts given to customers and network fees
Notes
Noventis
NYSE
OFAC
Optal
Over-the-road
Pavestone Capital
$400 million senior notes with a 4.75% fixed rate, issued on January 30, 2013
Noventis, Inc.
New York Stock Exchange
The United States Treasury’s Office of Foreign Assets Control
Optal Limited
Typically heavy trucks traveling long distances
Pavestone Capital, LLC
Payment processing fuel spend
Total dollar value of the fuel purchased by fleets that have a payment processing relationship with the Company
Payment processing transactions
Total number of purchases made by fleets that have a payment processing relationship with the Company, where the
Company maintains the receivable for total purchase
Payment solutions purchase volume
Total dollar value of all WEX-issued transactions that use WEX corporate card products and virtual card products
PBRSUs
PPG
Purchase volume
Performance-based restricted stock units
Price per gallon of fuel
Total dollar value of all transactions in the Health and Employee Benefit Solutions segment where interchange is
earned by the Company
Redeemable non-controlling interest
The portion of the U.S. Health business’ net assets owned by a non-controlling interest subject to redemption rights
held by the non-controlling interest
RSUs
SaaS
SEC
Restricted stock units
Software-as-a-service
Securities and Exchange Commission
Segment adjusted operating income
A non-GAAP measure that adjusts operating income to exclude specified items that the Company’s management
excludes in evaluating segment performance, including acquisition and divestiture related expenses and adjustments
including the acquisition related intangible amortization, impairment charges and asset write-offs, the expense
associated with stock-based compensation, restructuring and other costs, debt restructuring costs, gain on divestitures,
a vendor settlement and unallocated corporate expenses.
Total fuel transactions
Total of transaction processing and payment processing transactions of our Fleet Solutions segment
Transaction processing transactions
Unfunded payment transactions where the Company is the processor and only has receivables for the processing fee
UNIK
UNIK S.A., the Company’s Brazilian subsidiary, which has been subsequently branded WEX Latin America
U.S. Health business
WEX Health and Discovery Benefits, collectively
Utah DFI
VCN
VPN
WEX
Utah Department of Financial Institutions
Virtual card number
Virtual private network
WEX Inc.
WEX Europe Services
A European Fleet business acquired by the Company from ExxonMobil on December 1, 2014
WEX Health
Legacy healthcare operations prior to the acquisition of Discovery Benefits
ITEM 1. BUSINESS
Our Company
PART I
WEX Inc. is a global leader in payment solutions, which began operations in 1983 as a Maine corporation where we
continue to be headquartered. For more than 35 years, we have simplified the complexities of payment systems across continents
and industries. We incorporated in Delaware on February 16, 2005 (NYSE:WEX).
We currently operate in three business segments: Fleet Solutions, Travel and Corporate Solutions, and Health and Employee
Benefit Solutions, which are described in more detail below. The Company’s U.S. operations include WEX Inc., the majority-
owned U.S. Health business (consisting of WEX Health and Discovery Benefits), and our wholly-owned subsidiaries WEX Bank,
WEX FleetOne, and EFS. Our international operations include our wholly-owned operations WEX Fuel Cards Australia, WEX
Prepaid Cards Australia, WEX Canada, WEX New Zealand, WEX Asia, WEX Europe Limited, WEX Fleet Europe, UNIK and a
controlling interest in WEX Europe Services Limited and its subsidiaries.
WEX Bank, a Utah industrial bank incorporated in 1998, is an FDIC insured depository institution. The functions
performed at WEX Bank contribute to the U.S. and Canadian operations of Fleet Solutions and the majority of operations of Travel
and Corporate Solutions by providing a funding mechanism, among other services. With our ownership of WEX Bank, we have
access to low-cost sources of capital. WEX Bank raises capital primarily through the issuance of brokered deposit accounts and
provides the financing and makes credit decisions that enable the Fleet Solutions and Travel and Corporate Solutions segments to
extend credit to customers. WEX Bank approves customer applications, maintains appropriate credit lines for each customer, is
the account issuer, and is the counterparty for the customer relationships for most of our programs in the U.S. Operations such as
sales, marketing, merchant relations, customer service, software development and IT are performed as a service within our
organization but outside of WEX Bank. WEX Bank’s primary regulators are Utah DFI and the FDIC. The activities performed by
WEX Bank are integrated into the operations of our Fleet Solutions and Travel and Corporate Solutions segments.
Developments
Our growth in the past several years has been supplemented by acquisitions in each of our three business segments: Fleet
Solutions, Travel and Corporate Solutions and Health and Employee Benefit Solutions. Our acquisitions over the last five years
include:
•
•
•
•
•
•
•
•
•
On July 1, 2019, the Company acquired Go Fuel Card, a European fuel card business. The acquisition strengthens our
position in the European market by expanding our merchant network acceptance, grows our existing customer base and
reduces our sensitivity to retail fuel prices.
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator. State Bankshares,
Inc., the seller of Discovery Benefits, obtained a 4.9 percent equity interest in the newly formed parent company of WEX
Health and Discovery Benefits, which constitutes the U.S. Health business. This acquisition provides our partners and
customers with a more comprehensive suite of products and services and opens go-to-market channels to include consulting
firms and brokers.
On February 14, 2019, the Company acquired Pavestone Capital, a recourse factoring company that provides working
capital to businesses. This acquisition complements our existing fleet factoring business.
On January 24, 2019, the Company acquired Noventis, an electronic payments network focused on optimizing payment
delivery for bills and invoices to commercial entities. This acquisition expands our reach as a corporate payments supplier
and provides more channels to billing aggregators and financial institutions.
On October 26, 2018, the Company entered into a definitive asset purchase agreement to acquire Chevron’s existing
customer portfolio and the outstanding accounts receivable at the date of agreement. Conversion of the acquired fleet
portfolio onto the Company’s payment processing platform occurred during second quarter of 2019.
On October 18, 2017, we acquired certain assets and assumed certain liabilities of AOC, a provider of commercial payments
technology, in order to broaden our capabilities, increase our pool of employees with payments platform experience and
allow us to evolve with the needs of our customers and partners through the use of AOC’s payments processing technology
platforms.
On July 1, 2016, we acquired EFS, a provider of customized payment solutions for fleet and corporate customers with a
focus on the large and mid-sized over-the-road fleets, in order to expand our customer footprint and utilize EFS’s technology
to better serve the needs of our fleet customers.
On November 18, 2015, our wholly-owned subsidiary Evolution1 acquired Benaissance, a provider of integrated SaaS
technologies and services for COBRA and healthcare premium billing, payment and workflow management, to
complement our healthcare payments products and services.
On August 31, 2015, we acquired the remaining 49 percent ownership in UNIK, a majority-owned subsidiary prior to
this transaction.
In addition to the transactions described above, on January 24, 2020, we entered into an agreement to purchase eNett, a
leading provider of business-to-business payments solutions to the travel industry and Optal, a company that specializes in
optimizing business-to-business transactions. Pursuant to the purchase agreement, and subject to the terms and conditions contained
therein, WEX will acquire all of the issued share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd.,
and the other shareholders of eNett and Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash
and 2.0 million shares of the Company’s common stock and subject to certain working capital and other adjustments as described
in the purchase agreement. The parties’ obligations to consummate the acquisition are subject to customary closing conditions,
including regulatory approvals.
3
4
The Notes were issued pursuant to an indenture dated as of January 30, 2013 among the Company, the guarantors
listed therein, and The Bank of New York Mellon Trust Company, N.A., as trustee
Net asset value
Net payment processing rate
The percentage of the dollar value of each payment processing transaction that the Company records as revenue from
merchants less certain discounts given to customers and network fees
$400 million senior notes with a 4.75% fixed rate, issued on January 30, 2013
Noventis, Inc.
New York Stock Exchange
The United States Treasury’s Office of Foreign Assets Control
Optal Limited
Typically heavy trucks traveling long distances
Pavestone Capital, LLC
Payment processing fuel spend
Total dollar value of the fuel purchased by fleets that have a payment processing relationship with the Company
Payment processing transactions
Total number of purchases made by fleets that have a payment processing relationship with the Company, where the
Company maintains the receivable for total purchase
Payment solutions purchase volume
Total dollar value of all WEX-issued transactions that use WEX corporate card products and virtual card products
Purchase volume
Total dollar value of all transactions in the Health and Employee Benefit Solutions segment where interchange is
Redeemable non-controlling interest
The portion of the U.S. Health business’ net assets owned by a non-controlling interest subject to redemption rights
Segment adjusted operating income
A non-GAAP measure that adjusts operating income to exclude specified items that the Company’s management
excludes in evaluating segment performance, including acquisition and divestiture related expenses and adjustments
including the acquisition related intangible amortization, impairment charges and asset write-offs, the expense
associated with stock-based compensation, restructuring and other costs, debt restructuring costs, gain on divestitures,
a vendor settlement and unallocated corporate expenses.
Total fuel transactions
Total of transaction processing and payment processing transactions of our Fleet Solutions segment
Transaction processing transactions
Unfunded payment transactions where the Company is the processor and only has receivables for the processing fee
UNIK S.A., the Company’s Brazilian subsidiary, which has been subsequently branded WEX Latin America
U.S. Health business
WEX Health and Discovery Benefits, collectively
Performance-based restricted stock units
Price per gallon of fuel
earned by the Company
held by the non-controlling interest
Restricted stock units
Software-as-a-service
Securities and Exchange Commission
Utah Department of Financial Institutions
Virtual card number
Virtual private network
WEX Inc.
PART I
Over-the-road
Pavestone Capital
Indenture
NAV
Notes
Noventis
NYSE
OFAC
Optal
PBRSUs
PPG
RSUs
SaaS
SEC
UNIK
Utah DFI
VCN
VPN
WEX
ITEM 1. BUSINESS
Our Company
WEX Europe Services
A European Fleet business acquired by the Company from ExxonMobil on December 1, 2014
WEX Health
Legacy healthcare operations prior to the acquisition of Discovery Benefits
WEX Inc. is a global leader in payment solutions, which began operations in 1983 as a Maine corporation where we
continue to be headquartered. For more than 35 years, we have simplified the complexities of payment systems across continents
and industries. We incorporated in Delaware on February 16, 2005 (NYSE:WEX).
We currently operate in three business segments: Fleet Solutions, Travel and Corporate Solutions, and Health and Employee
Benefit Solutions, which are described in more detail below. The Company’s U.S. operations include WEX Inc., the majority-
owned U.S. Health business (consisting of WEX Health and Discovery Benefits), and our wholly-owned subsidiaries WEX Bank,
WEX FleetOne, and EFS. Our international operations include our wholly-owned operations WEX Fuel Cards Australia, WEX
Prepaid Cards Australia, WEX Canada, WEX New Zealand, WEX Asia, WEX Europe Limited, WEX Fleet Europe, UNIK and a
controlling interest in WEX Europe Services Limited and its subsidiaries.
WEX Bank, a Utah industrial bank incorporated in 1998, is an FDIC insured depository institution. The functions
performed at WEX Bank contribute to the U.S. and Canadian operations of Fleet Solutions and the majority of operations of Travel
and Corporate Solutions by providing a funding mechanism, among other services. With our ownership of WEX Bank, we have
access to low-cost sources of capital. WEX Bank raises capital primarily through the issuance of brokered deposit accounts and
provides the financing and makes credit decisions that enable the Fleet Solutions and Travel and Corporate Solutions segments to
extend credit to customers. WEX Bank approves customer applications, maintains appropriate credit lines for each customer, is
the account issuer, and is the counterparty for the customer relationships for most of our programs in the U.S. Operations such as
sales, marketing, merchant relations, customer service, software development and IT are performed as a service within our
organization but outside of WEX Bank. WEX Bank’s primary regulators are Utah DFI and the FDIC. The activities performed by
WEX Bank are integrated into the operations of our Fleet Solutions and Travel and Corporate Solutions segments.
Developments
Our growth in the past several years has been supplemented by acquisitions in each of our three business segments: Fleet
Solutions, Travel and Corporate Solutions and Health and Employee Benefit Solutions. Our acquisitions over the last five years
include:
•
•
•
•
•
•
•
•
•
On July 1, 2019, the Company acquired Go Fuel Card, a European fuel card business. The acquisition strengthens our
position in the European market by expanding our merchant network acceptance, grows our existing customer base and
reduces our sensitivity to retail fuel prices.
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator. State Bankshares,
Inc., the seller of Discovery Benefits, obtained a 4.9 percent equity interest in the newly formed parent company of WEX
Health and Discovery Benefits, which constitutes the U.S. Health business. This acquisition provides our partners and
customers with a more comprehensive suite of products and services and opens go-to-market channels to include consulting
firms and brokers.
On February 14, 2019, the Company acquired Pavestone Capital, a recourse factoring company that provides working
capital to businesses. This acquisition complements our existing fleet factoring business.
On January 24, 2019, the Company acquired Noventis, an electronic payments network focused on optimizing payment
delivery for bills and invoices to commercial entities. This acquisition expands our reach as a corporate payments supplier
and provides more channels to billing aggregators and financial institutions.
On October 26, 2018, the Company entered into a definitive asset purchase agreement to acquire Chevron’s existing
customer portfolio and the outstanding accounts receivable at the date of agreement. Conversion of the acquired fleet
portfolio onto the Company’s payment processing platform occurred during second quarter of 2019.
On October 18, 2017, we acquired certain assets and assumed certain liabilities of AOC, a provider of commercial payments
technology, in order to broaden our capabilities, increase our pool of employees with payments platform experience and
allow us to evolve with the needs of our customers and partners through the use of AOC’s payments processing technology
platforms.
On July 1, 2016, we acquired EFS, a provider of customized payment solutions for fleet and corporate customers with a
focus on the large and mid-sized over-the-road fleets, in order to expand our customer footprint and utilize EFS’s technology
to better serve the needs of our fleet customers.
On November 18, 2015, our wholly-owned subsidiary Evolution1 acquired Benaissance, a provider of integrated SaaS
technologies and services for COBRA and healthcare premium billing, payment and workflow management, to
complement our healthcare payments products and services.
On August 31, 2015, we acquired the remaining 49 percent ownership in UNIK, a majority-owned subsidiary prior to
this transaction.
In addition to the transactions described above, on January 24, 2020, we entered into an agreement to purchase eNett, a
leading provider of business-to-business payments solutions to the travel industry and Optal, a company that specializes in
optimizing business-to-business transactions. Pursuant to the purchase agreement, and subject to the terms and conditions contained
therein, WEX will acquire all of the issued share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd.,
and the other shareholders of eNett and Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash
and 2.0 million shares of the Company’s common stock and subject to certain working capital and other adjustments as described
in the purchase agreement. The parties’ obligations to consummate the acquisition are subject to customary closing conditions,
including regulatory approvals.
3
4
Competition
We have a strong competitive position in each of our segments. Our product features and extensive account management
services are key factors behind our position in the fleet industry. We face competition in all of our segments. Our competitors vie
with us for prospective customers as well as for companies with which to form strategic relationships. We compete with companies
that perform payment and transaction processing or similar services. Financial institutions that issue Visa, MasterCard and American
Express credit and specialized proprietary cards currently compete primarily with our Fleet Solutions and Travel and Corporate
Solutions segments. Our Health and Employee Benefit Solutions segment also competes with other healthcare payment
service providers.
The most significant competitive factors include the breadth of features offered, functionality, servicing capability and
price. For more information regarding risks related to competition, see the information in Item 1A, under the heading “Our industry
continues to become increasingly competitive, which makes it more challenging for us to maintain profit margins at historical
levels.”
We believe the following strengths distinguish us from our competitors:
•
•
Our proprietary closed-loop fuel networks in the U.S. and Australia are among the largest in each country. We describe
our fleet payment processing networks as “closed-loop” because we have a direct contractual relationship with both the
merchant and the fleet, and only WEX transactions can be processed on these networks. We have built networks that
management estimates to provide coverage to over 90 percent of fuel locations in the U.S. and Australia, as well as wide
acceptance in Europe and Brazil. This provides our customers with the convenience of broad acceptance.
Our proprietary closed-loop fuel networks provide us with access to a higher level of fleet-specific information and control
as compared to what is typically available on an open-loop network. This provides high-level purchase controls at the
point-of-sale, including the flexibility of allowing fleets to restrict purchases and receive automated alerts. Additionally,
we have the ability to refine the reporting provided to our fleet customers and customers of our strategic relationships.
• We offer a differentiated set of products and services, including security and purchase controls, to allow our customers
and the customers of our strategic relationships to better manage their vehicle fleets. We provide customized analysis and
reporting on the efficiency of fleet vehicles and the purchasing behavior of fleet vehicle drivers. We make this data
available to fleet customers through both traditional reporting services and sophisticated web-based data analytics tools.
Our long-standing strategic relationships, multi-year contracts and high contract renewal rates have contributed to the
stability and recurring nature of our revenue base. We believe that we offer a compelling value to our customers relative
to our competitors given the breadth and quality of our products and services and our deep understanding of our customers’
operational needs. We have a large installed customer base, with 14.9 million vehicles serviced as of December 31, 2019
and co-branded strategic relationships with six of the largest U.S. fleet management providers and with dozens of oil
companies and convenience store operators that use our private label solutions. Our wide site acceptance, together with
our private-label portfolios and value-added product and service offerings, drive high customer satisfaction levels, with
a U.S. fleet retention rate in excess of 96 percent (based on the 2019 rate of voluntary customer attrition).
Our capabilities in the over-the-road market space enhance our ability to serve fleet customers who operate both heavy
duty trucks and cars or light duty vehicles in the U.S. and Canada as well as to blend the small fleet and private label
businesses for greater scale. The July 2016 acquisition of EFS expanded our customer footprint within the over-the-road
market segment.
Our purchase of ExxonMobil’s European commercial fuel card program, which uses a closed-loop network in Europe,
combined with the long term supply agreement to serve the current and future European Fleet business, provides us with
a strong foundation in the large European fleet market. Our purchase of Go Fuel Card in 2019 further strengthens our
position in the European market.
Our travel and corporate payment products offer corporate customers enhanced security and control for complex payment
needs and the accounts payable segment of the market. Our purchase of Noventis expands our reach as a corporate
payments supplier and provides more channels to billing aggregators and financial institutions. Our strategic relationships
include four of the largest online travel agencies in the world. We continue to expand our online travel payment solution
capabilities and geographies, which currently include North America, Europe, South America and Asia-Pacific. As of
December 31, 2019, we settle transactions in 20 different currencies.
•
•
•
•
•
organic revenue growth driven by our various marketing channels, our extensive network of fuel and service providers,
and our growth in transaction volume. Further, we have completed a number of strategic acquisitions to expand our
product and service offerings, which have contributed to our revenue growth and diversification of our products and
services.
• WEX Health is a leading provider of cloud-based healthcare payments technology. Our purchase of Discovery Benefits
provides us with a comprehensive suite of products and services for our partners and customers and opens go-to-market
channels, including consulting firms and brokers. Our large partner network expands our opportunities in the growing
healthcare financial technology platform market. WEX Health benefits from both high retention rates and revenue
predictability as a result of its SaaS business model.
• We have an enterprise-wide risk management program that helps us identify and manage inherent risks related to our
liquidity, extension of credit and interest rates. Our ownership of WEX Bank provides us with access to low cost sources
of capital, which provide liquidity to fund our short-term card receivables. We have maintained a long record of low credit
losses due to the short-term, non-revolving credit issued to our customer base. Our credit risk management program is
enhanced by our proprietary scoring models, managing credit lines and early suspension policy. Interest rate risk is
managed through diversified funding sources at WEX Bank including interest bearing money market deposits and
certificates of deposit with varying maturities. Some of our merchant contracts provide the ability to raise rates if interest
rates rise.
• We have an experienced and committed management team that has substantial industry knowledge and a proven track
record of financial success. The team has been successful in driving strong growth with consistent operating performance.
We believe that our management team positions us well to continue successfully implementing our growth strategy and
capturing operating efficiencies.
Strategy
established strategic priorities:
The Company’s performance during the year ended December 31, 2019, was shaped by the following previously
•
Build the best-in-class growth engine. We seek to drive organic growth across our segments by maintaining
a continual focus on go-to-market effectiveness. We achieve this through superior product capability, sales and
marketing productivity, and disciplined revenue management practices. During 2019, we experienced significant
revenue growth in each of our segments. Additionally, WEX was recognized by Fortune Magazine in its 2019
list of the 100 fastest growing publicly traded companies.
Our organic growth is complemented by our acquisition strategy, which brings further scale and differentiation
to our offerings. In January, we closed the acquisition of Noventis, which expands our reach as a corporate
payments supplier and provides more channels to billing aggregators and financial institutions. In March, we
closed the acquisition of Discovery Benefits, an employee benefits administrator that provides our partners and
customers with a more comprehensive suite of products and services and opens go-to-market channels to include
consulting firms and brokers. In July, we closed the acquisition of Go Fuel Card, strengthening our position in
the European fuel market.
•
Cement a reputation for superior execution. We stand apart in our segments by reliably delivering the best
solutions to our partners and customers. We are continually optimizing our customer service and cost structure,
and capturing new revenue synergies across our lines of business. Gains in operational efficiency simplify our
business, making us more nimble to meet customer needs and capture market opportunities as they arise.
•
Invest in our people. We prioritize our ability to attract, develop, and retain top-tier talent across all lines and
support functions of our business. The Company was certified as a Great Place to Work® in the U.S. in 2019
for the third consecutive year and was named #4 on Vault.com’s “100 Best Internships of 2020” list. The Company
has continued to expand its Employee Resource Groups across the globe, currently counting seven groups with
over 250 active members and allies.
•
Lead through superior technology. As our markets evolve, our ability to deliver superior technological
solutions continues to set us apart from our peers. We continue to develop innovative technological capabilities
to accelerate our digital transformation and differentiate ourselves in the marketplace.
The demand for our payment processing, account servicing and transaction processing services combined with significant
operating scale has historically driven strong revenue growth and earnings potential. We have an extensive history of
The Company’s continued focus on building new capabilities in the cloud and transitioning existing platforms
to cloud environments reflects our Cloud First development strategy and positions us well for future
5
6
Competition
service providers.
levels.”
We have a strong competitive position in each of our segments. Our product features and extensive account management
services are key factors behind our position in the fleet industry. We face competition in all of our segments. Our competitors vie
with us for prospective customers as well as for companies with which to form strategic relationships. We compete with companies
that perform payment and transaction processing or similar services. Financial institutions that issue Visa, MasterCard and American
Express credit and specialized proprietary cards currently compete primarily with our Fleet Solutions and Travel and Corporate
Solutions segments. Our Health and Employee Benefit Solutions segment also competes with other healthcare payment
The most significant competitive factors include the breadth of features offered, functionality, servicing capability and
price. For more information regarding risks related to competition, see the information in Item 1A, under the heading “Our industry
continues to become increasingly competitive, which makes it more challenging for us to maintain profit margins at historical
We believe the following strengths distinguish us from our competitors:
Our proprietary closed-loop fuel networks in the U.S. and Australia are among the largest in each country. We describe
our fleet payment processing networks as “closed-loop” because we have a direct contractual relationship with both the
merchant and the fleet, and only WEX transactions can be processed on these networks. We have built networks that
management estimates to provide coverage to over 90 percent of fuel locations in the U.S. and Australia, as well as wide
acceptance in Europe and Brazil. This provides our customers with the convenience of broad acceptance.
Our proprietary closed-loop fuel networks provide us with access to a higher level of fleet-specific information and control
as compared to what is typically available on an open-loop network. This provides high-level purchase controls at the
point-of-sale, including the flexibility of allowing fleets to restrict purchases and receive automated alerts. Additionally,
we have the ability to refine the reporting provided to our fleet customers and customers of our strategic relationships.
• We offer a differentiated set of products and services, including security and purchase controls, to allow our customers
and the customers of our strategic relationships to better manage their vehicle fleets. We provide customized analysis and
reporting on the efficiency of fleet vehicles and the purchasing behavior of fleet vehicle drivers. We make this data
available to fleet customers through both traditional reporting services and sophisticated web-based data analytics tools.
Our long-standing strategic relationships, multi-year contracts and high contract renewal rates have contributed to the
stability and recurring nature of our revenue base. We believe that we offer a compelling value to our customers relative
to our competitors given the breadth and quality of our products and services and our deep understanding of our customers’
operational needs. We have a large installed customer base, with 14.9 million vehicles serviced as of December 31, 2019
and co-branded strategic relationships with six of the largest U.S. fleet management providers and with dozens of oil
companies and convenience store operators that use our private label solutions. Our wide site acceptance, together with
our private-label portfolios and value-added product and service offerings, drive high customer satisfaction levels, with
a U.S. fleet retention rate in excess of 96 percent (based on the 2019 rate of voluntary customer attrition).
Our capabilities in the over-the-road market space enhance our ability to serve fleet customers who operate both heavy
duty trucks and cars or light duty vehicles in the U.S. and Canada as well as to blend the small fleet and private label
businesses for greater scale. The July 2016 acquisition of EFS expanded our customer footprint within the over-the-road
market segment.
Our purchase of ExxonMobil’s European commercial fuel card program, which uses a closed-loop network in Europe,
combined with the long term supply agreement to serve the current and future European Fleet business, provides us with
a strong foundation in the large European fleet market. Our purchase of Go Fuel Card in 2019 further strengthens our
position in the European market.
Our travel and corporate payment products offer corporate customers enhanced security and control for complex payment
needs and the accounts payable segment of the market. Our purchase of Noventis expands our reach as a corporate
payments supplier and provides more channels to billing aggregators and financial institutions. Our strategic relationships
include four of the largest online travel agencies in the world. We continue to expand our online travel payment solution
capabilities and geographies, which currently include North America, Europe, South America and Asia-Pacific. As of
December 31, 2019, we settle transactions in 20 different currencies.
organic revenue growth driven by our various marketing channels, our extensive network of fuel and service providers,
and our growth in transaction volume. Further, we have completed a number of strategic acquisitions to expand our
product and service offerings, which have contributed to our revenue growth and diversification of our products and
services.
• WEX Health is a leading provider of cloud-based healthcare payments technology. Our purchase of Discovery Benefits
provides us with a comprehensive suite of products and services for our partners and customers and opens go-to-market
channels, including consulting firms and brokers. Our large partner network expands our opportunities in the growing
healthcare financial technology platform market. WEX Health benefits from both high retention rates and revenue
predictability as a result of its SaaS business model.
• We have an enterprise-wide risk management program that helps us identify and manage inherent risks related to our
liquidity, extension of credit and interest rates. Our ownership of WEX Bank provides us with access to low cost sources
of capital, which provide liquidity to fund our short-term card receivables. We have maintained a long record of low credit
losses due to the short-term, non-revolving credit issued to our customer base. Our credit risk management program is
enhanced by our proprietary scoring models, managing credit lines and early suspension policy. Interest rate risk is
managed through diversified funding sources at WEX Bank including interest bearing money market deposits and
certificates of deposit with varying maturities. Some of our merchant contracts provide the ability to raise rates if interest
rates rise.
• We have an experienced and committed management team that has substantial industry knowledge and a proven track
record of financial success. The team has been successful in driving strong growth with consistent operating performance.
We believe that our management team positions us well to continue successfully implementing our growth strategy and
capturing operating efficiencies.
Strategy
The Company’s performance during the year ended December 31, 2019, was shaped by the following previously
established strategic priorities:
•
•
•
•
Build the best-in-class growth engine. We seek to drive organic growth across our segments by maintaining
a continual focus on go-to-market effectiveness. We achieve this through superior product capability, sales and
marketing productivity, and disciplined revenue management practices. During 2019, we experienced significant
revenue growth in each of our segments. Additionally, WEX was recognized by Fortune Magazine in its 2019
list of the 100 fastest growing publicly traded companies.
Our organic growth is complemented by our acquisition strategy, which brings further scale and differentiation
to our offerings. In January, we closed the acquisition of Noventis, which expands our reach as a corporate
payments supplier and provides more channels to billing aggregators and financial institutions. In March, we
closed the acquisition of Discovery Benefits, an employee benefits administrator that provides our partners and
customers with a more comprehensive suite of products and services and opens go-to-market channels to include
consulting firms and brokers. In July, we closed the acquisition of Go Fuel Card, strengthening our position in
the European fuel market.
Cement a reputation for superior execution. We stand apart in our segments by reliably delivering the best
solutions to our partners and customers. We are continually optimizing our customer service and cost structure,
and capturing new revenue synergies across our lines of business. Gains in operational efficiency simplify our
business, making us more nimble to meet customer needs and capture market opportunities as they arise.
Invest in our people. We prioritize our ability to attract, develop, and retain top-tier talent across all lines and
support functions of our business. The Company was certified as a Great Place to Work® in the U.S. in 2019
for the third consecutive year and was named #4 on Vault.com’s “100 Best Internships of 2020” list. The Company
has continued to expand its Employee Resource Groups across the globe, currently counting seven groups with
over 250 active members and allies.
Lead through superior technology. As our markets evolve, our ability to deliver superior technological
solutions continues to set us apart from our peers. We continue to develop innovative technological capabilities
to accelerate our digital transformation and differentiate ourselves in the marketplace.
The demand for our payment processing, account servicing and transaction processing services combined with significant
operating scale has historically driven strong revenue growth and earnings potential. We have an extensive history of
The Company’s continued focus on building new capabilities in the cloud and transitioning existing platforms
to cloud environments reflects our Cloud First development strategy and positions us well for future
5
6
•
•
•
•
•
•
•
growth. During 2019, we successfully migrated our North American fleet technology platform to a secure private
cloud. In addition, we continue to migrate our U.S. travel operations onto an internal cloud-based virtual card
platform that we acquired as part of the AOC acquisition. We expect that these moves will allow us to improve
performance, stability and scalability, increase the pace of product development and deliver cost savings.
Investment in technological innovation with a focus on artificial intelligence and machine learning has yielded
results through expanded reporting, analysis and fraud detection capabilities. We expect continued development
of enterprise-wide data management tools and investment in artificial intelligence and machine learning to
continue to drive innovation across the company.
In the over-the-road space, we offer customizable payment solutions including real-time interactive and seamless
interfaces delivering data integrity, alternative payment and money transfer options, comprehensive settlement solutions, real-time
reports and analytics for compliance and cost-optimization and fuel reconciliation and mobile optimization tools.
In addition to revenue derived from payment processing transactions, we recognize account servicing revenue, finance
fee revenue and other revenue through the following products and services:
•
Customer service, account activation and account retention: We offer customer service, account activation and account
retention services to fleets, fleet management companies and the fuel and vehicle maintenance providers on our network.
Our services include promoting the adoption and use of our products and programs and account retention programs on
FLEET SOLUTIONS SEGMENT
behalf of our customers and partners.
Overview
Our Fleet Solutions segment is a leader in fleet vehicle payment processing services specifically designed for the needs
of large fleets, government fleets, over-the-road carriers and small businesses. As of December 31, 2019, approximately 14.9
million vehicles use our payment solutions for fleet management.
Products and Services
Payment processing transactions are the primary revenue source in Fleet Solutions and are based on a percentage of the
aggregate dollar amount of the customer’s purchase, a fixed amount per transaction or a combination of both. Normally, in a
domestic payment processing transaction, we extend short-term credit to the fleet cardholder and pay the merchant within ten days,
on average, for the purchase price, less the fees we retain and record as revenue. Revenue from our WEX Europe Services and Go
Fuel Card operations is primarily derived from the difference between the negotiated price of the fuel from the supplier and the
price charged to the fleet customer. In both types of transactions, we collect the total purchase price from the fleet customer,
normally within 25 days from the billing date. In 2019, we processed approximately 505 million payment processing transactions,
compared to 459 million payment processing transactions in 2018.
The following illustration depicts our business process for a typical closed-loop domestic fuel payment processing
transaction and a breakdown of the related Fleet Solutions revenue streams:
At the point-of-sale, we capture an array of information including the amount of the expenditure, the driver, the vehicle,
the odometer reading, the fuel or vehicle maintenance provider and the items purchased. We provide standard and customized
information to customers through monthly vehicle analysis reports, custom reports and our websites. We also alert customers of
unusual transactions or transactions that fall outside of pre-established parameters. Customers can access their account information
through our website including account history and recent transactions and download the related details. In addition, fleet managers
can elect to be notified by email when limits are exceeded in specified purchase categories, including limits on transactions within
a time range and gallons per day.
•
•
•
service.
Authorization and billing inquiries and account maintenance: We handle authorization and billing questions, account
changes and other issues for fleets through our dedicated customer contact centers, which are available 24 hours a day,
seven days a week. Fleet customers also have self-service options available to them through our websites.
Premium fleet services: We assign designated account managers to businesses and government agencies with large fleets.
These representatives have in-depth knowledge of both our programs and the operations and objectives of the fleets they
Credit and collections services: We have developed proprietary account approval, credit management and fraud detection
programs. Our underwriting model produces a proprietary score, which we use to predict the likelihood of an account
becoming delinquent at application and on an ongoing basis. We have developed a collections scoring model that we use
to rank and prioritize past due accounts for collection activities. We also employ fraud specialists who monitor accounts,
alert customers and provide case management expertise to minimize losses and reduce program abuse.
• Merchant services: Our representatives work with fuel and vehicle maintenance providers to enroll these providers in
our network, test all network and terminal software and hardware, and to provide training on our sale, transaction
authorization and settlement processes.
•
•
Analytics solutions: We provide customers with access to web-based data analytics platforms and custom reporting tools
that offer insights to fleet managers, including integrating and analyzing business fleet fuel purchases to uncover fraud,
manage product type controls and identify cost saving opportunities.
Ancillary services and offerings: We provide a variety of ancillary services and tools to fleets to help them better manage
expenses and capital requirements including tracking driver performance, location and speed; mobile account maintenance
and payment tools; tax reporting and permitting services.
Marketing Channels
We market our fleet products and services both directly and indirectly to commercial and government vehicle fleet
customers with small, medium and large fleets, and over-the-road, long haul fleets. Our direct product suite includes payment
processing and transaction processing services, WEX branded fleet cards in North America and Motorpass/Motorcharge-branded
fleet cards in Australia. As of December 31, 2019, our direct line of business serviced 4.5 million vehicles. As of the same period,
our over-the-road line of business serviced 0.8 million vehicles, marketed under the EFS, EFS Transportation Services, T-Chek
and Fleet One brands.
We also market our products and services indirectly through co-branded and private label relationships. With a co-branded
relationship product, we market our products and services for, and in collaboration with, both fuel providers and fleet management
companies using their brand names and our logo on a co-branded fleet card. These companies seek to offer our payment processing
and information management services as a component of their total offering to their fleet customers. As of December 31, 2019,
our co-branded marketing channel serviced 2.9 million vehicles.
Our private label programs market our products and services for, and in collaboration with, fuel retailers, using only their
brand names. The fuel retailers with which we have formed strategic relationships offer our payment processing and information
management products and services to their fleet customers in order to establish and enhance customer loyalty. These fleets use
these products and services to purchase fuel at locations of the fuel retailer with whom we have the private label relationship. As
of December 31, 2019, our private label marketing channel serviced 6.7 million vehicles.
7
8
growth. During 2019, we successfully migrated our North American fleet technology platform to a secure private
cloud. In addition, we continue to migrate our U.S. travel operations onto an internal cloud-based virtual card
platform that we acquired as part of the AOC acquisition. We expect that these moves will allow us to improve
performance, stability and scalability, increase the pace of product development and deliver cost savings.
Investment in technological innovation with a focus on artificial intelligence and machine learning has yielded
results through expanded reporting, analysis and fraud detection capabilities. We expect continued development
of enterprise-wide data management tools and investment in artificial intelligence and machine learning to
continue to drive innovation across the company.
FLEET SOLUTIONS SEGMENT
Overview
Products and Services
Our Fleet Solutions segment is a leader in fleet vehicle payment processing services specifically designed for the needs
of large fleets, government fleets, over-the-road carriers and small businesses. As of December 31, 2019, approximately 14.9
million vehicles use our payment solutions for fleet management.
Payment processing transactions are the primary revenue source in Fleet Solutions and are based on a percentage of the
aggregate dollar amount of the customer’s purchase, a fixed amount per transaction or a combination of both. Normally, in a
domestic payment processing transaction, we extend short-term credit to the fleet cardholder and pay the merchant within ten days,
on average, for the purchase price, less the fees we retain and record as revenue. Revenue from our WEX Europe Services and Go
Fuel Card operations is primarily derived from the difference between the negotiated price of the fuel from the supplier and the
price charged to the fleet customer. In both types of transactions, we collect the total purchase price from the fleet customer,
normally within 25 days from the billing date. In 2019, we processed approximately 505 million payment processing transactions,
compared to 459 million payment processing transactions in 2018.
The following illustration depicts our business process for a typical closed-loop domestic fuel payment processing
transaction and a breakdown of the related Fleet Solutions revenue streams:
At the point-of-sale, we capture an array of information including the amount of the expenditure, the driver, the vehicle,
the odometer reading, the fuel or vehicle maintenance provider and the items purchased. We provide standard and customized
information to customers through monthly vehicle analysis reports, custom reports and our websites. We also alert customers of
unusual transactions or transactions that fall outside of pre-established parameters. Customers can access their account information
through our website including account history and recent transactions and download the related details. In addition, fleet managers
can elect to be notified by email when limits are exceeded in specified purchase categories, including limits on transactions within
a time range and gallons per day.
In the over-the-road space, we offer customizable payment solutions including real-time interactive and seamless
interfaces delivering data integrity, alternative payment and money transfer options, comprehensive settlement solutions, real-time
reports and analytics for compliance and cost-optimization and fuel reconciliation and mobile optimization tools.
In addition to revenue derived from payment processing transactions, we recognize account servicing revenue, finance
fee revenue and other revenue through the following products and services:
•
•
•
•
Customer service, account activation and account retention: We offer customer service, account activation and account
retention services to fleets, fleet management companies and the fuel and vehicle maintenance providers on our network.
Our services include promoting the adoption and use of our products and programs and account retention programs on
behalf of our customers and partners.
Authorization and billing inquiries and account maintenance: We handle authorization and billing questions, account
changes and other issues for fleets through our dedicated customer contact centers, which are available 24 hours a day,
seven days a week. Fleet customers also have self-service options available to them through our websites.
Premium fleet services: We assign designated account managers to businesses and government agencies with large fleets.
These representatives have in-depth knowledge of both our programs and the operations and objectives of the fleets they
service.
Credit and collections services: We have developed proprietary account approval, credit management and fraud detection
programs. Our underwriting model produces a proprietary score, which we use to predict the likelihood of an account
becoming delinquent at application and on an ongoing basis. We have developed a collections scoring model that we use
to rank and prioritize past due accounts for collection activities. We also employ fraud specialists who monitor accounts,
alert customers and provide case management expertise to minimize losses and reduce program abuse.
• Merchant services: Our representatives work with fuel and vehicle maintenance providers to enroll these providers in
our network, test all network and terminal software and hardware, and to provide training on our sale, transaction
authorization and settlement processes.
•
•
Analytics solutions: We provide customers with access to web-based data analytics platforms and custom reporting tools
that offer insights to fleet managers, including integrating and analyzing business fleet fuel purchases to uncover fraud,
manage product type controls and identify cost saving opportunities.
Ancillary services and offerings: We provide a variety of ancillary services and tools to fleets to help them better manage
expenses and capital requirements including tracking driver performance, location and speed; mobile account maintenance
and payment tools; tax reporting and permitting services.
Marketing Channels
We market our fleet products and services both directly and indirectly to commercial and government vehicle fleet
customers with small, medium and large fleets, and over-the-road, long haul fleets. Our direct product suite includes payment
processing and transaction processing services, WEX branded fleet cards in North America and Motorpass/Motorcharge-branded
fleet cards in Australia. As of December 31, 2019, our direct line of business serviced 4.5 million vehicles. As of the same period,
our over-the-road line of business serviced 0.8 million vehicles, marketed under the EFS, EFS Transportation Services, T-Chek
and Fleet One brands.
We also market our products and services indirectly through co-branded and private label relationships. With a co-branded
relationship product, we market our products and services for, and in collaboration with, both fuel providers and fleet management
companies using their brand names and our logo on a co-branded fleet card. These companies seek to offer our payment processing
and information management services as a component of their total offering to their fleet customers. As of December 31, 2019,
our co-branded marketing channel serviced 2.9 million vehicles.
Our private label programs market our products and services for, and in collaboration with, fuel retailers, using only their
brand names. The fuel retailers with which we have formed strategic relationships offer our payment processing and information
management products and services to their fleet customers in order to establish and enhance customer loyalty. These fleets use
these products and services to purchase fuel at locations of the fuel retailer with whom we have the private label relationship. As
of December 31, 2019, our private label marketing channel serviced 6.7 million vehicles.
7
8
Overview
Overview
TRAVEL AND CORPORATE SOLUTIONS SEGMENT
HEALTH AND EMPLOYEE BENEFIT SOLUTIONS SEGMENT
Our Travel and Corporate Solutions segment provides innovative corporate purchasing and payment capabilities that can
be integrated with our customers’ internal systems to streamline their corporate payments, accounts payable and reconciliation
processes.
Our Health and Employee Benefit Solutions segment is comprised of our healthcare payment products and SaaS platforms
with which we provide simplified payment capabilities in a complex healthcare market as well as employee benefit products in
Brazil.
Products and Services
Products and Services
The Travel and Corporate Solutions segment allows businesses to centralize purchasing, simplify complex supply chain
processes and eliminate the paper check writing associated with traditional purchase order programs. Our product suite includes
electronic payments and corporate cards offered across travel, insurance & warranty and other industries.
Our electronic payments product includes virtual payments and integrated payables. Our virtual payments program is
used for transactions where no physical card is presented, including transactions conducted over the telephone, by mail, by fax or
on the Internet or for transactions that require pre-authorization, such as hotel reservations. Under our virtual payments program,
each transaction is assigned a unique account number with a customized credit limit and expiration date. These controls are in
place to limit fraud and unauthorized spending. The unique account number limits purchase amounts and tracks, settles and
reconciles purchases more easily, creating efficiencies and cost savings for our customers. Our electronic accounts payable solution
is a cloud-based web platform that manages and optimizes all accounts payable disbursements, regardless of type. Automated
clearing house, virtual cards, electronic funds transfer and check payments are streamlined and automated through our centralized
application.
We offer a variety of corporate cards, designed to combine all of a customer’s purchasing needs into a single integrated
card, streamline the procure-to-pay process with a single card and control travel and entertainment spending and provide employees
with greater flexibility.
Additionally, WEX Prepaid Card Australia offers prepaid and gift card products, which provide secure payment and
financial management solutions with single card options, access to open or closed loop redemption, load limits and variable
expirations.
The following illustration depicts our business process for a typical travel virtual card product transaction:
Our healthcare payment products provide consumer-directed payments in the complex healthcare market. We partner
with employers, health plans, third-party administrators, financial institutions, payroll companies and the public sector to provide
a SaaS product to support healthcare benefit programs and administer COBRA, flexible spending, health saving and reimbursement
accounts, and other healthcare related employee and dependent benefits.
We currently have relationships with approximately 390,000 employers, reaching approximately 32 million consumers.
Revenue is generated primarily from monthly fees to partners and interchange fees from spending on customer debit cards issued
under flexible spending, health savings and reimbursement accounts. Cards are branded with either Visa or MasterCard and operate
on a restricted open loop network.
Our employee benefit products are offered through our wholly-owned subsidiary, WEX Latin America. Employees using
our benefit products have access to salary advances payable in up to 22 monthly installments, which are secured by future salary
earnings. These advances are funded primarily through securitization of the corresponding receivables.
Health and Employee Benefit Solutions segment revenues are generated primarily from subscription fees and interchange
fees from spending on the WEX Health payment cards.
The following illustration depicts our business process and parties involved in our healthcare benefits solution:
1 Guest books a hotel through a travel website owned by an online travel company
2 Online travel company reserves room at hotel through reservation system using a WEX VCN to reserve the room
3 Upon checkout, hotel authorizes payment using the WEX VPN
4 The WEX virtual card restricts charge to predetermined cost of room and incidental expenses are paid for by guest
5 Online travel company pays WEX. WEX earns fee by retaining percentage of the online travel company reimbursement payment
Marketing Channels
We market our Travel and Corporate Solutions segment products and services both directly and indirectly to new and
existing customers. Our products are marketed to commercial and government organizations and we use existing open-loop
networks.
BPO: Business Process Outsourcing
9
10
TRAVEL AND CORPORATE SOLUTIONS SEGMENT
HEALTH AND EMPLOYEE BENEFIT SOLUTIONS SEGMENT
Overview
Our Travel and Corporate Solutions segment provides innovative corporate purchasing and payment capabilities that can
be integrated with our customers’ internal systems to streamline their corporate payments, accounts payable and reconciliation
Our Health and Employee Benefit Solutions segment is comprised of our healthcare payment products and SaaS platforms
with which we provide simplified payment capabilities in a complex healthcare market as well as employee benefit products in
Brazil.
The Travel and Corporate Solutions segment allows businesses to centralize purchasing, simplify complex supply chain
processes and eliminate the paper check writing associated with traditional purchase order programs. Our product suite includes
electronic payments and corporate cards offered across travel, insurance & warranty and other industries.
Our electronic payments product includes virtual payments and integrated payables. Our virtual payments program is
used for transactions where no physical card is presented, including transactions conducted over the telephone, by mail, by fax or
on the Internet or for transactions that require pre-authorization, such as hotel reservations. Under our virtual payments program,
each transaction is assigned a unique account number with a customized credit limit and expiration date. These controls are in
place to limit fraud and unauthorized spending. The unique account number limits purchase amounts and tracks, settles and
reconciles purchases more easily, creating efficiencies and cost savings for our customers. Our electronic accounts payable solution
is a cloud-based web platform that manages and optimizes all accounts payable disbursements, regardless of type. Automated
clearing house, virtual cards, electronic funds transfer and check payments are streamlined and automated through our centralized
Products and Services
Our healthcare payment products provide consumer-directed payments in the complex healthcare market. We partner
with employers, health plans, third-party administrators, financial institutions, payroll companies and the public sector to provide
a SaaS product to support healthcare benefit programs and administer COBRA, flexible spending, health saving and reimbursement
accounts, and other healthcare related employee and dependent benefits.
We currently have relationships with approximately 390,000 employers, reaching approximately 32 million consumers.
Revenue is generated primarily from monthly fees to partners and interchange fees from spending on customer debit cards issued
under flexible spending, health savings and reimbursement accounts. Cards are branded with either Visa or MasterCard and operate
on a restricted open loop network.
Our employee benefit products are offered through our wholly-owned subsidiary, WEX Latin America. Employees using
our benefit products have access to salary advances payable in up to 22 monthly installments, which are secured by future salary
earnings. These advances are funded primarily through securitization of the corresponding receivables.
We offer a variety of corporate cards, designed to combine all of a customer’s purchasing needs into a single integrated
card, streamline the procure-to-pay process with a single card and control travel and entertainment spending and provide employees
Health and Employee Benefit Solutions segment revenues are generated primarily from subscription fees and interchange
fees from spending on the WEX Health payment cards.
The following illustration depicts our business process and parties involved in our healthcare benefits solution:
Additionally, WEX Prepaid Card Australia offers prepaid and gift card products, which provide secure payment and
financial management solutions with single card options, access to open or closed loop redemption, load limits and variable
The following illustration depicts our business process for a typical travel virtual card product transaction:
Overview
processes.
Products and Services
application.
with greater flexibility.
expirations.
1 Guest books a hotel through a travel website owned by an online travel company
2 Online travel company reserves room at hotel through reservation system using a WEX VCN to reserve the room
3 Upon checkout, hotel authorizes payment using the WEX VPN
4 The WEX virtual card restricts charge to predetermined cost of room and incidental expenses are paid for by guest
5 Online travel company pays WEX. WEX earns fee by retaining percentage of the online travel company reimbursement payment
Marketing Channels
networks.
We market our Travel and Corporate Solutions segment products and services both directly and indirectly to new and
existing customers. Our products are marketed to commercial and government organizations and we use existing open-loop
BPO: Business Process Outsourcing
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10
Marketing Channels
We market our Health and Employee Benefit Solutions products and services to consumers through an extensive partner
network, which includes health plans, third-party administrators, financial institutions, payroll companies and software providers,
as well as individual employer groups. Our employee benefit products are marketed to consumers through employers in Brazil.
Employees
OTHER ITEMS
As of December 31, 2019, WEX Inc. and its subsidiaries had more than 5,000 employees, of which approximately 4,200
were located in the United States. None of our U.S.-based employees are subject to a collective bargaining agreement. In Europe,
certain employees are members of trade unions or works councils. In Brazil, certain employees are members of unions. The
Company believes that its relations with its employees, unions and work councils are generally satisfactory.
Technology
We believe that investment in technology is crucial in maintaining and enhancing our competitive position in the
marketplace. Our technology infrastructure is supported by secure and redundant data centers and cloud services distributed
globally, including locations in the United States, Europe, Australia, Singapore and Brazil.
Our fleet fuel-based closed-loop proprietary platforms capture detailed information from the fuel and maintenance
locations within our network. Operating a proprietary network not only enhances our value proposition, it also enables us to limit
dependence on third-party processors and to respond rapidly to changing customer needs with system upgrades, while maintaining
a more secure environment than an open-loop network typically allows. Our virtual card open-loop network uses internally
developed software and third-party processors. Our infrastructure has been designed around industry-standard architectures to
minimize downtime in the event of outages or catastrophic occurrences. At WEX Health, we maintain an integrated multi-account
payment platform, including a mobile application. In Australia, Asia Pacific, Brazil and the United Kingdom, we use standalone
platforms to support operations.
Our secure networks are designed to isolate our data from unauthorized access. We use secure protocols among all
applications, and our employees access critical components on a need-to-know basis. During 2019, we did not experience any
data breaches that we are aware of. We are continually improving our technology to enhance customer experience and to increase
efficiency and security. We also review technologies and services provided by others in order to maintain the high level of service
expected by our customers and continue to invest in our technology infrastructure.
For information regarding technology related risks, see the information in Item 1A under the headings “Our business is
regularly subject to cyberattacks and attempted security and privacy breaches and we may not be able to adequately protect our
information systems, including the data we collect about our customers, which could subject us to liability and damage our
reputation”, “Our failure to effectively implement new technology could jeopardize our position as a leader in our industry,” “We
are dependent on technology systems and electronic communications networks managed by third parties, which could result in
our inability to prevent service disruptions” and “If the technologies we use in operating our business and interacting with our
customers fail, are unavailable, or do not operate to expectations, or we fail to successfully implement technology strategies and
capabilities in connection with our outsourcing arrangements, our business and results of operation could be adversely impacted.”
Seasonality
Our businesses are affected by seasonal variations. For example, fuel prices are typically higher during the summer and
online travel sales are typically higher during the third quarter. In addition, we experience seasonality in our Health and Employee
Benefit Solutions segment as consumer spend is correlated with insurance deductibles, typically resulting in higher spend in the
early part of the year until employees meet their deductibles.
Intellectual Property
We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual
provisions and other similar measures to protect the proprietary information and technology used in our business. We generally
enter into agreements with clients, consultants, service providers and other partners, whether current or prospective, that contain
provisions restricting use and disclosure of our proprietary information and technology. Operationally, we have implemented
certain safeguards designed to control access to and distribution of our proprietary information and technology. Despite these
efforts, unauthorized parties may attempt to access or use our proprietary information and technology, and third parties may develop
similar and/or competing technology independently. We pursue registration and protection of certain trademarks in the U.S. and
other countries in which we operate or plan to operate. We market our products and services using the WEX brand name globally,
as well as other brand names such as Fleet One, EFS, WEX Health Cloud and Discovery Benefits in the U.S., and Motorpass in
Australia.
Regulation - United States
The Company and its affiliates are subject to certain state and federal laws and regulations, which govern insured depository
institutions and their affiliates as well as our operations in the healthcare market. WEX Bank is subject to supervision and
examination by both the Utah DFI and the FDIC. The Company and its affiliates are subject to certain limitations on transactions
with affiliates set forth in the FRA. The Company is subject to anti-tying provisions in the Bank Holding Company Act. State and
Federal laws and regulations limit the loans WEX Bank may make to one borrower and the types of investments WEX Bank may
make.
Below is a description of the material elements of the laws, regulations, policies and other regulatory matters affecting
the operations of WEX in the United States.
Exemption from Certain Requirements of the Bank Holding Company Act
As an industrial bank organized under the laws of Utah that does not accept demand deposits that may be withdrawn by
check or similar means, WEX Bank meets the criteria for exemption from the definition of “bank” under the Bank Holding Company
Act. As a result, the Company is generally, except as stated above, not subject to the Bank Holding Company Act.
Restrictions on Intercompany Borrowings and Transactions
Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which the Company can borrow
or otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. “Covered transactions” include loans
or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an agreement to
repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a guarantee, acceptance, or
letter of credit. Although the applicable rules do not serve as an outright ban on engaging in “covered transactions,” they do limit
the amount of covered transactions WEX Bank may have with any one affiliate and with all affiliates in the aggregate. The applicable
rules also require that the Company engage in such transactions with WEX Bank only on terms and under circumstances that are
substantially the same, or at least as favorable to WEX Bank, as those prevailing at the time for comparable transactions with
nonaffiliated companies. Furthermore, with certain exceptions, each loan or extension of credit by WEX Bank to the Company or
its other affiliates must be secured by collateral with a market value ranging from 100 percent to 130 percent of the amount of the
loan or extension of credit, depending on the type of collateral.
The Consumer Financial Protection Bureau
The Dodd-Frank Act established the CFPB to regulate the offering of consumer financial products or services under the
federal consumer financial laws. In addition, the CFPB was granted general authority to prevent covered persons or service providers
from committing or engaging in unfair, deceptive or abusive acts or practices under federal law in connection with any transaction
with a consumer for a consumer financial product or service. The CFPB has broad rulemaking authority for a wide range of
consumer protection laws. The legislation also gives the state attorneys general the ability to enforce applicable federal consumer
protection laws.
In addition, the Durbin Amendment to the Dodd-Frank Act provided that interchange fees that a card issuer or payment
network receives or charges for debit transactions will now be regulated by the Federal Reserve and must be “reasonable and
proportional” to the cost incurred by the card issuer in authorizing, clearing and settling the transaction. Payment network fees
may not be used directly or indirectly to compensate card issuers in circumvention of the interchange transaction fee restrictions.
In July 2011, the Federal Reserve published the final rules governing debit interchange fees. Effective in October 2011, with certain
exemptions, debit interchange rates were capped at $0.21 per transaction with an additional component of five basis points of the
transaction’s value to reflect a portion of the issuer’s fraud losses plus, for qualifying issuing financial institutions, an additional
$0.01 per transaction in debit interchange for fraud prevention costs.
Effective April 1, 2019, the CFPB amended Regulations E and Z to create comprehensive consumer protections for
prepaid financial products. Among other things, the rule established requirements for the treatment of funds on lost or stolen cards,
error resolution and investigation, upfront fee disclosures, access to account information, and overdraft features if offered in
conjunction with prepaid accounts.
Brokered Deposits
Under FDIC regulations, depending upon their capital classification, banks may be restricted in their ability to accept
brokered deposits. “Well capitalized” banks are permitted to accept brokered deposits, but banks that are not “well capitalized”
11
12
Marketing Channels
We market our Health and Employee Benefit Solutions products and services to consumers through an extensive partner
network, which includes health plans, third-party administrators, financial institutions, payroll companies and software providers,
as well as individual employer groups. Our employee benefit products are marketed to consumers through employers in Brazil.
OTHER ITEMS
As of December 31, 2019, WEX Inc. and its subsidiaries had more than 5,000 employees, of which approximately 4,200
were located in the United States. None of our U.S.-based employees are subject to a collective bargaining agreement. In Europe,
certain employees are members of trade unions or works councils. In Brazil, certain employees are members of unions. The
Company believes that its relations with its employees, unions and work councils are generally satisfactory.
Employees
Technology
We believe that investment in technology is crucial in maintaining and enhancing our competitive position in the
marketplace. Our technology infrastructure is supported by secure and redundant data centers and cloud services distributed
globally, including locations in the United States, Europe, Australia, Singapore and Brazil.
Our fleet fuel-based closed-loop proprietary platforms capture detailed information from the fuel and maintenance
locations within our network. Operating a proprietary network not only enhances our value proposition, it also enables us to limit
dependence on third-party processors and to respond rapidly to changing customer needs with system upgrades, while maintaining
a more secure environment than an open-loop network typically allows. Our virtual card open-loop network uses internally
developed software and third-party processors. Our infrastructure has been designed around industry-standard architectures to
minimize downtime in the event of outages or catastrophic occurrences. At WEX Health, we maintain an integrated multi-account
payment platform, including a mobile application. In Australia, Asia Pacific, Brazil and the United Kingdom, we use standalone
platforms to support operations.
Our secure networks are designed to isolate our data from unauthorized access. We use secure protocols among all
applications, and our employees access critical components on a need-to-know basis. During 2019, we did not experience any
data breaches that we are aware of. We are continually improving our technology to enhance customer experience and to increase
efficiency and security. We also review technologies and services provided by others in order to maintain the high level of service
expected by our customers and continue to invest in our technology infrastructure.
For information regarding technology related risks, see the information in Item 1A under the headings “Our business is
regularly subject to cyberattacks and attempted security and privacy breaches and we may not be able to adequately protect our
information systems, including the data we collect about our customers, which could subject us to liability and damage our
reputation”, “Our failure to effectively implement new technology could jeopardize our position as a leader in our industry,” “We
are dependent on technology systems and electronic communications networks managed by third parties, which could result in
our inability to prevent service disruptions” and “If the technologies we use in operating our business and interacting with our
customers fail, are unavailable, or do not operate to expectations, or we fail to successfully implement technology strategies and
capabilities in connection with our outsourcing arrangements, our business and results of operation could be adversely impacted.”
Our businesses are affected by seasonal variations. For example, fuel prices are typically higher during the summer and
online travel sales are typically higher during the third quarter. In addition, we experience seasonality in our Health and Employee
Benefit Solutions segment as consumer spend is correlated with insurance deductibles, typically resulting in higher spend in the
early part of the year until employees meet their deductibles.
Seasonality
Intellectual Property
We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual
provisions and other similar measures to protect the proprietary information and technology used in our business. We generally
enter into agreements with clients, consultants, service providers and other partners, whether current or prospective, that contain
provisions restricting use and disclosure of our proprietary information and technology. Operationally, we have implemented
certain safeguards designed to control access to and distribution of our proprietary information and technology. Despite these
efforts, unauthorized parties may attempt to access or use our proprietary information and technology, and third parties may develop
similar and/or competing technology independently. We pursue registration and protection of certain trademarks in the U.S. and
other countries in which we operate or plan to operate. We market our products and services using the WEX brand name globally,
as well as other brand names such as Fleet One, EFS, WEX Health Cloud and Discovery Benefits in the U.S., and Motorpass in
Australia.
Regulation - United States
The Company and its affiliates are subject to certain state and federal laws and regulations, which govern insured depository
institutions and their affiliates as well as our operations in the healthcare market. WEX Bank is subject to supervision and
examination by both the Utah DFI and the FDIC. The Company and its affiliates are subject to certain limitations on transactions
with affiliates set forth in the FRA. The Company is subject to anti-tying provisions in the Bank Holding Company Act. State and
Federal laws and regulations limit the loans WEX Bank may make to one borrower and the types of investments WEX Bank may
make.
Below is a description of the material elements of the laws, regulations, policies and other regulatory matters affecting
the operations of WEX in the United States.
Exemption from Certain Requirements of the Bank Holding Company Act
As an industrial bank organized under the laws of Utah that does not accept demand deposits that may be withdrawn by
check or similar means, WEX Bank meets the criteria for exemption from the definition of “bank” under the Bank Holding Company
Act. As a result, the Company is generally, except as stated above, not subject to the Bank Holding Company Act.
Restrictions on Intercompany Borrowings and Transactions
Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which the Company can borrow
or otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. “Covered transactions” include loans
or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an agreement to
repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a guarantee, acceptance, or
letter of credit. Although the applicable rules do not serve as an outright ban on engaging in “covered transactions,” they do limit
the amount of covered transactions WEX Bank may have with any one affiliate and with all affiliates in the aggregate. The applicable
rules also require that the Company engage in such transactions with WEX Bank only on terms and under circumstances that are
substantially the same, or at least as favorable to WEX Bank, as those prevailing at the time for comparable transactions with
nonaffiliated companies. Furthermore, with certain exceptions, each loan or extension of credit by WEX Bank to the Company or
its other affiliates must be secured by collateral with a market value ranging from 100 percent to 130 percent of the amount of the
loan or extension of credit, depending on the type of collateral.
The Consumer Financial Protection Bureau
The Dodd-Frank Act established the CFPB to regulate the offering of consumer financial products or services under the
federal consumer financial laws. In addition, the CFPB was granted general authority to prevent covered persons or service providers
from committing or engaging in unfair, deceptive or abusive acts or practices under federal law in connection with any transaction
with a consumer for a consumer financial product or service. The CFPB has broad rulemaking authority for a wide range of
consumer protection laws. The legislation also gives the state attorneys general the ability to enforce applicable federal consumer
protection laws.
In addition, the Durbin Amendment to the Dodd-Frank Act provided that interchange fees that a card issuer or payment
network receives or charges for debit transactions will now be regulated by the Federal Reserve and must be “reasonable and
proportional” to the cost incurred by the card issuer in authorizing, clearing and settling the transaction. Payment network fees
may not be used directly or indirectly to compensate card issuers in circumvention of the interchange transaction fee restrictions.
In July 2011, the Federal Reserve published the final rules governing debit interchange fees. Effective in October 2011, with certain
exemptions, debit interchange rates were capped at $0.21 per transaction with an additional component of five basis points of the
transaction’s value to reflect a portion of the issuer’s fraud losses plus, for qualifying issuing financial institutions, an additional
$0.01 per transaction in debit interchange for fraud prevention costs.
Effective April 1, 2019, the CFPB amended Regulations E and Z to create comprehensive consumer protections for
prepaid financial products. Among other things, the rule established requirements for the treatment of funds on lost or stolen cards,
error resolution and investigation, upfront fee disclosures, access to account information, and overdraft features if offered in
conjunction with prepaid accounts.
Brokered Deposits
Under FDIC regulations, depending upon their capital classification, banks may be restricted in their ability to accept
brokered deposits. “Well capitalized” banks are permitted to accept brokered deposits, but banks that are not “well capitalized”
11
12
are not permitted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are “adequately capitalized”
to accept brokered deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound
banking practice. As of December 31, 2019, the most recent FDIC exam report categorized WEX Bank as “well capitalized” under
the regulatory framework for prompt corrective action.
Other Financial Regulatory Requirements
WEX Bank must monitor and report unusual or suspicious account activity, as well as transactions involving amounts in
excess of prescribed limits, as required by the Bank Secrecy Act and Internal Revenue Service regulations. The USA PATRIOT
Act of 2001 substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new
compliance and due diligence obligations, identifying new crimes and penalties and expanding the extra-territorial jurisdiction of
the United States. The United States Treasury Department has proposed and, in some cases, issued a number of implementing
regulations which impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect,
prevent and report money laundering and terrorist financing and to verify the identity of their customers. Certain of those regulations
impose specific due diligence requirements on financial institutions that maintain correspondent or private banking relationships
with non-U.S. financial institutions or persons. In 2018, for instance, expanded customer due diligence requirements established
by the FinCEN became effective, requiring financial institutions to adopt enhanced anti-money laundering procedures for purposes
of determining the control and ownership stakes of business customers. Failure of a financial institution to maintain and implement
adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences
for the institution.
The U.S. federal government has imposed economic sanctions that affect transactions with designated foreign countries,
nationals and others. These sanctions, which are administered by the OFAC, take many different forms but generally include one
or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions
against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial
transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and
(ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by
prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons).
Blocked assets (for example, property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner
without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
Under the Financial Services Modernization Act of 1999, also referred to as the “Gramm-Leach-Bliley Act” (or “GLBA”),
the Company and WEX Bank are required to maintain a comprehensive written information security program that includes
administrative, technical and physical safeguards relating to customer information. However, this requirement does not generally
apply to information about companies or about individuals who obtain financial products or services for business, commercial, or
agricultural purposes. The GLBA also requires the Company and WEX Bank to provide initial and annual privacy notices to
customers that describe in general terms their information sharing practices. If the Company and WEX Bank intend to share
nonpublic personal information about customers with affiliates and/or nonaffiliated third parties, they must provide customers
with a notice and a reasonable period of time for each consumer to “opt out” of any such disclosure. In addition to U.S. federal
privacy laws, states also have adopted statutes, regulations and other measures governing the collection and distribution of nonpublic
personal information about customers. In some cases, these state measures are preempted by federal law, but if not, the Company
and WEX Bank must monitor and comply with such laws in the conduct of its business.
Escheat Laws
We are subject to unclaimed or abandoned property state laws in the United States and in certain foreign countries that
require us to transfer to certain government authorities the unclaimed property of others that we hold when that property has been
unclaimed for a certain period of time. Moreover, we are subject to audit by state and foreign regulatory authorities with regard
to our escheatment practices.
Restrictions on Dividends
WEX Bank is subject to various regulatory requirements relating to the payment of dividends, including requirements to
maintain capital above regulatory minimums. A banking regulator may determine that the payment of dividends would be
inappropriate and could prohibit payment. Further, WEX Bank may not pay a dividend if it is undercapitalized or would become
undercapitalized as a result of paying the dividend. Utah law permits WEX Bank to pay dividends out of the net profits of the
industrial bank after providing for all expenses, losses, interest, and taxes accrued or due, but if WEX Bank’s surplus account is
less than 100 percent of its capital stock, WEX Bank must transfer up to 10 percent of its net profits to the surplus account prior
to the payment of any dividends.
Company Obligations to WEX Bank
Any non-deposit obligation of WEX Bank to the Company is subordinate, in right of payment, to deposits and other
indebtedness of WEX Bank. In the event of the Company’s bankruptcy, any commitment by the Company to a federal bank
regulatory agency to maintain the capital of WEX Bank will be assumed by the bankruptcy trustee and entitled to priority of
payment.
Restrictions on Ownership of WEX Inc. Common Stock
WEX Bank, and therefore the Company, is subject to bank regulations that impose requirements on entities that might
control WEX Bank through control of the Company. These requirements are discussed in Item 1A under the heading “If any entity
controls 10 percent or more of our common stock and such entity has caused a violation of applicable banking laws by its failure
to obtain any required approvals prior to acquiring that common stock, we have the power to, and may be required to, restrict such
entity’s ability to vote shares held by it.”
Healthcare Regulation
The federal and state governments in the U.S. continue to enact and consider many broad-based legislative and regulatory
proposals that could materially impact various aspects of our health-related business. The plans that our partners administer feature
consumer accounts that pay for out-of-pocket expenses incurred by employees and qualified dependents. These accounts include
CDH accounts such as HSAs, FSAs and HRAs, as well as wellness incentives, commuter benefits, and other account-based
arrangements. Most of these accounts are tax-advantaged under the appropriate law.
Employers are continuing to use CDH approaches to manage the rate of increase in healthcare expenditures and to enable
employees to make decisions about the use of their healthcare savings. CDH programs provide consumers with visibility into and
control over payment for healthcare expenses.
The products that WEX Health’s software and payment solutions support are subject to various state and federal laws,
including the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively
referred to as “Health Care Reform”), and regulations promulgated by the Internal Revenue Service, the Department of Health
and Human Services, the Department of Labor, and the Consumer Financial Protection Bureau, and similar state laws and regulatory
authorities. As such, changes in the status of tax-advantaged CDH accounts could affect the attractiveness of these products.
In addition to tax-related regulation, the Health Care Reform law mandated broad changes affecting insured and self-
insured health benefit plans that impact our current business model, including our relationships with current and future customers,
producers and health care providers, products, services, processes and technology. Health Care Reform left many details to be
established through regulations. The 2017 Tax Act repealed certain provisions of Health Care Reform, including reducing to zero
the tax penalty for individuals who decline to obtain Health Care Reform-compliant healthcare coverage. The current U.S.
Administration has signaled its desire to significantly modify or completely repeal Health Care Reform and the associated
implementing regulations. There have been judicial and Congressional challenges to certain aspects of Health Care Reform, and
we expect there will be additional challenges and amendments to the ACA in the future. In addition, portions of Health Care Reform
were ruled unconstitutional by a federal appeals court in 2019. This ruling is under review by the United States Supreme Court,
which may rule on the validity of Health Care Reform during the Court term that ends in June 2020. It is unclear what, if any,
additional legislative or regulatory actions may be taken in this regard. Accordingly, there may be an extended period of uncertainty
and unpredictability in the U.S. health care market, which may materially affect the availability and cost of health coverage, the
viability of health care providers and health benefit plans, the proportion of persons in the U.S. who have health insurance; the
distribution between privately funded and government funded health insurance; and the future demand for, and profitability of,
the offerings of our health-related business under our current business model.
In connection with the processing of data, we frequently undertake or are subject to specific compliance obligations under
privacy and data security-related laws, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA,
GLBA, and similar state and federal laws governing the collection, use, protection and disclosure of nonpublic personally
identifiable information, including individually identifiable health information.
HIPAA and its implementing regulations, as amended by the Health Information Technology for Economic and Clinical
Health Act, or the HITECH Act, impose requirements relating to the privacy, security and transmission of individually identifiable
health information. Among other things, HIPAA, as amended by the HITECH Act, and its implementing regulations, subjects us
to regulations and contractual obligations that impose privacy and security standards and breach notification and reporting
requirements.
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14
are not permitted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are “adequately capitalized”
to accept brokered deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound
banking practice. As of December 31, 2019, the most recent FDIC exam report categorized WEX Bank as “well capitalized” under
the regulatory framework for prompt corrective action.
Other Financial Regulatory Requirements
WEX Bank must monitor and report unusual or suspicious account activity, as well as transactions involving amounts in
excess of prescribed limits, as required by the Bank Secrecy Act and Internal Revenue Service regulations. The USA PATRIOT
Act of 2001 substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new
compliance and due diligence obligations, identifying new crimes and penalties and expanding the extra-territorial jurisdiction of
the United States. The United States Treasury Department has proposed and, in some cases, issued a number of implementing
regulations which impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect,
prevent and report money laundering and terrorist financing and to verify the identity of their customers. Certain of those regulations
impose specific due diligence requirements on financial institutions that maintain correspondent or private banking relationships
with non-U.S. financial institutions or persons. In 2018, for instance, expanded customer due diligence requirements established
by the FinCEN became effective, requiring financial institutions to adopt enhanced anti-money laundering procedures for purposes
of determining the control and ownership stakes of business customers. Failure of a financial institution to maintain and implement
adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences
for the institution.
The U.S. federal government has imposed economic sanctions that affect transactions with designated foreign countries,
nationals and others. These sanctions, which are administered by the OFAC, take many different forms but generally include one
or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions
against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial
transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and
(ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by
prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons).
Blocked assets (for example, property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner
without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.
Under the Financial Services Modernization Act of 1999, also referred to as the “Gramm-Leach-Bliley Act” (or “GLBA”),
the Company and WEX Bank are required to maintain a comprehensive written information security program that includes
administrative, technical and physical safeguards relating to customer information. However, this requirement does not generally
apply to information about companies or about individuals who obtain financial products or services for business, commercial, or
agricultural purposes. The GLBA also requires the Company and WEX Bank to provide initial and annual privacy notices to
customers that describe in general terms their information sharing practices. If the Company and WEX Bank intend to share
nonpublic personal information about customers with affiliates and/or nonaffiliated third parties, they must provide customers
with a notice and a reasonable period of time for each consumer to “opt out” of any such disclosure. In addition to U.S. federal
privacy laws, states also have adopted statutes, regulations and other measures governing the collection and distribution of nonpublic
personal information about customers. In some cases, these state measures are preempted by federal law, but if not, the Company
and WEX Bank must monitor and comply with such laws in the conduct of its business.
We are subject to unclaimed or abandoned property state laws in the United States and in certain foreign countries that
require us to transfer to certain government authorities the unclaimed property of others that we hold when that property has been
unclaimed for a certain period of time. Moreover, we are subject to audit by state and foreign regulatory authorities with regard
Escheat Laws
to our escheatment practices.
Restrictions on Dividends
WEX Bank is subject to various regulatory requirements relating to the payment of dividends, including requirements to
maintain capital above regulatory minimums. A banking regulator may determine that the payment of dividends would be
inappropriate and could prohibit payment. Further, WEX Bank may not pay a dividend if it is undercapitalized or would become
undercapitalized as a result of paying the dividend. Utah law permits WEX Bank to pay dividends out of the net profits of the
industrial bank after providing for all expenses, losses, interest, and taxes accrued or due, but if WEX Bank’s surplus account is
less than 100 percent of its capital stock, WEX Bank must transfer up to 10 percent of its net profits to the surplus account prior
to the payment of any dividends.
Company Obligations to WEX Bank
Any non-deposit obligation of WEX Bank to the Company is subordinate, in right of payment, to deposits and other
indebtedness of WEX Bank. In the event of the Company’s bankruptcy, any commitment by the Company to a federal bank
regulatory agency to maintain the capital of WEX Bank will be assumed by the bankruptcy trustee and entitled to priority of
payment.
Restrictions on Ownership of WEX Inc. Common Stock
WEX Bank, and therefore the Company, is subject to bank regulations that impose requirements on entities that might
control WEX Bank through control of the Company. These requirements are discussed in Item 1A under the heading “If any entity
controls 10 percent or more of our common stock and such entity has caused a violation of applicable banking laws by its failure
to obtain any required approvals prior to acquiring that common stock, we have the power to, and may be required to, restrict such
entity’s ability to vote shares held by it.”
Healthcare Regulation
The federal and state governments in the U.S. continue to enact and consider many broad-based legislative and regulatory
proposals that could materially impact various aspects of our health-related business. The plans that our partners administer feature
consumer accounts that pay for out-of-pocket expenses incurred by employees and qualified dependents. These accounts include
CDH accounts such as HSAs, FSAs and HRAs, as well as wellness incentives, commuter benefits, and other account-based
arrangements. Most of these accounts are tax-advantaged under the appropriate law.
Employers are continuing to use CDH approaches to manage the rate of increase in healthcare expenditures and to enable
employees to make decisions about the use of their healthcare savings. CDH programs provide consumers with visibility into and
control over payment for healthcare expenses.
The products that WEX Health’s software and payment solutions support are subject to various state and federal laws,
including the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively
referred to as “Health Care Reform”), and regulations promulgated by the Internal Revenue Service, the Department of Health
and Human Services, the Department of Labor, and the Consumer Financial Protection Bureau, and similar state laws and regulatory
authorities. As such, changes in the status of tax-advantaged CDH accounts could affect the attractiveness of these products.
In addition to tax-related regulation, the Health Care Reform law mandated broad changes affecting insured and self-
insured health benefit plans that impact our current business model, including our relationships with current and future customers,
producers and health care providers, products, services, processes and technology. Health Care Reform left many details to be
established through regulations. The 2017 Tax Act repealed certain provisions of Health Care Reform, including reducing to zero
the tax penalty for individuals who decline to obtain Health Care Reform-compliant healthcare coverage. The current U.S.
Administration has signaled its desire to significantly modify or completely repeal Health Care Reform and the associated
implementing regulations. There have been judicial and Congressional challenges to certain aspects of Health Care Reform, and
we expect there will be additional challenges and amendments to the ACA in the future. In addition, portions of Health Care Reform
were ruled unconstitutional by a federal appeals court in 2019. This ruling is under review by the United States Supreme Court,
which may rule on the validity of Health Care Reform during the Court term that ends in June 2020. It is unclear what, if any,
additional legislative or regulatory actions may be taken in this regard. Accordingly, there may be an extended period of uncertainty
and unpredictability in the U.S. health care market, which may materially affect the availability and cost of health coverage, the
viability of health care providers and health benefit plans, the proportion of persons in the U.S. who have health insurance; the
distribution between privately funded and government funded health insurance; and the future demand for, and profitability of,
the offerings of our health-related business under our current business model.
In connection with the processing of data, we frequently undertake or are subject to specific compliance obligations under
privacy and data security-related laws, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA,
GLBA, and similar state and federal laws governing the collection, use, protection and disclosure of nonpublic personally
identifiable information, including individually identifiable health information.
HIPAA and its implementing regulations, as amended by the Health Information Technology for Economic and Clinical
Health Act, or the HITECH Act, impose requirements relating to the privacy, security and transmission of individually identifiable
health information. Among other things, HIPAA, as amended by the HITECH Act, and its implementing regulations, subjects us
to regulations and contractual obligations that impose privacy and security standards and breach notification and reporting
requirements.
13
14
Available Information
The Company’s principal executive offices are located at 1 Hancock St, Portland, ME 04101. Our telephone number is
(207) 773-8171, and our Internet address is www.wexinc.com. The Company’s annual, quarterly and current reports, proxy
statements and certain other information filed with the SEC, as well as amendments thereto, may be obtained free of charge from
our website. These documents are posted to our website as soon as reasonably practicable after we have filed or furnished these
documents with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC at www.sec.gov. The Company’s Audit Committee Charter,
Compensation Committee Charter, Finance Committee Charter, Corporate Governance Committee Charter, Technology Committee
Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics are available without charge through the
“Corporate Governance” portion of the Investor Relations page of the Company’s website. Copies will also be provided, free of
charge, to any stockholder upon written request to Investor Relations at the address above or by telephone at (866) 230-1633.
The Company’s Internet site and the information contained on it are not incorporated into this Form 10–K and should
not be considered part of this report.
In addition to tax, federal data privacy, security laws and regulations, we are subject to state laws, such as the California
Consumer Privacy Act, governing confidentiality and security of personally identifiable information and additional state-imposed
breach notification and reporting requirements.
Anti-Bribery Regulations
The FCPA prohibits the payment of bribes to foreign government officials and political figures and includes anti-bribery
provisions enforced by the Department of Justice and accounting provisions enforced by the SEC. The statute has a broad reach,
covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only
those holding public office but also local citizens affiliated with foreign government-run or -owned organizations. The statute also
requires maintenance of appropriate books and records and maintenance of adequate internal controls to prevent and detect possible
FCPA violations.
Regulation - Foreign
The conduct of our businesses and the use of our products and services outside the U.S., are subject to various foreign
laws and regulations administered by government entities and agencies in the countries and territories where we operate. Below
is a summary of material applicable laws and regulations in the jurisdictions around the world in which we do business.
Asia-Pacific
Australia
The Company’s Australian operations are subject to laws and regulations of the Commonwealth of Australia governing
banking and payment systems, financial services, credit products and money laundering. Because none of WEX Australia, WEX
Fuel Cards Australia or WEX Prepaid Cards Australia holds an Australian Financial Services License or credit license or is an
authorized deposit-taking institution, they operate within a framework of regulatory relief and exemptions afforded them on the
basis that they satisfy the requisite conditions. The Company’s Australian operations are also subject to the Privacy Act (1988)
and the Australian Privacy Principles.
Asia, including Singapore
The Company’s operations in Asia are subject to the operation of the laws and regulation of the countries in which we
operate, including laws with regards to banking and payment systems, financial services, money laundering and data protection.
Europe
The Company’s European operations are subject to laws and regulations of the European Union and the countries in
which we operate including, among others, those governing payment services, data protection, including General Data Protection
Regulation (commonly referred to as “GDPR”), and information security, consumer credit and anti-money laundering.
Brazil
The Company’s Brazilian operations are subject to laws and regulations of the Brazilian government, in particular the
Central Bank of Brazil. Brazil’s labor systems are governed by the Consolidation of Brazilian Labor Laws. Brazil is a signatory
of the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights agreement. This agreement establishes
a minimum protection standard to property rights and requires signatory countries to review and adapt national laws that meet that
standard.
Segments and Geographic Information
For an analysis of financial information about our segments as well as our geographic areas, see Item 8 – Note 25, Segment
Information, of our consolidated financial statements included elsewhere in this Annual Report on Form 10–K.
For a description of the risks related to our foreign operations, see the information in Item 1A, Risk Factors, under the
heading “We are exposed to risks associated with operations outside of the United States, which could harm both our U.S. and
international operations.”
15
16
Available Information
The Company’s principal executive offices are located at 1 Hancock St, Portland, ME 04101. Our telephone number is
(207) 773-8171, and our Internet address is www.wexinc.com. The Company’s annual, quarterly and current reports, proxy
statements and certain other information filed with the SEC, as well as amendments thereto, may be obtained free of charge from
our website. These documents are posted to our website as soon as reasonably practicable after we have filed or furnished these
documents with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC at www.sec.gov. The Company’s Audit Committee Charter,
Compensation Committee Charter, Finance Committee Charter, Corporate Governance Committee Charter, Technology Committee
Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics are available without charge through the
“Corporate Governance” portion of the Investor Relations page of the Company’s website. Copies will also be provided, free of
charge, to any stockholder upon written request to Investor Relations at the address above or by telephone at (866) 230-1633.
The Company’s Internet site and the information contained on it are not incorporated into this Form 10–K and should
not be considered part of this report.
In addition to tax, federal data privacy, security laws and regulations, we are subject to state laws, such as the California
Consumer Privacy Act, governing confidentiality and security of personally identifiable information and additional state-imposed
breach notification and reporting requirements.
Anti-Bribery Regulations
The FCPA prohibits the payment of bribes to foreign government officials and political figures and includes anti-bribery
provisions enforced by the Department of Justice and accounting provisions enforced by the SEC. The statute has a broad reach,
covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only
those holding public office but also local citizens affiliated with foreign government-run or -owned organizations. The statute also
requires maintenance of appropriate books and records and maintenance of adequate internal controls to prevent and detect possible
The conduct of our businesses and the use of our products and services outside the U.S., are subject to various foreign
laws and regulations administered by government entities and agencies in the countries and territories where we operate. Below
is a summary of material applicable laws and regulations in the jurisdictions around the world in which we do business.
FCPA violations.
Regulation - Foreign
Asia-Pacific
Australia
The Company’s Australian operations are subject to laws and regulations of the Commonwealth of Australia governing
banking and payment systems, financial services, credit products and money laundering. Because none of WEX Australia, WEX
Fuel Cards Australia or WEX Prepaid Cards Australia holds an Australian Financial Services License or credit license or is an
authorized deposit-taking institution, they operate within a framework of regulatory relief and exemptions afforded them on the
basis that they satisfy the requisite conditions. The Company’s Australian operations are also subject to the Privacy Act (1988)
and the Australian Privacy Principles.
Asia, including Singapore
The Company’s operations in Asia are subject to the operation of the laws and regulation of the countries in which we
operate, including laws with regards to banking and payment systems, financial services, money laundering and data protection.
The Company’s European operations are subject to laws and regulations of the European Union and the countries in
which we operate including, among others, those governing payment services, data protection, including General Data Protection
Regulation (commonly referred to as “GDPR”), and information security, consumer credit and anti-money laundering.
The Company’s Brazilian operations are subject to laws and regulations of the Brazilian government, in particular the
Central Bank of Brazil. Brazil’s labor systems are governed by the Consolidation of Brazilian Labor Laws. Brazil is a signatory
of the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights agreement. This agreement establishes
a minimum protection standard to property rights and requires signatory countries to review and adapt national laws that meet that
Segments and Geographic Information
For an analysis of financial information about our segments as well as our geographic areas, see Item 8 – Note 25, Segment
Information, of our consolidated financial statements included elsewhere in this Annual Report on Form 10–K.
For a description of the risks related to our foreign operations, see the information in Item 1A, Risk Factors, under the
heading “We are exposed to risks associated with operations outside of the United States, which could harm both our U.S. and
international operations.”
Europe
Brazil
standard.
15
16
ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
If any of those risks actually occurs, our business, financial condition, results of operations and cash flows could suffer. The
risks and uncertainties discussed below also include forward-looking statements and our actual results may differ materially
from those discussed in these forward-looking statements.
Risks Relating to Our Company
A significant portion of our revenues are related to the dollar amount of fuel purchased by our customers, and, as a
result, volatility in fuel prices could have an adverse effect on our revenues.
Our customers in our Fleet Solutions segment primarily purchase fuel. Accordingly, a significant part of our
revenue is dependent on fuel prices, which are prone to volatility. As of December 31, 2019, management estimates that
approximately 21 percent of our total revenues result from fees paid to us by fuel providers based on a negotiated percentage
of the purchase price of fuel purchased by our customers. We estimate that during 2020, each one cent decline in average
domestic fuel prices below average actual prices would result in approximately a $1.6 million decline in 2020 revenue.
Therefore, extended declines in the price of fuel would have a material adverse effect on our total revenues. We are currently
exposed to the full impact of fuel price declines and our net income is exposed to fuel price volatility. If fuel prices decline,
this will negatively impact our revenue and income.
Fuel prices are dependent on many factors, all of which are beyond our control. These factors include, among
others:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
supply and demand for oil and gas, and expectations regarding supply and demand;
speculative trading;
actions by major oil exporting nations;
level of U.S. oil production;
advances in oil production technologies;
political conditions in other oil-producing, gas-producing or supply-route countries, including revolution,
insurgency, terrorism or war;
refinery capacity;
weather, including climate change and natural disasters;
the prices of foreign exports and the availability of alternate fuel sources;
value of the U.S. dollar versus other major currencies;
actions by members of Organization of Petroleum Exporting Countries and other major oil-producing
nations;
implementation of fuel efficiency standards and the adoption by fleet customers of vehicles with greater
fuel efficiency or alternative fuel sources;
general worldwide economic conditions; and
governmental regulations, taxes and tariffs.
Another component of our revenue stream is the late fees that our customers pay on past due balances. As a result,
a decrease in the price of fuel leads to a decline in the amount of late fees we earn from customers who fail to pay us timely.
A portion of our revenue in Europe is derived from the difference between the negotiated price of the fuel from the
supplier and the price charged to the fleet customer. As a result, a contraction in these differences would reduce
revenues and could adversely affect our operating results.
Revenue from our Fleet business in Europe is primarily derived from transactions where our revenue is tied to the
difference between the negotiated price of the fuel from the supplier and the price charged to the fleet customer. The
merchant’s cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel
prices. We experience fuel-price related revenue contraction when the merchant’s cost of fuel increases at a faster rate than
the fuel price we charge to our fleet customers, or the fuel-price we charge to our fleet customers decreases at a faster rate
than the merchant’s cost of fuel. Accordingly, we generate less revenue, which could adversely affect our operating results.
Changes in interchange fees could decrease our revenue.
A portion of our revenue is generated by network processing fees charged to merchants, known as interchange fees,
associated with transactions processed using our cards. Interchange fee amounts associated with cards are affected by a number
of factors, including regulatory limits and fee changes. In addition, interchange fees are the subject of intense legal and regulatory
scrutiny and competitive pressures in the electronic payments industry. For example, the Durbin Amendment to the Dodd-
Frank Act, which serves to limit interchange fees, may restrict or otherwise impact the way we do business or limit our ability
to charge certain fees to customers. The Consumer Financial Protection Bureau, or the CFPB, is also engaged in rulemaking
and regulation of the payments industry, in particular with respect to prepaid cards. The CFPB amended several aspects of its
prepaid accounts rule, which became effective on April 1, 2019. The extensive nature of these types of regulations and the
implementation dates for any such additional rulemaking may result in additional compliance obligations and expense for our
business and our customers. These factors could result in lower interchange fees generally in the future. Temporary or permanent
decreases in the interchange fees associated with our card transactions, could adversely affect our business and operating results.
