WEX(WEX) - 2022 Q4 - Annual Report

Forward-Looking Statements The report contains forward-looking statements, including management's plans and goals, identified by specific terminology, which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements, including management's plans and goals, identified by words like "anticipate," "believe," "expect," and "will." These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially[10][11] - Key risk factors that could cause actual results to differ include fluctuations in fuel demand and prices, general economic conditions, credit and fraud losses, failure to implement new technology, breaches of technology systems, regulatory actions, and the impact of foreign currency exchange rates[11][12] Acronyms and Abbreviations This section provides a comprehensive list of acronyms and abbreviations used throughout the Annual Report, including definitions for financial terms, regulatory bodies, and company-specific business units or products - This section provides a comprehensive list of acronyms and abbreviations used throughout the Annual Report, including definitions for financial terms (e.g., Adjusted free cash flow, ANI, EBITDA), regulatory bodies (e.g., CFPB, FDIC, SEC), and company-specific business units or products (e.g., benefitexpress, CDH, EFS, eNett, HSA, SaaS, VCN, WEX Bank)[14][15][18] Part I This part covers the company's business operations, risk factors, properties, legal proceedings, and other fundamental information Item 1. Business WEX Inc. operates a B2B ecosystem providing payment processing, data analytics, and financial solutions across three segments: Fleet Solutions, Health and Employee Benefit Solutions, and Travel and Corporate Solutions Our Company WEX Inc. operates a B2B ecosystem focused on simplifying business operations through a global commerce platform, personalized solutions, and data-driven insights - WEX Inc. operates a B2B ecosystem focused on simplifying business operations through a global commerce platform, personalized solutions, and data-driven insights[20][21] - The company's solutions are provided across three business segments: Fleet Solutions (600,000+ fleet customers, 9 of top 10 U.S. fuel retailers), Health and Employee Benefit Solutions (serves over half of Fortune 1000 companies), and Travel and Corporate Solutions (one of the largest commercial payment companies globally)[21][22] - WEX Bank, a wholly-owned subsidiary, funds the majority of Fleet and Travel & Corporate Solutions, provides credit adjudication, and acts as a depository for HSA cash assets, offering a competitive advantage through low-cost capital[22] Seasonality Certain business segments are affected by seasonal variations, such as higher fuel prices in summer, increased online travel sales in Q3, and higher consumer spend in Health and Employee Benefit Solutions early in the year due to insurance deductibles - Certain business segments are affected by seasonal variations, such as higher fuel prices in summer, increased online travel sales in Q3, and higher consumer spend in Health and Employee Benefit Solutions early in the year due to insurance deductibles[24] Our Business Segments This section provides an overview of Our Business Segments Fleet Solutions Segment WEX is a leader in fleet vehicle payment solutions, transaction processing, and information management, serving over 18 million vehicles globally as of December 31, 2022 - WEX is a leader in fleet vehicle payment solutions, transaction processing, and information management, serving over 18 million vehicles globally as of December 31, 2022[26][28] - The segment's key differentiation is its proprietary closed-loop payments network, which provides enhanced data and controls for fleet operators, enabling spend control, fraud limitation, and optimized operations[29] - Revenue is primarily from payment processing transactions (percentage of purchase, fixed per transaction, or a combination), account servicing fees, and finance fees on overdue accounts. The company is also developing solutions for Electric Vehicles (EVs) to ease their integration into mixed fleets[30][31][33][34] Health and Employee Benefit Solutions Segment This segment provides SaaS software with embedded payment solutions and plan administration for consumer-directed health benefits, COBRA, and benefit enrollment, along with custodial and depository services for Health Savings Accounts (HSAs) - This segment provides SaaS software with embedded payment solutions and plan administration for consumer-directed health benefits, COBRA, and benefit enrollment, along with custodial and depository services for Health Savings Accounts (HSAs)[40] - As of December 31, 2022, WEX was custodian to $4.5 billion in HSA assets, with $2.1 billion deposited with WEX Bank and reflected on its balance sheet[41][42] - Revenues are primarily from per participant per month fees for software and administrative services, interchange on debit cards, and interest on deposits and fees related to HSA cash balances[48] Travel and Corporate Solutions Segment The segment focuses on global B2B payments, offering embedded payments (via APIs for virtual credit cards) and Accounts Payable (AP) Automation and Spend Management solutions - The segment focuses on global B2B payments, offering embedded payments (via APIs for virtual credit cards) and Accounts Payable (AP) Automation and Spend Management solutions[51][53] - A core product is the virtual card (VCN) on Mastercard or Visa networks, offering customized spend limits, expiration dates, and fraud controls, with global currency capabilities and WEX as the issuer/processor[52] - The vast majority of revenue is derived from net interchange revenue (gross interchange less rebates), with a portion from licensing fees charged to partner financial institutions[54] Our Strategy WEX's strategy focuses on growing its business through five key drivers: winning new customers, growing share of wallet with existing customers, expanding and diversifying offerings, deepening global presence, and strategic mergers and acquisitions (M&A) - WEX's strategy focuses on growing its business through five key drivers: winning new customers, growing share of wallet with existing customers, expanding and diversifying offerings, deepening global presence, and strategic mergers and acquisitions (M&A)[58][64] - The strategy is underpinned by a focus on a global commerce platform, personalized and seamlessly embedded solutions, and insights powered by extensive data, including expanding the use of AI and machine learning[59] Our Technology and Resources WEX is shifting to platforms and data for greater efficiency, faster innovation, and better customer experiences, with significant investment in technology and a Cloud First strategy - WEX is shifting to platforms and data for greater efficiency, faster innovation, and better customer experiences, with significant investment in technology and a Cloud First strategy[60] - The company protects its proprietary information and technology through patents, copyrights, trade secrets, trademarks, confidentiality agreements, and operational safeguards[62] Regulation This section provides an overview of Regulation Regulation - United States WEX Bank, an industrial bank in Utah, is subject to examination and supervision by the FDIC and UDFI, and is exempt from the Bank Holding Company Act - WEX Bank, an industrial bank in Utah, is subject to examination and supervision by the FDIC and UDFI, and is exempt from the Bank Holding Company Act[66] - Intercompany transactions with WEX Bank are limited by Sections 23A and 23B of the Federal Reserve Act, requiring them to be on market terms and secured by collateral[67] - The company is subject to various U.S. laws including the Dodd-Frank Act (impacting debit card interchange fees via the Durbin Amendment), anti-money laundering (AML) and counter-terrorist financing (CTF) regulations, healthcare regulations (ACA, HIPAA), privacy and information security laws (GLBA, CCPA, GDPR), and money transmission licensing[71][73][76][80][83][85][89][93] Regulation - Foreign Jurisdictions WEX's international operations are subject to local laws and regulations in Canada, the European Union, the United Kingdom, Australia, and East/South East Asia - WEX's international operations are subject to local laws and regulations in Canada, the European Union, the United Kingdom, Australia, and East/South East Asia[106][110][114][118][121