WEX Inc. Reports Fourth Quarter and Full Year 2023 Financial Results
WEX (NYSE: WEX), the global commerce platform that simplifies the business of running a business, today reported financial results for the three months and year ended December 31, 2023. “WEX had ano...
Q4 revenue increased 7% year-over-year to a record $663 million, driven by 27% growth in the Benefits segment and 22% in the Corporate Payments segment
Q4 GAAP net income was $1.98 per diluted share; Q4 adjusted net income was $3.82 per diluted share
Q4 GAAP operating income margin of 23.9% and adjusted operating income margin of 39.6%
PORTLAND, Maine: WEX (NYSE: WEX), the global commerce platform that simplifies the business of running a business, today reported financial results for the three months and year ended December 31, 2023.
“WEX had another outstanding year as we continued to drive profitable growth, generate strong adjusted free cash flow, and demonstrate our resiliency,” said Melissa Smith, WEX’s Chair, Chief Executive Officer, and President.
“Our leading offerings and highly recurring revenue position us for success throughout market cycles. In 2023, we continued to advance our strategic priorities, investing in AI and technology infrastructure projects, expanding our EV offerings for mixed fleets, and deepening our solution set with the acquisitions of Payzer and Ascensus' Health and Benefits line of business. We also achieved higher margins through a combination of strong volumes on our highly scalable platform and cost savings from our technology investments. We expect this momentum to continue into 2024 driven by the strength of our sales engine and further optimization efforts across the business, as well as the full-year benefit of our recent acquisitions.”
Fourth Quarter and Full Year 2023 Financial Results
Total revenue for the fourth quarter of 2023 increased 7% to $663.3 million from $618.6 million for the fourth quarter of 2022. The $44.7 million increase in revenue in the quarter includes a net $24.9 million unfavorable impact from fuel prices and spreads and a $0.3 million favorable impact from foreign exchange rates.
On a GAAP basis, net income attributable to shareholders for the fourth quarter of 2023 was $84.9 million, or $1.98 per diluted share, compared to a net income attributable to shareholders of $88.7 million, or $2.02 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 $163.9 million for the fourth quarter of 2023, or $3.82 per diluted share, up 11% from $152.8 million, or $3.44 per diluted share, for the same period last year. GAAP operating income margin was 23.9% in the fourth quarter of 2023 compared to 25.1% for the prior year comparable period. Adjusted operating income margin was 39.6% in the fourth quarter of 2023 compared to 38.5% for the prior year comparable period. See Exhibit 1 for a full explanation and reconciliation of adjusted net income attributable to shareholders, adjusted net income attributable to shareholders per diluted share, and adjusted operating income to the most comparable GAAP financial measures. See Exhibit 5 for information on the calculation of adjusted operating income margin.
For the full year 2023, revenue increased 8% to $2.55 billion from $2.35 billion in 2022. The $197 million increase in revenue includes a net $108 million unfavorable impact from fuel prices and spreads and a $2 million favorable impact from foreign exchange rates. Net income attributable to shareholders on a GAAP basis was $6.16 per diluted share in 2023 compared to $4.50 per diluted share in 2022. On a non-GAAP basis, adjusted net income per diluted share increased 9.4% to $14.81 from $13.53 in 2022.
Fourth Quarter 2023 Performance Metrics and Highlights
- Total volume across all segments increased 6% year-over-year to $56 billion.
- Mobility segment payment processing transactions decreased 1% year-over-year to 138.1 million.
- Average number of vehicles serviced was approximately 19.3 million, an increase of 3% from the fourth quarter of 2022.
- Benefits' average number of Software-as-a-Service (SaaS) accounts grew 7% to 19.9 million from 18.5 million for the fourth quarter of 2022.
- Average HSA custodial cash assets in Q4 2023 were $3.9 billion compared to $3.5 billion a year ago.
- Corporate Payments' purchase volume grew 33% to $22.8 billion from $17.1 billion for the fourth quarter of 2022.
- During the fourth quarter of 2023 the Company repurchased 870 thousand shares of its stock for a total cost of approximately $150 million. For the full year, the Company repurchased 1.7 million shares at a total cost of approximately $295 million.
- Cash flow provided by operating activities in 2023 was $908 million. Adjusted free cash flow, which is a non-GAAP measure, was $517 million for the same period of time. Please see the reconciliation of this non-GAAP measure to operating cash flow in Exhibit 1.
“We enter 2024 with great momentum following a strong 2023 financial performance in line with our long-term targets,” said Jagtar Narula, WEX's Chief Financial Officer. “Despite the macroeconomic headwinds in 2023 of significantly lower fuel prices and higher interest rates, we grew both revenue and earnings and clearly demonstrated the resiliency of our business model. Looking ahead, we continue to have great confidence in our ability to win new customers, expand with existing customers, and bring new products to market. Accordingly, we expect to deliver solid growth and adjusted free cash flow in 2024. As we integrate the strategic acquisitions we made in 2023, we expect to deploy a portion of our adjusted free cash flow toward share repurchases in 2024, all while maintaining a healthy balance sheet.”