If we fail to adequately assess and monitor credit risks posed by our customers, we could experience an increase in
credit loss.
We are subject to credit risk posed by our customers, many of which are small-to mid-sized businesses. Because we
often fund a customer’s entire receivable while our revenue is generated from only a small percentage of that amount, our
risk of loss is amplified by the customer’s failure to pay. We use various formulas and models to screen potential customers
and establish appropriate credit limits, but these formulas and models cannot eliminate all potential credit risks and may not
prevent us from approving applications that are fraudulently completed. Moreover, businesses that are good credit risks at
the time of application may deteriorate over time and we may fail to detect such changes. In addition, changes to our
policies on the types and profiles of businesses to which we extend credit could also have an adverse impact on our credit
losses. In times of economic slowdown, the number of our customers who default on payments owed to us tends to increase.
If we fail to adequately manage our credit risks, our provision for credit losses on the income statement could be
significantly higher.
We may incur substantial losses due to fraudulent use of our payment cards, payment systems or vouchers.
Under certain circumstances, we may bear the risk of substantial losses due to fraudulent use of our payment cards
or payment systems. We are also subject to risk from fraudulent acts of employees or contractors. Although we maintain
insurance for certain types of losses, the coverage may be insufficient or limited and may not fully protect against those
losses. Additionally, criminals use sophisticated illegal activities to target us, including “skimming”, counterfeit cards and
accounts, and identity theft. A single, significant incident or a series of incidents of fraud or theft could lead to, among other
things, some or all of the following:
increased overall level of fraud;
direct financial losses as a result of fraudulent activity;
•
•
•
•
•
•
•
•
reputational harm;
decreased desirability of our services;
greater regulation;
increased compliance costs;
imposition of regulatory sanctions; or
significant monetary fines.
All of the above could have a material adverse effect on our operations, business success, financial condition and
results of operations. Our provision for credit losses, inclusive of fraud losses, was $65.7 million in 2019 compared to $66.5
million in 2018 and $64.2 million in 2017.
Fluctuations in foreign currency exchange rates could affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S.
dollar. Such currencies include, but are not limited to, the Australian dollar, the Canadian dollar, the Euro, British Pound
sterling, New Zealand dollar and Brazilian Real. Because our consolidated financial statements are presented in U.S. dollars,
we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in
effect during or at the end of each reporting period. Realized and unrealized gains and losses on foreign currency
transactions as well as the re-measurement of our cash, receivable and payable balances that are denominated in foreign
currencies, are recorded directly in the consolidated statements of income. In addition, gains and losses associated with the
17
18
ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
If any of those risks actually occurs, our business, financial condition, results of operations and cash flows could suffer. The
risks and uncertainties discussed below also include forward-looking statements and our actual results may differ materially
from those discussed in these forward-looking statements.
Risks Relating to Our Company
A significant portion of our revenues are related to the dollar amount of fuel purchased by our customers, and, as a
result, volatility in fuel prices could have an adverse effect on our revenues.
Our customers in our Fleet Solutions segment primarily purchase fuel. Accordingly, a significant part of our
revenue is dependent on fuel prices, which are prone to volatility. As of December 31, 2019, management estimates that
approximately 21 percent of our total revenues result from fees paid to us by fuel providers based on a negotiated percentage
of the purchase price of fuel purchased by our customers. We estimate that during 2020, each one cent decline in average
domestic fuel prices below average actual prices would result in approximately a $1.6 million decline in 2020 revenue.
Therefore, extended declines in the price of fuel would have a material adverse effect on our total revenues. We are currently
exposed to the full impact of fuel price declines and our net income is exposed to fuel price volatility. If fuel prices decline,
this will negatively impact our revenue and income.
Fuel prices are dependent on many factors, all of which are beyond our control. These factors include, among
others:
supply and demand for oil and gas, and expectations regarding supply and demand;
speculative trading;
actions by major oil exporting nations;
level of U.S. oil production;
advances in oil production technologies;
insurgency, terrorism or war;
refinery capacity;
political conditions in other oil-producing, gas-producing or supply-route countries, including revolution,
weather, including climate change and natural disasters;
the prices of foreign exports and the availability of alternate fuel sources;
value of the U.S. dollar versus other major currencies;
actions by members of Organization of Petroleum Exporting Countries and other major oil-producing
implementation of fuel efficiency standards and the adoption by fleet customers of vehicles with greater
nations;
fuel efficiency or alternative fuel sources;
general worldwide economic conditions; and
governmental regulations, taxes and tariffs.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Another component of our revenue stream is the late fees that our customers pay on past due balances. As a result,
a decrease in the price of fuel leads to a decline in the amount of late fees we earn from customers who fail to pay us timely.
A portion of our revenue in Europe is derived from the difference between the negotiated price of the fuel from the
supplier and the price charged to the fleet customer. As a result, a contraction in these differences would reduce
revenues and could adversely affect our operating results.
Revenue from our Fleet business in Europe is primarily derived from transactions where our revenue is tied to the
difference between the negotiated price of the fuel from the supplier and the price charged to the fleet customer. The
merchant’s cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel
prices. We experience fuel-price related revenue contraction when the merchant’s cost of fuel increases at a faster rate than
the fuel price we charge to our fleet customers, or the fuel-price we charge to our fleet customers decreases at a faster rate
than the merchant’s cost of fuel. Accordingly, we generate less revenue, which could adversely affect our operating results.
17
Changes in interchange fees could decrease our revenue.
A portion of our revenue is generated by network processing fees charged to merchants, known as interchange fees,
associated with transactions processed using our cards. Interchange fee amounts associated with cards are affected by a number
of factors, including regulatory limits and fee changes. In addition, interchange fees are the subject of intense legal and regulatory
scrutiny and competitive pressures in the electronic payments industry. For example, the Durbin Amendment to the Dodd-
Frank Act, which serves to limit interchange fees, may restrict or otherwise impact the way we do business or limit our ability
to charge certain fees to customers. The Consumer Financial Protection Bureau, or the CFPB, is also engaged in rulemaking
and regulation of the payments industry, in particular with respect to prepaid cards. The CFPB amended several aspects of its
prepaid accounts rule, which became effective on April 1, 2019. The extensive nature of these types of regulations and the
implementation dates for any such additional rulemaking may result in additional compliance obligations and expense for our
business and our customers. These factors could result in lower interchange fees generally in the future. Temporary or permanent
decreases in the interchange fees associated with our card transactions, could adversely affect our business and operating results.
If we fail to adequately assess and monitor credit risks posed by our customers, we could experience an increase in
credit loss.
We are subject to credit risk posed by our customers, many of which are small-to mid-sized businesses. Because we
often fund a customer’s entire receivable while our revenue is generated from only a small percentage of that amount, our
risk of loss is amplified by the customer’s failure to pay. We use various formulas and models to screen potential customers
and establish appropriate credit limits, but these formulas and models cannot eliminate all potential credit risks and may not
prevent us from approving applications that are fraudulently completed. Moreover, businesses that are good credit risks at
the time of application may deteriorate over time and we may fail to detect such changes. In addition, changes to our
policies on the types and profiles of businesses to which we extend credit could also have an adverse impact on our credit
losses. In times of economic slowdown, the number of our customers who default on payments owed to us tends to increase.
If we fail to adequately manage our credit risks, our provision for credit losses on the income statement could be
significantly higher.
We may incur substantial losses due to fraudulent use of our payment cards, payment systems or vouchers.
Under certain circumstances, we may bear the risk of substantial losses due to fraudulent use of our payment cards
or payment systems. We are also subject to risk from fraudulent acts of employees or contractors. Although we maintain
insurance for certain types of losses, the coverage may be insufficient or limited and may not fully protect against those
losses. Additionally, criminals use sophisticated illegal activities to target us, including “skimming”, counterfeit cards and
accounts, and identity theft. A single, significant incident or a series of incidents of fraud or theft could lead to, among other
things, some or all of the following:
•
•
•
•
•
•
•
•
increased overall level of fraud;
direct financial losses as a result of fraudulent activity;
reputational harm;
decreased desirability of our services;
greater regulation;
increased compliance costs;
imposition of regulatory sanctions; or
significant monetary fines.
All of the above could have a material adverse effect on our operations, business success, financial condition and
results of operations. Our provision for credit losses, inclusive of fraud losses, was $65.7 million in 2019 compared to $66.5
million in 2018 and $64.2 million in 2017.
Fluctuations in foreign currency exchange rates could affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S.
dollar. Such currencies include, but are not limited to, the Australian dollar, the Canadian dollar, the Euro, British Pound
sterling, New Zealand dollar and Brazilian Real. Because our consolidated financial statements are presented in U.S. dollars,
we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in
effect during or at the end of each reporting period. Realized and unrealized gains and losses on foreign currency
transactions as well as the re-measurement of our cash, receivable and payable balances that are denominated in foreign
currencies, are recorded directly in the consolidated statements of income. In addition, gains and losses associated with the
18
Company’s foreign currency exchange derivatives are recorded on the consolidated statements of income. Therefore,
increases or decreases in the value of the U.S. dollar against other major currencies that we use to conduct our business will
affect our revenues, operating income and the value of balance sheet items denominated in those currencies. Fluctuations in
foreign currency exchange rates, particularly fluctuations in the U.S. dollar against other currencies, may materially affect
our financial results.
Our exposure to counterparty risk could create an adverse effect on our financial condition.
We engage in a number of transactions where counterparty risk is a relevant factor, including transactions with
customers, derivatives counterparties and those businesses we work with to provide services, among others. These risks are
dependent upon market conditions and also the real and perceived viability of the counterparty. The failure or perceived
weakness of any of our counterparties has the potential to expose us to risk of loss in certain situations. Certain contracts and
arrangements that we enter into with counterparties may provide us with indemnification clauses to protect us from financial
loss. If the counterparty fails to, or is unable to fulfill these indemnification clauses, we may incur losses as well as harm to
our reputation.
We have substantial indebtedness, which may materially and adversely affect our financial flexibility and our ability
to meet our debt service obligations.
Under our 2016 Credit Agreement, as amended through December 31, 2019, we had an outstanding principal
amount of $923.7 million on our tranche A term loan facility, an outstanding principal amount equal to $1,457.0 million on
our tranche B term loan facility and amounts available consisting of an $820 million secured revolving credit facility, with a
$250 million sublimit for letters of credit and a $20 million sublimit for swingline loans. On January 18, 2019, we entered
into a fifth amendment to our 2016 Credit Agreement that increased the principal amount of the tranche A term loan facility
by $300 million and provides for delayed draw revolving credit commitments in the amount of $25 million and term A loan
commitments in the amount of $275 million to finance in part the Discovery Benefits acquisition, subject to satisfaction of
customary funding conditions. On May 17, 2019, the Company entered into a sixth amendment to our 2016 Credit
Agreement, which provided additional tranche B term loans in the original principal amount of $150.0 million and extended
the maturity date of tranche B term loans by three years to May 17, 2026. The tranche A term loans mature, and the
revolving credit facility terminates and is repayable, on July 1, 2023. On November 19, 2019, we entered into a seventh
amendment to our 2016 Credit Agreement, which increased commitments under our revolving credit facility from $770.0
million to $820.0 million. In addition to the 2016 Credit Agreement, our indebtedness consists of our Notes, deposits held
by WEX Bank and other liabilities outstanding.
Our indebtedness could, among other things:
•
•
•
•
require us to dedicate a substantial portion of our cash flow to repaying our indebtedness, thus reducing the amount
of funds available for other general corporate purposes;
limit our ability to borrow additional funds necessary for working capital, capital expenditures or other general
corporate purposes;
increase our vulnerability to adverse general economic or industry conditions; and
limit our flexibility in planning for, or reacting to changes in, our business.
There can be no assurance that we will be able to meet our indebtedness obligations, including any of our
obligations under the Notes. In addition, we may need to incur substantial additional indebtedness in the future to fund our
operations or certain strategic objectives. However, we may not be able to obtain the additional financing necessary for these
purposes.
In addition, under the 2016 Credit Agreement as amended, unless otherwise agreed by the requisite lenders under
the revolving and term A credit facilities, we are required to remain in compliance with a consolidated EBITDA to
consolidated interest charge coverage ratio, measured quarterly, of no less than 3.00 to 1.00; and a consolidated leverage
ratio, testing consolidated funded indebtedness (excluding (i) up to $350 million of consolidated funded indebtedness due to
permitted securitization transactions and (ii) the amount of consolidated funded indebtedness constituting the non-recourse
portion of permitted factoring transactions, and netting up to $125.0 million of unrestricted cash and cash equivalents
denominated in U.S. dollars held by the Company and its subsidiaries) to consolidated EBITDA, measured quarterly, of no
more than 5.00 to 1.00 at December 31, 2019, decreasing to 4.75 to 1.0 at December 31, 2020 and further decreasing to 4.50
to 1.0 at December 31, 2021 and thereafter. On February 10, 2020, we entered into an Eighth Amendment to our 2016 Credit
Agreement, which would, among other things, (a) modify the maximum consolidated leverage ratio to be no more than 5.75
to 1.00 commencing as of December 31, 2019, decreasing to 5.50 to 1.0 commencing as of December 31, 2020, decreasing
to 5.00 to 1.0 commencing as of December 31, 2021 and further decreasing to 4.75 to 1.0 commencing as of December 31,
2022 and thereafter, and (b) other than for pricing purposes, allow us to test consolidated funded indebtedness excluding (i)
up to $400 million of consolidated funded indebtedness due to permitted securitization transactions and (ii) the amount of
consolidated funded indebtedness constituting the non-recourse portion of permitted factoring transactions, and netting up to
$200.0 million of unrestricted cash and cash equivalents denominated in U.S. dollars held by the Company and its
subsidiaries. The aforementioned amendments would only become effective concurrently with the closing of the pending
acquisition of eNett and Optal, if it occurs. The 2016 Credit Agreement also contains various affirmative and negative
covenants that, subject to certain customary exceptions, restrict our ability to, among other things, create liens over our
property, incur additional indebtedness, enter into sale and lease-back transactions, make loans, advances or other
investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to
equity interests, change the nature of our business, enter into certain agreements which restrict our ability to pay dividends
or other distributions or create liens on our property, transact business with affiliates and/or merge or consolidate with any
other person. Our ability to comply with these provisions may be affected by events beyond our control. Failure to comply
with the financial covenants or any other non-financial or restrictive covenant in our 2016 Credit Agreement could create a
default. Upon a default, our lenders could accelerate the indebtedness under the facilities (except only the requisite lenders
under the revolving credit facility and the tranche A term loan facility may accelerate the revolving credit facility due to a
breach of the financial covenants), foreclose against their collateral or seek other remedies, which could trigger a default
under the Notes and would jeopardize our ability to continue our current operations. The Notes also contain customary
negative and affirmative covenants and events of default that if breached could allow the requisite noteholders to accelerate
the maturity of the Notes and to exercise their rights and remedies under the Notes, and could also trigger a default under the
2016 Credit Agreement.
Despite our substantial indebtedness, we may still be able to incur more debt, intensifying the risks described above.
Subject to restrictions in our 2016 Credit Agreement and the Notes, we may incur additional indebtedness, which
could increase the risks associated with our already substantial indebtedness. Subject to certain limitations, including
compliance with the covenants in our 2016 Credit Agreement, we have the ability to borrow additional funds under our 2016
Credit Agreement.
In connection with the planned acquisition of eNett, and Optal, and contingent upon the closing of the acquisition,
we have obtained financing commitments from Bank of America, N.A., BofA Securities, Inc., Citizens Bank, N.A., MUFG
Bank, Ltd., SunTrust Robinson Humphrey, Inc., Truist Bank, Wells Fargo Securities, LLC, Wells Fargo Bank, N.A., Bank of
Montreal, BMO Capital Markets Corp., Santander Bank, N.A., KeyBank National Association, KeyBanc Capital Markets
Inc., Regions Capital Markets, a division of Regions Bank, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank AG
New York Branch, Deutsche Bank Securities Inc. and Fifth Third Bank, National Association for (a) senior secured credit
facilities in the aggregate amount of up to $2.8 billion consisting of (i) up to an approximately $2.0 billion seven-year term
loan B facility comprised of approximately $1.1 billion to fund the planned acquisition and $924 million (the “Backstop
Term Loans”) to be used to refinance our existing Term A loans under our 2016 Credit Agreement, to the extent that the
2016 Credit Agreement has not been amended prior to the funding of these facilities to increase the maximum consolidated
leverage ratio upon the closing of the acquisition to 5.75x, subject to step-downs (the “Financial Covenant Amendment”)
and (ii) an $820 million revolving credit facility (the “Backstop Revolving Credit Facility”) to replace our existing revolving
credit facility, to the extent the Financial Covenant Amendment has not occurred prior to the funding of these facilities, and
(b) a senior unsecured bridge facility in the aggregate amount of up to $300 million minus any gross cash proceeds received
by us from the issuance of any senior unsecured notes (collectively, the “Committed Financing”). If funded, the Backstop
Term Loans would replace the existing Term A loans and the Backstop Revolving Credit Facility would replace the existing
revolving credit facility. On February 10, 2020, we entered into an Eighth Amendment to our 2016 Credit Agreement which
implemented the Financial Covenant Amendment effective upon the closing of the pending acquisition of eNett and Optal, if
it occurs. If we pursue additional acquisitions, we could incur further debt or further amend the terms of our existing 2016
Credit Agreement.
This indebtedness could have the effect, among other things, of reducing our flexibility to respond to changing
business and economic conditions and increasing interest expense. The amount of cash required to pay interest on our
increased indebtedness levels following completion of the acquisition, and thus the demands on our cash resources, will be
greater than the amount of cash flows required to service our indebtedness prior to the transaction. The increased levels of
indebtedness following completion of the acquisition could also reduce funds available for working capital, capital
expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages relative to other
companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the acquisition, or if the
financial performance of the combined company does not meet current expectations, then our ability to service our
indebtedness may be adversely impacted.
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Company’s foreign currency exchange derivatives are recorded on the consolidated statements of income. Therefore,
increases or decreases in the value of the U.S. dollar against other major currencies that we use to conduct our business will
affect our revenues, operating income and the value of balance sheet items denominated in those currencies. Fluctuations in
foreign currency exchange rates, particularly fluctuations in the U.S. dollar against other currencies, may materially affect
our financial results.
Our exposure to counterparty risk could create an adverse effect on our financial condition.
We engage in a number of transactions where counterparty risk is a relevant factor, including transactions with
customers, derivatives counterparties and those businesses we work with to provide services, among others. These risks are
dependent upon market conditions and also the real and perceived viability of the counterparty. The failure or perceived
weakness of any of our counterparties has the potential to expose us to risk of loss in certain situations. Certain contracts and
arrangements that we enter into with counterparties may provide us with indemnification clauses to protect us from financial
loss. If the counterparty fails to, or is unable to fulfill these indemnification clauses, we may incur losses as well as harm to
our reputation.
We have substantial indebtedness, which may materially and adversely affect our financial flexibility and our ability
to meet our debt service obligations.
Under our 2016 Credit Agreement, as amended through December 31, 2019, we had an outstanding principal
amount of $923.7 million on our tranche A term loan facility, an outstanding principal amount equal to $1,457.0 million on
our tranche B term loan facility and amounts available consisting of an $820 million secured revolving credit facility, with a
$250 million sublimit for letters of credit and a $20 million sublimit for swingline loans. On January 18, 2019, we entered
into a fifth amendment to our 2016 Credit Agreement that increased the principal amount of the tranche A term loan facility
by $300 million and provides for delayed draw revolving credit commitments in the amount of $25 million and term A loan
commitments in the amount of $275 million to finance in part the Discovery Benefits acquisition, subject to satisfaction of
customary funding conditions. On May 17, 2019, the Company entered into a sixth amendment to our 2016 Credit
Agreement, which provided additional tranche B term loans in the original principal amount of $150.0 million and extended
the maturity date of tranche B term loans by three years to May 17, 2026. The tranche A term loans mature, and the
revolving credit facility terminates and is repayable, on July 1, 2023. On November 19, 2019, we entered into a seventh
amendment to our 2016 Credit Agreement, which increased commitments under our revolving credit facility from $770.0
million to $820.0 million. In addition to the 2016 Credit Agreement, our indebtedness consists of our Notes, deposits held
by WEX Bank and other liabilities outstanding.
Our indebtedness could, among other things:
require us to dedicate a substantial portion of our cash flow to repaying our indebtedness, thus reducing the amount
of funds available for other general corporate purposes;
limit our ability to borrow additional funds necessary for working capital, capital expenditures or other general
corporate purposes;
increase our vulnerability to adverse general economic or industry conditions; and
limit our flexibility in planning for, or reacting to changes in, our business.
There can be no assurance that we will be able to meet our indebtedness obligations, including any of our
obligations under the Notes. In addition, we may need to incur substantial additional indebtedness in the future to fund our
operations or certain strategic objectives. However, we may not be able to obtain the additional financing necessary for these
•
•
•
•
purposes.
In addition, under the 2016 Credit Agreement as amended, unless otherwise agreed by the requisite lenders under
the revolving and term A credit facilities, we are required to remain in compliance with a consolidated EBITDA to
consolidated interest charge coverage ratio, measured quarterly, of no less than 3.00 to 1.00; and a consolidated leverage
ratio, testing consolidated funded indebtedness (excluding (i) up to $350 million of consolidated funded indebtedness due to
permitted securitization transactions and (ii) the amount of consolidated funded indebtedness constituting the non-recourse
portion of permitted factoring transactions, and netting up to $125.0 million of unrestricted cash and cash equivalents
denominated in U.S. dollars held by the Company and its subsidiaries) to consolidated EBITDA, measured quarterly, of no
more than 5.00 to 1.00 at December 31, 2019, decreasing to 4.75 to 1.0 at December 31, 2020 and further decreasing to 4.50
to 1.0 at December 31, 2021 and thereafter. On February 10, 2020, we entered into an Eighth Amendment to our 2016 Credit
Agreement, which would, among other things, (a) modify the maximum consolidated leverage ratio to be no more than 5.75
to 1.00 commencing as of December 31, 2019, decreasing to 5.50 to 1.0 commencing as of December 31, 2020, decreasing
to 5.00 to 1.0 commencing as of December 31, 2021 and further decreasing to 4.75 to 1.0 commencing as of December 31,
2022 and thereafter, and (b) other than for pricing purposes, allow us to test consolidated funded indebtedness excluding (i)
up to $400 million of consolidated funded indebtedness due to permitted securitization transactions and (ii) the amount of
consolidated funded indebtedness constituting the non-recourse portion of permitted factoring transactions, and netting up to
$200.0 million of unrestricted cash and cash equivalents denominated in U.S. dollars held by the Company and its
subsidiaries. The aforementioned amendments would only become effective concurrently with the closing of the pending
acquisition of eNett and Optal, if it occurs. The 2016 Credit Agreement also contains various affirmative and negative
covenants that, subject to certain customary exceptions, restrict our ability to, among other things, create liens over our
property, incur additional indebtedness, enter into sale and lease-back transactions, make loans, advances or other
investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to
equity interests, change the nature of our business, enter into certain agreements which restrict our ability to pay dividends
or other distributions or create liens on our property, transact business with affiliates and/or merge or consolidate with any
other person. Our ability to comply with these provisions may be affected by events beyond our control. Failure to comply
with the financial covenants or any other non-financial or restrictive covenant in our 2016 Credit Agreement could create a
default. Upon a default, our lenders could accelerate the indebtedness under the facilities (except only the requisite lenders
under the revolving credit facility and the tranche A term loan facility may accelerate the revolving credit facility due to a
breach of the financial covenants), foreclose against their collateral or seek other remedies, which could trigger a default
under the Notes and would jeopardize our ability to continue our current operations. The Notes also contain customary
negative and affirmative covenants and events of default that if breached could allow the requisite noteholders to accelerate
the maturity of the Notes and to exercise their rights and remedies under the Notes, and could also trigger a default under the
2016 Credit Agreement.
Despite our substantial indebtedness, we may still be able to incur more debt, intensifying the risks described above.
Subject to restrictions in our 2016 Credit Agreement and the Notes, we may incur additional indebtedness, which
could increase the risks associated with our already substantial indebtedness. Subject to certain limitations, including
compliance with the covenants in our 2016 Credit Agreement, we have the ability to borrow additional funds under our 2016
Credit Agreement.
In connection with the planned acquisition of eNett, and Optal, and contingent upon the closing of the acquisition,
we have obtained financing commitments from Bank of America, N.A., BofA Securities, Inc., Citizens Bank, N.A., MUFG
Bank, Ltd., SunTrust Robinson Humphrey, Inc., Truist Bank, Wells Fargo Securities, LLC, Wells Fargo Bank, N.A., Bank of
Montreal, BMO Capital Markets Corp., Santander Bank, N.A., KeyBank National Association, KeyBanc Capital Markets
Inc., Regions Capital Markets, a division of Regions Bank, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank AG
New York Branch, Deutsche Bank Securities Inc. and Fifth Third Bank, National Association for (a) senior secured credit
facilities in the aggregate amount of up to $2.8 billion consisting of (i) up to an approximately $2.0 billion seven-year term
loan B facility comprised of approximately $1.1 billion to fund the planned acquisition and $924 million (the “Backstop
Term Loans”) to be used to refinance our existing Term A loans under our 2016 Credit Agreement, to the extent that the
2016 Credit Agreement has not been amended prior to the funding of these facilities to increase the maximum consolidated
leverage ratio upon the closing of the acquisition to 5.75x, subject to step-downs (the “Financial Covenant Amendment”)
and (ii) an $820 million revolving credit facility (the “Backstop Revolving Credit Facility”) to replace our existing revolving
credit facility, to the extent the Financial Covenant Amendment has not occurred prior to the funding of these facilities, and
(b) a senior unsecured bridge facility in the aggregate amount of up to $300 million minus any gross cash proceeds received
by us from the issuance of any senior unsecured notes (collectively, the “Committed Financing”). If funded, the Backstop
Term Loans would replace the existing Term A loans and the Backstop Revolving Credit Facility would replace the existing
revolving credit facility. On February 10, 2020, we entered into an Eighth Amendment to our 2016 Credit Agreement which
implemented the Financial Covenant Amendment effective upon the closing of the pending acquisition of eNett and Optal, if
it occurs. If we pursue additional acquisitions, we could incur further debt or further amend the terms of our existing 2016
Credit Agreement.
This indebtedness could have the effect, among other things, of reducing our flexibility to respond to changing
business and economic conditions and increasing interest expense. The amount of cash required to pay interest on our
increased indebtedness levels following completion of the acquisition, and thus the demands on our cash resources, will be
greater than the amount of cash flows required to service our indebtedness prior to the transaction. The increased levels of
indebtedness following completion of the acquisition could also reduce funds available for working capital, capital
expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages relative to other
companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the acquisition, or if the
financial performance of the combined company does not meet current expectations, then our ability to service our
indebtedness may be adversely impacted.
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Certain indebtedness to be incurred in connection with the acquisition may bear interest at variable interest rates. If
interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash
flows.
The agreements that will govern the indebtedness to be incurred in connection with the acquisition may contain
various affirmative and negative covenants that may, subject to certain customary exceptions, restrict our ability to, among
other things, create liens over our property, incur additional indebtedness, enter into sale and lease-back transactions, make
loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other
distributions with respect to equity interests, change the nature of our business, enter into certain agreements which restrict
our ability to pay dividends or other distributions or create liens on our property, transact business with affiliates and/or
merge or consolidate with any other person or sell or convey certain of its assets to another person. In addition, some of the
agreements that govern the debt financing may contain financial covenants that will require us to maintain certain financial
ratios. Our ability to comply with these provisions may be affected by events beyond our control. Failure to comply with
these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment
obligations.
Moreover, we may be required to raise substantial additional financing to fund working capital, capital
expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing
will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and
other factors beyond our control. There can be no assurance that we will be able to obtain additional financing or refinancing
on terms acceptable to us or at all.
Volatility in the financial markets may negatively impact our ability to access credit and the terms at which we would
access such credit.
Adverse conditions in the credit market may limit our ability to access credit at a time when we would like or need
to do so. Our senior secured Notes mature on February 1, 2023. Our revolving credit facility under the 2016 Credit
Agreement expires on July 1, 2023 (subject to earlier maturity of the revolving credit facility and tranche A term loan on
August 1, 2022 if the Notes are not repaid or the maturity extended) when the outstanding balance of the revolving credit
facility and the tranche A term loan will be due. Our tranche B term loans mature on May 17, 2026. Any limitation on the
availability of funds or credit facilities could have an impact on our ability to refinance the maturing debt or react to
changing economic and business conditions, which could adversely impact us.
In connection with the planned acquisition of eNett and Optal and contingent upon the closing of the acquisition,
we expect to enter into the Committed Financing or an alternative financing to fund the acquisition. Volatility in the
financial markets may impact the rates that we receive under that new facility.
Volatility in the financial markets may negatively impact WEX Bank’s ability to attract and retain deposits.
Adverse conditions in the credit market may limit WEX Bank’s ability to attract deposits at a time when it would
like or need to do so. A significant credit rating downgrade, material capital market disruptions, significant withdrawals by
depositors at WEX Bank, or adverse changes to its industrial bank charter could impact our ability to maintain adequate
liquidity and impact our ability to provide competitive offerings to our customers. Any limitation on the availability of
deposits could have an impact on our ability to fund our U.S. accounts receivable, which would adversely impact the
Company.
Our industrial bank subsidiary is subject to funding risks associated with its reliance on brokered deposits.
Under applicable regulations, if WEX Bank were no longer “well capitalized,” it would not be able to accept
brokered deposits without the approval of the FDIC. WEX Bank’s inability to accept brokered deposits, or a loss of a
significant amount of its brokered deposits, could adversely affect our liquidity. Additionally, such circumstances could
require it to raise deposit rates in an attempt to attract new deposits, or to obtain funds through other sources at higher rates,
which would adversely affect our results of operations.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on
many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, and to fund capital expenditures, acquisitions
and research and development efforts will depend on our ability to generate cash. This, to a certain extent, is subject to
economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
We have substantial indebtedness, and may incur additional indebtedness, which could lead to increased interest
expense and could increase the amount of cash flows required to fund interest expense associated with our indebtedness. In
addition, certain obligations under the 2016 Credit Agreement bear interest at variable interest rates. As of December 31,
2019, we maintained seven forward-fixed interest rate swap agreements, which are intended to fix the future interest
payments associated with $1.44 billion of our variable-rate borrowings. These swap agreements expire at various points
prior to the maturity of the 2016 Credit Agreement. Despite these derivative contracts, interest rate increases still could
result in larger debt service requirements. Such an increase in our debt service obligations would adversely affect our cash
flows. We cannot assure you that our business will generate sufficient cash flows from operations, that anticipated cost
savings and operating improvements will be realized on schedule or at all, that future borrowings will be available to us
under our 2016 Credit Agreement or any subsequent credit agreement, or that we can obtain alternative financing proceeds
in an amount sufficient to enable us to pay our indebtedness, including the Notes, or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness, including the Notes, at or before maturity. We cannot assure you
that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
The debt service obligations under our 2016 Credit Agreement could also reduce funds available for working
capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages
relative to other companies with lower debt levels. As part of our continuing strategy, we also regularly evaluate potential
acquisitions that could cause us to incur additional debt. If we do not achieve the expected benefits and cost savings from
any such acquisitions, or if the financial performance of the combined companies does not meet expectations, then our
ability to service our indebtedness may be adversely impacted.
In an environment of increasing interest rates, interest expense on the variable rate portion of our borrowings would
increase and we may not be able to replace our maturing debt with new debt that carries the same interest rates. We
may be adversely affected by significant changes in the brokered deposit market.
Our industrial bank subsidiary, WEX Bank, uses collectively brokered deposits, including certificates of deposit
and interest-bearing money-market deposits, to finance payments on behalf of our customers. Certificates of deposit carry
fixed interest rates from issuance to maturity, which vary and are relatively short term in duration. The interest-bearing
money market deposits carry variable rates. Upon maturity, the deposits will likely be replaced by issuing new deposits to
the extent that they are needed. In a rising interest rate environment, WEX Bank would not be able to replace maturing
deposits with deposits that carry the same or lower interest rates. Therefore, rising interest rates would result in reduced net
income to the extent that certificates of deposit and interest-bearing money market deposits mature and are replaced. At
December 31, 2019, WEX Bank had outstanding $836.0 million in certificates of deposit maturing within one year, $143.4
million in certificates of deposit maturing between one and five years, and $362.2 million in interest-bearing money market
deposits, for an aggregate exposure of $1,341.6 million in brokered deposits at WEX Bank.
Additionally, under our 2016 Credit Agreement and Notes, we had $2,780.8 million of indebtedness outstanding at
December 31, 2019, of which approximately 35% was at variable interest rates for which we have not entered into interest
rate swap agreements to fix the future interest payments. An increase in interest rates would increase the cost of borrowing
under our 2016 Credit Agreement.
Our 2016 Credit Agreement uses LIBOR as a reference rate for our term loans and revolving credit facility, such
that the interest due pursuant to such loans may be calculated using LIBOR (subject to a stated minimum value). On July
27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop
encouraging or compelling banks to submit rates for the calibration of LIBOR by the end of 2021. In June 2017, the
Alternative Reference Rates Committee selected the Secured Overnight Financing Rate (“SOFR”), a new index calculated
by reference to short-term repurchase agreements backed by Treasury securities, as its preferred replacement for U.S. dollar
LIBOR. Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question. As such, the
future of LIBOR and the potential alternatives at this time is uncertain. If the method for calculation of LIBOR changes, if
LIBOR is no longer available or if lenders have increased costs due to changes in LIBOR or changes in law, we may suffer
from potential increases in interest rate costs on our floating debt rate and our hedging arrangements may not perform as
expected. Further, we may need to renegotiate our 2016 Credit Agreement and the variable rate loans thereunder to replace
the interest rate calculated by reference to LIBOR with an interest rate calculated by reference to a new standard that is
established.
Our business is subject to a wide variety of laws, rules, regulations and government policies under the Dodd-Frank
Act, which may have a significant impact on our business, results of operation and financial condition.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank
Act, was enacted into law. Since enactment, the Dodd-Frank Act has generally resulted in increased government regulation
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Certain indebtedness to be incurred in connection with the acquisition may bear interest at variable interest rates. If
interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash
flows.
The agreements that will govern the indebtedness to be incurred in connection with the acquisition may contain
various affirmative and negative covenants that may, subject to certain customary exceptions, restrict our ability to, among
other things, create liens over our property, incur additional indebtedness, enter into sale and lease-back transactions, make
loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other
distributions with respect to equity interests, change the nature of our business, enter into certain agreements which restrict
our ability to pay dividends or other distributions or create liens on our property, transact business with affiliates and/or
merge or consolidate with any other person or sell or convey certain of its assets to another person. In addition, some of the
agreements that govern the debt financing may contain financial covenants that will require us to maintain certain financial
ratios. Our ability to comply with these provisions may be affected by events beyond our control. Failure to comply with
these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment
obligations.
Moreover, we may be required to raise substantial additional financing to fund working capital, capital
expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing
will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and
other factors beyond our control. There can be no assurance that we will be able to obtain additional financing or refinancing
on terms acceptable to us or at all.
access such credit.
Volatility in the financial markets may negatively impact our ability to access credit and the terms at which we would
Adverse conditions in the credit market may limit our ability to access credit at a time when we would like or need
to do so. Our senior secured Notes mature on February 1, 2023. Our revolving credit facility under the 2016 Credit
Agreement expires on July 1, 2023 (subject to earlier maturity of the revolving credit facility and tranche A term loan on
August 1, 2022 if the Notes are not repaid or the maturity extended) when the outstanding balance of the revolving credit
facility and the tranche A term loan will be due. Our tranche B term loans mature on May 17, 2026. Any limitation on the
availability of funds or credit facilities could have an impact on our ability to refinance the maturing debt or react to
changing economic and business conditions, which could adversely impact us.
In connection with the planned acquisition of eNett and Optal and contingent upon the closing of the acquisition,
we expect to enter into the Committed Financing or an alternative financing to fund the acquisition. Volatility in the
financial markets may impact the rates that we receive under that new facility.
Volatility in the financial markets may negatively impact WEX Bank’s ability to attract and retain deposits.
Adverse conditions in the credit market may limit WEX Bank’s ability to attract deposits at a time when it would
like or need to do so. A significant credit rating downgrade, material capital market disruptions, significant withdrawals by
depositors at WEX Bank, or adverse changes to its industrial bank charter could impact our ability to maintain adequate
liquidity and impact our ability to provide competitive offerings to our customers. Any limitation on the availability of
deposits could have an impact on our ability to fund our U.S. accounts receivable, which would adversely impact the
Company.
Our industrial bank subsidiary is subject to funding risks associated with its reliance on brokered deposits.
Under applicable regulations, if WEX Bank were no longer “well capitalized,” it would not be able to accept
brokered deposits without the approval of the FDIC. WEX Bank’s inability to accept brokered deposits, or a loss of a
significant amount of its brokered deposits, could adversely affect our liquidity. Additionally, such circumstances could
require it to raise deposit rates in an attempt to attract new deposits, or to obtain funds through other sources at higher rates,
which would adversely affect our results of operations.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on
many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, and to fund capital expenditures, acquisitions
and research and development efforts will depend on our ability to generate cash. This, to a certain extent, is subject to
economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
We have substantial indebtedness, and may incur additional indebtedness, which could lead to increased interest
expense and could increase the amount of cash flows required to fund interest expense associated with our indebtedness. In
addition, certain obligations under the 2016 Credit Agreement bear interest at variable interest rates. As of December 31,
2019, we maintained seven forward-fixed interest rate swap agreements, which are intended to fix the future interest
payments associated with $1.44 billion of our variable-rate borrowings. These swap agreements expire at various points
prior to the maturity of the 2016 Credit Agreement. Despite these derivative contracts, interest rate increases still could
result in larger debt service requirements. Such an increase in our debt service obligations would adversely affect our cash
flows. We cannot assure you that our business will generate sufficient cash flows from operations, that anticipated cost
savings and operating improvements will be realized on schedule or at all, that future borrowings will be available to us
under our 2016 Credit Agreement or any subsequent credit agreement, or that we can obtain alternative financing proceeds
in an amount sufficient to enable us to pay our indebtedness, including the Notes, or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness, including the Notes, at or before maturity. We cannot assure you
that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
The debt service obligations under our 2016 Credit Agreement could also reduce funds available for working
capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages
relative to other companies with lower debt levels. As part of our continuing strategy, we also regularly evaluate potential
acquisitions that could cause us to incur additional debt. If we do not achieve the expected benefits and cost savings from
any such acquisitions, or if the financial performance of the combined companies does not meet expectations, then our
ability to service our indebtedness may be adversely impacted.
In an environment of increasing interest rates, interest expense on the variable rate portion of our borrowings would
increase and we may not be able to replace our maturing debt with new debt that carries the same interest rates. We
may be adversely affected by significant changes in the brokered deposit market.
Our industrial bank subsidiary, WEX Bank, uses collectively brokered deposits, including certificates of deposit
and interest-bearing money-market deposits, to finance payments on behalf of our customers. Certificates of deposit carry
fixed interest rates from issuance to maturity, which vary and are relatively short term in duration. The interest-bearing
money market deposits carry variable rates. Upon maturity, the deposits will likely be replaced by issuing new deposits to
the extent that they are needed. In a rising interest rate environment, WEX Bank would not be able to replace maturing
deposits with deposits that carry the same or lower interest rates. Therefore, rising interest rates would result in reduced net
income to the extent that certificates of deposit and interest-bearing money market deposits mature and are replaced. At
December 31, 2019, WEX Bank had outstanding $836.0 million in certificates of deposit maturing within one year, $143.4
million in certificates of deposit maturing between one and five years, and $362.2 million in interest-bearing money market
deposits, for an aggregate exposure of $1,341.6 million in brokered deposits at WEX Bank.
Additionally, under our 2016 Credit Agreement and Notes, we had $2,780.8 million of indebtedness outstanding at
December 31, 2019, of which approximately 35% was at variable interest rates for which we have not entered into interest
rate swap agreements to fix the future interest payments. An increase in interest rates would increase the cost of borrowing
under our 2016 Credit Agreement.
Our 2016 Credit Agreement uses LIBOR as a reference rate for our term loans and revolving credit facility, such
that the interest due pursuant to such loans may be calculated using LIBOR (subject to a stated minimum value). On July
27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop
encouraging or compelling banks to submit rates for the calibration of LIBOR by the end of 2021. In June 2017, the
Alternative Reference Rates Committee selected the Secured Overnight Financing Rate (“SOFR”), a new index calculated
by reference to short-term repurchase agreements backed by Treasury securities, as its preferred replacement for U.S. dollar
LIBOR. Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question. As such, the
future of LIBOR and the potential alternatives at this time is uncertain. If the method for calculation of LIBOR changes, if
LIBOR is no longer available or if lenders have increased costs due to changes in LIBOR or changes in law, we may suffer
from potential increases in interest rate costs on our floating debt rate and our hedging arrangements may not perform as
expected. Further, we may need to renegotiate our 2016 Credit Agreement and the variable rate loans thereunder to replace
the interest rate calculated by reference to LIBOR with an interest rate calculated by reference to a new standard that is
established.
Our business is subject to a wide variety of laws, rules, regulations and government policies under the Dodd-Frank
Act, which may have a significant impact on our business, results of operation and financial condition.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank
Act, was enacted into law. Since enactment, the Dodd-Frank Act has generally resulted in increased government regulation
21
22
and supervision, and when fully implemented, will, among other things, result in substantial changes in the regulation of
derivatives and capital market activities. The ultimate impact of the Dodd-Frank Act is difficult to assess because many
provisions are being phased in over time and because the current presidential administration has indicated it may make or
propose changes to provisions of the Dodd-Frank Act. In particular, the Dodd-Frank Act establishes federal oversight and
regulation of the over-the-counter derivatives market and entities that participate in that market. Derivatives regulations
have added costs to our business, and any additional requirements, such as future registration requirements or increased
regulation of derivative contracts, may add additional costs or may require us to change any fuel price, currency and interest
rate hedging practices we may then use to comply with new regulatory requirements. Potential changes could also include
clearing and execution methodology of our derivatives transactions. Presently, we cannot assess the capital or margin
requirements which might apply to our over-the-counter transactions. Once implemented, these changes could result in
increased transaction costs. In summary, the Dodd-Frank Act and any new regulations could increase the cost of derivative
contracts or modify the way in which we conduct those transactions. Additionally, we are required to pay to the lenders
under the 2016 Credit Agreement, any increased costs associated with the Dodd-Frank Act and other changes in laws, rules
or regulations, subject to the terms of the 2016 Credit Agreement.
The Dodd-Frank Act also created the CFPB, to regulate the offering of consumer financial products or services
under the federal consumer financial laws. The CFPB assumed rulemaking authority under the existing federal consumer
financial protection laws, and enforces those laws against and examines certain non-depository institutions and insured
depository institutions with total assets greater than $10 billion and their affiliates. In addition, the CFPB was granted
general authority to prevent covered persons or service providers from committing or engaging in unfair, deceptive or
abusive acts or practices under federal law in connection with any transaction with a consumer for a consumer financial
product or service, or the offering of a consumer financial product or service. The CFPB also has broad rulemaking
authority for a wide range of consumer protection laws, which it has exercised as described in Item 1 under the heading
“Other Items – Regulation - United States – The Consumer Financial Protection Bureau.” It is unclear what future
regulatory changes may be promulgated by the CFPB and what effect, if any, such changes would have on our business and
operations.
As required under the Dodd-Frank Act, the Government Accountability Office issued its study on the implications
of any elimination of the exemption to the definition of “bank” for industrial banks under the Bank Holding Company Act.
The study did not make a recommendation regarding the elimination of this exemption. However, if this exemption were
eliminated without any grandfathering or accommodations for existing institutions, we could be required to become a bank
holding company which could prompt us to either cease certain activities or divest WEX Bank.
The current U.S. Administration and Congress have signaled their intent to significantly or completely repeal the
Dodd-Frank Act and the associated implementing regulations, and it is unclear what, if any, measures may be implemented
to replace it. Accordingly, there may be an extended period of uncertainty and unpredictability regarding the provisions of
federal law and regulations that affect our business and operations.
The Dodd-Frank Act and any related legislation or regulations, or any repeal or replacement of such legislation or
regulations, may have a material impact on our business, results of operations and financial condition. The full impact of the
Dodd-Frank Act will not be known until all of the regulations implementing the statute are adopted and implemented.
However, compliance with these laws and regulations, including any subsequent repeals or amendments of them, may
require us to make changes to our business, and, there is a significant possibility that the Dodd-Frank Act will, at a
minimum, result in increased regulatory burden and compliance costs. We have invested significant management time and
resources to address the various provisions of the Dodd-Frank Act and the numerous regulations that are required to be
issued under it, and may have to invest significant additional time, including to address any changed business environment
resulting from a repeal or replacement of all or part of the Dodd Frank Act and any related legislation or regulation.
Decreased demand for fuel and other vehicle products and services could harm our business and results of
operations.
Demand for fuel and other vehicle products and services may be reduced by factors that are beyond our control,
such as the implementation of fuel efficiency standards and the development by vehicle manufacturers and adoption by our
fleet customers of vehicles with greater fuel efficiency or alternative fuel sources. To the extent that our customers require
less fuel, that decline in purchase volume could reduce our revenues, limiting our profitability and preventing us from taking
on other initiatives.
Our business is dependent on several key strategic relationships, the loss of which could adversely affect our results
of operations.
23
Revenue we received from services we provided to our top five customers and strategic relationships accounted for
approximately 13 percent of our total revenues in 2019. Accordingly, we are dependent on maintaining our strategic
relationships and our results of operations would be lower in the event that any of these relationships ceases to exist.
Likewise, we have agreements with the major oil companies, fuel retailers and truck stop merchants whose locations accept
our payment processing services. The termination of any of these agreements would reduce the number of locations where
our payment processing services are accepted; therefore, we could lose our competitive advantage and our operating results
could be adversely affected. While we regularly monitor these relationships, there can be no guarantee that we will be able
to maintain them in the future.
We may never realize the anticipated benefits of acquisitions we have completed or may undertake.
We have acquired and may attempt to acquire businesses, technologies, services, products or licenses in
technologies that we believe are a strategic fit with our business. The process of integrating and operating any acquired
business, technology, service or product may result in unforeseen redundancies, operating difficulties, and expenditures and
may divert significant management attention from our ongoing business operations. As a result, we may incur a variety of
costs in connection with acquisitions and may never realize the anticipated benefits.
Our pending acquisition of eNett and Optal is subject to customary closing conditions, including regulatory
approvals. The failure to satisfy all of the required closing conditions could delay the completion of the acquisition for a
significant period of time or prevent it from occurring. Any delay in completing the acquisition could cause us to not realize
some or all of the benefits that we expect to achieve in the transaction. If we are unable to complete the proposed
acquisition, we may have incurred substantial expenses and diverted significant management time and resources from our
ongoing business. In addition, if upon the satisfaction of the closing conditions and the expiration of a marketing period in
connection with our debt financing, we fail to consummate the transaction (and in certain other limited circumstances), we
may be required to pay eNett and Optal cash termination fees in the aggregate amount of $51.0 million.
There can be no assurance that the conditions to the closing of the acquisition will be satisfied or waived or that the
acquisition of eNett and Optal will be completed. Even if we are able to successfully complete the acquisition of eNett and
Optal, the size and complexity of the organization may result in delays in achieving anticipated or planned benefits,
including those benefits relating to commercial strategies and financial advantages.
We are exposed to risks associated with operations outside of the United States, which could harm both our U.S. and
international operations.
We conduct operations in North America, South America, Asia Pacific and Europe. As part of our business strategy
and growth plan, we plan to further expand internationally. Expansion of our international operations could impose
substantial burdens on our resources, divert management’s attention from U.S. operations and otherwise harm our business.
In addition, there are many barriers to competing successfully in the international market, including:
•
•
•
•
•
•
•
•
•
•
fluctuation in foreign currencies;
changes in the relations between the United States and foreign countries;
actions of foreign or United States governmental authorities affecting trade and foreign investment;
increased infrastructure costs including complex legal, tax, accounting and information technology laws and
treaties;
interpretation and application of local laws and regulations including, among others, those impacting anti-money
laundering, bribery, financial transaction reporting, privacy and positive balance or prepaid cards;
enforceability of intellectual property and contract rights;
potentially adverse tax consequences due to, but not limited to, the repatriation of cash and negative consequences
from changes in or interpretations of tax laws
competitive pressure on products and services from companies based outside the U.S. that can leverage lower costs
the United Kingdom’s exit from the European Union (EU) (commonly referred to as “Brexit”) on January 31,
of operations;
2020; and
local labor conditions and regulations.
24
and supervision, and when fully implemented, will, among other things, result in substantial changes in the regulation of
derivatives and capital market activities. The ultimate impact of the Dodd-Frank Act is difficult to assess because many
provisions are being phased in over time and because the current presidential administration has indicated it may make or
propose changes to provisions of the Dodd-Frank Act. In particular, the Dodd-Frank Act establishes federal oversight and
regulation of the over-the-counter derivatives market and entities that participate in that market. Derivatives regulations
have added costs to our business, and any additional requirements, such as future registration requirements or increased
regulation of derivative contracts, may add additional costs or may require us to change any fuel price, currency and interest
rate hedging practices we may then use to comply with new regulatory requirements. Potential changes could also include
clearing and execution methodology of our derivatives transactions. Presently, we cannot assess the capital or margin
requirements which might apply to our over-the-counter transactions. Once implemented, these changes could result in
increased transaction costs. In summary, the Dodd-Frank Act and any new regulations could increase the cost of derivative
contracts or modify the way in which we conduct those transactions. Additionally, we are required to pay to the lenders
under the 2016 Credit Agreement, any increased costs associated with the Dodd-Frank Act and other changes in laws, rules
or regulations, subject to the terms of the 2016 Credit Agreement.
The Dodd-Frank Act also created the CFPB, to regulate the offering of consumer financial products or services
under the federal consumer financial laws. The CFPB assumed rulemaking authority under the existing federal consumer
financial protection laws, and enforces those laws against and examines certain non-depository institutions and insured
depository institutions with total assets greater than $10 billion and their affiliates. In addition, the CFPB was granted
general authority to prevent covered persons or service providers from committing or engaging in unfair, deceptive or
abusive acts or practices under federal law in connection with any transaction with a consumer for a consumer financial
product or service, or the offering of a consumer financial product or service. The CFPB also has broad rulemaking
authority for a wide range of consumer protection laws, which it has exercised as described in Item 1 under the heading
“Other Items – Regulation - United States – The Consumer Financial Protection Bureau.” It is unclear what future
regulatory changes may be promulgated by the CFPB and what effect, if any, such changes would have on our business and
operations.
As required under the Dodd-Frank Act, the Government Accountability Office issued its study on the implications
of any elimination of the exemption to the definition of “bank” for industrial banks under the Bank Holding Company Act.
The study did not make a recommendation regarding the elimination of this exemption. However, if this exemption were
eliminated without any grandfathering or accommodations for existing institutions, we could be required to become a bank
holding company which could prompt us to either cease certain activities or divest WEX Bank.
The current U.S. Administration and Congress have signaled their intent to significantly or completely repeal the
Dodd-Frank Act and the associated implementing regulations, and it is unclear what, if any, measures may be implemented
to replace it. Accordingly, there may be an extended period of uncertainty and unpredictability regarding the provisions of
federal law and regulations that affect our business and operations.
The Dodd-Frank Act and any related legislation or regulations, or any repeal or replacement of such legislation or
regulations, may have a material impact on our business, results of operations and financial condition. The full impact of the
Dodd-Frank Act will not be known until all of the regulations implementing the statute are adopted and implemented.
However, compliance with these laws and regulations, including any subsequent repeals or amendments of them, may
require us to make changes to our business, and, there is a significant possibility that the Dodd-Frank Act will, at a
minimum, result in increased regulatory burden and compliance costs. We have invested significant management time and
resources to address the various provisions of the Dodd-Frank Act and the numerous regulations that are required to be
issued under it, and may have to invest significant additional time, including to address any changed business environment
resulting from a repeal or replacement of all or part of the Dodd Frank Act and any related legislation or regulation.
Decreased demand for fuel and other vehicle products and services could harm our business and results of
operations.
on other initiatives.
of operations.
Demand for fuel and other vehicle products and services may be reduced by factors that are beyond our control,
such as the implementation of fuel efficiency standards and the development by vehicle manufacturers and adoption by our
fleet customers of vehicles with greater fuel efficiency or alternative fuel sources. To the extent that our customers require
less fuel, that decline in purchase volume could reduce our revenues, limiting our profitability and preventing us from taking
Our business is dependent on several key strategic relationships, the loss of which could adversely affect our results
23
Revenue we received from services we provided to our top five customers and strategic relationships accounted for
approximately 13 percent of our total revenues in 2019. Accordingly, we are dependent on maintaining our strategic
relationships and our results of operations would be lower in the event that any of these relationships ceases to exist.
Likewise, we have agreements with the major oil companies, fuel retailers and truck stop merchants whose locations accept
our payment processing services. The termination of any of these agreements would reduce the number of locations where
our payment processing services are accepted; therefore, we could lose our competitive advantage and our operating results
could be adversely affected. While we regularly monitor these relationships, there can be no guarantee that we will be able
to maintain them in the future.
We may never realize the anticipated benefits of acquisitions we have completed or may undertake.
We have acquired and may attempt to acquire businesses, technologies, services, products or licenses in
technologies that we believe are a strategic fit with our business. The process of integrating and operating any acquired
business, technology, service or product may result in unforeseen redundancies, operating difficulties, and expenditures and
may divert significant management attention from our ongoing business operations. As a result, we may incur a variety of
costs in connection with acquisitions and may never realize the anticipated benefits.
Our pending acquisition of eNett and Optal is subject to customary closing conditions, including regulatory
approvals. The failure to satisfy all of the required closing conditions could delay the completion of the acquisition for a
significant period of time or prevent it from occurring. Any delay in completing the acquisition could cause us to not realize
some or all of the benefits that we expect to achieve in the transaction. If we are unable to complete the proposed
acquisition, we may have incurred substantial expenses and diverted significant management time and resources from our
ongoing business. In addition, if upon the satisfaction of the closing conditions and the expiration of a marketing period in
connection with our debt financing, we fail to consummate the transaction (and in certain other limited circumstances), we
may be required to pay eNett and Optal cash termination fees in the aggregate amount of $51.0 million.
There can be no assurance that the conditions to the closing of the acquisition will be satisfied or waived or that the
acquisition of eNett and Optal will be completed. Even if we are able to successfully complete the acquisition of eNett and
Optal, the size and complexity of the organization may result in delays in achieving anticipated or planned benefits,
including those benefits relating to commercial strategies and financial advantages.
We are exposed to risks associated with operations outside of the United States, which could harm both our U.S. and
international operations.
We conduct operations in North America, South America, Asia Pacific and Europe. As part of our business strategy
and growth plan, we plan to further expand internationally. Expansion of our international operations could impose
substantial burdens on our resources, divert management’s attention from U.S. operations and otherwise harm our business.
In addition, there are many barriers to competing successfully in the international market, including:
•
•
•
•
•
•
•
•
•
•
fluctuation in foreign currencies;
changes in the relations between the United States and foreign countries;
actions of foreign or United States governmental authorities affecting trade and foreign investment;
increased infrastructure costs including complex legal, tax, accounting and information technology laws and
treaties;
interpretation and application of local laws and regulations including, among others, those impacting anti-money
laundering, bribery, financial transaction reporting, privacy and positive balance or prepaid cards;
enforceability of intellectual property and contract rights;
potentially adverse tax consequences due to, but not limited to, the repatriation of cash and negative consequences
from changes in or interpretations of tax laws
competitive pressure on products and services from companies based outside the U.S. that can leverage lower costs
of operations;
the United Kingdom’s exit from the European Union (EU) (commonly referred to as “Brexit”) on January 31,
2020; and
local labor conditions and regulations.
24
We cannot assure you that our investments outside the United States will produce desired levels of revenue or
costs, or that one or more of the factors listed above will not harm our business.
The United Kingdom’s departure from the EU, or Brexit, could adversely affect us.
During June 2016, the U.K. held a referendum in which voters approved an exit from the EU, commonly referred
to as Brexit. On January 24, 2020, the U.K. Parliament approved a withdrawal agreement (the “Withdrawal Agreement”)
between the U.K. and the EU. On January 31, 2020, the U.K. exited the European Union and under the Withdrawal
Agreement, the U.K. is subject to an eleven-month transition period (the “Transition Period”) by which to leave the single
market and customs union.
The uncertainty concerning the U.K.’s legal, political and economic relationship with the EU after the Transition
Period could contribute to instability in global financial and foreign exchange markets, including volatility in the value of
the British Pound Sterling and Euro, which in turn could adversely affect us or our customers and companies that do
business with us. Such uncertainties could also trigger a general deterioration in credit conditions, a downturn in consumer
sentiment and overall negative economic growth. Any of these scenarios could have an adverse effect on our business or our
customers.
If the U.K. and the EU are unable to negotiate acceptable trading and customs terms, barrier-free access between
the U.K. and other EU member states could be diminished or eliminated. The long-term effects of Brexit will depend on any
agreements (or lack thereof) between the U.K. and the EU and, in particular, any arrangements for the U.K. to retain access
to EU markets after the Transition Period. Such a withdrawal from the EU is unprecedented, and it is unclear how the U.K.’s
access to the European single market for goods, capital, services and labor within the EU and the wider commercial, legal
and regulatory environment, will impact our U.K. operations.
In addition, Brexit could lead to legal uncertainty and increased complexity as national laws and regulations in the
U.K. start to diverge from EU laws and regulations. In particular, depending on the terms of Brexit, we may face new
regulatory costs and challenges, including the following:
•
if we are unable to utilize appropriate authorizations and regulator permissions, our U.K. and EU-based operations
could lose their ability to offer services on a cross-border basis into the U.K. market and for our U.K. based
operations to offer services on a cross-border basis in the EU market;
• we could be required to obtain additional regulatory permissions to operate in the U.K. and EU market, adding
costs and potential inconsistency to our business (and, depending on the capacity of the U.K. authorities, the
criteria for obtaining permission, and any possible transitional arrangements, there is a risk that our business in the
U.K. could be materially affected or disrupted);
• we could be required to comply with regulatory requirements in the U.K. that are in addition to, or inconsistent
with, the regulatory requirements of the EU, leading to increased complexity and costs for our EU and U.K.
operations; and
•
our ability to attract and retain the necessary human resources in appropriate locations to support the U.K.
business and the EU business could be adversely impacted.
These and other factors related to Brexit could, individually or in the aggregate, have a material adverse impact on
our business, financial condition, and results of operations.
New laws, regulations and enforcement activities could negatively impact our business and the markets we presently
operate in or could limit our expansion opportunities.
Our operations are subject to substantial regulation both domestically and internationally. There are often new
regulatory efforts which could result in significant constraints and may impact our operations. These existing and emerging
regulations can make the expansion of our business very difficult and negatively impact our revenue. Among the regulations
that impact us or could impact us are those governing: interchange rates; interest rate and fee restrictions; credit access and
disclosure requirements; collection and pricing requirements; compliance obligations; data security and data breach
requirements; identity theft avoidance programs; health care mandates; the cost and scope of public and private health
insurance coverage; and, anti-money laundering compliance programs. We also often must obtain permission from
government regulators to conduct business in new locations or in connection with the transfer of licenses for businesses that
we acquire. Changes to these regulations, including expansion of consumer-oriented regulation to business-to-business
transactions, could negatively impact our operations, financial condition and results of operations and could further increase
our compliance costs and limit our ability to expand to new markets.
We also conduct business with other highly regulated businesses such as banks, payment card issuers, and health
insurance providers. These industries are subject to significant potential reforms that could negatively affect these
businesses, their ability to maintain or expand their products and services, and the costs associated with doing so. These
developments could also negatively impact our business.
Laws or regulations developed in one jurisdiction or for one product could result in new laws or regulations in other
jurisdictions or for other products.
Regulators often monitor other approaches to the governance of the payment industry. As a result, a law or
regulation enacted in one jurisdiction could result in similar developments in another. In addition, law and regulation
involving one product could influence the extension of regulations to other product offerings.
The expansion of certain regulations could negatively impact our business in other geographies or for other
products. Rules and regulations concerning interchange and business operations regulations, for example, may differ from
country to country which adds complexity and expense to our operations.
These varying and increasingly complex regulations could limit our ability to globalize our products and could
significantly and adversely affect our business, financial condition and results of operations.
Regulations and industry standards intended to protect or limit access to personal information could adversely affect
our ability to effectively provide our services.
Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and
regulations restricting the transfer of, and requiring safeguarding of, non-public personal information. For example, in the
United States, all financial institutions must undertake certain steps to ensure the privacy and security of consumer financial
information, and the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020, imposes
additional restriction on the collection, processing and disclosure of personally-identifiable data, including imposing
increased penalties on data privacy incidents. In Europe, the adoption of General Data Protection Regulation (commonly
referred to as GDPR) also requires additional privacy protections and extends the scope of the EU data protection laws to all
companies processing data of EU residents, regardless of the company’s location. In connection with providing services to
our clients, we are required by regulations and arrangements with payment networks and certain clients to provide
assurances regarding the confidentiality and security of non-public consumer information. These arrangements require
periodic audits by independent companies regarding our compliance with industry standards such as payment card industry,
or PCI, standards and also allow for similar audits regarding best practices established by regulatory guidelines. The
compliance standards relate to our infrastructure and operational procedures designed to safeguard the confidentiality and
security of non-public consumer personal information received from our customers. Our ability to maintain compliance with
these standards and satisfy these audits will affect our ability to attract and maintain business in the future. If we fail to
comply with these regulations, we could be exposed to suits for breach of contract or to governmental proceedings. In
addition, our client relationships and reputation could be harmed, and we could be inhibited in our ability to obtain new
clients. If more restrictive privacy laws or rules are adopted by authorities in the future on the federal or state level, our
compliance costs may increase, our opportunities for growth may be curtailed by our compliance capabilities or reputational
harm and our potential liability for security and data privacy breaches may increase, all of which could have a material
adverse effect on our business, financial condition and results of operations.
Changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax
liabilities could affect our future results.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a
worldwide basis. Our future effective tax rates could be affected by changes in the mix of earnings in countries with
differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their
interpretation. Any of these changes could have a material adverse effect on our profitability. For example, the 2017 Tax Act
enacted in December 2017 had a significant impact on our tax obligation and effective tax rate for the fourth quarter of
2017. We are also subject to the examination of our income tax returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for taxes. There can be no assurance that the outcomes from these examinations will not
materially adversely affect our financial condition and operating results.
We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the
potential tax consequences of investing in or holding our common stock.
25
26
We cannot assure you that our investments outside the United States will produce desired levels of revenue or
costs, or that one or more of the factors listed above will not harm our business.
The United Kingdom’s departure from the EU, or Brexit, could adversely affect us.
During June 2016, the U.K. held a referendum in which voters approved an exit from the EU, commonly referred
to as Brexit. On January 24, 2020, the U.K. Parliament approved a withdrawal agreement (the “Withdrawal Agreement”)
between the U.K. and the EU. On January 31, 2020, the U.K. exited the European Union and under the Withdrawal
Agreement, the U.K. is subject to an eleven-month transition period (the “Transition Period”) by which to leave the single
market and customs union.
The uncertainty concerning the U.K.’s legal, political and economic relationship with the EU after the Transition
Period could contribute to instability in global financial and foreign exchange markets, including volatility in the value of
the British Pound Sterling and Euro, which in turn could adversely affect us or our customers and companies that do
business with us. Such uncertainties could also trigger a general deterioration in credit conditions, a downturn in consumer
sentiment and overall negative economic growth. Any of these scenarios could have an adverse effect on our business or our
customers.
If the U.K. and the EU are unable to negotiate acceptable trading and customs terms, barrier-free access between
the U.K. and other EU member states could be diminished or eliminated. The long-term effects of Brexit will depend on any
agreements (or lack thereof) between the U.K. and the EU and, in particular, any arrangements for the U.K. to retain access
to EU markets after the Transition Period. Such a withdrawal from the EU is unprecedented, and it is unclear how the U.K.’s
access to the European single market for goods, capital, services and labor within the EU and the wider commercial, legal
and regulatory environment, will impact our U.K. operations.
In addition, Brexit could lead to legal uncertainty and increased complexity as national laws and regulations in the
U.K. start to diverge from EU laws and regulations. In particular, depending on the terms of Brexit, we may face new
regulatory costs and challenges, including the following:
•
•
if we are unable to utilize appropriate authorizations and regulator permissions, our U.K. and EU-based operations
could lose their ability to offer services on a cross-border basis into the U.K. market and for our U.K. based
operations to offer services on a cross-border basis in the EU market;
• we could be required to obtain additional regulatory permissions to operate in the U.K. and EU market, adding
costs and potential inconsistency to our business (and, depending on the capacity of the U.K. authorities, the
criteria for obtaining permission, and any possible transitional arrangements, there is a risk that our business in the
U.K. could be materially affected or disrupted);
• we could be required to comply with regulatory requirements in the U.K. that are in addition to, or inconsistent
with, the regulatory requirements of the EU, leading to increased complexity and costs for our EU and U.K.
operations; and
our ability to attract and retain the necessary human resources in appropriate locations to support the U.K.
business and the EU business could be adversely impacted.
These and other factors related to Brexit could, individually or in the aggregate, have a material adverse impact on
our business, financial condition, and results of operations.
New laws, regulations and enforcement activities could negatively impact our business and the markets we presently
operate in or could limit our expansion opportunities.
Our operations are subject to substantial regulation both domestically and internationally. There are often new
regulatory efforts which could result in significant constraints and may impact our operations. These existing and emerging
regulations can make the expansion of our business very difficult and negatively impact our revenue. Among the regulations
that impact us or could impact us are those governing: interchange rates; interest rate and fee restrictions; credit access and
disclosure requirements; collection and pricing requirements; compliance obligations; data security and data breach
requirements; identity theft avoidance programs; health care mandates; the cost and scope of public and private health
insurance coverage; and, anti-money laundering compliance programs. We also often must obtain permission from
government regulators to conduct business in new locations or in connection with the transfer of licenses for businesses that
we acquire. Changes to these regulations, including expansion of consumer-oriented regulation to business-to-business
transactions, could negatively impact our operations, financial condition and results of operations and could further increase
our compliance costs and limit our ability to expand to new markets.
We also conduct business with other highly regulated businesses such as banks, payment card issuers, and health
insurance providers. These industries are subject to significant potential reforms that could negatively affect these
businesses, their ability to maintain or expand their products and services, and the costs associated with doing so. These
developments could also negatively impact our business.
Laws or regulations developed in one jurisdiction or for one product could result in new laws or regulations in other
jurisdictions or for other products.
Regulators often monitor other approaches to the governance of the payment industry. As a result, a law or
regulation enacted in one jurisdiction could result in similar developments in another. In addition, law and regulation
involving one product could influence the extension of regulations to other product offerings.
The expansion of certain regulations could negatively impact our business in other geographies or for other
products. Rules and regulations concerning interchange and business operations regulations, for example, may differ from
country to country which adds complexity and expense to our operations.
These varying and increasingly complex regulations could limit our ability to globalize our products and could
significantly and adversely affect our business, financial condition and results of operations.
Regulations and industry standards intended to protect or limit access to personal information could adversely affect
our ability to effectively provide our services.
Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and
regulations restricting the transfer of, and requiring safeguarding of, non-public personal information. For example, in the
United States, all financial institutions must undertake certain steps to ensure the privacy and security of consumer financial
information, and the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020, imposes
additional restriction on the collection, processing and disclosure of personally-identifiable data, including imposing
increased penalties on data privacy incidents. In Europe, the adoption of General Data Protection Regulation (commonly
referred to as GDPR) also requires additional privacy protections and extends the scope of the EU data protection laws to all
companies processing data of EU residents, regardless of the company’s location. In connection with providing services to
our clients, we are required by regulations and arrangements with payment networks and certain clients to provide
assurances regarding the confidentiality and security of non-public consumer information. These arrangements require
periodic audits by independent companies regarding our compliance with industry standards such as payment card industry,
or PCI, standards and also allow for similar audits regarding best practices established by regulatory guidelines. The
compliance standards relate to our infrastructure and operational procedures designed to safeguard the confidentiality and
security of non-public consumer personal information received from our customers. Our ability to maintain compliance with
these standards and satisfy these audits will affect our ability to attract and maintain business in the future. If we fail to
comply with these regulations, we could be exposed to suits for breach of contract or to governmental proceedings. In
addition, our client relationships and reputation could be harmed, and we could be inhibited in our ability to obtain new
clients. If more restrictive privacy laws or rules are adopted by authorities in the future on the federal or state level, our
compliance costs may increase, our opportunities for growth may be curtailed by our compliance capabilities or reputational
harm and our potential liability for security and data privacy breaches may increase, all of which could have a material
adverse effect on our business, financial condition and results of operations.
Changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax
liabilities could affect our future results.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a
worldwide basis. Our future effective tax rates could be affected by changes in the mix of earnings in countries with
differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their
interpretation. Any of these changes could have a material adverse effect on our profitability. For example, the 2017 Tax Act
enacted in December 2017 had a significant impact on our tax obligation and effective tax rate for the fourth quarter of
2017. We are also subject to the examination of our income tax returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for taxes. There can be no assurance that the outcomes from these examinations will not
materially adversely affect our financial condition and operating results.
We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the
potential tax consequences of investing in or holding our common stock.
25
26
The healthcare industry changes often and technology-enabled services used by consumers are relatively new and
unproven.
The market for technology-enabled services for healthcare consumers changes rapidly and new products and
services are consistently being introduced. Opportunities to gain market share are challenging due to the significant
resources of our existing and potential competitors. It is uncertain whether or how fast this market will continue to grow. In
order to remain competitive, we are continually involved in a number of projects to develop new services or compete with
these new market entrants, including the development of mobile versions of our proprietary technology platform. These
projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of acceptance by our
customers.
Based on our experience, consumers are still learning about HSAs and other similar tax-advantaged healthcare
savings arrangements. The willingness of consumers to increase their use of technology platforms to manage their
healthcare saving and spending tax advantaged benefits will impact our operating results.
We may incur impairment charges on goodwill or other intangible assets.
Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer
periodically from downturns in customer demand and other factors, the high level of competition existing within our
industry, and the level of overall economic activity. Individual reporting units may be relatively more impacted by these
factors than the Company as a whole. As a result, demand for the services of one or more of the reporting units could
decline, which could adversely affect our operations and cash flow, and could result in an impairment of goodwill. Our
reporting units are tested annually during the fourth fiscal quarter of each year, or on an interim basis if impairment
indicators exist in order to determine whether their carrying value exceeds their fair value. We use a combination of
discounted cash flow analyses and comparable company pricing multiples to determine the fair value of our reporting units
and to determine the amount of any goodwill impairment. In addition, our definite-lived intangible assets are tested for
impairment if an event occurs or circumstances change that would indicate the carrying value may not be recoverable.
If we determine the fair value of the reporting units is less than their carrying value as a result of the annual or
interim goodwill tests, or the carrying value of our definite-lived intangible asset exceeds the undiscounted cash flows
generated from the use of the asset, an impairment loss may be recognized. Any such write-down would adversely affect our
results of operations.
While we currently believe that the fair value of our reporting units substantially exceeds carrying value and that
our goodwill will contribute indefinitely to the cash flows of the Company, materially different assumptions regarding future
performance of our reporting units and the weighted-average cost of capital used in the annual valuation could result in
impairment losses. In addition, while we believe that the expected future cash flows to the Company resulting from the use
of our definite-lived intangible assets far exceeds the carrying value of such assets, material changes in business strategy,
customer attrition in excess of expectations, and technological obsolescence could result in impairment losses and/or an
acceleration of amortization expense.
If our industrial bank subsidiary fails to meet certain criteria, we may become subject to regulation under the Bank
Holding Company Act, which could force us to divest WEX Bank or cease all of our non-banking activities, which
could have an adverse effect on our revenue and business or could create a default under our 2016 Credit Agreement.
WEX Bank meets the criteria for exemption of an industrial bank from the definition of “bank” under the Bank
Holding Company Act. WEX Bank’s failure to qualify for this exemption would cause us to become subject to regulation
under the Bank Holding Company Act. This would require us to divest WEX Bank or become a Bank Holding Company
and to possibly cease certain non-banking activities which may be impermissible for a Bank Holding Company, and could
create a default under our 2016 Credit Agreement. Failure to qualify for this exemption could thus have an adverse effect on
our revenue and business.
The loss or suspension of the charter for our Utah industrial bank or changes in regulatory requirements could be
disruptive to operations and increase costs.
The regulatory status of WEX Bank enables it to issue certificates of deposit, accept money market deposits and
borrow on federal funds lines of credit from other banks. These funds are used to support our operations. WEX Bank
operates under a uniform set of state lending laws, and its operations are subject to extensive state and federal regulation.
WEX Bank, a Utah industrial bank incorporated in 1998, is an FDIC-insured depository institution. The bank’s primary
regulators are the Utah DFI and the FDIC. Continued licensing and federal deposit insurance are subject to ongoing
satisfaction of compliance and safety and soundness requirements. If WEX Bank were to lose its bank charter, we would
either outsource our credit support activities or perform these activities ourselves, which would subject us to the credit laws
of each individual state in which we conduct business. Furthermore, we could not be a MasterCard and/or Visa issuer and
would have to work with another financial institution to issue the product or sell the portfolio. Any such change would be
disruptive to our operations and could result in significant incremental costs. In addition, changes in the bank regulatory
environment, including the implementation of new or varying measures or interpretations by the State of Utah or the federal
government, may significantly affect or restrict the manner in which we conduct business in the future or could create a
default under our 2016 Credit Agreement.
We are subject to extensive supervision and regulation that could restrict our activities and impose financial
requirements or limitations on the conduct of our business and limit our ability to generate income.
We are subject to extensive federal and state regulation and supervision, including that of the FDIC, the CFPB, and
the Utah DFI. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and
the banking system as a whole, not shareholders or noteholders. These regulations affect our payment operations, capital
structure, investment practices, dividend policy and growth, among other things. Failure to comply with laws, regulations or
policies could result in sanctions by regulatory agencies, damages, civil money penalties or reputational damage, which
could have a material adverse effect on our business, financial condition and results of operations. While we have policies
and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. The
U.S. Congress and federal regulatory agencies frequently revise banking and securities laws, regulations and policies. We
cannot predict whether or in what form any other proposed regulations or statutes will be adopted or the extent to which our
business may be affected by any new regulation or statute. Such changes could subject our business to additional costs, limit
the types of financial services and products we may offer and increase the ability of non-banks to offer competing financial
services and products, among other things.
Our industrial bank subsidiary is subject to regulatory capital requirements that may require us to make capital
contributions to this subsidiary, and that may restrict the ability of the subsidiary to make cash available to us.
WEX Bank must maintain minimum amounts of regulatory capital. If WEX Bank does not meet these capital
requirements, its regulators have broad discretion to institute a number of corrective actions that could have a direct material
effect on our financial condition. WEX Bank, as an institution insured by the FDIC, must maintain certain capital ratios,
paid-in capital minimums and adequate allowances for loan losses. Under the Dodd-Frank Act, we are also required to serve
as a source of financial strength for WEX Bank. If WEX Bank were to fail to meet any of the capital requirements to which
it is subject, or if required under Dodd-Frank’s source of strength requirements, we may be forced to provide WEX Bank
with additional capital, which could impair our ability to service our indebtedness or may not be permitted under the terms
of our 2016 Credit Agreement or Notes. To pay any dividend, WEX Bank must maintain adequate capital above regulatory
guidelines. Accordingly, WEX Bank may be unable to make any of its cash or other assets available to us, including to
service our indebtedness.
We are subject to limitations on transactions with our industrial bank subsidiary, which may limit our ability to
engage in transactions with and obtain credit from our industrial bank.
Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which we can borrow or
otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. “Covered transactions” include
loans or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an
agreement to repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a
guarantee, acceptance, or letter of credit. Although the applicable rules do not serve as an outright ban on engaging in
“covered transactions,” they do limit the amount of covered transactions WEX Bank may have with any one affiliate and
with all affiliates in the aggregate. The applicable rules also require that we engage in such transactions with WEX Bank
only on terms and under circumstances that are substantially the same, or at least as favorable to WEX Bank, as those
prevailing at the time for comparable transactions with nonaffiliated companies. Furthermore, with certain exceptions, each
loan or extension of credit by WEX Bank to the Company or its other affiliates must be secured by collateral with a market
value ranging from 100 percent to 130 percent of the amount of the loan or extension of credit, depending on the type of
collateral. Accordingly, WEX Bank may be unable to provide credit or engage in transactions with us, including transactions
intended to help us service our indebtedness.
If the technologies we use in operating our business and interacting with our customers fail, are unavailable, or do
not operate to expectations, or we fail to successfully implement technology strategies and capabilities in connection
with our outsourcing arrangements, our business and results of operation could be adversely impacted.
We utilize a combination of proprietary and third-party technologies, including third-party owned and operated
“cloud” technologies or third-party managed technology platforms and processing systems, to conduct our business and
27
28
The healthcare industry changes often and technology-enabled services used by consumers are relatively new and
The market for technology-enabled services for healthcare consumers changes rapidly and new products and
services are consistently being introduced. Opportunities to gain market share are challenging due to the significant
resources of our existing and potential competitors. It is uncertain whether or how fast this market will continue to grow. In
order to remain competitive, we are continually involved in a number of projects to develop new services or compete with
these new market entrants, including the development of mobile versions of our proprietary technology platform. These
projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of acceptance by our
unproven.
customers.
Based on our experience, consumers are still learning about HSAs and other similar tax-advantaged healthcare
savings arrangements. The willingness of consumers to increase their use of technology platforms to manage their
healthcare saving and spending tax advantaged benefits will impact our operating results.
We may incur impairment charges on goodwill or other intangible assets.
Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer
periodically from downturns in customer demand and other factors, the high level of competition existing within our
industry, and the level of overall economic activity. Individual reporting units may be relatively more impacted by these
factors than the Company as a whole. As a result, demand for the services of one or more of the reporting units could
decline, which could adversely affect our operations and cash flow, and could result in an impairment of goodwill. Our
reporting units are tested annually during the fourth fiscal quarter of each year, or on an interim basis if impairment
indicators exist in order to determine whether their carrying value exceeds their fair value. We use a combination of
discounted cash flow analyses and comparable company pricing multiples to determine the fair value of our reporting units
and to determine the amount of any goodwill impairment. In addition, our definite-lived intangible assets are tested for
impairment if an event occurs or circumstances change that would indicate the carrying value may not be recoverable.
If we determine the fair value of the reporting units is less than their carrying value as a result of the annual or
interim goodwill tests, or the carrying value of our definite-lived intangible asset exceeds the undiscounted cash flows
generated from the use of the asset, an impairment loss may be recognized. Any such write-down would adversely affect our
results of operations.
While we currently believe that the fair value of our reporting units substantially exceeds carrying value and that
our goodwill will contribute indefinitely to the cash flows of the Company, materially different assumptions regarding future
performance of our reporting units and the weighted-average cost of capital used in the annual valuation could result in
impairment losses. In addition, while we believe that the expected future cash flows to the Company resulting from the use
of our definite-lived intangible assets far exceeds the carrying value of such assets, material changes in business strategy,
customer attrition in excess of expectations, and technological obsolescence could result in impairment losses and/or an
acceleration of amortization expense.
If our industrial bank subsidiary fails to meet certain criteria, we may become subject to regulation under the Bank
Holding Company Act, which could force us to divest WEX Bank or cease all of our non-banking activities, which
could have an adverse effect on our revenue and business or could create a default under our 2016 Credit Agreement.
WEX Bank meets the criteria for exemption of an industrial bank from the definition of “bank” under the Bank
Holding Company Act. WEX Bank’s failure to qualify for this exemption would cause us to become subject to regulation
under the Bank Holding Company Act. This would require us to divest WEX Bank or become a Bank Holding Company
and to possibly cease certain non-banking activities which may be impermissible for a Bank Holding Company, and could
create a default under our 2016 Credit Agreement. Failure to qualify for this exemption could thus have an adverse effect on
our revenue and business.
The loss or suspension of the charter for our Utah industrial bank or changes in regulatory requirements could be
disruptive to operations and increase costs.
The regulatory status of WEX Bank enables it to issue certificates of deposit, accept money market deposits and
borrow on federal funds lines of credit from other banks. These funds are used to support our operations. WEX Bank
operates under a uniform set of state lending laws, and its operations are subject to extensive state and federal regulation.
WEX Bank, a Utah industrial bank incorporated in 1998, is an FDIC-insured depository institution. The bank’s primary
regulators are the Utah DFI and the FDIC. Continued licensing and federal deposit insurance are subject to ongoing
satisfaction of compliance and safety and soundness requirements. If WEX Bank were to lose its bank charter, we would
27
either outsource our credit support activities or perform these activities ourselves, which would subject us to the credit laws
of each individual state in which we conduct business. Furthermore, we could not be a MasterCard and/or Visa issuer and
would have to work with another financial institution to issue the product or sell the portfolio. Any such change would be
disruptive to our operations and could result in significant incremental costs. In addition, changes in the bank regulatory
environment, including the implementation of new or varying measures or interpretations by the State of Utah or the federal
government, may significantly affect or restrict the manner in which we conduct business in the future or could create a
default under our 2016 Credit Agreement.
We are subject to extensive supervision and regulation that could restrict our activities and impose financial
requirements or limitations on the conduct of our business and limit our ability to generate income.
We are subject to extensive federal and state regulation and supervision, including that of the FDIC, the CFPB, and
the Utah DFI. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and
the banking system as a whole, not shareholders or noteholders. These regulations affect our payment operations, capital
structure, investment practices, dividend policy and growth, among other things. Failure to comply with laws, regulations or
policies could result in sanctions by regulatory agencies, damages, civil money penalties or reputational damage, which
could have a material adverse effect on our business, financial condition and results of operations. While we have policies
and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. The
U.S. Congress and federal regulatory agencies frequently revise banking and securities laws, regulations and policies. We
cannot predict whether or in what form any other proposed regulations or statutes will be adopted or the extent to which our
business may be affected by any new regulation or statute. Such changes could subject our business to additional costs, limit
the types of financial services and products we may offer and increase the ability of non-banks to offer competing financial
services and products, among other things.
Our industrial bank subsidiary is subject to regulatory capital requirements that may require us to make capital
contributions to this subsidiary, and that may restrict the ability of the subsidiary to make cash available to us.
WEX Bank must maintain minimum amounts of regulatory capital. If WEX Bank does not meet these capital
requirements, its regulators have broad discretion to institute a number of corrective actions that could have a direct material
effect on our financial condition. WEX Bank, as an institution insured by the FDIC, must maintain certain capital ratios,
paid-in capital minimums and adequate allowances for loan losses. Under the Dodd-Frank Act, we are also required to serve
as a source of financial strength for WEX Bank. If WEX Bank were to fail to meet any of the capital requirements to which
it is subject, or if required under Dodd-Frank’s source of strength requirements, we may be forced to provide WEX Bank
with additional capital, which could impair our ability to service our indebtedness or may not be permitted under the terms
of our 2016 Credit Agreement or Notes. To pay any dividend, WEX Bank must maintain adequate capital above regulatory
guidelines. Accordingly, WEX Bank may be unable to make any of its cash or other assets available to us, including to
service our indebtedness.
We are subject to limitations on transactions with our industrial bank subsidiary, which may limit our ability to
engage in transactions with and obtain credit from our industrial bank.
Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which we can borrow or
otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. “Covered transactions” include
loans or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an
agreement to repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a
guarantee, acceptance, or letter of credit. Although the applicable rules do not serve as an outright ban on engaging in
“covered transactions,” they do limit the amount of covered transactions WEX Bank may have with any one affiliate and
with all affiliates in the aggregate. The applicable rules also require that we engage in such transactions with WEX Bank
only on terms and under circumstances that are substantially the same, or at least as favorable to WEX Bank, as those
prevailing at the time for comparable transactions with nonaffiliated companies. Furthermore, with certain exceptions, each
loan or extension of credit by WEX Bank to the Company or its other affiliates must be secured by collateral with a market
value ranging from 100 percent to 130 percent of the amount of the loan or extension of credit, depending on the type of
collateral. Accordingly, WEX Bank may be unable to provide credit or engage in transactions with us, including transactions
intended to help us service our indebtedness.
If the technologies we use in operating our business and interacting with our customers fail, are unavailable, or do
not operate to expectations, or we fail to successfully implement technology strategies and capabilities in connection
with our outsourcing arrangements, our business and results of operation could be adversely impacted.
We utilize a combination of proprietary and third-party technologies, including third-party owned and operated
“cloud” technologies or third-party managed technology platforms and processing systems, to conduct our business and
28
interact with our customers, partners and suppliers, among others. This includes technology that we have developed, have
contracted with others to develop, have outsourced to a single provider to operate or have obtained through third-parties by
way of service agreements. To the extent that our proprietary technology or a third-party providers’ technology does not
work as agreed to or as expected, or if we experience outages or unavailability resulting from their operations and the
services they provide to us, our ability to efficiently and effectively deliver services could be adversely impacted and our
business and results of operations could be adversely affected. Similarly, any failure by our customers or partners to access
the technology that we develop internally could have an adverse effect on our business, results of operations and financial
condition. Although we make substantial investments in technology, there is no guarantee that it will function as intended
once it is placed into operation. Lastly, given our reliance on technology, we regularly assess our technology plans,
including both platforms and technology infrastructure. To the extent that we conclude that certain technologies should be
retired, that existing platforms should be consolidated, or that we should change our technology strategies, we may be
required to impair or accelerate depreciation on certain assets. Any of these potential changes or failures in our technology
strategies may also divert management’s attention and have a material adverse effect on our business and results of
operations.
Our business is regularly subject to cyberattacks and attempted security and privacy breaches and we may not be
able to adequately protect our information systems, including the data we collect about our customers, which could
subject us to liability and damage our reputation.
We collect and store data about our customers and their fleets, including bank account information and spending
data. Our customers expect us to keep this information in our confidence. In certain instances, the information we collect
includes social security numbers. As a result of applicable laws, we are required to take commercially reasonable measures
to prevent and mitigate the impact of cyberattacks, as well as the unauthorized access, acquisition, release and use of
“personally identifiable information,” such as social security numbers. While social security numbers constitute a very small
part of the data we keep, in the event of a security breach we would be required to determine the types of information
compromised and determine corrective actions and next steps under applicable laws, which would require us to expend
capital and other resources to address the security breach and protect against future breaches. An increasing number of
organizations, including large on-line and off-line merchants and businesses, large Internet companies, financial institutions,
and government institutions, have disclosed breaches of their information security systems, some of which have involved
sophisticated and highly targeted attacks, including on portions of their websites or infrastructure. Like those companies,
we too, are subject to regular and repeated attempts to breach our information security protections.
