WEX Inc. Reports Fourth Quarter and Full Year 2020 Financial Results

Rhea-AI Summary

WEX reported a 9% revenue decline for Q4 2020, totaling $399.0 million, impacted negatively by lower fuel prices and foreign exchange rates. The company posted a net loss of $234.2 million or $(5.30) per diluted share, driven by nonrecurring charges.

For the full year, total revenue fell 10% to $1.56 billion, with a net loss of $5.56 per share compared to a profit in 2019. Despite these challenges, WEX noted positive trends in its corporate payments and health solutions segments. The CEO expressed optimism for future growth as customer demand returns.

Positive

• Average number of vehicles serviced increased 6% to 15.8 million.
• U.S. health solutions segment saw an 8% growth in SaaS accounts.

Negative

• Q4 total fuel transactions decreased by 5% to 147.7 million.
• Travel and Corporate Solutions' purchase volume dropped 48% to $5.0 billion.

WEX Inc. (NYSE: WEX), a leading financial technology service provider, today reported financial results for the three months and year ended December 31, 2020.

Fourth Quarter and Full Year 2020 Financial Results

Total revenue for the fourth quarter of 2020 decreased 9% to $399.0 million from $440.0 million for the fourth quarter of 2019. The $41.1 million decrease in the quarter includes a $16.8 million negative impact from lower average fuel prices and foreign exchange rates.

Net income attributable to shareholders on a GAAP basis for the fourth quarter decreased by $288.6 million to a net loss of $(234.2) million, or $(5.30) per diluted share, due primarily to two nonrecurring charges, compared to net income of $54.4 million, or $1.24 per diluted share for the same period a year ago. The Company's adjusted net income attributable to shareholders, which is a non-GAAP measure, was $64.8 million for the fourth quarter of 2020, or $1.45 per diluted share, down 45% from $114.7 million, or $2.61 per diluted share, for the same period last year. See Exhibit 1 for a full explanation and reconciliation of adjusted net income attributable to shareholders and adjusted net income attributable to shareholders per diluted share to the comparable GAAP measures.

For the full year 2020, revenue decreased 10% to $1.56 billion from $1.72 billion in 2019. Net income attributable to shareholders on a GAAP basis was a net loss of $5.56 per diluted share in 2020 compared to income of $2.26 per diluted share in 2019. On a non-GAAP basis, adjusted net income per diluted share decreased 34% to $6.06 from $9.20 in 2019.

“This year proved to be a year like no other as the world faced a number of challenges. Nevertheless, WEX remained resilient as we continued to advance our strategic objectives. The fourth quarter played out better than expected and we began to see some encouraging trends as customer demand slowly returned despite renewed lockdowns across many parts of the world. Our over-the road, corporate payments and U.S. health businesses remained bright spots, each posting another quarter of top-line growth,” said Melissa Smith, WEX’s Chair and Chief Executive Officer. “We also closed the eNett and Optal transactions at the end of 2020, which increases our flexibility and opportunities going forward. While the travel market will be volatile in the short term, it remains an area of long term opportunity for WEX.”

Ms. Smith continued, “Our solid execution in 2020 underpins the strength and diversification of WEX’s business model. We continued to innovate and advance our products, reflected by the significant number of contract signings and renewals, as well as the achievement of running approximately two thirds of our volume in the cloud. Advancements like this, combined with our customer-centric focus, will continue to differentiate WEX in the marketplace going forward. While the pace of recovery will vary, the anticipated return of volumes from existing customers coupled with new customer additions positions us well to succeed post-pandemic. These factors, bolstered by our continued strategic investments, give me confidence that our next chapter of growth will be our best.”

Fourth Quarter 2020 Performance Metrics

• Average number of vehicles serviced was 15.8 million, an increase of 6% from the fourth quarter of 2019.
• Total fuel transactions processed decreased 5% from the fourth quarter of 2019 to 147.7 million.
• Payment processing transactions decreased 7% to 118.3 million.
• U.S. retail fuel price decreased to $2.26 per gallon from $2.80 per gallon in the fourth quarter of 2019.
• Travel and Corporate Solutions' purchase volume decreased 48% to $5.0 billion from $9.6 billion for the fourth quarter of 2019.
• Health and Employee Benefit Solutions' average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 8% to 14.5 million from 13.4 million for the fourth quarter of 2019.

