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    WEX   US96208T1043

WEX INC.

(WEX)
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WEX INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/09/2021 | 06:10am EST
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide information that will assist the
reader with understanding our financial statements, the changes in key items in
those financial statements from year to year, and the primary factors that
accounted for those changes, as well as how certain accounting estimates affect
our financial statements. The discussion also provides information about the
financial results of the three segments of our business to provide a better
understanding of how those segments and their results affect our financial
condition and results of operations as a whole. Additionally, certain corporate
costs not allocated to our operating segments are discussed below.
Our MD&A is presented in the following sections:
•Overview
•Summary
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies and Estimates
•Recently Adopted Accounting Standards
This discussion should be read in conjunction with our audited consolidated
financial statements as of December 31, 2020, the notes accompanying those
financial statements and MD&A as contained in our Annual Report on Form 10-K for
the year ended December 31, 2020, filed with the Securities and Exchange
Commission on March 1, 2021, and in conjunction with the condensed consolidated
financial statements and notes in Part I - Item 1 of this report.
Overview
WEX Inc. is a leading financial technology service provider. We currently
operate in three reportable segments: Fleet Solutions, Travel and Corporate
Solutions, and Health and Employee Benefit Solutions. The Fleet Solutions
segment provides customers with fleet vehicle payment processing services
specifically designed for the needs of commercial and government fleets. The
Travel and Corporate Solutions segment focuses on the complex payment
environment of B2B payments, providing customers with payment processing
solutions for their corporate payment and transaction monitoring needs. The
Health and Employee Benefit Solutions segment generates a substantial majority
of its revenues through the provision of consumer-directed healthcare payment
products and processing through our U.S. SaaS platforms.
Summary
HSA Investments
As more fully described in Note 4, Acquisitions, to the condensed consolidated
financial statements included in Part I, Item 1 of this Form 10-Q, during April
2021 WEX Inc. acquired the contractual rights to serve as custodian to certain
HSAs from the Healthcare Bank division of Bell Bank. WEX Inc. has contracted
with federally insured bank and credit union depository partners to hold
custodial cash assets on behalf of its members. On October 14, 2021, WEX Inc.
transferred $960.0 million of custodial cash assets previously held by a
third-party depository partner to WEX Bank to be managed and invested.
Wellington Management Company LLP, an entity affiliated with Wellington
Management Group, LLP, a beneficial owner of approximately 9 percent of the
Company's outstanding common stock based on information reported on a Schedule
13F-HR filed with the SEC on August 16, 2021, has been appointed investment
manager for the funds.
COVID-19 Pandemic
A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in
January 2020, and subsequently declared a global pandemic by the World Health
Organization on March 11, 2020. The United States and the global communities in
which we operate continue to face challenges posed by the COVID-19 pandemic
although we, like many companies, are encouraged by the increased availability
of vaccines and we look forward to an ultimate return to a more normalized
working environment. To date however, we have continued to suspend most travel
for employees, our office capacity generally remains limited and, since
mid-March 2020, our employees have largely continued to work remotely in most
geographies. While we continue to operate effectively during this challenge, the
full impact of the COVID-19 pandemic on our business and the global economy
remains uncertain. The ultimate consequences will depend on many factors outside
of our control, including the availability and effectiveness of vaccines and
therapeutics and the ultimate duration and severity of the pandemic itself,
including the impact of COVID-19 variants.