As outsourcing, specialization of functions, third-party digital services and technology innovation within the
payments industry increase (including with respect to mobile technologies, tokenization, big data and cloud storage
solutions), more third parties are involved in processing card transactions and there is a risk the confidentiality, integrity,
privacy and/or security of data held by, or accessible to, third parties, including merchants that accept our cards, payment
processors and our business partners, may be compromised, which could lead to unauthorized transactions on our cards and
costs associated with responding to such an incident. In addition, high profile data breaches could change consumer
behaviors, impact our ability to access data to make product offers and credit decisions and result in legislation and
additional regulatory requirements.
The techniques used in attempts to obtain unauthorized, improper or illegal access to our systems, our data or our
customers’ data, to degrade service, or to sabotage our systems are constantly evolving, are difficult to detect quickly, and
may not be recognized until after a successful penetration of our information security systems. Unauthorized parties attempt
to gain access to our systems or facilities through various means, including, among others, targeting our systems or facilities
or our third-party vendors or customers, or attempting to fraudulently induce our employees, partners, customers or others
into disclosing user names, passwords, payment card information, or other sensitive information, which may in turn be used
to access our information technology systems. Certain efforts may be state-sponsored and supported by significant financial
and technological resources, making them even more difficult to detect. Like many companies, we are a target for such
breaches and attacks. Although we have developed systems and processes that are designed to protect our data and customer
data and to prevent data loss and other security breaches, and will continue to expend significant additional resources to
bolster these protections, these security measures cannot provide absolute security. Our information technology and
infrastructure may be vulnerable to successful cyberattacks or security breaches, and third parties may be able to access our
customers’ personal or proprietary information and data that are stored on or accessible through those systems.
Our security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities,
or other irregularities. Any actual or perceived breach of our security could interrupt our operations; result in our systems or
services being unavailable; result in improper disclosure of data; materially harm our reputation and brand; result in
significant legal and financial exposure; lead to loss of customer confidence in, or decreased use of, our products and
services; and, adversely affect our business and results of operations. Any breaches of network or data security at our
partners, some of whom maintain information about our customers, or breaches of our customers’ systems could have
similar effects. In addition, our customers could have vulnerabilities on their own computer systems that are entirely
unrelated to our systems, but could mistakenly attribute their own vulnerabilities to us. While we take commercially
appropriate steps to safeguard data used by and contained on the systems of our partners, customers and vendors, we cannot
control all access to those systems and they are therefore subject to potential cyberattacks and fraud.
Furthermore, as we have increased the number of platforms as well as the size of our networks and information
systems, our reliance on these technologies have become increasingly important to our operating activities. The potential
negative impact that a platform, network or information system shutdown may have on our operating activities has
increased. Shutdowns may be caused by cyberattacks and unexpected catastrophic events such as natural disasters or other
unforeseen events, such as software or hardware defects or cyber-attacks by groups or individuals.
Under the Financial Services Modernization Act of 1999, also referred to as the Gramm-Leach-Bliley Act or
GLBA, and some state laws, we and WEX Bank are required to maintain a comprehensive written information security
program that includes administrative, technical and physical safeguards relating to consumer information. This requirement
generally does not extend to information about companies or about individuals who obtain financial products or services for
business, commercial, or agricultural purposes.
The GLBA also requires us and WEX Bank to provide initial and annual privacy notices to customers that describe
in general terms our information sharing practices. If we or WEX Bank intend to share nonpublic personal information
about consumers with affiliates and/or nonaffiliated third parties, we and WEX Bank must provide customers with a notice
and a reasonable period of time for each customer to “opt out” of any such disclosure. In addition to U.S. federal privacy
laws with which we must comply, states also have adopted statutes, regulations and other measures governing the collection
and distribution of nonpublic personal information about customers. In some cases, these state measures are preempted by
federal law, but if not, we and WEX Bank must monitor and seek to comply with individual state privacy laws in the
conduct of our businesses.
When we handle individually identifiable health information, regulations issued under Health Insurance Portability
and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act,
or HITECH Act, our contracts with our customers, and supplemental state laws require us to implement privacy and data
security measures and to comply with breach notification requirements. We may be subject to contractual damages and civil
or criminal penalties if we are found to violate these privacy, security and breach notification requirements.
Our efforts to comply with existing and future health and financial data laws and regulations, both in the U.S. and
abroad, is costly and time-consuming. Incidents involving our handling of this protected and sensitive information may
consume significant financial and managerial resources and may damage our reputation, which may discourage customers
from using, renewing, or expanding their use of our services.
Any security breach, inadvertent transmission of information about our customers, failure to comply with
applicable breach notification and reporting requirements, or any violation of international, federal or state privacy laws
could expose us to liability in excess of any applicable insurance policies, litigation, regulatory scrutiny, and/or cause
damage to our reputation. We may also be required to expend significant resources to implement additional data protection
measures or to modify the features and functionality of our system offerings in a way that is less attractive to customers.
Our failure to effectively implement new technology could jeopardize our position as a leader in our industry.
As a provider of information management and payment processing services, we must constantly adapt and respond
to the technological advances offered by our competitors and the informational requirements of our customers, including
those related to the Internet, in order to maintain and improve upon our competitive position. We may not be able to expand
our technological capabilities and service offerings as rapidly as our competitors, which could jeopardize our position as a
leader in our industry.
We are dependent on technology systems and electronic communications networks managed by third parties, which
could result in our inability to prevent service disruptions.
Our ability to process and authorize transactions electronically depends on our ability to electronically
communicate with our fuel and vehicle maintenance providers through point-of-sale devices and electronic networks that
are owned and operated by third parties. The electronic communications networks upon which we depend are often subject
to disruptions of various magnitudes and durations. Any severe disruption of one or more of these networks could impair our
ability to authorize transactions or collect information about such transactions, which, in turn, could harm our reputation for
29
30
interact with our customers, partners and suppliers, among others. This includes technology that we have developed, have
contracted with others to develop, have outsourced to a single provider to operate or have obtained through third-parties by
way of service agreements. To the extent that our proprietary technology or a third-party providers’ technology does not
work as agreed to or as expected, or if we experience outages or unavailability resulting from their operations and the
services they provide to us, our ability to efficiently and effectively deliver services could be adversely impacted and our
business and results of operations could be adversely affected. Similarly, any failure by our customers or partners to access
the technology that we develop internally could have an adverse effect on our business, results of operations and financial
condition. Although we make substantial investments in technology, there is no guarantee that it will function as intended
once it is placed into operation. Lastly, given our reliance on technology, we regularly assess our technology plans,
including both platforms and technology infrastructure. To the extent that we conclude that certain technologies should be
retired, that existing platforms should be consolidated, or that we should change our technology strategies, we may be
required to impair or accelerate depreciation on certain assets. Any of these potential changes or failures in our technology
strategies may also divert management’s attention and have a material adverse effect on our business and results of
operations.
Our business is regularly subject to cyberattacks and attempted security and privacy breaches and we may not be
able to adequately protect our information systems, including the data we collect about our customers, which could
subject us to liability and damage our reputation.
We collect and store data about our customers and their fleets, including bank account information and spending
data. Our customers expect us to keep this information in our confidence. In certain instances, the information we collect
includes social security numbers. As a result of applicable laws, we are required to take commercially reasonable measures
to prevent and mitigate the impact of cyberattacks, as well as the unauthorized access, acquisition, release and use of
“personally identifiable information,” such as social security numbers. While social security numbers constitute a very small
part of the data we keep, in the event of a security breach we would be required to determine the types of information
compromised and determine corrective actions and next steps under applicable laws, which would require us to expend
capital and other resources to address the security breach and protect against future breaches. An increasing number of
organizations, including large on-line and off-line merchants and businesses, large Internet companies, financial institutions,
and government institutions, have disclosed breaches of their information security systems, some of which have involved
sophisticated and highly targeted attacks, including on portions of their websites or infrastructure. Like those companies,
we too, are subject to regular and repeated attempts to breach our information security protections.
As outsourcing, specialization of functions, third-party digital services and technology innovation within the
payments industry increase (including with respect to mobile technologies, tokenization, big data and cloud storage
solutions), more third parties are involved in processing card transactions and there is a risk the confidentiality, integrity,
privacy and/or security of data held by, or accessible to, third parties, including merchants that accept our cards, payment
processors and our business partners, may be compromised, which could lead to unauthorized transactions on our cards and
costs associated with responding to such an incident. In addition, high profile data breaches could change consumer
behaviors, impact our ability to access data to make product offers and credit decisions and result in legislation and
additional regulatory requirements.
The techniques used in attempts to obtain unauthorized, improper or illegal access to our systems, our data or our
customers’ data, to degrade service, or to sabotage our systems are constantly evolving, are difficult to detect quickly, and
may not be recognized until after a successful penetration of our information security systems. Unauthorized parties attempt
to gain access to our systems or facilities through various means, including, among others, targeting our systems or facilities
or our third-party vendors or customers, or attempting to fraudulently induce our employees, partners, customers or others
into disclosing user names, passwords, payment card information, or other sensitive information, which may in turn be used
to access our information technology systems. Certain efforts may be state-sponsored and supported by significant financial
and technological resources, making them even more difficult to detect. Like many companies, we are a target for such
breaches and attacks. Although we have developed systems and processes that are designed to protect our data and customer
data and to prevent data loss and other security breaches, and will continue to expend significant additional resources to
bolster these protections, these security measures cannot provide absolute security. Our information technology and
infrastructure may be vulnerable to successful cyberattacks or security breaches, and third parties may be able to access our
customers’ personal or proprietary information and data that are stored on or accessible through those systems.
Our security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities,
or other irregularities. Any actual or perceived breach of our security could interrupt our operations; result in our systems or
services being unavailable; result in improper disclosure of data; materially harm our reputation and brand; result in
significant legal and financial exposure; lead to loss of customer confidence in, or decreased use of, our products and
services; and, adversely affect our business and results of operations. Any breaches of network or data security at our
partners, some of whom maintain information about our customers, or breaches of our customers’ systems could have
similar effects. In addition, our customers could have vulnerabilities on their own computer systems that are entirely
unrelated to our systems, but could mistakenly attribute their own vulnerabilities to us. While we take commercially
appropriate steps to safeguard data used by and contained on the systems of our partners, customers and vendors, we cannot
control all access to those systems and they are therefore subject to potential cyberattacks and fraud.
Furthermore, as we have increased the number of platforms as well as the size of our networks and information
systems, our reliance on these technologies have become increasingly important to our operating activities. The potential
negative impact that a platform, network or information system shutdown may have on our operating activities has
increased. Shutdowns may be caused by cyberattacks and unexpected catastrophic events such as natural disasters or other
unforeseen events, such as software or hardware defects or cyber-attacks by groups or individuals.
Under the Financial Services Modernization Act of 1999, also referred to as the Gramm-Leach-Bliley Act or
GLBA, and some state laws, we and WEX Bank are required to maintain a comprehensive written information security
program that includes administrative, technical and physical safeguards relating to consumer information. This requirement
generally does not extend to information about companies or about individuals who obtain financial products or services for
business, commercial, or agricultural purposes.
The GLBA also requires us and WEX Bank to provide initial and annual privacy notices to customers that describe
in general terms our information sharing practices. If we or WEX Bank intend to share nonpublic personal information
about consumers with affiliates and/or nonaffiliated third parties, we and WEX Bank must provide customers with a notice
and a reasonable period of time for each customer to “opt out” of any such disclosure. In addition to U.S. federal privacy
laws with which we must comply, states also have adopted statutes, regulations and other measures governing the collection
and distribution of nonpublic personal information about customers. In some cases, these state measures are preempted by
federal law, but if not, we and WEX Bank must monitor and seek to comply with individual state privacy laws in the
conduct of our businesses.
When we handle individually identifiable health information, regulations issued under Health Insurance Portability
and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act,
or HITECH Act, our contracts with our customers, and supplemental state laws require us to implement privacy and data
security measures and to comply with breach notification requirements. We may be subject to contractual damages and civil
or criminal penalties if we are found to violate these privacy, security and breach notification requirements.
Our efforts to comply with existing and future health and financial data laws and regulations, both in the U.S. and
abroad, is costly and time-consuming. Incidents involving our handling of this protected and sensitive information may
consume significant financial and managerial resources and may damage our reputation, which may discourage customers
from using, renewing, or expanding their use of our services.
Any security breach, inadvertent transmission of information about our customers, failure to comply with
applicable breach notification and reporting requirements, or any violation of international, federal or state privacy laws
could expose us to liability in excess of any applicable insurance policies, litigation, regulatory scrutiny, and/or cause
damage to our reputation. We may also be required to expend significant resources to implement additional data protection
measures or to modify the features and functionality of our system offerings in a way that is less attractive to customers.
Our failure to effectively implement new technology could jeopardize our position as a leader in our industry.
As a provider of information management and payment processing services, we must constantly adapt and respond
to the technological advances offered by our competitors and the informational requirements of our customers, including
those related to the Internet, in order to maintain and improve upon our competitive position. We may not be able to expand
our technological capabilities and service offerings as rapidly as our competitors, which could jeopardize our position as a
leader in our industry.
We are dependent on technology systems and electronic communications networks managed by third parties, which
could result in our inability to prevent service disruptions.
Our ability to process and authorize transactions electronically depends on our ability to electronically
communicate with our fuel and vehicle maintenance providers through point-of-sale devices and electronic networks that
are owned and operated by third parties. The electronic communications networks upon which we depend are often subject
to disruptions of various magnitudes and durations. Any severe disruption of one or more of these networks could impair our
ability to authorize transactions or collect information about such transactions, which, in turn, could harm our reputation for
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dependable service and adversely affect our results of operations. In addition, our ability to collect enhanced data relating to
our customers’ purchases may be limited by the use of older point-of-sale devices by fuel and vehicle maintenance
providers. To the extent that fuel and vehicle maintenance providers within our network are slow to adopt advanced point-
of-sale devices, we may not be able to offer the latest services and capabilities that our customers demand.
Unpredictable events, including natural catastrophes or public health crises, dangerous weather conditions,
technology failure, and terrorist attacks in the locations in which we or our customers operate may adversely affect
our ability to conduct business and could impact our results.
Terrorist attacks, power failure, natural disaster (such as the 2019 Australian bushfire crisis) and rapid spread of
infectious disease (such as the 2019 novel coronavirus) could interrupt our operations by causing disruptions in global
markets, economic conditions and travel and tourism, and triggering large-scale technology failures or delays. Events such
as these, if continuing or significant, could impact our operations, financial results and profitability.
Our industry continues to become increasingly competitive, which makes it more challenging for us to maintain
profit margins at historical levels.
We face and expect to continue to face competition in each category of the overall industry from several companies
that seek to offer competing capabilities and services. Historically, we have been able to provide customers with a wide
spectrum of services and capabilities and, therefore, we have not considered price to be the exclusive or even the primary
basis on which we compete. As our competitors have continued to develop their service offerings, it has become
increasingly more challenging for us to compete solely on the basis of superior capabilities, technology, customer
integration or service. In some areas of our business we have been forced to respond to competitive pressures by reducing
our fees. We have seen erosion of our historical profit margins as we encourage existing strategic relationships to sign long-
term contracts. If these trends continue and if competition intensifies, our profitability may be adversely impacted.
While we have traditionally offered our services to several categories of the payments industry, with a focus on
fleet, corporate payments and health in recent years, some of our competitors have successfully garnered significant share in
particular categories of payments. To the extent that our competitors are regarded as leaders in specific categories, they may
have an advantage over us as we attempt to further penetrate these categories.
We also face increased competition in our efforts to enter into new strategic relationships and renew existing
strategic relationships on similar terms.
Compliance with anti-money laundering laws and regulations creates additional compliance costs and reputational
risk.
We must monitor and report unusual or suspicious account activity, as well as transactions involving amounts in
excess of prescribed limits, as required by the Bank Secrecy Act and Internal Revenue Service regulations and other
regulations. The USA PATRIOT Act of 2001 imposes significant anti-money laundering compliance and due diligence
obligations on financial institutions, including WEX Bank. Financial regulators have issued various implementing
regulations and have made enforcement a top priority. Failure to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could result in the
imposition of fines or penalties and other serious legal and reputational consequences which may impact our financial
results.
Evolution and expansion of our business may subject us to additional regulatory requirements and other risks, for
which failure to comply or adapt could harm our operating results.
The evolution and expansion of our business may subject us to additional risks and regulatory requirements,
including laws governing money transmission and payment processing services. These requirements vary throughout the
markets in which we operate, and have increased over time as the geographic scope and complexity of our payments product
services have expanded. While we maintain a compliance program focused on applicable laws and regulations throughout
the payments industry, there is no guarantee that we will not be subject to fines, criminal and civil lawsuits or other
regulatory enforcement actions in one or more jurisdictions, or be required to adjust business practices to accommodate
future regulatory requirements.
In order to maintain flexibility in the growth and expansion of our payments operations, we have registered as a
money service business with FinCEN and have obtained money transmitter licenses (or their equivalents) in most states and
expect to continue the license application process in additional jurisdictions throughout the United States as needed to
accommodate new product development. Our efforts to acquire and maintain these licenses could result in significant
management time, effort, and cost, and may still not guarantee compliance given the constant state of change in these
regulatory frameworks. Accordingly, costs associated with changes in compliance requirements, regulatory audits,
enforcement actions, reputational harm, or other regulatory limits on our ability to grow our payment processing business
could adversely affect our financial results.
Our increased presence in foreign jurisdictions increases the possibility of foreign law violations or violation of the
FCPA, the United Kingdom Bribery Act of 2010 (“UKBA”) and the Brazilian Anti-Corruption Law (“ACL”).
We are subject to the FCPA, the ACL and the UKBA, as we own subsidiaries organized under UK and Brazilian law,
which serve as a holding companies for other subsidiaries. The FCPA generally prohibits U.S. companies and their intermediaries
from making improper payments to foreign officials for the purpose of obtaining or retaining business. The UKBA is broader
in its reach and prohibits bribery in purely commercial contexts in addition to bribery of government officials, and it does not
allow certain exceptions that are permitted by the FCPA. Other countries in which we operate or have operated, including Brazil
and other countries where we intend to operate, also have anti-corruption laws, which we are, have been or will be subject to.
Our employees and agents interact with government officials on our behalf, including as necessary to obtain licenses
and other regulatory approvals necessary to operate our business. We also have a number of contracts with third-parties that
are owned or controlled by foreign governments. These interactions and contracts create a risk of unauthorized payments or
offers of payments by one of our employees or agents that could be in violation of the FCPA, UKBA, ACL or other similar
laws, we could be held liable for such unauthorized actions taken by our employees or agents.
In recent years, there have been significant regulatory reviews and actions taken by the United States and other
regulators related to anti-bribery laws, and the trend appears to be greater scrutiny on payments to, and relationships with,
foreign entities and individuals.
Although we have policies and procedures designed to ensure that we, our employees, agents and intermediaries
comply with the FCPA, ACL and UKBA, such policies or procedures may not work effectively all of the time or protect us
against liability for actions taken by our employees, agents and intermediaries with respect to our business or any businesses
that we may acquire. In the event that we believe, or have reason to believe, that our employees, agents or intermediaries have
or may have violated applicable anti-corruption laws, we may be required to investigate or have a third party investigate the
relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.
Our continued operation and expansion outside the United States could increase the risk of such violations in the future. Any
violation of the FCPA, the UKBA or similar laws and regulations, including the ACL, could result in significant expenses,
divert management attention, and otherwise have a negative impact on us. Any determination that we have violated the FCPA,
UKBA, ACL or laws of any other jurisdiction could subject us to, among other things, penalties and legal expenses that could
harm our reputation and have a material adverse effect on our financial condition and results of operation. The possibility of
violations of the FCPA, UKBA, ACL or similar laws or regulations may increase as we expand globally and into countries with
recognized corruption problems.
The failure to maintain effective systems of internal control over financial reporting and disclosure controls and
procedures could result in the inability to accurately report our financial results or prevent material misstatement
due to fraud, which could cause current and potential shareholders to lose confidence in our financial reporting,
adversely affect the trading price of our securities, harm our operating results, trigger a default under the 2016
Credit Agreement or result in regulatory proceedings against us.
Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to
provide reliable financial reports and effectively prevent fraud and operate successfully as a public company. The failure to
develop or maintain effective internal control over financial reporting and disclosure controls and procedures could harm
our reputation or operating results, or cause us to fail to meet our reporting obligations, or trigger a default under the 2016
Credit Agreement.
Our financial reporting and disclosure controls and procedures are reliant, in part, on information we receive from
disparate internal financial reporting systems and third parties that supply information to us regarding transactions that we
process. In addition, because our strategy includes pursuing growth through acquisitions of other businesses, which are at
different levels of maturity and which may have underdeveloped financial reporting systems and processes, we depend on
dispersed financial systems to process, summarize and report financial transactions for our distributed operations. To the
extent these systems do not properly transmit information to our financial ledgers, we could fail to properly summarize and
report financial results.
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32
dependable service and adversely affect our results of operations. In addition, our ability to collect enhanced data relating to
our customers’ purchases may be limited by the use of older point-of-sale devices by fuel and vehicle maintenance
providers. To the extent that fuel and vehicle maintenance providers within our network are slow to adopt advanced point-
of-sale devices, we may not be able to offer the latest services and capabilities that our customers demand.
Unpredictable events, including natural catastrophes or public health crises, dangerous weather conditions,
technology failure, and terrorist attacks in the locations in which we or our customers operate may adversely affect
our ability to conduct business and could impact our results.
Terrorist attacks, power failure, natural disaster (such as the 2019 Australian bushfire crisis) and rapid spread of
infectious disease (such as the 2019 novel coronavirus) could interrupt our operations by causing disruptions in global
markets, economic conditions and travel and tourism, and triggering large-scale technology failures or delays. Events such
as these, if continuing or significant, could impact our operations, financial results and profitability.
Our industry continues to become increasingly competitive, which makes it more challenging for us to maintain
profit margins at historical levels.
We face and expect to continue to face competition in each category of the overall industry from several companies
that seek to offer competing capabilities and services. Historically, we have been able to provide customers with a wide
spectrum of services and capabilities and, therefore, we have not considered price to be the exclusive or even the primary
basis on which we compete. As our competitors have continued to develop their service offerings, it has become
increasingly more challenging for us to compete solely on the basis of superior capabilities, technology, customer
integration or service. In some areas of our business we have been forced to respond to competitive pressures by reducing
our fees. We have seen erosion of our historical profit margins as we encourage existing strategic relationships to sign long-
term contracts. If these trends continue and if competition intensifies, our profitability may be adversely impacted.
While we have traditionally offered our services to several categories of the payments industry, with a focus on
fleet, corporate payments and health in recent years, some of our competitors have successfully garnered significant share in
particular categories of payments. To the extent that our competitors are regarded as leaders in specific categories, they may
have an advantage over us as we attempt to further penetrate these categories.
We also face increased competition in our efforts to enter into new strategic relationships and renew existing
strategic relationships on similar terms.
Compliance with anti-money laundering laws and regulations creates additional compliance costs and reputational
We must monitor and report unusual or suspicious account activity, as well as transactions involving amounts in
excess of prescribed limits, as required by the Bank Secrecy Act and Internal Revenue Service regulations and other
regulations. The USA PATRIOT Act of 2001 imposes significant anti-money laundering compliance and due diligence
obligations on financial institutions, including WEX Bank. Financial regulators have issued various implementing
regulations and have made enforcement a top priority. Failure to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could result in the
imposition of fines or penalties and other serious legal and reputational consequences which may impact our financial
risk.
results.
Evolution and expansion of our business may subject us to additional regulatory requirements and other risks, for
which failure to comply or adapt could harm our operating results.
The evolution and expansion of our business may subject us to additional risks and regulatory requirements,
including laws governing money transmission and payment processing services. These requirements vary throughout the
markets in which we operate, and have increased over time as the geographic scope and complexity of our payments product
services have expanded. While we maintain a compliance program focused on applicable laws and regulations throughout
the payments industry, there is no guarantee that we will not be subject to fines, criminal and civil lawsuits or other
regulatory enforcement actions in one or more jurisdictions, or be required to adjust business practices to accommodate
future regulatory requirements.
In order to maintain flexibility in the growth and expansion of our payments operations, we have registered as a
money service business with FinCEN and have obtained money transmitter licenses (or their equivalents) in most states and
expect to continue the license application process in additional jurisdictions throughout the United States as needed to
accommodate new product development. Our efforts to acquire and maintain these licenses could result in significant
management time, effort, and cost, and may still not guarantee compliance given the constant state of change in these
regulatory frameworks. Accordingly, costs associated with changes in compliance requirements, regulatory audits,
enforcement actions, reputational harm, or other regulatory limits on our ability to grow our payment processing business
could adversely affect our financial results.
Our increased presence in foreign jurisdictions increases the possibility of foreign law violations or violation of the
FCPA, the United Kingdom Bribery Act of 2010 (“UKBA”) and the Brazilian Anti-Corruption Law (“ACL”).
We are subject to the FCPA, the ACL and the UKBA, as we own subsidiaries organized under UK and Brazilian law,
which serve as a holding companies for other subsidiaries. The FCPA generally prohibits U.S. companies and their intermediaries
from making improper payments to foreign officials for the purpose of obtaining or retaining business. The UKBA is broader
in its reach and prohibits bribery in purely commercial contexts in addition to bribery of government officials, and it does not
allow certain exceptions that are permitted by the FCPA. Other countries in which we operate or have operated, including Brazil
and other countries where we intend to operate, also have anti-corruption laws, which we are, have been or will be subject to.
Our employees and agents interact with government officials on our behalf, including as necessary to obtain licenses
and other regulatory approvals necessary to operate our business. We also have a number of contracts with third-parties that
are owned or controlled by foreign governments. These interactions and contracts create a risk of unauthorized payments or
offers of payments by one of our employees or agents that could be in violation of the FCPA, UKBA, ACL or other similar
laws, we could be held liable for such unauthorized actions taken by our employees or agents.
In recent years, there have been significant regulatory reviews and actions taken by the United States and other
regulators related to anti-bribery laws, and the trend appears to be greater scrutiny on payments to, and relationships with,
foreign entities and individuals.
Although we have policies and procedures designed to ensure that we, our employees, agents and intermediaries
comply with the FCPA, ACL and UKBA, such policies or procedures may not work effectively all of the time or protect us
against liability for actions taken by our employees, agents and intermediaries with respect to our business or any businesses
that we may acquire. In the event that we believe, or have reason to believe, that our employees, agents or intermediaries have
or may have violated applicable anti-corruption laws, we may be required to investigate or have a third party investigate the
relevant facts and circumstances, which can be expensive and require significant time and attention from senior management.
Our continued operation and expansion outside the United States could increase the risk of such violations in the future. Any
violation of the FCPA, the UKBA or similar laws and regulations, including the ACL, could result in significant expenses,
divert management attention, and otherwise have a negative impact on us. Any determination that we have violated the FCPA,
UKBA, ACL or laws of any other jurisdiction could subject us to, among other things, penalties and legal expenses that could
harm our reputation and have a material adverse effect on our financial condition and results of operation. The possibility of
violations of the FCPA, UKBA, ACL or similar laws or regulations may increase as we expand globally and into countries with
recognized corruption problems.
The failure to maintain effective systems of internal control over financial reporting and disclosure controls and
procedures could result in the inability to accurately report our financial results or prevent material misstatement
due to fraud, which could cause current and potential shareholders to lose confidence in our financial reporting,
adversely affect the trading price of our securities, harm our operating results, trigger a default under the 2016
Credit Agreement or result in regulatory proceedings against us.
Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to
provide reliable financial reports and effectively prevent fraud and operate successfully as a public company. The failure to
develop or maintain effective internal control over financial reporting and disclosure controls and procedures could harm
our reputation or operating results, or cause us to fail to meet our reporting obligations, or trigger a default under the 2016
Credit Agreement.
Our financial reporting and disclosure controls and procedures are reliant, in part, on information we receive from
disparate internal financial reporting systems and third parties that supply information to us regarding transactions that we
process. In addition, because our strategy includes pursuing growth through acquisitions of other businesses, which are at
different levels of maturity and which may have underdeveloped financial reporting systems and processes, we depend on
dispersed financial systems to process, summarize and report financial transactions for our distributed operations. To the
extent these systems do not properly transmit information to our financial ledgers, we could fail to properly summarize and
report financial results.
31
32
As we expand our business operations domestically and internationally, and as we implement new accounting
standards promulgated by the FASB, we will need to maintain effective internal control over financial reporting and
disclosure controls and procedures. If we are unable to do so, our external auditors could issue a qualified opinion on the
effectiveness of our internal control over financial reporting.
Ineffective internal control over financial reporting and disclosure controls and procedures could cause investors to
lose confidence in our reported financial information, which could have a negative effect on the trading price of our
securities or affect our ability to access the capital markets and could result in regulatory proceedings against us by, among
others, the SEC. Currently, we are cooperating with an SEC investigation arising from the revision of our financial
statements in 2019 due to issues involving our Brazil subsidiary, including our financial and disclosure controls and
procedures. At this time, it is not possible to predict the outcome of the SEC’s inquiry, including whether or not any
proceeding will be initiated or, if so, when or how the matter will be resolved.
Material weaknesses in internal control over financial reporting have in the past and could in the future lead to deficiencies
in the preparation of financial statements. Deficiencies in the preparation of financial statements, could lead to litigation
claims against us. The defense of any such claims may cause the diversion of management’s attention and resources, and we
may be required to pay damages if any such claims or proceedings are not resolved in our favor. Any litigation, even if
resolved in our favor, could cause us to incur significant legal and other expenses. Such events could also affect our ability
to raise capital to fund future business initiatives.
other transaction that might otherwise result in our stockholders receiving a premium over the market price for their
common stock.
In addition, because we own a Utah industrial bank, any purchaser of our common stock who would own
10 percent or more of our common stock after such purchase would be required to obtain the consent of Utah banking
authorities and the federal banking authorities prior to consummating any such acquisition. These regulatory requirements
may preclude or delay the purchase of a relatively large ownership stake by potential investors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
All of our facilities are leased. Our corporate headquarters, located in Portland, Maine, consists of 90,000 square feet,
pursuant to a lease that expires in 2034. We lease an additional 153,652 square feet of space located in Cumberland County, Maine,
primarily for operations and storage use, under multiple lease arrangements that expire at various dates between 2021 and 2025.
We lease 49,418 square feet and 179,144 square feet of space in Minnesota and North Dakota, respectively, primarily for WEX
Health operations. These leases expire at various dates between 2020 and 2030. We also lease facilities in various other locations
in the United States and around the world.
Our ability to attract and retain qualified employees is critical to our success and the failure to do so may materially
adversely affect our performance.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this filing, we are not involved in any material legal proceedings. We also were not involved in any
material legal proceedings that were terminated during the fourth quarter of 2019. From time to time, we are subject to legal
proceedings and claims in the ordinary course of business, including but not limited to: commercial disputes; contract disputes;
employment litigation; disputes regarding our intellectual property rights; alleged infringement or misappropriation by us of
intellectual property rights of others; and, matters relating to our compliance with applicable laws and regulations. As of the
date of this filing, the current estimate of a reasonably possible loss contingency from all legal proceedings is not material to
the Company’s consolidated financial position, results of operations, cash flows or liquidity. In addition, we are cooperating
with an SEC investigation arising from the revision of our financial statements as noted in our Annual Report on Form 10-K for
the year ended December 31, 2018 due to issues involving our Brazil subsidiary, including financial and disclosure controls and
procedures. At this time, it is not possible to predict the outcome of the SEC’s inquiry, including whether or not any proceeding
will be initiated or, if so, when or how the matter will be resolved.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
We believe our employees, including our executive management team, are our most important resource and, in our
industry and geographic area, competition for qualified personnel is intense. If we were unable to retain and attract qualified
employees, our performance could be materially adversely affected.
Risks Relating to Our Common Stock
If any entity controls 10 percent or more of our common stock and such entity has caused a violation of applicable
banking laws by its failure to obtain any required approvals prior to acquiring that common stock, we have the
power to, and may be required to, restrict such entity’s ability to vote shares held by it.
As owners of a Utah industrial bank, we are subject to Utah banking regulations that require any entity that controls
10 percent or more of our common stock to obtain the prior approval of Utah banking authorities. Federal law also prohibits
a person or group of persons from acquiring “control” of us unless the FDIC has been notified and has not objected to the
transaction. Under the FDIC’s regulations, the acquisition of 10 percent or more of a class of our voting stock would
generally create a rebuttable presumption of control. In addition, our certificate of incorporation requires that if any
stockholder fails to provide us with satisfactory evidence that any required approvals have been obtained, we may, or will if
required by state or federal regulators, restrict such stockholder’s ability to vote such shares with respect to any matter
subject to a vote of our stockholders.
As a result of these regulatory requirements, certain existing and potential stockholders may choose not to invest or
invest more in our stock. This could limit the number of potential investors and impact our ability to attract further funds.
Provisions in our charter documents, Delaware law and applicable banking law may delay or prevent our acquisition
by a third party.
Our certificate of incorporation and by-laws contain several provisions that may make it more difficult for a third
party to acquire control of us without the approval of our board of directors. These provisions include, among other things, a
classified board of directors, the elimination of stockholder action by written consent, advance notice for raising business or
making nominations at meetings of stockholders and “blank check” preferred stock. Blank check preferred stock enables our
board of directors, without stockholder approval, to designate and issue additional series of preferred stock with such special
dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations
on conversion, and rights to dividends and proceeds in a liquidation that are senior to the common stock, as our board of
directors may determine. These provisions may make it more difficult or expensive for a third party to acquire a majority of
our outstanding voting common stock. We also are subject to certain provisions of Delaware law, which could delay, deter or
prevent us from entering into an acquisition, including Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in a business combination with an interested stockholder unless specific
conditions are met. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or
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34
As we expand our business operations domestically and internationally, and as we implement new accounting
standards promulgated by the FASB, we will need to maintain effective internal control over financial reporting and
disclosure controls and procedures. If we are unable to do so, our external auditors could issue a qualified opinion on the
effectiveness of our internal control over financial reporting.
Ineffective internal control over financial reporting and disclosure controls and procedures could cause investors to
lose confidence in our reported financial information, which could have a negative effect on the trading price of our
securities or affect our ability to access the capital markets and could result in regulatory proceedings against us by, among
others, the SEC. Currently, we are cooperating with an SEC investigation arising from the revision of our financial
statements in 2019 due to issues involving our Brazil subsidiary, including our financial and disclosure controls and
procedures. At this time, it is not possible to predict the outcome of the SEC’s inquiry, including whether or not any
proceeding will be initiated or, if so, when or how the matter will be resolved.
Material weaknesses in internal control over financial reporting have in the past and could in the future lead to deficiencies
in the preparation of financial statements. Deficiencies in the preparation of financial statements, could lead to litigation
claims against us. The defense of any such claims may cause the diversion of management’s attention and resources, and we
may be required to pay damages if any such claims or proceedings are not resolved in our favor. Any litigation, even if
resolved in our favor, could cause us to incur significant legal and other expenses. Such events could also affect our ability
to raise capital to fund future business initiatives.
other transaction that might otherwise result in our stockholders receiving a premium over the market price for their
common stock.
In addition, because we own a Utah industrial bank, any purchaser of our common stock who would own
10 percent or more of our common stock after such purchase would be required to obtain the consent of Utah banking
authorities and the federal banking authorities prior to consummating any such acquisition. These regulatory requirements
may preclude or delay the purchase of a relatively large ownership stake by potential investors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
All of our facilities are leased. Our corporate headquarters, located in Portland, Maine, consists of 90,000 square feet,
pursuant to a lease that expires in 2034. We lease an additional 153,652 square feet of space located in Cumberland County, Maine,
primarily for operations and storage use, under multiple lease arrangements that expire at various dates between 2021 and 2025.
We lease 49,418 square feet and 179,144 square feet of space in Minnesota and North Dakota, respectively, primarily for WEX
Health operations. These leases expire at various dates between 2020 and 2030. We also lease facilities in various other locations
in the United States and around the world.
Our ability to attract and retain qualified employees is critical to our success and the failure to do so may materially
ITEM 3. LEGAL PROCEEDINGS
adversely affect our performance.
As of the date of this filing, we are not involved in any material legal proceedings. We also were not involved in any
material legal proceedings that were terminated during the fourth quarter of 2019. From time to time, we are subject to legal
proceedings and claims in the ordinary course of business, including but not limited to: commercial disputes; contract disputes;
employment litigation; disputes regarding our intellectual property rights; alleged infringement or misappropriation by us of
intellectual property rights of others; and, matters relating to our compliance with applicable laws and regulations. As of the
date of this filing, the current estimate of a reasonably possible loss contingency from all legal proceedings is not material to
the Company’s consolidated financial position, results of operations, cash flows or liquidity. In addition, we are cooperating
with an SEC investigation arising from the revision of our financial statements as noted in our Annual Report on Form 10-K for
the year ended December 31, 2018 due to issues involving our Brazil subsidiary, including financial and disclosure controls and
procedures. At this time, it is not possible to predict the outcome of the SEC’s inquiry, including whether or not any proceeding
will be initiated or, if so, when or how the matter will be resolved.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
We believe our employees, including our executive management team, are our most important resource and, in our
industry and geographic area, competition for qualified personnel is intense. If we were unable to retain and attract qualified
employees, our performance could be materially adversely affected.
Risks Relating to Our Common Stock
If any entity controls 10 percent or more of our common stock and such entity has caused a violation of applicable
banking laws by its failure to obtain any required approvals prior to acquiring that common stock, we have the
power to, and may be required to, restrict such entity’s ability to vote shares held by it.
As owners of a Utah industrial bank, we are subject to Utah banking regulations that require any entity that controls
10 percent or more of our common stock to obtain the prior approval of Utah banking authorities. Federal law also prohibits
a person or group of persons from acquiring “control” of us unless the FDIC has been notified and has not objected to the
transaction. Under the FDIC’s regulations, the acquisition of 10 percent or more of a class of our voting stock would
generally create a rebuttable presumption of control. In addition, our certificate of incorporation requires that if any
stockholder fails to provide us with satisfactory evidence that any required approvals have been obtained, we may, or will if
required by state or federal regulators, restrict such stockholder’s ability to vote such shares with respect to any matter
subject to a vote of our stockholders.
As a result of these regulatory requirements, certain existing and potential stockholders may choose not to invest or
invest more in our stock. This could limit the number of potential investors and impact our ability to attract further funds.
Provisions in our charter documents, Delaware law and applicable banking law may delay or prevent our acquisition
by a third party.
Our certificate of incorporation and by-laws contain several provisions that may make it more difficult for a third
party to acquire control of us without the approval of our board of directors. These provisions include, among other things, a
classified board of directors, the elimination of stockholder action by written consent, advance notice for raising business or
making nominations at meetings of stockholders and “blank check” preferred stock. Blank check preferred stock enables our
board of directors, without stockholder approval, to designate and issue additional series of preferred stock with such special
dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations
on conversion, and rights to dividends and proceeds in a liquidation that are senior to the common stock, as our board of
directors may determine. These provisions may make it more difficult or expensive for a third party to acquire a majority of
our outstanding voting common stock. We also are subject to certain provisions of Delaware law, which could delay, deter or
prevent us from entering into an acquisition, including Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in a business combination with an interested stockholder unless specific
conditions are met. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or
33
34
PART II
ITEM 6. SELECTED FINANCIAL DATA
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The principal market for the Company’s common stock is the NYSE and our ticker symbol is WEX. As of February 21,
2020, the closing price of our common stock was $231.60 per share, there were 43,341,984 shares of our common stock outstanding
and there were 7 holders of record of our common stock. The actual number of stockholders is greater than this number of record
holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers or nominees.
Dividends
The Company has not declared any dividends on its common stock since it commenced trading on the NYSE on February 16,
2005. The timing and amount of future dividends, if any, will be (i) dependent upon the Company’s results of operations, financial
condition, cash requirements and other relevant factors, (ii) subject to the discretion of the Board of Directors of the Company
and (iii) payable only out of the Company’s surplus or current net profits in accordance with the General Corporation Law of the
State of Delaware.
The Company has certain restrictions on the dividends it may pay under its revolving credit agreement, including pro
forma compliance with a consolidated leverage ratio, testing consolidated funded indebtedness (excluding (i) up to $350 million
of consolidated funded indebtedness due to permitted securitization transactions and (ii) the amount of consolidated funded
indebtedness constituting the non-recourse portion of permitted factoring transactions, and netting up to $150.0 million of
unrestricted cash and cash equivalents denominated in U.S. dollars held by the Company and its subsidiaries) to consolidated
EBITDA of 2.50:1.00 for the most recent period of four fiscal quarters. In addition, the purchase agreement that the Company
entered into on January 24, 2020 for the acquisition of eNett and Optal prohibits the Company from declaring or paying dividends
without the prior written consent of the sellers prior to the closing of the acquisition.
Share Repurchases
On September 20, 2017, our board of directors approved a share repurchase program authorizing the purchase of up to
$150 million of our common stock, expiring in September 2021. Share repurchases are to be made on the open market and can
be commenced or suspended at any time.
We did not purchase any shares of our common stock during the year ended December 31, 2019. The dollar value of shares
that were available to be purchased under our share repurchase program was $150 million as of December 31, 2019.
The following table sets forth our summary historical financial information for the periods ended and as of the dates
indicated. You should read the following historical financial information along with Item 7 and the consolidated financial statements
and related notes thereto contained in this Annual Report on Form 10–K. The financial information included in the table below is
derived from our audited financial statements:
(in thousands, except per share data)
Income statement information, for the year ended
Total revenues
Total operating expenses
Financing interest expense
Net realized and unrealized gains on fuel price derivatives
Net income attributable to shareholders
Weighted average basic shares of common stock outstanding
Basic income per share
Weighted average diluted shares of common stock outstanding
Diluted income per share
Balance sheet information, at end of period
Total assets
Total liabilities
Redeemable non-controlling interest1
Total stockholders’ equity
2019
2018
2017
2016
2015
December 31,
$
$
$
$
$
$
$
$
$
$
$
1,723,691
1,337,850
134,677
1,492,639
1,112,001
105,023
1,248,577
1,015,154
107,067
1,012,488
853,963
113,418
— $
— $
— $
99,006
43,316
2.29
43,769
2.26
168,295
43,156
3.90
43,574
3.86
160,062
42,977
3.72
43,105
3.71
853,949
650,155
46,189
5,848
76,196
38,771
1.97
38,843
1.96
$
$
$
$
$
$
$
$
$
711
23,499
40,809
0.58
40,914
0.57
$
$
$
$
$
$
$
$
$
$
8,298,418
6,205,017
156,879
1,936,522
6,770,595
4,974,671
6,688,866
5,058,766
5,937,859
4,522,969
3,837,171
2,786,653
— $
— $
— $
—
1,795,924
1,630,100
1,414,890
1,050,518
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1 On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator. The seller of Discovery Benefits obtained a 4.9 percent equity
interest in the newly formed parent company of WEX Health and Discovery Benefits. The agreement provides the seller with a put right and the Company with
a call right for the equity interest. The put option makes the non-controlling interest redeemable and, therefore, the non-controlling interest is classified as temporary
equity outside of stockholders’ equity. Refer to Item 8 – Note 20, Redeemable Non-Controlling Interest, for further information.
35
36
PART II
ITEM 6. SELECTED FINANCIAL DATA
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The principal market for the Company’s common stock is the NYSE and our ticker symbol is WEX. As of February 21,
2020, the closing price of our common stock was $231.60 per share, there were 43,341,984 shares of our common stock outstanding
and there were 7 holders of record of our common stock. The actual number of stockholders is greater than this number of record
holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers or nominees.
The Company has not declared any dividends on its common stock since it commenced trading on the NYSE on February 16,
2005. The timing and amount of future dividends, if any, will be (i) dependent upon the Company’s results of operations, financial
condition, cash requirements and other relevant factors, (ii) subject to the discretion of the Board of Directors of the Company
and (iii) payable only out of the Company’s surplus or current net profits in accordance with the General Corporation Law of the
The Company has certain restrictions on the dividends it may pay under its revolving credit agreement, including pro
forma compliance with a consolidated leverage ratio, testing consolidated funded indebtedness (excluding (i) up to $350 million
of consolidated funded indebtedness due to permitted securitization transactions and (ii) the amount of consolidated funded
indebtedness constituting the non-recourse portion of permitted factoring transactions, and netting up to $150.0 million of
unrestricted cash and cash equivalents denominated in U.S. dollars held by the Company and its subsidiaries) to consolidated
EBITDA of 2.50:1.00 for the most recent period of four fiscal quarters. In addition, the purchase agreement that the Company
entered into on January 24, 2020 for the acquisition of eNett and Optal prohibits the Company from declaring or paying dividends
without the prior written consent of the sellers prior to the closing of the acquisition.
Dividends
State of Delaware.
Share Repurchases
On September 20, 2017, our board of directors approved a share repurchase program authorizing the purchase of up to
$150 million of our common stock, expiring in September 2021. Share repurchases are to be made on the open market and can
be commenced or suspended at any time.
We did not purchase any shares of our common stock during the year ended December 31, 2019. The dollar value of shares
that were available to be purchased under our share repurchase program was $150 million as of December 31, 2019.
The following table sets forth our summary historical financial information for the periods ended and as of the dates
indicated. You should read the following historical financial information along with Item 7 and the consolidated financial statements
and related notes thereto contained in this Annual Report on Form 10–K. The financial information included in the table below is
derived from our audited financial statements:
(in thousands, except per share data)
Income statement information, for the year ended
Total revenues
Total operating expenses
Financing interest expense
Net realized and unrealized gains on fuel price derivatives
Net income attributable to shareholders
Weighted average basic shares of common stock outstanding
Basic income per share
Weighted average diluted shares of common stock outstanding
Diluted income per share
Balance sheet information, at end of period
Total assets
Total liabilities
Redeemable non-controlling interest1
Total stockholders’ equity
$
$
$
$
$
$
$
$
$
$
$
2019
2018
December 31,
2017
2016
2015
1,723,691
1,337,850
134,677
$
$
$
— $
$
1,492,639
1,112,001
105,023
$
$
$
— $
$
1,248,577
1,015,154
107,067
$
$
$
— $
$
99,006
43,316
2.29
43,769
2.26
168,295
43,156
3.90
43,574
3.86
$
$
160,062
42,977
3.72
43,105
3.71
$
$
1,012,488
853,963
113,418
711
23,499
40,809
0.58
40,914
0.57
$
$
$
$
$
$
$
8,298,418
6,205,017
156,879
1,936,522
6,770,595
4,974,671
$
$
— $
$
6,688,866
5,058,766
$
$
— $
$
5,937,859
4,522,969
$
$
— $
$
1,795,924
1,630,100
1,414,890
$
$
$
$
$
$
853,949
650,155
46,189
5,848
76,196
38,771
1.97
38,843
1.96
3,837,171
2,786,653
—
1,050,518
1 On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator. The seller of Discovery Benefits obtained a 4.9 percent equity
interest in the newly formed parent company of WEX Health and Discovery Benefits. The agreement provides the seller with a put right and the Company with
a call right for the equity interest. The put option makes the non-controlling interest redeemable and, therefore, the non-controlling interest is classified as temporary
equity outside of stockholders’ equity. Refer to Item 8 – Note 20, Redeemable Non-Controlling Interest, for further information.
35
36
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, 2019, 2018 and 2017 and financial condition at December 31, 2019 and 2018 and, where appropriate, factors that may affect
our future financial performance, unless stated otherwise. This discussion should be read in conjunction with the consolidated
financial statements, notes to the consolidated financial statements and selected consolidated financial data.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A is presented in the
following sections:
•
•
•
•
•
•
•
2019 Highlights and Year in Review
Recent Events
Segments
Results of Operations
Application of Critical Accounting Policies and Estimates
New Accounting Standards
Liquidity, Capital Resources and Cash Flows
2019 Highlights and Year in Review
The following events and accomplishments occurred during 2019:
•
Total fuel transactions processed increased 11 percent from 2018 to 612.4 million in 2019 due primarily to
organic growth in North America, including impacts of two large customer migrations. Total payment processing
transactions increased 10 percent from 2018 to 505.3 million in 2019, and transaction processing transactions
increased 15 percent from 2018 to 107.1 million in 2019.
•
•
•
•
•
The average U.S. fuel price per gallon during 2019 was $2.80, a 5 percent decrease as compared to the prior
year.
Credit loss expense in the Fleet Solutions segment increased 10 percent to $59.8 million during 2019, as compared
to $54.5 million during 2018. Our credit losses were 15.1 basis points of fuel expenditures for 2019, as compared
to 12.5 basis points of fuel expenditures for 2018, an increase of 21 percent primarily due to higher losses in the
small fleet over-the-road business as compared to 2018.
Our Travel and Corporate Solutions purchase volume grew to $39.6 billion in 2019, a 14 percent increase from
2018, primarily due to strong domestic growth in our corporate payment product and worldwide gains in our
travel product.
Health and Employee Benefit Solutions average number of SaaS accounts in the U.S. grew 17% to 12.9 million
in 2019 from 11.0 million in 2018. Likewise, U.S. purchase volume grew by $391.9 million in 2019, an 8 percent
increase as compared to 2018.
Our effective tax rate was 28.3 percent for 2019 as compared to 28.9 percent for 2018. The decrease in our
effective tax rate was primarily due to the jurisdictional earnings mix.
•
•
•
•
•
•
•
Contributions from all three of our segments resulted in the Company reaching approximately $1.7 billion in
annual revenues in 2019, 15 percent growth relative to the prior year.
Recent Events
On January 24, 2020, we entered into a purchase agreement to purchase eNett, a leading provider of business-to-business
payments solutions to the travel industry and Optal, a company that specializes in optimizing business-to-business transactions.
Pursuant to the purchase agreement, and subject to the terms and conditions contained therein, WEX will acquire all of the issued
share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd., and the other shareholders of eNett and
Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash and 2.0 million shares of the Company’s
common stock and subject to certain working capital and other adjustments as described in the purchase agreement. The parties’
obligations to consummate the acquisition are subject to customary closing conditions, including regulatory approvals.
On July 1, 2019, the Company acquired Go Fuel Card, a European fuel card, for a total purchase price of €235.0
million (equivalent of $266.0 million on date of purchase). The acquisition strengthens our position in the
European market, grows our existing customer base and reduces our sensitivity to retail fuel prices.
The Company converted the acquired Chevron fleet customer portfolio onto our payment processing platform
during second quarter of 2019.
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator, for a total
purchase price of $526.1 million, of which $50.0 million was paid during the fourth quarter of 2019. State
Bankshares, Inc., the seller of Discovery Benefits, obtained a 4.9 percent equity interest in the newly formed
parent company of WEX Health and Discovery Benefits, which constitutes the U.S. Health business. This
acquisition provides our partners and customers with a more comprehensive suite of products and services and
opens go-to-market channels to include consulting firms and brokers.
On February 14, 2019, the Company acquired Pavestone Capital, a recourse factoring company that provides
working capital to businesses, for a total purchase price of $29.0 million. Pavestone Capital complements our
existing factoring business.
On January 24, 2019, the Company acquired Noventis, an electronic payments network focused on optimizing
payment delivery for bills and invoices to commercial entities, for $338.7 million. This acquisition expands our
reach as a corporate payments supplier and provides more channels to billing aggregators and financial
institutions.
The Company successfully executed three separate amendments of our 2016 Credit Agreement in 2019, which
among other things, increased the outstanding amounts under our term loans by $700.0 million and increased
our commitments under the revolving credit facility by $100 million. In addition, we extended the maturity on
term B loans to May 2026.
Our Company’s management regularly monitors key metrics in order to measure our current performance and project
future performance. Management believes the following metrics, many of which are discussed in more detail later in this section,
were important to our overall performance in 2019 as they provide enhanced information and data underlying our financial results:
•
Average number of vehicles serviced increased 19 percent from 2018 to approximately 14.0 million for 2019,
primarily related to growth in our worldwide customer base. As of December 31, 2019, vehicles serviced totaled
14.9 million.
37
38
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, 2019, 2018 and 2017 and financial condition at December 31, 2019 and 2018 and, where appropriate, factors that may affect
our future financial performance, unless stated otherwise. This discussion should be read in conjunction with the consolidated
financial statements, notes to the consolidated financial statements and selected consolidated financial data.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A is presented in the
following sections:
2019 Highlights and Year in Review
Recent Events
Segments
Results of Operations
•
•
•
•
•
•
•
Application of Critical Accounting Policies and Estimates
New Accounting Standards
Liquidity, Capital Resources and Cash Flows
2019 Highlights and Year in Review
The following events and accomplishments occurred during 2019:
•
•
•
•
•
•
Total fuel transactions processed increased 11 percent from 2018 to 612.4 million in 2019 due primarily to
organic growth in North America, including impacts of two large customer migrations. Total payment processing
transactions increased 10 percent from 2018 to 505.3 million in 2019, and transaction processing transactions
increased 15 percent from 2018 to 107.1 million in 2019.
The average U.S. fuel price per gallon during 2019 was $2.80, a 5 percent decrease as compared to the prior
year.
Credit loss expense in the Fleet Solutions segment increased 10 percent to $59.8 million during 2019, as compared
to $54.5 million during 2018. Our credit losses were 15.1 basis points of fuel expenditures for 2019, as compared
to 12.5 basis points of fuel expenditures for 2018, an increase of 21 percent primarily due to higher losses in the
small fleet over-the-road business as compared to 2018.
Our Travel and Corporate Solutions purchase volume grew to $39.6 billion in 2019, a 14 percent increase from
2018, primarily due to strong domestic growth in our corporate payment product and worldwide gains in our
travel product.
Health and Employee Benefit Solutions average number of SaaS accounts in the U.S. grew 17% to 12.9 million
in 2019 from 11.0 million in 2018. Likewise, U.S. purchase volume grew by $391.9 million in 2019, an 8 percent
increase as compared to 2018.
Our effective tax rate was 28.3 percent for 2019 as compared to 28.9 percent for 2018. The decrease in our
effective tax rate was primarily due to the jurisdictional earnings mix.
Contributions from all three of our segments resulted in the Company reaching approximately $1.7 billion in
annual revenues in 2019, 15 percent growth relative to the prior year.
Recent Events
On July 1, 2019, the Company acquired Go Fuel Card, a European fuel card, for a total purchase price of €235.0
million (equivalent of $266.0 million on date of purchase). The acquisition strengthens our position in the
European market, grows our existing customer base and reduces our sensitivity to retail fuel prices.
The Company converted the acquired Chevron fleet customer portfolio onto our payment processing platform
during second quarter of 2019.
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator, for a total
purchase price of $526.1 million, of which $50.0 million was paid during the fourth quarter of 2019. State
Bankshares, Inc., the seller of Discovery Benefits, obtained a 4.9 percent equity interest in the newly formed
parent company of WEX Health and Discovery Benefits, which constitutes the U.S. Health business. This
acquisition provides our partners and customers with a more comprehensive suite of products and services and
opens go-to-market channels to include consulting firms and brokers.
On February 14, 2019, the Company acquired Pavestone Capital, a recourse factoring company that provides
working capital to businesses, for a total purchase price of $29.0 million. Pavestone Capital complements our
existing factoring business.
On January 24, 2019, the Company acquired Noventis, an electronic payments network focused on optimizing
payment delivery for bills and invoices to commercial entities, for $338.7 million. This acquisition expands our
reach as a corporate payments supplier and provides more channels to billing aggregators and financial
institutions.
The Company successfully executed three separate amendments of our 2016 Credit Agreement in 2019, which
among other things, increased the outstanding amounts under our term loans by $700.0 million and increased
our commitments under the revolving credit facility by $100 million. In addition, we extended the maturity on
term B loans to May 2026.
Our Company’s management regularly monitors key metrics in order to measure our current performance and project
future performance. Management believes the following metrics, many of which are discussed in more detail later in this section,
were important to our overall performance in 2019 as they provide enhanced information and data underlying our financial results:
Average number of vehicles serviced increased 19 percent from 2018 to approximately 14.0 million for 2019,
primarily related to growth in our worldwide customer base. As of December 31, 2019, vehicles serviced totaled
14.9 million.
37
On January 24, 2020, we entered into a purchase agreement to purchase eNett, a leading provider of business-to-business
payments solutions to the travel industry and Optal, a company that specializes in optimizing business-to-business transactions.
Pursuant to the purchase agreement, and subject to the terms and conditions contained therein, WEX will acquire all of the issued
share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd., and the other shareholders of eNett and
Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash and 2.0 million shares of the Company’s
common stock and subject to certain working capital and other adjustments as described in the purchase agreement. The parties’
obligations to consummate the acquisition are subject to customary closing conditions, including regulatory approvals.
38
•
•
•
•
•
•
•
•
Segments
Year Ended December 31, 2019, Compared to the Year Ended December 31, 2018
WEX operates in three reportable segments: Fleet Solutions, Travel and Corporate Solutions, and Health and Employee
Benefit Solutions. Our Fleet Solutions segment provides payment, transaction processing and information management services
specifically designed for the needs of commercial and government fleets. Our Travel and Corporate Solutions segment focuses
on the complex payment environment of business-to-business payments, providing customers with payment processing solutions
for their corporate payment and transaction monitoring needs. Our Health and Employee Benefit Solutions segment provides a
SaaS platform for consumer directed healthcare payments, as well as payroll related benefits to customers in Brazil.
Fleet Solutions
Revenues
The following table reflects comparative revenue and key operating statistics within Fleet Solutions:
Results of Operations
The Company does not allocate foreign currency gains and losses, financing interest expense, unrealized and realized
gains and losses on financial instruments, income taxes, net gains or losses from non-controlling interests, and non-cash adjustments
related to our tax receivable agreement to our operating segments, as management believes these items are unpredictable and can
obscure underlying trends. 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.
Sources of Operating Expense
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 the operating debt obtained to provide liquidity for its short-
term receivables.
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.
(In thousands, except per transaction and per gallon data)
Revenues(a)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Key operating statistics
Payment processing revenue:
Payment processing transactions(1)
Payment processing fuel spend(2)
Average price per gallon of fuel – Domestic – ($USD/gal)
Net payment processing rate(3)
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
457,244
$
464,980
$
(7,736)
164,735
245,082
171,334
162,662
190,528
156,970
2,073
54,554
14,364
$
1,038,395
$
975,140
$
63,255
505,292
459,309
$ 37,372,684
$ 36,991,903
$
2.80
$
1.22%
$
$
2.95
1.26%
45,983
380,781
(0.15)
(0.04)%
(2)%
1 %
29 %
9 %
6 %
10 %
1 %
(5)%
(3)%
(a) The impact of foreign currency exchange rate fluctuations reduced Fleet Solutions revenue by $7.3 million in 2019, compared to the prior year.
(1) Payment processing transactions represents the total number of purchases made by fleets that have a payment processing relationship with WEX.
(2) Payment processing fuel spend represents the total dollar value of the fuel purchased by fleets that have a payment processing relationship with WEX.
(3) Net payment processing rate represents the percentage of the dollar value of each payment processing transaction that WEX records as revenue from merchants
less certain discounts given to customers and network fees.
Revenues
Payment processing revenue decreased $7.7 million for 2019, as compared to 2018, due primarily to lower average fuel
prices in North America and the negative impact of foreign currency exchange rate fluctuations. These unfavorable impacts were
almost entirely offset by higher payment processing volumes and the acquisition of the Go Fuel Card business. Over half of the
late fee and volume increases were due to the onboarding of two major North American oil portfolios.
Account servicing revenue in 2019 was generally consistent with account servicing revenue in 2018.
Finance fee revenue is comprised of the following components:
(In thousands)
Finance income
Factoring fee revenue
Total finance fee revenue
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
208,911
36,171
245,082
$
$
153,446
37,082
190,528
$
$
55,465
(911)
54,554
36 %
(2)%
29 %
Finance income primarily consists of late fees and interest charged for receivables not paid within the terms of the customer
agreement based upon the outstanding customer receivable balance. This 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, including,
but not limited 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. Periodically, we assess the market rates associated within our industry to determine appropriate
late fee rates. We consider factors such as the Company’s overall financial model and strategic plan, the cost to our business from
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40
Segments
Year Ended December 31, 2019, Compared to the Year Ended December 31, 2018
WEX operates in three reportable segments: Fleet Solutions, Travel and Corporate Solutions, and Health and Employee
Benefit Solutions. Our Fleet Solutions segment provides payment, transaction processing and information management services
specifically designed for the needs of commercial and government fleets. Our Travel and Corporate Solutions segment focuses
on the complex payment environment of business-to-business payments, providing customers with payment processing solutions
for their corporate payment and transaction monitoring needs. Our Health and Employee Benefit Solutions segment provides a
SaaS platform for consumer directed healthcare payments, as well as payroll related benefits to customers in Brazil.
Results of Operations
The Company does not allocate foreign currency gains and losses, financing interest expense, unrealized and realized
gains and losses on financial instruments, income taxes, net gains or losses from non-controlling interests, and non-cash adjustments
related to our tax receivable agreement to our operating segments, as management believes these items are unpredictable and can
obscure underlying trends. 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.
Sources of Operating Expense
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 the operating debt obtained to provide liquidity for its short-
term receivables.
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.
Fleet Solutions
Revenues
The following table reflects comparative revenue and key operating statistics within Fleet Solutions:
(In thousands, except per transaction and per gallon data)
Revenues(a)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Key operating statistics
Payment processing revenue:
Payment processing transactions(1)
Payment processing fuel spend(2)
Average price per gallon of fuel – Domestic – ($USD/gal)
Net payment processing rate(3)
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
457,244
$
464,980
$
(7,736)
164,735
245,082
171,334
162,662
190,528
156,970
2,073
54,554
14,364
$
1,038,395
$
975,140
$
63,255
505,292
459,309
$ 37,372,684
$ 36,991,903
$
2.80
$
1.22%
2.95
1.26%
$
$
45,983
380,781
(0.15)
(0.04)%
(2)%
1 %
29 %
9 %
6 %
10 %
1 %
(5)%
(3)%
(a) The impact of foreign currency exchange rate fluctuations reduced Fleet Solutions revenue by $7.3 million in 2019, compared to the prior year.
(1) Payment processing transactions represents the total number of purchases made by fleets that have a payment processing relationship with WEX.
(2) Payment processing fuel spend represents the total dollar value of the fuel purchased by fleets that have a payment processing relationship with WEX.
(3) Net payment processing rate represents the percentage of the dollar value of each payment processing transaction that WEX records as revenue from merchants
less certain discounts given to customers and network fees.
Revenues
Payment processing revenue decreased $7.7 million for 2019, as compared to 2018, due primarily to lower average fuel
prices in North America and the negative impact of foreign currency exchange rate fluctuations. These unfavorable impacts were
almost entirely offset by higher payment processing volumes and the acquisition of the Go Fuel Card business. Over half of the
late fee and volume increases were due to the onboarding of two major North American oil portfolios.
Account servicing revenue in 2019 was generally consistent with account servicing revenue in 2018.
Finance fee revenue is comprised of the following components:
(In thousands)
Finance income
Factoring fee revenue
Total finance fee revenue
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
208,911
36,171
245,082
$
$
153,446
37,082
190,528
$
$
55,465
(911)
54,554
36 %
(2)%
29 %
Finance income primarily consists of late fees and interest charged for receivables not paid within the terms of the customer
agreement based upon the outstanding customer receivable balance. This 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, including,
but not limited 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. Periodically, we assess the market rates associated within our industry to determine appropriate
late fee rates. We consider factors such as the Company’s overall financial model and strategic plan, the cost to our business from
39
40
customers failing to pay timely and the impact such late payments have on our financial results. These assessments are typically
conducted at least annually but may occur more often depending on macro-economic factors.
paid on deposits and volume growth.
Operating interest expense increased $5.6 million in 2019, as compared to 2018, primarily due to higher interest rates
Finance income increased $55.5 million in 2019, as compared to 2018, primarily attributable to customer acquisitions
and higher weighted average late fee rates in near equal proportions, partly offset by lower average customer receivables as a
result of the decline in domestic price per gallon. For the majority of 2019, monthly late fee rates and minimum finance charges
ranged up to 9.99 percent and $75, respectively, as compared to monthly late fee rates and minimum finance charges of up to 7.99
percent and $75, respectively, during 2018. The weighted average late fee rate, net of related charge-offs was 5.4 percent and 4.5
percent for 2019 and 2018, respectively. 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 to customers experiencing financial difficulties during either of 2019 or 2018.
The primary source of factoring fee revenue is calculated as a negotiated percentage fee of the receivable balance that
we purchase. A secondary source of factoring fee revenue is a flat rate service fee to our customers that request a non-contractual
same day funding of the receivable balance. Factoring fee revenue for 2019 was generally consistent with 2018.
Other revenue increased $14.4 million in 2019, as compared to 2018, due primarily to increased fees associated with
growth in vehicles serviced.
Operating Expenses
The following table compares line items within operating income for Fleet Solutions:
Depreciation and amortization increased $3.9 million in 2019, as compared to 2018, due primarily to the amortization
of merchant networks obtained in the Go Fuel Card acquisition.
Other operating expenses
General and administrative expenses increased $7.3 million in 2019, as compared to 2018, due primarily to acquisition-
related costs during 2019 and higher stock-based compensation associated with the Company’s performance.
Sales and marketing expenses increased $10.9 million in 2019, as compared to 2018, due primarily to an increase in
personnel-related costs resulting from higher volumes and financial performance, as well as higher marketing costs related to
significant 2019 customer acquisitions.
Depreciation and amortization increased $5.0 million in 2019, as compared to 2018, due primarily to the amortization
of the Chevron customer portfolio intangible asset and customer relationships obtained in the Go Fuel Card acquisition. This
increase was partly offset by lower amortization expense on intangible assets related to acquisitions from prior periods.
During our annual goodwill assessment completed in the fourth quarter of 2018, we recorded a non-cash goodwill
impairment charge of $3.2 million for our Brazil fleet reporting unit. See Item 8 – Note 9, Goodwill and Other Intangible Assets,
of our consolidated financial statements for more information.
(In thousands)
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Other operating expenses
General and administrative
Sales and marketing
Depreciation and amortization
Impairment charges
Operating income
Cost of services
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
$
$
$
$
$
$
$
$
205,034
7,208
59,816
22,141
43,570
79,717
168,155
86,865
$
$
$
$
$
$
$
$
— $
190,109
7,212
54,484
16,502
39,720
72,404
157,240
81,818
3,225
365,889
$
352,426
$
$
$
$
$
$
$
$
$
$
14,925
(4)
5,332
5,639
3,850
7,313
10,915
5,047
(3,225)
8 %
— %
10 %
34 %
10 %
10 %
7 %
6 %
(100)%
13,463
4 %
Travel and Corporate Solutions
Revenues
(In thousands)
Revenues(a)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Key operating statistics
Payment processing revenue:
Payment solutions purchase volume(1)
The following table reflects comparative revenue and key operating statistics within Travel and Corporate Solutions:
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
303,385
$
203,289
$
100,096
43,293
2,086
19,062
37,262
1,391
61,402
6,031
695
(42,340)
$
367,826
$
303,344
$
64,482
49 %
16 %
50 %
(69)%
21 %
$ 39,632,411
$ 34,702,614
$
4,929,797
14 %
Processing costs increased $14.9 million for 2019, as compared to 2018, due primarily to higher expenses associated
with the onboarding of customer acquisitions.
Service fees for 2019 were generally consistent with service fees in in 2018.
Provision for credit losses increased $5.3 million for 2019, as compared to 2018 due to an increase in credit losses related
to smaller customers in our over-the-road business, partly offset by lower fraud losses.
We generally measure our credit loss performance by calculating fuel-related credit losses as a percentage of total fuel
expenditures on payment processing transactions. This metric for credit losses was 15.1 basis points of fuel expenditures for 2019,
as compared to 12.5 basis points of fuel expenditures for 2018. We generally use a roll-rate methodology to calculate the amount
necessary for our ending receivable reserve balance. This methodology considers total receivable balances, recent charge-off
experience, recoveries on previously charged off accounts, and the dollars that are delinquent to calculate the total reserve. In
addition, management undertakes a detailed evaluation of the receivable balances to help further ensure overall reserve adequacy.
The expense we recognize in each quarter is the amount necessary to bring the reserve to its required level based on accounts
receivable aging and net charge offs.
(a) The impact of foreign currency exchange rate fluctuations reduced Travel and Corporate Solutions revenue by $4.5 million in 2019, compared to the prior year.
(1) Payment solutions purchase volume represents the total dollar value of all WEX-issued transactions that use WEX corporate card products and virtual card
products.
Payment processing revenue increased $100.1 million for 2019, as compared to 2018, due primarily to a 2019 contract
amendment, the acquisition of Noventis and volume related increases. The increase was partly offset by an unfavorable impact
of foreign currency exchange rate fluctuations. The contract amendment resulted in an increase in payment processing revenue,
with an offsetting reduction in other revenue.
Account servicing revenue increased $6.0 million for 2019, as compared to 2018, primarily due to the acquisition of
Noventis and higher SaaS licensing fees earned on our accounts receivable and accounts payable platforms.
Finance fee revenue was not material to Travel and Corporate Solutions’ operations in 2019 or 2018. 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 to customers experiencing financial
difficulties during either 2019 or 2018.
Other revenue decreased $42.3 million for 2019, as compared to 2018, due primarily to the recent contract amendment
discussed in payment processing revenue above.
41
42
growth in vehicles serviced.
Operating Expenses
(In thousands)
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Other operating expenses
General and administrative
Sales and marketing
Depreciation and amortization
Impairment charges
Operating income
Cost of services
customers failing to pay timely and the impact such late payments have on our financial results. These assessments are typically
Operating interest expense increased $5.6 million in 2019, as compared to 2018, primarily due to higher interest rates
conducted at least annually but may occur more often depending on macro-economic factors.
paid on deposits and volume growth.
Finance income increased $55.5 million in 2019, as compared to 2018, primarily attributable to customer acquisitions
and higher weighted average late fee rates in near equal proportions, partly offset by lower average customer receivables as a
result of the decline in domestic price per gallon. For the majority of 2019, monthly late fee rates and minimum finance charges
ranged up to 9.99 percent and $75, respectively, as compared to monthly late fee rates and minimum finance charges of up to 7.99
percent and $75, respectively, during 2018. The weighted average late fee rate, net of related charge-offs was 5.4 percent and 4.5
percent for 2019 and 2018, respectively. 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 to customers experiencing financial difficulties during either of 2019 or 2018.
The primary source of factoring fee revenue is calculated as a negotiated percentage fee of the receivable balance that
we purchase. A secondary source of factoring fee revenue is a flat rate service fee to our customers that request a non-contractual
same day funding of the receivable balance. Factoring fee revenue for 2019 was generally consistent with 2018.
Other revenue increased $14.4 million in 2019, as compared to 2018, due primarily to increased fees associated with
The following table compares line items within operating income for Fleet Solutions:
Depreciation and amortization increased $3.9 million in 2019, as compared to 2018, due primarily to the amortization
of merchant networks obtained in the Go Fuel Card acquisition.
Other operating expenses
General and administrative expenses increased $7.3 million in 2019, as compared to 2018, due primarily to acquisition-
related costs during 2019 and higher stock-based compensation associated with the Company’s performance.
Sales and marketing expenses increased $10.9 million in 2019, as compared to 2018, due primarily to an increase in
personnel-related costs resulting from higher volumes and financial performance, as well as higher marketing costs related to
significant 2019 customer acquisitions.
Depreciation and amortization increased $5.0 million in 2019, as compared to 2018, due primarily to the amortization
of the Chevron customer portfolio intangible asset and customer relationships obtained in the Go Fuel Card acquisition. This
increase was partly offset by lower amortization expense on intangible assets related to acquisitions from prior periods.
During our annual goodwill assessment completed in the fourth quarter of 2018, we recorded a non-cash goodwill
impairment charge of $3.2 million for our Brazil fleet reporting unit. See Item 8 – Note 9, Goodwill and Other Intangible Assets,
of our consolidated financial statements for more information.
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
Travel and Corporate Solutions
Revenues
The following table reflects comparative revenue and key operating statistics within Travel and Corporate Solutions:
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
205,034
190,109
7,208
59,816
22,141
43,570
7,212
54,484
16,502
39,720
79,717
168,155
86,865
— $
72,404
157,240
81,818
3,225
$
$
$
$
$
$
$
$
$
$
14,925
(4)
5,332
5,639
3,850
7,313
10,915
5,047
(3,225)
8 %
— %
10 %
34 %
10 %
10 %
7 %
6 %
(100)%
365,889
$
352,426
13,463
4 %
Processing costs increased $14.9 million for 2019, as compared to 2018, due primarily to higher expenses associated
with the onboarding of customer acquisitions.
Service fees for 2019 were generally consistent with service fees in in 2018.
Provision for credit losses increased $5.3 million for 2019, as compared to 2018 due to an increase in credit losses related
to smaller customers in our over-the-road business, partly offset by lower fraud losses.
We generally measure our credit loss performance by calculating fuel-related credit losses as a percentage of total fuel
expenditures on payment processing transactions. This metric for credit losses was 15.1 basis points of fuel expenditures for 2019,
as compared to 12.5 basis points of fuel expenditures for 2018. We generally use a roll-rate methodology to calculate the amount
necessary for our ending receivable reserve balance. This methodology considers total receivable balances, recent charge-off
experience, recoveries on previously charged off accounts, and the dollars that are delinquent to calculate the total reserve. In
addition, management undertakes a detailed evaluation of the receivable balances to help further ensure overall reserve adequacy.
The expense we recognize in each quarter is the amount necessary to bring the reserve to its required level based on accounts
receivable aging and net charge offs.
(In thousands)
Revenues(a)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Key operating statistics
Payment processing revenue:
Payment solutions purchase volume(1)
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
303,385
$
203,289
$
100,096
43,293
2,086
19,062
37,262
1,391
61,402
6,031
695
(42,340)
$
367,826
$
303,344
$
64,482
49 %
16 %
50 %
(69)%
21 %
$ 39,632,411
$ 34,702,614
$
4,929,797
14 %
(a) The impact of foreign currency exchange rate fluctuations reduced Travel and Corporate Solutions revenue by $4.5 million in 2019, compared to the prior year.
(1) Payment solutions purchase volume represents the total dollar value of all WEX-issued transactions that use WEX corporate card products and virtual card
products.
Payment processing revenue increased $100.1 million for 2019, as compared to 2018, due primarily to a 2019 contract
amendment, the acquisition of Noventis and volume related increases. The increase was partly offset by an unfavorable impact
of foreign currency exchange rate fluctuations. The contract amendment resulted in an increase in payment processing revenue,
with an offsetting reduction in other revenue.
Account servicing revenue increased $6.0 million for 2019, as compared to 2018, primarily due to the acquisition of
Noventis and higher SaaS licensing fees earned on our accounts receivable and accounts payable platforms.
Finance fee revenue was not material to Travel and Corporate Solutions’ operations in 2019 or 2018. 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 to customers experiencing financial
difficulties during either 2019 or 2018.
Other revenue decreased $42.3 million for 2019, as compared to 2018, due primarily to the recent contract amendment
discussed in payment processing revenue above.
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42
Operating Expenses
Health and Employee Benefit Solutions
The following table compares line items within operating income for Travel and Corporate Solutions:
(In thousands)
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Other operating expenses
General and administrative
Sales and marketing
Depreciation and amortization
Impairment charge
Operating income
Cost of services
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
$
$
$
$
$
$
$
$
62,179
27,654
5,914
17,496
17,044
36,164
58,927
18,144
$
$
$
$
$
$
$
$
— $
44,949
27,573
7,319
14,247
15,245
26,151
47,939
14,813
2,424
124,304
$
102,684
$
$
$
$
$
$
$
$
$
$
17,230
81
(1,405)
3,249
1,799
10,013
10,988
3,331
(2,424)
38 %
— %
(19)%
23 %
12 %
38 %
23 %
22 %
(100)%
21,620
21 %
Processing costs increased $17.2 million in 2019, as compared to 2018, due primarily to the acquisition of Noventis and
volume related increases.
The following table reflects comparative revenue and key operating statistics within Health and Employee Benefit
Revenues
Solutions:
(In thousands)
Revenues(a)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Key operating statistics
Payment processing revenue:
Purchase volume(1)
Account servicing revenue:
Average number of SaaS accounts(2)
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
64,963
$
55,722
$
205,524
150
46,833
108,172
16,708
33,553
9,241
97,352
(16,558)
13,280
$
317,470
$
214,155
$
103,315
$
5,206,275
$
4,814,328
$
391,947
12,926
11,020
1,906
17 %
90 %
(99)%
40 %
48 %
8 %
17 %
(a)The impact of foreign currency exchange rate fluctuations reduced Health and Employee Benefit Solutions revenue by $1.3 million in 2019, as compared to the
prior year.
(1) Purchase volume represents the total US dollar value of all transactions where interchange is earned by WEX.
(2) Average number of SaaS accounts represents the number of active Consumer Directed Health, COBRA, and billing accounts on our SaaS platforms in the US.
Service fees in 2019, were generally consistent with service fees in 2018, as benefits resulting from the onboarding of
Payment processing revenue increased $9.2 million for 2019, as compared to 2018, resulting primarily from the acquisition
transactions to an internal processing platform were offset by the impact of higher volumes.
of Discovery Benefits.
Provision for credit losses decreased $1.4 million in 2019, as compared to 2018, resulting from recoveries on amounts
previously charged-off and the absence of a discrete customer reserve taken during 2018.
Operating interest increased $3.2 million in 2019, as compared to 2018, primarily due to higher interest rates paid on
deposits and volume growth.
Depreciation and amortization expenses increased $1.8 million in 2019, as compared to 2018, due primarily to the
amortization of software obtained in the Noventis acquisition, partly offset by lower amortization expense on intangible assets
related to acquisitions from prior periods.
Other operating expenses
General and administrative expenses increased $10.0 million in 2019, as compared to 2018, primarily due to costs
associated with the Noventis acquisition including the expense incurred to accelerate vesting of options awards.
Sales and marketing expenses increased $11.0 million in 2019, as compared to 2018, primarily due to higher relative
commission payments to partners and the Noventis acquisition.
Depreciation and amortization increased $3.3 million in 2019, as compared to 2018, due primarily to higher amortization
on customer relationships obtained as part of the Noventis acquisition.
During 2018, we recognized a $2.4 million non-cash impairment charge to write-off certain property and equipment.
Account servicing revenue increased $97.4 million for 2019, as compared to 2018, primarily due to the acquisition of
Discovery Benefits and existing WEX Health customer growth, which resulted in a higher number of participants using our SaaS
healthcare technology platform and higher revenue earned on HSA assets.
Finance fee revenue decreased $16.6 million in 2019, as compared to 2018, due primarily to the accounting impact of
our WEX Latin America securitization arrangement, as discussed further below.
Other revenue increased $13.3 million in 2019, as compared to 2018, primarily due to realized gains on the sale of WEX
Latin America customer receivables under a securitization arrangement. Prior to an amendment of this securitization arrangement
during the third quarter of 2018, the revenue associated with these customer receivables was primarily included in finance fee
revenue. The increase in other revenue was also attributable to growth in ancillary services to cardholders as a result of the increased
number of SaaS platform participants and HSA assets. The acquisition of Discovery Benefits also contributed to the increase in
other revenue.
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44
Operating Expenses
Health and Employee Benefit Solutions
The following table compares line items within operating income for Travel and Corporate Solutions:
Revenues
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
The following table reflects comparative revenue and key operating statistics within Health and Employee Benefit
Solutions:
38 %
— %
(19)%
23 %
12 %
38 %
23 %
22 %
(100)%
Processing costs increased $17.2 million in 2019, as compared to 2018, due primarily to the acquisition of Noventis and
124,304
$
102,684
21,620
21 %
(In thousands)
Revenues(a)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Key operating statistics
Payment processing revenue:
Purchase volume(1)
Account servicing revenue:
Average number of SaaS accounts(2)
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
64,963
$
55,722
$
205,524
150
46,833
108,172
16,708
33,553
9,241
97,352
(16,558)
13,280
$
317,470
$
214,155
$
103,315
$
5,206,275
$
4,814,328
$
391,947
12,926
11,020
1,906
17 %
90 %
(99)%
40 %
48 %
8 %
17 %
(a)The impact of foreign currency exchange rate fluctuations reduced Health and Employee Benefit Solutions revenue by $1.3 million in 2019, as compared to the
prior year.
(1) Purchase volume represents the total US dollar value of all transactions where interchange is earned by WEX.
(2) Average number of SaaS accounts represents the number of active Consumer Directed Health, COBRA, and billing accounts on our SaaS platforms in the US.
(In thousands)
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Other operating expenses
General and administrative
Sales and marketing
Depreciation and amortization
Impairment charge
Operating income
Cost of services
volume related increases.
$
$
$
$
$
$
$
$
$
$
62,179
27,654
5,914
17,496
17,044
36,164
58,927
18,144
$
$
$
$
$
$
$
$
— $
17,230
81
(1,405)
3,249
1,799
10,013
10,988
3,331
(2,424)
44,949
27,573
7,319
14,247
15,245
26,151
47,939
14,813
2,424
$
$
$
$
$
$
$
$
$
$
Service fees in 2019, were generally consistent with service fees in 2018, as benefits resulting from the onboarding of
Payment processing revenue increased $9.2 million for 2019, as compared to 2018, resulting primarily from the acquisition
transactions to an internal processing platform were offset by the impact of higher volumes.
of Discovery Benefits.
Provision for credit losses decreased $1.4 million in 2019, as compared to 2018, resulting from recoveries on amounts
previously charged-off and the absence of a discrete customer reserve taken during 2018.
Operating interest increased $3.2 million in 2019, as compared to 2018, primarily due to higher interest rates paid on
deposits and volume growth.
Depreciation and amortization expenses increased $1.8 million in 2019, as compared to 2018, due primarily to the
amortization of software obtained in the Noventis acquisition, partly offset by lower amortization expense on intangible assets
related to acquisitions from prior periods.
Other operating expenses
General and administrative expenses increased $10.0 million in 2019, as compared to 2018, primarily due to costs
associated with the Noventis acquisition including the expense incurred to accelerate vesting of options awards.
Sales and marketing expenses increased $11.0 million in 2019, as compared to 2018, primarily due to higher relative
commission payments to partners and the Noventis acquisition.
Depreciation and amortization increased $3.3 million in 2019, as compared to 2018, due primarily to higher amortization
on customer relationships obtained as part of the Noventis acquisition.
During 2018, we recognized a $2.4 million non-cash impairment charge to write-off certain property and equipment.
Account servicing revenue increased $97.4 million for 2019, as compared to 2018, primarily due to the acquisition of
Discovery Benefits and existing WEX Health customer growth, which resulted in a higher number of participants using our SaaS
healthcare technology platform and higher revenue earned on HSA assets.
Finance fee revenue decreased $16.6 million in 2019, as compared to 2018, due primarily to the accounting impact of
our WEX Latin America securitization arrangement, as discussed further below.
Other revenue increased $13.3 million in 2019, as compared to 2018, primarily due to realized gains on the sale of WEX
Latin America customer receivables under a securitization arrangement. Prior to an amendment of this securitization arrangement
during the third quarter of 2018, the revenue associated with these customer receivables was primarily included in finance fee
revenue. The increase in other revenue was also attributable to growth in ancillary services to cardholders as a result of the increased
number of SaaS platform participants and HSA assets. The acquisition of Discovery Benefits also contributed to the increase in
other revenue.
43
44
Operating Expenses
The following table compares line items within operating income for unallocated corporate expenses:
The following table compares line items within operating income for Health and Employee Benefit Solutions:
(In thousands)
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Other operating expenses
General and administrative
Sales and marketing
Depreciation and amortization
Operating income
NM - Not Meaningful
Cost of services
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
$
$
$
$
$
$
$
133,226
22,165
$
$
(66) $
2,278
34,111
35,739
32,788
34,975
22,254
$
$
$
$
$
$
74,392
18,870
4,679
7,658
24,970
30,536
24,055
21,517
7,478
$
$
$
$
$
$
$
$
$
58,834
3,295
(4,745)
(5,380)
9,141
5,203
8,733
13,458
79 %
17 %
NM
(70)%
37 %
17 %
36 %
63 %
14,776
198 %
Processing costs increased $58.8 million in 2019, as compared to 2018, due primarily to the acquisition of Discovery
Benefits and volume-related WEX Health increases, including higher personnel-related costs.
Service fees increased $3.3 million in 2019, as compared to 2018, due primarily to costs associated with payments made
to third parties for the funding of higher asset balances and an increase in participants utilizing our SaaS healthcare offerings.
(In thousands)
Other operating expenses
General and administrative
Depreciation and amortization
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
124,187
2,420
$
$
80,228
1,722
$
$
43,959
698
55%
41%
General and administrative expenses increased $44.0 million for 2019 as compared to 2018, due primarily to higher
professional fees associated with acquisition-related and integration costs attributed to recently completed acquisitions, debt
restructuring costs incurred as part of our 2019 amendments to our 2016 Credit Agreement and costs incurred to remediate internal
control material weaknesses identified during the prior year. Higher personnel-related costs also contributed to the increase.
Other unallocated corporate expenses were not material to the Company’s operations in either 2019 or 2018.
Non-operating income and expense
The following table reflects comparative results for certain amounts excluded from operating income:
(In thousands)
Financing interest expense
Net foreign currency loss
Net unrealized (loss) gain on financial instruments
Non-cash adjustments related to tax receivable agreement
Income taxes
Net (loss) income from non-controlling interests
Accretion of non-controlling interest
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
$
$
$
$
$
(134,677) $
(105,023) $
29,654
(926) $
(38,800) $
(37,874)
(34,654) $
2,579
932
61,223
$
$
(1,030) $
$
$
$
(775) $
68,843
1,481
37,233
1,707
(7,620)
2,511
(57,317) $
— $
(57,317)
28 %
98 %
NM
NM
(11)%
NM
NM
Provision for credit losses was not material to Health and Employee Benefit Solutions’ operations in either 2019 or 2018.
NM - Not Meaningful
Operating interest decreased $5.4 million in 2019, as compared to 2018. During the third quarter of 2018, we amended
our WEX Latin America securitization agreement, resulting in sale accounting treatment upon the transfer of related customer
receivables. As such, our associated cost of funding is now part of the gain on sale of the receivables and is recorded within other
revenue.
Depreciation and amortization expenses increased $9.1 million in 2019, as compared to 2018, resulting primarily from
the amortization of software obtained in the Discovery Benefits acquisition and higher depreciation expense on internally developed
software as we continued to invest in technology.
Other operating expenses
General and administrative expenses increased $5.2 million in 2019, as compared to 2018, due to the acquisition of
Discovery Benefits.
Sales and marketing increased $8.7 million in 2019, as compared to 2018, due primarily to the acquisition of Discovery
Benefits and an increase in WEX Health personnel-related costs.
Depreciation and amortization increased $13.5 million in 2019, as compared to 2018, due primarily to amortization of
customer relationship intangible assets obtained in the Discovery Benefits acquisition.
Unallocated corporate expenses
Unallocated corporate expenses represent the portion of expenses relating to general corporate functions including
acquisition expenses, certain finance, legal, information technology, human resources, administrative and executive expenses and
other expenses not directly attributable to a reportable segment.
Financing interest expense increased $29.7 million in 2019, as compared to 2018. This increase was primarily due to
additional debt balances outstanding following our 2019 amendments to our 2016 Credit Agreement, which were primarily used
to fund the acquisitions of Noventis and Discovery Benefits.