“While fourth quarter and full year results continued to be impacted by the pandemic, we were encouraged by continued sequential improvement across much of the business. As in prior quarters, we successfully executed against our strategic pillars, drove efficiencies, invested in high-growth areas, maintained high retention rates, and signed new business across all segments,” said Roberto Simon, WEX’s Chief Financial Officer. “We are proud of the resilience WEX demonstrated in 2020, and believe we are well positioned to capture future growth as the economy continues to improve.”

Cost Actions and Liquidity Update

In response to COVID-19 uncertainty, the Company implemented a number of actions to reduce capital and operating expenditures, adjust cost structure and preserve financial flexibility and a strong liquidity position. The total operating expense savings resulting from these actions were in excess of $65 million for the year, compared to our original guidance. The Company believes WEX’s balance sheet and liquidity position remain strong. Year end leverage was 3.7x compared to 3.5x for last year.

Financial Guidance

On May 7, 2020, the Company withdrew all previously-issued full fiscal year 2020 financial guidance due to COVID-19. Given the continued uncertainty related to COVID-19, the Company is not providing any further financial guidance at this time. WEX continues to carefully monitor the pandemic and the impact on its business; however, given the uncertainty regarding the pandemic's spread, duration, and impact, the Company is currently unable to predict the precise extent to which the COVID-19 pandemic will impact its future operations and financial results.

Additional Information

Management uses the non-GAAP measures presented within this news release to evaluate the Company's performance on a comparable basis. Management believes that investors may find these measures useful for the same purposes, but cautions that they should not be considered a substitute for, or superior to, disclosure in accordance with GAAP.

To provide investors with additional insight into its operational performance, WEX has included in this news release in Exhibit 1, reconciliations of non-GAAP measures referenced in this news release, in Exhibit 2, a table illustrating the impact of foreign currency rates and fuel prices for each of our reportable segments for the three and twelve months ended December 31, 2020 and 2019, and in Exhibit 3, a table of selected non-financial metrics for the quarter ended December 31, 2020 and four preceding quarters. The Company is also providing segment revenue for the three and twelve months ended December 31, 2020 and 2019 in Exhibit 4 and information regarding segment adjusted operating income margin and adjusted operating income margin in Exhibit 5.

Conference Call Details

In conjunction with this announcement, WEX will host a conference call today, February 24, 2021, at 9:00 a.m. (ET). As previously announced, the conference call will be webcast live on the Internet, and can be accessed, along with the accompanying slides, at the Investor Relations section of the WEX website, www.wexinc.com. The live conference call also can be accessed by dialing 833-714-0940 or 778-560-2809. The Conference ID number is 1981477 and the passcode is 17620339. A replay of the webcast and the accompanying slides will be available on the Company's website.

About WEX

Powered by the belief that complex payment systems can be made simple, WEX (NYSE: WEX) is a leading financial technology service provider across a wide spectrum of sectors, including fleet, travel and healthcare. WEX operates in more than 10 countries and in more than 20 currencies through more than 5,200 associates around the world. WEX fleet cards offer 15.8 million vehicles exceptional payment security and control; purchase volume in travel and corporate solutions was $20.9 billion in 2020; and the WEX Health financial technology platform helps 408,000 employers and 33.1 million consumers better manage healthcare expenses. For more information, visit www.wexinc.com.

Forward-Looking Statements

This earnings release contains forward-looking statements, including statements regarding: assumptions underlying the Company's future financial performance, future operations; future growth opportunities and expectations; expectations for future revenue performance, future impacts from areas of investment, expectations for the macro environment; and, expectations for volumes. Any statements that are not statements of historical facts may be deemed to be forward-looking statements. When used in this earnings release, 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 extent to which the coronavirus (COVID-19) pandemic and measures taken in response thereto impact our business, results of operations and financial condition in excess of current expectations; 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, including the impact of any continued reductions in fuel price and the resulting impact on our revenues and net income; changes or limitations on interchange fees; failure to comply with the applicable requirements of MasterCard or Visa contracts and rules; 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 complete or successfully integrate the Company’s acquisitions or the ability to realize anticipated synergies and cost savings from such transactions; unexpected costs, charges or expenses resulting from an acquisition, specifically including the recent eNett and Optal acquisitions; 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; legal, regulatory, political and economic uncertainty surrounding the United Kingdom’s departure from the European Union and the resulting trade agreement; the impact of the future transition from LIBOR as a global benchmark to a replacement rate; the impact of the Company’s presently 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 impact of sales or dispositions of significant amounts of our outstanding common stock into the public market, or the perception that such sales or dispositions could occur; the possible dilution to our stockholders caused by the issuance of additional shares of common stock or equity-linked securities, as result of our convertible notes or otherwise; 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 our annual report for the year ended December 31, 2019, filed on Form 10-K with the Securities and Exchange Commission on February 28, 2020 and Item 1A of our quarterly reports for the quarters ended June 30, 2020 and September 30, 2020, filed on Forms 10-Q with the Securities and Exchange Commission on August 5, 2020 and November 9, 2020, respectively. 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 earnings release 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.

