WEX Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; comparison is primarily with FY 2021. This is an annual filing, not a standalone fourth-quarter report. WEX provides payment processing, fleet services, employee benefits technology and global business payment solutions through Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions.
Financial performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $2.351 billion | $1.851 billion | +27% |
| Operating income | $469.8 million | $342.0 million | +37% |
| Operating margin | 20.0% | 18.5% | +1.5 percentage points |
| Net income | $167.5 million | $136.1 million | +23% |
| Net income attributable to shareholders | $201.4 million | $0.1 million | Substantially affected by non-controlling-interest accounting in both years |
| Diluted EPS attributable to shareholders | $4.50 | Less than $0.01 | — |
| Operating cash flow | $679.4 million | $(42.6) million | Improved by $722.0 million |
| Adjusted free cash flow (non-GAAP) | $782.4 million | $535.4 million | +46% |
Fleet Solutions revenue rose 30% to $1.444 billion, supported by higher fuel prices and volume growth; its provision for credit losses increased to $172.7 million from $37.8 million. Travel and Corporate Solutions revenue increased 24% to $402.3 million, principally on recovery in travel spending and corporate payment growth. Health and Employee Benefit Solutions revenue increased 22% to $504.5 million, reflecting account growth, benefitexpress, and higher interest income on HSA deposits.
FY 2022 segment adjusted operating income was $693.4 million for Fleet, $192.7 million for Travel and Corporate, and $133.7 million for Health and Employee Benefits. These are non-GAAP segment measures and exclude specified expenses.
Liquidity, debt and capital
- Cash and cash equivalents were $922.0 million; an additional $937.8 million was restricted and not available for general operations.
- Debt was approximately $2.725 billion net of unamortized costs and discounts ($2.769 billion gross). WEX had $898.9 million of remaining revolving-credit availability and no revolving-credit borrowings at year-end.
- WEX Bank deposits totaled $3.479 billion, including $2.070 billion of HSA deposits. Deposit funding is an important source of operating liquidity, but costs can rise with interest rates.
- WEX reported $9.2 billion of unused customer credit commitments; many are not expected to be drawn and most lines can be adjusted at WEX’s discretion.
- The company repurchased approximately 1.9 million shares for $290.8 million during 2022. It has not paid common-stock dividends since becoming publicly traded.
- Management said available cash, operating cash generation and funding sources should be adequate for the next 12 months and foreseeable future. WEX was in compliance with its credit agreement covenants at year-end.
Material changes, unusual items and outlook
- Revenue growth was accompanied by material deterioration in credit and fraud losses, particularly in Fleet. Fleet provision for credit losses rose to 26.0 basis points of fuel expenditures from 7.6 basis points; estimated fraud losses contributed 8.2 basis points versus 1.5.
- WEX recorded a $136.5 million non-cash goodwill impairment in two international Fleet reporting units after weaker projected cash flows, higher interest rates, inflation and lower market valuations. The annual impairment test identified no further impairment.
- A $139.1 million non-cash expense from remeasurement of contingent consideration related to acquired HSA custodial rights reduced pretax earnings. The liability was $206.4 million at year-end; the agreement has a $225 million payment cap, and management expected the full cap to be incurred if rates remained at year-end levels.
- WEX acquired SBI’s remaining 4.53% interest in PO Holding for $234.0 million, payable in installments beginning in 2024, making the U.S. Health business wholly owned. It also purchased a commercial fleet-card receivables portfolio for $41.6 million.
- WEX Bank received an FDIC and Utah DFI consent order in May 2022 requiring improvements to its BSA/AML compliance program and controls. Management said the matter was not expected to materially affect results, financial condition or cash flows.
- Management targeted $100 million of run-rate operating-cost efficiencies by the end of 2024, with some savings expected to be reinvested in growth. The filing does not provide clear formal FY 2023 revenue or earnings guidance.
- Key exposures include fuel prices and fuel demand, economic conditions, customer credit and fraud, interchange regulation, competition, foreign exchange, cybersecurity, interest rates, and dependence on WEX Bank’s industrial bank charter and deposit funding. WEX does not hedge fuel-price exposure and estimated that each one-cent decline below its assumed 2023 average fuel price of $3.83 per gallon would reduce 2023 revenue by $1.8 million.
- Other notable matters: FY 2022 comprehensive loss attributable to WEX was $16.6 million, including substantial unrealized investment-security losses; and WEX announced a $6.0 million software-workforce acquisition in India that closed in January 2023. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Track Fleet credit and fraud losses, delinquencies, and the effectiveness of the fraud-control and merchant-partner measures.
- Assess the durability of revenue growth after separating fuel-price effects, transaction volumes, travel recovery, foreign exchange and accounting presentation changes.
- Reconcile GAAP shareholder earnings with non-GAAP adjusted earnings, especially the contingent-consideration remeasurement, goodwill impairment and redeemable non-controlling-interest effects.
- Monitor deposit availability and costs, WEX Bank capital and regulatory status, the consent-order remediation, and restrictions on cash transfers from the bank to the parent.
- Review debt maturities, variable-rate exposure and hedging expiry; confirm progress on the transition from LIBOR to SOFR and the timing and amount of contingent HSA-acquisition payments.
- Evaluate whether the targeted cost efficiencies are achieved without undermining growth, service quality or employee retention.