Our foreign currency exchange exposure is primarily related to the remeasurement of our cash, accounts receivable and
accounts payable balances, including intercompany transactions that are denominated in foreign currencies. In 2019, net foreign
currency loss was $0.9 million, as compared to $38.8 million in 2018. In 2018, the U.S. dollar strengthened relative to all major
foreign currencies in which we transact, including the Euro, British pound sterling, Australian dollar, Brazilian real and Canadian
dollar.
Net unrealized loss on financial instruments increased $37.2 million in 2019, as compared to 2018, primarily due to a
decrease in the LIBOR forward yield curve.
Non-cash adjustments related to tax receivable agreement were not material to operations in 2019 or 2018.
Our effective tax rate was 28.3 percent for 2019 as compared to 28.9 percent for 2018. The decrease in our effective tax
rate was primarily due to the jurisdictional earnings mix.
Net (loss) income from non-controlling interests relates to our non-controlling interests in WEX Europe Services and the
U.S. Health business. Such amounts were not material to Company operations for 2019 or 2018.
The accretion of the non-controlling interest in the U.S. Health business was $57.3 million in 2019, resulting from an
adjustment to the redemption value as calculated per the Discovery Benefits acquisition agreement.
45
46
Operating Expenses
The following table compares line items within operating income for unallocated corporate expenses:
The following table compares line items within operating income for Health and Employee Benefit Solutions:
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
(In thousands)
Other operating expenses
General and administrative
Depreciation and amortization
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
124,187
2,420
$
$
80,228
1,722
$
$
43,959
698
55%
41%
(In thousands)
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Other operating expenses
General and administrative
Sales and marketing
Depreciation and amortization
Operating income
NM - Not Meaningful
Cost of services
$
$
$
$
$
$
$
$
$
133,226
22,165
2,278
34,111
(66) $
35,739
32,788
34,975
$
$
$
$
$
$
$
$
74,392
18,870
4,679
7,658
24,970
30,536
24,055
21,517
$
$
$
$
$
$
$
$
$
58,834
3,295
(4,745)
(5,380)
9,141
5,203
8,733
13,458
79 %
17 %
NM
(70)%
37 %
17 %
36 %
63 %
22,254
7,478
14,776
198 %
Processing costs increased $58.8 million in 2019, as compared to 2018, due primarily to the acquisition of Discovery
Benefits and volume-related WEX Health increases, including higher personnel-related costs.
Service fees increased $3.3 million in 2019, as compared to 2018, due primarily to costs associated with payments made
to third parties for the funding of higher asset balances and an increase in participants utilizing our SaaS healthcare offerings.
General and administrative expenses increased $44.0 million for 2019 as compared to 2018, due primarily to higher
professional fees associated with acquisition-related and integration costs attributed to recently completed acquisitions, debt
restructuring costs incurred as part of our 2019 amendments to our 2016 Credit Agreement and costs incurred to remediate internal
control material weaknesses identified during the prior year. Higher personnel-related costs also contributed to the increase.
Other unallocated corporate expenses were not material to the Company’s operations in either 2019 or 2018.
Non-operating income and expense
The following table reflects comparative results for certain amounts excluded from operating income:
(In thousands)
Financing interest expense
Net foreign currency loss
Net unrealized (loss) gain on financial instruments
Non-cash adjustments related to tax receivable agreement
Income taxes
Net (loss) income from non-controlling interests
Accretion of non-controlling interest
Twelve Months Ended
December 31,
Increase (Decrease)
2019
2018
Amount
Percent
$
$
$
$
$
$
$
(134,677) $
(105,023) $
29,654
(926) $
(38,800) $
(37,874)
(34,654) $
932
61,223
$
$
(1,030) $
2,579
$
(775) $
68,843
1,481
$
$
37,233
1,707
(7,620)
2,511
(57,317) $
— $
(57,317)
28 %
98 %
NM
NM
(11)%
NM
NM
Provision for credit losses was not material to Health and Employee Benefit Solutions’ operations in either 2019 or 2018.
NM - Not Meaningful
Operating interest decreased $5.4 million in 2019, as compared to 2018. During the third quarter of 2018, we amended
our WEX Latin America securitization agreement, resulting in sale accounting treatment upon the transfer of related customer
receivables. As such, our associated cost of funding is now part of the gain on sale of the receivables and is recorded within other
revenue.
Depreciation and amortization expenses increased $9.1 million in 2019, as compared to 2018, resulting primarily from
the amortization of software obtained in the Discovery Benefits acquisition and higher depreciation expense on internally developed
software as we continued to invest in technology.
Other operating expenses
Discovery Benefits.
General and administrative expenses increased $5.2 million in 2019, as compared to 2018, due to the acquisition of
Sales and marketing increased $8.7 million in 2019, as compared to 2018, due primarily to the acquisition of Discovery
Benefits and an increase in WEX Health personnel-related costs.
Depreciation and amortization increased $13.5 million in 2019, as compared to 2018, due primarily to amortization of
customer relationship intangible assets obtained in the Discovery Benefits acquisition.
Unallocated corporate expenses
Unallocated corporate expenses represent the portion of expenses relating to general corporate functions including
acquisition expenses, certain finance, legal, information technology, human resources, administrative and executive expenses and
other expenses not directly attributable to a reportable segment.
Financing interest expense increased $29.7 million in 2019, as compared to 2018. This increase was primarily due to
additional debt balances outstanding following our 2019 amendments to our 2016 Credit Agreement, which were primarily used
to fund the acquisitions of Noventis and Discovery Benefits.
Our foreign currency exchange exposure is primarily related to the remeasurement of our cash, accounts receivable and
accounts payable balances, including intercompany transactions that are denominated in foreign currencies. In 2019, net foreign
currency loss was $0.9 million, as compared to $38.8 million in 2018. In 2018, the U.S. dollar strengthened relative to all major
foreign currencies in which we transact, including the Euro, British pound sterling, Australian dollar, Brazilian real and Canadian
dollar.
Net unrealized loss on financial instruments increased $37.2 million in 2019, as compared to 2018, primarily due to a
decrease in the LIBOR forward yield curve.
Non-cash adjustments related to tax receivable agreement were not material to operations in 2019 or 2018.
Our effective tax rate was 28.3 percent for 2019 as compared to 28.9 percent for 2018. The decrease in our effective tax
rate was primarily due to the jurisdictional earnings mix.
Net (loss) income from non-controlling interests relates to our non-controlling interests in WEX Europe Services and the
U.S. Health business. Such amounts were not material to Company operations for 2019 or 2018.
The accretion of the non-controlling interest in the U.S. Health business was $57.3 million in 2019, resulting from an
adjustment to the redemption value as calculated per the Discovery Benefits acquisition agreement.
45
46
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, and non-cash adjustments related to the tax receivable agreement 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.
For the same reasons, WEX believes that adjusted net income may also be useful to investors when evaluating the
Company’s performance. However, because adjusted net income is a non-GAAP measure, it should not be considered as a substitute
for, or superior to, net income as determined in accordance with GAAP. In addition, 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:
(In thousands)
Net income attributable to shareholders
Unrealized loss (gain) on financial instruments
Net foreign currency remeasurement loss (gain)
Acquisition-related intangible amortization
Other acquisition and divestiture related items
Gain on divestiture
Stock-based compensation
Restructuring and other costs
Impairment charges
Debt restructuring and debt issuance cost amortization
Non-cash adjustments related to tax receivable agreement
ANI adjustments attributable to non-controlling interests
Tax related items
Adjusted net income attributable to shareholders
$
402,673
$
360,902
$
Year ended December 31,
2019
2018
2017
$
99,006
$
168,295
$
34,654
926
159,431
37,675
—
47,511
25,106
—
21,004
(932)
53,035
(74,743)
(2,579)
38,800
138,186
4,143
—
35,103
13,717
5,649
14,101
775
(1,370)
(53,918)
160,062
(1,314)
(31,487)
153,810
5,000
(20,958)
30,487
11,129
44,171
10,519
(15,259)
(1,563)
(115,278)
229,319
Year Ended December 31, 2018, Compared to the Year Ended December 31, 2017
Discussion and analysis of the year ended December 31, 2018 compared to the year ended December 31, 2017 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, 2018, as amended by our Annual Report on Form 10–K/A, as
filed with the SEC on March 20, 2019.
Non-GAAP Financial Measures That Supplement GAAP Measures
The Company’s non-GAAP adjusted net income excludes unrealized gains and losses on financial instruments, net foreign
currency remeasurement gains and losses, acquisition-related intangible amortization, other acquisition and divestiture related
items, stock-based compensation, restructuring and other costs, gain on divestiture, impairment charges, debt restructuring and
debt issuance cost amortization, non-cash adjustments related to tax receivable agreement, similar adjustments attributable to our
non-controlling interests and certain tax related items.
Although adjusted net income is not calculated in accordance with GAAP, this non-GAAP measure is integral to the
Company’s reporting and planning processes and the chief operating decision maker of the Company uses segment adjusted
operating income to allocate resources among our operating segments. The Company considers this measure integral because it
excludes the above-specified items that the Company’s management excludes in evaluating the Company’s performance.
Specifically, in addition to evaluating the Company’s performance on a GAAP basis, management evaluates the Company’s
performance on a basis that excludes the above items because:
•
•
•
•
Exclusion of the non-cash, mark-to-market adjustments on financial instruments, including interest rate swap agreements
and investment securities, helps management identify and assess trends in the Company’s underlying business that might
otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these financial instruments.
Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately,
making comparisons across historical and future quarters difficult to evaluate.
Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, accounts
receivable and accounts payable balances, certain intercompany notes denominated in foreign currencies and any gain
or loss on foreign currency hedges relating to these items. The exclusion of these items helps management compare
changes in operating results between periods that might otherwise be obscured due to currency fluctuations.
The 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 of divestitures facilitates
the comparison of our financial results to the Company’s historical operating results and to other companies in our industry.
Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a
cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award
is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based
on a stock-based compensation valuation methodology and underlying assumptions that may vary over time.
• We exclude restructuring and other costs when evaluating our continuing business performance as such items are not
consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the
fundamentals of current or past operations of our business. This also includes costs related to certain identified initiatives,
including technology initiatives, to further streamline the business, improve the Company’s efficiency, create synergies
and globalize the Company’s operations and remediate the prior year material weaknesses, 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 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
47
48
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, and non-cash adjustments related to the tax receivable agreement 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.
For the same reasons, WEX believes that adjusted net income may also be useful to investors when evaluating the
Company’s performance. However, because adjusted net income is a non-GAAP measure, it should not be considered as a substitute
for, or superior to, net income as determined in accordance with GAAP. In addition, 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:
(In thousands)
Net income attributable to shareholders
Unrealized loss (gain) on financial instruments
Net foreign currency remeasurement loss (gain)
Acquisition-related intangible amortization
Other acquisition and divestiture related items
Gain on divestiture
Stock-based compensation
Restructuring and other costs
Impairment charges
Debt restructuring and debt issuance cost amortization
Non-cash adjustments related to tax receivable agreement
ANI adjustments attributable to non-controlling interests
Tax related items
Year ended December 31,
2019
2018
2017
$
99,006
$
168,295
$
34,654
926
159,431
37,675
—
47,511
25,106
—
21,004
(932)
53,035
(74,743)
(2,579)
38,800
138,186
4,143
—
35,103
13,717
5,649
14,101
775
(1,370)
(53,918)
160,062
(1,314)
(31,487)
153,810
5,000
(20,958)
30,487
11,129
44,171
10,519
(15,259)
(1,563)
(115,278)
229,319
Adjusted net income attributable to shareholders
$
402,673
$
360,902
$
Year Ended December 31, 2018, Compared to the Year Ended December 31, 2017
Discussion and analysis of the year ended December 31, 2018 compared to the year ended December 31, 2017 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, 2018, as amended by our Annual Report on Form 10–K/A, as
filed with the SEC on March 20, 2019.
Non-GAAP Financial Measures That Supplement GAAP Measures
The Company’s non-GAAP adjusted net income excludes unrealized gains and losses on financial instruments, net foreign
currency remeasurement gains and losses, acquisition-related intangible amortization, other acquisition and divestiture related
items, stock-based compensation, restructuring and other costs, gain on divestiture, impairment charges, debt restructuring and
debt issuance cost amortization, non-cash adjustments related to tax receivable agreement, similar adjustments attributable to our
non-controlling interests and certain tax related items.
Although adjusted net income is not calculated in accordance with GAAP, this non-GAAP measure is integral to the
Company’s reporting and planning processes and the chief operating decision maker of the Company uses segment adjusted
operating income to allocate resources among our operating segments. The Company considers this measure integral because it
excludes the above-specified items that the Company’s management excludes in evaluating the Company’s performance.
Specifically, in addition to evaluating the Company’s performance on a GAAP basis, management evaluates the Company’s
performance on a basis that excludes the above items because:
•
•
•
•
•
•
Exclusion of the non-cash, mark-to-market adjustments on financial instruments, including interest rate swap agreements
and investment securities, helps management identify and assess trends in the Company’s underlying business that might
otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these financial instruments.
Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately,
making comparisons across historical and future quarters difficult to evaluate.
Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, accounts
receivable and accounts payable balances, certain intercompany notes denominated in foreign currencies and any gain
or loss on foreign currency hedges relating to these items. The exclusion of these items helps management compare
changes in operating results between periods that might otherwise be obscured due to currency fluctuations.
The 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 of divestitures facilitates
the comparison of our financial results to the Company’s historical operating results and to other companies in our industry.
Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a
cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award
is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based
on a stock-based compensation valuation methodology and underlying assumptions that may vary over time.
• We exclude restructuring and other costs when evaluating our continuing business performance as such items are not
consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the
fundamentals of current or past operations of our business. This also includes costs related to certain identified initiatives,
including technology initiatives, to further streamline the business, improve the Company’s efficiency, create synergies
and globalize the Company’s operations and remediate the prior year material weaknesses, 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 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
47
48
Effect if Actual Results Differ from
Assumptions
To the extent historical credit experience is
not indicative of future performance, actual
loss experience 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, 2019, we
have an estimated reserve for credit losses
that is 1.93 percent of the total gross accounts
receivable balance.
An increase or decrease to this reserve by
0.5 percent of the total gross accounts
receivable balance would increase or decrease
the provision for credit losses for the year by
$13.6 million. As of December 31, 2019,
2018 and 2017, our reserve for credit losses
in an annual period has ranged from 1.34
percent to 1.93 percent of the total gross
accounts receivable balance.
Assumptions/Approach Used
Management has consistently considered its
portfolio of charge card receivables as a large
group of smaller balance accounts that it has
collectively evaluated for impairment.
Reserves for losses on these receivables are
primarily based on a model that analyzes
specific portfolio statistics, including average
charge-off rates for various stages of
receivable aging (including: current, 30 days,
60 days and 90 days) over historical periods
including average bankruptcy and recovery
rates. Receivables are generally written off
when they are 150 days past due or upon
declaration of bankruptcy by the customer.
The reserve reflects management’s judgment
regarding overall reserve adequacy.
Management considers whether to adjust the
reserve that is calculated by the analytic model
based on other factors, such as the actual
charge-offs for the preceding reporting periods,
expected charge-offs and recoveries for the
subsequent reporting periods, a review of
accounts receivable balances that become past
due, changes in customer payment patterns,
known fraudulent activity in the portfolio, as
well as leading economic and market
indicators.
Application of Critical Accounting Policies and Estimates
Reserve for Credit Losses
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with GAAP. Preparation of these financial statements requires us to make
estimates and judgments that affect reported amounts of assets and liabilities, revenue and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements. We continually evaluate our judgments and estimates in
determination of our financial condition and operating results. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are based on information
available as of the date of the financial statements and, accordingly, actual results could differ from these estimates, sometimes
materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our
financial condition and operating results and require management’s most subjective judgments. Our consolidated financial
statements are based on the selection and application of critical accounting policies and estimates, the most significant of which
are included in the tables below.
Description
The reserve for losses relating to accounts
receivable represents management’s estimate of the
losses inherent in the Company’s outstanding
portfolio of receivables, including fraud losses. The
reserve for credit losses reduces the Company’s
accounts receivable balances, as reported in its
financial statements, to the net realizable value.
Effect if Actual Results Differ from
Assumptions
In preparing the financial statements,
management must make estimates related to
contractual terms, customer performance and
sales volumes to determine the total amounts
recorded as deductions, such as rebates and
incentives, from revenue. Rebates and
incentives are calculated based on estimated
performance and the terms of the related
business agreements. Management also
considers historical results in making such
estimates. The actual amounts ultimately paid
to the customer may be different from our
estimates. Such differences are recorded once
they have been determined and have
historically not been significant.
Revenue Recognition
Description
The majority of the Company’s revenues are
comprised of transaction-based fees, which are
generally calculated based on measures such as:
(i) percentage of dollar value of volume processed;
(ii) number of transactions processed; or (iii) some
combination thereof.
Interchange income, a fee paid by a merchant bank
to the card-issuing bank (the Company) through the
interchange network, is earned from the Company’s
suite of card products. Interchange fees are set by
the credit card providers.
The Company has entered into agreements with
major oil companies, fuel retailers and vehicle
maintenance providers, online travel agencies and
health partners which provide products and/or
services to the Company’s customers. These
agreements specify that a transaction is deemed to
be captured when the Company has validated that
the transaction has no errors and has accepted and
posted the data to the Company’s records.
Account servicing revenue is primarily comprised
of monthly fees charged to cardholders. The
Company also recognizes SaaS based service fees
in the healthcare market and licensing fees for use
of our accounts receivable and accounts payable
SaaS platforms.
The Company earns revenue on overdue accounts,
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.
The Company assesses fees for providing ancillary
services, such as information products and services,
software development projects and other services
sold subsequent to the core offerings. Other
revenues also include international settlement fees,
fees for overnight shipping, certain customized
electronic reporting and customer contact services
provided on behalf of certain of the Company’s
customers.
Assumptions/Approach Used
The Company’s primary performance
obligation to merchants is a stand-ready
commitment to provide payment and
transaction processing services as the merchant
requires, which is satisfied over time in daily
increments.
Within our Travel and Corporate Solutions and
Health and Employee Benefit Solutions
segments, we provide SaaS services and
support, which is satisfied over time in a series
of daily increments. Revenue is recognized
based on an output method using days elapsed
to measure progress as the Company transfers
control evenly over each monthly subscription
period.
The Company enters into contracts with certain
large customers or strategic cardholders that
provide for fee rebates tied to performance
milestones. When such rebates constitute
consideration payable to a customer or other
parties that purchase services from the
customer, they are considered variable
consideration and are recorded as a reduction
in payment processing revenue in the same
period that related interchange income is
recognized. Fee rebates made to certain other
partners were determined to be costs to obtain
a contract and are recorded as sales and
marketing expenses.
The Company earns revenue on overdue
accounts, which is recognized as revenue at the
time the fees are assessed.
The Company generally records revenue net of
consideration retained based upon its
conclusion that the Company is the agent in its
principal versus agent relationships.
See Item 8 — Note 1, Summary of Significant Accounting Policies, for accounting guidance applied prior to the Company’s adoption of Topic 606.
49
50
Effect if Actual Results Differ from
Assumptions
To the extent historical credit experience is
not indicative of future performance, actual
loss experience 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, 2019, we
have an estimated reserve for credit losses
that is 1.93 percent of the total gross accounts
receivable balance.
An increase or decrease to this reserve by
0.5 percent of the total gross accounts
receivable balance would increase or decrease
the provision for credit losses for the year by
$13.6 million. As of December 31, 2019,
2018 and 2017, our reserve for credit losses
in an annual period has ranged from 1.34
percent to 1.93 percent of the total gross
accounts receivable balance.
Assumptions/Approach Used
Management has consistently considered its
portfolio of charge card receivables as a large
group of smaller balance accounts that it has
collectively evaluated for impairment.
Reserves for losses on these receivables are
primarily based on a model that analyzes
specific portfolio statistics, including average
charge-off rates for various stages of
receivable aging (including: current, 30 days,
60 days and 90 days) over historical periods
including average bankruptcy and recovery
rates. Receivables are generally written off
when they are 150 days past due or upon
declaration of bankruptcy by the customer.
The reserve reflects management’s judgment
regarding overall reserve adequacy.
Management considers whether to adjust the
reserve that is calculated by the analytic model
based on other factors, such as the actual
charge-offs for the preceding reporting periods,
expected charge-offs and recoveries for the
subsequent reporting periods, a review of
accounts receivable balances that become past
due, changes in customer payment patterns,
known fraudulent activity in the portfolio, as
well as leading economic and market
indicators.
Application of Critical Accounting Policies and Estimates
Reserve for Credit Losses
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with GAAP. Preparation of these financial statements requires us to make
estimates and judgments that affect reported amounts of assets and liabilities, revenue and expenses and related disclosure of
contingent assets and liabilities at the date of our financial statements. We continually evaluate our judgments and estimates in
determination of our financial condition and operating results. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are based on information
available as of the date of the financial statements and, accordingly, actual results could differ from these estimates, sometimes
materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our
financial condition and operating results and require management’s most subjective judgments. Our consolidated financial
statements are based on the selection and application of critical accounting policies and estimates, the most significant of which
Description
The reserve for losses relating to accounts
receivable represents management’s estimate of the
losses inherent in the Company’s outstanding
portfolio of receivables, including fraud losses. The
reserve for credit losses reduces the Company’s
accounts receivable balances, as reported in its
financial statements, to the net realizable value.
Effect if Actual Results Differ from
Assumptions
In preparing the financial statements,
management must make estimates related to
contractual terms, customer performance and
sales volumes to determine the total amounts
recorded as deductions, such as rebates and
incentives, from revenue. Rebates and
incentives are calculated based on estimated
performance and the terms of the related
business agreements. Management also
considers historical results in making such
estimates. The actual amounts ultimately paid
to the customer may be different from our
estimates. Such differences are recorded once
they have been determined and have
historically not been significant.
are included in the tables below.
Revenue Recognition
Description
The majority of the Company’s revenues are
comprised of transaction-based fees, which are
generally calculated based on measures such as:
(i) percentage of dollar value of volume processed;
(ii) number of transactions processed; or (iii) some
combination thereof.
Interchange income, a fee paid by a merchant bank
to the card-issuing bank (the Company) through the
interchange network, is earned from the Company’s
suite of card products. Interchange fees are set by
the credit card providers.
The Company has entered into agreements with
major oil companies, fuel retailers and vehicle
maintenance providers, online travel agencies and
health partners which provide products and/or
services to the Company’s customers. These
agreements specify that a transaction is deemed to
be captured when the Company has validated that
the transaction has no errors and has accepted and
posted the data to the Company’s records.
Account servicing revenue is primarily comprised
of monthly fees charged to cardholders. The
Company also recognizes SaaS based service fees
in the healthcare market and licensing fees for use
of our accounts receivable and accounts payable
SaaS platforms.
The Company earns revenue on overdue accounts,
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.
The Company assesses fees for providing ancillary
services, such as information products and services,
software development projects and other services
sold subsequent to the core offerings. Other
revenues also include international settlement fees,
fees for overnight shipping, certain customized
electronic reporting and customer contact services
provided on behalf of certain of the Company’s
customers.
Assumptions/Approach Used
The Company’s primary performance
obligation to merchants is a stand-ready
commitment to provide payment and
transaction processing services as the merchant
requires, which is satisfied over time in daily
increments.
Within our Travel and Corporate Solutions and
Health and Employee Benefit Solutions
segments, we provide SaaS services and
support, which is satisfied over time in a series
of daily increments. Revenue is recognized
based on an output method using days elapsed
to measure progress as the Company transfers
control evenly over each monthly subscription
period.
The Company enters into contracts with certain
large customers or strategic cardholders that
provide for fee rebates tied to performance
milestones. When such rebates constitute
consideration payable to a customer or other
parties that purchase services from the
customer, they are considered variable
consideration and are recorded as a reduction
in payment processing revenue in the same
period that related interchange income is
recognized. Fee rebates made to certain other
partners were determined to be costs to obtain
a contract and are recorded as sales and
marketing expenses.
The Company earns revenue on overdue
accounts, which is recognized as revenue at the
time the fees are assessed.
The Company generally records revenue net of
consideration retained based upon its
conclusion that the Company is the agent in its
principal versus agent relationships.
See Item 8 — Note 1, Summary of Significant Accounting Policies, for accounting guidance applied prior to the Company’s adoption of Topic 606.
49
50
Business Combinations, Acquired Intangible Assets and Goodwill
Description
Assumptions/Approach Used
Business combinations are
accounted for at fair value. The
accounting for business
combinations requires estimates and
judgment as to expectations for
future cash flows of the acquired
business, and the allocation of those
cash flows to identifiable intangible
assets, in determining the estimated
fair value for assets and liabilities
acquired.
An acquisition not meeting the
criteria to be accounted for as a
business combination is accounted
for as an asset acquisition. Asset
acquisitions are recorded at
purchase price, allocated based on
the relative fair value of identifiable
assets and liabilities. No goodwill is
recorded in an asset acquisition.
Goodwill is comprised of the cost of
business acquisitions in excess of
the fair value assigned to the net
tangible and identifiable intangible
assets acquired. Acquired intangible
assets result from the allocation of
the cost of an acquisition.
Goodwill is not amortized but is
reviewed for impairment annually,
or when events or changes in the
business environment indicate that
the carrying value of the reporting
units may exceed their fair value.
The annual review of goodwill is
performed as of October 1 of each
year.
The Company tests definite-lived
intangible assets for impairment if
conditions exist that indicate the
carrying value may not be
recoverable.
Such circumstances would include,
but are not limited to, a significant
decrease in the perceived market
price of the intangible, a significant
adverse change in the way the asset
is being used, or a history of
operating or cash flow losses
associated with the use of the
intangible.
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 Company
utilizes third-party specialists to assist management with the
identification and valuation of intangible assets using
customary valuation procedures and techniques.
The Company’s annual goodwill impairment test is
quantitative. For the reporting units that carry goodwill
balances, our impairment test consists of a comparison of each
reporting unit’s carrying value to its estimated fair value. A
reporting unit, for the purpose of the impairment test, is one
level below the operating segment level. We have three
reporting segments that are further broken into several
reporting units for the impairment review. The estimated fair
value for the majority of our reporting units is estimated using
a combination of discounted estimated future cash flows and
prices for comparable businesses. An appropriate discount rate
is used, as well as risk premium for specific business units,
based on the Company’s cost of capital or reporting unit-
specific economic factors. We generally validate the model
through a reconciliation of the fair value of all our reporting
units to our overall market capitalization. The assumptions
used to estimate the discounted cash flows are based on our
best estimates about payment processing fees/interchange
rates, sales volumes, costs (including fuel prices), future
growth rates, working capital needs, capital expenditures and
market conditions over an estimate of the remaining operating
period at the reporting unit level. The discount rate at each
reporting unit is based on the weighted average cost of capital
that is determined by evaluating the risk free rate of return,
cost of debt, and expected equity premiums.
The Company evaluates its definite-lived intangible assets for
impairment under certain circumstances. Such assessment
includes considering any negative financial performance,
legal, regulatory, contractual or other factors that could affect
significant inputs used to determine the fair value of the asset
and other relevant entity-specific events such as changes in
strategy or customers that could affect significant inputs used
in determining fair value. If the Company determines that it is
not more likely than not that the asset is impaired, then the
Company does not perform a quantitative impairment test. If
the Company determines that the asset is more likely than not
impaired, then a quantitative test is performed comparing the
fair value of the asset with its carrying amount and
impairment is measured as the amount by which the carrying
amount of the asset group exceeds its fair value. Fair value
measurements under FASB Accounting Standards
Codification (“ASC”) 820 – Fair Value Measurements and
Disclosures, are based on the assumptions of market
participants. When determining the fair value of the asset
group, entities must consider the highest and best use of the
assets from a market-participant perspective.
If the Company incorrectly estimates the useful lives of its
intangible assets, it would result in inaccurate amortization
expense, which may lead to future impairment.
Effect if Actual Results Differ from
Assumptions
Our goodwill resides in multiple reporting
units. The profitability of individual reporting
units may suffer periodically from downturns
in customer demand or other economic
factors. Individual reporting units may be
more impacted than the Company as a whole.
Specifically, during times of economic
slowdown, our customers may reduce their
expenditures. As a result, demand for the
services of one or more of the reporting units
could decline, which could adversely affect
our operations, cash flow, and liquidity and
could result in an impairment of goodwill or
intangible assets.
Our 2019 goodwill impairment test indicated
an excess of estimated fair value over the
carrying amount of our reporting units
ranging from approximately $16 million to
$3.4 billion.
Although no reporting units are deemed at
risk of impairment as of December 31, 2019,
there exists the potential for future
impairment should actual results deteriorate
versus our current expectations. As of
December 31, 2019, the Company had
approximately $4.0 billion on its consolidated
balance sheet related to goodwill and
intangible assets of acquired entities.
The Company did not record any goodwill
and intangible asset impairments during
either of the years ended December 31, 2019
or 2017.
During our annual goodwill impairment test
performed as of October 1, 2018, we assessed
the impact of a customer loss significant to
our Brazil fleet business. Based on a
comparison of the calculated fair value of this
reporting unit to its carrying value, the
Company recorded a $3.2 million goodwill
impairment charge during the year ended
December 31, 2018. There is no remaining
net goodwill associated with this reporting
unit. The Company did not record any
intangible asset impairments during the year
ended December 31, 2018.
Effect if Actual Results Differ from
Assumptions
Although we believe that our income tax
related judgments and estimates are
reasonable, it is possible that our actual
results could be different than what we
expected, and we may be exposed to a
material change in our total income tax
expense, tax-related balances, or valuation
allowances. Upon income tax audit, any
unfavorable tax settlement may require use of
our cash and result in an increase in our
effective tax rate in the period of settlement.
A favorable tax settlement could be
recognized as a reduction in our effective tax
rate in the period of settlement.
Income Taxes
Description
In preparing the consolidated financial statements,
we calculate income tax expense (benefit) based on
our interpretation of the tax laws in the various
jurisdictions where we conduct business. This
requires us to estimate current tax obligations and
to assess temporary differences between the
financial statement carrying amounts and the tax
bases of assets and liabilities. These differences
result in long-term deferred tax assets and
liabilities, the net amount of which we show as a
line item on the consolidated balance sheet. All or a
portion of the benefit of income tax positions is
recognized only when we have made a
determination that it is more likely than not that the
tax position will be sustained upon examination,
based upon the technical merits of the position and
other factors. For tax positions that are determined
to be more likely than not sustained upon
examination, the tax benefit recognized is the
largest amount of benefit that is greater than 50%
likely of being realized upon ultimate settlement.
We must also assess the likelihood that the deferred
tax assets will be realized.
To the extent we believe that realization is not more
likely than not, we establish a valuation allowance.
When we establish a valuation allowance or
increase this allowance, we generally record a
corresponding income tax expense in the
consolidated statement of income in the period of
the change. Conversely, to the extent circumstances
indicate that realization is more likely than not, the
valuation allowance is decreased to the amount
realizable, which generates an income tax benefit.
New Accounting Standards
adopted.
Assumptions/Approach Used
Management must make judgments to
determine income tax expense (benefit),
deferred tax assets and liabilities and any
valuation allowance to be recorded against
deferred tax assets. During the ordinary course
of business, there are many transactions and
calculations for which the ultimate tax
determination is uncertain. Changes in our
estimates occur periodically due to changes in
tax rates, changes in business operations,
implementation of tax planning strategies, the
expiration of relevant statutes of limitations,
resolution with taxing authorities of uncertain
tax positions and newly enacted statutory,
judicial and regulatory guidance. We record a
valuation allowance to reduce deferred tax
assets to the amount that is more likely than
not to be realized.
Significant judgment is required in
determining valuation allowances. 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. In establishing
a liability for unrecognized tax benefits,
assumptions are made in determining whether,
and to what extent, a tax position may be
sustained. It requires significant management
judgment regarding applicable statutes and
their related interpretation as they apply to our
particular facts and circumstances.
See Item 8 – Note 2, Recent Accounting Pronouncements, for recently issued accounting standards that have not yet been
51
52
Business Combinations, Acquired Intangible Assets and Goodwill
Description
Assumptions/Approach Used
Business combinations are
accounted for at fair value. The
accounting for business
combinations requires estimates and
judgment as to expectations for
future cash flows of the acquired
business, and the allocation of those
cash flows to identifiable intangible
assets, in determining the estimated
fair value for assets and liabilities
acquired.
An acquisition not meeting the
criteria to be accounted for as a
business combination is accounted
for as an asset acquisition. Asset
acquisitions are recorded at
purchase price, allocated based on
the relative fair value of identifiable
assets and liabilities. No goodwill is
recorded in an asset acquisition.
Goodwill is comprised of the cost of
business acquisitions in excess of
the fair value assigned to the net
tangible and identifiable intangible
assets acquired. Acquired intangible
assets result from the allocation of
the cost of an acquisition.
Goodwill is not amortized but is
reviewed for impairment annually,
or when events or changes in the
business environment indicate that
the carrying value of the reporting
units may exceed their fair value.
The annual review of goodwill is
performed as of October 1 of each
year.
The Company tests definite-lived
intangible assets for impairment if
conditions exist that indicate the
carrying value may not be
recoverable.
Such circumstances would include,
but are not limited to, a significant
decrease in the perceived market
price of the intangible, a significant
adverse change in the way the asset
is being used, or a history of
operating or cash flow losses
associated with the use of the
intangible.
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 Company
utilizes third-party specialists to assist management with the
identification and valuation of intangible assets using
customary valuation procedures and techniques.
The Company’s annual goodwill impairment test is
quantitative. For the reporting units that carry goodwill
balances, our impairment test consists of a comparison of each
reporting unit’s carrying value to its estimated fair value. A
reporting unit, for the purpose of the impairment test, is one
level below the operating segment level. We have three
reporting segments that are further broken into several
reporting units for the impairment review. The estimated fair
value for the majority of our reporting units is estimated using
a combination of discounted estimated future cash flows and
prices for comparable businesses. An appropriate discount rate
is used, as well as risk premium for specific business units,
based on the Company’s cost of capital or reporting unit-
specific economic factors. We generally validate the model
through a reconciliation of the fair value of all our reporting
units to our overall market capitalization. The assumptions
used to estimate the discounted cash flows are based on our
best estimates about payment processing fees/interchange
rates, sales volumes, costs (including fuel prices), future
growth rates, working capital needs, capital expenditures and
market conditions over an estimate of the remaining operating
period at the reporting unit level. The discount rate at each
reporting unit is based on the weighted average cost of capital
that is determined by evaluating the risk free rate of return,
cost of debt, and expected equity premiums.
The Company evaluates its definite-lived intangible assets for
impairment under certain circumstances. Such assessment
includes considering any negative financial performance,
legal, regulatory, contractual or other factors that could affect
significant inputs used to determine the fair value of the asset
and other relevant entity-specific events such as changes in
strategy or customers that could affect significant inputs used
in determining fair value. If the Company determines that it is
not more likely than not that the asset is impaired, then the
Company does not perform a quantitative impairment test. If
the Company determines that the asset is more likely than not
impaired, then a quantitative test is performed comparing the
fair value of the asset with its carrying amount and
impairment is measured as the amount by which the carrying
amount of the asset group exceeds its fair value. Fair value
measurements under FASB Accounting Standards
Codification (“ASC”) 820 – Fair Value Measurements and
Disclosures, are based on the assumptions of market
participants. When determining the fair value of the asset
group, entities must consider the highest and best use of the
assets from a market-participant perspective.
If the Company incorrectly estimates the useful lives of its
intangible assets, it would result in inaccurate amortization
expense, which may lead to future impairment.
Effect if Actual Results Differ from
Assumptions
Our goodwill resides in multiple reporting
units. The profitability of individual reporting
units may suffer periodically from downturns
in customer demand or other economic
factors. Individual reporting units may be
more impacted than the Company as a whole.
Specifically, during times of economic
slowdown, our customers may reduce their
expenditures. As a result, demand for the
services of one or more of the reporting units
could decline, which could adversely affect
our operations, cash flow, and liquidity and
could result in an impairment of goodwill or
intangible assets.
Our 2019 goodwill impairment test indicated
an excess of estimated fair value over the
carrying amount of our reporting units
ranging from approximately $16 million to
$3.4 billion.
Although no reporting units are deemed at
risk of impairment as of December 31, 2019,
there exists the potential for future
impairment should actual results deteriorate
versus our current expectations. As of
December 31, 2019, the Company had
approximately $4.0 billion on its consolidated
balance sheet related to goodwill and
intangible assets of acquired entities.
The Company did not record any goodwill
and intangible asset impairments during
either of the years ended December 31, 2019
or 2017.
During our annual goodwill impairment test
performed as of October 1, 2018, we assessed
the impact of a customer loss significant to
our Brazil fleet business. Based on a
comparison of the calculated fair value of this
reporting unit to its carrying value, the
Company recorded a $3.2 million goodwill
impairment charge during the year ended
December 31, 2018. There is no remaining
net goodwill associated with this reporting
unit. The Company did not record any
intangible asset impairments during the year
ended December 31, 2018.
Effect if Actual Results Differ from
Assumptions
Although we believe that our income tax
related judgments and estimates are
reasonable, it is possible that our actual
results could be different than what we
expected, and we may be exposed to a
material change in our total income tax
expense, tax-related balances, or valuation
allowances. Upon income tax audit, any
unfavorable tax settlement may require use of
our cash and result in an increase in our
effective tax rate in the period of settlement.
A favorable tax settlement could be
recognized as a reduction in our effective tax
rate in the period of settlement.
Income Taxes
Description
In preparing the consolidated financial statements,
we calculate income tax expense (benefit) based on
our interpretation of the tax laws in the various
jurisdictions where we conduct business. This
requires us to estimate current tax obligations and
to assess temporary differences between the
financial statement carrying amounts and the tax
bases of assets and liabilities. These differences
result in long-term deferred tax assets and
liabilities, the net amount of which we show as a
line item on the consolidated balance sheet. All or a
portion of the benefit of income tax positions is
recognized only when we have made a
determination that it is more likely than not that the
tax position will be sustained upon examination,
based upon the technical merits of the position and
other factors. For tax positions that are determined
to be more likely than not sustained upon
examination, the tax benefit recognized is the
largest amount of benefit that is greater than 50%
likely of being realized upon ultimate settlement.
We must also assess the likelihood that the deferred
tax assets will be realized.
To the extent we believe that realization is not more
likely than not, we establish a valuation allowance.
When we establish a valuation allowance or
increase this allowance, we generally record a
corresponding income tax expense in the
consolidated statement of income in the period of
the change. Conversely, to the extent circumstances
indicate that realization is more likely than not, the
valuation allowance is decreased to the amount
realizable, which generates an income tax benefit.
New Accounting Standards
Assumptions/Approach Used
Management must make judgments to
determine income tax expense (benefit),
deferred tax assets and liabilities and any
valuation allowance to be recorded against
deferred tax assets. During the ordinary course
of business, there are many transactions and
calculations for which the ultimate tax
determination is uncertain. Changes in our
estimates occur periodically due to changes in
tax rates, changes in business operations,
implementation of tax planning strategies, the
expiration of relevant statutes of limitations,
resolution with taxing authorities of uncertain
tax positions and newly enacted statutory,
judicial and regulatory guidance. We record a
valuation allowance to reduce deferred tax
assets to the amount that is more likely than
not to be realized.
Significant judgment is required in
determining valuation allowances. 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. In establishing
a liability for unrecognized tax benefits,
assumptions are made in determining whether,
and to what extent, a tax position may be
sustained. It requires significant management
judgment regarding applicable statutes and
their related interpretation as they apply to our
particular facts and circumstances.
See Item 8 – Note 2, Recent Accounting Pronouncements, for recently issued accounting standards that have not yet been
adopted.
51
52
Liquidity, Capital Resources and Cash Flows
Liquidity
We believe that our cash generating capability, financial condition and operations, together with the sources of cash listed
below, will be adequate to fund our cash needs for at least the next 12 months. The table below summarizes our primary short-
term sources and uses of cash:
Sources of cash
Use of cash(1)
•
•
•
•
•
Borrowings on our 2016 Credit Agreement
Brokered deposits
Borrowed federal funds
Participation debt
•
•
•
Payments on our 2016 Credit Agreement
Payments on maturities and withdrawals of brokered deposits
Payments on borrowed federal funds
• Working capital needs of the business
Accounts receivable factoring and securitization arrangements
•
Capital expenditures
(1) Our long-term cash requirements consist primarily of amounts owed on our 2016 Credit Agreement and Notes and various facilities lease agreements.
Cash Flows
The table below summarizes our cash activities:
(In thousands)
Net cash provided by operating activities
Net cash used for investing activities
Net cash provided by (used for) financing activities
Operating Activities
Year ended December 31,
2019
663,171
$
(990,614) $
749,773
$
2018
$
400,229
(254,175) $
(102,728) $
2017
135,427
(168,054)
359,385
$
$
$
•
•
Cash provided by operating activities for 2019 increased $262.9 million as compared to the prior year, resulting from an
increase in accounts payable and decrease in accounts receivable primarily due to a factoring arrangement in which the
Company retains the merchant payable and sells the related accounts receivable. This arrangement was in place during
the twelve months ended December 31, 2019, but not in place until August of the prior year.
Cash provided by operating activities for 2018 increased $264.8 million as compared to the prior year, resulting from
lower relative increases in accounts receivable, net of associated accounts payable as compared to the prior year, the
return of collateral as a result of contract renegotiations and higher net income adjusted for noncash charges.
Investing Activities
•
•
Cash used for investing activities for 2019 increased $736.4 million as compared to the prior year, resulting from $882.4
million of payments made associated with the four acquisitions completed during the year.
Cash used for investing activities for 2018 increased $86.1 million as compared to the prior year, resulting from a $162.8
million deposit paid to obtain a customer relationship intangible asset. Capital additions, primarily related to the
development of internal-use software as we expand globally and provide competitive products and services to our
customers, were generally consistent with 2017.
Financing Activities
•
•
Cash provided by financing activities for 2019 increased $852.5 million as compared to the same period in the prior year,
primarily due to higher overall borrowings in connection with funding the acquisitions and raising deposits in order to
fund asset growth.
Cash used for financing activities for 2018 was $102.7 million as compared to cash provided by financing activities of
$359.4 million in the prior year. This was primarily due to net repayments under our 2016 Credit Agreement and our
participation debt due to a WEX Bank factoring arrangement entered into in August 2018. These cash outflows were
partly offset by $178.0 million of term loan borrowings as a result of the amendments to our 2016 Credit Agreement in
January and August 2018.
In general, the Company’s trade receivables provide for payment terms of 30 days or less. Receivables not paid within
the terms of the agreement are generally subject to late fees based upon the outstanding receivable balance. The Company extends
revolving credit to certain small fleets. These accounts are also subject to late fees, and balances that are not paid in full are subject
to interest charges based on a revolving balance. The Company had approximately $62.4 million and $18.9 million of receivables
with revolving credit balances as of December 31, 2019 and 2018, respectively. The increase in revolving credit balances was due
to the onboarding of a customer portfolio during 2019.
At December 31, 2019, approximately 96 percent of the outstanding balance of $2.7 billion of total trade accounts
receivable was 29 days or less past due and approximately 97 percent of the outstanding balance of total trade accounts receivable
was 59 days or less past due. 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, 2019 or December 31, 2018.
Our short-term cash requirements consist primarily of funding the working capital needs of our business, payments on
maturities and withdrawals of brokered deposits and borrowed federal funds, required capital expenditures, repayments on our
credit facility, interest payments on our credit facility and other operating expenses. WEX Bank can fund our short-term domestic
cash requirements through the issuance of brokered deposits and borrowed federal funds. Any remaining cash needs are primarily
funded through operations, our borrowings under our 2016 Credit Agreement, our participation debt and our accounts receivable
factoring and securitization arrangements. Our long-term cash requirements consist primarily of amounts owed on our 2016 Credit
Agreement and Notes and various facilities lease agreements.
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $77.4 million and $64.9 million at
December 31, 2019 and 2018, respectively. These earnings are considered to be indefinitely reinvested. As discussed in Item 8 –
Note 14, Income Taxes, the United States enacted the 2017 Tax Act in December 2017, which impacted foreign undistributed
earnings, among other things. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be
subject to withholding taxes payable, where applicable, to foreign countries, but would generally have no further federal income
tax liability. The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom.
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.
Deposits and Borrowed Federal Funds
WEX Bank issues certificates of deposit in various maturities ranging between 4 months and five years, with interest
rates ranging from 1.80 percent to 3.52 percent as of December 31, 2019, as compared to interest rates ranging from 1.30 percent
to 3.52 percent as of December 31, 2018. As of December 31, 2019, we had approximately $979.4 million of certificates of deposit
outstanding at a weighted average interest rate of 2.57 percent, compared to $850.8 million of certificates of deposit outstanding
at a weighted average interest rate of 2.36 percent as of December 31, 2018.
WEX Bank also issues interest-bearing brokered money market deposits with variable interest rates ranging from 1.63
percent to 1.90 percent as of December 31, 2019, as compared to variable interest rates ranging from 2.48 percent to 2.53 percent
as of December 31, 2018. As of December 31, 2019, we had approximately $362.2 million of interest-bearing brokered money
market deposits at a weighted average interest rate of 1.88 percent, as compared to $283.8 million of interest-bearing brokered
money market deposits at a weighted average interest rate of 2.49 percent as of December 31, 2018.
WEX Bank may issue additional brokered deposits without limitation, subject to FDIC rules governing minimum financial
ratios, which include risk-based asset and capital requirements. As of December 31, 2019, all brokered deposits were in
denominations of $250 thousand or less, corresponding to FDIC deposit insurance limits. Interest-bearing money market funds
may be withdrawn at any time. We believe that our brokered deposits are paying competitive yields and that there continues to be
consumer demand for these instruments.
We also carry non-interest bearing deposits that are required for certain customers as collateral for their credit accounts.
We had $112.6 million and $138.1 million of these deposits on hand at December 31, 2019 and 2018, respectively.
WEX Bank is required to maintain reserves against a percentage of certain customer deposits by keeping balances
with the Federal Reserve Bank. The required reserve based on the outstanding customer deposits was $24.9 million and $11.1
million at December 31, 2019 and 2018, respectively.
53
54
Liquidity, Capital Resources and Cash Flows
Liquidity
We believe that our cash generating capability, financial condition and operations, together with the sources of cash listed
below, will be adequate to fund our cash needs for at least the next 12 months. The table below summarizes our primary short-
term sources and uses of cash:
Sources of cash
Use of cash(1)
Borrowings on our 2016 Credit Agreement
Payments on our 2016 Credit Agreement
Brokered deposits
Borrowed federal funds
Participation debt
Payments on maturities and withdrawals of brokered deposits
Payments on borrowed federal funds
• Working capital needs of the business
Accounts receivable factoring and securitization arrangements
Capital expenditures
•
•
•
•
(1) Our long-term cash requirements consist primarily of amounts owed on our 2016 Credit Agreement and Notes and various facilities lease agreements.
Cash Flows
The table below summarizes our cash activities:
(In thousands)
Net cash provided by operating activities
Net cash used for investing activities
Net cash provided by (used for) financing activities
Operating Activities
Year ended December 31,
2019
2018
$
$
$
663,171
400,229
$
(990,614) $
(254,175) $
749,773
(102,728) $
$
$
2017
135,427
(168,054)
359,385
Cash provided by operating activities for 2019 increased $262.9 million as compared to the prior year, resulting from an
increase in accounts payable and decrease in accounts receivable primarily due to a factoring arrangement in which the
Company retains the merchant payable and sells the related accounts receivable. This arrangement was in place during
the twelve months ended December 31, 2019, but not in place until August of the prior year.
Cash provided by operating activities for 2018 increased $264.8 million as compared to the prior year, resulting from
lower relative increases in accounts receivable, net of associated accounts payable as compared to the prior year, the
return of collateral as a result of contract renegotiations and higher net income adjusted for noncash charges.
Investing Activities
Cash used for investing activities for 2019 increased $736.4 million as compared to the prior year, resulting from $882.4
million of payments made associated with the four acquisitions completed during the year.
Cash used for investing activities for 2018 increased $86.1 million as compared to the prior year, resulting from a $162.8
million deposit paid to obtain a customer relationship intangible asset. Capital additions, primarily related to the
development of internal-use software as we expand globally and provide competitive products and services to our
customers, were generally consistent with 2017.
Financing Activities
fund asset growth.
Cash provided by financing activities for 2019 increased $852.5 million as compared to the same period in the prior year,
primarily due to higher overall borrowings in connection with funding the acquisitions and raising deposits in order to
Cash used for financing activities for 2018 was $102.7 million as compared to cash provided by financing activities of
$359.4 million in the prior year. This was primarily due to net repayments under our 2016 Credit Agreement and our
participation debt due to a WEX Bank factoring arrangement entered into in August 2018. These cash outflows were
partly offset by $178.0 million of term loan borrowings as a result of the amendments to our 2016 Credit Agreement in
January and August 2018.
•
•
•
•
•
•
•
•
•
•
•
In general, the Company’s trade receivables provide for payment terms of 30 days or less. Receivables not paid within
the terms of the agreement are generally subject to late fees based upon the outstanding receivable balance. The Company extends
revolving credit to certain small fleets. These accounts are also subject to late fees, and balances that are not paid in full are subject
to interest charges based on a revolving balance. The Company had approximately $62.4 million and $18.9 million of receivables
with revolving credit balances as of December 31, 2019 and 2018, respectively. The increase in revolving credit balances was due
to the onboarding of a customer portfolio during 2019.
At December 31, 2019, approximately 96 percent of the outstanding balance of $2.7 billion of total trade accounts
receivable was 29 days or less past due and approximately 97 percent of the outstanding balance of total trade accounts receivable
was 59 days or less past due. 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, 2019 or December 31, 2018.
Our short-term cash requirements consist primarily of funding the working capital needs of our business, payments on
maturities and withdrawals of brokered deposits and borrowed federal funds, required capital expenditures, repayments on our
credit facility, interest payments on our credit facility and other operating expenses. WEX Bank can fund our short-term domestic
cash requirements through the issuance of brokered deposits and borrowed federal funds. Any remaining cash needs are primarily
funded through operations, our borrowings under our 2016 Credit Agreement, our participation debt and our accounts receivable
factoring and securitization arrangements. Our long-term cash requirements consist primarily of amounts owed on our 2016 Credit
Agreement and Notes and various facilities lease agreements.
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $77.4 million and $64.9 million at
December 31, 2019 and 2018, respectively. These earnings are considered to be indefinitely reinvested. As discussed in Item 8 –
Note 14, Income Taxes, the United States enacted the 2017 Tax Act in December 2017, which impacted foreign undistributed
earnings, among other things. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be
subject to withholding taxes payable, where applicable, to foreign countries, but would generally have no further federal income
tax liability. The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom.
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.
Deposits and Borrowed Federal Funds
WEX Bank issues certificates of deposit in various maturities ranging between 4 months and five years, with interest
rates ranging from 1.80 percent to 3.52 percent as of December 31, 2019, as compared to interest rates ranging from 1.30 percent
to 3.52 percent as of December 31, 2018. As of December 31, 2019, we had approximately $979.4 million of certificates of deposit
outstanding at a weighted average interest rate of 2.57 percent, compared to $850.8 million of certificates of deposit outstanding
at a weighted average interest rate of 2.36 percent as of December 31, 2018.
WEX Bank also issues interest-bearing brokered money market deposits with variable interest rates ranging from 1.63
percent to 1.90 percent as of December 31, 2019, as compared to variable interest rates ranging from 2.48 percent to 2.53 percent
as of December 31, 2018. As of December 31, 2019, we had approximately $362.2 million of interest-bearing brokered money
market deposits at a weighted average interest rate of 1.88 percent, as compared to $283.8 million of interest-bearing brokered
money market deposits at a weighted average interest rate of 2.49 percent as of December 31, 2018.
WEX Bank may issue additional brokered deposits without limitation, subject to FDIC rules governing minimum financial
ratios, which include risk-based asset and capital requirements. As of December 31, 2019, all brokered deposits were in
denominations of $250 thousand or less, corresponding to FDIC deposit insurance limits. Interest-bearing money market funds
may be withdrawn at any time. We believe that our brokered deposits are paying competitive yields and that there continues to be
consumer demand for these instruments.
We also carry non-interest bearing deposits that are required for certain customers as collateral for their credit accounts.
We had $112.6 million and $138.1 million of these deposits on hand at December 31, 2019 and 2018, respectively.
WEX Bank is required to maintain reserves against a percentage of certain customer deposits by keeping balances
with the Federal Reserve Bank. The required reserve based on the outstanding customer deposits was $24.9 million and $11.1
million at December 31, 2019 and 2018, respectively.
53
54
WEX Bank also borrows from uncommitted federal funds lines of credit to supplement the financing of our accounts
receivable. Our federal funds lines of credit were $355.0 million and $309.0 million as of December 31, 2019 and 2018, respectively,
with $35.0 million of borrowings as of December 31, 2019 and no outstanding borrowings as of December 31, 2018.
WEX Bank participates in the ICS service offered by Promontory Interfinancial Network, which allows WEX Bank to
purchase brokered money market demand accounts and demand deposit accounts in an amount not to exceed $125.0 million as
part of a one-way buy program. At December 31, 2018, no amounts were available under this arrangement. Subsequently, the
funding capacity of $125.0 million was reinstated. At December 31, 2019, there was no outstanding balance for ICS purchases.
2016 Credit Agreement
On July 1, 2016, we entered into the 2016 Credit Agreement in order to permit the additional financing necessary to
facilitate the EFS acquisition. The 2016 Credit Agreement initially provided for secured tranche A and tranche B term loan facilities
in original principal amounts equal to $455.0 million and $1,200.0 million, respectively, and a $470.0 million secured revolving
credit facility. As of December 31, 2019, after giving effect to amendments prior to such date, we had an outstanding principal
amount of $923.7 million on our secured tranche A term loan, an outstanding principal amount of $1,457.0 million on our secured
tranche B term loan and amounts available consisting of an $820.0 million secured revolving credit facility, with a $250.0 million
sublimit for letters of credit and $20.0 million sublimit for swingline loans. The tranche B term loans mature during May 2026
while the revolving credit facility and tranche A term loans mature during July 2023, subject to earlier maturity in August 2022
in certain circumstances. The revolving credit loans and tranche A term loans bear interest at variable rates, at the Company’s
option, plus an applicable margin determined based on the Company’s consolidated leverage ratio, testing consolidated funded
indebtedness (excluding (i) up to $350.0 million of consolidated funded indebtedness due to permitted securitization transactions
and (ii) the amount of consolidated funded indebtedness constituting the non-recourse portion of permitted factoring transactions,
netting up to $125.0 million of unrestricted cash and cash equivalents denominated in U.S. dollars held by the Company and its
subsidiaries) to consolidated EBITDA. The tranche B term loans bear interest at a variable rate plus a margin equal to 1.25 percent
for base rate loans and 2.25 percent for eurocurrency rate loans. Under the 2016 Credit Agreement, the Company has granted a
security interest in certain assets of the Company, subject to exceptions including the assets of WEX Bank.
Incremental loans of up to the greater of $375.0 million (plus the amount of certain prepayments) and an unlimited amount
subject to satisfaction of the above-described consolidated leverage ratio test could be made available under the 2016 Credit
Agreement upon the request of the Company subject to specified terms and conditions, including receipt of lender commitments.
Proceeds from the 2016 Credit Agreement may be used for working capital purposes, acquisitions, payment of dividends and other
restricted payments, refinancing of indebtedness and other general corporate purposes.
The 2016 Credit Agreement contains various financial covenants requiring us to maintain certain financial ratios. In
addition to the financial covenants, the 2016 Credit Agreement contains various customary restrictive covenants including
restrictions in certain situations on the payment of dividends. WEX Bank is not subject to certain of these restrictions. We were
in compliance with all material covenants and restrictions at December 31, 2019.
The Company entered into an Eighth Amendment to the 2016 Credit Agreement on February 10, 2020. For a description
of the Eighth Amendment to the 2016 Credit Agreement, see Other Liquidity Matters below.
As of December 31, 2019, we had no outstanding borrowings against our $820.0 million revolving credit facility. The
combined outstanding debt under our tranche A term loan facility and our tranche B term loan facility totaled $2.4 billion at
December 31, 2019. As of December 31, 2019, amounts outstanding under the 2016 Credit Agreement bore a weighted average
effective interest rate of 4.0 percent.
See Item 8 – Note 16, Financing and Other Debt, for further information regarding interest rates, voluntary prepayments
rights and principal payments required under the 2016 Credit Agreement.
Notes Outstanding
On January 30, 2013, the Company completed an offering in an aggregate principal amount of $400.0 million of 4.750
percent senior notes. Such Notes mature on February 1, 2023. The Company may optionally redeem the Notes at any time prior
to February 1, 2021, in whole or in part, at a redemption price of 100.792 percent (expressed as a percentage of principal amount
of the Notes). At any time after February 1, 2021, the Notes can be redeemed at the option of WEX without penalty.
WEX Latin America Debt
WEX Latin America had debt of approximately $2.7 million and $16.2 million as of December 31, 2019 and 2018,
respectively. This is comprised of credit facilities held in Brazil and loan arrangements related to our accounts receivable, with
various maturity dates. As of December 31, 2019 and 2018, the effective interest rates were 35.04% and 23.59%, respectively.
Participation Debt
From time to time, WEX Bank enters into participation agreements with third-party banks to fund customer balances
that exceed WEX Bank’s lending limit to individual customers. Associated unsecured borrowings carry a variable interest rate of
1 month to 3 month LIBOR plus a margin of 225 basis points. The following table provides the amounts outstanding and the
remaining funding capacity under the participation debt agreements in place:
(In thousands)
Short-term debt, net
Long-term debt, net
December 31, 2019
December 31, 2018
Amounts
Available (1)
Amounts
Outstanding
Remaining
Funding
Capacity
Amounts
Available(2)
Amounts
Outstanding(2)
Remaining
Funding
Capacity
$
80,000
$
50,000
$
30,000
$
130,000
$
64,849
$
65,151
—
—
—
50,000
50,000
—
(1) Amounts available and outstanding under agreement terminating on August 31, 2020 as to $50 million and on demand as to $30 million.
(2) Amounts available under agreements terminating on June 30, 2019 and August 31, 2020 as to $50 million each, and on demand as to $80 million. Amounts
outstanding under agreements terminating on demand as to $14.8 million and on June 30, 2019 and August 31, 2020 as to $50 million each.
Australian Securitization Facility
The Company maintains a securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd., which has been
extended through April 2020. Under the terms of the agreement, each month, on a revolving basis, the Company sells certain of
its Australian receivables to the Company’s Australian Securitization Subsidiary. The Australian Securitization Subsidiary, in turn,
uses the receivables as collateral to issue asset-backed commercial paper (“securitized debt”) for approximately 85 percent of the
securitized receivables. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not
available for general corporate purposes.
The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian
Bank Bill Rate plus an applicable margin. The interest rate was 1.80 percent and 2.89 percent as of December 31, 2019 and 2018,
respectively. The Company had securitized debt under this facility of approximately $78.6 million and $87.0 million as of
December 31, 2019 and 2018, respectively.
European Securitization Facility
On April 7, 2016, the Company entered into a five-year securitized debt agreement with the Bank of Tokyo-Mitsubishi
UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to our
European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue
securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available
for general corporate purposes. The interest rate was 0.63 percent and 0.98 percent as of December 31, 2019 and December 31,
2018, respectively. The Company had $25.7 million and $18.0 million of securitized debt under this facility as of December 31,
2019 and December 31, 2018, respectively.
WEX Latin America Securitization of Receivables
WEX Latin America entered into a securitized agreement to transfer certain unsecured receivables associated with our
salary advanced payment card product to an investment fund managed by an unrelated third-party. The agreement has no set
expiration date but either party may terminate the arrangement with 90 day advance written notice. As of December 31, 2018, the
securitization arrangement meets the derecognition conditions under US GAAP and transfers under this arrangement are treated
as sales and are accounted for as a reduction in trade receivables.
During the years ended December 31, 2019 and 2018, the Company sold approximately $78.0 million and $39.8 million
of receivables, and recognized $16.1 million and $6.9 million of gains on the sale of receivables, respectively. The gains on the
sale of receivables equal the difference between the sales price and the carrying value of the receivables, which is recorded within
other revenue in our consolidated income statement. Cash proceeds from the transfer of these receivables is reflected as an operating
activity within our consolidated statement of cash flows.
WEX Bank Accounts Receivable Factoring
WEX Bank has entered into a receivables purchase agreement with an unrelated third-party financial institution to sell
certain of our trade accounts receivable under non-recourse transactions through July 31, 2020, after which the agreement can be
renewed for successive one-year periods assuming WEX provides advance written notice that is accepted by the purchaser. WEX
55
56
WEX Bank also borrows from uncommitted federal funds lines of credit to supplement the financing of our accounts
receivable. Our federal funds lines of credit were $355.0 million and $309.0 million as of December 31, 2019 and 2018, respectively,
with $35.0 million of borrowings as of December 31, 2019 and no outstanding borrowings as of December 31, 2018.
WEX Bank participates in the ICS service offered by Promontory Interfinancial Network, which allows WEX Bank to
purchase brokered money market demand accounts and demand deposit accounts in an amount not to exceed $125.0 million as
part of a one-way buy program. At December 31, 2018, no amounts were available under this arrangement. Subsequently, the
funding capacity of $125.0 million was reinstated. At December 31, 2019, there was no outstanding balance for ICS purchases.
2016 Credit Agreement
On July 1, 2016, we entered into the 2016 Credit Agreement in order to permit the additional financing necessary to
facilitate the EFS acquisition. The 2016 Credit Agreement initially provided for secured tranche A and tranche B term loan facilities
in original principal amounts equal to $455.0 million and $1,200.0 million, respectively, and a $470.0 million secured revolving
credit facility. As of December 31, 2019, after giving effect to amendments prior to such date, we had an outstanding principal
amount of $923.7 million on our secured tranche A term loan, an outstanding principal amount of $1,457.0 million on our secured
tranche B term loan and amounts available consisting of an $820.0 million secured revolving credit facility, with a $250.0 million
sublimit for letters of credit and $20.0 million sublimit for swingline loans. The tranche B term loans mature during May 2026
while the revolving credit facility and tranche A term loans mature during July 2023, subject to earlier maturity in August 2022
in certain circumstances. The revolving credit loans and tranche A term loans bear interest at variable rates, at the Company’s
option, plus an applicable margin determined based on the Company’s consolidated leverage ratio, testing consolidated funded
indebtedness (excluding (i) up to $350.0 million of consolidated funded indebtedness due to permitted securitization transactions
and (ii) the amount of consolidated funded indebtedness constituting the non-recourse portion of permitted factoring transactions,
netting up to $125.0 million of unrestricted cash and cash equivalents denominated in U.S. dollars held by the Company and its
subsidiaries) to consolidated EBITDA. The tranche B term loans bear interest at a variable rate plus a margin equal to 1.25 percent
for base rate loans and 2.25 percent for eurocurrency rate loans. Under the 2016 Credit Agreement, the Company has granted a
security interest in certain assets of the Company, subject to exceptions including the assets of WEX Bank.
Incremental loans of up to the greater of $375.0 million (plus the amount of certain prepayments) and an unlimited amount
subject to satisfaction of the above-described consolidated leverage ratio test could be made available under the 2016 Credit
Agreement upon the request of the Company subject to specified terms and conditions, including receipt of lender commitments.
Proceeds from the 2016 Credit Agreement may be used for working capital purposes, acquisitions, payment of dividends and other
restricted payments, refinancing of indebtedness and other general corporate purposes.
The 2016 Credit Agreement contains various financial covenants requiring us to maintain certain financial ratios. In
addition to the financial covenants, the 2016 Credit Agreement contains various customary restrictive covenants including
restrictions in certain situations on the payment of dividends. WEX Bank is not subject to certain of these restrictions. We were
in compliance with all material covenants and restrictions at December 31, 2019.
The Company entered into an Eighth Amendment to the 2016 Credit Agreement on February 10, 2020. For a description
of the Eighth Amendment to the 2016 Credit Agreement, see Other Liquidity Matters below.
As of December 31, 2019, we had no outstanding borrowings against our $820.0 million revolving credit facility. The
combined outstanding debt under our tranche A term loan facility and our tranche B term loan facility totaled $2.4 billion at
December 31, 2019. As of December 31, 2019, amounts outstanding under the 2016 Credit Agreement bore a weighted average
effective interest rate of 4.0 percent.
See Item 8 – Note 16, Financing and Other Debt, for further information regarding interest rates, voluntary prepayments
rights and principal payments required under the 2016 Credit Agreement.
Notes Outstanding
WEX Latin America Debt
On January 30, 2013, the Company completed an offering in an aggregate principal amount of $400.0 million of 4.750
percent senior notes. Such Notes mature on February 1, 2023. The Company may optionally redeem the Notes at any time prior
to February 1, 2021, in whole or in part, at a redemption price of 100.792 percent (expressed as a percentage of principal amount
of the Notes). At any time after February 1, 2021, the Notes can be redeemed at the option of WEX without penalty.
WEX Latin America had debt of approximately $2.7 million and $16.2 million as of December 31, 2019 and 2018,
respectively. This is comprised of credit facilities held in Brazil and loan arrangements related to our accounts receivable, with
various maturity dates. As of December 31, 2019 and 2018, the effective interest rates were 35.04% and 23.59%, respectively.
Participation Debt
From time to time, WEX Bank enters into participation agreements with third-party banks to fund customer balances
that exceed WEX Bank’s lending limit to individual customers. Associated unsecured borrowings carry a variable interest rate of
1 month to 3 month LIBOR plus a margin of 225 basis points. The following table provides the amounts outstanding and the
remaining funding capacity under the participation debt agreements in place:
(In thousands)
Short-term debt, net
Long-term debt, net
December 31, 2019
December 31, 2018
Amounts
Available (1)
Amounts
Outstanding
Remaining
Funding
Capacity
Amounts
Available(2)
Amounts
Outstanding(2)
Remaining
Funding
Capacity
$
80,000
$
50,000
$
30,000
$
130,000
$
64,849
$
65,151
—
—
—
50,000
50,000
—
(1) Amounts available and outstanding under agreement terminating on August 31, 2020 as to $50 million and on demand as to $30 million.
(2) Amounts available under agreements terminating on June 30, 2019 and August 31, 2020 as to $50 million each, and on demand as to $80 million. Amounts
outstanding under agreements terminating on demand as to $14.8 million and on June 30, 2019 and August 31, 2020 as to $50 million each.
Australian Securitization Facility
The Company maintains a securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd., which has been
extended through April 2020. Under the terms of the agreement, each month, on a revolving basis, the Company sells certain of
its Australian receivables to the Company’s Australian Securitization Subsidiary. The Australian Securitization Subsidiary, in turn,
uses the receivables as collateral to issue asset-backed commercial paper (“securitized debt”) for approximately 85 percent of the
securitized receivables. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not
available for general corporate purposes.
The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian
Bank Bill Rate plus an applicable margin. The interest rate was 1.80 percent and 2.89 percent as of December 31, 2019 and 2018,
respectively. The Company had securitized debt under this facility of approximately $78.6 million and $87.0 million as of
December 31, 2019 and 2018, respectively.
European Securitization Facility
On April 7, 2016, the Company entered into a five-year securitized debt agreement with the Bank of Tokyo-Mitsubishi
UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to our
European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue
securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available
for general corporate purposes. The interest rate was 0.63 percent and 0.98 percent as of December 31, 2019 and December 31,
2018, respectively. The Company had $25.7 million and $18.0 million of securitized debt under this facility as of December 31,
2019 and December 31, 2018, respectively.
WEX Latin America Securitization of Receivables
WEX Latin America entered into a securitized agreement to transfer certain unsecured receivables associated with our
salary advanced payment card product to an investment fund managed by an unrelated third-party. The agreement has no set
expiration date but either party may terminate the arrangement with 90 day advance written notice. As of December 31, 2018, the
securitization arrangement meets the derecognition conditions under US GAAP and transfers under this arrangement are treated
as sales and are accounted for as a reduction in trade receivables.
During the years ended December 31, 2019 and 2018, the Company sold approximately $78.0 million and $39.8 million
of receivables, and recognized $16.1 million and $6.9 million of gains on the sale of receivables, respectively. The gains on the
sale of receivables equal the difference between the sales price and the carrying value of the receivables, which is recorded within
other revenue in our consolidated income statement. Cash proceeds from the transfer of these receivables is reflected as an operating
activity within our consolidated statement of cash flows.
WEX Bank Accounts Receivable Factoring
WEX Bank has entered into a receivables purchase agreement with an unrelated third-party financial institution to sell
certain of our trade accounts receivable under non-recourse transactions through July 31, 2020, after which the agreement can be
renewed for successive one-year periods assuming WEX provides advance written notice that is accepted by the purchaser. WEX
55
56
Bank continues to service the receivables post-transfer with no participating interest. The Company obtained a true-sale opinion
from an independent attorney, which states that the factoring agreement provides legal isolation upon WEX Bank bankruptcy or
receivership under local law. As such, transfers under this arrangement are treated as a sale. Proceeds from the sale are reported
net of a negotiated discount rate and are accounted for as a reduction in trade receivables because the agreements transfer effective
control of the receivables to the buyer.
The Company sold approximately $14.8 billion and $3.2 billion of trade accounts receivable under this arrangement
during the years ended December 31, 2019 and 2018, respectively. Proceeds from the sale, which are reported net of a negotiated
discount rate, are recorded in operating activities within the Company’s consolidated statement of cash flows. The loss on factoring
was $3.7 million and $1.0 million for the years ended December 31, 2019 and 2018, respectively.
WEX Europe Services Accounts Receivable Factoring
WEX Europe Services has entered into a factoring arrangement with an unrelated third-party financial institution (the
“Purchasing Bank”) to sell certain of its accounts receivable through December 31, 2020 in order to accelerate the collection of
the Company’s cash and reduce internal costs, thereby improving liquidity. Under this arrangement, the Purchasing Bank establishes
a credit limit for each customer account. The factored receivables are without recourse to the extent that the customer balances
are maintained at or below the established credit limit. For customer receivable balances in excess of the Purchasing Bank’s credit
limit, the Company maintains the risk of default. The Company obtained a true sale opinion from an independent attorney, which
states that the factoring agreement creates a sale of receivables under local law for amounts transferred both below and above the
established credit limits. The Company continues to service these receivables post-transfer with no participating interest. As a
result, the Purchasing Bank is deemed the purchaser of these receivables and is entitled to enforce payment of these amounts from
the debtor.
This factoring arrangement is accounted for as a sale and accordingly the Company records the receivables sold as a
reduction of accounts receivable and proceeds as cash provided by operating activities. The Company sold approximately $630.3
million and $713.8 million of receivables under this arrangement during years ended December 31, 2019 and December 31, 2018,
respectively. Charge-backs on balances in excess of the credit limit during the years ended December 31, 2019 and December 31,
2018 were insignificant.
Other Liquidity Matters
At December 31, 2019, we had variable-rate borrowings of $2.4 billion under our 2016 Credit Agreement. We periodically
review our projected borrowings under our 2016 Credit Agreement and the current interest rate environment in order to ascertain
whether interest rate swaps should be used to reduce our exposure to interest rate volatility. As of December 31, 2019, we maintained
seven interest rate swap contracts that mature between December 2020 and March 2023. Collectively, these derivative contracts
are intended to fix the future interest payments associated with $1.44 billion of our variable rate borrowings at between 1.108
percent to 2.425 percent. See Item 8 – Note 12, Derivative Instruments, Item 8 – Note 19, Fair Value, for more information.
On January 24, 2020, the Company entered into a purchase agreement to purchase eNett, a leading provider of business-
to-business payments solutions to the travel industry and Optal, a company that specializes in optimizing business-to-business
transactions. Pursuant to the purchase agreement, and subject to the terms and conditions contained therein, the Company will
acquire all of the issued share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd., and the other
shareholders of eNett and Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash and 2,002,450
shares of the Company’s common stock and subject to certain working capital and other adjustments as described in the purchase
agreement. The parties’ obligations to consummate the acquisition are subject to customary closing conditions, including regulatory
approvals. We expect that the acquisition will accelerate our global growth strategy and strengthen our technology and product
portfolio, among others. This acquisition will be accounted for under the acquisition method of accounting.
In connection with the acquisition, the Company entered into a commitment letter with Bank of America, N.A. and BofA
Securities, Inc. on January 24, 2020 for (a) senior secured credit facilities in the aggregate amount of up to $2.8 billion, consisting
of (i) up to a $2.0 billion seven-year term loan B facility, comprised of $1.1 billion to fund the planned acquisition and a $924.0
million backstop to refinance the Company’s existing Term A loans under the 2016 Credit Agreement and (ii) an $820.0 million
backstop to replace the Company’s existing revolving credit facility under the 2016 Credit Agreement and (b) a senior unsecured
bridge facility in the aggregate amount of up to $300.0 million. To the extent that the 2016 Credit Agreement had not been amended
prior to the funding of these facilities to increase the maximum consolidated leverage ratio upon the closing of the acquisition to
5.75x, the backstops were available to the Company for use.
On February 10, 2020, the Company entered into an Eighth Amendment to the 2016 Credit Agreement. The Eighth
Amendment, among other things, (i) modifies the maximum consolidated leverage ratio to be no more than 5.75 to 1.0 commencing
as of December 31, 2019, decreasing to 5.50 to 1.0 commencing as of December 31, 2020, decreasing to 5.00 to 1.0 commencing
as of December 31, 2021 and further decreasing to 4.75 to 1.0 commencing as of December 31, 2022 and thereafter and (ii)
increases the Company’s capacity to incur additional incremental debt facilities up to $1.4 billion in connection with the acquisition
of eNett and Optal. As such, the portion of the commitment related to the backstops described above have been reduced to zero.
The amendments set forth in the Eighth Amendment would only become effective concurrently with the closing of the pending
acquisition of eNett and Optal, if it occurs.
The Company’s long-term cash requirements consist primarily of amounts owed on the 2016 Credit Agreement, the Notes
and various facility lease agreements. To the extent the senior secured facilities are funded in connection with the eNett and Optal
acquisition, the Company’s long-term cash requirements will also consist of amounts owed under these facilities.
As of December 31, 2019, we had $51.3 million in letters of credit outstanding and $768.7 million in remaining borrowing
capacity under the 2016 Credit Agreement, subject to the covenants as described above.
We currently have authorization from our board of directors to purchase up to $150 million of our common stock until
September 2021, which is entirely unused as of December 31, 2019. The program is funded either through our future cash flows
or through borrowings on our 2016 Credit Agreement. Share repurchases are made on the open market and may be commenced
or suspended at any time. The Company’s management, based on its evaluation of market and economic conditions and other
factors, determines the timing and number of shares repurchased.
The table below summarizes the estimated amounts of payments under contractual obligations as of December 31, 2019:
Payments Due By Period
Total
Less than 1
Year
1-3 Years
3-5 Years
More Than 5
Years
$
98,876
$
16,387
$
28,972
$
17,083
$
36,434
2,380,755
482,476
400,000
58,583
16,488
52,660
34,998
979,395
362,246
49,552
28,286
64,611
92,851
—
19,000
14,653
52,660
34,998
835,996
362,246
2,243
10,448
129,221
178,227
—
38,000
1,750
—
—
—
139,908
—
22,788
17,346
104,261
104,261
803,278
127,949
400,000
1,583
85
—
—
—
3,491
—
24,521
492
1,383,645
83,449
—
—
—
—
—
—
—
—
—
—
Contractual Obligations
(In thousands)
Operating Lease Obligations(a)
Debt Obligations
Term Loans
Interest payments on term loans(b)
$400 million notes offering
Interest on $400 million notes offering
Interest on certificates of deposit
Other debt(c)
Borrowed federal funds
Securitization facility(d)
Other Commitments
Certificates of deposit
Interest-bearing money market deposits
Penalties on minimum volume purchase commitments(e)
Other(f)
Total
$
5,048,576
$
1,610,354
$
556,212
$
1,378,482
$
1,503,528
(a) Operating lease obligations – Represents undiscounted cash flows for remaining lease payments under long-term operating
leases for office space. See Item 8 – Note 15, Leases, for more information regarding our leases.
(b) Interest payments on term loans – Interest payments are based on effective rates and credit spreads in effect as of December
31, 2019. See Item 8 – Note 16, Financing and Other Debt, for more information.
(c) Other debt – This amount includes participation debt at WEX Bank and debt balances at one of the Company’s subsidiaries.
Interest payments due were not included as the amount was not material.
(d) Securitization facility – Interest payments due on the securitization facility are not included as the amount was not material.
(e) Minimum volume purchase commitments – Two of the Company’s subsidiaries are required to purchase a minimum amount of
fuel from suppliers on an annual basis. If the minimum requirement is not fulfilled, they are subject to penalties based on the
amount of spend below the minimum annual volume commitment. The table above represents the Company’s annual penalty
assuming we purchase no fuel under these commitments after December 31, 2019.
57
58
Bank continues to service the receivables post-transfer with no participating interest. The Company obtained a true-sale opinion
from an independent attorney, which states that the factoring agreement provides legal isolation upon WEX Bank bankruptcy or
receivership under local law. As such, transfers under this arrangement are treated as a sale. Proceeds from the sale are reported
net of a negotiated discount rate and are accounted for as a reduction in trade receivables because the agreements transfer effective
control of the receivables to the buyer.
The Company sold approximately $14.8 billion and $3.2 billion of trade accounts receivable under this arrangement
during the years ended December 31, 2019 and 2018, respectively. Proceeds from the sale, which are reported net of a negotiated
discount rate, are recorded in operating activities within the Company’s consolidated statement of cash flows. The loss on factoring
was $3.7 million and $1.0 million for the years ended December 31, 2019 and 2018, respectively.
WEX Europe Services Accounts Receivable Factoring
WEX Europe Services has entered into a factoring arrangement with an unrelated third-party financial institution (the
“Purchasing Bank”) to sell certain of its accounts receivable through December 31, 2020 in order to accelerate the collection of
the Company’s cash and reduce internal costs, thereby improving liquidity. Under this arrangement, the Purchasing Bank establishes
a credit limit for each customer account. The factored receivables are without recourse to the extent that the customer balances
are maintained at or below the established credit limit. For customer receivable balances in excess of the Purchasing Bank’s credit
limit, the Company maintains the risk of default. The Company obtained a true sale opinion from an independent attorney, which
states that the factoring agreement creates a sale of receivables under local law for amounts transferred both below and above the
established credit limits. The Company continues to service these receivables post-transfer with no participating interest. As a
result, the Purchasing Bank is deemed the purchaser of these receivables and is entitled to enforce payment of these amounts from
the debtor.
This factoring arrangement is accounted for as a sale and accordingly the Company records the receivables sold as a
reduction of accounts receivable and proceeds as cash provided by operating activities. The Company sold approximately $630.3
million and $713.8 million of receivables under this arrangement during years ended December 31, 2019 and December 31, 2018,
respectively. Charge-backs on balances in excess of the credit limit during the years ended December 31, 2019 and December 31,
2018 were insignificant.
Other Liquidity Matters
At December 31, 2019, we had variable-rate borrowings of $2.4 billion under our 2016 Credit Agreement. We periodically
review our projected borrowings under our 2016 Credit Agreement and the current interest rate environment in order to ascertain
whether interest rate swaps should be used to reduce our exposure to interest rate volatility. As of December 31, 2019, we maintained
seven interest rate swap contracts that mature between December 2020 and March 2023. Collectively, these derivative contracts
are intended to fix the future interest payments associated with $1.44 billion of our variable rate borrowings at between 1.108
percent to 2.425 percent. See Item 8 – Note 12, Derivative Instruments, Item 8 – Note 19, Fair Value, for more information.
On January 24, 2020, the Company entered into a purchase agreement to purchase eNett, a leading provider of business-
to-business payments solutions to the travel industry and Optal, a company that specializes in optimizing business-to-business
transactions. Pursuant to the purchase agreement, and subject to the terms and conditions contained therein, the Company will
acquire all of the issued share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd., and the other
shareholders of eNett and Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash and 2,002,450
shares of the Company’s common stock and subject to certain working capital and other adjustments as described in the purchase
agreement. The parties’ obligations to consummate the acquisition are subject to customary closing conditions, including regulatory
approvals. We expect that the acquisition will accelerate our global growth strategy and strengthen our technology and product
portfolio, among others. This acquisition will be accounted for under the acquisition method of accounting.
In connection with the acquisition, the Company entered into a commitment letter with Bank of America, N.A. and BofA
Securities, Inc. on January 24, 2020 for (a) senior secured credit facilities in the aggregate amount of up to $2.8 billion, consisting
of (i) up to a $2.0 billion seven-year term loan B facility, comprised of $1.1 billion to fund the planned acquisition and a $924.0
million backstop to refinance the Company’s existing Term A loans under the 2016 Credit Agreement and (ii) an $820.0 million
backstop to replace the Company’s existing revolving credit facility under the 2016 Credit Agreement and (b) a senior unsecured
bridge facility in the aggregate amount of up to $300.0 million. To the extent that the 2016 Credit Agreement had not been amended
prior to the funding of these facilities to increase the maximum consolidated leverage ratio upon the closing of the acquisition to
5.75x, the backstops were available to the Company for use.
On February 10, 2020, the Company entered into an Eighth Amendment to the 2016 Credit Agreement. The Eighth
Amendment, among other things, (i) modifies the maximum consolidated leverage ratio to be no more than 5.75 to 1.0 commencing
as of December 31, 2019, decreasing to 5.50 to 1.0 commencing as of December 31, 2020, decreasing to 5.00 to 1.0 commencing
as of December 31, 2021 and further decreasing to 4.75 to 1.0 commencing as of December 31, 2022 and thereafter and (ii)
increases the Company’s capacity to incur additional incremental debt facilities up to $1.4 billion in connection with the acquisition
of eNett and Optal. As such, the portion of the commitment related to the backstops described above have been reduced to zero.
The amendments set forth in the Eighth Amendment would only become effective concurrently with the closing of the pending
acquisition of eNett and Optal, if it occurs.
The Company’s long-term cash requirements consist primarily of amounts owed on the 2016 Credit Agreement, the Notes
and various facility lease agreements. To the extent the senior secured facilities are funded in connection with the eNett and Optal
acquisition, the Company’s long-term cash requirements will also consist of amounts owed under these facilities.
As of December 31, 2019, we had $51.3 million in letters of credit outstanding and $768.7 million in remaining borrowing
capacity under the 2016 Credit Agreement, subject to the covenants as described above.
We currently have authorization from our board of directors to purchase up to $150 million of our common stock until
September 2021, which is entirely unused as of December 31, 2019. The program is funded either through our future cash flows
or through borrowings on our 2016 Credit Agreement. Share repurchases are made on the open market and may be commenced
or suspended at any time. The Company’s management, based on its evaluation of market and economic conditions and other
factors, determines the timing and number of shares repurchased.
Contractual Obligations
The table below summarizes the estimated amounts of payments under contractual obligations as of December 31, 2019:
(In thousands)
Operating Lease Obligations(a)
Debt Obligations
Term Loans
Interest payments on term loans(b)
$400 million notes offering
Interest on $400 million notes offering
Interest on certificates of deposit
Other debt(c)
Borrowed federal funds
Securitization facility(d)
Other Commitments
Certificates of deposit
Interest-bearing money market deposits
Penalties on minimum volume purchase commitments(e)
Other(f)
Payments Due By Period
Total
Less than 1
Year
1-3 Years
3-5 Years
More Than 5
Years
$
98,876
$
16,387
$
28,972
$
17,083
$
36,434
2,380,755
482,476
400,000
58,583
16,488
52,660
34,998
64,611
92,851
—
19,000
14,653
52,660
34,998
104,261
104,261
979,395
362,246
49,552
28,286
835,996
362,246
2,243
10,448
129,221
178,227
—
38,000
1,750
—
—
—
139,908
—
22,788
17,346
803,278
127,949
400,000
1,583
85
—
—
—
3,491
—
24,521
492
1,383,645
83,449
—
—
—
—
—
—
—
—
—
—
Total
$
5,048,576
$
1,610,354
$
556,212
$
1,378,482
$
1,503,528
(a) Operating lease obligations – Represents undiscounted cash flows for remaining lease payments under long-term operating
leases for office space. See Item 8 – Note 15, Leases, for more information regarding our leases.
(b) Interest payments on term loans – Interest payments are based on effective rates and credit spreads in effect as of December
31, 2019. See Item 8 – Note 16, Financing and Other Debt, for more information.
(c) Other debt – This amount includes participation debt at WEX Bank and debt balances at one of the Company’s subsidiaries.
Interest payments due were not included as the amount was not material.
(d) Securitization facility – Interest payments due on the securitization facility are not included as the amount was not material.
(e) Minimum volume purchase commitments – Two of the Company’s subsidiaries are required to purchase a minimum amount of
fuel from suppliers on an annual basis. If the minimum requirement is not fulfilled, they are subject to penalties based on the
amount of spend below the minimum annual volume commitment. The table above represents the Company’s annual penalty
assuming we purchase no fuel under these commitments after December 31, 2019.
57
58
2020 impact of
1.00% increase in
interest rates
$
$
$
$
$
941
1,043
500
4,142
3,622
2016 Credit Agreement
Securitized debt
Participation agreements
Certificates of deposits
Money market deposits
Foreign Currency Risk
Our exposure to foreign currency fluctuation is due to our financial statements being presented in U.S. dollars and our
foreign subsidiaries transacting in currencies other than the U.S. dollar, which results in gains and losses that are reflected in our
consolidated statements of operations. We currently do not utilize hedging instruments to mitigate these risks. However, growth
in our international operations increases this exposure and we may initiate strategies to hedge certain foreign currency risks in the
future.
Commodity Price Risk
The Company is not hedged for changes in fuel prices. Management will continue to monitor the fuel price market and
evaluate its alternatives as it relates to a hedging program.
(f) Other - Includes amounts due under the Company’s tax receivable agreement, cloud platform services agreement, operating
leases for vehicles and equipment, minimum spend commitments toward information technology contracts and liquidated damages
due if the Company were to cancel certain contracts negotiated with hotels for future years’ conferences and events. See Item 8 -
Note 17, Tax Receivable Agreement, for more information regarding the tax receivable agreement.
The Company has excluded $10.3 million in gross unrecognized tax benefits which have been excluded from the table
above. $5.0 million of unrecognized tax benefits are classified within other liabilities on the consolidated balance sheet as no
reliable estimates can be made on the timing of payments to taxing authorities. The remaining gross unrecognized tax benefits are
classified within prepaid assets and other current assets on the consolidated balance sheet, reducing an income tax receivable.
Off-balance Sheet Arrangements
In addition to the operating leases included in the table above, we have the following off-balance sheet arrangements as
of December 31, 2019:
•
•
•
Extension of credit to customers – We have entered into commitments to extend credit in the ordinary course of business.
We had approximately $9.5 billion of unused commitments to extend credit at December 31, 2019, as part of established
customer agreements. These amounts may increase or decrease during 2020 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 issuance of certificates of deposit, borrowed federal funds and other debt facilities.
Letters of credit – As of December 31, 2019, we had $51.3 million outstanding in irrevocable letters of credit issued by
us in favor of third-party beneficiaries, primarily related to facility lease agreements and virtual card and fuel payment
processing activity at our foreign subsidiaries. These irrevocable letters of credit are unsecured and are renewed on an
annual basis unless the Company chooses not to renew them.
Accounts receivable factoring and securitization – See Item 8 – Note 13, Off-Balance Sheet Arrangements, for further
information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to interest rates, foreign currency exchange rates and commodity prices.