WEX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
		Three months ended December 31,								Year ended December 31,
		2020				2019				2020				2019
Revenues
Payment processing revenue		$	176,316			$	199,212			$	698,891			$	825,592
Account servicing revenue		113,720				110,369				449,456				413,552
Finance fee revenue		53,578				71,651				198,523				247,318
Other revenue		55,376				58,813				212,999				237,229
Total revenues		398,990				440,045				1,559,869				1,723,691
Cost of services
Processing costs		111,889				111,543				419,041				400,439
Service fees		12,954				13,679				47,289				57,027
Provision for credit losses		11,592				18,194				78,443				65,664
Operating interest		3,659				10,150				23,810				41,915
Depreciation and amortization		28,477				26,519				104,592				94,725
Total cost of services		168,571				180,085				673,175				659,770
General and administrative		94,677				69,732				292,109				275,807
Sales and marketing		78,566				49,230				266,684				259,869
Depreciation and amortization		38,427				37,140				157,334				142,404
Legal settlement		162,500				—				162,500				—
Impairment charges		53,378				—				53,378				—
Loss on sale of subsidiary		—				—				46,362				—
Operating (loss) income		(197,129		)		103,858				(91,673		)		385,841
Financing interest expense		(55,267		)		(33,378		)		(157,080		)		(134,677		)
Net foreign currency gain (loss)		6,190				12,822				(25,783		)		(926		)
Net unrealized gains (losses) on financial instruments		5,079				4,424				(27,036		)		(34,654		)
Non-cash adjustments related to tax receivable agreement		491				932				491				932
(Loss) income before income taxes		(240,636		)		88,658				(301,081		)		216,516
Income tax (benefit) provision		(16,745		)		23,871				(20,597		)		61,223
Net (loss) income		(223,891		)		64,787				(280,484		)		155,293
Less: Net income (loss) from non-controlling interests		184				(797		)		3,466				(1,030		)
Net (loss) income attributable to WEX Inc.		(224,075		)		65,584				(283,950		)		156,323
Change in value of redeemable non-controlling interest		(10,125		)		(11,138		)		40,312				(57,317		)
Net (loss) income attributable to shareholders		$	(234,200	)		$	54,446			$	(243,638	)		$	99,006
Net (loss) income attributable to shareholders per share:
Basic		$	(5.30	)		$	1.26			$	(5.56	)		$	2.29
Diluted		$	(5.30	)		$	1.24			$	(5.56	)		$	2.26
Weighted average common shares outstanding:
Basic		44,210				43,367				43,842				43,316
Diluted		44,210				43,931				43,842				43,769

WEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
		December 31,
		2020			2019
Assets
Cash and cash equivalents		$	852,033		$	810,932
Restricted cash		477,620			170,449
Accounts receivable		1,993,329			2,661,108
Securitized accounts receivable, restricted		93,236			112,192
Prepaid expenses and other current assets		86,629			87,694
Total current assets		3,502,847			3,842,375
Property, equipment and capitalized software		188,340			212,475
Goodwill and other intangible assets		4,240,150			4,016,251
Investment securities		37,273			30,460
Deferred income taxes, net		17,524			12,833
Other assets		197,227			184,024
Total assets		$	8,183,361		$	8,298,418
Liabilities and Stockholders’ Equity
Accounts payable		$	778,207		$	969,816
Accrued expenses		362,472			315,642
Restricted cash payable		477,620			170,449
Short-term deposits		911,395			1,310,813
Short-term debt, net		152,730			248,531
Other current liabilities		58,429			34,692
Total current liabilities		2,740,853			3,049,943
Long-term debt, net		2,874,113			2,686,513
Long-term deposits		148,591			143,399
Deferred income taxes, net		220,122			218,740
Other liabilities		164,546			106,422
Total liabilities		6,148,225			6,205,017
Commitments and contingencies
Redeemable non-controlling interest		117,219			156,879
Stockholders’ Equity
Total WEX Inc. stockholders' equity		1,904,895			1,926,947
Non-controlling interest		13,022			9,575
Total stockholders’ equity		1,917,917			1,936,522
Total liabilities and stockholders’ equity		$	8,183,361		$	8,298,418

