WEX Inc. 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results, not standalone fourth-quarter results. WEX operates Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $1.851 billion | $1.560 billion |
| Operating income (loss) | $342.0 million | $(91.7) million |
| Income (loss) before taxes | $203.9 million | $(301.1) million |
| Net income (loss) | $136.1 million | $(280.5) million |
| Net income (loss) attributable to shareholders | $0.1 million | $(243.6) million |
| Cash from operating activities | $150.4 million | $857.0 million |
- Revenue increased 18.6%. Operating margin was approximately 18.5%, compared with approximately negative 5.9% in 2020.
- Adjusted net income, a non-GAAP measure, was $414.1 million, up from $268.3 million. Total segment adjusted operating income was $748.4 million, versus $542.4 million.
- Segment adjusted operating income margins: Fleet 50.1% (41.8% in 2020); Travel and Corporate 26.7% (22.3%); Health and Employee Benefits 25.2% (26.6%).
- Shareholder-attributable net income was nearly zero despite positive consolidated net income, principally because of a $135.2 million charge from the change in value of redeemable non-controlling interest in the U.S. Health business.
- Operating cash flow fell substantially, mainly because accounts receivable increased with higher transaction volumes and domestic fuel prices; the increase was partly offset by higher payables and accrued expenses. Investing cash outflow was $1.601 billion, including $994.0 million of purchases of available-for-sale debt securities and $558.8 million of acquisition payments.
- At year-end, cash and cash equivalents were $588.9 million; restricted cash was $667.9 million and is not available for general operations. Accounts receivable were $2.891 billion; approximately 98% of trade receivables were 29 days or less past due.
- Gross debt was $2.905 billion; balance-sheet debt, net of issuance costs and discounts, was $2.851 billion. WEX had $758.8 million of remaining revolving-credit capacity, subject to covenant compliance. Deposits totaled $2.679 billion, including $960 million of HSA custodial deposits held by WEX Bank.
Material changes versus 2020
- Fleet revenue rose 21% to $1.111 billion, reflecting recovery in transaction volumes and higher U.S. fuel prices. Fuel transactions increased 9%; payment-processing transactions rose 11%; average U.S. fuel price increased 36% to $3.11 per gallon. Fleet credit-loss provision declined 33% to $37.8 million.
- Travel and Corporate revenue increased 17% to $324.9 million. Purchase volume rose 85% to $38.6 billion, driven largely by eNett and Optal and stronger corporate-payments volume. Net interchange rate fell from 1.10% to 0.71%, reflecting customer rate changes, product mix, and a fourth-quarter accounting presentation change.
- Health and Employee Benefit revenue increased 14% to $414.2 million, with benefitexpress acquisition effects and higher SaaS account counts contributing. Segment adjusted margin declined to 25.2%, primarily reflecting the acquisition.
- WEX acquired benefitexpress for approximately $275 million, acquired the remaining 25% of WEX Europe Services for $97 million, and acquired HSA custodial rights from Bell Bank for $200 million upfront. It also redeemed $400 million of 4.75% notes and amended and extended its credit agreement.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantified forward-year revenue or earnings guidance. Management says recovery was generally seen across segments in 2021 but notes that COVID-19’s future effects remain uncertain.
- Key risks include fuel-price and fuel-demand volatility, the transition toward alternative-fuel vehicles, travel recovery, economic conditions, interchange-fee pressure, competition, customer credit losses, cybersecurity and technology disruptions, and extensive banking, payments, privacy, and healthcare regulation.
- WEX Bank becomes subject to debit interchange caps on July 1, 2022 after exceeding the small-issuer asset threshold; management stated that revenue from affected debit products was nominal at filing.
- Approximately $2.5 billion of credit-agreement borrowings and about $1.1 billion of swap notional used LIBOR tenors scheduled to cease in June 2023. The agreements include transition provisions, but the replacement-rate outcome remains uncertain.
- The HSA custodial-rights purchase includes contingent payments tied to future Federal Funds rate increases, capped at $225 million cumulatively; the recorded derivative liability was $67.3 million at year-end. Deferred payments were also due in 2023 and 2024.
- WEX settled an SEC investigation in 2021 concerning prior reporting and internal-control issues involving its former Brazil subsidiary, paying a $350,000 civil penalty. The company neither admitted nor denied the SEC’s findings and stated that it had remediated the issues. The filing reports no material pending legal proceedings or estimated material loss contingencies.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The assessment excluded benefitexpress, acquired in June 2021, under SEC guidance for newly acquired businesses.
Investor verification priorities
- Reconcile consolidated net income with the nearly zero shareholder-attributable result, focusing on the redeemable non-controlling-interest valuation adjustment.
- Assess the sustainability and cash conversion of 2021’s revenue and adjusted earnings growth, given the sharp decline in operating cash flow.
- Review acquisition integration, purchase accounting, and realized performance of benefitexpress and eNett/Optal relative to expectations.
- Monitor leverage, covenant headroom, variable-rate exposure, LIBOR transition, and the potential cost of HSA-related contingent consideration.
- Evaluate sensitivity to fuel prices, alternative-vehicle adoption, interchange rates, and travel-sector recovery; confirm the effect of debit interchange caps after July 1, 2022.