From time to time, the Company enters into derivative instrument arrangements to manage these risks.
Interest Rate Risk
2016 Credit Agreement
At December 31, 2019, we had variable-rate borrowings of $2.4 billion under our 2016 Credit Agreement. We periodically
review the projected borrowings under our 2016 Credit Agreement and the current interest rate environment in order to ascertain
whether interest rate swaps should be used to reduce our exposure to interest rate volatility. As of December 31, 2019, we had
seven interest rate swap contracts, in effect with a collective notional amount at inception of $1.5 billion, with maturity dates
ranging from December 31, 2020 to March 12, 2023. As of December 31, 2019, these derivative contracts are intended to fix the
future interest payments associated with $1.4 billion of our variable rate borrowings at between 1.108% to 2.425%. See Item 8 –
Note 12, Derivative Instruments, for more information.
Deposits
At December 31, 2019, WEX Bank had deposits (including certificates of deposits and interest-bearing brokered money
market deposits) outstanding of $1.5 billion. The deposits are generally short-term in nature, though they are issued in up to five-
year maturities. Upon maturity, the deposits will likely be replaced by issuing new deposits to the extent they are needed. See Item
8 – Note 11, Deposits, for more information.
Sensitivity Analysis
The following table presents a sensitivity analysis of the impact of changes in interest rates on our deposits and corporate
debt, assuming amounts outstanding, the notional amounts of our interest rate swap agreements, and certificate of deposit maturities
in place as of December 31, 2019 remain the same. Actual results may differ materially.
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60
2016 Credit Agreement
Securitized debt
Participation agreements
Certificates of deposits
Money market deposits
Foreign Currency Risk
2020 impact of
1.00% increase in
interest rates
$
$
$
$
$
941
1,043
500
4,142
3,622
Our exposure to foreign currency fluctuation is due to our financial statements being presented in U.S. dollars and our
foreign subsidiaries transacting in currencies other than the U.S. dollar, which results in gains and losses that are reflected in our
consolidated statements of operations. We currently do not utilize hedging instruments to mitigate these risks. However, growth
in our international operations increases this exposure and we may initiate strategies to hedge certain foreign currency risks in the
future.
Commodity Price Risk
The Company is not hedged for changes in fuel prices. Management will continue to monitor the fuel price market and
evaluate its alternatives as it relates to a hedging program.
(f) Other - Includes amounts due under the Company’s tax receivable agreement, cloud platform services agreement, operating
leases for vehicles and equipment, minimum spend commitments toward information technology contracts and liquidated damages
due if the Company were to cancel certain contracts negotiated with hotels for future years’ conferences and events. See Item 8 -
Note 17, Tax Receivable Agreement, for more information regarding the tax receivable agreement.
The Company has excluded $10.3 million in gross unrecognized tax benefits which have been excluded from the table
above. $5.0 million of unrecognized tax benefits are classified within other liabilities on the consolidated balance sheet as no
reliable estimates can be made on the timing of payments to taxing authorities. The remaining gross unrecognized tax benefits are
classified within prepaid assets and other current assets on the consolidated balance sheet, reducing an income tax receivable.
Off-balance Sheet Arrangements
of December 31, 2019:
In addition to the operating leases included in the table above, we have the following off-balance sheet arrangements as
•
•
Extension of credit to customers – We have entered into commitments to extend credit in the ordinary course of business.
We had approximately $9.5 billion of unused commitments to extend credit at December 31, 2019, as part of established
customer agreements. These amounts may increase or decrease during 2020 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 issuance of certificates of deposit, borrowed federal funds and other debt facilities.
Letters of credit – As of December 31, 2019, we had $51.3 million outstanding in irrevocable letters of credit issued by
us in favor of third-party beneficiaries, primarily related to facility lease agreements and virtual card and fuel payment
processing activity at our foreign subsidiaries. These irrevocable letters of credit are unsecured and are renewed on an
annual basis unless the Company chooses not to renew them.
•
Accounts receivable factoring and securitization – See Item 8 – Note 13, Off-Balance Sheet Arrangements, for further
information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to interest rates, foreign currency exchange rates and commodity prices.
From time to time, the Company enters into derivative instrument arrangements to manage these risks.
Interest Rate Risk
2016 Credit Agreement
At December 31, 2019, we had variable-rate borrowings of $2.4 billion under our 2016 Credit Agreement. We periodically
review the projected borrowings under our 2016 Credit Agreement and the current interest rate environment in order to ascertain
whether interest rate swaps should be used to reduce our exposure to interest rate volatility. As of December 31, 2019, we had
seven interest rate swap contracts, in effect with a collective notional amount at inception of $1.5 billion, with maturity dates
ranging from December 31, 2020 to March 12, 2023. As of December 31, 2019, these derivative contracts are intended to fix the
future interest payments associated with $1.4 billion of our variable rate borrowings at between 1.108% to 2.425%. See Item 8 –
Note 12, Derivative Instruments, for more information.
At December 31, 2019, WEX Bank had deposits (including certificates of deposits and interest-bearing brokered money
market deposits) outstanding of $1.5 billion. The deposits are generally short-term in nature, though they are issued in up to five-
year maturities. Upon maturity, the deposits will likely be replaced by issuing new deposits to the extent they are needed. See Item
Deposits
8 – Note 11, Deposits, for more information.
Sensitivity Analysis
The following table presents a sensitivity analysis of the impact of changes in interest rates on our deposits and corporate
debt, assuming amounts outstanding, the notional amounts of our interest rate swap agreements, and certificate of deposit maturities
in place as of December 31, 2019 remain the same. Actual results may differ materially.
59
60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
62
64
65
66
67
68
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of WEX Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of WEX Inc. and subsidiaries (the "Company") as of December 31, 2019 and
2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years
in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28,
2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue-Refer to Notes 1 and 3 to the financial statements
Critical Audit Matter Description
The Company’s revenue is comprised of transaction-based fees made up of a significant volume of low-dollar transactions, sourced from
multiple systems, databases, and other tools. The processing and recording of revenue is highly automated and is based on contractual terms
with merchants, customers, and other parties. Because of the nature of the Company’s transaction-based fees, the Company uses automated
systems to process and record its revenue transactions.
Given the Company’s systems to process and record revenue are highly automated, auditing revenue is complex and challenging due to the
extent of audit effort required and involvement of professionals with expertise in information technology (IT) necessary to identify, test, and
evaluate the Company’s systems, software applications, and automated controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s systems to process revenue transactions included the following procedures, among others:
•
•
With the assistance of our IT specialists, we:
•
Identified the significant systems used to process revenue transactions and tested the effectiveness of general IT controls over
each of these systems, including testing of user access controls, change management controls, and IT operations controls.
•
Performed testing of the effectiveness of system interface controls and automated controls within the relevant revenue streams,
as well as the controls designed to ensure the accuracy and completeness of revenue.
We tested the effectiveness of controls over the Company’s relevant revenue business processes, including those in place to reconcile
the various systems to the Company’s general ledger.
61
62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
62
64
65
66
67
68
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of WEX Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of WEX Inc. and subsidiaries (the "Company") as of December 31, 2019 and
2018, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for each of the three years
in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28,
2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue-Refer to Notes 1 and 3 to the financial statements
Critical Audit Matter Description
The Company’s revenue is comprised of transaction-based fees made up of a significant volume of low-dollar transactions, sourced from
multiple systems, databases, and other tools. The processing and recording of revenue is highly automated and is based on contractual terms
with merchants, customers, and other parties. Because of the nature of the Company’s transaction-based fees, the Company uses automated
systems to process and record its revenue transactions.
Given the Company’s systems to process and record revenue are highly automated, auditing revenue is complex and challenging due to the
extent of audit effort required and involvement of professionals with expertise in information technology (IT) necessary to identify, test, and
evaluate the Company’s systems, software applications, and automated controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s systems to process revenue transactions included the following procedures, among others:
•
•
With the assistance of our IT specialists, we:
•
Identified the significant systems used to process revenue transactions and tested the effectiveness of general IT controls over
each of these systems, including testing of user access controls, change management controls, and IT operations controls.
Performed testing of the effectiveness of system interface controls and automated controls within the relevant revenue streams,
as well as the controls designed to ensure the accuracy and completeness of revenue.
•
We tested the effectiveness of controls over the Company’s relevant revenue business processes, including those in place to reconcile
the various systems to the Company’s general ledger.
61
62
•
•
With the assistance of our data specialists, we created data visualizations to evaluate recorded revenue and evaluate trends in the
transactional revenue data.
For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to source documents
and testing the mathematical accuracy of the recorded revenue.
Business Acquisitions-Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
During 2019, the Company completed the acquisitions of Discovery Benefits, Inc. for $526.1 million, Noventis, Inc. for $338.7 million, and
Go Fuel Card for $266.0 million. The Company accounted for these acquisitions under the acquisition method of accounting for business
combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair
values, including the intangible assets identified of $529 million.
Management estimated the fair value of the intangible assets, with the assistance of a third-party specialist, utilizing various discounted cash
flow methods. The fair value determination of the intangible assets identified required management to make significant estimates and
assumptions related to future cash flows and the selection of the discount rates.
Given the fair value determination of the intangibles for these acquisitions requires management to make significant estimates and
assumptions related to the forecasts of future cash flows and the selection of the discount rates, performing audit procedures to evaluate the
reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the
need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future cash flows and the selection of the discount rates for the intangible assets included the
following, among others:
•
•
•
•
We tested the effectiveness of controls over the valuation of the intangible assets, including management’s controls over forecasts of
future cash flows and selection of the discount rates.
We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results,
certain peer companies, and industry data.
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount
rates used by:
•
•
Evaluating the valuation models to ensure consistency with generally accepted valuation practices.
Testing the source information underlying the determination of the discount rates and testing the mathematical accuracy of the
calculation.
•
Developing a range of independent estimates and comparing those to the discount rates selected by management.
We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 28, 2020
We have served as the Company’s auditor since 2003.
WEX INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Total cost of services
General and administrative
Sales and marketing
Depreciation and amortization
Impairment charges
Gain on divestiture
Operating income
Financing interest expense
Net foreign currency (loss) gain
Non-cash adjustments related to tax receivable agreement
Net unrealized (loss) gain on financial instruments
Income before income taxes
Income taxes
Net income
Less: Net (loss) income from non-controlling interests
Net income attributable to WEX Inc.
Accretion of non-controlling interest
Net income attributable to shareholders
Net income attributable to shareholders per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
Year ended December 31,
2019
2018
2017
$
825,592
$
723,991
$
413,552
247,318
237,229
308,096
208,627
251,925
1,723,691
1,492,639
1,248,577
400,439
309,450
278,056
57,027
65,664
41,915
94,725
659,770
275,807
259,869
142,404
—
—
385,841
(134,677)
(926)
932
(34,654)
216,516
61,223
155,293
(1,030)
156,323
(57,317)
53,655
66,482
38,407
79,935
547,929
209,319
229,234
119,870
5,649
—
380,638
(105,023)
(38,800)
(775)
2,579
238,619
68,843
169,776
1,481
168,295
—
99,006
$
168,295
$
160,062
$
$
$
2.29
2.26
$
$
3.90
3.86
$
$
43,316
43,769
43,156
43,574
569,166
276,570
188,792
214,049
72,957
64,218
24,993
74,061
514,285
184,339
163,654
129,663
44,171
(20,958)
233,423
(107,067)
31,487
15,259
1,314
174,416
15,450
158,966
(1,096)
160,062
—
3.72
3.71
42,977
43,105
63
64
•
•
•
•
•
•
With the assistance of our data specialists, we created data visualizations to evaluate recorded revenue and evaluate trends in the
transactional revenue data.
For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recognized to source documents
and testing the mathematical accuracy of the recorded revenue.
Business Acquisitions-Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
During 2019, the Company completed the acquisitions of Discovery Benefits, Inc. for $526.1 million, Noventis, Inc. for $338.7 million, and
Go Fuel Card for $266.0 million. The Company accounted for these acquisitions under the acquisition method of accounting for business
combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair
values, including the intangible assets identified of $529 million.
Management estimated the fair value of the intangible assets, with the assistance of a third-party specialist, utilizing various discounted cash
flow methods. The fair value determination of the intangible assets identified required management to make significant estimates and
assumptions related to future cash flows and the selection of the discount rates.
Given the fair value determination of the intangibles for these acquisitions requires management to make significant estimates and
assumptions related to the forecasts of future cash flows and the selection of the discount rates, performing audit procedures to evaluate the
reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the
need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future cash flows and the selection of the discount rates for the intangible assets included the
following, among others:
We tested the effectiveness of controls over the valuation of the intangible assets, including management’s controls over forecasts of
future cash flows and selection of the discount rates.
certain peer companies, and industry data.
We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results,
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount
Evaluating the valuation models to ensure consistency with generally accepted valuation practices.
Testing the source information underlying the determination of the discount rates and testing the mathematical accuracy of the
Developing a range of independent estimates and comparing those to the discount rates selected by management.
We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.
rates used by:
calculation.
•
•
•
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 28, 2020
We have served as the Company’s auditor since 2003.
WEX INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Revenues
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Cost of services
Processing costs
Service fees
Provision for credit losses
Operating interest
Depreciation and amortization
Total cost of services
General and administrative
Sales and marketing
Depreciation and amortization
Impairment charges
Gain on divestiture
Operating income
Financing interest expense
Net foreign currency (loss) gain
Non-cash adjustments related to tax receivable agreement
Net unrealized (loss) gain on financial instruments
Income before income taxes
Income taxes
Net income
Less: Net (loss) income from non-controlling interests
Net income attributable to WEX Inc.
Accretion of non-controlling interest
Net income attributable to shareholders
Net income attributable to shareholders per share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
Year ended December 31,
2019
2018
2017
$
825,592
$
723,991
$
413,552
247,318
237,229
308,096
208,627
251,925
569,166
276,570
188,792
214,049
1,723,691
1,492,639
1,248,577
400,439
309,450
278,056
57,027
65,664
41,915
94,725
659,770
275,807
259,869
142,404
—
—
385,841
(134,677)
(926)
932
(34,654)
216,516
61,223
155,293
(1,030)
156,323
(57,317)
53,655
66,482
38,407
79,935
547,929
209,319
229,234
119,870
5,649
—
380,638
(105,023)
(38,800)
(775)
2,579
238,619
68,843
169,776
1,481
168,295
—
72,957
64,218
24,993
74,061
514,285
184,339
163,654
129,663
44,171
(20,958)
233,423
(107,067)
31,487
15,259
1,314
174,416
15,450
158,966
(1,096)
160,062
—
$
$
$
99,006
$
168,295
$
160,062
2.29
2.26
$
$
3.90
3.86
$
$
43,316
43,769
43,156
43,574
3.72
3.71
42,977
43,105
63
64
WEX INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Changes in investment securities, net of tax benefit of $3 in 2017
Foreign currency translation
Comprehensive income
Less: Comprehensive (loss) income attributable to non-controlling interest
Comprehensive income attributable to WEX Inc.
See notes to consolidated financial statements.
Year ended December 31,
2019
2018
2017
$
155,293
$
169,776
$
158,966
—
1,784
157,077
(1,088)
—
(28,535)
141,241
1,007
(5)
34,295
193,256
(1,554)
$
158,165
$
140,234
$
194,810
WEX INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Assets
Cash and cash equivalents
Restricted cash
Accounts receivable (net of allowances of $52,274 in 2019 and $46,948 in 2018)
Securitized accounts receivable, restricted
Prepaid expenses and other current assets
Total current assets
Property, equipment and capitalized software (net of accumulated depreciation of $344,212 in 2019 and $307,750 in 2018)
Goodwill
Other intangible assets (net of accumulated amortization of $666,793 in 2019 and $509,055 in 2018)
Investment securities
Deferred income taxes, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Accounts payable
Accrued expenses
Restricted cash payable
Short-term deposits
Short-term debt, net
Other current liabilities
Total current liabilities
Long-term debt, net
Long-term deposits
Deferred income taxes, net
Other liabilities
Total liabilities
Commitments and contingencies (Note 21)
Redeemable non-controlling interest
Stockholders’ Equity
Common stock $0.01 par value; 175,000 shares authorized; 47,749 issued in 2019 and 47,557 in 2018; 43,321 shares
outstanding in 2019 and 43,129 in 2018
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock at cost; 4,428 shares in 2019 and 2018
Total WEX Inc. stockholders’ equity
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
65
66
December 31,
2019
2018
$
810,932
$
541,498
170,449
13,533
2,661,108
2,584,203
112,192
87,694
109,871
149,021
3,842,375
3,398,126
$ 8,298,418
$ 6,770,595
$
969,816
$
814,742
212,475
2,441,201
1,575,050
30,460
12,833
184,024
315,642
170,449
1,310,813
248,531
34,692
3,049,943
2,686,513
143,399
218,740
106,422
156,879
477
187,868
1,832,129
1,034,194
24,406
9,643
284,229
312,268
13,533
927,444
216,517
27,067
2,311,571
2,133,923
345,231
151,685
32,261
—
475
6,205,017
4,974,671
675,060
593,262
1,539,201
1,481,593
(115,449)
(172,342)
(117,291)
(172,342)
1,926,947
1,785,697
9,575
10,227
1,936,522
1,795,924
$ 8,298,418
$ 6,770,595
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
WEX INC.
(in thousands)
Changes in investment securities, net of tax benefit of $3 in 2017
Net income
Foreign currency translation
Comprehensive income
Less: Comprehensive (loss) income attributable to non-controlling interest
Comprehensive income attributable to WEX Inc.
See notes to consolidated financial statements.
Year ended December 31,
2019
2018
2017
$
155,293
$
169,776
$
158,966
—
1,784
157,077
(1,088)
—
(28,535)
141,241
1,007
(5)
34,295
193,256
(1,554)
$
158,165
$
140,234
$
194,810
WEX INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Assets
Cash and cash equivalents
Restricted cash
Accounts receivable (net of allowances of $52,274 in 2019 and $46,948 in 2018)
Securitized accounts receivable, restricted
Prepaid expenses and other current assets
Total current assets
Property, equipment and capitalized software (net of accumulated depreciation of $344,212 in 2019 and $307,750 in 2018)
Goodwill
Other intangible assets (net of accumulated amortization of $666,793 in 2019 and $509,055 in 2018)
Investment securities
Deferred income taxes, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Accounts payable
Accrued expenses
Restricted cash payable
Short-term deposits
Short-term debt, net
Other current liabilities
Total current liabilities
Long-term debt, net
Long-term deposits
Deferred income taxes, net
Other liabilities
Total liabilities
Commitments and contingencies (Note 21)
Redeemable non-controlling interest
Stockholders’ Equity
Common stock $0.01 par value; 175,000 shares authorized; 47,749 issued in 2019 and 47,557 in 2018; 43,321 shares
outstanding in 2019 and 43,129 in 2018
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock at cost; 4,428 shares in 2019 and 2018
Total WEX Inc. stockholders’ equity
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
65
66
December 31,
2019
2018
$
810,932
$
541,498
170,449
13,533
2,661,108
2,584,203
112,192
87,694
109,871
149,021
3,842,375
3,398,126
212,475
2,441,201
1,575,050
30,460
12,833
184,024
187,868
1,832,129
1,034,194
24,406
9,643
284,229
$ 8,298,418
$ 6,770,595
$
969,816
$
814,742
315,642
170,449
1,310,813
248,531
34,692
3,049,943
2,686,513
143,399
218,740
106,422
312,268
13,533
927,444
216,517
27,067
2,311,571
2,133,923
345,231
151,685
32,261
6,205,017
4,974,671
156,879
477
—
475
675,060
593,262
1,539,201
1,481,593
(115,449)
(172,342)
(117,291)
(172,342)
1,926,947
1,785,697
9,575
10,227
1,936,522
1,795,924
$ 8,298,418
$ 6,770,595
WEX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
WEX INC.
(in thousands)
Balance at January 1, 2017
47,173
$
472
$
547,627
$
(123,978)
$ (172,342)
$ 1,152,713
$
10,659
$
1,415,151
Adjustments to reconcile net income to net cash provided by operating activities:
Common Stock
Issued
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Retained
Earnings
Non-
Controlling
Interest
Total
Stockholders’
Equity
Cash flows from operating activities
Net income
Other
Stock issued
Share repurchases for tax withholdings
Stock-based compensation expense
Changes in investment securities, net of tax
benefit of $3
Foreign currency translation
Net income (loss)
Balance at December 31, 2017
Cumulative-effect adjustment 1
Balance at January 1, 2018
Stock issued
Share repurchases for tax withholdings
Stock-based compensation expense
Foreign currency translation
Net income
Balance at January 1, 2019
Stock issued
Share repurchases for tax withholdings
Stock-based compensation expense
Adjustments of redeemable non-controlling
interest
Foreign currency translation
Net income (loss)
—
178
—
1
—
—
—
$
$
47,352
—
47,352
205
—
—
—
—
47,557
192
—
—
—
—
—
$
$
—
1
—
—
—
—
—
473
—
473
2
—
—
—
—
475
2
—
—
—
—
—
—
732
(9,527)
30,487
—
—
—
569,319
—
569,319
2,428
(12,372)
33,887
—
—
593,262
4,939
(10,352)
45,811
41,400
—
—
—
—
—
—
(5)
34,753
—
—
—
—
—
—
—
—
(115)
—
—
—
—
—
160,062
$
$
(89,230)
$ (172,342)
$ 1,312,660
—
—
638
(89,230)
$ (172,342)
$ 1,313,298
$
$
—
—
—
(28,061)
—
—
—
—
—
—
—
—
—
168,295
(117,291)
(172,342)
1,481,593
—
—
—
—
1,842
—
—
—
—
—
—
—
—
—
—
(98,715)
—
156,323
115
—
—
—
—
(458)
(1,096)
9,220
—
9,220
$
$
—
—
—
(474)
1,481
10,227
—
—
—
—
(58)
(594)
—
733
(9,527)
30,487
(5)
34,295
158,966
1,630,100
638
1,630,738
2,430
(12,372)
33,887
(28,535)
169,776
1,795,924
4,941
(10,352)
45,811
(57,315)
1,784
155,729
Balance at December 31, 2019
47,749
$
477
$
675,060
$
(115,449)
$ (172,342)
$ 1,539,201
$
9,575
$
1,936,522
1 Includes the impact of the Company’s modified retrospective adoption as part of Topic 606.
See notes to consolidated financial statements.
Net unrealized loss
Stock-based compensation
Depreciation and amortization
Debt restructuring and debt issuance cost amortization
Gain on divestiture
Provision for deferred taxes
Provision for credit losses
Impairment charges
Non-cash adjustments related to tax receivable agreement
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and securitized accounts receivable
Prepaid expenses and other current and other long-term assets
Accounts payable
Income taxes
Accrued expenses and restricted cash payable
Other current and other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property, equipment and capitalized software
(102,860)
(87,152)
Purchase of equity investment
Purchases of investment securities
Maturities of investment securities
Acquisitions, net cash
Proceeds from divestiture
Net cash used for investing activities
Cash flows from financing activities
Repurchase of share-based awards to satisfy tax withholdings
Proceeds from stock option exercises
Net change in deposits
Net activity on other debt
Borrowings on revolving credit facility
Repayments on revolving credit facility
Borrowings on term loans
Repayments on term loans
Debt issuance costs
Net change in securitized debt
Net cash provided by (used for) financing activities
Effect of exchange rates on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year(a)
Cash, cash equivalents and restricted cash, end of year(a)
Year ended December 31,
2019
2018
2017
$
155,293
$
169,776
$
158,966
29,792
45,811
237,129
9,942
—
19,667
65,664
—
(932)
31,337
139,187
31,627
(12,266)
(21,435)
663,171
—
(5,567)
230
(10,352)
4,941
176,603
(43,148)
688,990
(64,329)
(3,442)
(1,943)
749,773
4,020
426,350
555,031
21,924
33,887
199,805
9,674
—
31,334
66,482
5,649
775
68,014
(3,588)
8,654
(2,107)
(8,413)
(2,771)
(1,768)
266
(12,372)
2,430
(20,360)
(62,290)
178,000
(35,791)
(5,841)
(10,009)
(102,728)
(10,680)
32,646
522,385
(67,645)
(201,637)
400,229
135,427
(882,417)
(162,750)
(114,282)
—
—
29,900
(990,614)
(254,175)
(168,054)
1,267,704
1,570,983
4,367,168
(1,265,251)
(1,707,478)
(4,239,241)
12,565
30,487
203,724
7,957
(20,958)
(4,234)
64,218
44,171
(15,259)
(540,470)
(3,043)
195,773
(2,378)
9,484
(5,576)
(79,276)
(4,553)
(474)
631
(9,527)
733
173,052
68,525
—
(34,750)
(985)
34,410
359,385
(17,715)
309,043
213,342
522,385
$
981,381
$
555,031
$
67
68
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
WEX INC.
(in thousands)
Balance at January 1, 2017
47,173
$
472
$
547,627
$
(123,978)
$ (172,342)
$ 1,152,713
$
10,659
$
1,415,151
Adjustments to reconcile net income to net cash provided by operating activities:
Common Stock
Issued
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Retained
Earnings
Non-
Controlling
Interest
Total
Stockholders’
Equity
Cash flows from operating activities
Net income
Year ended December 31,
2019
2018
2017
$
155,293
$
169,776
$
158,966
WEX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Other
Stock issued
Share repurchases for tax withholdings
Stock-based compensation expense
Changes in investment securities, net of tax
benefit of $3
Foreign currency translation
Net income (loss)
Balance at December 31, 2017
Cumulative-effect adjustment 1
Balance at January 1, 2018
Stock issued
Share repurchases for tax withholdings
Stock-based compensation expense
Foreign currency translation
Net income
Balance at January 1, 2019
Stock issued
Share repurchases for tax withholdings
Stock-based compensation expense
Adjustments of redeemable non-controlling
interest
Foreign currency translation
Net income (loss)
—
178
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
47,557
192
—
1
—
—
—
—
—
2
—
—
—
—
2
—
—
—
—
—
—
732
(9,527)
30,487
—
—
—
—
—
—
569,319
2,428
(12,372)
33,887
593,262
4,939
(10,352)
45,811
41,400
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5)
34,753
(28,061)
1,842
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(115)
—
—
—
—
—
638
—
—
—
160,062
$
$
168,295
—
—
—
—
(98,715)
156,323
$
$
115
—
—
—
—
(458)
(1,096)
9,220
(474)
1,481
10,227
—
—
—
—
—
—
—
—
(58)
(594)
569,319
(89,230)
$ (172,342)
$ 1,312,660
$
$
473
—
473
$
$
47,352
47,352
205
$
$
475
(117,291)
(172,342)
1,481,593
—
733
(9,527)
30,487
(5)
34,295
158,966
1,630,100
638
(89,230)
$ (172,342)
$ 1,313,298
9,220
1,630,738
2,430
(12,372)
33,887
(28,535)
169,776
1,795,924
4,941
(10,352)
45,811
(57,315)
1,784
155,729
Balance at December 31, 2019
47,749
$
477
$
675,060
$
(115,449)
$ (172,342)
$ 1,539,201
$
9,575
$
1,936,522
1 Includes the impact of the Company’s modified retrospective adoption as part of Topic 606.
See notes to consolidated financial statements.
Net unrealized loss
Stock-based compensation
Depreciation and amortization
Debt restructuring and debt issuance cost amortization
Gain on divestiture
Provision for deferred taxes
Provision for credit losses
Impairment charges
Non-cash adjustments related to tax receivable agreement
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and securitized accounts receivable
Prepaid expenses and other current and other long-term assets
Accounts payable
Accrued expenses and restricted cash payable
Income taxes
Other current and other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property, equipment and capitalized software
Purchase of equity investment
Purchases of investment securities
Maturities of investment securities
Acquisitions, net cash
Proceeds from divestiture
Net cash used for investing activities
Cash flows from financing activities
Repurchase of share-based awards to satisfy tax withholdings
Proceeds from stock option exercises
Net change in deposits
Net activity on other debt
Borrowings on revolving credit facility
Repayments on revolving credit facility
Borrowings on term loans
Repayments on term loans
Debt issuance costs
Net change in securitized debt
Net cash provided by (used for) financing activities
Effect of exchange rates on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year(a)
Cash, cash equivalents and restricted cash, end of year(a)
67
68
29,792
45,811
237,129
9,942
—
19,667
65,664
—
(932)
21,924
33,887
199,805
9,674
—
31,334
66,482
5,649
775
(67,645)
(201,637)
31,337
139,187
31,627
(12,266)
(21,435)
663,171
68,014
(3,588)
8,654
(2,107)
(8,413)
12,565
30,487
203,724
7,957
(20,958)
(4,234)
64,218
44,171
(15,259)
(540,470)
(3,043)
195,773
(2,378)
9,484
(5,576)
400,229
135,427
(102,860)
(87,152)
—
(5,567)
230
(2,771)
(1,768)
266
(79,276)
(4,553)
(474)
631
(882,417)
(162,750)
(114,282)
—
—
29,900
(990,614)
(254,175)
(168,054)
(10,352)
4,941
176,603
(43,148)
(12,372)
2,430
(20,360)
(62,290)
(9,527)
733
173,052
68,525
1,267,704
1,570,983
4,367,168
(1,265,251)
(1,707,478)
(4,239,241)
688,990
(64,329)
(3,442)
(1,943)
749,773
4,020
426,350
555,031
178,000
(35,791)
(5,841)
(10,009)
(102,728)
(10,680)
32,646
522,385
$
981,381
$
555,031
$
—
(34,750)
(985)
34,410
359,385
(17,715)
309,043
213,342
522,385
Supplemental cash flow information
Interest paid
Income taxes paid
Supplemental disclosure of non-cash investing and financing activities
Capital expenditures incurred but not paid
2019
2018
2017
$
$
$
175,993
50,964
4,771
$
$
$
141,476
39,225
8,569
$
$
$
128,888
6,679
4,596
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WEX INC.
1.
Summary of Significant Accounting Policies
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our consolidated balance sheets to amounts within
our consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017:
Business Description
Cash and cash equivalents at beginning of year
Restricted cash at beginning of year
Cash, cash equivalents and restricted cash at beginning of year
Cash and cash equivalents at end of year
Restricted cash at end of year
Cash, cash equivalents and restricted cash at end of year
See notes to consolidated financial statements.
December 31,
2019
2018
2017
$
$
$
$
541,498
13,533
555,031
810,932
170,449
981,381
$
$
$
$
503,519
18,866
522,385
541,498
13,533
555,031
$
$
$
$
190,930
22,412
213,342
503,519
18,866
522,385
WEX Inc. (“Company”, “we” or “our”) is a provider of corporate card payment solutions. The Company provides products
and services that meet the needs of businesses in various geographic regions including North and South America, Asia Pacific and
Europe. The Company’s Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions segments
provide our customers with security and control for complex payments across a wide spectrum of business sectors. The Company
markets its products and services directly, as well as through strategic relationships, which include major oil companies, fuel
retailers, vehicle maintenance providers, online travel agencies and health partners.
Basis of Presentation
The accompanying consolidated financial statements for the years ended December 31, 2019, 2018 and 2017, include
the accounts of the Company and its wholly and majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
The Company rounds amounts in the consolidated financial statements to thousands within tables and millions within
text (unless otherwise specified), and calculates all percentages and per-share data from underlying whole-dollar amounts. Thus,
certain amounts may not foot, crossfoot, or recalculate based on reported numbers due to rounding.
Use of Estimates and Assumptions
The Company prepares its consolidated financial statements in conformity with GAAP and with the Rules and Regulations
of the SEC, specifically Regulation S–X and the instructions to Form 10–K. These principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could
differ from those estimates and those differences may be material.
Cash and Cash Equivalents
Highly liquid investments with original maturities at the time of purchase of three months or less (that are readily convertible
to cash) are considered to be cash equivalents and are stated at cost, which approximates fair value. Cash and cash equivalents
include Eurodollar time deposits, and money market funds, which are unsecured short-term investments entered into with financial
institutions.
Restricted Cash
Restricted cash represents funds collected from individuals or employers on behalf of our customers that are to be remitted
to third parties or funds required to be maintained on hand under certain vendor agreements and is not available to fund the
Company’s operations. We maintain an offsetting liability against restricted cash collected and remitted on behalf of our customers.
Accounts Receivable, Net of Allowances
Accounts receivable, net of allowances consists of amounts billed and due from third parties. We often extend short-term
credit to cardholders and pay the merchant for the purchase price, less the fees we retain and record as revenue. We subsequently
collect the total purchase price from the cardholder.
The amounts due are stated at their net realizable value. The receivables portfolio consists of a large group of homogeneous
smaller balances across a wide range of industries, which are collectively evaluated for impairment. The accounts receivable
allowance reflects management’s estimate of uncollectable balances resulting from credit and fraud losses and is based on the
determination of the amount of expected losses inherent in the accounts receivable as of the reporting date. Management reviews
delinquency reports, historical collection rates, changes in customer payment patterns, economic trends, geography and other
information in order to make judgments as to probable credit losses. Management monitors pending fraud cases, customer-identified
fraudulent activity and unconfirmed suspicious activity in order to make judgments as to probable fraud losses. Management also
uses historical charge-off experience to determine the amount of losses inherent in accounts receivable at the reporting date.
Assumptions regarding probable losses are reviewed periodically and may be impacted by actual performance of accounts receivable
69
70
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Supplemental cash flow information
Interest paid
Income taxes paid
Supplemental disclosure of non-cash investing and financing activities
Capital expenditures incurred but not paid
2019
2018
2017
175,993
50,964
141,476
39,225
128,888
6,679
4,771
8,569
4,596
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our consolidated balance sheets to amounts within
Business Description
our consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017:
Cash and cash equivalents at beginning of year
Restricted cash at beginning of year
Cash, cash equivalents and restricted cash at beginning of year
Cash and cash equivalents at end of year
Restricted cash at end of year
Cash, cash equivalents and restricted cash at end of year
See notes to consolidated financial statements.
December 31,
2019
2018
2017
541,498
13,533
555,031
810,932
170,449
981,381
503,519
18,866
522,385
541,498
13,533
555,031
190,930
22,412
213,342
503,519
18,866
522,385
WEX Inc. (“Company”, “we” or “our”) is a provider of corporate card payment solutions. The Company provides products
and services that meet the needs of businesses in various geographic regions including North and South America, Asia Pacific and
Europe. The Company’s Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions segments
provide our customers with security and control for complex payments across a wide spectrum of business sectors. The Company
markets its products and services directly, as well as through strategic relationships, which include major oil companies, fuel
retailers, vehicle maintenance providers, online travel agencies and health partners.
Basis of Presentation
The accompanying consolidated financial statements for the years ended December 31, 2019, 2018 and 2017, include
the accounts of the Company and its wholly and majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
The Company rounds amounts in the consolidated financial statements to thousands within tables and millions within
text (unless otherwise specified), and calculates all percentages and per-share data from underlying whole-dollar amounts. Thus,
certain amounts may not foot, crossfoot, or recalculate based on reported numbers due to rounding.
Use of Estimates and Assumptions
The Company prepares its consolidated financial statements in conformity with GAAP and with the Rules and Regulations
of the SEC, specifically Regulation S–X and the instructions to Form 10–K. These principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could
differ from those estimates and those differences may be material.
Cash and Cash Equivalents
Highly liquid investments with original maturities at the time of purchase of three months or less (that are readily convertible
to cash) are considered to be cash equivalents and are stated at cost, which approximates fair value. Cash and cash equivalents
include Eurodollar time deposits, and money market funds, which are unsecured short-term investments entered into with financial
institutions.
Restricted Cash
Restricted cash represents funds collected from individuals or employers on behalf of our customers that are to be remitted
to third parties or funds required to be maintained on hand under certain vendor agreements and is not available to fund the
Company’s operations. We maintain an offsetting liability against restricted cash collected and remitted on behalf of our customers.
Accounts Receivable, Net of Allowances
Accounts receivable, net of allowances consists of amounts billed and due from third parties. We often extend short-term
credit to cardholders and pay the merchant for the purchase price, less the fees we retain and record as revenue. We subsequently
collect the total purchase price from the cardholder.
The amounts due are stated at their net realizable value. The receivables portfolio consists of a large group of homogeneous
smaller balances across a wide range of industries, which are collectively evaluated for impairment. The accounts receivable
allowance reflects management’s estimate of uncollectable balances resulting from credit and fraud losses and is based on the
determination of the amount of expected losses inherent in the accounts receivable as of the reporting date. Management reviews
delinquency reports, historical collection rates, changes in customer payment patterns, economic trends, geography and other
information in order to make judgments as to probable credit losses. Management monitors pending fraud cases, customer-identified
fraudulent activity and unconfirmed suspicious activity in order to make judgments as to probable fraud losses. Management also
uses historical charge-off experience to determine the amount of losses inherent in accounts receivable at the reporting date.
Assumptions regarding probable losses are reviewed periodically and may be impacted by actual performance of accounts receivable
69
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
and changes in any of the factors discussed above. The accounts receivable allowance also includes a reserve for waived finance
fees, which is used to maintain customer goodwill and recorded against the late fee revenue recognized.
Below are the amounts of internal-use computer software capitalized within property, equipment and capitalized software
and the related amortization expense incurred on all internal-use computer software during the years ended December 31:
Investment Securities
As a result of adopting ASU 2016–01, effective January 1, 2018, changes in the fair value of investment securities are
included in net unrealized (loss) gain on financial instruments within our consolidated statements of income. Prior to adoption,
unrealized gains and losses, net of tax, were reported on the consolidated balance sheets in accumulated other comprehensive loss.
Realized gains and losses and declines in fair value determined to be other-than-temporary are included in non-operating expenses.
The cost basis of securities is based on the specific identification method. Investment securities held by the Company were purchased
and are held by WEX Bank primarily in order to meet the requirements of the Community Reinvestment Act.
Derivatives
From time to time, the Company utilizes derivative instruments as part of its overall strategy to manage its exposure to
fluctuations in fuel prices and to reduce the impact of interest and foreign currency exchange rate volatility. The Company’s
derivative instruments are recorded at fair value on the consolidated balance sheets. The Company’s derivative instruments have
not been designated as hedges; realized and unrealized gains and losses are recognized in financing interest and unrealized gains
and losses on financial instruments, respectively. For the purposes of cash flow presentation, realized and unrealized gains or losses
are included within cash flows from operating activities.
Leases
Beginning January 1, 2019, leases are required to be accounted for using a right-of-use model, which recognizes that at
the date of commencement, a lessee has a financial obligation to make lease payments to the lessor for the right to use the underlying
asset during the lease term. The lessee recognizes a corresponding right-of-use asset related to this right. The Company made an
accounting policy election to not recognize assets or liabilities for leases with a term of less than twelve months and to account
for all components in a lease arrangement as a single combined lease component. As the Company’s leases do not specify an
implicit rate, the Company uses an incremental borrowing rate based on information available at the lease commencement date
to determine the present value of the lease payments. The Company evaluates right-of-use assets for impairment when events or
changes in circumstances indicate that the carrying value of the asset may not be recoverable. See Note 15, Leases, for further
information.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software are stated at cost, net of accumulated depreciation and amortization.
Replacements, renewals and improvements are capitalized and costs for repair and maintenance are expensed as incurred. Leasehold
improvements are depreciated using the straight-line method over the shorter of the remaining lease term or the useful life of the
improvement. Depreciation and amortization for all other property, equipment and capitalized software is primarily computed
using the straight-line method over the estimated useful lives shown below for all periods presented in these consolidated financial
statements.
Furniture, fixtures and equipment
Internal-use computer software
Computer software
Estimated Useful Lives
3 to 5 years
1.5 to 5 years
3 years
The Company’s developed software is used to provide processing and information management services to customers.
A significant portion of the Company’s capital expenditures is devoted to the development of such internal-use computer software.
Costs incurred during the preliminary project stage are expensed as incurred. Software development costs are capitalized during
the application development stage. Capitalization begins when the preliminary project stage is complete, as well as when
management authorizes and commits to the funding of the project. Capitalization of costs ceases when the software is ready for
its intended use. Costs related to maintenance of internal-use software are expensed as incurred.
(in thousands)
Gross amounts capitalized for internal-use computer software (including construction-in-process)
Amounts expensed for amortization of internal-use computer software
2019
2018
2017
$
$
74,432
57,821
$
$
46,382
38,632
$
$
50,682
32,582
Acquisitions
For acquisitions that meet the definition of a business combination, the Company applies the acquisition method of
accounting where assets acquired and liabilities assumed are recorded at fair value at the date of each acquisition. Any excess of
the consideration transferred by the Company over the amounts recognized for assets acquired and liabilities assumed is recorded
as goodwill. The Company continues to evaluate acquisitions for a period not to exceed one year after the acquisition date of each
transaction to determine whether any additional adjustments are needed to the allocation of the purchase price. The acquiree’s
results of operations are included in consolidated results of the Company from the date of the respective acquisition.
All other acquisitions are accounted for as asset acquisitions and the purchase price is allocated to the net assets acquired
with no recognition of goodwill. Following the acquisition date, the purchase price is not subsequently adjusted.
The fair value of assets acquired and liabilities assumed is based on management’s estimates and assumptions, as well
as other information compiled by management. Fair values are typically determined using a discounted cash flow valuation method,
though the Company utilizes alternative valuation methods when deemed appropriate. Significant acquisition valuation assumptions
typically include timing and amount of future cash flows, effective income tax rates, discount rates, long-term growth expectations
and customer attrition rates.
Goodwill and Other Intangible Assets
The Company classifies intangible assets in the following three categories: (1) intangible assets with definite lives subject
to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. The Company tests intangible
assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions
may include a reduction in operating cash flow or a dramatic change in the manner in which the asset is intended to be used. The
Company records an impairment charge when the carrying value of the definite-lived intangible asset exceeds the undiscounted
cash flows generated from the use of the asset.
Intangible assets with indefinite lives and goodwill are not amortized. The Company tests these intangible assets and
goodwill for impairment at least annually or more frequently if facts or circumstances indicate that such intangible assets or
goodwill might be impaired. All goodwill and intangible assets are assigned to reporting units, which are one level below the
Company’s operating segments. The Company performs goodwill impairment tests at the reporting unit level. Such impairment
tests include comparing the fair value of the respective reporting unit with its carrying value, including goodwill. The Company
uses both discounted cash flow analyses and comparable company pricing multiples to determine the fair value of our reporting
units. Such analyses are corroborated using market analytics. Certain assumptions are used in determining the fair value, including
assumptions about future cash flows and terminal values. When appropriate, the Company considers the assumptions that it believes
hypothetical marketplace participants would use in estimating future cash flows. In addition, an appropriate discount rate is used,
based on the Company’s cost of capital or reporting unit-specific economic factors. For indefinite-lived intangible assets, the
Company performs a qualitative assessment to determine whether it is more likely than not that an indefinite-lived asset is impaired.
Such assessment includes consideration of any negative financial performance, legal, regulatory, contractual, or other factors that
could affect significant inputs used in determining the fair value. If the Company determines that the asset is more likely than not
impaired, then a quantitative test is performed comparing the fair value of the asset with its carrying amount. When the fair value
is less than the carrying value of the intangible assets or the reporting unit, the Company records an impairment charge to reduce
the carrying value of the assets to the reporting unit’s implied fair value.
Effective October 1, 2018, the Company adopted ASU 2017–04, which simplified the subsequent measurement of
goodwill. Following adoption, the Company performs its annual goodwill impairment tests by comparing the fair value of a
reporting unit with its carrying amount and, if necessary, recognizes an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value.
71
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
and changes in any of the factors discussed above. The accounts receivable allowance also includes a reserve for waived finance
Below are the amounts of internal-use computer software capitalized within property, equipment and capitalized software
fees, which is used to maintain customer goodwill and recorded against the late fee revenue recognized.
and the related amortization expense incurred on all internal-use computer software during the years ended December 31:
Investment Securities
As a result of adopting ASU 2016–01, effective January 1, 2018, changes in the fair value of investment securities are
included in net unrealized (loss) gain on financial instruments within our consolidated statements of income. Prior to adoption,
unrealized gains and losses, net of tax, were reported on the consolidated balance sheets in accumulated other comprehensive loss.
Realized gains and losses and declines in fair value determined to be other-than-temporary are included in non-operating expenses.
The cost basis of securities is based on the specific identification method. Investment securities held by the Company were purchased
and are held by WEX Bank primarily in order to meet the requirements of the Community Reinvestment Act.
From time to time, the Company utilizes derivative instruments as part of its overall strategy to manage its exposure to
fluctuations in fuel prices and to reduce the impact of interest and foreign currency exchange rate volatility. The Company’s
derivative instruments are recorded at fair value on the consolidated balance sheets. The Company’s derivative instruments have
not been designated as hedges; realized and unrealized gains and losses are recognized in financing interest and unrealized gains
and losses on financial instruments, respectively. For the purposes of cash flow presentation, realized and unrealized gains or losses
are included within cash flows from operating activities.
Derivatives
Leases
Beginning January 1, 2019, leases are required to be accounted for using a right-of-use model, which recognizes that at
the date of commencement, a lessee has a financial obligation to make lease payments to the lessor for the right to use the underlying
asset during the lease term. The lessee recognizes a corresponding right-of-use asset related to this right. The Company made an
accounting policy election to not recognize assets or liabilities for leases with a term of less than twelve months and to account
for all components in a lease arrangement as a single combined lease component. As the Company’s leases do not specify an
implicit rate, the Company uses an incremental borrowing rate based on information available at the lease commencement date
to determine the present value of the lease payments. The Company evaluates right-of-use assets for impairment when events or
changes in circumstances indicate that the carrying value of the asset may not be recoverable. See Note 15, Leases, for further
information.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software are stated at cost, net of accumulated depreciation and amortization.
Replacements, renewals and improvements are capitalized and costs for repair and maintenance are expensed as incurred. Leasehold
improvements are depreciated using the straight-line method over the shorter of the remaining lease term or the useful life of the
improvement. Depreciation and amortization for all other property, equipment and capitalized software is primarily computed
using the straight-line method over the estimated useful lives shown below for all periods presented in these consolidated financial
statements.
Furniture, fixtures and equipment
Internal-use computer software
Computer software
Estimated Useful Lives
3 to 5 years
1.5 to 5 years
3 years
The Company’s developed software is used to provide processing and information management services to customers.
A significant portion of the Company’s capital expenditures is devoted to the development of such internal-use computer software.
Costs incurred during the preliminary project stage are expensed as incurred. Software development costs are capitalized during
the application development stage. Capitalization begins when the preliminary project stage is complete, as well as when
management authorizes and commits to the funding of the project. Capitalization of costs ceases when the software is ready for
its intended use. Costs related to maintenance of internal-use software are expensed as incurred.
(in thousands)
Gross amounts capitalized for internal-use computer software (including construction-in-process)
Amounts expensed for amortization of internal-use computer software
2019
2018
2017
$
$
74,432
57,821
$
$
46,382
38,632
$
$
50,682
32,582
Acquisitions
For acquisitions that meet the definition of a business combination, the Company applies the acquisition method of
accounting where assets acquired and liabilities assumed are recorded at fair value at the date of each acquisition. Any excess of
the consideration transferred by the Company over the amounts recognized for assets acquired and liabilities assumed is recorded
as goodwill. The Company continues to evaluate acquisitions for a period not to exceed one year after the acquisition date of each
transaction to determine whether any additional adjustments are needed to the allocation of the purchase price. The acquiree’s
results of operations are included in consolidated results of the Company from the date of the respective acquisition.
All other acquisitions are accounted for as asset acquisitions and the purchase price is allocated to the net assets acquired
with no recognition of goodwill. Following the acquisition date, the purchase price is not subsequently adjusted.
The fair value of assets acquired and liabilities assumed is based on management’s estimates and assumptions, as well
as other information compiled by management. Fair values are typically determined using a discounted cash flow valuation method,
though the Company utilizes alternative valuation methods when deemed appropriate. Significant acquisition valuation assumptions
typically include timing and amount of future cash flows, effective income tax rates, discount rates, long-term growth expectations
and customer attrition rates.
Goodwill and Other Intangible Assets
The Company classifies intangible assets in the following three categories: (1) intangible assets with definite lives subject
to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. The Company tests intangible
assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions
may include a reduction in operating cash flow or a dramatic change in the manner in which the asset is intended to be used. The
Company records an impairment charge when the carrying value of the definite-lived intangible asset exceeds the undiscounted
cash flows generated from the use of the asset.
Intangible assets with indefinite lives and goodwill are not amortized. The Company tests these intangible assets and
goodwill for impairment at least annually or more frequently if facts or circumstances indicate that such intangible assets or
goodwill might be impaired. All goodwill and intangible assets are assigned to reporting units, which are one level below the
Company’s operating segments. The Company performs goodwill impairment tests at the reporting unit level. Such impairment
tests include comparing the fair value of the respective reporting unit with its carrying value, including goodwill. The Company
uses both discounted cash flow analyses and comparable company pricing multiples to determine the fair value of our reporting
units. Such analyses are corroborated using market analytics. Certain assumptions are used in determining the fair value, including
assumptions about future cash flows and terminal values. When appropriate, the Company considers the assumptions that it believes
hypothetical marketplace participants would use in estimating future cash flows. In addition, an appropriate discount rate is used,
based on the Company’s cost of capital or reporting unit-specific economic factors. For indefinite-lived intangible assets, the
Company performs a qualitative assessment to determine whether it is more likely than not that an indefinite-lived asset is impaired.
Such assessment includes consideration of any negative financial performance, legal, regulatory, contractual, or other factors that
could affect significant inputs used in determining the fair value. If the Company determines that the asset is more likely than not
impaired, then a quantitative test is performed comparing the fair value of the asset with its carrying amount. When the fair value
is less than the carrying value of the intangible assets or the reporting unit, the Company records an impairment charge to reduce
the carrying value of the assets to the reporting unit’s implied fair value.
Effective October 1, 2018, the Company adopted ASU 2017–04, which simplified the subsequent measurement of
goodwill. Following adoption, the Company performs its annual goodwill impairment tests by comparing the fair value of a
reporting unit with its carrying amount and, if necessary, recognizes an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value.
71
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
The Company’s annual goodwill and intangible asset impairment tests performed as of October 1, 2018 identified a $3.2
million impairment related to our Brazil fleet reporting unit. The Company’s annual goodwill and intangible asset impairment
tests performed as of October 1, 2019 and 2017 did not identify any impairment.
None of our reporting units with allocated goodwill had negative carrying amounts of net assets as of October 1, 2019.
Our European fleet and Brazil benefits reporting units had negative carrying amounts of net assets as of October 1, 2018. Our
2018 annual goodwill impairment test indicated an excess of estimated fair value greater than the carrying values of the European
fleet and Brazil benefits reporting units of approximately $180 million and $250 million, respectively. As of December 31, 2018,
goodwill assigned to the European fleet and Brazil benefits reporting units totaled approximately $35.8 million and $14.3 million,
respectively. Such amounts are included in our Fleet Solutions and Health and Employee Benefit Solutions segments, respectively.
Intangible assets that are deemed to have definite lives are amortized over their useful lives, which is the period of time
that the asset is expected to contribute directly or indirectly to future cash flows. The Company determines the useful lives of its
identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. The factors
that management considers when determining useful lives include the contractual term of agreements, the history of the asset, the
Company’s long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of
the asset and other economic factors, including competition and specific market conditions. An evaluation of the remaining useful
lives of the definite-lived intangible assets is performed periodically to determine if any change is warranted.
Impairment and Disposals of Assets
Long-lived assets are tested for impairment whenever facts or circumstances, such as a reduction in operating cash flow
or a significant adverse change in the manner the asset is being used, indicate the carrying amount of the asset may not be recoverable.
The Company compares the estimated undiscounted future cash flows associated with these assets or asset group to their carrying
value to determine if a write-down to fair value is required. See Note 24, Impairment and Restructuring Activities, for further
discussion on impairments and asset write-offs.
Fair Value of Financial Instruments
The Company holds mortgage-backed securities, fixed-income mutual funds, money market funds, derivatives (see Note
12, Derivative Instruments) and certain other financial instruments that are carried at fair value. The Company determines fair
value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market
quotes are not readily accessible or available. Various factors are considered in determining the fair value of the Company’s
obligations, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying
options and derivatives; price activity for equivalent instruments; and the Company’s own-credit standing.
These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types
of inputs create the following fair value hierarchy:
•
•
•
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments
in markets that are not active; and model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
Level 3 – Instruments whose significant value drivers are unobservable.
Additionally, the Company holds certain investments that are measured at their NAV as a practical expedient, which are
excluded from the fair value hierarchy.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment and considers factors specific to the asset or liability.
Revenue Recognition
The Company adopted ASU 2014–09 (“Topic 606”) on January 1, 2018, utilizing the modified retrospective method.
Prior period comparable financial information continues to be presented under the guidance of ASC 605, Revenue Recognition.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
Topic 606 does not apply to rights or obligations associated with financial instruments or gains on the sale of WEX Latin America
Topic 606 does not apply to rights or obligations associated with financial instruments or gains on the sale of WEX Latin America
receivables, which are within the scope of ASC 310, Receivables and ASC 860, Transfers and Servicing, respectively.
receivables, which are within the scope of ASC 310, Receivables and ASC 860, Transfers and Servicing, respectively.
The Company generally records revenue net of consideration retained based upon its conclusion that the Company is the
The Company generally records revenue net of consideration retained based upon its conclusion that the Company is the
agent in its principal versus agent relationships. Prior to the adoption of Topic 606, this conclusion was based on the following
agent in its principal versus agent relationships. Prior to the adoption of Topic 606, this conclusion was based on the following
criteria: (i) the Company is not the primary obligor in the arrangement; (ii) the Company has no inventory risk; (iii) the Company
criteria: (i) the Company is not the primary obligor in the arrangement; (ii) the Company has no inventory risk; (iii) the Company
does not have reasonable latitude with respect to establishing the price for the product; (iv) the Company does not make any
does not have reasonable latitude with respect to establishing the price for the product; (iv) the Company does not make any
changes to the product or have any involvement in the product specifications; and, (v) the amount the Company earns for its
changes to the product or have any involvement in the product specifications; and, (v) the amount the Company earns for its
services is fixed, within a limited range. Under Topic 606, the Company evaluated the nature of its promise to the customer and
services is fixed, within a limited range. Under Topic 606, the Company evaluated the nature of its promise to the customer and
determined that it does not control a promised good or service before transferring that good or service to the customer, but rather
determined that it does not control a promised good or service before transferring that good or service to the customer, but rather
arranges for another entity to provide the goods or services.
arranges for another entity to provide the goods or services.
The vast majority of the Company’s Topic 606 revenue is derived from stand-ready obligations to provide payment
The vast majority of the Company’s Topic 606 revenue is derived from stand-ready obligations to provide payment
processing, transaction processing and SaaS services and support. As such, we view these services as comprising a series of distinct
processing, transaction processing and SaaS services and support. As such, we view these services as comprising a series of distinct
days of service that are substantially the same and have the same pattern of transfer to the customer. Accordingly, the promise to
days of service that are substantially the same and have the same pattern of transfer to the customer. Accordingly, the promise to
stand ready is accounted for as a single-series performance obligation. The transaction-based fees are generally calculated based
stand ready is accounted for as a single-series performance obligation. The transaction-based fees are generally calculated based
on measures such as (i) percentage of dollar value of volume processed; (ii) number of transactions processed; or (iii) some
on measures such as (i) percentage of dollar value of volume processed; (ii) number of transactions processed; or (iii) some
combination thereof. The Company has entered into agreements with major oil companies, fuel retailers, vehicle maintenance
combination thereof. The Company has entered into agreements with major oil companies, fuel retailers, vehicle maintenance
providers, online travel agencies and health partners, which provide products and/or services to the Company’s customers. These
providers, online travel agencies and health partners, which provide products and/or services to the Company’s customers. These
agreements specify that a transaction is deemed to be captured when the Company has validated that the transaction has no errors
agreements specify that a transaction is deemed to be captured when the Company has validated that the transaction has no errors
and has accepted and posted the data to the Company’s records. Prior to adoption of Topic 606, the Company recognized revenues
and has accepted and posted the data to the Company’s records. Prior to adoption of Topic 606, the Company recognized revenues
when persuasive evidence of an arrangement existed, the products and services had been provided to the client, the sales price was
when persuasive evidence of an arrangement existed, the products and services had been provided to the client, the sales price was
fixed or determinable and collectability was reasonably assured. Subsequent to adoption of Topic 606, revenue is recognized based
fixed or determinable and collectability was reasonably assured. Subsequent to adoption of Topic 606, revenue is recognized based
on the value of services transferred to date using a time elapsed output method. The change in accounting guidance did not result
on the value of services transferred to date using a time elapsed output method. The change in accounting guidance did not result
in a change in the pattern or timing of our revenue recognition. See Note 3, Revenue, for a description of the major components
in a change in the pattern or timing of our revenue recognition. See Note 3, Revenue, for a description of the major components
of revenue.
of revenue.
The Company enters into contracts with certain large customers or partners that provide for fee rebates tied to performance
The Company enters into contracts with certain large customers or partners that provide for fee rebates tied to performance
milestones. Rebates and incentives are calculated based on estimated performance and the terms of the related business agreements.
milestones. Rebates and incentives are calculated based on estimated performance and the terms of the related business agreements.
Prior to the adoption of Topic 606, certain amounts paid to partners in our Fleet Solutions and Travel and Corporate Solutions
Prior to the adoption of Topic 606, certain amounts paid to partners in our Fleet Solutions and Travel and Corporate Solutions
segments were recorded as a reduction in revenue in the same period that revenue was earned or performance occurs. Subsequent
segments were recorded as a reduction in revenue in the same period that revenue was earned or performance occurs. Subsequent
to the adoption of Topic 606, these amounts are now reflected within sales and marketing expense on our consolidated statements
to the adoption of Topic 606, these amounts are now reflected within sales and marketing expense on our consolidated statements
of income.
of income.
Stock-Based Compensation
Stock-Based Compensation
The Company recognizes the fair value of all stock-based payments to employees in its financial statements. The Company
The Company recognizes the fair value of all stock-based payments to employees in its financial statements. The Company
estimates the fair value of service-based stock option awards and market performance-based stock option awards on the grant date
estimates the fair value of service-based stock option awards and market performance-based stock option awards on the grant date
using a Black-Scholes-Merton valuation model and a Monte Carlo simulation model, respectively. The fair value of RSUs, including
using a Black-Scholes-Merton valuation model and a Monte Carlo simulation model, respectively. The fair value of RSUs, including
PBRSUs, is determined and fixed on the grant date based on the closing price of the Company’s stock.
PBRSUs, is determined and fixed on the grant date based on the closing price of the Company’s stock.
Stock-based compensation expense is net of estimated forfeitures and is recorded over each award’s requisite service
Stock-based compensation expense is net of estimated forfeitures and is recorded over each award’s requisite service
period. The Company uses the straight-line methodology for recognizing the expense associated with service-based stock options
period. The Company uses the straight-line methodology for recognizing the expense associated with service-based stock options
and RSU grants and a graded-vesting methodology for the expense recognition of market performance-based stock options and
and RSU grants and a graded-vesting methodology for the expense recognition of market performance-based stock options and
PBRSUs.
PBRSUs.
Advertising Costs
Advertising Costs
Advertising and marketing costs are expensed in the period incurred. During the years ended December 31, 2019, 2018
Advertising and marketing costs are expensed in the period incurred. During the years ended December 31, 2019, 2018
and 2017, advertising expense was $17.9 million, $16.3 million and $17.1 million, respectively.
and 2017, advertising expense was $17.9 million, $16.3 million and $17.1 million, respectively.
Income Taxes
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
74
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
The Company’s annual goodwill and intangible asset impairment tests performed as of October 1, 2018 identified a $3.2
million impairment related to our Brazil fleet reporting unit. The Company’s annual goodwill and intangible asset impairment
tests performed as of October 1, 2019 and 2017 did not identify any impairment.
None of our reporting units with allocated goodwill had negative carrying amounts of net assets as of October 1, 2019.
Our European fleet and Brazil benefits reporting units had negative carrying amounts of net assets as of October 1, 2018. Our
2018 annual goodwill impairment test indicated an excess of estimated fair value greater than the carrying values of the European
fleet and Brazil benefits reporting units of approximately $180 million and $250 million, respectively. As of December 31, 2018,
goodwill assigned to the European fleet and Brazil benefits reporting units totaled approximately $35.8 million and $14.3 million,
respectively. Such amounts are included in our Fleet Solutions and Health and Employee Benefit Solutions segments, respectively.
Intangible assets that are deemed to have definite lives are amortized over their useful lives, which is the period of time
that the asset is expected to contribute directly or indirectly to future cash flows. The Company determines the useful lives of its
identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. The factors
that management considers when determining useful lives include the contractual term of agreements, the history of the asset, the
Company’s long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of
the asset and other economic factors, including competition and specific market conditions. An evaluation of the remaining useful
lives of the definite-lived intangible assets is performed periodically to determine if any change is warranted.
Impairment and Disposals of Assets
Long-lived assets are tested for impairment whenever facts or circumstances, such as a reduction in operating cash flow
or a significant adverse change in the manner the asset is being used, indicate the carrying amount of the asset may not be recoverable.
The Company compares the estimated undiscounted future cash flows associated with these assets or asset group to their carrying
value to determine if a write-down to fair value is required. See Note 24, Impairment and Restructuring Activities, for further
discussion on impairments and asset write-offs.
Fair Value of Financial Instruments
The Company holds mortgage-backed securities, fixed-income mutual funds, money market funds, derivatives (see Note
12, Derivative Instruments) and certain other financial instruments that are carried at fair value. The Company determines fair
value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market
quotes are not readily accessible or available. Various factors are considered in determining the fair value of the Company’s
obligations, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying
options and derivatives; price activity for equivalent instruments; and the Company’s own-credit standing.
These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types
of inputs create the following fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments
in markets that are not active; and model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
Level 3 – Instruments whose significant value drivers are unobservable.
Additionally, the Company holds certain investments that are measured at their NAV as a practical expedient, which are
excluded from the fair value hierarchy.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment and considers factors specific to the asset or liability.
Revenue Recognition
The Company adopted ASU 2014–09 (“Topic 606”) on January 1, 2018, utilizing the modified retrospective method.
Prior period comparable financial information continues to be presented under the guidance of ASC 605, Revenue Recognition.
•
•
•
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
Topic 606 does not apply to rights or obligations associated with financial instruments or gains on the sale of WEX Latin America
Topic 606 does not apply to rights or obligations associated with financial instruments or gains on the sale of WEX Latin America
receivables, which are within the scope of ASC 310, Receivables and ASC 860, Transfers and Servicing, respectively.
receivables, which are within the scope of ASC 310, Receivables and ASC 860, Transfers and Servicing, respectively.
The Company generally records revenue net of consideration retained based upon its conclusion that the Company is the
The Company generally records revenue net of consideration retained based upon its conclusion that the Company is the
agent in its principal versus agent relationships. Prior to the adoption of Topic 606, this conclusion was based on the following
agent in its principal versus agent relationships. Prior to the adoption of Topic 606, this conclusion was based on the following
criteria: (i) the Company is not the primary obligor in the arrangement; (ii) the Company has no inventory risk; (iii) the Company
criteria: (i) the Company is not the primary obligor in the arrangement; (ii) the Company has no inventory risk; (iii) the Company
does not have reasonable latitude with respect to establishing the price for the product; (iv) the Company does not make any
does not have reasonable latitude with respect to establishing the price for the product; (iv) the Company does not make any
changes to the product or have any involvement in the product specifications; and, (v) the amount the Company earns for its
changes to the product or have any involvement in the product specifications; and, (v) the amount the Company earns for its
services is fixed, within a limited range. Under Topic 606, the Company evaluated the nature of its promise to the customer and
services is fixed, within a limited range. Under Topic 606, the Company evaluated the nature of its promise to the customer and
determined that it does not control a promised good or service before transferring that good or service to the customer, but rather
determined that it does not control a promised good or service before transferring that good or service to the customer, but rather
arranges for another entity to provide the goods or services.
arranges for another entity to provide the goods or services.
The vast majority of the Company’s Topic 606 revenue is derived from stand-ready obligations to provide payment
The vast majority of the Company’s Topic 606 revenue is derived from stand-ready obligations to provide payment
processing, transaction processing and SaaS services and support. As such, we view these services as comprising a series of distinct
processing, transaction processing and SaaS services and support. As such, we view these services as comprising a series of distinct
days of service that are substantially the same and have the same pattern of transfer to the customer. Accordingly, the promise to
days of service that are substantially the same and have the same pattern of transfer to the customer. Accordingly, the promise to
stand ready is accounted for as a single-series performance obligation. The transaction-based fees are generally calculated based
stand ready is accounted for as a single-series performance obligation. The transaction-based fees are generally calculated based
on measures such as (i) percentage of dollar value of volume processed; (ii) number of transactions processed; or (iii) some
on measures such as (i) percentage of dollar value of volume processed; (ii) number of transactions processed; or (iii) some
combination thereof. The Company has entered into agreements with major oil companies, fuel retailers, vehicle maintenance
combination thereof. The Company has entered into agreements with major oil companies, fuel retailers, vehicle maintenance
providers, online travel agencies and health partners, which provide products and/or services to the Company’s customers. These
providers, online travel agencies and health partners, which provide products and/or services to the Company’s customers. These
agreements specify that a transaction is deemed to be captured when the Company has validated that the transaction has no errors
agreements specify that a transaction is deemed to be captured when the Company has validated that the transaction has no errors
and has accepted and posted the data to the Company’s records. Prior to adoption of Topic 606, the Company recognized revenues
and has accepted and posted the data to the Company’s records. Prior to adoption of Topic 606, the Company recognized revenues
when persuasive evidence of an arrangement existed, the products and services had been provided to the client, the sales price was
when persuasive evidence of an arrangement existed, the products and services had been provided to the client, the sales price was
fixed or determinable and collectability was reasonably assured. Subsequent to adoption of Topic 606, revenue is recognized based
fixed or determinable and collectability was reasonably assured. Subsequent to adoption of Topic 606, revenue is recognized based
on the value of services transferred to date using a time elapsed output method. The change in accounting guidance did not result
on the value of services transferred to date using a time elapsed output method. The change in accounting guidance did not result
in a change in the pattern or timing of our revenue recognition. See Note 3, Revenue, for a description of the major components
in a change in the pattern or timing of our revenue recognition. See Note 3, Revenue, for a description of the major components
of revenue.
of revenue.
The Company enters into contracts with certain large customers or partners that provide for fee rebates tied to performance
The Company enters into contracts with certain large customers or partners that provide for fee rebates tied to performance
milestones. Rebates and incentives are calculated based on estimated performance and the terms of the related business agreements.
milestones. Rebates and incentives are calculated based on estimated performance and the terms of the related business agreements.
Prior to the adoption of Topic 606, certain amounts paid to partners in our Fleet Solutions and Travel and Corporate Solutions
Prior to the adoption of Topic 606, certain amounts paid to partners in our Fleet Solutions and Travel and Corporate Solutions
segments were recorded as a reduction in revenue in the same period that revenue was earned or performance occurs. Subsequent
segments were recorded as a reduction in revenue in the same period that revenue was earned or performance occurs. Subsequent
to the adoption of Topic 606, these amounts are now reflected within sales and marketing expense on our consolidated statements
to the adoption of Topic 606, these amounts are now reflected within sales and marketing expense on our consolidated statements
of income.
of income.
Stock-Based Compensation
Stock-Based Compensation
The Company recognizes the fair value of all stock-based payments to employees in its financial statements. The Company
The Company recognizes the fair value of all stock-based payments to employees in its financial statements. The Company
estimates the fair value of service-based stock option awards and market performance-based stock option awards on the grant date
estimates the fair value of service-based stock option awards and market performance-based stock option awards on the grant date
using a Black-Scholes-Merton valuation model and a Monte Carlo simulation model, respectively. The fair value of RSUs, including
using a Black-Scholes-Merton valuation model and a Monte Carlo simulation model, respectively. The fair value of RSUs, including
PBRSUs, is determined and fixed on the grant date based on the closing price of the Company’s stock.
PBRSUs, is determined and fixed on the grant date based on the closing price of the Company’s stock.
Stock-based compensation expense is net of estimated forfeitures and is recorded over each award’s requisite service
Stock-based compensation expense is net of estimated forfeitures and is recorded over each award’s requisite service
period. The Company uses the straight-line methodology for recognizing the expense associated with service-based stock options
period. The Company uses the straight-line methodology for recognizing the expense associated with service-based stock options
and RSU grants and a graded-vesting methodology for the expense recognition of market performance-based stock options and
and RSU grants and a graded-vesting methodology for the expense recognition of market performance-based stock options and
PBRSUs.
PBRSUs.
Advertising Costs
Advertising Costs
Advertising and marketing costs are expensed in the period incurred. During the years ended December 31, 2019, 2018
Advertising and marketing costs are expensed in the period incurred. During the years ended December 31, 2019, 2018
and 2017, advertising expense was $17.9 million, $16.3 million and $17.1 million, respectively.
and 2017, advertising expense was $17.9 million, $16.3 million and $17.1 million, respectively.
Income Taxes
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.
74
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods
in which the associated temporary differences become deductible. A valuation allowance is established for those jurisdictions in
in which the associated temporary differences become deductible. A valuation allowance is established for those jurisdictions in
which the realization of deferred tax assets is not deemed to be more likely than not.
which the realization of deferred tax assets is not deemed to be more likely than not.
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. This accounting guidance also provides guidance
and measurement of a tax position taken or expected to be taken in a tax return. This accounting guidance also provides guidance
on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. Penalties and
on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. Penalties and
interest related to uncertain tax positions are recognized as a component of income tax expense. To the extent penalties and interest
interest related to uncertain tax positions are recognized as a component of income tax expense. To the extent penalties and interest
are not assessed with respect to uncertain tax positions, amounts accrued are reduced and reflected as a reduction of the overall
are not assessed with respect to uncertain tax positions, amounts accrued are reduced and reflected as a reduction of the overall
income tax provision.
income tax provision.
Earnings per Share
Earnings per Share
Basic earnings per share is computed by dividing net income attributable to shareholders by the weighted average number
Basic earnings per share is computed by dividing net income attributable to shareholders by the weighted average number
of shares of common stock and vested DSUs outstanding during the year. The computation of diluted earnings per share is similar
of shares of common stock and vested DSUs outstanding during the year. The computation of diluted earnings per share is similar
to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options,
to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options,
and the assumed issuance of unvested RSUs and performance-based awards for which the performance condition has been met
and the assumed issuance of unvested RSUs and performance-based awards for which the performance condition has been met
as of the date of determination using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes
as of the date of determination using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes
that proceeds, including cash received from the exercise of employee stock options and the average unrecognized compensation
that proceeds, including cash received from the exercise of employee stock options and the average unrecognized compensation
expense for unvested share-based compensation awards, would be used to purchase the Company’s common stock at the average
expense for unvested share-based compensation awards, would be used to purchase the Company’s common stock at the average
market price during the period.
market price during the period.
The following table summarizes net income attributable to shareholders and reconciles basic and diluted shares outstanding
The following table summarizes net income attributable to shareholders and reconciles basic and diluted shares outstanding
used in the earnings per share computations:
used in the earnings per share computations:
(In thousands)
(In thousands)
Net income attributable to shareholders
Net income attributable to shareholders
Weighted average common shares outstanding – Basic
Weighted average common shares outstanding – Basic
Dilutive impact of share-based compensation awards
Dilutive impact of share-based compensation awards
Weighted average common shares outstanding – Diluted
Weighted average common shares outstanding – Diluted
Year ended December 31,
Year ended December 31,
2018
2018
2017
2017
2019
2019
$
$
99,006
99,006
$
$
168,295
168,295
$
$
160,062
160,062
43,316
43,316
453
453
43,769
43,769
43,156
43,156
418
418
43,574
43,574
42,977
42,977
128
128
43,105
43,105
For the years ended December 31, 2019, 2018 and 2017, an immaterial number of outstanding share-based compensation
For the years ended December 31, 2019, 2018 and 2017, an immaterial number of outstanding share-based compensation
awards were excluded from the computation of diluted earnings per share, as the effect of including these awards would be anti-
awards were excluded from the computation of diluted earnings per share, as the effect of including these awards would be anti-
dilutive.
dilutive.
Foreign Currency Movement
Foreign Currency Movement
The financial statements of the Company’s foreign subsidiaries, where the local currency is the functional currency, are
The financial statements of the Company’s foreign subsidiaries, where the local currency is the functional currency, are
translated to U.S. dollars using year-end spot exchange rates for assets and liabilities, average exchange rates for revenue and
translated to U.S. dollars using year-end spot exchange rates for assets and liabilities, average exchange rates for revenue and
expenses and historical exchange rates for equity transactions. The resulting foreign currency translation adjustment is recorded
expenses and historical exchange rates for equity transactions. The resulting foreign currency translation adjustment is recorded
as a component of accumulated other comprehensive loss.
as a component of accumulated other comprehensive loss.
Gains and losses on foreign currency transactions as well as the remeasurement of the Company’s cash, receivable and
Gains and losses on foreign currency transactions as well as the remeasurement of the Company’s cash, receivable and
payable balances that are denominated in foreign currencies, are recorded directly in net foreign currency (loss) gain in the
payable balances that are denominated in foreign currencies, are recorded directly in net foreign currency (loss) gain in the
consolidated statements of income. However, gains or losses resulting from intercompany transactions where repayment is not
consolidated statements of income. However, gains or losses resulting from intercompany transactions where repayment is not
anticipated for the foreseeable future are not recognized in the consolidated statements of income. In these situations, the gains or
anticipated for the foreseeable future are not recognized in the consolidated statements of income. In these situations, the gains or
losses are deferred and included as a component of accumulated other comprehensive loss. In addition, gains and losses associated
losses are deferred and included as a component of accumulated other comprehensive loss. In addition, gains and losses associated
with the Company’s foreign currency exchange derivatives are recorded in net foreign currency (loss) gain in the consolidated
with the Company’s foreign currency exchange derivatives are recorded in net foreign currency (loss) gain in the consolidated
statements of income.
statements of income.
Accumulated Other Comprehensive Loss (“AOCL”)
Accumulated Other Comprehensive Loss (“AOCL”)
For the years ended December 31, 2019 and 2018, AOCL consisted entirely of unrealized gains and losses on foreign
For the years ended December 31, 2019 and 2018, AOCL consisted entirely of unrealized gains and losses on foreign
currency translation adjustments pertaining to the net investment in foreign operations. For the year ended December 31, 2017,
currency translation adjustments pertaining to the net investment in foreign operations. For the year ended December 31, 2017,
AOCL also included less than $1 million related to unrealized gains and losses on investment securities. Amounts are recognized
AOCL also included less than $1 million related to unrealized gains and losses on investment securities. Amounts are recognized
net of tax to the extent applicable.
net of tax to the extent applicable.
75
75
2.
2.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements that have had, or could have, a
The following table provides a brief description of recent accounting pronouncements that have had, or could have, a
material effect on our financial statements:
material effect on our financial statements:
Description
Description
Standard
Standard
Adopted During the Year Ended December 31, 2019
Adopted During the Year Ended December 31, 2019
ASU 2016–02
ASU 2016–02
This standard requires lessees to
This standard requires lessees to
recognize leases on-balance sheet and
recognize leases on-balance sheet and
disclose key information about leasing
disclose key information about leasing
arrangements.
arrangements.
Date/Method of
Date/Method of
Adoption
Adoption
The Company adopted
The Company adopted
ASU 2016–02 effective
ASU 2016–02 effective
January 1, 2019 using
January 1, 2019 using
the modified
the modified
retrospective method
retrospective method
approach and certain
approach and certain
practical expedients
practical expedients
permitted under the
permitted under the
transition guidance.
transition guidance.
Not Yet Adopted as of December 31, 2019
Not Yet Adopted as of December 31, 2019
ASU 2016–13
ASU 2016–13
This standard requires financial assets
This standard requires financial assets
measured at amortized cost basis to be
measured at amortized cost basis to be
presented at the net amount expected to
presented at the net amount expected to
be collected. The measurement of
be collected. The measurement of
expected credit losses will be based on
expected credit losses will be based on
historical experience, current
historical experience, current
conditions, and reasonable and
conditions, and reasonable and
supportable forecasts that impact the
supportable forecasts that impact the
collectability of the reported amount.
collectability of the reported amount.
The standard is
The standard is
effective for annual
effective for annual
reporting periods
reporting periods
beginning after
beginning after
December 15, 2019,
December 15, 2019,
including interim
including interim
periods within those
periods within those
fiscal years.
fiscal years.
Effect on financial statements or other significant matters
Effect on financial statements or other significant matters
In February 2016, the FASB issued ASU 2016–02, Leases (Topic
In February 2016, the FASB issued ASU 2016–02, Leases (Topic
842), which requires leases with a duration greater than twelve
842), which requires leases with a duration greater than twelve
months to be recognized on the balance sheet as right-of-use
months to be recognized on the balance sheet as right-of-use
(“ROU”) assets and lease liabilities.
(“ROU”) assets and lease liabilities.
We adopted the new standard using the modified retrospective
We adopted the new standard using the modified retrospective
approach and have elected certain practical expedients permitted
approach and have elected certain practical expedients permitted
under the transition guidance including (i) whether any existing
under the transition guidance including (i) whether any existing
contracts are or contain leases, (ii) the classification of existing
contracts are or contain leases, (ii) the classification of existing
leases and (iii) initial direct costs for existing leases. The
leases and (iii) initial direct costs for existing leases. The
consolidated financial statements for the year ended December 31,
consolidated financial statements for the year ended December 31,
2019 are presented under the new standard, while comparative
2019 are presented under the new standard, while comparative
periods presented continue to be reported in accordance with Topic
periods presented continue to be reported in accordance with Topic
840.
840.
The most significant impact of adoption was the recording of an
The most significant impact of adoption was the recording of an
operating lease ROU asset and liability on our consolidated balance
operating lease ROU asset and liability on our consolidated balance
sheet. Refer to Note 15, Leases, for more information.
sheet. Refer to Note 15, Leases, for more information.
This ASU amends several aspects of the measurement of credit
This ASU amends several aspects of the measurement of credit
losses on financial instruments, including replacing the existing
losses on financial instruments, including replacing the existing
incurred credit loss model and other models with the Current
incurred credit loss model and other models with the Current
Expected Credit Losses (CECL) model.
Expected Credit Losses (CECL) model.
The Company established a cross-functional task force charged with
The Company established a cross-functional task force charged with
evaluating the requirements of the new standard, analyzing historical
evaluating the requirements of the new standard, analyzing historical
data, identifying relevant economic indicators correlated to loss-
data, identifying relevant economic indicators correlated to loss-
rates, and determining the impact the standard will have on our
rates, and determining the impact the standard will have on our
processes, systems and internal controls. The most significant effects
processes, systems and internal controls. The most significant effects
of the ASU will be incorporating economic indicator forecasts into
of the ASU will be incorporating economic indicator forecasts into
our credit loss reserve methodologies and providing expanded
our credit loss reserve methodologies and providing expanded
disclosures on expected credit losses.
disclosures on expected credit losses.
The impact of this ASU on credit loss reserves for financial assets
The impact of this ASU on credit loss reserves for financial assets
held as of December 31, 2019 is not expected to be material. This is
held as of December 31, 2019 is not expected to be material. This is
mainly due to the short-term nature of the Company’s accounts
mainly due to the short-term nature of the Company’s accounts
receivable and relatively stable economic conditions over the
receivable and relatively stable economic conditions over the
contractual life of accounts receivable.
contractual life of accounts receivable.
76
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
market price during the period.
market price during the period.
used in the earnings per share computations:
used in the earnings per share computations:
(In thousands)
(In thousands)
Net income attributable to shareholders
Net income attributable to shareholders
Weighted average common shares outstanding – Basic
Weighted average common shares outstanding – Basic
Dilutive impact of share-based compensation awards
Dilutive impact of share-based compensation awards
Weighted average common shares outstanding – Diluted
Weighted average common shares outstanding – Diluted
dilutive.
dilutive.
Foreign Currency Movement
Foreign Currency Movement
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods
in which the associated temporary differences become deductible. A valuation allowance is established for those jurisdictions in
in which the associated temporary differences become deductible. A valuation allowance is established for those jurisdictions in
which the realization of deferred tax assets is not deemed to be more likely than not.
which the realization of deferred tax assets is not deemed to be more likely than not.
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition
Accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. This accounting guidance also provides guidance
and measurement of a tax position taken or expected to be taken in a tax return. This accounting guidance also provides guidance
on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. Penalties and
on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. Penalties and
interest related to uncertain tax positions are recognized as a component of income tax expense. To the extent penalties and interest
interest related to uncertain tax positions are recognized as a component of income tax expense. To the extent penalties and interest
are not assessed with respect to uncertain tax positions, amounts accrued are reduced and reflected as a reduction of the overall
are not assessed with respect to uncertain tax positions, amounts accrued are reduced and reflected as a reduction of the overall
income tax provision.
income tax provision.
Earnings per Share
Earnings per Share
Basic earnings per share is computed by dividing net income attributable to shareholders by the weighted average number
Basic earnings per share is computed by dividing net income attributable to shareholders by the weighted average number
of shares of common stock and vested DSUs outstanding during the year. The computation of diluted earnings per share is similar
of shares of common stock and vested DSUs outstanding during the year. The computation of diluted earnings per share is similar
to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options,
to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options,
and the assumed issuance of unvested RSUs and performance-based awards for which the performance condition has been met
and the assumed issuance of unvested RSUs and performance-based awards for which the performance condition has been met
as of the date of determination using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes
as of the date of determination using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes
that proceeds, including cash received from the exercise of employee stock options and the average unrecognized compensation
that proceeds, including cash received from the exercise of employee stock options and the average unrecognized compensation
expense for unvested share-based compensation awards, would be used to purchase the Company’s common stock at the average
expense for unvested share-based compensation awards, would be used to purchase the Company’s common stock at the average
The following table summarizes net income attributable to shareholders and reconciles basic and diluted shares outstanding
The following table summarizes net income attributable to shareholders and reconciles basic and diluted shares outstanding
Year ended December 31,
Year ended December 31,
2019
2019
2018
2018
2017
2017
$
$
99,006
99,006
$
$
168,295
168,295
$
$
160,062
160,062
43,316
43,316
453
453
43,769
43,769
43,156
43,156
418
418
43,574
43,574
42,977
42,977
128
128
43,105
43,105
For the years ended December 31, 2019, 2018 and 2017, an immaterial number of outstanding share-based compensation
For the years ended December 31, 2019, 2018 and 2017, an immaterial number of outstanding share-based compensation
awards were excluded from the computation of diluted earnings per share, as the effect of including these awards would be anti-
awards were excluded from the computation of diluted earnings per share, as the effect of including these awards would be anti-
The financial statements of the Company’s foreign subsidiaries, where the local currency is the functional currency, are
The financial statements of the Company’s foreign subsidiaries, where the local currency is the functional currency, are
translated to U.S. dollars using year-end spot exchange rates for assets and liabilities, average exchange rates for revenue and
translated to U.S. dollars using year-end spot exchange rates for assets and liabilities, average exchange rates for revenue and
expenses and historical exchange rates for equity transactions. The resulting foreign currency translation adjustment is recorded
expenses and historical exchange rates for equity transactions. The resulting foreign currency translation adjustment is recorded
as a component of accumulated other comprehensive loss.
as a component of accumulated other comprehensive loss.
Gains and losses on foreign currency transactions as well as the remeasurement of the Company’s cash, receivable and
Gains and losses on foreign currency transactions as well as the remeasurement of the Company’s cash, receivable and
payable balances that are denominated in foreign currencies, are recorded directly in net foreign currency (loss) gain in the
payable balances that are denominated in foreign currencies, are recorded directly in net foreign currency (loss) gain in the
consolidated statements of income. However, gains or losses resulting from intercompany transactions where repayment is not
consolidated statements of income. However, gains or losses resulting from intercompany transactions where repayment is not
anticipated for the foreseeable future are not recognized in the consolidated statements of income. In these situations, the gains or
anticipated for the foreseeable future are not recognized in the consolidated statements of income. In these situations, the gains or
losses are deferred and included as a component of accumulated other comprehensive loss. In addition, gains and losses associated
losses are deferred and included as a component of accumulated other comprehensive loss. In addition, gains and losses associated
with the Company’s foreign currency exchange derivatives are recorded in net foreign currency (loss) gain in the consolidated
with the Company’s foreign currency exchange derivatives are recorded in net foreign currency (loss) gain in the consolidated
statements of income.
statements of income.
Accumulated Other Comprehensive Loss (“AOCL”)
Accumulated Other Comprehensive Loss (“AOCL”)
For the years ended December 31, 2019 and 2018, AOCL consisted entirely of unrealized gains and losses on foreign
For the years ended December 31, 2019 and 2018, AOCL consisted entirely of unrealized gains and losses on foreign
currency translation adjustments pertaining to the net investment in foreign operations. For the year ended December 31, 2017,
currency translation adjustments pertaining to the net investment in foreign operations. For the year ended December 31, 2017,
AOCL also included less than $1 million related to unrealized gains and losses on investment securities. Amounts are recognized
AOCL also included less than $1 million related to unrealized gains and losses on investment securities. Amounts are recognized
net of tax to the extent applicable.
net of tax to the extent applicable.
75
75
2.
2.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements that have had, or could have, a
The following table provides a brief description of recent accounting pronouncements that have had, or could have, a
material effect on our financial statements:
material effect on our financial statements:
Effect on financial statements or other significant matters
Effect on financial statements or other significant matters
In February 2016, the FASB issued ASU 2016–02, Leases (Topic
In February 2016, the FASB issued ASU 2016–02, Leases (Topic
842), which requires leases with a duration greater than twelve
842), which requires leases with a duration greater than twelve
months to be recognized on the balance sheet as right-of-use
months to be recognized on the balance sheet as right-of-use
(“ROU”) assets and lease liabilities.
(“ROU”) assets and lease liabilities.
We adopted the new standard using the modified retrospective
We adopted the new standard using the modified retrospective
approach and have elected certain practical expedients permitted
approach and have elected certain practical expedients permitted
under the transition guidance including (i) whether any existing
under the transition guidance including (i) whether any existing
contracts are or contain leases, (ii) the classification of existing
contracts are or contain leases, (ii) the classification of existing
leases and (iii) initial direct costs for existing leases. The
leases and (iii) initial direct costs for existing leases. The
consolidated financial statements for the year ended December 31,
consolidated financial statements for the year ended December 31,
2019 are presented under the new standard, while comparative
2019 are presented under the new standard, while comparative
periods presented continue to be reported in accordance with Topic
periods presented continue to be reported in accordance with Topic
840.
840.
The most significant impact of adoption was the recording of an
The most significant impact of adoption was the recording of an
operating lease ROU asset and liability on our consolidated balance
operating lease ROU asset and liability on our consolidated balance
sheet. Refer to Note 15, Leases, for more information.
sheet. Refer to Note 15, Leases, for more information.
This ASU amends several aspects of the measurement of credit
This ASU amends several aspects of the measurement of credit
losses on financial instruments, including replacing the existing
losses on financial instruments, including replacing the existing
incurred credit loss model and other models with the Current
incurred credit loss model and other models with the Current
Expected Credit Losses (CECL) model.
Expected Credit Losses (CECL) model.