Exhibit 1

Reconciliation of Non - GAAP Measures

Reconciliation of GAAP Net (Loss) Income Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders

(in thousands, except per share data)

(unaudited)

		Three Months Ended December 31,
		2020								2019
						per diluted share							per diluted share
Net (loss) income attributable to shareholders		$	(234,200	)		$	(5.30	)		$	54,446			$	1.24
Unrealized (gains) losses on financial instruments		(5,079		)		(0.11		)		(4,424		)		(0.10		)
Net foreign currency (gain) loss		(6,190		)		(0.14		)		(12,822		)		(0.29		)
Acquisition-related intangible amortization		43,297				0.98				42,929				0.98
Other acquisition and divestiture related items		21,782				0.49				12,971				0.30
Legal settlement		162,500				3.68				—				—
Stock-based compensation		20,782				0.47				12,555				0.29
Restructuring and other costs		5,575				0.13				12,192				0.28
Impairment charge		53,378				1.21				—				—
Debt restructuring and debt issuance cost amortization		30,074				0.68				2,804				0.06
Non-cash adjustments related to tax receivable agreement		(491		)		(0.01		)		(932		)		(0.02		)
ANI adjustments attributable to non-controlling interest		9,191				0.21				9,161				0.21
Tax related items		(35,788		)		(0.81		)		(14,158		)		(0.32		)
Dilutive impact of stock awards1		—				(0.03		)		—				—
Adjusted net income attributable to shareholders		$	64,831			$	1.45			$	114,722			$	2.61

		Year Ended December 31,
		2020								2019
					per diluted share									per diluted share
Net (loss) income attributable to shareholders		$	(243,638	)		$	(5.56	)		$	99,006			$	2.26
Unrealized losses (gains) on financial instruments		27,036				0.62				34,654				0.79
Net foreign currency loss		25,783				0.59				926				0.02
Acquisition-related intangible amortization		171,144				3.90				159,431				3.64
Other acquisition and divestiture related items		57,787				1.32				37,675				0.86
Legal settlement		162,500				3.71				—				—
Stock-based compensation		65,841				1.50				47,511				1.09
Restructuring and other costs		13,555				0.31				25,106				0.57
Loss on sale of subsidiary		46,362				1.06				—				—
Impairment charge		53,378				1.22				—				—
Debt restructuring and debt issuance cost amortization		40,063				0.91				21,004				0.48
Non-cash adjustments related to tax receivable agreement		(491		)		(0.01		)		(932		)		(0.02		)
ANI adjustments attributable to non-controlling interests		(42,910		)		(0.98		)		53,035				1.21
Tax related items		(108,086		)		(2.47		)		(74,743		)		(1.71		)
Dilutive impact of stock awards1		—				(0.06		)		—				—
Adjusted net income attributable to shareholders		$	268,324			$	6.06			$	402,673			$	9.20

¹ As the Company reported net losses for the fourth quarter of 2020 and year ended December 31, 2020, the diluted weighted average shares outstanding equal the basic weighted average shares outstanding for those periods under U.S. Generally Accepted Accounting Principles ("GAAP"). The non-GAAP adjustments described above resulted in adjusted net income attributable to shareholders (versus a loss on a GAAP basis) for the fourth quarter of 2020 and the year ended December 31, 2020. Therefore, dilutive common stock equivalents have been included in the calculation of adjusted diluted weighted average shares outstanding to arrive at adjusted per share data.

Reconciliation of GAAP Operating Income to Total Segment Adjusted Operating Income and Adjusted Operating Income

(in thousands)

(unaudited)

Three Months Ended December 31,

Year Ended December 31,

2020

2019

2020

2019

Operating income

$

(197,129

)

$

103,858

$

(91,673

)

$

385,841

Unallocated corporate expenses

17,625

15,847

62,938

67,982

Acquisition-related intangible amortization

43,297

42,929

171,144

159,431

Other acquisition and divestiture related items

26,680

12,971

57,787

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