Financial Guidance
During the fourth quarter of 2023, the Company exited all of its interest rate swap contracts, resulting in an immediate cash benefit of $50 million. Overall, Company-wide net exposure to changes in interest rates is expected to remain neutral.
The Company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis, due to the uncertainty and the indeterminate amount of certain elements that are included in reported GAAP earnings. Beginning in fiscal year 2024, the Company will utilize a fixed annual projected long-term non-GAAP tax rate in order to provide better consistency across reporting periods. See “Additional Information” below for more information about the Company’s forward-looking non-GAAP measures.
- For the first quarter of 2024, the Company expects revenue in the range of $650 million to $660 million and adjusted net income in the range of $144 million to $148 million, or $3.40 to $3.50 per diluted share.
- For the full year 2024, the Company expects revenue in the range of $2.70 billion to $2.74 billion and adjusted net income in the range of $679 million to $700 million, or $15.90 to $16.40 per diluted share.
First quarter and full year 2024 guidance is based on a number of assumptions including:
- Assumed average U.S. retail fuel prices of $3.50 and $3.55 per gallon, respectively. The fuel prices referenced above are based on the applicable NYMEX futures price. The full year fuel price assumption reduces 2024 revenue and EPS guidance by approximately $54 million and $0.81 respectively compared to 2023.
- Increased financing interest expense from exiting the interest rate swap contracts — estimated to be a $0.19 per diluted share impact in Q1 and a $0.52 per diluted share impact for the full year.
- An adjusted net income effective tax rate of 25.0% for the first quarter and the full year.
- Approximately 42.7 million fully diluted shares outstanding for the full year.
The Company's adjusted net income guidance, which is a non-GAAP measure, excludes unrealized gains and losses on financial instruments, net foreign currency gains and losses, changes in fair value of contingent consideration, acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, other costs, impairment charges, debt restructuring and debt issuance cost amortization, adjustments attributable to our non-controlling interests and certain tax related items. We are unable to reconcile our adjusted net income guidance to the comparable GAAP measure without unreasonable effort because of the difficulty in predicting the amounts to be adjusted, including, but not limited to, foreign currency exchange rates, unrealized gains and losses on financial instruments, and acquisition and divestiture related items, which may have a significant impact on our financial results.
Additional Information
Management uses the non-GAAP measures presented within this earnings 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.
Beginning in fiscal year 2024, the Company will utilize a fixed annual projected long-term non-GAAP tax rate in order to provide better consistency across reporting periods. The fixed annual projected long-term non-GAAP tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix including due to acquisition activity, or other changes to our strategy or business operations. The Company will re-evaluate our long-term rate as appropriate.
To provide investors with additional insight into its operational performance, WEX has included in this earnings release in Exhibit 1, reconciliations of non-GAAP measures referenced in this earnings release; in Exhibit 2, tables 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, 2023 and 2022; and in Exhibit 3, a table of selected other metrics for the quarter ended December 31, 2023 and the four preceding quarters. The Company is also providing segment revenue for the three and twelve months ended December 31, 2023 and 2022 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 8, 2024, at 10:00 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 +1-888-510-2008 or +1-646-960-0306. The Conference ID number is 2237921. A replay of the webcast and the accompanying slides will be available on the Company's website.
About WEX
WEX (NYSE: WEX) is the global commerce platform that simplifies the business of running a business. WEX has created a powerful ecosystem that offers seamlessly embedded, personalized solutions for its customers around the world. Through its rich data and specialized expertise in simplifying benefits, reimagining mobility, and paying and getting paid, WEX aims to make it easy for companies to overcome complexity and reach their full potential. For more information, please visit www.wexinc.com.