The Company established a cross-functional task force charged with
The Company established a cross-functional task force charged with
evaluating the requirements of the new standard, analyzing historical
evaluating the requirements of the new standard, analyzing historical
data, identifying relevant economic indicators correlated to loss-
data, identifying relevant economic indicators correlated to loss-
rates, and determining the impact the standard will have on our
rates, and determining the impact the standard will have on our
processes, systems and internal controls. The most significant effects
processes, systems and internal controls. The most significant effects
of the ASU will be incorporating economic indicator forecasts into
of the ASU will be incorporating economic indicator forecasts into
our credit loss reserve methodologies and providing expanded
our credit loss reserve methodologies and providing expanded
disclosures on expected credit losses.
disclosures on expected credit losses.
The impact of this ASU on credit loss reserves for financial assets
The impact of this ASU on credit loss reserves for financial assets
held as of December 31, 2019 is not expected to be material. This is
held as of December 31, 2019 is not expected to be material. This is
mainly due to the short-term nature of the Company’s accounts
mainly due to the short-term nature of the Company’s accounts
receivable and relatively stable economic conditions over the
receivable and relatively stable economic conditions over the
contractual life of accounts receivable.
contractual life of accounts receivable.
Description
Description
Standard
Standard
Adopted During the Year Ended December 31, 2019
Adopted During the Year Ended December 31, 2019
This standard requires lessees to
ASU 2016–02
This standard requires lessees to
ASU 2016–02
recognize leases on-balance sheet and
recognize leases on-balance sheet and
disclose key information about leasing
disclose key information about leasing
arrangements.
arrangements.
Date/Method of
Date/Method of
Adoption
Adoption
The Company adopted
The Company adopted
ASU 2016–02 effective
ASU 2016–02 effective
January 1, 2019 using
January 1, 2019 using
the modified
the modified
retrospective method
retrospective method
approach and certain
approach and certain
practical expedients
practical expedients
permitted under the
permitted under the
transition guidance.
transition guidance.
Not Yet Adopted as of December 31, 2019
Not Yet Adopted as of December 31, 2019
ASU 2016–13
ASU 2016–13
This standard requires financial assets
This standard requires financial assets
measured at amortized cost basis to be
measured at amortized cost basis to be
presented at the net amount expected to
presented at the net amount expected to
be collected. The measurement of
be collected. The measurement of
expected credit losses will be based on
expected credit losses will be based on
historical experience, current
historical experience, current
conditions, and reasonable and
conditions, and reasonable and
supportable forecasts that impact the
supportable forecasts that impact the
collectability of the reported amount.
collectability of the reported amount.
The standard is
The standard is
effective for annual
effective for annual
reporting periods
reporting periods
beginning after
beginning after
December 15, 2019,
December 15, 2019,
including interim
including interim
periods within those
periods within those
fiscal years.
fiscal years.
76
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
3.
3.
Revenue
Revenue
In accordance with Topic 606, revenue is recognized when, or as, performance obligations are satisfied as defined by the
In accordance with Topic 606, revenue is recognized when, or as, performance obligations are satisfied as defined by the
terms of the contract, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for
terms of the contract, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for
goods or services provided.
goods or services provided.
The following tables disaggregate our consolidated revenue:
The following tables disaggregate our consolidated revenue:
(In thousands)
(In thousands)
Topic 606 revenues
Topic 606 revenues
Payment processing revenue
Payment processing revenue
Account servicing revenue
Account servicing revenue
Other revenue
Other revenue
Total Topic 606 revenues
Total Topic 606 revenues
Non-Topic 606 revenues
Non-Topic 606 revenues
Account servicing revenue
Account servicing revenue
Finance fee revenue
Finance fee revenue
Other revenue
Other revenue
Total non-Topic 606 revenues
Total non-Topic 606 revenues
Total revenues
Total revenues
(In thousands)
(In thousands)
Topic 606 revenues
Topic 606 revenues
Payment processing revenue
Payment processing revenue
Account servicing revenue
Account servicing revenue
Other revenue
Other revenue
Total Topic 606 revenues
Total Topic 606 revenues
Non-Topic 606 revenues
Non-Topic 606 revenues
Account servicing revenue
Account servicing revenue
Finance fee revenue
Finance fee revenue
Other revenue
Other revenue
Total non-Topic 606 revenues
Total non-Topic 606 revenues
Total revenues
Total revenues
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Year Ended December 31, 2019
Year Ended December 31, 2019
Health and
Health and
Employee Benefit
Employee Benefit
Solutions
Solutions
Fleet Solutions
Fleet Solutions
Travel and
Travel and
Corporate Solutions
Corporate Solutions
457,244
457,244
17,709
17,709
83,765
83,765
558,718
558,718
147,026
147,026
245,082
245,082
87,569
87,569
479,677
479,677
1,038,395
1,038,395
$
$
$
$
$
$
$
$
$
$
303,385
303,385
43,293
43,293
3,340
3,340
350,018
350,018
$
$
$
$
— $
— $
2,086
2,086
15,722
15,722
17,808
17,808
367,826
367,826
$
$
$
$
Total
Total
825,592
825,592
266,526
266,526
115,330
115,330
1,207,448
1,207,448
147,026
147,026
247,318
247,318
121,899
121,899
516,243
516,243
64,963
64,963
205,524
205,524
28,225
28,225
298,712
298,712
$
$
$
$
— $
— $
150
150
18,608
18,608
18,758
18,758
$
$
317,470
317,470
$
$
1,723,691
1,723,691
Year Ended December 31, 2018
Year Ended December 31, 2018
Fleet Solutions
Fleet Solutions
Travel and Corporate
Travel and Corporate
Solutions
Solutions
Health and Employee
Health and Employee
Benefit Solutions
Benefit Solutions
Total
Total
464,980
464,980
30,385
30,385
66,379
66,379
561,744
561,744
132,277
132,277
190,528
190,528
90,591
90,591
413,396
413,396
975,140
975,140
$
$
$
$
$
$
$
$
$
$
203,289
203,289
37,262
37,262
4,906
4,906
245,457
245,457
$
$
$
$
55,722
55,722
108,172
108,172
25,668
25,668
189,562
189,562
$
$
$
$
— $
— $
1,391
1,391
56,496
56,496
57,887
57,887
303,344
303,344
$
$
$
$
— $
— $
16,708
16,708
7,885
7,885
24,593
24,593
214,155
214,155
$
$
$
$
723,991
723,991
175,819
175,819
96,953
96,953
996,763
996,763
132,277
132,277
208,627
208,627
154,972
154,972
495,876
495,876
1,492,639
1,492,639
The vast majority of the above revenue relates to services transferred to the customer over time. Point-in-time revenue
The vast majority of the above revenue relates to services transferred to the customer over time. Point-in-time revenue
recognized was immaterial during the years ended December 31, 2019 and 2018.
recognized was immaterial during the years ended December 31, 2019 and 2018.
Payment Processing Revenue
Payment Processing Revenue
Payment processing revenue consists primarily of interchange income. Interchange income is a fee paid by a merchant
Payment processing revenue consists primarily of interchange income. Interchange income is a fee paid by a merchant
bank (“merchant”) to the card-issuing bank (generally the Company) in exchange for the Company facilitating and processing
bank (“merchant”) to the card-issuing bank (generally the Company) in exchange for the Company facilitating and processing
transactions with cardholders. Interchange fees are set by the card network. WEX processes transactions through both closed-loop
transactions with cardholders. Interchange fees are set by the card network. WEX processes transactions through both closed-loop
and open-loop networks.
and open-loop networks.
•
•
•
•
Fleet Solutions segment interchange income primarily relates to revenue earned on transactions processed through the
Fleet Solutions segment interchange income primarily relates to revenue earned on transactions processed through the
Company’s proprietary closed-loop fuel networks. In closed-loop fuel network arrangements, written contracts are entered
Company’s proprietary closed-loop fuel networks. In closed-loop fuel network arrangements, written contracts are entered
into between the Company and merchants, which determine the interchange fee charged on transactions. The Company
into between the Company and merchants, which determine the interchange fee charged on transactions. The Company
extends short-term credit to the fleet cardholder and pays the merchant the purchase price for the cardholder’s transaction,
extends short-term credit to the fleet cardholder and pays the merchant the purchase price for the cardholder’s transaction,
less the interchange fees the Company retains. The Company collects the total purchase price from the fleet cardholder.
less the interchange fees the Company retains. The Company collects the total purchase price from the fleet cardholder.
In Europe, interchange income is specifically derived from the difference between the negotiated price of fuel from the
In Europe, interchange income is specifically derived from the difference between the negotiated price of fuel from the
supplier and the agreed upon price paid by fleet cardholders.
supplier and the agreed upon price paid by fleet cardholders.
Interchange income in our Travel and Corporate Solutions and Health and Employee Benefit Solutions segments relates
Interchange income in our Travel and Corporate Solutions and Health and Employee Benefit Solutions segments relates
to revenue earned on transactions processed through open-loop networks. In open-loop network arrangements, there are
to revenue earned on transactions processed through open-loop networks. In open-loop network arrangements, there are
several intermediaries involved between the merchant and the cardholder and written contracts between all parties involved
several intermediaries involved between the merchant and the cardholder and written contracts between all parties involved
in the process do not exist. Rather, the transaction is governed by the rates determined by the card network at the point-
in the process do not exist. Rather, the transaction is governed by the rates determined by the card network at the point-
of-sale. This framework dictates the interchange rate, the risk of loss, dispute procedures and timing of payment. For
of-sale. This framework dictates the interchange rate, the risk of loss, dispute procedures and timing of payment. For
these transactions, there is an implied contract between the Company and the merchant. In our Travel and Corporate
these transactions, there is an implied contract between the Company and the merchant. In our Travel and Corporate
Solutions segment, the Company remits payment to the card network for the purchase price of the cardholder transaction,
Solutions segment, the Company remits payment to the card network for the purchase price of the cardholder transaction,
less the interchange fees the Company earns. The Company collects the total purchase price from the cardholder. In our
less the interchange fees the Company earns. The Company collects the total purchase price from the cardholder. In our
Health and Employee Benefit Solutions segment, funding of transactions and collections from cardholders is performed
Health and Employee Benefit Solutions segment, funding of transactions and collections from cardholders is performed
by third-party sponsor banks, who remit a portion of the interchange fee to us.
by third-party sponsor banks, who remit a portion of the interchange fee to us.
The Company has determined that the merchant is the customer as it relates to interchange income regardless of the type
The Company has determined that the merchant is the customer as it relates to interchange income regardless of the type
of network through which transactions are processed. The Company’s primary performance obligation to merchants is a stand-
of network through which transactions are processed. The Company’s primary performance obligation to merchants is a stand-
ready commitment to provide payment and transaction processing services as the merchant requires, which is satisfied over time
ready commitment to provide payment and transaction processing services as the merchant requires, which is satisfied over time
in daily increments. Since the timing and quantity of transactions to be processed by us is not determinable, the total consideration
in daily increments. Since the timing and quantity of transactions to be processed by us is not determinable, the total consideration
is determined to be variable consideration. The variable consideration for our payment and transaction processing service is usage-
is determined to be variable consideration. The variable consideration for our payment and transaction processing service is usage-
based and therefore specifically relates to our efforts to satisfy our obligation. The variability is satisfied each day the service is
based and therefore specifically relates to our efforts to satisfy our obligation. The variability is satisfied each day the service is
provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the
provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the
services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure interchange
services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure interchange
income on a daily basis based on the services that are performed on that day.
income on a daily basis based on the services that are performed on that day.
In determining the amount of consideration received related to these services, the Company applied the principal-agent
In determining the amount of consideration received related to these services, the Company applied the principal-agent
guidance in Topic 606 and assessed whether it controls services performed by other intermediaries. Based on this assessment, the
guidance in Topic 606 and assessed whether it controls services performed by other intermediaries. Based on this assessment, the
Company determined that WEX does not control the services performed by merchant acquirers, card networks and sponsor banks
Company determined that WEX does not control the services performed by merchant acquirers, card networks and sponsor banks
as each of these parties is the primary obligor for their portion of payment and transaction processing services performed. Therefore,
as each of these parties is the primary obligor for their portion of payment and transaction processing services performed. Therefore,
interchange income is recognized net of any fees owed to these intermediaries. Conversely, the Company determined that services
interchange income is recognized net of any fees owed to these intermediaries. Conversely, the Company determined that services
performed by third-party payment processors are controlled by the Company as it is responsible for directing how the third-party
performed by third-party payment processors are controlled by the Company as it is responsible for directing how the third-party
payment processor authorizes and processes transactions. Therefore, such fees paid to third-party payment processors are recorded
payment processor authorizes and processes transactions. Therefore, such fees paid to third-party payment processors are recorded
as service fees within cost of services.
as service fees within cost of services.
Additionally, the Company enters into contracts with certain large customers or strategic cardholders that provide for fee
Additionally, the Company enters into contracts with certain large customers or strategic cardholders that provide for fee
rebates tied to performance milestones. When such fee rebates constitute consideration payable to a customer or other party that
rebates tied to performance milestones. When such fee rebates constitute consideration payable to a customer or other party that
purchases services from the customer, they are considered variable consideration and are recorded as a reduction in payment
purchases services from the customer, they are considered variable consideration and are recorded as a reduction in payment
processing revenue in the same period that related interchange income is recognized. For the years ended December 31, 2019 and
processing revenue in the same period that related interchange income is recognized. For the years ended December 31, 2019 and
2018, such variable consideration totaled approximately $891.0 million and $858.9 million, respectively. Fee rebates made to
2018, such variable consideration totaled approximately $891.0 million and $858.9 million, respectively. Fee rebates made to
certain other partners were determined to be costs to obtain a contract and are recorded as sales and marketing expenses.
certain other partners were determined to be costs to obtain a contract and are recorded as sales and marketing expenses.
Account Servicing Revenue
Account Servicing Revenue
In our Fleet Solutions segment, account servicing revenue is primarily comprised of monthly fees charged to cardholders
In our Fleet Solutions segment, account servicing revenue is primarily comprised of monthly fees charged to cardholders
based on the number of vehicles serviced. These fees are primarily in return for providing monthly vehicle data reports and are
based on the number of vehicles serviced. These fees are primarily in return for providing monthly vehicle data reports and are
recognized on a monthly basis as the service is provided. The Company also recognizes account servicing revenue related to
recognized on a monthly basis as the service is provided. The Company also recognizes account servicing revenue related to
reporting services on telematics hardware placements and permit sales to our over-the-road customers, both of which are within
reporting services on telematics hardware placements and permit sales to our over-the-road customers, both of which are within
the scope of Topic 606. Additionally, account servicing revenue includes other fees recognized as revenue when assessed to the
the scope of Topic 606. Additionally, account servicing revenue includes other fees recognized as revenue when assessed to the
cardholder as part of the lending relationship, which are outside the scope of Topic 606.
cardholder as part of the lending relationship, which are outside the scope of Topic 606.
In our Travel and Corporate Solutions segment, account servicing reflects revenues earned from our AOC acquisition,
In our Travel and Corporate Solutions segment, account servicing reflects revenues earned from our AOC acquisition,
primarily consisting of licensing fees for use of our accounts receivable and accounts payable SaaS platforms, all of which is within
primarily consisting of licensing fees for use of our accounts receivable and accounts payable SaaS platforms, all of which is within
the scope of Topic 606.
the scope of Topic 606.
77
77
78
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
3.
3.
Revenue
Revenue
In accordance with Topic 606, revenue is recognized when, or as, performance obligations are satisfied as defined by the
In accordance with Topic 606, revenue is recognized when, or as, performance obligations are satisfied as defined by the
terms of the contract, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for
terms of the contract, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for
goods or services provided.
goods or services provided.
The following tables disaggregate our consolidated revenue:
The following tables disaggregate our consolidated revenue:
Year Ended December 31, 2019
Year Ended December 31, 2019
Fleet Solutions
Fleet Solutions
Travel and
Travel and
Corporate Solutions
Corporate Solutions
Health and
Health and
Employee Benefit
Employee Benefit
Solutions
Solutions
Total
Total
Year Ended December 31, 2018
Year Ended December 31, 2018
Fleet Solutions
Fleet Solutions
Travel and Corporate
Travel and Corporate
Solutions
Solutions
Health and Employee
Health and Employee
Benefit Solutions
Benefit Solutions
Total
Total
— $
— $
— $
— $
303,385
303,385
43,293
43,293
3,340
3,340
350,018
350,018
2,086
2,086
15,722
15,722
17,808
17,808
367,826
367,826
203,289
203,289
37,262
37,262
4,906
4,906
245,457
245,457
1,391
1,391
56,496
56,496
57,887
57,887
303,344
303,344
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
64,963
64,963
205,524
205,524
28,225
28,225
298,712
298,712
150
150
18,608
18,608
18,758
18,758
317,470
317,470
55,722
55,722
108,172
108,172
25,668
25,668
189,562
189,562
16,708
16,708
7,885
7,885
24,593
24,593
214,155
214,155
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
825,592
825,592
266,526
266,526
115,330
115,330
1,207,448
1,207,448
147,026
147,026
247,318
247,318
121,899
121,899
516,243
516,243
1,723,691
1,723,691
723,991
723,991
175,819
175,819
96,953
96,953
996,763
996,763
132,277
132,277
208,627
208,627
154,972
154,972
495,876
495,876
1,492,639
1,492,639
— $
— $
— $
— $
The vast majority of the above revenue relates to services transferred to the customer over time. Point-in-time revenue
The vast majority of the above revenue relates to services transferred to the customer over time. Point-in-time revenue
recognized was immaterial during the years ended December 31, 2019 and 2018.
recognized was immaterial during the years ended December 31, 2019 and 2018.
Payment processing revenue consists primarily of interchange income. Interchange income is a fee paid by a merchant
Payment processing revenue consists primarily of interchange income. Interchange income is a fee paid by a merchant
bank (“merchant”) to the card-issuing bank (generally the Company) in exchange for the Company facilitating and processing
bank (“merchant”) to the card-issuing bank (generally the Company) in exchange for the Company facilitating and processing
transactions with cardholders. Interchange fees are set by the card network. WEX processes transactions through both closed-loop
transactions with cardholders. Interchange fees are set by the card network. WEX processes transactions through both closed-loop
and open-loop networks.
and open-loop networks.
(In thousands)
(In thousands)
Topic 606 revenues
Topic 606 revenues
Payment processing revenue
Payment processing revenue
Account servicing revenue
Account servicing revenue
Other revenue
Other revenue
Total Topic 606 revenues
Total Topic 606 revenues
Non-Topic 606 revenues
Non-Topic 606 revenues
Account servicing revenue
Account servicing revenue
Finance fee revenue
Finance fee revenue
Other revenue
Other revenue
Total non-Topic 606 revenues
Total non-Topic 606 revenues
Total revenues
Total revenues
(In thousands)
(In thousands)
Topic 606 revenues
Topic 606 revenues
Payment processing revenue
Payment processing revenue
Account servicing revenue
Account servicing revenue
Other revenue
Other revenue
Total Topic 606 revenues
Total Topic 606 revenues
Non-Topic 606 revenues
Non-Topic 606 revenues
Account servicing revenue
Account servicing revenue
Finance fee revenue
Finance fee revenue
Other revenue
Other revenue
Total non-Topic 606 revenues
Total non-Topic 606 revenues
Total revenues
Total revenues
Payment Processing Revenue
Payment Processing Revenue
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
457,244
457,244
17,709
17,709
83,765
83,765
558,718
558,718
147,026
147,026
245,082
245,082
87,569
87,569
479,677
479,677
1,038,395
1,038,395
464,980
464,980
30,385
30,385
66,379
66,379
561,744
561,744
132,277
132,277
190,528
190,528
90,591
90,591
413,396
413,396
975,140
975,140
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
77
77
•
•
•
•
Fleet Solutions segment interchange income primarily relates to revenue earned on transactions processed through the
Fleet Solutions segment interchange income primarily relates to revenue earned on transactions processed through the
Company’s proprietary closed-loop fuel networks. In closed-loop fuel network arrangements, written contracts are entered
Company’s proprietary closed-loop fuel networks. In closed-loop fuel network arrangements, written contracts are entered
into between the Company and merchants, which determine the interchange fee charged on transactions. The Company
into between the Company and merchants, which determine the interchange fee charged on transactions. The Company
extends short-term credit to the fleet cardholder and pays the merchant the purchase price for the cardholder’s transaction,
extends short-term credit to the fleet cardholder and pays the merchant the purchase price for the cardholder’s transaction,
less the interchange fees the Company retains. The Company collects the total purchase price from the fleet cardholder.
less the interchange fees the Company retains. The Company collects the total purchase price from the fleet cardholder.
In Europe, interchange income is specifically derived from the difference between the negotiated price of fuel from the
In Europe, interchange income is specifically derived from the difference between the negotiated price of fuel from the
supplier and the agreed upon price paid by fleet cardholders.
supplier and the agreed upon price paid by fleet cardholders.
Interchange income in our Travel and Corporate Solutions and Health and Employee Benefit Solutions segments relates
Interchange income in our Travel and Corporate Solutions and Health and Employee Benefit Solutions segments relates
to revenue earned on transactions processed through open-loop networks. In open-loop network arrangements, there are
to revenue earned on transactions processed through open-loop networks. In open-loop network arrangements, there are
several intermediaries involved between the merchant and the cardholder and written contracts between all parties involved
several intermediaries involved between the merchant and the cardholder and written contracts between all parties involved
in the process do not exist. Rather, the transaction is governed by the rates determined by the card network at the point-
in the process do not exist. Rather, the transaction is governed by the rates determined by the card network at the point-
of-sale. This framework dictates the interchange rate, the risk of loss, dispute procedures and timing of payment. For
of-sale. This framework dictates the interchange rate, the risk of loss, dispute procedures and timing of payment. For
these transactions, there is an implied contract between the Company and the merchant. In our Travel and Corporate
these transactions, there is an implied contract between the Company and the merchant. In our Travel and Corporate
Solutions segment, the Company remits payment to the card network for the purchase price of the cardholder transaction,
Solutions segment, the Company remits payment to the card network for the purchase price of the cardholder transaction,
less the interchange fees the Company earns. The Company collects the total purchase price from the cardholder. In our
less the interchange fees the Company earns. The Company collects the total purchase price from the cardholder. In our
Health and Employee Benefit Solutions segment, funding of transactions and collections from cardholders is performed
Health and Employee Benefit Solutions segment, funding of transactions and collections from cardholders is performed
by third-party sponsor banks, who remit a portion of the interchange fee to us.
by third-party sponsor banks, who remit a portion of the interchange fee to us.
The Company has determined that the merchant is the customer as it relates to interchange income regardless of the type
The Company has determined that the merchant is the customer as it relates to interchange income regardless of the type
of network through which transactions are processed. The Company’s primary performance obligation to merchants is a stand-
of network through which transactions are processed. The Company’s primary performance obligation to merchants is a stand-
ready commitment to provide payment and transaction processing services as the merchant requires, which is satisfied over time
ready commitment to provide payment and transaction processing services as the merchant requires, which is satisfied over time
in daily increments. Since the timing and quantity of transactions to be processed by us is not determinable, the total consideration
in daily increments. Since the timing and quantity of transactions to be processed by us is not determinable, the total consideration
is determined to be variable consideration. The variable consideration for our payment and transaction processing service is usage-
is determined to be variable consideration. The variable consideration for our payment and transaction processing service is usage-
based and therefore specifically relates to our efforts to satisfy our obligation. The variability is satisfied each day the service is
based and therefore specifically relates to our efforts to satisfy our obligation. The variability is satisfied each day the service is
provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the
provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the
services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure interchange
services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure interchange
income on a daily basis based on the services that are performed on that day.
income on a daily basis based on the services that are performed on that day.
In determining the amount of consideration received related to these services, the Company applied the principal-agent
In determining the amount of consideration received related to these services, the Company applied the principal-agent
guidance in Topic 606 and assessed whether it controls services performed by other intermediaries. Based on this assessment, the
guidance in Topic 606 and assessed whether it controls services performed by other intermediaries. Based on this assessment, the
Company determined that WEX does not control the services performed by merchant acquirers, card networks and sponsor banks
Company determined that WEX does not control the services performed by merchant acquirers, card networks and sponsor banks
as each of these parties is the primary obligor for their portion of payment and transaction processing services performed. Therefore,
as each of these parties is the primary obligor for their portion of payment and transaction processing services performed. Therefore,
interchange income is recognized net of any fees owed to these intermediaries. Conversely, the Company determined that services
interchange income is recognized net of any fees owed to these intermediaries. Conversely, the Company determined that services
performed by third-party payment processors are controlled by the Company as it is responsible for directing how the third-party
performed by third-party payment processors are controlled by the Company as it is responsible for directing how the third-party
payment processor authorizes and processes transactions. Therefore, such fees paid to third-party payment processors are recorded
payment processor authorizes and processes transactions. Therefore, such fees paid to third-party payment processors are recorded
as service fees within cost of services.
as service fees within cost of services.
Additionally, the Company enters into contracts with certain large customers or strategic cardholders that provide for fee
Additionally, the Company enters into contracts with certain large customers or strategic cardholders that provide for fee
rebates tied to performance milestones. When such fee rebates constitute consideration payable to a customer or other party that
rebates tied to performance milestones. When such fee rebates constitute consideration payable to a customer or other party that
purchases services from the customer, they are considered variable consideration and are recorded as a reduction in payment
purchases services from the customer, they are considered variable consideration and are recorded as a reduction in payment
processing revenue in the same period that related interchange income is recognized. For the years ended December 31, 2019 and
processing revenue in the same period that related interchange income is recognized. For the years ended December 31, 2019 and
2018, such variable consideration totaled approximately $891.0 million and $858.9 million, respectively. Fee rebates made to
2018, such variable consideration totaled approximately $891.0 million and $858.9 million, respectively. Fee rebates made to
certain other partners were determined to be costs to obtain a contract and are recorded as sales and marketing expenses.
certain other partners were determined to be costs to obtain a contract and are recorded as sales and marketing expenses.
Account Servicing Revenue
Account Servicing Revenue
In our Fleet Solutions segment, account servicing revenue is primarily comprised of monthly fees charged to cardholders
In our Fleet Solutions segment, account servicing revenue is primarily comprised of monthly fees charged to cardholders
based on the number of vehicles serviced. These fees are primarily in return for providing monthly vehicle data reports and are
based on the number of vehicles serviced. These fees are primarily in return for providing monthly vehicle data reports and are
recognized on a monthly basis as the service is provided. The Company also recognizes account servicing revenue related to
recognized on a monthly basis as the service is provided. The Company also recognizes account servicing revenue related to
reporting services on telematics hardware placements and permit sales to our over-the-road customers, both of which are within
reporting services on telematics hardware placements and permit sales to our over-the-road customers, both of which are within
the scope of Topic 606. Additionally, account servicing revenue includes other fees recognized as revenue when assessed to the
the scope of Topic 606. Additionally, account servicing revenue includes other fees recognized as revenue when assessed to the
cardholder as part of the lending relationship, which are outside the scope of Topic 606.
cardholder as part of the lending relationship, which are outside the scope of Topic 606.
In our Travel and Corporate Solutions segment, account servicing reflects revenues earned from our AOC acquisition,
In our Travel and Corporate Solutions segment, account servicing reflects revenues earned from our AOC acquisition,
primarily consisting of licensing fees for use of our accounts receivable and accounts payable SaaS platforms, all of which is within
primarily consisting of licensing fees for use of our accounts receivable and accounts payable SaaS platforms, all of which is within
the scope of Topic 606.
the scope of Topic 606.
78
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
In our Health and Employee Benefit Solutions segment, we recognize account servicing fees for the per-participant per-
month fee charged per consumer on our SaaS healthcare technology platform. Customers including health plans, third-party
administrators, financial institutions and payroll companies typically enter into three to five year contracts, which contain significant
termination penalties. This revenue is within the scope of Topic 606.
Our Travel and Corporate Solutions and Health and Employee Benefit Solutions segments provide SaaS services and
support, which are stand-ready commitments and are satisfied over time in a series of daily increments. Revenue is recognized
based on an output method using days elapsed to measure progress as the Company transfers control evenly over each monthly
subscription period.
Finance Fee Revenue
The Company earns revenue on overdue accounts, which is recognized when the fees are assessed. The finance fee 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. On occasion, these fees are waived to maintain customer goodwill. The established reserve for such waived
amounts is estimated and offset against the late fee revenue recognized. Finance fee revenue also includes amounts earned by the
Company’s factoring business, which purchases accounts receivable from third-parties at a discount. This revenue is outside the
scope of Topic 606.
Other Revenue
In our Fleet Solutions segment, other revenue primarily consists of transaction processing revenue, other fees charged to
the merchants, professional services, including software development projects and other services sold subsequent to the core
offerings, and the sales of telematics hardware, all of which are within the scope of Topic 606. Revenue is recognized when control
of the services or hardware is transferred to our customers, in an amount that reflects the consideration that we expect to receive
in exchange for those services. We also recognize fees charged to cardholders in other revenue, which are outside the scope of
Topic 606.
In our Travel Solutions segment, the majority of other revenue reflects international settlement fees, which is outside the
scope of Topic 606 and recognized as the service is performed. In our Health Solutions segment, other revenue primarily consists
of professional services, which is within the Topic 606, and is recognized as the services are performed, in the amount we expect
to receive from these services. Other revenue in Health Solutions also includes the gain on sale of WEX Latin America receivables,
which is outside the scope of Topic 606 and is recognized on the sale date of the receivables. See Note 13, Off-Balance Sheet
Arrangements, for further information on our WEX Latin America securitization.
Contract Balances
The Company’s contract assets consist of upfront payments made to customers under long-term contracts and are recorded
upon payment or when due. The resulting asset is amortized against revenue as the Company performs its obligations under these
arrangements. The Company’s contract liabilities consist of customer payments received before the Company has satisfied the
associated performance obligations and upfront payments due to the customer.
The following table provides information about these contract balances:
(In thousands)
Contract balance
Receivables1
Contract assets
Location on the consolidated balance sheets
Accounts receivable, net
Prepaid expenses and other current assets
Contract assets
Other assets
Contract liabilities
Other current liabilities
December 31, 2019
December 31, 2018
$
$
$
$
43,092
4,593
20,496
5,171
$
$
$
$
32,949
3,819
19,232
7,612
1 The majority of the Company’s receivables, which are excluded from the table above, are either due from cardholders who have not been deemed our customer
as it relates to interchange income, or from revenues earned outside of the scope of Topic 606.
Impairment losses recognized on our receivables and contract assets were immaterial for the years ended December 31,
2019 and December 31, 2018. In the years ended December 31, 2019 and December 31, 2018, we recognized revenue of $7.2
million and $10.5 million included in the opening contract liabilities balances, respectively.
2020
2021
2022
2023
2024
Thereafter
Total
$ 50,034
$
29,498
$
18,588
7,667
—
—
$
$
8,281
—
8,281
$
$
1,928
—
1,928
$
$
36
—
36
$ 108,365
7,667
$ 116,032
Remaining Performance Obligations
The Company’s unsatisfied, or partially unsatisfied performance obligations as of December 31, 2019 represent the
remaining minimum monthly fees on a portion of contracts across the lines of business and contractually obligated professional
services yet to be provided by the Company. It is not indicative of the Company’s future revenue, as it relates to an insignificant
portion of the Company’s operations.
The following table includes revenue expected to be recognized related to remaining performance obligations at the end
of the reporting period.
(In thousands)
Minimum monthly fees1
Professional services2
Total remaining performance obligations
$ 57,701
$
29,498
$
18,588
1 The transaction price allocated to the remaining performance obligations represents the minimum monthly fees on certain service contracts, which contain
substantive termination penalties that require the counterparty to pay the Company for the aggregate remaining minimum monthly fees upon an early termination
for convenience.
2 Includes software development projects and other services sold subsequent to the core offerings, to which the customer is contractually obligated.
4.
Acquisitions
In 2019, we incurred and expensed $4.8 million related to acquisitions in process as of December 31, 2019, while costs
related to completed acquisitions were $13.0 million, The Company incurred and expensed costs directly related to completed
acquisitions of $2.5 million and $1.0 million in 2018 and 2017, respectively. Acquisition-related costs are included within general
and administrative expenses in the consolidated statements of income.
Asset Acquisition
In December 2016, the Company entered into a contract with Chevron to issue and operate branded commercial fleet
cards commencing in 2018. During October 2018, the Company entered into a definitive asset purchase agreement to acquire
Chevron’s existing trade accounts receivable and customer portfolio from a third-party for $223.4 million. During 2018, the
consideration paid consisted of $162.8 million to acquire the customer portfolio and a deposit of $38.9 million was paid into escrow
for a portion of the outstanding accounts receivable at the date of the agreement. The actual amount of accounts receivable purchased
from the third party during the second quarter of 2019 was less than the amount deposited in escrow, resulting in the Company
receiving the excess funds of approximately $27 million from the escrow agent in January 2020.
As of December 31, 2018, the deposit related to the customer portfolio was recorded within other assets, while the deposit
for the purchase of customer receivables was recorded in prepaid expenses and other current assets. During the second quarter of
2019, the Company determined that it obtained control of the customer portfolio and accounted for this transaction under the asset
acquisition method of accounting. At that time, we allocated approximately $168.0 million of consideration paid to a customer
relationship intangible asset and established the accounts receivable at fair value.
This customer relationship intangible asset is being amortized over the 13 year term of the Chevron agreement, which
has been determined to be the period of anticipated benefit, which began when the Company took possession of the customer
portfolio during the second quarter of 2019.
Transaction costs related to the acquisition were insignificant and expensed as incurred.
Business Acquisitions
2019 Business Acquisitions
As of December 31, 2019, the Company has not finalized the purchase accounting for Discovery Benefits, Noventis,
Pavestone Capital or Go Fuel Card and is currently evaluating the tax basis and allocation of the net assets acquired. Additionally,
the Company is performing valuations of intangible assets acquired in certain of the business combinations. The preliminary
estimates could change significantly upon completion of these valuations.
79
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
In our Health and Employee Benefit Solutions segment, we recognize account servicing fees for the per-participant per-
month fee charged per consumer on our SaaS healthcare technology platform. Customers including health plans, third-party
administrators, financial institutions and payroll companies typically enter into three to five year contracts, which contain significant
termination penalties. This revenue is within the scope of Topic 606.
Our Travel and Corporate Solutions and Health and Employee Benefit Solutions segments provide SaaS services and
support, which are stand-ready commitments and are satisfied over time in a series of daily increments. Revenue is recognized
based on an output method using days elapsed to measure progress as the Company transfers control evenly over each monthly
Remaining Performance Obligations
The Company’s unsatisfied, or partially unsatisfied performance obligations as of December 31, 2019 represent the
remaining minimum monthly fees on a portion of contracts across the lines of business and contractually obligated professional
services yet to be provided by the Company. It is not indicative of the Company’s future revenue, as it relates to an insignificant
portion of the Company’s operations.
The following table includes revenue expected to be recognized related to remaining performance obligations at the end
subscription period.
Finance Fee Revenue
scope of Topic 606.
Other Revenue
The Company earns revenue on overdue accounts, which is recognized when the fees are assessed. The finance fee 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. On occasion, these fees are waived to maintain customer goodwill. The established reserve for such waived
amounts is estimated and offset against the late fee revenue recognized. Finance fee revenue also includes amounts earned by the
Company’s factoring business, which purchases accounts receivable from third-parties at a discount. This revenue is outside the
In our Fleet Solutions segment, other revenue primarily consists of transaction processing revenue, other fees charged to
the merchants, professional services, including software development projects and other services sold subsequent to the core
offerings, and the sales of telematics hardware, all of which are within the scope of Topic 606. Revenue is recognized when control
of the services or hardware is transferred to our customers, in an amount that reflects the consideration that we expect to receive
in exchange for those services. We also recognize fees charged to cardholders in other revenue, which are outside the scope of
Topic 606.
In our Travel Solutions segment, the majority of other revenue reflects international settlement fees, which is outside the
scope of Topic 606 and recognized as the service is performed. In our Health Solutions segment, other revenue primarily consists
of professional services, which is within the Topic 606, and is recognized as the services are performed, in the amount we expect
to receive from these services. Other revenue in Health Solutions also includes the gain on sale of WEX Latin America receivables,
which is outside the scope of Topic 606 and is recognized on the sale date of the receivables. See Note 13, Off-Balance Sheet
Arrangements, for further information on our WEX Latin America securitization.
Contract Balances
The Company’s contract assets consist of upfront payments made to customers under long-term contracts and are recorded
upon payment or when due. The resulting asset is amortized against revenue as the Company performs its obligations under these
arrangements. The Company’s contract liabilities consist of customer payments received before the Company has satisfied the
associated performance obligations and upfront payments due to the customer.
The following table provides information about these contract balances:
Contract balance
Location on the consolidated balance sheets
December 31, 2019
December 31, 2018
$
$
$
$
43,092
4,593
20,496
5,171
$
$
$
$
32,949
3,819
19,232
7,612
(In thousands)
Receivables1
Contract assets
Contract assets
Accounts receivable, net
Prepaid expenses and other current assets
Other assets
Contract liabilities
Other current liabilities
1 The majority of the Company’s receivables, which are excluded from the table above, are either due from cardholders who have not been deemed our customer
as it relates to interchange income, or from revenues earned outside of the scope of Topic 606.
Impairment losses recognized on our receivables and contract assets were immaterial for the years ended December 31,
2019 and December 31, 2018. In the years ended December 31, 2019 and December 31, 2018, we recognized revenue of $7.2
million and $10.5 million included in the opening contract liabilities balances, respectively.
of the reporting period.
(In thousands)
Minimum monthly fees1
Professional services2
Total remaining performance obligations
$ 57,701
$
29,498
$
18,588
2020
2021
2022
2023
2024
Thereafter
Total
$ 50,034
$
29,498
$
18,588
7,667
—
—
$
$
8,281
—
8,281
$
$
1,928
—
1,928
$
$
36
—
36
$ 108,365
7,667
$ 116,032
1 The transaction price allocated to the remaining performance obligations represents the minimum monthly fees on certain service contracts, which contain
substantive termination penalties that require the counterparty to pay the Company for the aggregate remaining minimum monthly fees upon an early termination
for convenience.
2 Includes software development projects and other services sold subsequent to the core offerings, to which the customer is contractually obligated.
4.
Acquisitions
In 2019, we incurred and expensed $4.8 million related to acquisitions in process as of December 31, 2019, while costs
related to completed acquisitions were $13.0 million, The Company incurred and expensed costs directly related to completed
acquisitions of $2.5 million and $1.0 million in 2018 and 2017, respectively. Acquisition-related costs are included within general
and administrative expenses in the consolidated statements of income.
Asset Acquisition
In December 2016, the Company entered into a contract with Chevron to issue and operate branded commercial fleet
cards commencing in 2018. During October 2018, the Company entered into a definitive asset purchase agreement to acquire
Chevron’s existing trade accounts receivable and customer portfolio from a third-party for $223.4 million. During 2018, the
consideration paid consisted of $162.8 million to acquire the customer portfolio and a deposit of $38.9 million was paid into escrow
for a portion of the outstanding accounts receivable at the date of the agreement. The actual amount of accounts receivable purchased
from the third party during the second quarter of 2019 was less than the amount deposited in escrow, resulting in the Company
receiving the excess funds of approximately $27 million from the escrow agent in January 2020.
As of December 31, 2018, the deposit related to the customer portfolio was recorded within other assets, while the deposit
for the purchase of customer receivables was recorded in prepaid expenses and other current assets. During the second quarter of
2019, the Company determined that it obtained control of the customer portfolio and accounted for this transaction under the asset
acquisition method of accounting. At that time, we allocated approximately $168.0 million of consideration paid to a customer
relationship intangible asset and established the accounts receivable at fair value.
This customer relationship intangible asset is being amortized over the 13 year term of the Chevron agreement, which
has been determined to be the period of anticipated benefit, which began when the Company took possession of the customer
portfolio during the second quarter of 2019.
Transaction costs related to the acquisition were insignificant and expensed as incurred.
Business Acquisitions
2019 Business Acquisitions
As of December 31, 2019, the Company has not finalized the purchase accounting for Discovery Benefits, Noventis,
Pavestone Capital or Go Fuel Card and is currently evaluating the tax basis and allocation of the net assets acquired. Additionally,
the Company is performing valuations of intangible assets acquired in certain of the business combinations. The preliminary
estimates could change significantly upon completion of these valuations.
79
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
Discovery Benefits, Inc.
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator, for a total purchase
price of $526.1 million, of which $50.0 million was paid during the fourth quarter of 2019. The acquisition was primarily funded
with cash on hand and through borrowings under the 2016 Credit Agreement. The seller of Discovery Benefits obtained a 4.9
percent equity interest in the newly formed parent company of WEX Health and Discovery Benefits, which constitutes the U.S.
Health business. The fair value of the equity interest was determined to be $100.0 million on the acquisition date. See Note 20,
Redeemable Non-Controlling Interest, for further information.
The purpose of this acquisition was to obtain the comprehensive suite of products and services for our partners and
customers and to open go-to-market channels to include consulting firms and brokers in our Health and Employee Benefit Solutions
segment. This acquisition has been accounted for as a business combination, resulting in the recording of goodwill. The majority
of the associated goodwill is deductible for tax purposes.
The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired, based
on the estimated fair value at the date of acquisition:
(In thousands)
Cash consideration, net of $125,865 in cash and restricted cash acquired
Fair value of redeemable non-controlling interest
Total consideration, net of cash and restricted cash acquired
Less:
Accounts receivable
Property and equipment
Customer relationships(a)(d)
Developed technologies(b)(d)
Trademarks and trade names(c)(d)
Other assets
Accounts payable
Accrued expenses
Restricted cash payable
Deferred income taxes
Other liabilities
Recorded goodwill
$
$
$
300,191
100,000
400,191
10,722
4,904
213,600
38,900
13,800
13,601
(3,071)
(7,563)
(125,346)
(21,941)
(9,814)
272,399
(a) Weighted average life - 7.3 years.
(b) Weighted average life - 5.4 years.
(c) Weighted average life - 7.3 years.
(d) The weighted average life of all amortizable intangible assets acquired in this business combination is 7.0 years.
Since the acquisition date through December 31, 2019, Discovery Benefits has contributed $94.7 million in total revenues
and income before income taxes of $0.3 million.
Noventis
On January 24, 2019, the Company acquired Noventis, a long-time customer and electronic payments network focused
on optimizing payment delivery for bills and invoices to commercial entities, for $338.7 million, which was primarily funded with
cash on hand and through borrowings under the 2016 Credit Agreement. Excluded from the consideration is $5.5 million paid to
certain Noventis shareholders who held unvested option awards at the acquisition date. The modification of these awards to
accelerate the vesting resulted in the Company recording this expense as general and administrative expense on our consolidated
income statement. The Company purchased Noventis to expand our reach as a corporate payments supplier and provide more
channels to billing aggregators and financial institutions in our Travel and Corporate Solutions segment. This acquisition was
accounted for as a business combination, resulting in the recording of goodwill. The goodwill associated with this acquisition is
not deductible for tax purposes.
The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired, based
on the estimated fair value at the date of acquisition:
(In thousands)
Total consideration, net of $44,947 in cash acquired
Less:
Accounts receivable
Property and equipment
Network relationships(a) (c)
Developed technologies(b) (c)
Other assets
Accounts payable
Deferred income taxes
Other liabilities
Recorded goodwill
$
293,767
22,134
549
100,900
15,000
2,379
(33,521)
(21,194)
(2,367)
209,887
$
(a) Weighted average life - 8.3 years.
(b) Weighted average life - 2.9 years.
(c) The weighted average life of all amortizable intangible assets acquired in this business combination is 7.6 years.
Since the acquisition date through December 31, 2019, Noventis has contributed $43.8 million in total revenues and
income before income taxes of $8.2 million.
Pavestone Capital, LLC
On February 14, 2019, the Company acquired Pavestone Capital, a recourse factoring company that provides working
capital to businesses, for a purchase price of $28.0 million, net of cash acquired. This acquisition, which was funded with cash on
hand, has been accounted for as a business combination. The Company purchased Pavestone Capital to complement our existing
factoring business. As a result, the purchase price is primarily allocated to goodwill, accounts receivable and customer relationships
in amounts of $9.5 million, $14.9 million and $3.9 million, respectively. The goodwill associated with this acquisition is deductible
for tax purposes. The customer relationships intangible asset has a weighted-average amortization period of 6.5 years.
Since the acquisition date, Pavestone Capital revenues and income before income taxes, which are recorded in our Fleet
Solutions segment, were not material to Company operations. No pro forma or current information has been included in these
financial statements as the operations of Pavestone Capital for the period that they were not part of the Company are not material
to the Company’s revenues, net income and earnings per share.
Go Fuel Card
On July 1, 2019, the Company acquired Go Fuel Card, a European fuel card business, for a total purchase price of €235.0
million (equivalent of $266.0 million on date of purchase). This acquisition, which was funded with cash on hand, was accounted
for as a business combination. The purpose of the acquisition was to strengthen our position in the European market, grow our
existing customer base and reduce our sensitivity to retail fuel prices, resulting in the recording of goodwill. The goodwill associated
with the acquisition of Go Fuel Card is deductible for tax purposes.
81
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
Discovery Benefits, Inc.
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator, for a total purchase
price of $526.1 million, of which $50.0 million was paid during the fourth quarter of 2019. The acquisition was primarily funded
with cash on hand and through borrowings under the 2016 Credit Agreement. The seller of Discovery Benefits obtained a 4.9
percent equity interest in the newly formed parent company of WEX Health and Discovery Benefits, which constitutes the U.S.
Health business. The fair value of the equity interest was determined to be $100.0 million on the acquisition date. See Note 20,
Redeemable Non-Controlling Interest, for further information.
The purpose of this acquisition was to obtain the comprehensive suite of products and services for our partners and
customers and to open go-to-market channels to include consulting firms and brokers in our Health and Employee Benefit Solutions
segment. This acquisition has been accounted for as a business combination, resulting in the recording of goodwill. The majority
of the associated goodwill is deductible for tax purposes.
The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired, based
on the estimated fair value at the date of acquisition:
(In thousands)
Cash consideration, net of $125,865 in cash and restricted cash acquired
Fair value of redeemable non-controlling interest
Total consideration, net of cash and restricted cash acquired
Less:
Accounts receivable
Property and equipment
Customer relationships(a)(d)
Developed technologies(b)(d)
Trademarks and trade names(c)(d)
Other assets
Accounts payable
Accrued expenses
Restricted cash payable
Deferred income taxes
Other liabilities
Recorded goodwill
(a) Weighted average life - 7.3 years.
(b) Weighted average life - 5.4 years.
(c) Weighted average life - 7.3 years.
$
$
$
300,191
100,000
400,191
10,722
4,904
213,600
38,900
13,800
13,601
(3,071)
(7,563)
(125,346)
(21,941)
(9,814)
272,399
(d) The weighted average life of all amortizable intangible assets acquired in this business combination is 7.0 years.
Since the acquisition date through December 31, 2019, Discovery Benefits has contributed $94.7 million in total revenues
and income before income taxes of $0.3 million.
Noventis
On January 24, 2019, the Company acquired Noventis, a long-time customer and electronic payments network focused
on optimizing payment delivery for bills and invoices to commercial entities, for $338.7 million, which was primarily funded with
cash on hand and through borrowings under the 2016 Credit Agreement. Excluded from the consideration is $5.5 million paid to
certain Noventis shareholders who held unvested option awards at the acquisition date. The modification of these awards to
accelerate the vesting resulted in the Company recording this expense as general and administrative expense on our consolidated
income statement. The Company purchased Noventis to expand our reach as a corporate payments supplier and provide more
channels to billing aggregators and financial institutions in our Travel and Corporate Solutions segment. This acquisition was
accounted for as a business combination, resulting in the recording of goodwill. The goodwill associated with this acquisition is
not deductible for tax purposes.
The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired, based
on the estimated fair value at the date of acquisition:
(In thousands)
Total consideration, net of $44,947 in cash acquired
Less:
Accounts receivable
Property and equipment
Network relationships(a) (c)
Developed technologies(b) (c)
Other assets
Accounts payable
Deferred income taxes
Other liabilities
Recorded goodwill
$
293,767
22,134
549
100,900
15,000
2,379
(33,521)
(21,194)
(2,367)
209,887
$
(a) Weighted average life - 8.3 years.
(b) Weighted average life - 2.9 years.
(c) The weighted average life of all amortizable intangible assets acquired in this business combination is 7.6 years.
Since the acquisition date through December 31, 2019, Noventis has contributed $43.8 million in total revenues and
income before income taxes of $8.2 million.
Pavestone Capital, LLC
On February 14, 2019, the Company acquired Pavestone Capital, a recourse factoring company that provides working
capital to businesses, for a purchase price of $28.0 million, net of cash acquired. This acquisition, which was funded with cash on
hand, has been accounted for as a business combination. The Company purchased Pavestone Capital to complement our existing
factoring business. As a result, the purchase price is primarily allocated to goodwill, accounts receivable and customer relationships
in amounts of $9.5 million, $14.9 million and $3.9 million, respectively. The goodwill associated with this acquisition is deductible
for tax purposes. The customer relationships intangible asset has a weighted-average amortization period of 6.5 years.
Since the acquisition date, Pavestone Capital revenues and income before income taxes, which are recorded in our Fleet
Solutions segment, were not material to Company operations. No pro forma or current information has been included in these
financial statements as the operations of Pavestone Capital for the period that they were not part of the Company are not material
to the Company’s revenues, net income and earnings per share.
Go Fuel Card
On July 1, 2019, the Company acquired Go Fuel Card, a European fuel card business, for a total purchase price of €235.0
million (equivalent of $266.0 million on date of purchase). This acquisition, which was funded with cash on hand, was accounted
for as a business combination. The purpose of the acquisition was to strengthen our position in the European market, grow our
existing customer base and reduce our sensitivity to retail fuel prices, resulting in the recording of goodwill. The goodwill associated
with the acquisition of Go Fuel Card is deductible for tax purposes.
81
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired, based
on the estimated fair value at the date of acquisition:
(In thousands)
Total consideration, net of $5,589 in cash acquired
Less:
Network relationships(a) (d)
Customer relationships(b)(d)
Brand name(c) (d)
Deposits
Accrued expenses
Recorded goodwill
$
$
260,455
112,893
33,963
442
(5,169)
(420)
118,746
(a) Weighted average life - 10.1 years.
(b) Weighted average life - 5.0 years.
(c) Weighted average life - 1.0 year.
(d) The weighted average life of all amortizable intangible assets acquired in this business combination is 8.9 years.
Since the acquisition date through December 31, 2019, Go Fuel Card has contributed $10.5 million in total revenues and
loss before income taxes of $9.1 million. No pro forma information has been included in these financial statements as the operations
of Go Fuel Card for the period that they were not part of the Company are not material to the Company’s revenues, net income
and earnings per share.
Pro Forma Supplemental Information
The pro forma information below gives effect to the Discovery Benefits and Noventis acquisitions as if they had been
completed on January 1, 2018. These pro forma results have been calculated after applying the Company’s accounting policies,
adjustments to reflect amortization associated with intangibles acquired and interest expense associated with the incremental
borrowings under the 2016 Credit Agreement used to fund the acquisitions and related income tax results. The pro forma financial
information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes
to be reasonable but not necessarily indicative of future results of operations or the results that would have been reported if the
acquisitions had been completed on January 1, 2018.
The following represents unaudited pro forma operational results:
(In thousands, except per share data)
Total revenues
Net income attributable to shareholders
Net income attributable to shareholders per share:
Basic
Diluted
2017 Acquisition
AOC
Year Ended December 31,
2019
2018
$
$
$
$
1,742,797
113,851
2.63
2.60
$
$
$
$
1,604,165
134,564
3.12
3.09
Effective October 18, 2017, the Company acquired certain assets and assumed certain liabilities of AOC, an industry
leader in commercial payments technology. The Company purchased AOC, a longstanding technology provider for our virtual
card product, to broaden our capabilities, increase our pool of employees with payments platform expertise and allow us to evolve
with the needs of our customers and partners through the use of AOC’s payments processing technology platforms.
The Company purchased AOC for $129.8 million, which was funded with cash on hand and through borrowings under
the 2016 Credit Agreement. The Company recorded adjustments to the assets acquired and liabilities assumed throughout the
measurement period, which ended on September 30, 2018. The Company obtained information to assist in determining the fair
values of certain assets acquired and liabilities assumed, resulting primarily in the recording of other intangible assets and goodwill.
Goodwill is calculated as the consideration in excess of net assets recognized and represents the future economic benefits arising
from other assets acquired that could not be individually identified and separately recognized, including synergies derived from
the acquisition. The goodwill and intangible assets recorded from this business combination were assigned to our Travel and
Corporate Solutions segment. The goodwill recognized in this business combination will be deductible for income tax purposes.
The Company assigned $21.6 million of the purchase price to an acquired processing platform that had not reached technological
feasibility as of the date of acquisition. During the third quarter of 2018, the Company placed this asset into service.
The following is a summary of the allocation of the purchase price to the assets and liabilities acquired:
As Reported
Measurement
December 31, 2017
Period Adjustments
As Reported, Final
$
129,828
$
— $
129,828
15,546
4,171
2,530
15,000
24,100
1,460
—
(685)
(1,329)
—
100
200
—
10
21,600
(772)
$
67,706
$
(19,809) $
15,546
4,271
1,201
15,200
24,100
1,470
21,600
(1,457)
47,897
(In thousands)
Total consideration
Less:
Cash
Accounts receivable
Property and equipment
Customer relationships(a)
Developed technologies(b)
Trademarks and trade names(c)
In-process research and development
Other liabilities
Recorded goodwill
(a) Weighted average life – 9.0 years.
(b) Weighted average life – 3.4 years.
(c) Weighted average life – 4.3 years.
(a) (b) (c) The weighted average life of these amortized intangible assets is 5.5 years.
From the acquisition date to December 31, 2017, the operations of AOC contributed net revenues of approximately $6.7
million and net loss before taxes of approximately $0.6 million. No pro forma information has been included in these financial
statements as the operations of AOC for the period that they were not part of the Company are not material to the Company’s
revenues, net income and earnings per share.
5.
Divestiture
During the year ended December 31, 2017, the Company sold $8.9 million in net assets of its Telapoint business for
proceeds of $29.9 million. The sale resulted in a pre-tax book gain of $21.0 million. Costs incurred related to this divestiture were
immaterial. Prior to the sale, the Telapoint business was assigned to our North American Fleet reporting unit, which is included
within our Fleet Solutions reportable segment.
The divestiture was not material to the Company’s annual revenue, net income or earnings per share, and is not viewed
as a strategic shift in the Company’s operations.
6.
Accounts Receivable
In general, the Company’s trade accounts receivable provide for payment terms of 30 days or less. Receivables not paid
within the terms of the agreement are generally subject to late fees based upon the outstanding receivable balance.
The Company extends revolving credit to certain small fleets, which are subject to interest charges based on the revolving
balance not paid in full. The Company had approximately $62.4 million and $18.9 million in receivables with revolving credit
balances as of December 31, 2019 and 2018, respectively. The increase in revolving credit balances during 2019 was due to the
onboarding of a customer portfolio.
Concentration of Credit Risk
The receivables portfolio consists of a large group of homogeneous smaller balances across a wide range of industries,
which are collectively evaluated for impairment. No one customer receivable balance represented 10 percent or more of the
83
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
(In thousands)
Total consideration, net of $5,589 in cash acquired
Less:
Network relationships(a) (d)
Customer relationships(b)(d)
Brand name(c) (d)
Deposits
Accrued expenses
Recorded goodwill
(a) Weighted average life - 10.1 years.
(b) Weighted average life - 5.0 years.
(c) Weighted average life - 1.0 year.
and earnings per share.
Pro Forma Supplemental Information
(In thousands, except per share data)
Total revenues
Net income attributable to shareholders
Net income attributable to shareholders per share:
Basic
Diluted
2017 Acquisition
AOC
The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired, based
on the estimated fair value at the date of acquisition:
$
$
260,455
112,893
33,963
442
(5,169)
(420)
118,746
(d) The weighted average life of all amortizable intangible assets acquired in this business combination is 8.9 years.
Since the acquisition date through December 31, 2019, Go Fuel Card has contributed $10.5 million in total revenues and
loss before income taxes of $9.1 million. No pro forma information has been included in these financial statements as the operations
of Go Fuel Card for the period that they were not part of the Company are not material to the Company’s revenues, net income
The pro forma information below gives effect to the Discovery Benefits and Noventis acquisitions as if they had been
completed on January 1, 2018. These pro forma results have been calculated after applying the Company’s accounting policies,
adjustments to reflect amortization associated with intangibles acquired and interest expense associated with the incremental
borrowings under the 2016 Credit Agreement used to fund the acquisitions and related income tax results. The pro forma financial
information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes
to be reasonable but not necessarily indicative of future results of operations or the results that would have been reported if the
acquisitions had been completed on January 1, 2018.
The following represents unaudited pro forma operational results:
Year Ended December 31,
2019
2018
1,742,797
113,851
1,604,165
134,564
2.63
2.60
3.12
3.09
$
$
$
$
$
$
$
$
Effective October 18, 2017, the Company acquired certain assets and assumed certain liabilities of AOC, an industry
leader in commercial payments technology. The Company purchased AOC, a longstanding technology provider for our virtual
card product, to broaden our capabilities, increase our pool of employees with payments platform expertise and allow us to evolve
with the needs of our customers and partners through the use of AOC’s payments processing technology platforms.
The Company purchased AOC for $129.8 million, which was funded with cash on hand and through borrowings under
the 2016 Credit Agreement. The Company recorded adjustments to the assets acquired and liabilities assumed throughout the
measurement period, which ended on September 30, 2018. The Company obtained information to assist in determining the fair
values of certain assets acquired and liabilities assumed, resulting primarily in the recording of other intangible assets and goodwill.
Goodwill is calculated as the consideration in excess of net assets recognized and represents the future economic benefits arising
from other assets acquired that could not be individually identified and separately recognized, including synergies derived from
the acquisition. The goodwill and intangible assets recorded from this business combination were assigned to our Travel and
Corporate Solutions segment. The goodwill recognized in this business combination will be deductible for income tax purposes.
The Company assigned $21.6 million of the purchase price to an acquired processing platform that had not reached technological
feasibility as of the date of acquisition. During the third quarter of 2018, the Company placed this asset into service.
The following is a summary of the allocation of the purchase price to the assets and liabilities acquired:
(In thousands)
Total consideration
Less:
Cash
Accounts receivable
Property and equipment
Customer relationships(a)
Developed technologies(b)
Trademarks and trade names(c)
In-process research and development
Other liabilities
Recorded goodwill
(a) Weighted average life – 9.0 years.
(b) Weighted average life – 3.4 years.
(c) Weighted average life – 4.3 years.
(a) (b) (c) The weighted average life of these amortized intangible assets is 5.5 years.
As Reported
December 31, 2017
Measurement
Period Adjustments
As Reported, Final
$
129,828
$
— $
129,828
15,546
4,171
2,530
15,000
24,100
1,460
—
(685)
—
100
(1,329)
200
—
10
21,600
(772)
$
67,706
$
(19,809) $
15,546
4,271
1,201
15,200
24,100
1,470
21,600
(1,457)
47,897
From the acquisition date to December 31, 2017, the operations of AOC contributed net revenues of approximately $6.7
million and net loss before taxes of approximately $0.6 million. No pro forma information has been included in these financial
statements as the operations of AOC for the period that they were not part of the Company are not material to the Company’s
revenues, net income and earnings per share.
5.
Divestiture
During the year ended December 31, 2017, the Company sold $8.9 million in net assets of its Telapoint business for
proceeds of $29.9 million. The sale resulted in a pre-tax book gain of $21.0 million. Costs incurred related to this divestiture were
immaterial. Prior to the sale, the Telapoint business was assigned to our North American Fleet reporting unit, which is included
within our Fleet Solutions reportable segment.
The divestiture was not material to the Company’s annual revenue, net income or earnings per share, and is not viewed
as a strategic shift in the Company’s operations.
6.
Accounts Receivable
In general, the Company’s trade accounts receivable provide for payment terms of 30 days or less. Receivables not paid
within the terms of the agreement are generally subject to late fees based upon the outstanding receivable balance.
The Company extends revolving credit to certain small fleets, which are subject to interest charges based on the revolving
balance not paid in full. The Company had approximately $62.4 million and $18.9 million in receivables with revolving credit
balances as of December 31, 2019 and 2018, respectively. The increase in revolving credit balances during 2019 was due to the
onboarding of a customer portfolio.
Concentration of Credit Risk
The receivables portfolio consists of a large group of homogeneous smaller balances across a wide range of industries,
which are collectively evaluated for impairment. No one customer receivable balance represented 10 percent or more of the
83
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
outstanding receivables balance at December 31, 2019 or 2018. The following table presents the outstanding balance of trade
accounts receivable that are less than 30 and 60 days past due, shown in each case as a percentage of total trade accounts receivable:
7.
Investment Securities
The Company’s investment securities as of December 31, 2019 and 2018, are presented below:
Delinquency Status
29 days or less past due
59 days or less past due
Reserves for Accounts Receivable
December 31,
2019
2018
96%
97%
95%
98%
Receivables are generally written off when they are 150 days past due or upon declaration of bankruptcy of the customer.
The reserve for credit losses is primarily calculated by an analytic model that also takes into account other factors, such as the
actual charge-offs for the preceding reporting periods, expected charge-offs and recoveries for the subsequent reporting periods,
a review of past due accounts receivable balances, changes in payment patterns, known fraudulent activity in the portfolio, as well
as leading economic and market indicators.
The following table presents changes in the accounts receivable allowances:
(In thousands)
Balance, beginning of year
Provision for credit losses
Other1
Charge-offs
Recoveries of amounts previously charged-off
Currency translation
Balance, end of year
Year ended December 31,
2019
2018
2017
$
$
46,948
$
33,387
$
65,664
22,746
(92,638)
9,781
(227)
66,482
19,067
(78,323)
6,854
(519)
52,274
$
46,948
$
21,564
64,218
16,869
(77,229)
7,526
439
33,387
1 Consists primarily of charges to other accounts. The Company earns revenue by assessing monthly finance fees on accounts with overdue balances. These fees
are recognized as revenue at the time the fees are assessed. The finance fee 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. On occasion, these fees are waived to maintain relationship goodwill. Charges to other accounts
represents the offset against the late fee revenue recognized when the Company establishes a reserve for such waived amounts.
(In thousands)
2019
Fixed income securities:
Mortgage-backed securities
Asset-backed securities
Municipal bonds
Mutual fund
Pooled investment fund
Total investment securities(b)(c)
2018
Fixed income securities:
Mortgage-backed securities
Asset-backed securities
Municipal bonds
Mutual fund
Total investment securities(b)(c)
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value(a)
30,939
$
489
$
164
248
306
25,221
5,000
$
$
255
281
411
24,656
25,603
$
10
—
—
—
—
10
5
—
—
—
5
$
$
$
$
— $
1
4
484
—
— $
2
7
1,193
1,202
$
174
247
302
24,737
5,000
30,460
260
279
404
23,463
24,406
(a) The Company’s techniques used to measure the fair value of its investments are discussed in Note 19, Fair Value.
(b) The Company’s investment securities are not deemed available for current operations and have been classified as non-current on the consolidated balance sheets.
(c)Excludes $8.0 million and $6.4 million in equity securities designated as trading as of December 31, 2019 and 2018, respectively, included in prepaid expenses
and other current assets and other assets on the consolidated balance sheets. See Note 18, Employee Benefit Plans, for additional information.
The Company reviews its investments to identify and evaluate indications of possible impairment. Factors considered in
determining whether a loss is temporary include the length of time and extent to which the fair value has been less than the cost
basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment
for a period of time sufficient to allow for any anticipated recovery in market value. Substantially all of the Company’s fixed
income securities are rated investment grade or better. The Company’s fixed-income mutual fund and certain other insignificant
fixed income security positions have been in an unrealized loss position for greater than 12 months as of December 31, 2019 and
2018. The amount by which these investment securities have been in a continuous unrealized loss position is insignificant. The
Company’s management has determined that these gross unrealized losses at December 31, 2019 and 2018 are temporary in nature.
The Company had maturities of investment securities of $0.2 million, $0.3 million and $0.6 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
The contractual maturity dates of the Company’s investment securities are as follows:
(In thousands)
Due after 5 years through year 10
Due after 10 years
Mortgage-backed securities with original maturities of 30 years
Investment securities with no maturity dates
Total
Cost
Fair Value
Cost
Fair Value
2019
$
278
276
164
December 31,
$
277
272
174
2018
$
311
381
255
30,221
29,737
24,656
30,939
$
30,460
$
25,603
$
309
374
260
23,463
24,406
$
$
$
$
$
$
85
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
outstanding receivables balance at December 31, 2019 or 2018. The following table presents the outstanding balance of trade
accounts receivable that are less than 30 and 60 days past due, shown in each case as a percentage of total trade accounts receivable:
7.
Investment Securities
The Company’s investment securities as of December 31, 2019 and 2018, are presented below:
Delinquency Status
29 days or less past due
59 days or less past due
Reserves for Accounts Receivable
December 31,
2019
2018
96%
97%
95%
98%
Receivables are generally written off when they are 150 days past due or upon declaration of bankruptcy of the customer.
The reserve for credit losses is primarily calculated by an analytic model that also takes into account other factors, such as the
actual charge-offs for the preceding reporting periods, expected charge-offs and recoveries for the subsequent reporting periods,
a review of past due accounts receivable balances, changes in payment patterns, known fraudulent activity in the portfolio, as well
as leading economic and market indicators.
The following table presents changes in the accounts receivable allowances:
(In thousands)
Balance, beginning of year
Provision for credit losses
Other1
Charge-offs
Currency translation
Balance, end of year
Recoveries of amounts previously charged-off
Year ended December 31,
2019
2018
2017
46,948
$
33,387
$
$
$
65,664
22,746
(92,638)
9,781
(227)
66,482
19,067
(78,323)
6,854
(519)
52,274
$
46,948
$
21,564
64,218
16,869
(77,229)
7,526
439
33,387
1 Consists primarily of charges to other accounts. The Company earns revenue by assessing monthly finance fees on accounts with overdue balances. These fees
are recognized as revenue at the time the fees are assessed. The finance fee 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. On occasion, these fees are waived to maintain relationship goodwill. Charges to other accounts
represents the offset against the late fee revenue recognized when the Company establishes a reserve for such waived amounts.
(In thousands)
2019
Fixed income securities:
Mortgage-backed securities
Asset-backed securities
Municipal bonds
Mutual fund
Pooled investment fund
Total investment securities(b)(c)
2018
Fixed income securities:
Mortgage-backed securities
Asset-backed securities
Municipal bonds
Mutual fund
Total investment securities(b)(c)
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value(a)
$
$
$
$
$
164
248
306
25,221
5,000
30,939
$
$
255
281
411
24,656
25,603
$
10
—
—
—
—
10
5
—
—
—
5
$
$
$
$
— $
1
4
484
—
489
$
— $
2
7
1,193
1,202
$
174
247
302
24,737
5,000
30,460
260
279
404
23,463
24,406
(a) The Company’s techniques used to measure the fair value of its investments are discussed in Note 19, Fair Value.
(b) The Company’s investment securities are not deemed available for current operations and have been classified as non-current on the consolidated balance sheets.
(c)Excludes $8.0 million and $6.4 million in equity securities designated as trading as of December 31, 2019 and 2018, respectively, included in prepaid expenses
and other current assets and other assets on the consolidated balance sheets. See Note 18, Employee Benefit Plans, for additional information.
The Company reviews its investments to identify and evaluate indications of possible impairment. Factors considered in
determining whether a loss is temporary include the length of time and extent to which the fair value has been less than the cost
basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment
for a period of time sufficient to allow for any anticipated recovery in market value. Substantially all of the Company’s fixed
income securities are rated investment grade or better. The Company’s fixed-income mutual fund and certain other insignificant
fixed income security positions have been in an unrealized loss position for greater than 12 months as of December 31, 2019 and
2018. The amount by which these investment securities have been in a continuous unrealized loss position is insignificant. The
Company’s management has determined that these gross unrealized losses at December 31, 2019 and 2018 are temporary in nature.
The Company had maturities of investment securities of $0.2 million, $0.3 million and $0.6 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
The contractual maturity dates of the Company’s investment securities are as follows:
(In thousands)
Due after 5 years through year 10
Due after 10 years
Mortgage-backed securities with original maturities of 30 years
Investment securities with no maturity dates
Total
December 31,
2019
2018
Cost
Fair Value
Cost
Fair Value
$
$
$
278
276
164
$
277
272
174
$
311
381
255
30,221
29,737
24,656
30,939
$
30,460
$
25,603
$
309
374
260
23,463
24,406
85
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
8.
Property, Equipment and Capitalized Software, Net
Property, equipment and capitalized software, net consist of the following:
(In thousands)
Furniture, fixtures and equipment
Computer software, including internal-use software
Leasehold improvements
Construction in progress
Total
Less: accumulated depreciation
December 31,
2019
2018
$
94,478
$
411,308
32,406
18,495
556,687
(344,212)
78,167
355,209
25,516
36,726
495,618
(307,750)
187,868
Total property, equipment and capitalized software, net
$
212,475
$
Depreciation expense was $77.7 million, $61.6 million and $49.9 million in 2019, 2018 and 2017, respectively. See Note
24, Impairment and Restructuring Activities, for information regarding impairment charges on property, equipment and capitalized
software.
9.
Goodwill and Other Intangible Assets
Goodwill
The changes in goodwill during the period January 1 to December 31, 2018 were as follows:
(In thousands)
Gross goodwill, January 1, 2018
Acquisition adjustments for AOC
Foreign currency translation
Gross goodwill, December 31, 2018
Fleet
Solutions
Segment
Travel and Corporate
Health and Employee
Solutions
Segment
Benefit Solutions
Segment
Total
1,269,718
$
265,041
$
353,508
$
1,888,267
—
(18,217)
(19,809)
(600)
—
(3,315)
1,251,501
$
244,632
$
350,193
$
1,846,326
Accumulated impairment, January 1, 2018
(927) $
(11,208) $
Brazil fleet impairment1
Foreign currency translation
(3,225)
(53)
—
1,216
Accumulated impairment, December 31, 2018
(4,205) $
(9,992) $
— $
—
—
— $
(19,809)
(22,132)
(12,135)
(3,225)
1,163
(14,197)
Net goodwill, January 1, 2018
Net goodwill, December 31, 2018
1,268,791
1,247,296
$
$
253,833
234,640
$
$
353,508
350,193
$
$
1,876,132
1,832,129
1 During our annual goodwill assessment completed in the fourth quarter of 2018, we assessed the impact of a customer loss significant to our
Brazil fleet reporting unit. The fair value of this reporting unit was derived using a combination of present value of estimated cash flows and
prices from comparable businesses. The calculated fair value was then compared to the reporting unit’s carrying value, which resulted in the
Company recording a $3.2 million goodwill impairment charge. There is no remaining net goodwill associated with this reporting unit.
$
$
$
$
$
$
The changes in goodwill during the period January 1 to December 31, 2019 were as follows:
Other Intangible Assets
(In thousands)
Gross goodwill, January 1, 2019
Current year acquisitions
Foreign currency translation
Gross goodwill, December 31, 2019
Accumulated impairment, January 1, 2019
Foreign currency translation
Accumulated impairment, December 31, 2019
Net goodwill, January 1, 2019
Net goodwill, December 31, 2019
$
$
$
$
$
$
Fleet
Solutions
Segment
Travel and Corporate
Solutions
Segment
Health and Employee
Benefit Solutions
Segment
Total
1,251,501
$
244,632
$
350,193
$
1,846,326
128,251
(1,645)
209,887
488
272,399
(483)
610,537
(1,640)
1,378,107
$
455,007
$
622,109
$
2,455,223
(4,205) $
118
(4,087) $
1,247,296
1,374,020
$
$
(9,992) $
57
(9,935) $
234,640
445,072
$
$
— $
—
— $
(14,197)
175
(14,022)
350,193
622,109
$
$
1,832,129
2,441,201
Other intangible assets consist of the following:
(in thousands)
Definite-lived intangible assets
Acquired software and developed technology
$
269,888
$
(142,239) $
127,649
$
216,325
$
(113,694) $
Customer relationships
Licensing agreements
Patent
Trade names and brand names
Indefinite-lived intangible assets
Brand names
Total
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
1,762,066
145,295
2,319
62,275
(478,680)
1,283,386
1,243,589
(360,593)
(24,160)
(2,183)
(19,531)
121,135
136
42,744
32,962
2,332
43,907
(18,303)
(2,044)
(14,421)
$ 2,241,843
$
(666,793) $
1,575,050
$ 1,539,115
$
(509,055) $
1,030,060
102,631
882,996
14,659
288
29,486
—
$
1,575,050
4,134
$
1,034,194
During the fourth quarter of 2019, it was determined that the Company’s indefinite-lived intangible assets related to
acquired fuel card brand names are no longer indefinite-lived, primarily due to the cessation of marketing efforts and card issuance
to new customers for one of the branded cards. The Company has estimated that the phase-out of the existing cards will occur over
a period of five years. Accordingly, the asset has been classified as a definite-lived intangible asset as of December 31, 2019 and
will be amortized over the phase-out term.
87
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
December 31,
2019
2018
$
94,478
$
411,308
32,406
18,495
556,687
(344,212)
78,167
355,209
25,516
36,726
495,618
(307,750)
187,868
Depreciation expense was $77.7 million, $61.6 million and $49.9 million in 2019, 2018 and 2017, respectively. See Note
24, Impairment and Restructuring Activities, for information regarding impairment charges on property, equipment and capitalized
8.
Property, Equipment and Capitalized Software, Net
Property, equipment and capitalized software, net consist of the following:
(In thousands)
Furniture, fixtures and equipment
Computer software, including internal-use software
Leasehold improvements
Construction in progress
Total
Less: accumulated depreciation
software.
Goodwill
9.
Goodwill and Other Intangible Assets
Total property, equipment and capitalized software, net
$
212,475
$
The changes in goodwill during the period January 1 to December 31, 2018 were as follows:
(In thousands)
Gross goodwill, January 1, 2018
Acquisition adjustments for AOC
Foreign currency translation
Gross goodwill, December 31, 2018
Accumulated impairment, January 1, 2018
Brazil fleet impairment1
Foreign currency translation
Accumulated impairment, December 31, 2018
Net goodwill, January 1, 2018
Net goodwill, December 31, 2018
$
$
$
$
$
$
Fleet
Solutions
Segment
Travel and Corporate
Solutions
Segment
Health and Employee
Benefit Solutions
Segment
Total
1,269,718
$
265,041
$
353,508
$
1,888,267
—
(18,217)
(19,809)
(600)
—
(3,315)
(19,809)
(22,132)
1,251,501
$
244,632
$
350,193
$
1,846,326
(927) $
(11,208) $
(3,225)
(53)
—
1,216
(4,205) $
(9,992) $
— $
—
—
— $
(12,135)
(3,225)
1,163
(14,197)
1,268,791
1,247,296
$
$
253,833
234,640
$
$
353,508
350,193
$
$
1,876,132
1,832,129
1 During our annual goodwill assessment completed in the fourth quarter of 2018, we assessed the impact of a customer loss significant to our
Brazil fleet reporting unit. The fair value of this reporting unit was derived using a combination of present value of estimated cash flows and
prices from comparable businesses. The calculated fair value was then compared to the reporting unit’s carrying value, which resulted in the
Company recording a $3.2 million goodwill impairment charge. There is no remaining net goodwill associated with this reporting unit.
The changes in goodwill during the period January 1 to December 31, 2019 were as follows:
Other Intangible Assets
(In thousands)
Gross goodwill, January 1, 2019
Current year acquisitions
Foreign currency translation
Gross goodwill, December 31, 2019
Accumulated impairment, January 1, 2019
Foreign currency translation
Accumulated impairment, December 31, 2019
Net goodwill, January 1, 2019
Net goodwill, December 31, 2019
$
$
$
$
$
$
Fleet
Solutions
Segment
Travel and Corporate
Health and Employee
Solutions
Segment
Benefit Solutions
Segment
Total
1,251,501
$
244,632
$
350,193
$
1,846,326
128,251
(1,645)
209,887
488
272,399
(483)
610,537
(1,640)
1,378,107
$
455,007
$
622,109
$
2,455,223
(4,205) $
118
(4,087) $
1,247,296
1,374,020
$
$
(9,992) $
57
(9,935) $
234,640
445,072
$
$
— $
—
— $
(14,197)
175
(14,022)
350,193
622,109
$
$
1,832,129
2,441,201
Other intangible assets consist of the following:
(in thousands)
Definite-lived intangible assets
December 31, 2019
December 31, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Acquired software and developed technology
$
269,888
$
(142,239) $
127,649
$
216,325
$
(113,694) $
Customer relationships
Licensing agreements
Patent
Trade names and brand names
Indefinite-lived intangible assets
Brand names
Total
1,762,066
145,295
2,319
62,275
(478,680)
1,283,386
1,243,589
(360,593)
(24,160)
(2,183)
(19,531)
121,135
136
42,744
32,962
2,332
43,907
(18,303)
(2,044)
(14,421)
$ 2,241,843
$
(666,793) $
1,575,050
$ 1,539,115
$
(509,055) $
1,030,060
—
$
1,575,050
4,134
$
1,034,194
102,631
882,996
14,659
288
29,486
During the fourth quarter of 2019, it was determined that the Company’s indefinite-lived intangible assets related to
acquired fuel card brand names are no longer indefinite-lived, primarily due to the cessation of marketing efforts and card issuance
to new customers for one of the branded cards. The Company has estimated that the phase-out of the existing cards will occur over
a period of five years. Accordingly, the asset has been classified as a definite-lived intangible asset as of December 31, 2019 and
will be amortized over the phase-out term.
87
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
During the years ended December 31, 2019, 2018 and 2017, amortization expense was $159.4 million, $138.2 million
and $153.8 million, respectively. The following table presents the estimated amortization expense related to the definite-lived
intangible assets listed above for each of the next five fiscal years:
In accordance with regulatory requirements, WEX Bank maintains reserves against a portion of its outstanding customer
deposits by keeping balances with the Federal Reserve Bank. The required reserve was $24.9 million and $11.1 million at
December 31, 2019 and December 31, 2018, respectively.
The following table presents the average interest rates for deposits and interest-bearing money market deposits:
Year ended December 31,
2019
2018
2017
2.46%
2.28%
1.91%
2.03%
1.22%
1.12%
$
$
$
$
$
170,603
161,265
147,934
136,668
124,119
(in thousands)
Average interest rate:
Deposits
Interest-bearing brokered money market deposits
Sources of Funds
ICS Purchases
December 31,
2019
2018
$
$
852,964
116,852
969,816
$
$
690,651
124,091
814,742
From time to time, WEX Bank utilizes alternative funding sources such as Promontory Interfinancial Network, LLC’s
ICS service, which provides for one-way buy transactions among banks for the purposes of purchasing cost-effective variable-
rate funding without collateralization. WEX Bank may purchase brokered money market demand accounts and demand deposit
accounts in amounts not to exceed $125.0 million through this service. There were no outstanding balances for ICS purchases at
December 31, 2019 and December 31, 2018.
(in thousands)
2020
2021
2022
2023
2024
10.
Accounts Payable
Accounts payable consists of:
(In thousands)
Merchant payables
Other payables
Accounts payable
11.
Deposits
Deposits
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. See Note 26, Supplementary Regulatory Capital Disclosure,
for further information concerning these FDIC requirements.
WEX Bank accepts its deposits through: (i) certain customers as required collateral for credit that has been extended
(“customer deposits”); (ii) contractual arrangements with brokerage firms for both certificate of deposit and brokered money
market deposit products (“brokered deposits”); and (iii) a listing service that provides certificates of deposit with financial
institutions (“institutional deposits”). Customer deposits are generally non-interest bearing, while brokered deposits are issued at
variable rates based on LIBOR or the Federal Funds rate and institutional deposits contain varying terms.
The following table presents the composition of deposits, which are classified as short-term or long-term based on their
contractual maturities:
(in thousands)
Interest-bearing brokered money market deposits
Customer deposits
Certificates of deposits with maturities within 1 year (a)(b)
Short-term deposits
Certificates of deposit with maturities greater than 1 year and less than 5 years (a)(b)
Total Deposits
December 31,
2019
2018
$
362,246
$
283,790
112,571
835,996
1,310,813
143,399
138,072
505,582
927,444
345,231
$
1,454,212
$
1,272,675
Weighted average cost of funds on certificates of deposit outstanding
2.57%
Weighted average cost of interest-bearing brokered money market deposits
(a) As of December 31, 2019, all brokered deposits were in denominations of $250 thousand or less, corresponding to FDIC deposit insurance limits.
1.88%
2.36%
2.49%
(b) Original maturities range from 4 months to 5 years, with interest rates ranging from 1.80 percent to 3.52 percent as of December 31, 2019. At December 31,
2018, original maturities ranged from 6 months to 5 years with interest rates ranging from 1.30 percent to 3.52 percent.
12.
Derivative Instruments
The Company is exposed to certain market risks relating to its ongoing business operations. From time to time, the
Company enters into derivative instrument arrangements to manage various risks including interest rate risk.
The following table presents relevant information for the interest rate swap agreements outstanding during 2019:
Notional amount at inception
(in thousands)
Amortization
Maturity date
Fixed interest rate
Tranche A
Tranche B
Tranche C
Tranche D
Tranche E
Tranche F
Tranche G
$150,000
$100,000
$200,000
$300,000
$200,000
$400,000
$150,000
N/A
N/A
N/A
N/A
N/A
5% annually
N/A
3/12/2022
3/12/2022
3/12/2023
12/30/2022
12/30/2022
12/31/2020
12/31/2020
2.418%
2.425%
2.413%
2.204%
2.212%
1.108%
1.125%
As of December 31, 2019, outstanding interest rate swap contracts are intended to fix the future interest payments associated
with $1.4 billion of the $2.4 billion of outstanding borrowings under our 2016 Credit Agreement.
The following table presents information on the location and amounts of interest rate swap gains and losses:
(In thousands)
Year ended December 31,
Derivatives
Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in
Consolidated Statements of Income
2019
2018
2017
Interest rate swap agreements –
unrealized portion
Interest rate swap agreements –
realized portion
Net unrealized (loss) gain on financial instruments
(35,363) $
3,772
$
1,314
Financing interest expense
(5,411) $
(6,160) $
(214)
$
$
See Note 19, Fair Value, for more information regarding the valuation of the Company’s interest rate swaps.
89
90
10.
Accounts Payable
Accounts payable consists of:
(in thousands)
2020
2021
2022
2023
2024
(In thousands)
Merchant payables
Other payables
Accounts payable
11.
Deposits
Deposits
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
During the years ended December 31, 2019, 2018 and 2017, amortization expense was $159.4 million, $138.2 million
and $153.8 million, respectively. The following table presents the estimated amortization expense related to the definite-lived
intangible assets listed above for each of the next five fiscal years:
In accordance with regulatory requirements, WEX Bank maintains reserves against a portion of its outstanding customer
deposits by keeping balances with the Federal Reserve Bank. The required reserve was $24.9 million and $11.1 million at
December 31, 2019 and December 31, 2018, respectively.
The following table presents the average interest rates for deposits and interest-bearing money market deposits:
$
$
$
$
$
170,603
161,265
147,934
136,668
124,119
(in thousands)
Average interest rate:
Deposits
Interest-bearing brokered money market deposits
Sources of Funds
ICS Purchases
Year ended December 31,
2019
2018
2017
2.46%
2.28%
1.91%
2.03%
1.22%
1.12%
December 31,
2019
2018
$
$
852,964
116,852
969,816
$
$
690,651
124,091
814,742
From time to time, WEX Bank utilizes alternative funding sources such as Promontory Interfinancial Network, LLC’s
ICS service, which provides for one-way buy transactions among banks for the purposes of purchasing cost-effective variable-
rate funding without collateralization. WEX Bank may purchase brokered money market demand accounts and demand deposit
accounts in amounts not to exceed $125.0 million through this service. There were no outstanding balances for ICS purchases at
December 31, 2019 and December 31, 2018.
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. See Note 26, Supplementary Regulatory Capital Disclosure,
for further information concerning these FDIC requirements.
WEX Bank accepts its deposits through: (i) certain customers as required collateral for credit that has been extended
(“customer deposits”); (ii) contractual arrangements with brokerage firms for both certificate of deposit and brokered money
market deposit products (“brokered deposits”); and (iii) a listing service that provides certificates of deposit with financial
institutions (“institutional deposits”). Customer deposits are generally non-interest bearing, while brokered deposits are issued at
variable rates based on LIBOR or the Federal Funds rate and institutional deposits contain varying terms.
The following table presents the composition of deposits, which are classified as short-term or long-term based on their
contractual maturities:
Interest-bearing brokered money market deposits
Certificates of deposits with maturities within 1 year (a)(b)
(in thousands)
Customer deposits
Short-term deposits
Total Deposits
Certificates of deposit with maturities greater than 1 year and less than 5 years (a)(b)
Weighted average cost of funds on certificates of deposit outstanding
Weighted average cost of interest-bearing brokered money market deposits
December 31,
2019
2018
$
362,246
$
283,790
112,571
835,996
1,310,813
143,399
138,072
505,582
927,444
345,231
$
1,454,212
$
1,272,675
2.57%
1.88%
2.36%
2.49%
(a) As of December 31, 2019, all brokered deposits were in denominations of $250 thousand or less, corresponding to FDIC deposit insurance limits.
(b) Original maturities range from 4 months to 5 years, with interest rates ranging from 1.80 percent to 3.52 percent as of December 31, 2019. At December 31,
2018, original maturities ranged from 6 months to 5 years with interest rates ranging from 1.30 percent to 3.52 percent.
12.
Derivative Instruments
The Company is exposed to certain market risks relating to its ongoing business operations. From time to time, the
Company enters into derivative instrument arrangements to manage various risks including interest rate risk.
The following table presents relevant information for the interest rate swap agreements outstanding during 2019:
Notional amount at inception
(in thousands)
Amortization
Maturity date
Fixed interest rate
Tranche A
Tranche B
Tranche C
Tranche D
Tranche E
Tranche F
Tranche G
$150,000
$100,000
$200,000
$300,000
$200,000
$400,000
$150,000
N/A
N/A
N/A
N/A
N/A
5% annually
N/A
3/12/2022
3/12/2022
3/12/2023
12/30/2022
12/30/2022
12/31/2020
12/31/2020
2.418%
2.425%
2.413%
2.204%
2.212%
1.108%
1.125%
As of December 31, 2019, outstanding interest rate swap contracts are intended to fix the future interest payments associated
with $1.4 billion of the $2.4 billion of outstanding borrowings under our 2016 Credit Agreement.
The following table presents information on the location and amounts of interest rate swap gains and losses:
(In thousands)
Year ended December 31,
Derivatives
Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in
Consolidated Statements of Income
2019
2018
2017
Interest rate swap agreements –
unrealized portion
Interest rate swap agreements –
realized portion
Net unrealized (loss) gain on financial instruments
Financing interest expense
$
$
(35,363) $
3,772
$
1,314
(5,411) $
(6,160) $
(214)
See Note 19, Fair Value, for more information regarding the valuation of the Company’s interest rate swaps.
89
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
13. Off-Balance Sheet Arrangements
WEX Europe Services Accounts Receivable Factoring
During the first quarter of 2017, WEX Europe Services entered into a factoring arrangement with an unrelated third-party
financial institution. Under this arrangement, the Company sells customer accounts receivable balances without recourse to the
extent that the customer balances are maintained at or below the credit limit established by the buyer. If customer receivable
balances exceed the buyer’s credit limit, the Company maintains the risk of default. The Company obtained a true-sale opinion
from an independent attorney, which states that the factoring agreement provides legal isolation upon WEX Europe Services
bankruptcy or receivership under local law and creates a sale of receivables for amounts transferred both below and above the
established credit limits. The Company continues to service these receivables post-transfer with no participating interest. As such,
transfers under this arrangement are treated as sales and are accounted for as reductions in trade accounts receivable because
effective control of the receivables is transferred to the buyer.
The Company sold approximately $630.3 million and $713.8 million of accounts receivable under this arrangement during
the years ended December 31, 2019 and 2018, respectively. Proceeds received, which are recorded net of applicable costs, including
interest and commissions, are recorded in operating activities in the consolidated statements of cash flows. The loss on factoring
was $3.5 million and $4.7 million for the year ended December 31, 2019 and 2018, respectively, and was recorded within cost of
services in the consolidated statements of income. As of December 31, 2019 and 2018, the amount of outstanding transferred
receivables in excess of the established credit limit was immaterial. Charge-backs on balances in excess of the credit limit during
the year ended December 31, 2019 and 2018 were insignificant.
WEX Bank Accounts Receivable Factoring
In August 2018, WEX Bank entered into a factoring agreement with an unrelated third-party financial institution to sell
certain of our trade accounts receivable under non-recourse transactions. The Company obtained a true-sale opinion from an
independent attorney, which states that the factoring agreement provides legal isolation upon WEX Bank bankruptcy or receivership
under local law. WEX Bank continues to service the receivables post-transfer with no participating interest. As such, transfers
under this arrangement are treated as a sale and are accounted for as a reduction in trade accounts receivable because effective
control of the receivables is transferred to the buyer.
The Company sold approximately $14.8 billion and $3.2 billion of trade accounts receivable under this arrangement
during the years ended December 31, 2019 and 2018, respectively. Proceeds received, which are reported net of a negotiated
discount rate, are recorded in operating activities in the consolidated statements of cash flows. The loss on factoring, which is
recorded within cost of services in the consolidated statements of income, was $3.7 million and $1.0 million for the years ended
December 31, 2019 and 2018, respectively.
WEX Latin America Securitization of Receivables
During 2017, WEX Latin America entered into a securitized agreement to transfer certain unsecured receivables associated
with our salary advance payment card product to an investment fund managed by an unrelated third-party. WEX Latin America
holds a non-controlling equity interest in the investment fund. During the year ended December 31, 2019, the Company did not
make equity contributions to the investment fund. During the year ended December 31, 2018, the Company’s equity contributions
to the investment fund totaled $2.8 million.
This securitization arrangement did not meet the derecognition conditions until July 1, 2018 due to continuing involvement
with the transferred assets and accordingly WEX Latin America reported the transferred receivables and securitized debt on our
consolidated balance sheet. During the year ended December 31, 2018, the Company recognized operating interest expense of
$4.4 million under this financing arrangement.
During the third quarter of 2018, the securitization agreements were amended, resulting in the Company giving up effective
control of the transferred receivables to the buyer. The Company received a true-sale opinion from an independent attorney stating
that the amended agreements provide legal isolation upon WEX Latin America bankruptcy or receivership under local law. As
such, transfers under this arrangement are treated as sales and are accounted for as reductions of trade accounts receivable.
During the years ended December 31, 2019 and 2018, the Company sold $78.0 million and $39.8 million of receivables,
respectively, and recognized a gain on sale of $16.1 million and $6.9 million, respectively. The gain recognized consists of the
difference between the sales price and the carrying value of the receivables, and is recorded within other revenue in the consolidated
statements of income. Cash proceeds from the transfer of these receivables are recorded within operating activities in the
consolidated statement of cash flows.
14.
Income Taxes
Income before income taxes consisted of the following:
Income taxes from continuing operations consisted of the following for the years ended December 31:
Year ended December 31,
2019
2018
2017
$
$
178,235
38,281
216,516
$
$
194,770
43,849
238,619
$
$
147,240
27,176
174,416
United States
Foreign
Total
State
and Local
20,748
19,946
16,027
29,520
$
$
$
$
$
$
$
$
$
$
4,486
3,831
3,566
8,016
$
$
$
$
$
$
16,322
(4,110) $
17,916
(6,202) $
$
$
$
$
$
$
41,556
19,667
61,223
37,509
31,334
68,843
19,684
(4,234)
15,450
2,254
$
(11,748) $
3,687
10,842
13,743
(3,328) $
(In thousands)
United States
Foreign
Total
(In thousands)
2019
Current
Deferred
Income taxes
2018
Current
Deferred
Income taxes
2017
Current
Deferred
Income taxes
2017 Tax Act
On December 22, 2017, the 2017 Tax Act was signed into law making significant changes to the Internal Revenue Code.
Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after
December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-
time transition tax on the mandatory deemed repatriation of foreign earnings. The Company estimated the provision for income
taxes in accordance with the 2017 Tax Act and guidance available as of the date of the December 31, 2017 filing and as a result
recorded a provisional one-time income tax benefit of $60.6 million in the fourth quarter of 2017, the period in which the legislation
was enacted.
While our accounting for the impact of the 2017 Tax Act as of December 31, 2018 was deemed to be complete, amounts
recorded were based on prevailing regulations and available information as of December 31, 2018. Additional guidance issued by
the Internal Revenue Service had no material impact on the amounts presented in 2019.
The 2017 Tax Act also changed the taxation of foreign earnings as companies are generally no longer subject to United
States federal income taxes upon the receipt of dividends from foreign subsidiaries and will not be permitted foreign tax credits
related to such dividends. However, the 2017 Tax Act created a new requirement to tax certain foreign earnings relating to GILTI.
During 2018, the Company elected to treat GILTI inclusions as a period cost.
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $77.4 million and $64.9 million at
December 31, 2019 and 2018, respectively. These earnings and profits are considered to be indefinitely reinvested. Upon distribution
of these earnings in the form of dividends or otherwise, the Company would be subject to withholding taxes payable to foreign
countries, where applicable, but would generally have no further federal income tax liability.
91
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
13. Off-Balance Sheet Arrangements
WEX Europe Services Accounts Receivable Factoring
During the first quarter of 2017, WEX Europe Services entered into a factoring arrangement with an unrelated third-party
financial institution. Under this arrangement, the Company sells customer accounts receivable balances without recourse to the
extent that the customer balances are maintained at or below the credit limit established by the buyer. If customer receivable
balances exceed the buyer’s credit limit, the Company maintains the risk of default. The Company obtained a true-sale opinion
from an independent attorney, which states that the factoring agreement provides legal isolation upon WEX Europe Services
bankruptcy or receivership under local law and creates a sale of receivables for amounts transferred both below and above the
established credit limits. The Company continues to service these receivables post-transfer with no participating interest. As such,
transfers under this arrangement are treated as sales and are accounted for as reductions in trade accounts receivable because
effective control of the receivables is transferred to the buyer.
The Company sold approximately $630.3 million and $713.8 million of accounts receivable under this arrangement during
the years ended December 31, 2019 and 2018, respectively. Proceeds received, which are recorded net of applicable costs, including
interest and commissions, are recorded in operating activities in the consolidated statements of cash flows. The loss on factoring
was $3.5 million and $4.7 million for the year ended December 31, 2019 and 2018, respectively, and was recorded within cost of
services in the consolidated statements of income. As of December 31, 2019 and 2018, the amount of outstanding transferred
receivables in excess of the established credit limit was immaterial. Charge-backs on balances in excess of the credit limit during
the year ended December 31, 2019 and 2018 were insignificant.
WEX Bank Accounts Receivable Factoring
In August 2018, WEX Bank entered into a factoring agreement with an unrelated third-party financial institution to sell
certain of our trade accounts receivable under non-recourse transactions. The Company obtained a true-sale opinion from an
independent attorney, which states that the factoring agreement provides legal isolation upon WEX Bank bankruptcy or receivership
under local law. WEX Bank continues to service the receivables post-transfer with no participating interest. As such, transfers
under this arrangement are treated as a sale and are accounted for as a reduction in trade accounts receivable because effective
control of the receivables is transferred to the buyer.
The Company sold approximately $14.8 billion and $3.2 billion of trade accounts receivable under this arrangement
during the years ended December 31, 2019 and 2018, respectively. Proceeds received, which are reported net of a negotiated
discount rate, are recorded in operating activities in the consolidated statements of cash flows. The loss on factoring, which is
recorded within cost of services in the consolidated statements of income, was $3.7 million and $1.0 million for the years ended
December 31, 2019 and 2018, respectively.
WEX Latin America Securitization of Receivables
During 2017, WEX Latin America entered into a securitized agreement to transfer certain unsecured receivables associated
with our salary advance payment card product to an investment fund managed by an unrelated third-party. WEX Latin America
holds a non-controlling equity interest in the investment fund. During the year ended December 31, 2019, the Company did not
make equity contributions to the investment fund. During the year ended December 31, 2018, the Company’s equity contributions
to the investment fund totaled $2.8 million.
This securitization arrangement did not meet the derecognition conditions until July 1, 2018 due to continuing involvement
with the transferred assets and accordingly WEX Latin America reported the transferred receivables and securitized debt on our
consolidated balance sheet. During the year ended December 31, 2018, the Company recognized operating interest expense of
$4.4 million under this financing arrangement.
During the third quarter of 2018, the securitization agreements were amended, resulting in the Company giving up effective
control of the transferred receivables to the buyer. The Company received a true-sale opinion from an independent attorney stating
that the amended agreements provide legal isolation upon WEX Latin America bankruptcy or receivership under local law. As
such, transfers under this arrangement are treated as sales and are accounted for as reductions of trade accounts receivable.
During the years ended December 31, 2019 and 2018, the Company sold $78.0 million and $39.8 million of receivables,
respectively, and recognized a gain on sale of $16.1 million and $6.9 million, respectively. The gain recognized consists of the
difference between the sales price and the carrying value of the receivables, and is recorded within other revenue in the consolidated
statements of income. Cash proceeds from the transfer of these receivables are recorded within operating activities in the
consolidated statement of cash flows.
14.
Income Taxes
Income before income taxes consisted of the following:
(In thousands)
United States
Foreign
Total
Year ended December 31,
2019
2018
2017
$
$
178,235
38,281
216,516
$
$
194,770
43,849
238,619
$
$
147,240
27,176
174,416
Income taxes from continuing operations consisted of the following for the years ended December 31:
(In thousands)
2019
Current
Deferred
Income taxes
2018
Current
Deferred
Income taxes
2017
Current
Deferred
Income taxes
2017 Tax Act
United States
State
and Local
Foreign
Total
$
$
$
$
$
$
20,748
19,946
16,027
29,520
$
$
$
$
4,486
3,831
3,566
8,016
2,254
$
(11,748) $
3,687
10,842
$
$
$
$
$
$
16,322
$
(4,110) $
$
$
17,916
(6,202) $
$
$
13,743
(3,328) $
$
41,556
19,667
61,223
37,509
31,334
68,843
19,684
(4,234)
15,450
On December 22, 2017, the 2017 Tax Act was signed into law making significant changes to the Internal Revenue Code.
Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after
December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-
time transition tax on the mandatory deemed repatriation of foreign earnings. The Company estimated the provision for income
taxes in accordance with the 2017 Tax Act and guidance available as of the date of the December 31, 2017 filing and as a result
recorded a provisional one-time income tax benefit of $60.6 million in the fourth quarter of 2017, the period in which the legislation
was enacted.
While our accounting for the impact of the 2017 Tax Act as of December 31, 2018 was deemed to be complete, amounts
recorded were based on prevailing regulations and available information as of December 31, 2018. Additional guidance issued by
the Internal Revenue Service had no material impact on the amounts presented in 2019.
The 2017 Tax Act also changed the taxation of foreign earnings as companies are generally no longer subject to United
States federal income taxes upon the receipt of dividends from foreign subsidiaries and will not be permitted foreign tax credits
related to such dividends. However, the 2017 Tax Act created a new requirement to tax certain foreign earnings relating to GILTI.
During 2018, the Company elected to treat GILTI inclusions as a period cost.
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $77.4 million and $64.9 million at
December 31, 2019 and 2018, respectively. These earnings and profits are considered to be indefinitely reinvested. Upon distribution
of these earnings in the form of dividends or otherwise, the Company would be subject to withholding taxes payable to foreign
countries, where applicable, but would generally have no further federal income tax liability.
91
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
The reconciliation between the income tax computed by applying the U.S. federal statutory rate and the reported effective
Net deferred tax (liabilities) assets by jurisdiction are as follows:
tax rate on income from continuing operations is as follows:
(In thousands except for tax rates)
Federal statutory rate
State income taxes (net of federal income tax benefit)
Foreign income tax rate differential
Revaluation of deferred tax assets for foreign and state tax rate changes, net
Research and development credit
Tax reserves
Withholding taxes
2017 Tax Act
Change in valuation allowance
Nondeductible expenses
Incremental tax benefit from share-based compensation awards
GILTI
Other
Effective tax rate
Year ended December 31,
2019
2018
2017
21.0%
21.0%
1.4
0.8
(1.0)
(0.5)
0.8
0.7
—
3.1
2.3
(2.0)
0.5
1.2
2.2
1.1
(1.3)
(0.2)
2.0
0.2
(0.2)
4.5
1.4
(1.7)
0.8
(0.9)
35.0%
2.0
(0.7)
0.4
—
0.3
0.2
(34.8)
4.6
0.5
(0.9)
—
2.3
28.3%
28.9%
8.9%
The decrease in our effective tax rate for the year ended December 31, 2019 relative to the prior year was primarily due
to the jurisdictional earnings mix. Our lower effective tax rate for the year ended December 31, 2017 relative to 2018 was primarily
due to the reduction of our net deferred tax liabilities resulting from the 2017 Tax Act’s change in the federal corporate income
tax rate to 21 percent from 35 percent.
The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes
that give rise to significant portions of the deferred tax assets and liabilities are presented below:
(In thousands)
Deferred tax assets related to:
Reserve for credit losses
Tax credit carryforwards
Stock-based compensation, net
Net operating loss carry forwards
Accruals
Operating lease liabilities
Other
Total
Deferred tax liabilities related to:
Other liabilities
Deferred financing costs
Property, equipment and capitalized software
Intangibles
Operating lease assets
Total
Valuation allowance
Deferred income taxes, net
December 31,
2019
2018
$
11,831
$
10,357
2,570
16,070
49,464
18,934
18,892
4,283
986
10,937
48,235
13,142
—
—
$
$
$
$
122,044
$
83,657
(86) $
(1,090)
(35,273)
(243,229)
(15,602)
(1,961)
(3,078)
(28,227)
(166,347)
—
(295,280) $
(199,613)
(32,671)
(26,086)
(205,907) $
(142,042)
(In thousands)
United States
Australia
Europe
New Zealand
Brazil
Canada
Deferred income taxes, net
December 31,
2019
2018
$
(217,927) $
(151,125)
(795)
5,645
237
6,820
113
(516)
5,873
116
3,202
408
$
(205,907) $
(142,042)
The Company had approximately $608.7 million of post apportionment state, $31.3 million of federal and $58.6 million
of foreign net operating loss carryforwards at December 31, 2019 and approximately $503.3 million of post apportionment state,
$53.8 million of federal and $58.7 million of foreign net operating loss carryforwards at December 31, 2018. The U.S. losses
expire at various times through 2039. Foreign losses in Brazil and the UK have indefinite carryforward periods.
At December 31, 2019, the Company’s valuation allowances primarily pertain to the following items: (i) net deferred tax
assets for certain states, (ii) acquired and certain net operating losses in the UK and (iii) U.S. foreign tax credits. In each case, the
Company has determined it is not more likely than not that the benefits will be utilized. During 2019 and 2018, the Company
recorded tax expense of $6.6 million and $10.7 million, respectively, for net increases to the valuation allowance. The substantial
majority of the 2019 and 2018 increase in valuation allowance was related to state net operating losses driven from our parent
company’s separate state filings.
At December 31, 2019, the Company had $10.3 million of unrecognized tax benefits, net of federal income tax benefit,
tax benefits could be reduced by as much as $5.4 million within
of which $9.8 million would decrease our effective tax rate if fully recognized. It is reasonably possible that the Company’s
unrecognized
a result of settlements of certain examinations or expiration of statutes of limitations. The Company recognizes interest and
penalties related to unrecognized tax benefits in income tax expense. The total amounts of interest and penalties were not material
for the years ended December 31, 2019, 2018 and 2017, and as of December 31, 2019 and 2018, the Company had no material
amounts accrued for interest and penalties related to unrecognized tax benefits.
twelve months as
the next
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits excluding interest and penalties
is as follows:
(In thousands)
Beginning balance
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to prior year tax positions
Settlements
Ending balance
Year ended December 31,
2019
2018
2017
$
8,996
$
5,898
$
1,727
—
(39)
(364)
4,831
—
—
(1,733)
$
10,320
$
8,996
$
5,458
1,332
363
—
(1,255)
5,898
The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom. The Company or one
of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions, where
required. In the normal course of business, the Company is no longer subject to income tax examination after the Internal Revenue
Service statute of limitations of three years. The Internal Revenue Service is currently examining the Company’s U.S. federal
income tax returns for 2013 through 2016. The Company is in the process of concluding the appeals process with the Internal
Revenue Service in connection with the 2010 through 2012 audits with no anticipated additional tax impact to the Company. At
December 31, 2019, for U.S. state tax returns, we were no longer subject to tax examination for years prior to 2013. The Company
is finalizing a transfer pricing examination with New Zealand Inland Revenue for years 2013 through 2017 with no anticipated
additional tax impact to the Company.
93
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
The reconciliation between the income tax computed by applying the U.S. federal statutory rate and the reported effective
Net deferred tax (liabilities) assets by jurisdiction are as follows:
tax rate on income from continuing operations is as follows:
(In thousands except for tax rates)
Federal statutory rate
State income taxes (net of federal income tax benefit)
Foreign income tax rate differential
Revaluation of deferred tax assets for foreign and state tax rate changes, net
Research and development credit
Tax reserves
Withholding taxes
2017 Tax Act
Change in valuation allowance
Nondeductible expenses
GILTI
Other
Effective tax rate
Incremental tax benefit from share-based compensation awards
Year ended December 31,
2019
2018
2017
21.0%
21.0%
1.4
0.8
(1.0)
(0.5)
0.8
0.7
—
3.1
2.3
0.5
1.2
(2.0)
2.2
1.1
(1.3)
(0.2)
(0.2)
2.0
0.2
4.5
1.4
(1.7)
0.8
(0.9)
35.0%
2.0
(0.7)
0.4
—
0.3
0.2
(34.8)
4.6
0.5
(0.9)
—
2.3
28.3%
28.9%
8.9%
The decrease in our effective tax rate for the year ended December 31, 2019 relative to the prior year was primarily due
to the jurisdictional earnings mix. Our lower effective tax rate for the year ended December 31, 2017 relative to 2018 was primarily
due to the reduction of our net deferred tax liabilities resulting from the 2017 Tax Act’s change in the federal corporate income
tax rate to 21 percent from 35 percent.
The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes
that give rise to significant portions of the deferred tax assets and liabilities are presented below:
(In thousands)
Deferred tax assets related to:
Reserve for credit losses
Tax credit carryforwards
Stock-based compensation, net
Net operating loss carry forwards
Accruals
Operating lease liabilities
Other
Total
Deferred tax liabilities related to:
Other liabilities
Deferred financing costs
Intangibles
Operating lease assets
Total
Valuation allowance
Deferred income taxes, net
Property, equipment and capitalized software
December 31,
2019
2018
$
11,831
$
10,357
2,570
16,070
49,464
18,934
18,892
4,283
986
10,937
48,235
13,142
—
—
$
$
$
$
122,044
$
83,657
(86) $
(1,090)
(35,273)
(243,229)
(15,602)
(1,961)
(3,078)
(28,227)
(166,347)
—
(295,280) $
(199,613)
(32,671)
(26,086)
(205,907) $
(142,042)
(In thousands)
United States
Australia
Europe
New Zealand
Brazil
Canada
Deferred income taxes, net
December 31,
2019
2018
$
(217,927) $
(151,125)
(795)
5,645
237
6,820
113
(516)
5,873
116
3,202
408
$
(205,907) $
(142,042)
The Company had approximately $608.7 million of post apportionment state, $31.3 million of federal and $58.6 million
of foreign net operating loss carryforwards at December 31, 2019 and approximately $503.3 million of post apportionment state,
$53.8 million of federal and $58.7 million of foreign net operating loss carryforwards at December 31, 2018. The U.S. losses
expire at various times through 2039. Foreign losses in Brazil and the UK have indefinite carryforward periods.
At December 31, 2019, the Company’s valuation allowances primarily pertain to the following items: (i) net deferred tax
assets for certain states, (ii) acquired and certain net operating losses in the UK and (iii) U.S. foreign tax credits. In each case, the
Company has determined it is not more likely than not that the benefits will be utilized. During 2019 and 2018, the Company
recorded tax expense of $6.6 million and $10.7 million, respectively, for net increases to the valuation allowance. The substantial
majority of the 2019 and 2018 increase in valuation allowance was related to state net operating losses driven from our parent
company’s separate state filings.
tax benefits could be reduced by as much as $5.4 million within
At December 31, 2019, the Company had $10.3 million of unrecognized tax benefits, net of federal income tax benefit,
of which $9.8 million would decrease our effective tax rate if fully recognized. It is reasonably possible that the Company’s
unrecognized
twelve months as
a result of settlements of certain examinations or expiration of statutes of limitations. The Company recognizes interest and
penalties related to unrecognized tax benefits in income tax expense. The total amounts of interest and penalties were not material
for the years ended December 31, 2019, 2018 and 2017, and as of December 31, 2019 and 2018, the Company had no material
amounts accrued for interest and penalties related to unrecognized tax benefits.
the next
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits excluding interest and penalties
is as follows:
(In thousands)
Beginning balance
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to prior year tax positions
Settlements
Ending balance
Year ended December 31,
2019
2018
2017
$
8,996
$
5,898
$
1,727
—
(39)
(364)
4,831
—
—
(1,733)
$
10,320
$
8,996
$
5,458
1,332
363
—
(1,255)
5,898
The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom. The Company or one
of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions, where
required. In the normal course of business, the Company is no longer subject to income tax examination after the Internal Revenue
Service statute of limitations of three years. The Internal Revenue Service is currently examining the Company’s U.S. federal
income tax returns for 2013 through 2016. The Company is in the process of concluding the appeals process with the Internal
Revenue Service in connection with the 2010 through 2012 audits with no anticipated additional tax impact to the Company. At
December 31, 2019, for U.S. state tax returns, we were no longer subject to tax examination for years prior to 2013. The Company
is finalizing a transfer pricing examination with New Zealand Inland Revenue for years 2013 through 2017 with no anticipated
additional tax impact to the Company.
93
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
Balance Sheet Location
December 31, 2019
January 1, 2019
(a) Includes non-cash transactions resulting in adjustments to the lease liability or ROU asset due to modification, impairment or other reassessment events.
15.
Leases
The Company has non-cancelable operating lease arrangements for its office space and equipment that expire at various
dates through 2034. In addition, the Company rents office equipment under agreements that may be canceled anytime. Prior to
January 1, 2019, all such leases were accounted for off-balance sheet. On January 1, 2019, we adopted accounting standard ASC
842, using the modified retrospective approach, which requires that leases with a duration greater than twelve months be recognized
on the balance sheet as right-of-use assets and lease liabilities. The adoption of ASC 842 had no impact on our retained earnings
and no prior period amounts have been adjusted.
The following table presents supplemental balance sheet information related to our recognized operating leases as a result
of adopting ASC 842:
(In thousands)
Assets
Operating lease ROU assets
Other assets
Liabilities
Current operating lease liabilities
Other current liabilities
Non-current operating lease liabilities
Other liabilities
Total lease liabilities
$
$
68,351
$
13,176
67,910
81,086
$
71,169
11,422
71,445
82,867
We determine whether or not a contract contains a lease at its inception. For building leases with terms greater than twelve
months, we account for lease and non-lease components as a single lease component. Many of our lease agreements contain renewal
or termination clauses that we factor into our determination of the lease term if we are reasonably certain to exercise any such
options. As the Company’s leases do not specifically state an implicit rate, the Company uses a market-specific incremental
borrowing rate consistent with the lease term as of the lease commencement date when calculating the present value of remaining
lease payments. The incremental borrowing rate reflects the cost to borrow on a securitized basis in each market.
The following table presents the weighted average remaining lease term and discount rate:
Operating leases
Weighted average remaining term (in years)
Weighted average discount rate
Maturities of our operating lease liabilities are as follows:
(In thousands)
2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments
Less: Imputed interest
Total lease obligations
Less: Current portion of lease obligations
Long-term lease obligations
December 31, 2019
8.5
4.6%
December 31, 2019
16,387
15,544
13,428
9,765
7,318
36,434
98,876
17,790
81,086
13,176
67,910
$
$
$
$
In addition to the total lease obligations presented in the table above, we have a 14 year building operating lease with
undiscounted payment obligations of $30.0 million that is expected to commence during 2020.
Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet. Short-term lease
payments are recognized on a straight-line basis and variable short-term lease payments are recognized in the period in which the
obligation is incurred. We recognized $18.3 million of operating lease expense during 2019, which includes these immaterial short-
term leases and variable lease costs as well as lease expense related to equipment and vehicles. Rental expense related to office
space, equipment and vehicles prior to adoption of ASC 842 amounted to $15.7 million and $15.5 million for the years ended
December 31, 2018 and 2017, respectively. These amounts are classified as general and administrative expenses on our consolidated
statements of income.
The following table presents supplemental cash flow and other information related to our leases:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases(a)
December 31, 2019
$
$
16,314
11,001
At December 31, 2018, the minimum annual rental payments under our lease agreements were as follows: $14.8 million
in 2019; $16.0 million in 2020; $15.2 million in 2021; $14.1 million in 2022; $11.7 million in 2023; and $65.6 million thereafter.
16.
Financing and Other Debt
The following table summarizes the Company’s total outstanding debt by type:
(In thousands)
Tranche A term loan
Tranche B term loan
Term loans under 2016 Credit Agreement (a)
Notes outstanding(a)
Securitized debt
Participation debt
Borrowed federal funds
WEX Latin America debt
Total gross debt
(a) See Note 19, Fair Value, for more information regarding the Company’s 2016 Credit Agreement and Notes.
The following table summarizes the Company’s total outstanding debt by balance sheet classification:
(In thousands)
Current portion of gross debt
Less: Unamortized debt issuance costs/debt discount
Short-term debt, net
Long-term portion of gross debt
Less: Unamortized debt issuance costs/debt discount
Long-term debt, net
Supplemental information under 2016 Credit Agreement:
Letters of credit (a)
Remaining borrowing capacity on revolving credit facility(b)
(a) Collateral for lease agreements, virtual card and fuel payment processing activity at the Company’s foreign subsidiaries.
(b) Contingent on maintaining compliance with the financial covenants as defined in the Company’s 2016 Credit Agreement.
Year ended December 31,
2019
923,707
1,457,048
2,380,755
400,000
104,261
50,000
34,998
2,660
2018
423,637
1,321,447
1,745,084
400,000
106,872
114,849
—
16,242
$
2,972,674
$
2,383,047
Year ended December 31,
2019
2018
256,529
(7,998)
248,531
223,241
(6,724)
216,517
2,716,145
2,159,806
(29,632)
(25,883)
2,686,513
2,133,923
51,314
768,686
53,514
666,486
$
$
$
$
$
$
$
$
$
$
$
$
95
96
15.
Leases
of adopting ASC 842:
(In thousands)
Assets
Liabilities
Total lease liabilities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
The Company has non-cancelable operating lease arrangements for its office space and equipment that expire at various
dates through 2034. In addition, the Company rents office equipment under agreements that may be canceled anytime. Prior to
January 1, 2019, all such leases were accounted for off-balance sheet. On January 1, 2019, we adopted accounting standard ASC
842, using the modified retrospective approach, which requires that leases with a duration greater than twelve months be recognized
on the balance sheet as right-of-use assets and lease liabilities. The adoption of ASC 842 had no impact on our retained earnings
and no prior period amounts have been adjusted.
The following table presents supplemental balance sheet information related to our recognized operating leases as a result
space, equipment and vehicles prior to adoption of ASC 842 amounted to $15.7 million and $15.5 million for the years ended
December 31, 2018 and 2017, respectively. These amounts are classified as general and administrative expenses on our consolidated
statements of income.
The following table presents supplemental cash flow and other information related to our leases:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases(a)
December 31, 2019
$
$
16,314
11,001
Balance Sheet Location
December 31, 2019
January 1, 2019
(a) Includes non-cash transactions resulting in adjustments to the lease liability or ROU asset due to modification, impairment or other reassessment events.
Operating lease ROU assets
Other assets
Current operating lease liabilities
Other current liabilities
Non-current operating lease liabilities
Other liabilities
$
$
68,351
$
13,176
67,910
81,086
$
71,169
11,422
71,445
82,867
We determine whether or not a contract contains a lease at its inception. For building leases with terms greater than twelve
months, we account for lease and non-lease components as a single lease component. Many of our lease agreements contain renewal
or termination clauses that we factor into our determination of the lease term if we are reasonably certain to exercise any such
options. As the Company’s leases do not specifically state an implicit rate, the Company uses a market-specific incremental
borrowing rate consistent with the lease term as of the lease commencement date when calculating the present value of remaining
lease payments. The incremental borrowing rate reflects the cost to borrow on a securitized basis in each market.
The following table presents the weighted average remaining lease term and discount rate:
Maturities of our operating lease liabilities are as follows:
Operating leases
Weighted average remaining term (in years)
Weighted average discount rate
(In thousands)
2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments
Less: Imputed interest
Total lease obligations
Less: Current portion of lease obligations
Long-term lease obligations
December 31, 2019
8.5
4.6%
December 31, 2019
16,387
15,544
13,428
9,765
7,318
36,434
98,876
17,790
81,086
13,176
67,910
$
$
$
$
In addition to the total lease obligations presented in the table above, we have a 14 year building operating lease with
undiscounted payment obligations of $30.0 million that is expected to commence during 2020.
Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet. Short-term lease
payments are recognized on a straight-line basis and variable short-term lease payments are recognized in the period in which the
obligation is incurred. We recognized $18.3 million of operating lease expense during 2019, which includes these immaterial short-
term leases and variable lease costs as well as lease expense related to equipment and vehicles. Rental expense related to office
At December 31, 2018, the minimum annual rental payments under our lease agreements were as follows: $14.8 million
in 2019; $16.0 million in 2020; $15.2 million in 2021; $14.1 million in 2022; $11.7 million in 2023; and $65.6 million thereafter.
16.
Financing and Other Debt
The following table summarizes the Company’s total outstanding debt by type:
(In thousands)
Tranche A term loan
Tranche B term loan
Term loans under 2016 Credit Agreement (a)
Notes outstanding(a)
Securitized debt
Participation debt
Borrowed federal funds
WEX Latin America debt
Total gross debt
Year ended December 31,
2019
923,707
1,457,048
2,380,755
400,000
104,261
50,000
34,998
2,660
2018
423,637
1,321,447
1,745,084
400,000
106,872
114,849
—
16,242
$
2,972,674
$
2,383,047
(a) See Note 19, Fair Value, for more information regarding the Company’s 2016 Credit Agreement and Notes.
The following table summarizes the Company’s total outstanding debt by balance sheet classification:
(In thousands)
Current portion of gross debt
Less: Unamortized debt issuance costs/debt discount
Short-term debt, net
Long-term portion of gross debt
Less: Unamortized debt issuance costs/debt discount
Long-term debt, net
Supplemental information under 2016 Credit Agreement:
Letters of credit (a)
Remaining borrowing capacity on revolving credit facility(b)
Year ended December 31,
2019
2018
$
$
$
$
$
$
256,529
(7,998)
248,531
2,716,145
(29,632)
2,686,513
51,314
768,686
$
$
$
$
$
$
223,241
(6,724)
216,517
2,159,806
(25,883)
2,133,923
53,514
666,486
(a) Collateral for lease agreements, virtual card and fuel payment processing activity at the Company’s foreign subsidiaries.
(b) Contingent on maintaining compliance with the financial covenants as defined in the Company’s 2016 Credit Agreement.
95
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
2016 Credit Agreement
As of December 31, 2018, the 2016 Credit Agreement, as amended, provided for a secured tranche A term loan in an
original principal amount of $480.0 million, a secured tranche B term loan in an original principal amount of $1,335.0 million and
a $720.0 million secured revolving credit facility, with a $250.0 million sublimit for letters of credit and $20.0 million sublimit
for swingline loans. Under the 2016 Credit Agreement, the Company has granted a security interest in substantially all of the assets
of the Company, subject to exceptions including the assets of WEX Bank and certain foreign subsidiaries.
On January 18, 2019, the Company entered into a Fifth Amendment to the 2016 Credit Agreement, which provided
additional tranche A term loans in the original principal amount of $300.0 million. In addition, subject to certain conditions, the
Fifth Amendment provided delayed draw commitments for an incremental $275.0 million tranche A term loan and an incremental
$25.0 million of revolving credit commitments (subject to conversion of the delayed draw incremental tranche A term loan
commitments and incremental revolving credit commitments to commitments of the other type). On March 5, 2019, the Company
drew down this delayed draw commitment in order to fund the acquisition of Discovery Benefits, consisting of $250.0 million of
tranche A term loans and an incremental $50.0 million of revolving credit commitments.
On May 17, 2019, the Company entered into a Sixth Amendment to the 2016 Credit Agreement, which provided additional
tranche B term loans in the original principal amount of $150.0 million and extended the maturity date of tranche B term loans by
three years to May 2026. The maturity date of amounts due under the revolving credit facility and tranche A term loans of the 2016
Credit Agreement remained unchanged at July 2023.
On November 19, 2019, the Company entered into the Seventh Amendment to the Credit Agreement, which increased
commitments under the Company’s revolving credit facility from $770.0 million to $820.0 million. See Note 28, Related Party
Transaction, for further information regarding the incremental revolving loan lender under the Seventh Amendment.
As of December 31, 2019, after giving effect to amendments prior to such date, the 2016 Credit Agreement provides for
a secured tranche A term in an original principal amount of $1,030.0 million, a secured tranche B term loan in an original principal
amount of $1,485.0 million and an $820.0 million secured revolving credit facility, with a $250.0 million sublimit for letters of
credit and $20.0 million sublimit for swingline loans.
Prior to maturity, amounts borrowed under the tranche A and tranche B term loan facilities will be reduced by mandatory
quarterly payments of $12.5 million and $3.7 million, respectively.
The revolving loans and tranche A term loans outstanding under the 2016 Credit Agreement bear interest at variable rates,
at the Company’s option, plus an applicable margin ranging from 0.75% to 1.25% for base rate loans and 1.75% to 2.25% for
eurocurrency rate loans determined based on the Company’s consolidated leverage ratio, as defined in the 2016 Credit Agreement.
The tranche B term loans bear interest at a variable rate plus a margin equal to 1.25 percent for base rate loans and 2.25 percent
for eurocurrency rate loans. As of December 31, 2019 and 2018, amounts outstanding under the 2016 Credit Agreement bore a
weighted average effective interest rate of 4.0 percent and 4.7 percent, respectively. The Company maintains interest rate swap
agreements to manage the interest rate risk associated with its outstanding variable-interest rate borrowings under the 2016 Credit
Agreement. See Note 12, Derivative Instruments, for further discussion. In addition, the Company has agreed to pay a quarterly
commitment fee at a rate per annum ranging from 0.30% to 0.50% of the daily unused portion of the 2016 Credit Agreement
(0.40% at December 31, 2019) determined based on the consolidated leverage ratio.
The 2016 Credit Agreement requires the Company to prepay outstanding term loans, subject to certain exceptions:
solely with respect to the tranche B term loan facility, currently with 25% (subject to increase to 50% and
reduction to 0% based upon the Company’s consolidated leverage ratio) of the Company’s annual Excess Cash
Flow (as defined in the 2016 Credit Agreement);
•
•
•
The 2016 Credit Agreement, as amended, contains customary representations and warranties, as well as affirmative and
negative covenants. The 2016 Credit Agreement also requires, solely for the benefit of the lenders under the tranche A term loan
facility and the revolving credit facility, that the Company maintain at the end of each fiscal quarter the following financial ratios:
•
•
a consolidated EBITDA to consolidated interest charge coverage ratio of no less than 3.00 to 1.00; and
a consolidated leverage ratio, of consolidated funded indebtedness (excluding (i) up to $350 million of
consolidated funded indebtedness under permitted securitization transactions and (ii) the non-recourse portion
of any permitted factoring transaction, and netting up to $125.0 million of unrestricted cash and cash equivalents
denominated in U.S. dollars held by the Company and its subsidiaries) to consolidated EBITDA of, no more
than 5.00 to 1.00, at December 31, 2019, which ratio shall step down to 4.75 to 1.00 at December 31, 2020 and
4.5 to 1.0 at December 31, 2021 and thereafter.
See Note 26, Supplementary Regulatory Capital Disclosure, for further discussion.
Notes Outstanding
The Company has $400.0 million of 4.75 percent senior notes outstanding as of December 31, 2019 and 2018. The Notes
mature on February 1, 2023 and interest accrues at the rate of 4.750 percent per annum. Interest is payable semiannually in arrears
on February 1 and August 1 of each year. The Company may redeem the Notes at 100.792 percent of principal prior to February
1, 2021. After this date, there is no premium due upon redemption. Upon the occurrence of a change of control of the Company
(as defined in the Indenture to the Notes), the Company must offer to repurchase the Notes at 101 percent of the principal amount
of the Notes, plus accrued and unpaid interest, if any, up to the date of repurchase.
The Notes are guaranteed on a senior secured basis by each of the Company’s restricted subsidiaries and each of the
Company’s regulated subsidiaries that guaranteed the Company’s 2013 Credit Agreement. WEX Bank, is not a guarantor and is
not subject to many of the restrictive covenants in the indenture governing the Notes. The Notes and guarantees described above
are general senior secured obligations ranking equally with the Company’s existing and future senior debt, senior in right of
payment to all of the Company’s subordinated debt, and effectively equal in lien priority to the Company’s 2016 Credit Agreement.
In addition, the Notes and the guarantees are structurally subordinated to all liabilities of the Company’s subsidiaries that are not
guarantors, including WEX Bank.
Debt Issuance Costs
The Company accounted for the Fifth Amendment as a debt modification. The Company accounted for the Sixth
Amendment as both a debt modification and a partial debt extinguishment, and consequently recorded a loss on extinguishment
of debt of $1.3 million related to the write-off of unamortized debt issuance costs during 2019. The Company incurred and expensed
$10.6 million of third party costs associated with the Fifth and Sixth Amendments, which are classified within general and
administrative expenses in the consolidated statements of income during 2019. We expensed as incurred an insignificant amount
of costs resulting from the Seventh Amendment. During 2019, the Company also incurred and capitalized lender costs of $3.4
million associated with the Fifth Amendment and a debt discount of $11.0 million associated with the Sixth Amendment.
In 2018, the Company entered into the Third and Fourth Amendments to the 2016 Credit Agreement. The Third Amendment
was accounted for as both a debt modification and partial debt extinguishment, which caused us to record a loss on extinguishment
of debt of $1.1 million related to the write-off of unamortized debt issuance costs, while the Fourth Amendment was accounted
for as a debt modification. The Company incurred general and administrative expenses of $3.8 million related to third-party costs
associated with the Third and Fourth Amendments. The loss on extinguishment and third-party costs are reflected as financing
interest expense and general and administrative expenses, respectively. In addition, the Company incurred and capitalized $5.8
million of new debt issuance costs related to the Third and Fourth Amendments.
with 100% of the net cash proceeds of certain asset sales where the proceeds exceed certain thresholds, and
certain casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and
Debt issuance costs are being amortized into interest expense over the 2016 Credit Agreement’s remaining term using
the effective interest method for the tranche A and B term loans and the revolving credit facility.
with 100% of the net cash proceeds of any incurrence or issuance of certain debt, other than debt permitted under
the 2016 Credit Agreement.
The Company may voluntarily prepay outstanding loans from time to time, subject to certain conditions, without premium
or penalty other than customary “breakage” costs.
Debt Covenants
The 2016 Credit Agreement and the Indenture contain covenants that limit the Company and its subsidiaries’ ability and
the ability of its restricted subsidiaries and, in certain limited circumstances, WEX Bank and the Company’s other regulated
subsidiaries, to (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
97
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
2016 Credit Agreement
As of December 31, 2018, the 2016 Credit Agreement, as amended, provided for a secured tranche A term loan in an
original principal amount of $480.0 million, a secured tranche B term loan in an original principal amount of $1,335.0 million and
a $720.0 million secured revolving credit facility, with a $250.0 million sublimit for letters of credit and $20.0 million sublimit
for swingline loans. Under the 2016 Credit Agreement, the Company has granted a security interest in substantially all of the assets
of the Company, subject to exceptions including the assets of WEX Bank and certain foreign subsidiaries.
On January 18, 2019, the Company entered into a Fifth Amendment to the 2016 Credit Agreement, which provided
additional tranche A term loans in the original principal amount of $300.0 million. In addition, subject to certain conditions, the
Fifth Amendment provided delayed draw commitments for an incremental $275.0 million tranche A term loan and an incremental
$25.0 million of revolving credit commitments (subject to conversion of the delayed draw incremental tranche A term loan
commitments and incremental revolving credit commitments to commitments of the other type). On March 5, 2019, the Company
drew down this delayed draw commitment in order to fund the acquisition of Discovery Benefits, consisting of $250.0 million of
tranche A term loans and an incremental $50.0 million of revolving credit commitments.
On May 17, 2019, the Company entered into a Sixth Amendment to the 2016 Credit Agreement, which provided additional
tranche B term loans in the original principal amount of $150.0 million and extended the maturity date of tranche B term loans by
three years to May 2026. The maturity date of amounts due under the revolving credit facility and tranche A term loans of the 2016
Credit Agreement remained unchanged at July 2023.
On November 19, 2019, the Company entered into the Seventh Amendment to the Credit Agreement, which increased
commitments under the Company’s revolving credit facility from $770.0 million to $820.0 million. See Note 28, Related Party
Transaction, for further information regarding the incremental revolving loan lender under the Seventh Amendment.
As of December 31, 2019, after giving effect to amendments prior to such date, the 2016 Credit Agreement provides for
a secured tranche A term in an original principal amount of $1,030.0 million, a secured tranche B term loan in an original principal
amount of $1,485.0 million and an $820.0 million secured revolving credit facility, with a $250.0 million sublimit for letters of
credit and $20.0 million sublimit for swingline loans.
Prior to maturity, amounts borrowed under the tranche A and tranche B term loan facilities will be reduced by mandatory
quarterly payments of $12.5 million and $3.7 million, respectively.
The revolving loans and tranche A term loans outstanding under the 2016 Credit Agreement bear interest at variable rates,
at the Company’s option, plus an applicable margin ranging from 0.75% to 1.25% for base rate loans and 1.75% to 2.25% for
eurocurrency rate loans determined based on the Company’s consolidated leverage ratio, as defined in the 2016 Credit Agreement.
The tranche B term loans bear interest at a variable rate plus a margin equal to 1.25 percent for base rate loans and 2.25 percent
for eurocurrency rate loans. As of December 31, 2019 and 2018, amounts outstanding under the 2016 Credit Agreement bore a
weighted average effective interest rate of 4.0 percent and 4.7 percent, respectively. The Company maintains interest rate swap
agreements to manage the interest rate risk associated with its outstanding variable-interest rate borrowings under the 2016 Credit
Agreement. See Note 12, Derivative Instruments, for further discussion. In addition, the Company has agreed to pay a quarterly
commitment fee at a rate per annum ranging from 0.30% to 0.50% of the daily unused portion of the 2016 Credit Agreement
(0.40% at December 31, 2019) determined based on the consolidated leverage ratio.
The 2016 Credit Agreement requires the Company to prepay outstanding term loans, subject to certain exceptions:
solely with respect to the tranche B term loan facility, currently with 25% (subject to increase to 50% and
reduction to 0% based upon the Company’s consolidated leverage ratio) of the Company’s annual Excess Cash
Flow (as defined in the 2016 Credit Agreement);
The 2016 Credit Agreement, as amended, contains customary representations and warranties, as well as affirmative and
negative covenants. The 2016 Credit Agreement also requires, solely for the benefit of the lenders under the tranche A term loan
facility and the revolving credit facility, that the Company maintain at the end of each fiscal quarter the following financial ratios:
•
•
a consolidated EBITDA to consolidated interest charge coverage ratio of no less than 3.00 to 1.00; and
a consolidated leverage ratio, of consolidated funded indebtedness (excluding (i) up to $350 million of
consolidated funded indebtedness under permitted securitization transactions and (ii) the non-recourse portion
of any permitted factoring transaction, and netting up to $125.0 million of unrestricted cash and cash equivalents
denominated in U.S. dollars held by the Company and its subsidiaries) to consolidated EBITDA of, no more
than 5.00 to 1.00, at December 31, 2019, which ratio shall step down to 4.75 to 1.00 at December 31, 2020 and
4.5 to 1.0 at December 31, 2021 and thereafter.
See Note 26, Supplementary Regulatory Capital Disclosure, for further discussion.
Notes Outstanding
The Company has $400.0 million of 4.75 percent senior notes outstanding as of December 31, 2019 and 2018. The Notes
mature on February 1, 2023 and interest accrues at the rate of 4.750 percent per annum. Interest is payable semiannually in arrears
on February 1 and August 1 of each year. The Company may redeem the Notes at 100.792 percent of principal prior to February
1, 2021. After this date, there is no premium due upon redemption. Upon the occurrence of a change of control of the Company
(as defined in the Indenture to the Notes), the Company must offer to repurchase the Notes at 101 percent of the principal amount
of the Notes, plus accrued and unpaid interest, if any, up to the date of repurchase.
The Notes are guaranteed on a senior secured basis by each of the Company’s restricted subsidiaries and each of the
Company’s regulated subsidiaries that guaranteed the Company’s 2013 Credit Agreement. WEX Bank, is not a guarantor and is
not subject to many of the restrictive covenants in the indenture governing the Notes. The Notes and guarantees described above
are general senior secured obligations ranking equally with the Company’s existing and future senior debt, senior in right of
payment to all of the Company’s subordinated debt, and effectively equal in lien priority to the Company’s 2016 Credit Agreement.
In addition, the Notes and the guarantees are structurally subordinated to all liabilities of the Company’s subsidiaries that are not
guarantors, including WEX Bank.
Debt Issuance Costs
The Company accounted for the Fifth Amendment as a debt modification. The Company accounted for the Sixth
Amendment as both a debt modification and a partial debt extinguishment, and consequently recorded a loss on extinguishment
of debt of $1.3 million related to the write-off of unamortized debt issuance costs during 2019. The Company incurred and expensed
$10.6 million of third party costs associated with the Fifth and Sixth Amendments, which are classified within general and
administrative expenses in the consolidated statements of income during 2019. We expensed as incurred an insignificant amount
of costs resulting from the Seventh Amendment. During 2019, the Company also incurred and capitalized lender costs of $3.4
million associated with the Fifth Amendment and a debt discount of $11.0 million associated with the Sixth Amendment.
In 2018, the Company entered into the Third and Fourth Amendments to the 2016 Credit Agreement. The Third Amendment
was accounted for as both a debt modification and partial debt extinguishment, which caused us to record a loss on extinguishment
of debt of $1.1 million related to the write-off of unamortized debt issuance costs, while the Fourth Amendment was accounted
for as a debt modification. The Company incurred general and administrative expenses of $3.8 million related to third-party costs
associated with the Third and Fourth Amendments. The loss on extinguishment and third-party costs are reflected as financing
interest expense and general and administrative expenses, respectively. In addition, the Company incurred and capitalized $5.8
million of new debt issuance costs related to the Third and Fourth Amendments.
with 100% of the net cash proceeds of certain asset sales where the proceeds exceed certain thresholds, and
certain casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and
Debt issuance costs are being amortized into interest expense over the 2016 Credit Agreement’s remaining term using
the effective interest method for the tranche A and B term loans and the revolving credit facility.
with 100% of the net cash proceeds of any incurrence or issuance of certain debt, other than debt permitted under
Debt Covenants
the 2016 Credit Agreement.
The Company may voluntarily prepay outstanding loans from time to time, subject to certain conditions, without premium
or penalty other than customary “breakage” costs.
The 2016 Credit Agreement and the Indenture contain covenants that limit the Company and its subsidiaries’ ability and
the ability of its restricted subsidiaries and, in certain limited circumstances, WEX Bank and the Company’s other regulated
subsidiaries, to (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
97
98
•
•
•
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
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. These covenants are subject to important exceptions and qualifications. At any time that
the Notes are rated investment grade, which is not currently the case, and subject to certain conditions, certain covenants will be
suspended with respect to the Notes. WEX Bank and the Company’s other regulated subsidiaries will not be subject to some of
the restrictive covenants in the Indenture that place limitations on the Company and its restricted subsidiaries’ actions, and where
WEX Bank and the Company’s regulated subsidiaries are subject to covenants, there are significant exceptions and limitations on
the application of those covenants to WEX Bank and the Company’s regulated subsidiaries.
outstanding borrowings as of December 31, 2018. The average interest rate on borrowed federal funds was 2.36 percent and 2.15
percent for the years ended December 31, 2019 and 2018, respectively.
WEX Latin America Debt
WEX Latin America had debt of $2.7 million and $16.2 million as of December 31, 2019 and 2018, respectively. This is
comprised of credit facilities and loan arrangements related to the Company’s accounts receivable. These borrowings are recorded
in short-term debt, net. As of December 31, 2019 and 2018, the interest rate was 35.04% and 23.59%, respectively.
Australian Securitization Facility
Other
The Company maintains a securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd., which expires in
April 2020. Under the terms of the agreement, each month, on a revolving basis, the Company sells certain of its Australian
receivables to the Company’s Australian Securitization Subsidiary. The Australian Securitization Subsidiary, in turn, uses the
receivables as collateral to issue asset-backed commercial paper (“securitized debt”) for approximately 85 percent of the securitized
receivables. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for
general corporate purposes.
The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian
Bank Bill Rate plus an applicable margin. The interest rate was 1.80 percent and 2.89 percent as of December 31, 2019 and 2018,
respectively. The Company had securitized debt under this facility of $78.6 million and $87.0 million as of December 31, 2019
and 2018, respectively.
European Securitization Facility
On April 7, 2016, the Company entered into a five-year securitized debt agreement with the Bank of Tokyo-Mitsubishi
UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to its
European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue
securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available
for general corporate purposes. The amount of receivables to be securitized under this agreement is determined by management
on a monthly basis. The interest rate was 0.63 percent and 0.98 percent as of December 31, 2019 and 2018, respectively. The
Company had securitized debt under this facility of $25.7 million and $18.0 million as of December 31, 2019 and 2018, respectively.
Participation Debt
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. Associated unsecured borrowings carry a variable interest rate of
1 month to 3 month LIBOR plus a margin of 225 basis points.
The following table provides the amounts outstanding under the participation debt agreements in place:
(In thousands)
Short-term debt, net
Long-term debt, net
Average interest rate
December 31, 2019
December 31, 2018
Amounts
Available (1)
Amounts
Outstanding (1)
Remaining
Funding
Capacity
Amounts
Available (2)
Amounts
Outstanding (2)
$
$
80,000
—
80,000
50,000
—
50,000
4.17%
30,000
—
30,000
$
$
130,000
50,000
64,849
50,000
180,000
$
114,849
4.30%
Remaining
Funding
Capacity
$
$
$
65,151
—
65,151
(1) Amounts available and outstanding under agreement terminating on August 31, 2020 as to $50 million and on demand as to $30 million.
(2) Amounts available under agreements terminating on June 30, 2019 and August 31, 2020 as to $50 million each, and on demand as to $80 million. Amounts
outstanding under agreements terminating on demand as to $14.8 million and on June 30, 2019 and August 31, 2020 as to $50 million each.
Borrowed Federal Funds
WEX Bank borrows from uncommitted federal funds lines to supplement the financing of its accounts receivable. As of
December 31, 2019 and 2018, the Company’s federal funds available lines of credit were $355.0 million and $309.0 million,
respectively. There were $35.0 million of outstanding borrowings as of December 31, 2019 (matured January 14, 2020) and no
As of December 31, 2019, WEX Bank pledged $318.3 million of fleet receivables held by WEX Bank to the Federal
Reserve Bank as collateral for potential borrowings, through the Federal Reserve Bank Discount Window. Amounts that can be
borrowed are based on the amount of collateral pledged and were $269.1 million as of December 31, 2019. WEX Bank had no
borrowings outstanding on this line of credit through the Federal Reserve Bank Discount Window as of December 31, 2019 and
December 31, 2018.
The table below summarizes the Company’s annual principal payments on its total debt for each of the next five years:
$
$
$
$
$
256,529
64,611
64,611
1,188,598
14,681
Debt Commitments
2020
2021
2022
2023
2024
17.
Tax Receivable Agreement
As a consequence of the Company’s separation from its former parent company in 2005, the tax basis of the Company’s
net tangible and intangible assets increased, reducing the amount of tax that the Company would pay in the future to the extent
the Company generated taxable income in sufficient amounts. The Company is contractually obligated to remit a portion of any
such cash savings to a third party.
The estimated amounts of future payments owed were $3.7 million at December 31, 2019 and $13.6 million at December
31, 2018, which are included within accrued expenses and other liabilities on the consolidated balance sheets based on the timing
of payment. There has been a reassessment of the estimate for each period presented. For the years ended December 31, 2019 and
2018, the net future benefits decreased and increased, respectively, which decreased and increased the associated liability,
respectively, resulting in an off-set to non-operating expense of $0.9 million and $0.8 million, respectively. For the year ended
December 31, 2017, the net future benefits decreased, primarily as a result of the decline in the Federal statutory tax rate as part
of the 2017 Tax Act, which decreased the associated liability, resulting in an off-set of $15.3 million to non-operating expense. In
addition, the liability decreased due to payments of $8.9 million and $7.5 million made during the years ended December 31, 2019
and 2018, respectively.
18.
Employee Benefit Plans
The Company sponsors a 401(k) retirement and savings plan for U.S. employees. Eligible employees may participate in
the plan immediately. The Company’s employees who are at least 18 years of age and have completed one year of service are
eligible for Company matching contributions in the plan. The Company matches 100 percent of each employee’s contributions up
to a maximum of 6 percent of each employee’s eligible compensation. All contributions vest immediately. WEX has the right to
discontinue the plan at any time. Contributions to the plan are voluntary. The Company contributed $10.0 million, $8.0 million
and $6.7 million in matching funds to the plan for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company also sponsors deferred compensation plans for certain employees designated by the Company. Participants
may elect to defer receipt of designated percentages or amounts of their compensation. The Company maintains a grantor’s trust
to hold the assets under these plans. The related obligations totaled $8.0 million and $6.4 million at December 31, 2019 and 2018,
respectively, and are included in other current liabilities and other liabilities on the consolidated balance sheets. The assets are
99
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
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. These covenants are subject to important exceptions and qualifications. At any time that
the Notes are rated investment grade, which is not currently the case, and subject to certain conditions, certain covenants will be
suspended with respect to the Notes. WEX Bank and the Company’s other regulated subsidiaries will not be subject to some of
the restrictive covenants in the Indenture that place limitations on the Company and its restricted subsidiaries’ actions, and where
WEX Bank and the Company’s regulated subsidiaries are subject to covenants, there are significant exceptions and limitations on
the application of those covenants to WEX Bank and the Company’s regulated subsidiaries.
outstanding borrowings as of December 31, 2018. The average interest rate on borrowed federal funds was 2.36 percent and 2.15
percent for the years ended December 31, 2019 and 2018, respectively.
WEX Latin America Debt
WEX Latin America had debt of $2.7 million and $16.2 million as of December 31, 2019 and 2018, respectively. This is
comprised of credit facilities and loan arrangements related to the Company’s accounts receivable. These borrowings are recorded
in short-term debt, net. As of December 31, 2019 and 2018, the interest rate was 35.04% and 23.59%, respectively.
Australian Securitization Facility
Other
The Company maintains a securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd., which expires in
April 2020. Under the terms of the agreement, each month, on a revolving basis, the Company sells certain of its Australian
receivables to the Company’s Australian Securitization Subsidiary. The Australian Securitization Subsidiary, in turn, uses the
receivables as collateral to issue asset-backed commercial paper (“securitized debt”) for approximately 85 percent of the securitized
receivables. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for
general corporate purposes.
The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian
Bank Bill Rate plus an applicable margin. The interest rate was 1.80 percent and 2.89 percent as of December 31, 2019 and 2018,
respectively. The Company had securitized debt under this facility of $78.6 million and $87.0 million as of December 31, 2019
and 2018, respectively.
European Securitization Facility
On April 7, 2016, the Company entered into a five-year securitized debt agreement with the Bank of Tokyo-Mitsubishi
UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to its
European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue
securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available
for general corporate purposes. The amount of receivables to be securitized under this agreement is determined by management
on a monthly basis. The interest rate was 0.63 percent and 0.98 percent as of December 31, 2019 and 2018, respectively. The
Company had securitized debt under this facility of $25.7 million and $18.0 million as of December 31, 2019 and 2018, respectively.
Participation Debt
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. Associated unsecured borrowings carry a variable interest rate of
1 month to 3 month LIBOR plus a margin of 225 basis points.
The following table provides the amounts outstanding under the participation debt agreements in place:
(In thousands)
Short-term debt, net
Long-term debt, net
Average interest rate
Borrowed Federal Funds
December 31, 2019
December 31, 2018
Amounts
Available (1)
Amounts
Outstanding (1)
Amounts
Available (2)
Amounts
Outstanding (2)
Remaining
Funding
Capacity
$
$
80,000
—
80,000
30,000
—
30,000
$
$
130,000
50,000
64,849
50,000
180,000
$
114,849
Remaining
Funding
Capacity
$
$
$
65,151
—
65,151
(1) Amounts available and outstanding under agreement terminating on August 31, 2020 as to $50 million and on demand as to $30 million.
(2) Amounts available under agreements terminating on June 30, 2019 and August 31, 2020 as to $50 million each, and on demand as to $80 million. Amounts
outstanding under agreements terminating on demand as to $14.8 million and on June 30, 2019 and August 31, 2020 as to $50 million each.
4.30%
WEX Bank borrows from uncommitted federal funds lines to supplement the financing of its accounts receivable. As of
December 31, 2019 and 2018, the Company’s federal funds available lines of credit were $355.0 million and $309.0 million,
respectively. There were $35.0 million of outstanding borrowings as of December 31, 2019 (matured January 14, 2020) and no
50,000
—
50,000
4.17%
99
As of December 31, 2019, WEX Bank pledged $318.3 million of fleet receivables held by WEX Bank to the Federal
Reserve Bank as collateral for potential borrowings, through the Federal Reserve Bank Discount Window. Amounts that can be
borrowed are based on the amount of collateral pledged and were $269.1 million as of December 31, 2019. WEX Bank had no
borrowings outstanding on this line of credit through the Federal Reserve Bank Discount Window as of December 31, 2019 and
December 31, 2018.
Debt Commitments
The table below summarizes the Company’s annual principal payments on its total debt for each of the next five years:
2020
2021
2022
2023
2024
17.
Tax Receivable Agreement
$
$
$
$
$
256,529
64,611
64,611
1,188,598
14,681
As a consequence of the Company’s separation from its former parent company in 2005, the tax basis of the Company’s
net tangible and intangible assets increased, reducing the amount of tax that the Company would pay in the future to the extent
the Company generated taxable income in sufficient amounts. The Company is contractually obligated to remit a portion of any
such cash savings to a third party.
The estimated amounts of future payments owed were $3.7 million at December 31, 2019 and $13.6 million at December
31, 2018, which are included within accrued expenses and other liabilities on the consolidated balance sheets based on the timing
of payment. There has been a reassessment of the estimate for each period presented. For the years ended December 31, 2019 and
2018, the net future benefits decreased and increased, respectively, which decreased and increased the associated liability,
respectively, resulting in an off-set to non-operating expense of $0.9 million and $0.8 million, respectively. For the year ended
December 31, 2017, the net future benefits decreased, primarily as a result of the decline in the Federal statutory tax rate as part
of the 2017 Tax Act, which decreased the associated liability, resulting in an off-set of $15.3 million to non-operating expense. In
addition, the liability decreased due to payments of $8.9 million and $7.5 million made during the years ended December 31, 2019
and 2018, respectively.
18.
Employee Benefit Plans
The Company sponsors a 401(k) retirement and savings plan for U.S. employees. Eligible employees may participate in
the plan immediately. The Company’s employees who are at least 18 years of age and have completed one year of service are
eligible for Company matching contributions in the plan. The Company matches 100 percent of each employee’s contributions up
to a maximum of 6 percent of each employee’s eligible compensation. All contributions vest immediately. WEX has the right to
discontinue the plan at any time. Contributions to the plan are voluntary. The Company contributed $10.0 million, $8.0 million
and $6.7 million in matching funds to the plan for the years ended December 31, 2019, 2018 and 2017, respectively.
The Company also sponsors deferred compensation plans for certain employees designated by the Company. Participants
may elect to defer receipt of designated percentages or amounts of their compensation. The Company maintains a grantor’s trust
to hold the assets under these plans. The related obligations totaled $8.0 million and $6.4 million at December 31, 2019 and 2018,
respectively, and are included in other current liabilities and other liabilities on the consolidated balance sheets. The assets are
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
recorded at fair value, based on quoted prices for identical instruments in active markets, with any changes recorded currently to
earnings and are included in prepaid expenses and other current assets and other assets on the consolidated balance sheets. Refer
to Note 19, Fair Value, for further information.
and asset-backed debt securities and municipal bonds, the Company generally uses quoted prices for recent trading activity of
assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods
are generally valued using Level 2 inputs.
The Company has defined benefit pension plans in several European countries. The total net unfunded status for the
Company’s foreign defined benefit pension plans was $5.9 million and $5.4 million as of December 31, 2019 and 2018, respectively.
These obligations are recorded in other current liabilities and other liabilities in the consolidated balance sheets. The Company
measures these plan obligations on an annual basis. The change in fair value to the defined benefit pension plans is recorded
through the consolidated statements of income. The expense under each of these defined benefit pension plans for 2019, 2018 and
2017 was not material to the consolidated financial statements.
19.
Fair Value
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Pooled Investment Fund
(In thousands)
Fair Value
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Pooled investment fund, as of December 31, 2019
$
5,000
—
Monthly
30 days
The pooled investment fund is a Community Reinvestment Act-eligible investment fund, which seeks to provide current
income consistent with the returns available in adjustable-rate government guaranteed financial products by investing in Community
Development loans guaranteed by the Small Business Administration. The fund maintains individual capital accounts for each
investor, which reflect each individual investor’s share of the NAV of the fund.
The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis:
Executive Deferred Compensation Plan Trust
(In thousands)
Financial Assets:
Money market funds(a)
Investment securities
Municipal bonds
Asset-backed securities
Mortgage-backed securities
Pooled investment fund measured at net asset value(e)
Fixed-income mutual fund
Total investment securities
Executive deferred compensation plan trust(b)
Interest rate swaps(c)
Liabilities:
Interest rate swaps(d)
Fair Value
Hierarchy
December 31,
2019
2018
223,217
302
247
174
5,000
24,737
30,460
7,965
2,395
$
$
$
$
$
71,228
404
279
260
—
23,463
24,406
6,398
17,994
1
2
2
2
1
1
2
2
$
$
$
$
$
$
The investments held in the executive deferred compensation plan trust are classified as Level 1 in the fair value hierarchy
because the fair value is determined using quoted prices for identical instruments in active markets.
Interest Rate Swaps
The Company determines the fair value of its interest rate swaps based on the discounted cash flows of the difference
between the projected fixed payments on the swaps and the implied floating payments using the current LIBOR curve, which are
Level 2 inputs of the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company had no assets and liabilities measured on a non-recurring basis during the year ended December 31, 2019.
See Note 24, Impairment and Restructuring Activities, for assets and liabilities measured at fair value on a non-recurring basis for
the years ended December 31, 2018 and 2017, and the related impairment charges recorded.
Assets and Liabilities Measured at Carrying Value, for which Fair Value is Disclosed
19,764
$
—
Notes Outstanding
(a) The fair value is recorded in cash and cash equivalents.
(b) The fair value is recorded in prepaid expenses and other current assets and other assets based on the timing of payment obligations. At December 31, 2019, $0.9
million and $7.0 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. At December 31, 2018, $0.8
million and $5.6 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively.
(c) The fair value is recorded as a current or long-term asset depending on the timing of expected discounted cash flows. At December 31, 2019 and 2018, $2.4
million and $8.8 million of fair value, respectively, is recorded within prepaid expenses and other current assets. At December 31, 2018, $9.2 million of fair value
is recorded within other assets.
(d) The fair value is recorded in other current liabilities or other liabilities depending on the timing of expected discounted cash flows. At December 31, 2019, $6.7
million and $13.1 million of fair value is recorded within other current liabilities and other liabilities, respectively.
(e) The fair value of this security is measured at net asset value as a practical expedient and has not been classified within the fair value hierarchy. The fair value
amount presented in this table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
Money Market Funds
A portion of the Company’s cash and cash equivalents are invested in money market funds that primarily consist of short-
term government securities, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market
prices in an active market.
Investment Securities
When available, the Company uses quoted market prices to determine the fair value of investment securities; such inputs
are classified as Level 1 of the fair-value hierarchy. These securities primarily consist of an open-ended mutual fund, which is
invested in fixed-income securities and is held in order to satisfy the regulatory requirements of WEX Bank. For mortgage-backed
The Company determines the fair value of the Notes based on market rates for the issuance of our debt, which are classified
as Level 2 in the fair value hierarchy. As of both December 31, 2019 and 2018, the carrying value of the Notes approximated fair
value.
2016 Credit Agreement
The Company determines the fair value of the amount outstanding under its 2016 Credit Agreement based on the market
rates for the issuance of the Company’s debt, which are Level 2 inputs in the fair value hierarchy. As of both December 31, 2019
and 2018, the carrying value of the 2016 Credit Agreement approximated fair value.
Other Assets and Liabilities
Our financial instruments, other than those presented above, include cash, cash equivalents, restricted cash, accounts
receivable, accounts payable, accrued expenses and other liabilities. The carrying values of such assets and liabilities approximate
their respective fair values due to their short-term nature. The carrying values of certificates of deposit, interest-bearing brokered
money market deposits, securitized debt, participation debt and borrowed federal funds approximate their respective fair values
as the interest rates on these financial instruments are variable market-based rates. All other financial instruments are reflected at
fair value on the consolidated balance sheets.
101
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
recorded at fair value, based on quoted prices for identical instruments in active markets, with any changes recorded currently to
earnings and are included in prepaid expenses and other current assets and other assets on the consolidated balance sheets. Refer
to Note 19, Fair Value, for further information.
and asset-backed debt securities and municipal bonds, the Company generally uses quoted prices for recent trading activity of
assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods
are generally valued using Level 2 inputs.
The Company has defined benefit pension plans in several European countries. The total net unfunded status for the
Company’s foreign defined benefit pension plans was $5.9 million and $5.4 million as of December 31, 2019 and 2018, respectively.
These obligations are recorded in other current liabilities and other liabilities in the consolidated balance sheets. The Company
measures these plan obligations on an annual basis. The change in fair value to the defined benefit pension plans is recorded
through the consolidated statements of income. The expense under each of these defined benefit pension plans for 2019, 2018 and
2017 was not material to the consolidated financial statements.
19.
Fair Value
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Pooled Investment Fund
(In thousands)
Fair Value
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Pooled investment fund, as of December 31, 2019
$
5,000
—
Monthly
30 days
The pooled investment fund is a Community Reinvestment Act-eligible investment fund, which seeks to provide current
income consistent with the returns available in adjustable-rate government guaranteed financial products by investing in Community
Development loans guaranteed by the Small Business Administration. The fund maintains individual capital accounts for each
investor, which reflect each individual investor’s share of the NAV of the fund.
The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis:
Executive Deferred Compensation Plan Trust
(In thousands)
Financial Assets:
Money market funds(a)
Investment securities
Municipal bonds
Asset-backed securities
Mortgage-backed securities
Pooled investment fund measured at net asset value(e)
Fixed-income mutual fund
Total investment securities
Executive deferred compensation plan trust(b)
Interest rate swaps(c)
Liabilities:
Interest rate swaps(d)
Fair Value
Hierarchy
December 31,
2019
2018
The investments held in the executive deferred compensation plan trust are classified as Level 1 in the fair value hierarchy
because the fair value is determined using quoted prices for identical instruments in active markets.
223,217
71,228
Interest Rate Swaps
404
279
260
—
23,463
24,406
6,398
17,994
The Company determines the fair value of its interest rate swaps based on the discounted cash flows of the difference
between the projected fixed payments on the swaps and the implied floating payments using the current LIBOR curve, which are
Level 2 inputs of the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company had no assets and liabilities measured on a non-recurring basis during the year ended December 31, 2019.
See Note 24, Impairment and Restructuring Activities, for assets and liabilities measured at fair value on a non-recurring basis for
the years ended December 31, 2018 and 2017, and the related impairment charges recorded.
Assets and Liabilities Measured at Carrying Value, for which Fair Value is Disclosed
19,764
$
—
Notes Outstanding
1
2
2
2
1
1
2
2
$
$
$
$
$
302
247
174
5,000
24,737
30,460
7,965
2,395
$
$
$
$
$
$
(a) The fair value is recorded in cash and cash equivalents.
(b) The fair value is recorded in prepaid expenses and other current assets and other assets based on the timing of payment obligations. At December 31, 2019, $0.9
million and $7.0 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. At December 31, 2018, $0.8
million and $5.6 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively.
(c) The fair value is recorded as a current or long-term asset depending on the timing of expected discounted cash flows. At December 31, 2019 and 2018, $2.4
million and $8.8 million of fair value, respectively, is recorded within prepaid expenses and other current assets. At December 31, 2018, $9.2 million of fair value
is recorded within other assets.
(d) The fair value is recorded in other current liabilities or other liabilities depending on the timing of expected discounted cash flows. At December 31, 2019, $6.7
million and $13.1 million of fair value is recorded within other current liabilities and other liabilities, respectively.
(e) The fair value of this security is measured at net asset value as a practical expedient and has not been classified within the fair value hierarchy. The fair value
amount presented in this table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
A portion of the Company’s cash and cash equivalents are invested in money market funds that primarily consist of short-
term government securities, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market
Money Market Funds
prices in an active market.
Investment Securities
When available, the Company uses quoted market prices to determine the fair value of investment securities; such inputs
are classified as Level 1 of the fair-value hierarchy. These securities primarily consist of an open-ended mutual fund, which is
invested in fixed-income securities and is held in order to satisfy the regulatory requirements of WEX Bank. For mortgage-backed
The Company determines the fair value of the Notes based on market rates for the issuance of our debt, which are classified
as Level 2 in the fair value hierarchy. As of both December 31, 2019 and 2018, the carrying value of the Notes approximated fair
value.
2016 Credit Agreement
The Company determines the fair value of the amount outstanding under its 2016 Credit Agreement based on the market
rates for the issuance of the Company’s debt, which are Level 2 inputs in the fair value hierarchy. As of both December 31, 2019
and 2018, the carrying value of the 2016 Credit Agreement approximated fair value.
Other Assets and Liabilities
Our financial instruments, other than those presented above, include cash, cash equivalents, restricted cash, accounts
receivable, accounts payable, accrued expenses and other liabilities. The carrying values of such assets and liabilities approximate
their respective fair values due to their short-term nature. The carrying values of certificates of deposit, interest-bearing brokered
money market deposits, securitized debt, participation debt and borrowed federal funds approximate their respective fair values
as the interest rates on these financial instruments are variable market-based rates. All other financial instruments are reflected at
fair value on the consolidated balance sheets.
101
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
20.
Redeemable Non-Controlling Interest
Unfunded Commitment
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator. The seller of Discovery
Benefits obtained a 4.9 percent equity interest in the newly formed parent company of WEX Health and Discovery Benefits (the
“U.S. Health business”). The seller’s 4.9 percent non-controlling interest in the U.S. Health business was initially established at
both carrying value and fair value. On the date of acquisition, the excess of the fair value of the 4.9 percent equity interest in WEX
Health over its carrying value was recognized as an equity transaction, resulting in a $41.4 million increase to additional paid-in
capital.
The agreement provides the seller with a put right and the Company with a call right for the equity interest, which can
be exercised no earlier than seven years following the date of acquisition, respectively. Upon exercise of the put or call right, the
purchase price is calculated based on a revenue multiple of peer companies (as described in the operating agreement for the U.S.
Health business) applied to trailing twelve month revenues of the U.S. Health business. The put option makes the non-controlling
interest redeemable and, therefore, the non-controlling interest is classified as temporary equity outside of stockholders’ equity.
The redeemable non-controlling interest is reported at the higher of its redemption value or the non-controlling interest holder’s
proportionate share of the U.S. Health business’ net carrying value.
Subsequent remeasurement of the equity interest to fair value during the first quarter of 2019 resulted in an increase to
redeemable non-controlling interest of $41.4 million and an offsetting decrease to retained earnings that did not impact earnings
per share. During the year ended December 31, 2019, we recalculated the redeemable non-controlling interest using revenue
multiples as determined in accordance with the operating agreement for the U.S. Health business and described above, resulting
in a $57.3 million increase to the redeemable non-controlling interest. The adjustment reduced both retained earnings and earnings
per share attributable to shareholders for the year ended December 31, 2019. Subsequent increases or decreases in the redemption
value of the non-controlling interest will be offset against retained earnings and impact earnings per share.
The following table presents the changes in the Company’s redeemable non-controlling interest:
(In thousands)
Balance, beginning of year
Acquisition of Discovery Benefits at fair value
Establishing redeemable non-controlling interest for WEX Health at carrying value
Adjustment to redeemable non-controlling interest to reflect WEX Health at fair value
Net loss attributable to redeemable non-controlling interest
Accretion of non-controlling interest
Balance, end of year
$
$
Year Ended December 31, 2019
—
25,757
32,843
41,400
(436)
57,315
156,879
21.
Commitments and Contingencies
Litigation
The Company is subject to legal proceedings and claims in the ordinary course of business. As of the date of this filing,
the current estimate of a reasonably possible loss contingency from all legal proceedings is not material to the Company’s
consolidated financial position, results of operations, cash flows or liquidity.
Extension of Credit to Customers
We have entered into commitments to extend credit in the ordinary course of business. We had approximately $9.5 billion
of unused commitments to extend credit at December 31, 2019, as part of established customer agreements. These amounts may
increase or decrease during 2020 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.
As a member bank, we have committed to funding a maximum of $7.0 million of loans to a nonprofit, community
development financial institution to facilitate their offering of flexible financing for affordable, quality housing to assist Utah’s
low and moderate-income residents. As of December 31, 2019, the Company has funded $2.4 million of its commitment, which
has been included on the consolidated balance sheet within accounts receivable. The Company’s remaining unused commitment
as of December 31, 2019 is $4.6 million.
Minimum Volume Purchase and Spend Commitments
Two of the Company’s subsidiaries are required to purchase a minimum amount of fuel from suppliers on an annual basis
through 2024. Should the Company fail to meet these minimum volume commitments, a penalty will be assessed as defined under
the contracts. If the Company does not purchase any fuel under these commitments after December 31, 2019, it would incur
penalties totaling approximately $49.6 million through 2024. The Company did not incur any shortfall penalties under these
contracts during the year ended December 31, 2019. During the year ended December 31, 2018, the Company incurred $1.6 million
in shortfall penalties under these contracts. The Company considers the associated risk of loss to be remote based on current
operations.
The Company is subject to minimum annual spend commitments as part of negotiated contracts for certain IT and non-
IT related services through 2023. Minimum spend commitments under these contracts as of December 31, 2019 total $23.0 million
in the aggregate, with $6.0 million in 2020, $10.2 million in 2021, $6.4 million in 2022 and $0.3 million in 2023.
22.
Dividend Restrictions
The Company has certain restrictions on the dividends it may pay including those under the 2016 Credit Agreement. The
2016 Credit Agreement does allow us to make certain restricted payments (including dividends) if we are able to demonstrate pro
forma compliance with a consolidated leverage ratio, as defined in the 2016 Credit Agreement, of no more than 2.50:1.00 for the
most recent period of four fiscal quarters after execution of a restricted payment. Additionally, as long as the Company would be
in compliance with its interest charge coverage ratio and its maximum consolidated leverage ratio after giving pro forma effect to
such restricted payment, the Company may pay $50 million per annum for restricted payments, including dividends, of which
100% of unused amounts may be carried over into subsequent years. In addition, the purchase agreement that the Company entered
into on January 24, 2020 for the acquisition of eNett and Optal prohibits the Company from declaring or paying dividends without
the prior written consent of the sellers prior to the closing of the acquisition. See Note 29, Subsequent Event, for more information
regarding this purchase agreement. The Company has not declared any dividends on its common stock since it commenced trading
on the NYSE on February 16, 2005.
Dividends paid by WEX Bank have provided a substantial part of the Company’s operating funds and for the foreseeable
future it is anticipated that dividends paid by WEX Bank will continue to be a source of operating funds to the Company. Capital
adequacy requirements serve to limit the amount of dividends that may be paid by WEX Bank. WEX Bank is chartered under the
laws of the State of Utah and the FDIC insures its deposits. Under Utah law, WEX Bank may only pay a dividend out of net profits
after it has (i) provided for all expenses, losses, interest and taxes accrued or due from WEX Bank and (ii) transferred to a surplus
fund 10 percent of its net profits before dividends for the period covered by the dividend, until the surplus reaches 100 percent of
its capital stock. For purposes of these Utah dividend limitations, WEX Bank’s capital stock is $5.3 million and its capital surplus
exceeds 100 percent of capital stock.
Under FDIC regulations, WEX Bank may not pay any dividend if, following the payment of the dividend, WEX Bank
would be “undercapitalized,” as defined under the Federal Deposit Insurance Act and applicable regulations. The FDIC also has
the authority to prohibit WEX Bank from engaging in business practices that the FDIC considers to be unsafe or unsound, which,
depending on the financial condition of WEX Bank, could include the payment of dividends.
WEX Bank complied with the aforementioned dividend restrictions for each of the years ended December 31, 2019, 2018
and 2017.
23.
Stock-Based Compensation
On May 9, 2019, our stockholders approved the WEX Inc. 2019 Equity and Incentive Plan (the “Plan”), which replaced
our 2010 Equity and Incentive Plan (the “Prior Plan”). Upon the expiration of the Prior Plan on May 20, 2020, all then outstanding
103
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
20.
Redeemable Non-Controlling Interest
Unfunded Commitment
On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator. The seller of Discovery
Benefits obtained a 4.9 percent equity interest in the newly formed parent company of WEX Health and Discovery Benefits (the
“U.S. Health business”). The seller’s 4.9 percent non-controlling interest in the U.S. Health business was initially established at
both carrying value and fair value. On the date of acquisition, the excess of the fair value of the 4.9 percent equity interest in WEX
Health over its carrying value was recognized as an equity transaction, resulting in a $41.4 million increase to additional paid-in
capital.
The agreement provides the seller with a put right and the Company with a call right for the equity interest, which can
be exercised no earlier than seven years following the date of acquisition, respectively. Upon exercise of the put or call right, the
purchase price is calculated based on a revenue multiple of peer companies (as described in the operating agreement for the U.S.
Health business) applied to trailing twelve month revenues of the U.S. Health business. The put option makes the non-controlling
interest redeemable and, therefore, the non-controlling interest is classified as temporary equity outside of stockholders’ equity.
The redeemable non-controlling interest is reported at the higher of its redemption value or the non-controlling interest holder’s
proportionate share of the U.S. Health business’ net carrying value.
Subsequent remeasurement of the equity interest to fair value during the first quarter of 2019 resulted in an increase to
redeemable non-controlling interest of $41.4 million and an offsetting decrease to retained earnings that did not impact earnings
per share. During the year ended December 31, 2019, we recalculated the redeemable non-controlling interest using revenue
multiples as determined in accordance with the operating agreement for the U.S. Health business and described above, resulting
in a $57.3 million increase to the redeemable non-controlling interest. The adjustment reduced both retained earnings and earnings
per share attributable to shareholders for the year ended December 31, 2019. Subsequent increases or decreases in the redemption
value of the non-controlling interest will be offset against retained earnings and impact earnings per share.
The following table presents the changes in the Company’s redeemable non-controlling interest:
(In thousands)
Balance, beginning of year
Acquisition of Discovery Benefits at fair value
Establishing redeemable non-controlling interest for WEX Health at carrying value
Adjustment to redeemable non-controlling interest to reflect WEX Health at fair value
Net loss attributable to redeemable non-controlling interest
Accretion of non-controlling interest
Balance, end of year
$
$
Year Ended December 31, 2019
—
25,757
32,843
41,400
(436)
57,315
156,879
21.
Commitments and Contingencies
Litigation
The Company is subject to legal proceedings and claims in the ordinary course of business. As of the date of this filing,
the current estimate of a reasonably possible loss contingency from all legal proceedings is not material to the Company’s
consolidated financial position, results of operations, cash flows or liquidity.
Extension of Credit to Customers
We have entered into commitments to extend credit in the ordinary course of business. We had approximately $9.5 billion
of unused commitments to extend credit at December 31, 2019, as part of established customer agreements. These amounts may
increase or decrease during 2020 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.
As a member bank, we have committed to funding a maximum of $7.0 million of loans to a nonprofit, community
development financial institution to facilitate their offering of flexible financing for affordable, quality housing to assist Utah’s
low and moderate-income residents. As of December 31, 2019, the Company has funded $2.4 million of its commitment, which
has been included on the consolidated balance sheet within accounts receivable. The Company’s remaining unused commitment
as of December 31, 2019 is $4.6 million.
Minimum Volume Purchase and Spend Commitments
Two of the Company’s subsidiaries are required to purchase a minimum amount of fuel from suppliers on an annual basis
through 2024. Should the Company fail to meet these minimum volume commitments, a penalty will be assessed as defined under
the contracts. If the Company does not purchase any fuel under these commitments after December 31, 2019, it would incur
penalties totaling approximately $49.6 million through 2024. The Company did not incur any shortfall penalties under these
contracts during the year ended December 31, 2019. During the year ended December 31, 2018, the Company incurred $1.6 million
in shortfall penalties under these contracts. The Company considers the associated risk of loss to be remote based on current
operations.
The Company is subject to minimum annual spend commitments as part of negotiated contracts for certain IT and non-
IT related services through 2023. Minimum spend commitments under these contracts as of December 31, 2019 total $23.0 million
in the aggregate, with $6.0 million in 2020, $10.2 million in 2021, $6.4 million in 2022 and $0.3 million in 2023.
22.
Dividend Restrictions
The Company has certain restrictions on the dividends it may pay including those under the 2016 Credit Agreement. The
2016 Credit Agreement does allow us to make certain restricted payments (including dividends) if we are able to demonstrate pro
forma compliance with a consolidated leverage ratio, as defined in the 2016 Credit Agreement, of no more than 2.50:1.00 for the
most recent period of four fiscal quarters after execution of a restricted payment. Additionally, as long as the Company would be
in compliance with its interest charge coverage ratio and its maximum consolidated leverage ratio after giving pro forma effect to
such restricted payment, the Company may pay $50 million per annum for restricted payments, including dividends, of which
100% of unused amounts may be carried over into subsequent years. In addition, the purchase agreement that the Company entered
into on January 24, 2020 for the acquisition of eNett and Optal prohibits the Company from declaring or paying dividends without
the prior written consent of the sellers prior to the closing of the acquisition. See Note 29, Subsequent Event, for more information
regarding this purchase agreement. The Company has not declared any dividends on its common stock since it commenced trading
on the NYSE on February 16, 2005.
Dividends paid by WEX Bank have provided a substantial part of the Company’s operating funds and for the foreseeable
future it is anticipated that dividends paid by WEX Bank will continue to be a source of operating funds to the Company. Capital
adequacy requirements serve to limit the amount of dividends that may be paid by WEX Bank. WEX Bank is chartered under the
laws of the State of Utah and the FDIC insures its deposits. Under Utah law, WEX Bank may only pay a dividend out of net profits
after it has (i) provided for all expenses, losses, interest and taxes accrued or due from WEX Bank and (ii) transferred to a surplus
fund 10 percent of its net profits before dividends for the period covered by the dividend, until the surplus reaches 100 percent of
its capital stock. For purposes of these Utah dividend limitations, WEX Bank’s capital stock is $5.3 million and its capital surplus
exceeds 100 percent of capital stock.
Under FDIC regulations, WEX Bank may not pay any dividend if, following the payment of the dividend, WEX Bank
would be “undercapitalized,” as defined under the Federal Deposit Insurance Act and applicable regulations. The FDIC also has
the authority to prohibit WEX Bank from engaging in business practices that the FDIC considers to be unsafe or unsound, which,
depending on the financial condition of WEX Bank, could include the payment of dividends.
WEX Bank complied with the aforementioned dividend restrictions for each of the years ended December 31, 2019, 2018
and 2017.
23.
Stock-Based Compensation
On May 9, 2019, our stockholders approved the WEX Inc. 2019 Equity and Incentive Plan (the “Plan”), which replaced
our 2010 Equity and Incentive Plan (the “Prior Plan”). Upon the expiration of the Prior Plan on May 20, 2020, all then outstanding
103
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
awards will remain in effect, but no additional awards may be made under the Prior Plan. The Plan permits the grant of stock
options, stock appreciation rights, restricted stock, restricted stock units and other stock-based or cash-based awards to non-
employee directors, officers, employees, advisors or consultants. The Plans permit the Company to grant a total number of shares
which is the sum of; (i) 3.7 million shares of common stock; plus (ii) such additional number of shares of common stock (up to
1.5 million) as is equal to the number of shares of common stock subject to awards granted under the Prior Plan. There were 3.6
million units of common stock available for grant for future equity compensation awards under the Plan at December 31, 2019.
As of December 31, 2019, the Company had four stock-based compensation award types, which are described below.
The compensation cost that has been charged against income for these programs totals $45.6 million, $33.9 million and $30.5
million for 2019, 2018 and 2017, respectively. In connection with the Noventis acquisition, we recognized an additional $5.5
million of compensation cost for 2019. Refer to Note 4, Acquisitions, for further information. The associated tax benefit related
to these costs was $9.9 million, $8.0 million and $7.3 million, for 2019, 2018 and 2017, respectively.
Restricted Stock Units
The Company periodically grants RSUs, a right to receive a specific number of shares of the Company’s common stock
at a specified date, to non-employee directors and certain employees. RSUs granted to non-employee directors vest 12 months
from the date of grant, or upon termination of board service if the director elects to defer receipt. RSUs issued to certain employees
generally vest evenly over up to three years and provide for accelerated vesting if there is a change of control (as defined in the
Plan). The fair value of each RSU award is based on the closing market price of the Company’s stock on the day of grant as reported
by the NYSE.