Forward-Looking Statements
This earnings release contains forward-looking statements including, but not limited to, statements about management’s plans, goals, expectations, and guidance and assumptions with respect to future financial performance of the Company. Any statements in this earnings release that are not statements of historical facts are forward-looking statements. When used in this earnings release, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “positions,” “confidence,” 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 earnings release and in oral statements made by our authorized officers:
- the impact of fluctuations in demand for fuel and the volatility and prices of fuel, including fuel spreads in the Company’s international markets, and the resulting impact on the Company’s margins, revenues, and net income;
- the effects of general economic conditions, including a decline in demand for fuel, corporate payment services, travel related services, or healthcare related products and services;
- the failure to comply with the applicable requirements of Mastercard or Visa contracts and rules;
- the extent to which unpredictable events in the locations in which the Company or the Company’s customers operate or elsewhere may adversely affect the Company’s employees, ability to conduct business, results of operations and financial condition;
- the impact and size of credit losses, including fraud losses, and other adverse effects if the Company fails to adequately assess and monitor credit risk or fraudulent use of our payment cards or systems;
- the impact of changes to the Company’s credit standards;
- limitations on, or compression of, interchange fees;
- the effect of adverse financial conditions affecting the banking system;
- the impact of increasing scrutiny with respect to our environmental, social and governance practices;
- failure to implement new technologies and products;
- the failure to realize or sustain the expected benefits from our cost and organizational operational efficiencies initiatives;
- the failure to compete effectively in order to maintain or renew key customer and partner agreements and relationships, or to maintain volumes under such agreements;
- the ability to attract and retain employees;
- the ability to execute the Company’s business expansion and acquisition efforts and realize the benefits of acquisitions we have completed;
- the failure to achieve commercial and financial benefits as a result of our strategic minority equity investments;
- the impact of foreign currency exchange rates on the Company’s operations, revenue and income and other risks associated with our operations outside the United States;
- the failure to adequately safeguard custodial HSA assets;
- the incurrence of impairment charges if the Company’s assessment of the fair value of certain of its reporting units changes;
- the uncertainties of investigations and litigation;
- the ability of the Company to protect its intellectual property and other proprietary rights;
- the impact of regulatory capital requirements and other regulatory requirements on the operations of WEX Bank or its ability to make payments to WEX Inc.;
- the impact of the Company’s debt instruments on the Company’s operations;
- the impact of leverage on the Company’s operations, results or borrowing capacity generally;
- changes in interest rates, including those which we must pay for our deposits, and the rate of inflation;
- the ability to refinance certain indebtedness or obtain additional financing;
- the actions of regulatory bodies, including tax, banking and securities regulators, or possible changes in tax, banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates;
- the failure to comply with the Treasury Regulations applicable to non-bank custodians;
- the impact from breaches of, or other issues with, the Company’s technology systems or those of its third-party service providers and any resulting negative impact on the Company’s reputation, liabilities or relationships with customers or merchants;
- the impact of regulatory developments with respect to privacy and data protection;
- the impact of any disruption to the technology and electronic communications networks we rely on;
- the ability to incorporate artificial intelligence in our business successfully and ethically;
- the ability to maintain effective systems of internal controls;
- the impact of provisions in our charter documents, Delaware law and applicable banking laws that may delay or prevent our acquisition by a third party; as well as
- other risks and uncertainties identified in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 28, 2023 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023, filed with the Securities and Exchange Commission on April 27, 2023 and July 27, 2023, respectively, and subsequent filings with the Securities and Exchange Commission.
The forward-looking statements speak only as of the date of the initial filing 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 millions, except per share data) | |||||||||||||||
(unaudited) | |||||||||||||||
| Three months ended December 31, |
| Year ended December 31, | ||||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||||
Revenues |
|
|
|
|
|
|
| ||||||||
Payment processing revenue | $ | 311.8 |
|
| $ | 295.1 |
|
| $ | 1,213.7 |
|
| $ | 1,155.9 |
|
Account servicing revenue |
| 171.3 |
|
|
| 153.4 |
|
|
| 646.4 |
|
|
| 569.3 |
|
Finance fee revenue |
| 80.0 |
|
|
| 99.9 |
|
|
| 314.2 |
|
|
| 360.5 |
|
Other revenue |
| 100.2 |
|
|
| 70.3 |
|
|
| 373.7 |
|
|
| 264.9 |
|
Total revenues |
| 663.3 |
|
|
| 618.6 |
|
|
| 2,548.0 |
|
|
| 2,350.5 |
|
Cost of services |
|
|
|
|
|
|
| ||||||||
Processing costs |
| 169.9 |
|
|
| 142.7 |
|
|
| 621.6 |
|
|
| 558.9 |
|
Service fees |
| 18.6 |
|
|
| 18.0 |
|
|
| 73.3 |
|
|
| 65.2 |
|
Provision for credit losses |
| 12.3 |
|
|
| 58.0 |
|
|
| 89.8 |
|
|
| 179.9 |
|
Operating interest |
| 26.6 |
|
|
| 7.2 |
|
|
| 84.2 |
|
|
| 20.6 |
|
Depreciation and amortization |
| 28.5 |
|
|
| 26.0 |
|
|
| 104.4 |
|
|
| 105.9 |
|
Total cost of services |
| 255.9 |
|
|
| 251.8 |
|
|
| 973.3 |
|
|
| 930.5 |
|
General and administrative |
| 116.3 |
|
|
| 95.3 |
|
|
| 428.0 |
|
|
| 343.9 |
|
Sales and marketing |
| 86.2 |
|
|
| 76.6 |
|
|
| 327.8 |
|
|
| 311.8 |
|
Depreciation and amortization |
| 46.4 |
|
|
| 39.8 |
|
|
| 171.8 |
|
|
| 158.0 |
|
Impairment charges |
| — |
|
|
| — |
|
|
| — |
|
|
| 136.5 |
|
Operating income |
| 158.5 |
|
|
| 155.1 |
|
|
| 647.1 |
|
|
| 469.8 |
|
Financing interest expense, net of financial instruments1 |
| (62.1 | ) |
|
| (41.8 | ) |
|
| (204.6 | ) |
|
| (47.5 | ) |
Net foreign currency gain (loss) |
| 14.3 |
|
|
| 15.1 |
|
|
| 4.9 |
|
|
| (22.7 | ) |
Change in fair value of contingent consideration |
| (2.3 | ) |
|
| (4.0 | ) |
|
| (8.5 | ) |
|
| (139.1 | ) |
Loss on extinguishment of Convertible Notes |
| — |
|
|
| — |
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