The following is a summary of RSU activity during the year ended December 31, 2019:
Restricted Stock Units
(In thousands except per share data)
Unvested at January 1, 2019
Granted
Vested, including 20 shares withheld for tax (a)
Forfeited
Unvested at December 31, 2019
Units
Weighted-Average
Grant-Date
Fair Value
$
167
171
(64)
(14)
260
$
138.58
198.03
117.81
172.38
181.23
The following is a summary of PBRSU activity during the year ended December 31, 2019:
Performance-Based Restricted Stock Units
(In thousands except per share data)
Unvested at January 1, 2019
Granted
Forfeited
Vested, including 37 shares withheld for tax (a)
Performance adjustment (b)
Unvested at December 31, 2019
Shares
Weighted-Average
Grant-Date
Fair Value
$
419
102
(52)
(114)
94
449
$
113.58
185.92
136.83
81.87
144.37
140.58
(a) The Company withholds shares of common stock to pay the minimum required statutory taxes due upon PBRSU vesting. Cash is then remitted by the Company
to the appropriate taxing authorities.
(b) Reflects adjustments to the number of shares of PBRSUs expected to vest based on the change in performance attainment during the year ended December 31,
2019.
As of December 31, 2019, there was $23.7 million of unrecognized compensation cost related to the PBRSUs that is
expected to be recognized over a weighted-average period of 1.7 years. The total grant-date fair value of PBRSUs granted during
2019, 2018 and 2017 was $19.0 million, $18.3 million and $15.0 million, respectively. The total fair value of PBRSUs that vested
during 2019, 2018 and 2017 was $9.3 million, $12.0 million and $15.9 million, respectively.
Stock Options
Market Performance-Based Stock Options
In May 2017, the Company granted market performance-based stock options with a contractual term of ten years to certain
members of senior management. The options contain a market condition that begins operating on the third anniversary of the grant
date, requiring the closing price of the Company’s stock to meet or exceed certain price thresholds for twenty consecutive trading
days (“Stock Price Hurdle”) in order for shares to vest. In addition, award recipients must be continually employed from the grant
date until such date that the Stock Price Hurdle is satisfied in order for shares to vest. To the extent both the service condition and
the Stock Price Hurdles are not met by the end of a defined measurement period, these options will be canceled.
(a) The Company withholds shares of common stock to pay the minimum required statutory taxes due upon RSU vesting. Cash is then remitted by the Company
to the appropriate taxing authorities.
The grant date fair value of these options was estimated on the date of the grant using a Monte-Carlo simulation model
used to simulate a distribution of future stock price paths based on historical volatility levels.
As of December 31, 2019, there was $34.9 million of total unrecognized compensation cost related to RSUs. That cost
is expected to be recognized over a weighted-average period of 1.9 years. The total grant-date fair value of RSUs granted was
$34.0 million, $16.8 million and $11.7 million during 2019, 2018 and 2017, respectively. The total fair value of RSUs that vested
during 2019, 2018 and 2017 was $7.6 million, $9.2 million and $7.3 million, respectively.
Performance-Based Restricted Stock Units
The Company periodically grants PBRSUs to employees. A PBRSU is a right to receive stock based on the achievement
of both performance goals and continued employment during the vesting period. In a PBRSU, the number of shares earned varies
based upon meeting certain performance goals. PBRSU awards generally have performance goals spanning one to three years,
depending on the nature of the performance goal. The fair value of each PBRSU award is based on the closing market price of the
Company’s stock on the grant date as reported by the NYSE.
The table below summarizes the assumptions used to calculate the fair value:
Exercise price
Expected stock price volatility
Risk-free interest rate
Weighted average fair value of market performance-based stock options granted
$
$
99.69
31.14%
2.18%
28.69
The Company expenses these options on a graded basis over the derived service period of approximately three years
regardless of whether the market condition is satisfied. Upon satisfaction of a Stock Price Hurdle, any unrecognized compensation
expense for that specific tranche will be accelerated.
Service-Based Stock Options
The Company periodically grants stock options to certain officers and employees under the Plan, which generally become
exercisable over three years (with approximately 33 percent of the total grant vesting each year on the anniversary of the grant
date) and expire 10 years from the date of grant. All service-based stock option grants provide for an option exercise price equal
to the closing market value of the common stock on the date of grant as reported by the NYSE.
Based on the Company’s lack of historical option exercise experience and granting of stock options with “plain vanilla”
characteristics, the Company uses the simplified method to estimate the expected term of its employee stock options. The fair
value of each option award is estimated on the grant date using the following assumptions and a Black-Scholes-Merton option-
105
106
Restricted Stock Units
by the NYSE.
Restricted Stock Units
(In thousands except per share data)
Unvested at January 1, 2019
Vested, including 20 shares withheld for tax (a)
Granted
Forfeited
Unvested at December 31, 2019
to the appropriate taxing authorities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
awards will remain in effect, but no additional awards may be made under the Prior Plan. The Plan permits the grant of stock
options, stock appreciation rights, restricted stock, restricted stock units and other stock-based or cash-based awards to non-
employee directors, officers, employees, advisors or consultants. The Plans permit the Company to grant a total number of shares
which is the sum of; (i) 3.7 million shares of common stock; plus (ii) such additional number of shares of common stock (up to
1.5 million) as is equal to the number of shares of common stock subject to awards granted under the Prior Plan. There were 3.6
million units of common stock available for grant for future equity compensation awards under the Plan at December 31, 2019.
As of December 31, 2019, the Company had four stock-based compensation award types, which are described below.
The compensation cost that has been charged against income for these programs totals $45.6 million, $33.9 million and $30.5
million for 2019, 2018 and 2017, respectively. In connection with the Noventis acquisition, we recognized an additional $5.5
million of compensation cost for 2019. Refer to Note 4, Acquisitions, for further information. The associated tax benefit related
to these costs was $9.9 million, $8.0 million and $7.3 million, for 2019, 2018 and 2017, respectively.
The Company periodically grants RSUs, a right to receive a specific number of shares of the Company’s common stock
at a specified date, to non-employee directors and certain employees. RSUs granted to non-employee directors vest 12 months
from the date of grant, or upon termination of board service if the director elects to defer receipt. RSUs issued to certain employees
generally vest evenly over up to three years and provide for accelerated vesting if there is a change of control (as defined in the
Plan). The fair value of each RSU award is based on the closing market price of the Company’s stock on the day of grant as reported
The following is a summary of RSU activity during the year ended December 31, 2019:
Units
Weighted-Average
Grant-Date
Fair Value
$
167
171
(64)
(14)
260
$
138.58
198.03
117.81
172.38
181.23
The following is a summary of PBRSU activity during the year ended December 31, 2019:
Performance-Based Restricted Stock Units
(In thousands except per share data)
Unvested at January 1, 2019
Granted
Forfeited
Vested, including 37 shares withheld for tax (a)
Performance adjustment (b)
Unvested at December 31, 2019
Shares
Weighted-Average
Grant-Date
Fair Value
$
419
102
(52)
(114)
94
449
$
113.58
185.92
136.83
81.87
144.37
140.58
(a) The Company withholds shares of common stock to pay the minimum required statutory taxes due upon PBRSU vesting. Cash is then remitted by the Company
to the appropriate taxing authorities.
(b) Reflects adjustments to the number of shares of PBRSUs expected to vest based on the change in performance attainment during the year ended December 31,
2019.
As of December 31, 2019, there was $23.7 million of unrecognized compensation cost related to the PBRSUs that is
expected to be recognized over a weighted-average period of 1.7 years. The total grant-date fair value of PBRSUs granted during
2019, 2018 and 2017 was $19.0 million, $18.3 million and $15.0 million, respectively. The total fair value of PBRSUs that vested
during 2019, 2018 and 2017 was $9.3 million, $12.0 million and $15.9 million, respectively.
Stock Options
Market Performance-Based Stock Options
In May 2017, the Company granted market performance-based stock options with a contractual term of ten years to certain
members of senior management. The options contain a market condition that begins operating on the third anniversary of the grant
date, requiring the closing price of the Company’s stock to meet or exceed certain price thresholds for twenty consecutive trading
days (“Stock Price Hurdle”) in order for shares to vest. In addition, award recipients must be continually employed from the grant
date until such date that the Stock Price Hurdle is satisfied in order for shares to vest. To the extent both the service condition and
the Stock Price Hurdles are not met by the end of a defined measurement period, these options will be canceled.
(a) The Company withholds shares of common stock to pay the minimum required statutory taxes due upon RSU vesting. Cash is then remitted by the Company
The grant date fair value of these options was estimated on the date of the grant using a Monte-Carlo simulation model
As of December 31, 2019, there was $34.9 million of total unrecognized compensation cost related to RSUs. That cost
is expected to be recognized over a weighted-average period of 1.9 years. The total grant-date fair value of RSUs granted was
$34.0 million, $16.8 million and $11.7 million during 2019, 2018 and 2017, respectively. The total fair value of RSUs that vested
during 2019, 2018 and 2017 was $7.6 million, $9.2 million and $7.3 million, respectively.
Performance-Based Restricted Stock Units
The Company periodically grants PBRSUs to employees. A PBRSU is a right to receive stock based on the achievement
of both performance goals and continued employment during the vesting period. In a PBRSU, the number of shares earned varies
based upon meeting certain performance goals. PBRSU awards generally have performance goals spanning one to three years,
depending on the nature of the performance goal. The fair value of each PBRSU award is based on the closing market price of the
Company’s stock on the grant date as reported by the NYSE.
used to simulate a distribution of future stock price paths based on historical volatility levels.
The table below summarizes the assumptions used to calculate the fair value:
Exercise price
Expected stock price volatility
Risk-free interest rate
Weighted average fair value of market performance-based stock options granted
$
$
99.69
31.14%
2.18%
28.69
The Company expenses these options on a graded basis over the derived service period of approximately three years
regardless of whether the market condition is satisfied. Upon satisfaction of a Stock Price Hurdle, any unrecognized compensation
expense for that specific tranche will be accelerated.
Service-Based Stock Options
The Company periodically grants stock options to certain officers and employees under the Plan, which generally become
exercisable over three years (with approximately 33 percent of the total grant vesting each year on the anniversary of the grant
date) and expire 10 years from the date of grant. All service-based stock option grants provide for an option exercise price equal
to the closing market value of the common stock on the date of grant as reported by the NYSE.
Based on the Company’s lack of historical option exercise experience and granting of stock options with “plain vanilla”
characteristics, the Company uses the simplified method to estimate the expected term of its employee stock options. The fair
value of each option award is estimated on the grant date using the following assumptions and a Black-Scholes-Merton option-
105
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
pricing model. The expected term assumption as it relates to the valuation of the options represents the period of time that options
granted are expected to be outstanding. The Company estimates expected stock price volatility based on historical volatility of the
Company’s common stock over a period matching the expected term of the options granted. The option-pricing model also includes
a risk-free interest rate for the period matching the expected term of the option and is based on the U.S. Treasury yield curve in
effect at the time of the grant. We have never paid nor do we expect to pay any cash dividends on our common stock; therefore,
we assume that no dividends will be paid over the expected terms of option awards.
The table below summarizes the assumptions used to calculate the fair value by year of grant:
technology obtained in the AOC acquisition more closely aligns with our technological strategy. As a result, $22.0 million of
software under development was determined to have no future benefit and was therefore impaired during the year ended December
31, 2017. We also impaired $6.0 million of computer software within the Fleet Solutions segment in 2017 as a result of our ongoing
platform consolidation strategy, designed to ensure we continue to deliver superior technology to our customers.
During the year ended December 31, 2017, the Company executed a vendor contract amendment based on a strategic
decision to in-source certain previously outsourced technology functions. As a result of this action, the Company determined that
$16.2 million of prepaid services had no future benefit and were therefore written off within the Fleet Solutions and Travel and
Corporate Solutions segments during the same period.
2019
2018
2017
58.28
$
51.27
$
35.58
Restructuring
Weighted average grant date fair value
Weighted average expected term (in years)
Weighted average exercise price
Expected stock price volatility
Risk-free interest rate
$
$
6
6
6
184.81
$
158.23
$
104.95
27.21%
2.37%
27.35%
2.69%
30.67%
2.13%
The following is a summary of all stock option activity during the year ended December 31, 2019:
Stock Options
(In thousands, except per share data)
Outstanding at January 1, 2019
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2019
Exercisable on December 31, 2019
Vested and expected to vest at December 31, 2019
Shares
Weighted-
Average Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
891
124
(53)
(70)
892
182
685
$
$
$
$
104.62
184.81
93.00
112.10
115.82
103.32
119.23
7.52
6.71
7.73
$
$
$
83,543
19,289
61,769
As of December 31, 2019, there was $9.4 million of total unrecognized compensation cost related to options. That cost
is expected to be recognized over a weighted-average period of 1.2 years. The total intrinsic value of options exercised during the
years ended December 31, 2019, 2018 and 2017 was $5.7 million, $1.9 million and $0.6 million, respectively. The total grant-date
fair value of options granted during 2019, 2018 and 2017 was $7.2 million, $5.2 million, and $20.5 million, respectively.
Deferred Stock Units
Non-employee directors may elect to defer their cash fees and RSUs in the form of DSUs. The Company previously
granted fully vested DSUs to non-employee directors. These awards are distributed as common stock 200 days immediately
following the date upon which such director’s service as a member of the Company’s Board of Directors terminates for any reason.
There were approximately 63 thousand and 74 thousand DSUs outstanding as of December 31, 2019 and 2018, respectively.
Unvested DSUs as of December 31, 2019 and 2018 were not material.
24.
Impairment and Restructuring Activities
Impairment Charges
We did not record any impairment charges during our annual goodwill assessment completed in the fourth quarter of
2019. In the fourth quarter of 2018, we recorded a non-cash goodwill impairment charge of $3.2 million related to our Brazil fleet
reporting unit. We also impaired $2.4 million of computer software in 2018, which was determined to provide no future benefit.
See Note 9, Goodwill and Other Intangible Assets, of our consolidated financial statements for more information.
Following the acquisition of AOC in the fourth quarter of 2017, the Company reevaluated software currently under
development for payment processing within our Travel and Corporate Solutions segment. From this, we determined the developed
107
In the first quarter of 2015, the Company commenced a restructuring initiative as a result of its global review of operations.
The Company identified certain initiatives to further streamline the business, improve efficiency and globalize operations, all with
an objective to improve scale and increase profitability. The Company continued its efforts to improve overall operational efficiency
and began a second restructuring initiative during the second quarter of 2016. In connection with the EFS acquisition, the Company
initiated a third restructuring program in the third quarter of 2016. Total restructuring charges incurred to date under these initiatives,
which primarily consisted of employee costs and office closure costs, were $27.6 million as of December 31, 2019.
During 2019, the Company continued its strategic shift related to its global restructuring initiatives, resulting in $2.8
million of charges related to severance. Based on current plans, which are subject to change, the Company does not expect to incur
any material charges under these initiatives in future periods.
25.
Segment Information
The Company determines its operating segments and reports segment information in accordance with how the Company’s
chief operating decision maker (“CODM”) allocates resources and assesses performance. The Company’s CODM is its Chief
Executive Officer. The operating segments are aggregated into the three reportable segments described below.
customers.
•
•
•
Fleet Solutions provides customers with payment and transaction processing services specifically designed for the needs
of commercial and government fleets. This segment also provides information management services to these fleet
Travel and Corporate Solutions focuses on the complex payment environment of business-to-business payments,
providing customers with payment processing solutions for their corporate payment and transaction monitoring needs.
Health and Employee Benefit Solutions provides healthcare payment products and SaaS consumer directed platforms, as
well as payroll related benefits to customers.
The following tables present the Company’s reportable segment revenues:
(in thousands)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Interest income
6,249
$
1,521
$
1,534
$
9,304
Year Ended December 31, 2019
Fleet Solutions
Corporate Solutions
Travel and
Health and
Employee Benefit
Solutions
Total
457,244
$
303,385
$
64,963
$
164,735
245,082
171,334
43,293
2,086
19,062
205,524
150
46,833
1,038,395
$
367,826
$
317,470
$
1,723,691
825,592
413,552
247,318
237,229
$
$
$
108
The following is a summary of all stock option activity during the year ended December 31, 2019:
$
$
Weighted average grant date fair value
Weighted average expected term (in years)
Weighted average exercise price
Expected stock price volatility
Risk-free interest rate
Stock Options
(In thousands, except per share data)
Outstanding at January 1, 2019
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2019
Exercisable on December 31, 2019
Vested and expected to vest at December 31, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
pricing model. The expected term assumption as it relates to the valuation of the options represents the period of time that options
granted are expected to be outstanding. The Company estimates expected stock price volatility based on historical volatility of the
Company’s common stock over a period matching the expected term of the options granted. The option-pricing model also includes
a risk-free interest rate for the period matching the expected term of the option and is based on the U.S. Treasury yield curve in
effect at the time of the grant. We have never paid nor do we expect to pay any cash dividends on our common stock; therefore,
we assume that no dividends will be paid over the expected terms of option awards.
The table below summarizes the assumptions used to calculate the fair value by year of grant:
technology obtained in the AOC acquisition more closely aligns with our technological strategy. As a result, $22.0 million of
software under development was determined to have no future benefit and was therefore impaired during the year ended December
31, 2017. We also impaired $6.0 million of computer software within the Fleet Solutions segment in 2017 as a result of our ongoing
platform consolidation strategy, designed to ensure we continue to deliver superior technology to our customers.
During the year ended December 31, 2017, the Company executed a vendor contract amendment based on a strategic
decision to in-source certain previously outsourced technology functions. As a result of this action, the Company determined that
$16.2 million of prepaid services had no future benefit and were therefore written off within the Fleet Solutions and Travel and
Corporate Solutions segments during the same period.
2019
2018
2017
58.28
$
51.27
$
35.58
Restructuring
6
6
6
184.81
$
158.23
$
104.95
27.21%
2.37%
27.35%
2.69%
30.67%
2.13%
Weighted-
Average Exercise
Weighted-
Average
Remaining
Contractual
Shares
Price
Term (in years)
Aggregate
Intrinsic Value
891
124
(53)
(70)
892
182
685
$
$
$
$
104.62
184.81
93.00
112.10
115.82
103.32
119.23
7.52
6.71
7.73
$
$
$
83,543
19,289
61,769
As of December 31, 2019, there was $9.4 million of total unrecognized compensation cost related to options. That cost
is expected to be recognized over a weighted-average period of 1.2 years. The total intrinsic value of options exercised during the
years ended December 31, 2019, 2018 and 2017 was $5.7 million, $1.9 million and $0.6 million, respectively. The total grant-date
fair value of options granted during 2019, 2018 and 2017 was $7.2 million, $5.2 million, and $20.5 million, respectively.
Deferred Stock Units
Non-employee directors may elect to defer their cash fees and RSUs in the form of DSUs. The Company previously
granted fully vested DSUs to non-employee directors. These awards are distributed as common stock 200 days immediately
following the date upon which such director’s service as a member of the Company’s Board of Directors terminates for any reason.
There were approximately 63 thousand and 74 thousand DSUs outstanding as of December 31, 2019 and 2018, respectively.
Unvested DSUs as of December 31, 2019 and 2018 were not material.
24.
Impairment and Restructuring Activities
Impairment Charges
We did not record any impairment charges during our annual goodwill assessment completed in the fourth quarter of
2019. In the fourth quarter of 2018, we recorded a non-cash goodwill impairment charge of $3.2 million related to our Brazil fleet
reporting unit. We also impaired $2.4 million of computer software in 2018, which was determined to provide no future benefit.
See Note 9, Goodwill and Other Intangible Assets, of our consolidated financial statements for more information.
Following the acquisition of AOC in the fourth quarter of 2017, the Company reevaluated software currently under
development for payment processing within our Travel and Corporate Solutions segment. From this, we determined the developed
In the first quarter of 2015, the Company commenced a restructuring initiative as a result of its global review of operations.
The Company identified certain initiatives to further streamline the business, improve efficiency and globalize operations, all with
an objective to improve scale and increase profitability. The Company continued its efforts to improve overall operational efficiency
and began a second restructuring initiative during the second quarter of 2016. In connection with the EFS acquisition, the Company
initiated a third restructuring program in the third quarter of 2016. Total restructuring charges incurred to date under these initiatives,
which primarily consisted of employee costs and office closure costs, were $27.6 million as of December 31, 2019.
During 2019, the Company continued its strategic shift related to its global restructuring initiatives, resulting in $2.8
million of charges related to severance. Based on current plans, which are subject to change, the Company does not expect to incur
any material charges under these initiatives in future periods.
25.
Segment Information
The Company determines its operating segments and reports segment information in accordance with how the Company’s
chief operating decision maker (“CODM”) allocates resources and assesses performance. The Company’s CODM is its Chief
Executive Officer. The operating segments are aggregated into the three reportable segments described below.
•
•
•
Fleet Solutions provides customers with payment and transaction processing services specifically designed for the needs
of commercial and government fleets. This segment also provides information management services to these fleet
customers.
Travel and Corporate Solutions focuses on the complex payment environment of business-to-business payments,
providing customers with payment processing solutions for their corporate payment and transaction monitoring needs.
Health and Employee Benefit Solutions provides healthcare payment products and SaaS consumer directed platforms, as
well as payroll related benefits to customers.
The following tables present the Company’s reportable segment revenues:
(in thousands)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Interest income
Year Ended December 31, 2019
Fleet Solutions
Travel and
Corporate Solutions
Health and
Employee Benefit
Solutions
Total
457,244
$
303,385
$
64,963
$
164,735
245,082
171,334
43,293
2,086
19,062
205,524
150
46,833
825,592
413,552
247,318
237,229
1,038,395
$
367,826
$
317,470
$
1,723,691
6,249
$
1,521
$
1,534
$
9,304
$
$
$
107
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
(In thousands)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Interest income
(In thousands)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Interest income
Year Ended December 31, 2018
Fleet Solutions
Travel and
Corporate Solutions
Health and
Employee Benefit
Solutions
Total
464,980
$
203,289
$
55,722
$
162,662
190,528
156,970
37,262
1,391
61,402
108,172
16,708
33,553
723,991
308,096
208,627
251,925
975,140
$
303,344
$
214,155
$
1,492,639
3,503
$
958
$
11,706
$
16,167
Year Ended December 31, 2017
Fleet Solutions
Travel and
Corporate Solutions
Health and
Employee Benefit
Solutions
Total
360,158
$
158,660
$
50,348
$
165,083
159,336
138,533
823,110
3,681
$
$
7,531
760
57,096
224,047
717
$
$
103,956
28,696
18,420
201,420
27,507
$
$
569,166
276,570
188,792
214,049
1,248,577
31,905
$
$
$
$
$
$
No one customer accounted for more than 10 percent of the total consolidated revenue in 2019, 2018 or 2017.
The CODM evaluates the financial performance of each segment using segment adjusted operating income, which
excludes: (i) acquisition and divestiture related items (including acquisition-related intangible amortization); (ii) stock-based
compensation; (iii) restructuring and other costs; (iv) gains on divestitures; (v) debt restructuring costs; (vi) impairment charges;
and (vii) unallocated corporate expenses. Additionally, we do not allocate foreign currency gains and losses, financing interest
expense, unrealized and realized gains and losses on financial instruments, non-cash adjustments related to the tax receivable
agreement, income taxes and net gains or losses from non-controlling interests to our operating segments.
The following table reconciles total segment adjusted operating income to income before income taxes:
(In thousands)
Segment adjusted operating income
Fleet Solutions
Travel and Corporate Solutions
Health and Employee Benefit Solutions
Total segment adjusted operating income
Reconciliation:
Total segment adjusted operating income
Less:
Unallocated corporate expenses
Acquisition-related intangible amortization
Other acquisition and divestiture related items
Debt restructuring costs
Stock-based compensation
Restructuring and other costs
Impairment charges
Gain on divestiture
Operating income
Financing interest expense
Net foreign currency (loss) gain
Non-cash adjustments related to tax receivable agreement
Net unrealized (loss) gain on financial instruments
Income before income taxes
Assets are not allocated to the segments for internal reporting purposes.
Geographic Data
(In thousands)
United States
Other international1
Total revenues
Revenue by principal geographic area, based on the country in which the sale originated, was as follows:
1 No single country within made up more than 5 percent of total revenues for any of the years presented.
Net property, equipment and capitalized software is subject to geographic risks because it is generally difficult to move
and relatively illiquid. Net property, equipment and capitalized software by principal geographic area was as follows:
(In thousands)
United States
International1
Net property, equipment and capitalized software
1 No single country within made up more than 5 percent of total net property, equipment and capitalized software for any of the years presented.
Year ended December 31,
2019
2018
2017
485,539
$
459,646
$
369,872
168,786
80,283
135,379
44,931
96,660
46,846
734,608
$
639,956
$
513,378
734,608
$
639,956
$
513,378
67,982
159,431
37,675
11,062
47,511
25,106
—
—
(134,677)
(926)
932
(34,654)
58,095
138,186
4,143
4,425
35,103
13,717
5,649
—
(105,023)
(38,800)
(775)
2,579
53,753
153,810
5,000
2,563
30,487
11,129
44,171
(20,958)
(107,067)
31,487
15,259
1,314
$
385,841
$
380,638
$
233,423
$
216,516
$
238,619
$
174,416
Year ended December 31,
2019
1,535,985
187,706
1,723,691
$
$
2018
1,287,405
205,234
1,492,639
$
$
2017
1,037,322
211,255
1,248,577
Year ended December 31,
2019
2018
2017
200,101
12,374
212,475
$
$
176,111
11,757
187,868
$
$
148,490
15,418
163,908
$
$
$
$
$
$
$
109
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
WEX INC.
(In thousands)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Interest income
(In thousands)
Payment processing revenue
Account servicing revenue
Finance fee revenue
Other revenue
Total revenues
Interest income
$
$
$
$
$
$
Year Ended December 31, 2017
Fleet Solutions
Corporate Solutions
Travel and
Health and
Employee Benefit
Solutions
360,158
$
158,660
$
50,348
$
165,083
159,336
138,533
823,110
3,681
$
$
7,531
760
57,096
224,047
$
$
103,956
28,696
18,420
201,420
$
$
Year Ended December 31, 2018
Fleet Solutions
Corporate Solutions
Travel and
Health and
Employee Benefit
Solutions
Total
464,980
$
203,289
$
55,722
$
162,662
190,528
156,970
37,262
1,391
61,402
108,172
16,708
33,553
723,991
308,096
208,627
251,925
975,140
$
303,344
$
214,155
$
1,492,639
3,503
$
958
$
11,706
$
16,167
Total
569,166
276,570
188,792
214,049
1,248,577
No one customer accounted for more than 10 percent of the total consolidated revenue in 2019, 2018 or 2017.
717
27,507
31,905
The CODM evaluates the financial performance of each segment using segment adjusted operating income, which
excludes: (i) acquisition and divestiture related items (including acquisition-related intangible amortization); (ii) stock-based
compensation; (iii) restructuring and other costs; (iv) gains on divestitures; (v) debt restructuring costs; (vi) impairment charges;
and (vii) unallocated corporate expenses. Additionally, we do not allocate foreign currency gains and losses, financing interest
expense, unrealized and realized gains and losses on financial instruments, non-cash adjustments related to the tax receivable
agreement, income taxes and net gains or losses from non-controlling interests to our operating segments.
The following table reconciles total segment adjusted operating income to income before income taxes:
(In thousands)
Segment adjusted operating income
Fleet Solutions
Travel and Corporate Solutions
Health and Employee Benefit Solutions
Total segment adjusted operating income
Reconciliation:
Total segment adjusted operating income
Less:
Unallocated corporate expenses
Acquisition-related intangible amortization
Other acquisition and divestiture related items
Debt restructuring costs
Stock-based compensation
Restructuring and other costs
Impairment charges
Gain on divestiture
Operating income
Financing interest expense
Net foreign currency (loss) gain
Non-cash adjustments related to tax receivable agreement
Net unrealized (loss) gain on financial instruments
Income before income taxes
$
$
$
Year ended December 31,
2019
2018
2017
485,539
$
459,646
$
369,872
168,786
80,283
135,379
44,931
96,660
46,846
734,608
$
639,956
$
513,378
734,608
$
639,956
$
513,378
67,982
159,431
37,675
11,062
47,511
25,106
—
—
58,095
138,186
4,143
4,425
35,103
13,717
5,649
—
53,753
153,810
5,000
2,563
30,487
11,129
44,171
(20,958)
$
385,841
$
380,638
$
233,423
(134,677)
(926)
932
(34,654)
(105,023)
(38,800)
(775)
2,579
(107,067)
31,487
15,259
1,314
$
216,516
$
238,619
$
174,416
Assets are not allocated to the segments for internal reporting purposes.
Geographic Data
Revenue by principal geographic area, based on the country in which the sale originated, was as follows:
(In thousands)
United States
Other international1
Total revenues
Year ended December 31,
2019
1,535,985
187,706
1,723,691
$
$
2018
1,287,405
205,234
1,492,639
$
$
2017
1,037,322
211,255
1,248,577
$
$
1 No single country within made up more than 5 percent of total revenues for any of the years presented.
Net property, equipment and capitalized software is subject to geographic risks because it is generally difficult to move
and relatively illiquid. Net property, equipment and capitalized software by principal geographic area was as follows:
(In thousands)
United States
International1
Net property, equipment and capitalized software
Year ended December 31,
2019
2018
2017
$
$
200,101
12,374
212,475
$
$
176,111
11,757
187,868
$
$
148,490
15,418
163,908
1 No single country within made up more than 5 percent of total net property, equipment and capitalized software for any of the years presented.
109
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
26.
Supplementary Regulatory Capital Disclosure
27. Quarterly Financial Results (Unaudited)
The Company’s subsidiary, WEX Bank is subject to various regulatory capital requirements administered by the FDIC
and the Utah Department of Financial Institutions. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, WEX Bank must meet specific capital guidelines that involve quantitative measures of WEX Bank’s assets,
liabilities and certain off-balance sheet items. WEX Bank’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements
can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could limit our business
activities and have a material effect on our business, results of operations and financial condition.
Quantitative measures established by regulation to ensure capital adequacy require WEX Bank to maintain minimum
amounts and ratios as defined in the regulations. As of December 31, 2019, the most recent FDIC exam report categorized WEX
Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events
subsequent to that examination report that management believes have changed WEX Bank’s capital rating.
The following table presents WEX Bank’s actual and regulatory minimum capital amounts and ratios:
Minimum for
Capital
Adequacy
Purposes
Amount
Ratio
Minimum to Be
Well
Capitalized
Under Prompt
Corrective
Action
Provisions
Amount
Actual Amount
Ratio
December 31, 2019
Total Capital to risk-weighted assets
Tier 1 Capital to average assets
Common equity to risk-weighted assets
Tier 1 Capital to risk-weighted assets
December 31, 2018
Total Capital to risk-weighted assets
Tier 1 Capital to average assets
Common equity to risk-weighted assets
Tier 1 Capital to risk-weighted assets
$
$
$
$
$
$
$
$
329,276
314,466
314,466
314,466
323,178
305,734
305,734
305,734
13.54% $
10.88% $
12.93% $
12.93% $
12.82 % $
10.88 % $
12.12 % $
12.12 % $
194,566
115,583
109,443
145,925
201,749
112,401
113,484
151,312
8.00% $
4.00% $
4.50% $
6.00% $
8.00 % $
4.00 % $
4.50 % $
6.00 % $
243,208
144,479
158,085
194,566
252,186
140,501
163,921
201,749
Ratio
10.00%
5.00%
6.50%
8.00%
10.00 %
5.00 %
6.50 %
8.00 %
Summarized quarterly results for the years ended December 31, 2019 and 2018, are as follows:
(In thousands, except per share data)
March 31
June 30
September 30
December 31
Three months ended
2019
Total revenues1
Operating income
Net income attributable to shareholders
Earnings per share:
Basic
Diluted
2018
Total revenues
Operating income
Net income attributable to shareholders
Earnings per share:
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
381,876
68,935
16,134
0.37
0.37
354,028
83,859
51,970
1.21
1.20
$
$
$
$
$
$
$
$
$
$
441,807
94,737
13,807
0.32
0.32
370,798
100,424
38,424
0.89
0.88
$
$
$
$
$
$
$
$
$
$
459,963
118,311
14,619
0.34
0.33
386,617
102,564
56,644
1.31
1.30
$
$
$
$
$
$
$
$
$
$
440,045
103,858
54,446
1.26
1.24
381,196
93,791
21,257
0.49
0.49
1 During the fourth quarter of 2019, we recorded an immaterial out-of-period adjustment related to prior quarters of 2019 to properly reflect fleet segment revenue
and expenses, which decreased total revenues and sales and marketing expense by $14.3 million.
Basic and diluted net income per share are computed independently for each quarter presented. Therefore, the sum of
quarterly basic and diluted net income per share information may not equal annual basic and diluted net income per share.
28.
Related Party Transaction
On November 19, 2019, the Company entered into the Seventh Amendment to the 2016 Credit Agreement. The Seventh
Amendment increased commitments under the Company’s revolving credit facility by $50.0 million, with Bell Bank as the
incremental revolving loan lender. Bell Bank was the seller of Discovery Benefits and holds a 4.9 percent equity interest in the
U.S. Health business.
111
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
26.
Supplementary Regulatory Capital Disclosure
27. Quarterly Financial Results (Unaudited)
The Company’s subsidiary, WEX Bank is subject to various regulatory capital requirements administered by the FDIC
and the Utah Department of Financial Institutions. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, WEX Bank must meet specific capital guidelines that involve quantitative measures of WEX Bank’s assets,
liabilities and certain off-balance sheet items. WEX Bank’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements
can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could limit our business
activities and have a material effect on our business, results of operations and financial condition.
Quantitative measures established by regulation to ensure capital adequacy require WEX Bank to maintain minimum
amounts and ratios as defined in the regulations. As of December 31, 2019, the most recent FDIC exam report categorized WEX
Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events
subsequent to that examination report that management believes have changed WEX Bank’s capital rating.
The following table presents WEX Bank’s actual and regulatory minimum capital amounts and ratios:
Actual Amount
Ratio
Ratio
Ratio
Summarized quarterly results for the years ended December 31, 2019 and 2018, are as follows:
(In thousands, except per share data)
March 31
June 30
September 30
December 31
Three months ended
2019
Total revenues1
Operating income
Net income attributable to shareholders
Earnings per share:
Basic
Diluted
2018
Total revenues
Operating income
Net income attributable to shareholders
Earnings per share:
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
381,876
68,935
16,134
0.37
0.37
354,028
83,859
51,970
1.21
1.20
$
$
$
$
$
$
$
$
$
$
441,807
94,737
13,807
0.32
0.32
370,798
100,424
38,424
0.89
0.88
$
$
$
$
$
$
$
$
$
$
459,963
118,311
14,619
0.34
0.33
386,617
102,564
56,644
1.31
1.30
$
$
$
$
$
$
$
$
$
$
440,045
103,858
54,446
1.26
1.24
381,196
93,791
21,257
0.49
0.49
10.00%
5.00%
6.50%
8.00%
10.00 %
5.00 %
6.50 %
8.00 %
1 During the fourth quarter of 2019, we recorded an immaterial out-of-period adjustment related to prior quarters of 2019 to properly reflect fleet segment revenue
and expenses, which decreased total revenues and sales and marketing expense by $14.3 million.
Basic and diluted net income per share are computed independently for each quarter presented. Therefore, the sum of
quarterly basic and diluted net income per share information may not equal annual basic and diluted net income per share.
28.
Related Party Transaction
On November 19, 2019, the Company entered into the Seventh Amendment to the 2016 Credit Agreement. The Seventh
Amendment increased commitments under the Company’s revolving credit facility by $50.0 million, with Bell Bank as the
incremental revolving loan lender. Bell Bank was the seller of Discovery Benefits and holds a 4.9 percent equity interest in the
U.S. Health business.
December 31, 2019
Total Capital to risk-weighted assets
Tier 1 Capital to average assets
Common equity to risk-weighted assets
Tier 1 Capital to risk-weighted assets
December 31, 2018
Total Capital to risk-weighted assets
Tier 1 Capital to average assets
Common equity to risk-weighted assets
Tier 1 Capital to risk-weighted assets
$
$
$
$
$
$
$
$
329,276
314,466
314,466
314,466
323,178
305,734
305,734
305,734
Minimum for
Capital
Adequacy
Purposes
Amount
13.54% $
10.88% $
12.93% $
12.93% $
12.82 % $
10.88 % $
12.12 % $
12.12 % $
194,566
115,583
109,443
145,925
201,749
112,401
113,484
151,312
Minimum to Be
Well
Capitalized
Under Prompt
Corrective
Action
Provisions
Amount
8.00% $
4.00% $
4.50% $
6.00% $
8.00 % $
4.00 % $
4.50 % $
6.00 % $
243,208
144,479
158,085
194,566
252,186
140,501
163,921
201,749
111
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
29.
Subsequent Events
On January 24, 2020, the Company entered into a purchase agreement to purchase eNett, a leading provider of business-
to-business payments solutions to the travel industry and Optal, a company that specializes in optimizing business-to-business
transactions. Pursuant to the purchase agreement, and subject to the terms and conditions contained therein, the Company will
acquire all of the issued share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd., and the other
shareholders of eNett and Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash and 2.0 million
shares of the Company’s common stock and subject to certain working capital and other adjustments as described in the purchase
agreement. The parties’ obligations to consummate the acquisition are subject to customary closing conditions, including regulatory
approvals. We expect that the acquisition will accelerate our global growth strategy and strengthen our technology and product
portfolio. This acquisition will be accounted for under the acquisition method of accounting.
In connection with the acquisition, the Company entered into a commitment letter with Bank of America, N.A. and BofA
Securities, Inc. on January 24, 2020 for (a) senior secured credit facilities in the aggregate amount of up to $2.8 billion, consisting
of (i) up to a $2.0 billion seven-year term loan B facility, comprised of $1.1 billion to fund the planned acquisition and a $924.0
million backstop to refinance the Company’s existing Term A loans under the 2016 Credit Agreement and (ii) an $820.0 million
backstop to replace the Company’s existing revolving credit facility under the 2016 Credit Agreement and (b) a senior unsecured
bridge facility in the aggregate amount of up to $300.0 million. To the extent that the 2016 Credit Agreement had not been amended
prior to the funding of these facilities to increase the maximum consolidated leverage ratio upon the closing of the acquisition to
5.75x, the backstops were available to the Company for use.
On February 10, 2020, the Company entered into an Eighth Amendment to the 2016 Credit Agreement. The Eighth
Amendment, among other things, (i) modifies the maximum consolidated leverage ratio to be no more than 5.75 to 1.0 commencing
as of December 31, 2019, decreasing to 5.50 to 1.0 commencing as of December 31, 2020, decreasing to 5.00 to 1.0 commencing
as of December 31, 2021 and further decreasing to 4.75 to 1.0 commencing as of December 31, 2022 and thereafter and (ii)
increases the Company’s capacity to incur additional incremental debt facilities up to $1.4 billion in connection with the acquisition
of eNett and Optal. As such, the portion of the commitment letter related to the backstops described above have been reduced to
zero. The amendments set forth in the Eighth Amendment would only become effective concurrently with the closing of the pending
acquisition of eNett and Optal, if it occurs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and 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 December 31, 2019.
“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, or the
Exchange Act, 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 Exchange Act, 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. Based on their evaluation, the principal executive officer and principal financial officer
of WEX Inc. concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019.
Management’s Annual Report on Internal Control Over Financial Reporting
WEX Inc.’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act as a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control
over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and
disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures are made only in accordance with management and
Board authorizations; and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations,
internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements
would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures
may deteriorate.
Under the supervision of and with the participation of management, including the principal executive officer and principal
financial and accounting officer, an evaluation was conducted of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Framework (2013) issued by The Committee of Sponsoring Organizations
of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control - Integrated Framework
(2013), management concluded that WEX Inc.’s internal control over financial reporting was effective as of December 31, 2019.
The Company acquired Noventis, Inc. on January 24, 2019, Pavestone Capital, LLC on February 14, 2019, Discovery
Benefits, Inc. on March 5, 2019, and Go Fuel Card on July 1, 2019. Management excluded these four businesses from its assessment
of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. These exclusions were
in accordance with Securities and Exchange Commission guidance that an assessment of a recently acquired business’s internal
control over financial reporting may be omitted from management’s report on internal control over financial reporting in the year
of acquisition of the business. These four businesses represented, in aggregate, approximately 8.3% of the Company’s total
consolidated assets (excluding goodwill and intangibles, which are included within the scope of the assessment) and 8.9% of total
consolidated revenues, as of and for the year ended December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019, has been audited by Deloitte
& Touche LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting
Remediation of Previously Reported Material Weaknesses
For the fiscal year ended December 31, 2018, our management concluded that three material weaknesses existed in our
internal control over financial reporting relating to our Brazilian subsidiary and insufficient monitoring of activities at other
individually insignificant subsidiaries.
Over the course of 2019, we have completed remediation actions to address the material weaknesses in internal control
over financial reporting, including:
113
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
WEX INC.
29.
Subsequent Events
On January 24, 2020, the Company entered into a purchase agreement to purchase eNett, a leading provider of business-
to-business payments solutions to the travel industry and Optal, a company that specializes in optimizing business-to-business
transactions. Pursuant to the purchase agreement, and subject to the terms and conditions contained therein, the Company will
acquire all of the issued share capital of eNett and Optal from Travelport Limited, Toro Private Holdings I, Ltd., and the other
shareholders of eNett and Optal, for an aggregate purchase price comprised of approximately $1.3 billion in cash and 2.0 million
shares of the Company’s common stock and subject to certain working capital and other adjustments as described in the purchase
agreement. The parties’ obligations to consummate the acquisition are subject to customary closing conditions, including regulatory
approvals. We expect that the acquisition will accelerate our global growth strategy and strengthen our technology and product
portfolio. This acquisition will be accounted for under the acquisition method of accounting.
In connection with the acquisition, the Company entered into a commitment letter with Bank of America, N.A. and BofA
Securities, Inc. on January 24, 2020 for (a) senior secured credit facilities in the aggregate amount of up to $2.8 billion, consisting
of (i) up to a $2.0 billion seven-year term loan B facility, comprised of $1.1 billion to fund the planned acquisition and a $924.0
million backstop to refinance the Company’s existing Term A loans under the 2016 Credit Agreement and (ii) an $820.0 million
backstop to replace the Company’s existing revolving credit facility under the 2016 Credit Agreement and (b) a senior unsecured
bridge facility in the aggregate amount of up to $300.0 million. To the extent that the 2016 Credit Agreement had not been amended
prior to the funding of these facilities to increase the maximum consolidated leverage ratio upon the closing of the acquisition to
5.75x, the backstops were available to the Company for use.
On February 10, 2020, the Company entered into an Eighth Amendment to the 2016 Credit Agreement. The Eighth
Amendment, among other things, (i) modifies the maximum consolidated leverage ratio to be no more than 5.75 to 1.0 commencing
as of December 31, 2019, decreasing to 5.50 to 1.0 commencing as of December 31, 2020, decreasing to 5.00 to 1.0 commencing
as of December 31, 2021 and further decreasing to 4.75 to 1.0 commencing as of December 31, 2022 and thereafter and (ii)
increases the Company’s capacity to incur additional incremental debt facilities up to $1.4 billion in connection with the acquisition
of eNett and Optal. As such, the portion of the commitment letter related to the backstops described above have been reduced to
zero. The amendments set forth in the Eighth Amendment would only become effective concurrently with the closing of the pending
acquisition of eNett and Optal, if it occurs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and 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 December 31, 2019.
“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, or the
Exchange Act, 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 Exchange Act, 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. Based on their evaluation, the principal executive officer and principal financial officer
of WEX Inc. concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019.
Management’s Annual Report on Internal Control Over Financial Reporting
WEX Inc.’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act as a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control
over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and
disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures are made only in accordance with management and
Board authorizations; and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations,
internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements
would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures
may deteriorate.
Under the supervision of and with the participation of management, including the principal executive officer and principal
financial and accounting officer, an evaluation was conducted of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Framework (2013) issued by The Committee of Sponsoring Organizations
of the Treadway Commission. Based on management’s evaluation under the framework in Internal Control - Integrated Framework
(2013), management concluded that WEX Inc.’s internal control over financial reporting was effective as of December 31, 2019.
The Company acquired Noventis, Inc. on January 24, 2019, Pavestone Capital, LLC on February 14, 2019, Discovery
Benefits, Inc. on March 5, 2019, and Go Fuel Card on July 1, 2019. Management excluded these four businesses from its assessment
of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. These exclusions were
in accordance with Securities and Exchange Commission guidance that an assessment of a recently acquired business’s internal
control over financial reporting may be omitted from management’s report on internal control over financial reporting in the year
of acquisition of the business. These four businesses represented, in aggregate, approximately 8.3% of the Company’s total
consolidated assets (excluding goodwill and intangibles, which are included within the scope of the assessment) and 8.9% of total
consolidated revenues, as of and for the year ended December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019, has been audited by Deloitte
& Touche LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting
Remediation of Previously Reported Material Weaknesses
For the fiscal year ended December 31, 2018, our management concluded that three material weaknesses existed in our
internal control over financial reporting relating to our Brazilian subsidiary and insufficient monitoring of activities at other
individually insignificant subsidiaries.
Over the course of 2019, we have completed remediation actions to address the material weaknesses in internal control
over financial reporting, including:
113
114
•
•
•
Evaluating the sufficiency, experience, and training of our internal personnel at our Brazilian subsidiary and
hiring additional qualified personnel or using external resources.
Implementing control activities at our Brazilian subsidiary that address relevant financial statement risks,
including account reconciliations, variance analysis and journal entry procedures.
Implementing additional corporate monitoring activities over our individually insignificant subsidiaries.
Based upon the actions taken during 2019, which were substantially completed in the fourth quarter of 2019, and our
testing and evaluation of the newly implemented control activities and our internal control over financing reporting, we have
concluded that the material weaknesses have been remediated as of December 31, 2019.
Other than the changes discussed above, there has been no change in our internal control over financial reporting during
the fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of WEX Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of WEX Inc. and subsidiaries (the “Company”) as of December 31, 2019 based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 28, 2020,
expressed an unqualified opinion on those financial statements.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the
internal control over financial reporting at Noventis, Inc. acquired on January 24, 2019, Pavestone Capital, LLC acquired on February 14,
2019, Discovery Benefits, Inc. acquired on March 5, 2019, and Go Fuel Card acquired on July 1, 2019 whose financial statements constitute
8.3% of total assets (excluding goodwill and intangibles, which are included within the scope assessment) and 8.9% of total revenues of the
consolidated financial statement amounts as of and for the year ended December 31, 2019. Accordingly, our audit did not include the internal
control over financial reporting at Noventis, Inc., Pavestone Capital, LLC, Discovery Benefits, Inc., and Go Fuel Card.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control
Over Financial Reporting appearing at Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 28, 2020
115
116
•
•
•
Evaluating the sufficiency, experience, and training of our internal personnel at our Brazilian subsidiary and
hiring additional qualified personnel or using external resources.
Implementing control activities at our Brazilian subsidiary that address relevant financial statement risks,
including account reconciliations, variance analysis and journal entry procedures.
Implementing additional corporate monitoring activities over our individually insignificant subsidiaries.
Based upon the actions taken during 2019, which were substantially completed in the fourth quarter of 2019, and our
testing and evaluation of the newly implemented control activities and our internal control over financing reporting, we have
concluded that the material weaknesses have been remediated as of December 31, 2019.
Other than the changes discussed above, there has been no change in our internal control over financial reporting during
the fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of WEX Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of WEX Inc. and subsidiaries (the “Company”) as of December 31, 2019 based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 28, 2020,
expressed an unqualified opinion on those financial statements.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the
internal control over financial reporting at Noventis, Inc. acquired on January 24, 2019, Pavestone Capital, LLC acquired on February 14,
2019, Discovery Benefits, Inc. acquired on March 5, 2019, and Go Fuel Card acquired on July 1, 2019 whose financial statements constitute
8.3% of total assets (excluding goodwill and intangibles, which are included within the scope assessment) and 8.9% of total revenues of the
consolidated financial statement amounts as of and for the year ended December 31, 2019. Accordingly, our audit did not include the internal
control over financial reporting at Noventis, Inc., Pavestone Capital, LLC, Discovery Benefits, Inc., and Go Fuel Card.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control
Over Financial Reporting appearing at Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 28, 2020
115
116
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “The Board
of Directors” and the related subsections, “Executive Officers,” “Delinquent Section 16(a) Reports,” if applicable, “Director
Nominations and Recommendations,” “Communications with the Board of Directors” and “Governance,” which information is
incorporated herein by reference.
Website Availability of Corporate Governance and Other Documents
The following documents are available on the Corporate Governance page of the investor relations section of the Company’s
website, www.wexinc.com: (1) WEX Code of Business Conduct and Ethics, which covers all employees, officers and our board
of directors, (2) the Company’s Corporate Governance Guidelines and (3) key Board Committee charters, including charters for
the Audit, Corporate Governance and Compensation Committees. Stockholders also may obtain printed copies of these documents
by submitting a written request to Investor Relations, WEX Inc., 97 Darling Avenue, South Portland, Maine 04106. The Company
intends to post on its website, www.wexinc.com, all disclosures that are required by law or NYSE listing standards concerning
any amendments to, or waivers from, the Code of Business Conduct and Ethics.
ITEM 11. EXECUTIVE COMPENSATION
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Executive
Compensation” and the related subsections, “Director Compensation” and “Compensation Committee Interlocks and Insider
Participation,” which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Securities
Authorized for Issuance Under Equity Compensation Plans” and “Principal Stockholders” and the related subsections, which
information is incorporated herein by reference.
The following documents are filed as part of this report:
1. Financial Statements (see Index to Consolidated Financial Statements on page 60).
2. Financial statement schedules have been omitted since they are either not required or not applicable or the
information is otherwise included herein.
3. The exhibit index attached to this Annual Report on Form 10–K is hereby incorporated by reference.
ITEM 16. FORM 10–K SUMMARY
None.
Exhibit No.
Description
EXHIBIT INDEX
Unit Purchase Agreement, dated October 18, 2015, by and among WEX Inc., Mustang HoldCo 1 LLC, Warburg Pincus Private
Equity (E&P) XI - B, L.P., Warburg Pincus Private Equity XI C, L.P., WP XI Partners, L.P., Warburg Pincus Private Equity XI B,
L.P., WP Mustang Co Invest B, L.P., WP Mustang Co Invest C L.P., Warburg Pincus XI (E&P) Partners B, L.P., Warburg Pincus
(E&P) XI, L.P., WP Mustang Topco LLC and Warburg Pincus Private Equity XI (Lexington), LLC (incorporated by reference to
Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on October 19, 2015, File No. 001-32426)
Share Purchase Agreement, dated January 24, 2020, by and among WEX Inc., eNett International (Jersey) Limited, a Jersey
limited company, Optal Limited, a private company limited by shares incorporated in England and Wales, Travelport Limited, a
Bermuda exempted company, Toro Private Holdings I, Ltd., a private company limited by shares incorporated in England and
Wales, Optal Limited, in its capacity as trustee of the PSP Group DESOP Discretionary Trust established by way of discretionary
trust deed dated 28 October 2008, as amended from time to time, and the other shareholders of eNett and Optal set forth therein
(incorporated herein by reference to Exhibit No. 2.1 to our Current Report on Form 8-K filed with the SEC on January 24, 2020,
File No. 001-32426)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
3.1
Certificate of Incorporation (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on
March 1, 2005, File No. 001-32426)
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Director
Independence” and “Certain Relationships and Related Transactions,” which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
3.2
Certificate of Ownership and Merger merging WEX Transitory Corporation with and into Wright Express Corporation
(incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on October 30, 2012, File No.
001-32426)
See the section of the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Auditor
Selection and Fees,” which information is incorporated herein by reference.
3.3
Amended and Restated By-Laws of WEX Inc., as amended and restated as of April 16, 2019 (incorporated by reference to Exhibit
3.1 to our Current Report on Form 8-K filed with the SEC on April 22, 2019, File No. 001-32426)
Indenture, dated as of January 30, 2013, among WEX Inc., the Guarantors named therein, and The Bank of New York Mellon Trust
Company, N.A. (incorporated by reference to Exhibit No. 4.1 to our Current Report on Form 8-K filed with the SEC on February
1, 2013, File No. 001-32426)
Supplemental Indenture, dated as of July 1, 2016 to the Indenture, dated as of January 30, 2013 among WEX Inc., the additional
subsidiary guarantors thereto and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit No.
4.1 to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
U.S. Security Agreement, made by WEX Inc., and the certain of its subsidiaries, as pledgors, assignors and debtors dated as of July
1, 2016, in favor of Bank of America, as collateral agent for the Lenders (incorporated by reference to Exhibit No. 4.2 to our
Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
* 4.4
Description of WEX Inc.’s Securities Registered under Section 12 of the Exchange Act.
10.1
Form of director indemnification agreement (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K
filed with the SEC on June 8, 2009, File No. 001-32426)
117
118
2.1
2.2
4.1
4.2
4.3
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “The Board
of Directors” and the related subsections, “Executive Officers,” “Delinquent Section 16(a) Reports,” if applicable, “Director
Nominations and Recommendations,” “Communications with the Board of Directors” and “Governance,” which information is
incorporated herein by reference.
Website Availability of Corporate Governance and Other Documents
The following documents are available on the Corporate Governance page of the investor relations section of the Company’s
website, www.wexinc.com: (1) WEX Code of Business Conduct and Ethics, which covers all employees, officers and our board
of directors, (2) the Company’s Corporate Governance Guidelines and (3) key Board Committee charters, including charters for
the Audit, Corporate Governance and Compensation Committees. Stockholders also may obtain printed copies of these documents
by submitting a written request to Investor Relations, WEX Inc., 97 Darling Avenue, South Portland, Maine 04106. The Company
intends to post on its website, www.wexinc.com, all disclosures that are required by law or NYSE listing standards concerning
any amendments to, or waivers from, the Code of Business Conduct and Ethics.
ITEM 11. EXECUTIVE COMPENSATION
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Executive
Compensation” and the related subsections, “Director Compensation” and “Compensation Committee Interlocks and Insider
Participation,” which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Securities
Authorized for Issuance Under Equity Compensation Plans” and “Principal Stockholders” and the related subsections, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See the information in the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Director
Independence” and “Certain Relationships and Related Transactions,” which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
See the section of the Company’s proxy statement for the 2020 Annual Meeting of Stockholders captioned “Auditor
Selection and Fees,” which information is incorporated herein by reference.
The following documents are filed as part of this report:
1. Financial Statements (see Index to Consolidated Financial Statements on page 60).
2. Financial statement schedules have been omitted since they are either not required or not applicable or the
information is otherwise included herein.
3. The exhibit index attached to this Annual Report on Form 10–K is hereby incorporated by reference.
ITEM 16. FORM 10–K SUMMARY
None.
Exhibit No.
Description
EXHIBIT INDEX
2.1
2.2
3.1
3.2
3.3
4.1
4.2
4.3
* 4.4
10.1
Unit Purchase Agreement, dated October 18, 2015, by and among WEX Inc., Mustang HoldCo 1 LLC, Warburg Pincus Private
Equity (E&P) XI - B, L.P., Warburg Pincus Private Equity XI C, L.P., WP XI Partners, L.P., Warburg Pincus Private Equity XI B,
L.P., WP Mustang Co Invest B, L.P., WP Mustang Co Invest C L.P., Warburg Pincus XI (E&P) Partners B, L.P., Warburg Pincus
(E&P) XI, L.P., WP Mustang Topco LLC and Warburg Pincus Private Equity XI (Lexington), LLC (incorporated by reference to
Exhibit 2.1 to our Current Report on Form 8-K filed with the SEC on October 19, 2015, File No. 001-32426)
Share Purchase Agreement, dated January 24, 2020, by and among WEX Inc., eNett International (Jersey) Limited, a Jersey
limited company, Optal Limited, a private company limited by shares incorporated in England and Wales, Travelport Limited, a
Bermuda exempted company, Toro Private Holdings I, Ltd., a private company limited by shares incorporated in England and
Wales, Optal Limited, in its capacity as trustee of the PSP Group DESOP Discretionary Trust established by way of discretionary
trust deed dated 28 October 2008, as amended from time to time, and the other shareholders of eNett and Optal set forth therein
(incorporated herein by reference to Exhibit No. 2.1 to our Current Report on Form 8-K filed with the SEC on January 24, 2020,
File No. 001-32426)
Certificate of Incorporation (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on
March 1, 2005, File No. 001-32426)
Certificate of Ownership and Merger merging WEX Transitory Corporation with and into Wright Express Corporation
(incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on October 30, 2012, File No.
001-32426)
Amended and Restated By-Laws of WEX Inc., as amended and restated as of April 16, 2019 (incorporated by reference to Exhibit
3.1 to our Current Report on Form 8-K filed with the SEC on April 22, 2019, File No. 001-32426)
Indenture, dated as of January 30, 2013, among WEX Inc., the Guarantors named therein, and The Bank of New York Mellon Trust
Company, N.A. (incorporated by reference to Exhibit No. 4.1 to our Current Report on Form 8-K filed with the SEC on February
1, 2013, File No. 001-32426)
Supplemental Indenture, dated as of July 1, 2016 to the Indenture, dated as of January 30, 2013 among WEX Inc., the additional
subsidiary guarantors thereto and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit No.
4.1 to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
U.S. Security Agreement, made by WEX Inc., and the certain of its subsidiaries, as pledgors, assignors and debtors dated as of July
1, 2016, in favor of Bank of America, as collateral agent for the Lenders (incorporated by reference to Exhibit No. 4.2 to our
Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
Description of WEX Inc.’s Securities Registered under Section 12 of the Exchange Act.
Form of director indemnification agreement (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K
filed with the SEC on June 8, 2009, File No. 001-32426)
117
118
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
†10.16
†10.17
Tax Receivable Agreement, dated as of February 22, 2005, by and between Cendant Corporation and Wright Express Corporation
(incorporated by reference to Exhibit No. 10.3 to our Current Report on Form 8-K filed with the SEC on March 1, 2005, File No.
001-32426)
Tax Receivable Prepayment Agreement dated June 26, 2009 by and between Wright Express Corporation and Realogy Corporation
(incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on July 2, 2009, File No.
001-32426)
Ratification Agreement dated June 26, 2009 by and among Wright Express Corporation, Realogy Corporation, Wyndham
Worldwide Corporation and Avis Budget Group, Inc. (incorporated by reference to Exhibit No. 10.2 to our Current Report on Form
8-K filed with the SEC on July 2, 2009, File No. 001-32426)
Guarantee, dated as of June 26, 2009, by Apollo Investment Fund VI, L.P., Apollo Overseas Partners VI, L.P., Apollo Overseas
Partners (Delaware) VI, L.P., Apollo Overseas Partners (Delaware892) VI, L.P. and Apollo Overseas Partners (Germany) VI, L.P.
in favor of Wright Express Corporation (incorporated by reference to Exhibit No. 10.3 to our Quarterly Report on Form 10-Q filed
with the SEC on July 30, 2009, File No. 001-324426)
Investors Rights Agreement, dated as of July 1, 2016, by and among WEX Inc., Mustang HoldCo 1 LLC, Warburg Pincus Private
Equity (E&P) XI B, L.P., Warburg Pincus Private Equity XI – C, L.P., WP XI Partners, L.P., Warburg Pincus Private Equity XI –
B, L.P., WP Mustang Co-Invest – B L.P., WP Mustang Co-Invest – C L.P., Warburg Pincus XI (E&P) Partners – B, L.P., Warburg
Pincus (E&P) XI, L.P., WP (Lexington) Holdings II, L.P., Warburg Pincus Private Equity (Lexington) XI – A, L.P., Warburg Pincus
XI (Lexington) Partners – A , L.P., WP Mustang Co-Invest LLC and the other investors party thereto (incorporated by reference to
Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
Credit Agreement among WEX Inc., certain of its subsidiaries as borrowers, WEX Card Holding Australia Pty Ltd., as designated
borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto
(incorporated by reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No.
001-32426)
First Amendment to Credit Agreement dated July 3, 2017, between WEX Inc., Wright Express International Holdings Limited,
WEX Card Holdings Australia Pty Ltd. and Bank of America (incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed with the SEC on July 3, 2017, File No. 001-32426)
† * 10.18
Form of WEX Inc. Restricted Stock Unit Agreement under the WEX Inc. 2019 Equity and Incentive Plan.
† * 10.19
Form of WEX Inc. Performance-Based Restricted Stock Unit Agreement under the WEX Inc. 2019 Equity and Incentive Plan.
† * 10.20
Form of WEX Inc. Nonqualified Stock Option Agreement under the WEX Inc. 2019 Equity and Incentive Plan.
†10.21
Wright Express Corporation Amended and Restated Non-Employee Directors Deferred Compensation Plan (incorporated by
reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
†10.22
2014 Form of Annual Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form
10-Q filed with the SEC on April 30, 2014, File No. 001-32426)
† 10.23
Form of 2014 Growth Grant - Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 to
our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2014, File No. 001-32426)
† 10.24
2015 Section 162(m) Performance Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
filed with the SEC on May 21, 2015, File No. 001-32426)
† 10.25
WEX Inc. Executive Severance Pay and Change in Control Plan dated March 5, 2018 (incorporated by reference to Exhibit No.
10.18 to our Annual Report on Form 10-K filed with the SEC on March 18, 2019, File No. 001-32426)
† 10.26
Form of Employment Agreement for David Maxsimic and Melissa Smith (incorporated by reference to Exhibit No. 10.6 to our
Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
Second Amendment to Credit Agreement dated October 30, 2017, between WEX Inc., Wright Express International Holdings
Limited, WEX Card Holdings Australia Pty Ltd., Bank of America and Santander Bank, N.A. (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 3, 2017, File No. 001-32426)
† 10.27
Form of Employment Agreement for Robert Cornett, Hilary Rapkin and Jamie Morin (incorporated by reference to Exhibit No.
10.7 to our Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
Third Amendment to Credit Agreement dated January 17, 2018, between WEX Inc., Wright Express International Holdings Limited,
WEX Card Holdings Australia Pty Ltd., Bank of America (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed with the SEC on January 18, 2018, File No. 001-32426)
† 10.28
Form of Long Term Incentive Program Award Agreement under the Amended and Restated Wright Express Corporation 2005
Equity and Incentive Plan (incorporated by reference to Exhibit No. 99.1 to our Current Report on Form 8-K filed with the SEC on
April 6, 2006, File No. 001-32426)
Fourth Amendment to Credit Agreement dated August 24, 2018, between WEX Inc., Wright Express International Holdings Limited,
WEX Card Holdings Australia Pty Ltd., Bank of America (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed with the SEC on August 24, 2018, File No. 001-32426)
Form of Non-Employee Director Long Term Incentive Program Award Agreement under the Amended and Restated Wright
Express Corporation 2005 Equity and Incentive Plan (for grants received prior to December 31, 2006) (incorporated by reference
to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2008, File No. 001-32426)
Fifth Amendment to Credit Agreement dated January 18, 2019, between WEX Inc., Wright Express International Holdings
Limited, WEX Card Holdings Australia Pty Ltd., Bank of America (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on January 22, 2019, File No. 001-32426)
Sixth Amendment to Credit Agreement dated as of May 17, 2019, by and among WEX Inc., the subsidiaries of WEX Inc.
identified therein, the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on May 20, 2019, File No. 001-32426)
Seventh Amendment to Credit Agreement dated as of November 19, 2019, by and among WEX Inc., the subsidiaries of WEX Inc.
identified therein, Bell Bank, as the incremental revolving loan lender, and Bank of America, N.A., as administrative agent
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 25, 2019, File No.
001-32426)
Eighth Amendment to Credit Agreement dated February 10, 2020, by and among WEX Inc., the subsidiaries of WEX Inc.
identified therein, Bank of America, N.A., as administrative agent, and the lenders party thereto (incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on February 13, 2020, File No. 001-32426)
Wright Express Corporation Amended 2010 Equity and Incentive Plan (incorporated by reference to Exhibit No. 99.1 to our
Current Report on Form 8-K filed with the SEC on May 21, 2010, File No. 001-32426)
WEX Inc. 2019 Equity and Incentive Plan (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed
with the SEC on May 15, 2019, File No. 001-32426)
119
120
† 10.29
† 10.30
Form of Wright Express Corporation Long Term Incentive Program 2010 Growth Grant Stock Non-Statutory Stock Option Award
Agreement under the Amended and Restated Wright Express Corporation 2005 Equity and Incentive Plan (incorporated by
reference to Exhibit No. 10.5 to our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2010, File No. 001-32426)
† 10.31
Form of Wright Express Corporation Option Agreement under the Wright Express Corporation 2010 Equity and Incentive Plan
(incorporated by reference to Exhibit No. 10.29 to our Annual Report on Form 10-K filed with the SEC on February 28, 2011, File
No. 001-32426)
† 10.32
2015 Form of WEX Inc. Long Term Incentive Program Non-Statutory Stock Option Award Agreement (incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on May 1, 2015, File No. 001-32426)
† 10.33
Form of Wright Express Corporation Non-Employee Director Compensation Plan Award Agreement under the Wright Express
Corporation 2010 Equity and Incentive Plan (incorporated by reference to Exhibit No. 10.31 to our Annual Report on Form 10-K
filed with the SEC on February 28, 2011, File No. 001-32426)
† 10.34
Offer Letter dated November 3, 2015 between WEX Inc. and Mr. Simon (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on November 5, 2015, File No. 001-32426)
† 10.35
Severance and Restricted Covenant Agreement between Roberto Simon and WEX Inc., dated March 3, 2016 (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on April 28, 2016, File No. 001-32426)
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Tax Receivable Agreement, dated as of February 22, 2005, by and between Cendant Corporation and Wright Express Corporation
(incorporated by reference to Exhibit No. 10.3 to our Current Report on Form 8-K filed with the SEC on March 1, 2005, File No.
† * 10.18
Form of WEX Inc. Restricted Stock Unit Agreement under the WEX Inc. 2019 Equity and Incentive Plan.
Tax Receivable Prepayment Agreement dated June 26, 2009 by and between Wright Express Corporation and Realogy Corporation
(incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on July 2, 2009, File No.
† * 10.19
Form of WEX Inc. Performance-Based Restricted Stock Unit Agreement under the WEX Inc. 2019 Equity and Incentive Plan.
001-32426)
001-32426)
Ratification Agreement dated June 26, 2009 by and among Wright Express Corporation, Realogy Corporation, Wyndham
Worldwide Corporation and Avis Budget Group, Inc. (incorporated by reference to Exhibit No. 10.2 to our Current Report on Form
8-K filed with the SEC on July 2, 2009, File No. 001-32426)
Guarantee, dated as of June 26, 2009, by Apollo Investment Fund VI, L.P., Apollo Overseas Partners VI, L.P., Apollo Overseas
Partners (Delaware) VI, L.P., Apollo Overseas Partners (Delaware892) VI, L.P. and Apollo Overseas Partners (Germany) VI, L.P.
in favor of Wright Express Corporation (incorporated by reference to Exhibit No. 10.3 to our Quarterly Report on Form 10-Q filed
with the SEC on July 30, 2009, File No. 001-324426)
Investors Rights Agreement, dated as of July 1, 2016, by and among WEX Inc., Mustang HoldCo 1 LLC, Warburg Pincus Private
Equity (E&P) XI B, L.P., Warburg Pincus Private Equity XI – C, L.P., WP XI Partners, L.P., Warburg Pincus Private Equity XI –
B, L.P., WP Mustang Co-Invest – B L.P., WP Mustang Co-Invest – C L.P., Warburg Pincus XI (E&P) Partners – B, L.P., Warburg
Pincus (E&P) XI, L.P., WP (Lexington) Holdings II, L.P., Warburg Pincus Private Equity (Lexington) XI – A, L.P., Warburg Pincus
XI (Lexington) Partners – A , L.P., WP Mustang Co-Invest LLC and the other investors party thereto (incorporated by reference to
Exhibit No. 10.1 to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No. 001-32426)
Credit Agreement among WEX Inc., certain of its subsidiaries as borrowers, WEX Card Holding Australia Pty Ltd., as designated
borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto
(incorporated by reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on July 1, 2016, File No.
001-32426)
First Amendment to Credit Agreement dated July 3, 2017, between WEX Inc., Wright Express International Holdings Limited,
WEX Card Holdings Australia Pty Ltd. and Bank of America (incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed with the SEC on July 3, 2017, File No. 001-32426)
Second Amendment to Credit Agreement dated October 30, 2017, between WEX Inc., Wright Express International Holdings
Limited, WEX Card Holdings Australia Pty Ltd., Bank of America and Santander Bank, N.A. (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 3, 2017, File No. 001-32426)
Third Amendment to Credit Agreement dated January 17, 2018, between WEX Inc., Wright Express International Holdings Limited,
WEX Card Holdings Australia Pty Ltd., Bank of America (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed with the SEC on January 18, 2018, File No. 001-32426)
Fourth Amendment to Credit Agreement dated August 24, 2018, between WEX Inc., Wright Express International Holdings Limited,
WEX Card Holdings Australia Pty Ltd., Bank of America (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed with the SEC on August 24, 2018, File No. 001-32426)
Fifth Amendment to Credit Agreement dated January 18, 2019, between WEX Inc., Wright Express International Holdings
Limited, WEX Card Holdings Australia Pty Ltd., Bank of America (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on January 22, 2019, File No. 001-32426)
Sixth Amendment to Credit Agreement dated as of May 17, 2019, by and among WEX Inc., the subsidiaries of WEX Inc.
identified therein, the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on May 20, 2019, File No. 001-32426)
Seventh Amendment to Credit Agreement dated as of November 19, 2019, by and among WEX Inc., the subsidiaries of WEX Inc.
identified therein, Bell Bank, as the incremental revolving loan lender, and Bank of America, N.A., as administrative agent
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 25, 2019, File No.
001-32426)
Eighth Amendment to Credit Agreement dated February 10, 2020, by and among WEX Inc., the subsidiaries of WEX Inc.
identified therein, Bank of America, N.A., as administrative agent, and the lenders party thereto (incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on February 13, 2020, File No. 001-32426)
†10.16
Wright Express Corporation Amended 2010 Equity and Incentive Plan (incorporated by reference to Exhibit No. 99.1 to our
Current Report on Form 8-K filed with the SEC on May 21, 2010, File No. 001-32426)
†10.17
WEX Inc. 2019 Equity and Incentive Plan (incorporated by reference to Exhibit No. 10.1 to our Current Report on Form 8-K filed
with the SEC on May 15, 2019, File No. 001-32426)
† * 10.20
Form of WEX Inc. Nonqualified Stock Option Agreement under the WEX Inc. 2019 Equity and Incentive Plan.
†10.21
†10.22
† 10.23
† 10.24
† 10.25
† 10.26
† 10.27
† 10.28
† 10.29
† 10.30
† 10.31
Wright Express Corporation Amended and Restated Non-Employee Directors Deferred Compensation Plan (incorporated by
reference to Exhibit No. 10.2 to our Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
2014 Form of Annual Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form
10-Q filed with the SEC on April 30, 2014, File No. 001-32426)
Form of 2014 Growth Grant - Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 to
our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2014, File No. 001-32426)
2015 Section 162(m) Performance Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
filed with the SEC on May 21, 2015, File No. 001-32426)
WEX Inc. Executive Severance Pay and Change in Control Plan dated March 5, 2018 (incorporated by reference to Exhibit No.
10.18 to our Annual Report on Form 10-K filed with the SEC on March 18, 2019, File No. 001-32426)
Form of Employment Agreement for David Maxsimic and Melissa Smith (incorporated by reference to Exhibit No. 10.6 to our
Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
Form of Employment Agreement for Robert Cornett, Hilary Rapkin and Jamie Morin (incorporated by reference to Exhibit No.
10.7 to our Current Report on Form 8-K filed with the SEC on January 7, 2009, File No. 001-32426)
Form of Long Term Incentive Program Award Agreement under the Amended and Restated Wright Express Corporation 2005
Equity and Incentive Plan (incorporated by reference to Exhibit No. 99.1 to our Current Report on Form 8-K filed with the SEC on
April 6, 2006, File No. 001-32426)
Form of Non-Employee Director Long Term Incentive Program Award Agreement under the Amended and Restated Wright
Express Corporation 2005 Equity and Incentive Plan (for grants received prior to December 31, 2006) (incorporated by reference
to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2008, File No. 001-32426)
Form of Wright Express Corporation Long Term Incentive Program 2010 Growth Grant Stock Non-Statutory Stock Option Award
Agreement under the Amended and Restated Wright Express Corporation 2005 Equity and Incentive Plan (incorporated by
reference to Exhibit No. 10.5 to our Quarterly Report on Form 10-Q filed with the SEC on April 30, 2010, File No. 001-32426)
Form of Wright Express Corporation Option Agreement under the Wright Express Corporation 2010 Equity and Incentive Plan
(incorporated by reference to Exhibit No. 10.29 to our Annual Report on Form 10-K filed with the SEC on February 28, 2011, File
No. 001-32426)
† 10.32
2015 Form of WEX Inc. Long Term Incentive Program Non-Statutory Stock Option Award Agreement (incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on May 1, 2015, File No. 001-32426)
† 10.33
Form of Wright Express Corporation Non-Employee Director Compensation Plan Award Agreement under the Wright Express
Corporation 2010 Equity and Incentive Plan (incorporated by reference to Exhibit No. 10.31 to our Annual Report on Form 10-K
filed with the SEC on February 28, 2011, File No. 001-32426)
† 10.34
Offer Letter dated November 3, 2015 between WEX Inc. and Mr. Simon (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed with the SEC on November 5, 2015, File No. 001-32426)
† 10.35
Severance and Restricted Covenant Agreement between Roberto Simon and WEX Inc., dated March 3, 2016 (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed with the SEC on April 28, 2016, File No. 001-32426)
119
120
† 10.36
Form of Non Employee Director Compensation Plan effective September 21, 2016 (incorporated by reference to Exhibit 10.1 to
our Quarterly Report on Form 10-Q filed with the SEC on August 9, 2017, File No. 001-32426)
* 23.1
Consent of Independent Registered Accounting Firm – Deloitte & Touche LLP
† 10.37
† 10.38
† 10.39
† 10.40
† 10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
Form of Non Employee Director Compensation Plan effective October 1, 2017 (incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q filed with the SEC on November 8, 2017, File No. 001-32426)
Employment Agreement for Scott Phillips dated October 16, 2015 (incorporated by reference to Exhibit 10.29 to our Annual
Report on Form 10-K filed with the SEC on March 1, 2018, File No. 001-32426)
Noncompetition, Nonsolicitation, Confidentiality, and Inventions Agreement for Scott Phillips dated October 16, 2015
(incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K filed with the SEC on March 1, 2018, File No.
001-32426)
First Amendment to Employment Agreement for Scott Phillips dated November 1, 2017 (incorporated by reference to Exhibit
10.31 to our Annual Report on Form 10-K filed with the SEC on March 1, 2018, File No. 001-32426)
First Amendment to Noncompetition, Nonsolicitation, Confidentiality, and Inventions Agreement for Scott Phillips dated
November 1, 2017 (incorporated by reference to Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 1,
2018, File No. 001-32426)
Southern Cross WEX 2015-1 Trust - Receivables Acquisition and Servicing Agreement (incorporated by reference to Exhibit 10.1
to our Quarterly Report on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
* 31.1
Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act
* 31.2
Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act
of 1934, as amended
of 1934, as amended
* 32.1
Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act
of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
* 32.2
Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act
of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
* 101.INS
Inline XBRL Instance Document
* 101.SCH
Inline XBRL Taxonomy Extension Schema Document
* 101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document
* 101.LAB
Inline XBRL Taxonomy Label Linkbase Document
Southern Cross WEX 2015-1 Trust - Guarantee and Indemnity (incorporated by reference to Exhibit 10.2 to our Quarterly Report
on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
* 101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document
Southern Cross WEX 2015-1 Trust General Security Agreement (incorporated by reference to Exhibit 10.3 to our Quarterly Report
on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
* 101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Southern Cross WEX 2015-1 Trust Class A Facility Deed (incorporated by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
Southern Cross WEX 2015-1 Trust Class B Facility Deed (incorporated by reference to Exhibit 10.5 to our Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
Commitment Letter, dated as of October 18, 2015, by and among WEX Inc., Bank of America, N.A., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, SunTrust Bank, SunTrust Robinson Humphrey and MUFG Union Bank, N.A (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 19, 2015, File No. 001-32426)
Consent and Amendment Under Credit Agreement, dated as of February 27, 2019, by and among WEX Inc., the subsidiaries of
WEX Inc. identified therein, the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 1, 2019, File No. 001-32426).
* 104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits
*
†
101)
Filed with this report.
this Form 10-K.
Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
† 10.49
Form of Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form
10-Q filed with the SEC on November 8, 2019, File No. 001-32426)
February 28, 2020
† 10.50
Form of Non-Employee Director Equity Ownership Guideline (incorporated by reference to Exhibit 10.2 to our Quarterly Report
on Form 10-Q filed with the SEC on November 8, 2019, File No. 001-32426)
10.51
10.52
Commitment Letter, dated as of January 24, 2020, by and among WEX Inc., Bank of America, N.A., and BofA Securities, Inc.
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on January 24, 2020, File No.
001-32426)
Amended and Restated Commitment Letter, dated as of February 10, 2020, by and among WEX Inc., Bank of America, N.A.,
BofA Securities, Inc., Citizens Bank, N.A., MUFG Bank, Ltd., SunTrust Robinson Humphrey, Inc., Truist Bank, Wells Fargo
Securities, LLC, Wells Fargo Bank, N.A., Bank of Montreal, BMO Capital Markets Corp., Santander Bank, N.A., KeyBank
National Association, KeyBanc Capital Markets Inc., Regions Capital Markets, a division of Regions Bank, Deutsche Bank AG
Cayman Islands Branch, Deutsche Bank AG New York Branch, Deutsche Bank Securities Inc. and Fifth Third Bank, National
Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on February 13,
2020, File No. 001-32426)
* 21.1
Subsidiaries of the registrant
121
122
WEX INC.
By:
/s/ Roberto Simon
Roberto Simon
Chief Financial Officer (principal financial officer
and principal accounting officer)
† 10.36
Form of Non Employee Director Compensation Plan effective September 21, 2016 (incorporated by reference to Exhibit 10.1 to
our Quarterly Report on Form 10-Q filed with the SEC on August 9, 2017, File No. 001-32426)
* 23.1
Consent of Independent Registered Accounting Firm – Deloitte & Touche LLP
† 10.37
Form of Non Employee Director Compensation Plan effective October 1, 2017 (incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q filed with the SEC on November 8, 2017, File No. 001-32426)
† 10.38
Employment Agreement for Scott Phillips dated October 16, 2015 (incorporated by reference to Exhibit 10.29 to our Annual
Report on Form 10-K filed with the SEC on March 1, 2018, File No. 001-32426)
† 10.39
Noncompetition, Nonsolicitation, Confidentiality, and Inventions Agreement for Scott Phillips dated October 16, 2015
(incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K filed with the SEC on March 1, 2018, File No.
001-32426)
† 10.40
First Amendment to Employment Agreement for Scott Phillips dated November 1, 2017 (incorporated by reference to Exhibit
10.31 to our Annual Report on Form 10-K filed with the SEC on March 1, 2018, File No. 001-32426)
† 10.41
First Amendment to Noncompetition, Nonsolicitation, Confidentiality, and Inventions Agreement for Scott Phillips dated
November 1, 2017 (incorporated by reference to Exhibit 10.32 to our Annual Report on Form 10-K filed with the SEC on March 1,
2018, File No. 001-32426)
10.42
Southern Cross WEX 2015-1 Trust - Receivables Acquisition and Servicing Agreement (incorporated by reference to Exhibit 10.1
to our Quarterly Report on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
* 31.1
* 31.2
* 32.1
* 32.2
Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act
of 1934, as amended
Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act
of 1934, as amended
Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act
of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act
of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
* 101.INS
Inline XBRL Instance Document
* 101.SCH
Inline XBRL Taxonomy Extension Schema Document
* 101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document
* 101.LAB
Inline XBRL Taxonomy Label Linkbase Document
10.43
Southern Cross WEX 2015-1 Trust - Guarantee and Indemnity (incorporated by reference to Exhibit 10.2 to our Quarterly Report
on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
* 101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document
10.44
Southern Cross WEX 2015-1 Trust General Security Agreement (incorporated by reference to Exhibit 10.3 to our Quarterly Report
* 101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
on Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
10.45
Southern Cross WEX 2015-1 Trust Class A Facility Deed (incorporated by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
10.46
Southern Cross WEX 2015-1 Trust Class B Facility Deed (incorporated by reference to Exhibit 10.5 to our Quarterly Report on
Form 10-Q filed with the SEC on July 31, 2015, File No. 001-32426)
*
†
Commitment Letter, dated as of October 18, 2015, by and among WEX Inc., Bank of America, N.A., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, SunTrust Bank, SunTrust Robinson Humphrey and MUFG Union Bank, N.A (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 19, 2015, File No. 001-32426)
Consent and Amendment Under Credit Agreement, dated as of February 27, 2019, by and among WEX Inc., the subsidiaries of
WEX Inc. identified therein, the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 1, 2019, File No. 001-32426).
* 104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits
101)
Filed with this report.
Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of
this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
† 10.49
Form of Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form
10-Q filed with the SEC on November 8, 2019, File No. 001-32426)
February 28, 2020
† 10.50
Form of Non-Employee Director Equity Ownership Guideline (incorporated by reference to Exhibit 10.2 to our Quarterly Report
on Form 10-Q filed with the SEC on November 8, 2019, File No. 001-32426)
WEX INC.
By:
/s/ Roberto Simon
Roberto Simon
Chief Financial Officer (principal financial officer
and principal accounting officer)
Commitment Letter, dated as of January 24, 2020, by and among WEX Inc., Bank of America, N.A., and BofA Securities, Inc.
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on January 24, 2020, File No.
001-32426)
Amended and Restated Commitment Letter, dated as of February 10, 2020, by and among WEX Inc., Bank of America, N.A.,
BofA Securities, Inc., Citizens Bank, N.A., MUFG Bank, Ltd., SunTrust Robinson Humphrey, Inc., Truist Bank, Wells Fargo
Securities, LLC, Wells Fargo Bank, N.A., Bank of Montreal, BMO Capital Markets Corp., Santander Bank, N.A., KeyBank
National Association, KeyBanc Capital Markets Inc., Regions Capital Markets, a division of Regions Bank, Deutsche Bank AG
Cayman Islands Branch, Deutsche Bank AG New York Branch, Deutsche Bank Securities Inc. and Fifth Third Bank, National
Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on February 13,
2020, File No. 001-32426)
* 21.1
Subsidiaries of the registrant
121
122
10.47
10.48
10.51
10.52
/s/ Regina O. Sommer
Regina O. Sommer
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 25, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
/s/ Melissa D. Smith
Melissa D. Smith
President, Chief Executive Officer and Chair
(principal executive officer)
/s/ Roberto Simon
Roberto Simon
Chief Financial Officer
(principal financial and accounting officer)
/s/ Jack A. VanWoerkom
Jack A. VanWoerkom
Vice Chairman and Lead Director
/s/ John E. Bachman
John E. Bachman
Director
/s/ Daniel Callahan
Daniel Callahan
Director
/s/ Michael E. Dubyak
Michael E. Dubyak
Director
/s/ Shikhar Ghosh
Shikhar Ghosh
Director
/s/ Rowland T. Moriarty
Rowland T. Moriarty
Director
/s/ James C. Neary
James C. Neary
Director
/s/ Stephen Smith
Stephen Smith
Director
/s/ Susan Sobbott
Susan Sobbott
Director
123
124
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
February 28, 2020
/s/ Regina O. Sommer
Regina O. Sommer
Director
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 25, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
/s/ Melissa D. Smith
Melissa D. Smith
President, Chief Executive Officer and Chair
(principal executive officer)
/s/ Roberto Simon
Roberto Simon
Chief Financial Officer
(principal financial and accounting officer)
/s/ Jack A. VanWoerkom
Jack A. VanWoerkom
Vice Chairman and Lead Director
/s/ John E. Bachman
John E. Bachman
Director
/s/ Daniel Callahan
Daniel Callahan
Director
/s/ Michael E. Dubyak
Michael E. Dubyak
Director
/s/ Shikhar Ghosh
Shikhar Ghosh
Director
/s/ Rowland T. Moriarty
Rowland T. Moriarty
Director
/s/ James C. Neary
James C. Neary
Director
/s/ Stephen Smith
Stephen Smith
Director
/s/ Susan Sobbott
Susan Sobbott
Director
123
124
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DIRECTORS
MELISSA D. SMITH
Chair and
Chief Executive Officer, WEX
JACK VANWOERKOM
Vice Chairman and
Lead Director, WEX
Former Executive Vice President and
General Counsel, The Home Depot
JOHN JEB E. BACHMAN
Former Partner, PwC
DANIEL DON CALLAHAN
Former Global Head of Operations and
Technology, Citigroup
MICHAEL E. DUBYAK
Former Chief Executive Officer, WEX
SHIKHAR GHOSH
Professor, Harvard Business School
ROWLAND T. MORIARTY
Chairman, CRA International, Inc.
JAMES NEARY
Managing Director, Warburg Pincus
ROBERT DESHAIES
President, Health
STEPHEN STEVE SMITH
President and Chief Executive Officer,
L.L.Bean
KENNETH W. JANOSICK
Chief Portfolio Risk and
Operations Officer
SUSAN SOBBOTT
Former President of Global Commercial
Services, American Express
NICOLA S. MORRIS
Chief Corporate Development
Officer
REGINA O. SOMMER
Financial and Business Consultant
EXECUTIVE OFFICERS
MELISSA D. SMITH
Chair and
Chief Executive Officer
SCOTT PHILLIPS
President, Global Fleet
HILARY A. RAPKIN
Chief Legal Officer
ROBERTO SIMON
Chief Financial Officer
DAVID COOPER
Chief Technology Officer
MELANIE TINTO
Chief Human Resources Officer
JOEL JAY DEARBORN
President, Corporate Payments
CORPORATE HEADQUARTERS
WEX
1 Hancock Street
Portland, ME 04101
(207) 773-8171
Email: newsroom@wexinc.com
www.wexinc.com
TRANSFER AGENT
American Stock Transfer
and Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
(800) 937-5449
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
(617) 437-2000
ATTORNEYS
Wilmer Cutler Pickering Hale
and Dorr LLP
60 State Street
Boston, MA 02109
(617) 526-6000
STOCKHOLDERS’ MEETING
Date: May 14, 2020
Time: 8:00 a.m. ET
Location:
Virtual meeting details to be provided
in Notice and Proxy Statement
TICKER SYMBOL
NYSE: WEX
INVESTOR RELATIONS
Steve Elder
Senior Vice President, Global Investor Relations
(207) 523-7769
Steve.Elder@wexinc.com
FORM 10-K
A copy of the Company’s Form 10-K,
filed with the Securities and Exchange
Commission, is available without charge
upon written request to: WEX
Investor Relations, 1 Hancock Street
Portland, ME 04101; by calling
(866) 230-1633; or by emailing
investors@wexinc.com.
1 h an cock s treet | por tland, maine 04101 | (207) 773.8171
ne w sroom@wexinc.com | w w w.wex inc.com