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Certain of our reportable segments, particularly Travel and Corporate Solutions,
have been significantly impacted by COVID-19, however, we continue to see
recovery within these impacted segments with sequential improvement in
transaction volumes, revenues and earnings during the first, second and third
quarters of 2021. The Company's revenues are largely recurring in nature,
therefore, as we add new volumes and our existing customer base recovers, we
expect to capture the related growth.
Amended and Restated Credit Agreement
On April 1, 2021, the Company amended and restated the 2016 Credit Agreement.
For further information regarding this amendment and restatement refer to the
following Liquidity and Capital Resources section of this MD&A and Note 9,
Financing and Other Debt, to the condensed consolidated financial statements
included in Part I, Item 1 of this Form 10-Q.
Asset Acquisition
On April 1, 2021, WEX Inc. completed the acquisition of certain contractual
rights to serve as custodian or sub-custodian to certain HSAs from the
Healthcare Bank division of Bell Bank, which is owned by State Bankshares, Inc.
This acquisition increases the Company's role in its customer-directed
healthcare ecosystem and aligns with its growth strategy. On the closing of the
acquisition, WEX Inc. paid Bell Bank initial cash consideration of
$200.0 million. Pursuant to the purchase agreement, WEX Inc. agreed to make an
additional deferred cash payment of $25.0 million in July 2023 and a second
additional deferred cash payment of $25.0 million in January 2024. As of June 1,
2021, in connection with the acquisition by WEX Health of Cirrus Holdings, LLC
further discussed below, the second deferred payment of $25.0 million was
reduced by the amount of $12.5 million (the "Payment Offset"). As a result of
the Payment Offset, WEX Inc. continues to owe Bell Bank $12.5 million for the
second additional deferred cash payment, which is due and payable in January
2024.
The purchase agreement also includes potential additional consideration payable
annually that is calculated on a quarterly basis and is contingent, and based,
upon any future increases in the Federal Funds rate. The contingent payment
period began on July 1, 2021 and shall extend until the earlier of (i) the year
ending December 31, 2030, or (ii) the date when the cumulative amount paid as
contingent consideration equals $225 million.
Acquisition of remaining interest in WEX Europe Services
On April 13, 2021, the Company both entered into a share purchase agreement for,
and consummated the acquisition of, the remaining interest in WEX Europe
Services it did not own previously, which consisted of 25 percent of the issued
ordinary share capital, for a purchase price of $97.0 million. As a result of
the transaction, the Company now owns 100 percent of the issued ordinary share
capital of WEX Europe Services, which operates part of our European Fleet
business. This transaction further streamlines the European Fleet business in
order to create revenue synergies and manage the associated cost structure.
benefitexpress Acquisition

On June 1, 2021, WEX Inc.'s subsidiary, WEX Health, completed the acquisition of
Cirrus Holdings, LLC, the indirect owner of Benefit Express Services, LLC, which
is a provider of highly configurable, cloud-based benefits administration
technologies and services doing business under the name benefitexpress (the
"benefitexpress Acquisition"). The transaction expanded the Company's role in
the healthcare ecosystem, bringing together benefit administration, compliance
services, and consumer-directed health and lifestyle spending accounts together
to form a full-service benefits marketplace. Pursuant to the terms of the
definitive purchase agreement, WEX Health consummated the benefitexpress
Acquisition for total consideration of approximately $275 million, subject to
certain working capital and other adjustments. WEX Inc. indirectly owns 95.47
percent of WEX Health. For further information regarding the structure of the
benefitexpress Acquisition refer to Note 4, Acquisitions, to the condensed
consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Notes Redemption
As disclosed in our Annual Report on Form 10-K for the year ended December 31,
2020, on February 11, 2021, the Company provided irrevocable notice to The Bank
of New York Mellon Trust Company, N.A., of its intent to redeem its outstanding
$400 million 4.75 percent senior secured notes due February 1, 2023. On March
15, 2021, the Company redeemed such senior secured notes outstanding for a
redemption price of $400 million plus accrued and unpaid interest through the
redemption date.
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Key Performance Indicators
Below are key metrics from the third quarter of 2021:
                                                                                                        Increase
                                                    Q3 2021              Q3 2020              Amount              Percent
Fleet Solutions
Fuel transactions processed (in millions)              161.8                149.6               12.2                   8.2  %
Payment processing transactions (in millions)          134.0                120.9               13.1                  10.8  %

Average vehicles serviced (in millions)                 16.2                 15.3                0.9                   5.9  %
Average U.S. fuel price (US$ / gallon)           $      3.23          $      2.23          $    1.00                  44.8  %

Travel and Corporate Solutions Payment solutions purchase volume (in millions) $ 12,799.6 $ 4,699.7 $ 8,099.9

                 172.3  %

Health and Employee Benefit Solutions

  Purchase volume (000s)                         $ 1,173,913          $ 1,120,786          $  53,127                   4.7  %
Average number of U.S. SaaS accounts (in
millions)                                               16.9                 14.6                2.3                  15.8  %


Fleet Solutions
•Fuel transactions processed increased approximately 8 percent from the third
quarter of 2020 to 161.8 million for the third quarter of 2021, substantially as
a result of transactions processed in North America.
•Payment processing transactions, which represents the total number of purchases
made by fleets that have a payment processing relationship with WEX, are up
approximately 11 percent as compared to the same period last year, substantially
as a result of transactions processed in North America.
•Average number of vehicles serviced increased approximately 6 percent from the
third quarter of 2020 to approximately 16.2 million for the third quarter of
2021 primarily related to growth in our North American customer base.
•The average U.S. fuel price per gallon during the third quarter of 2021 was
$3.23, an approximate 45 percent increase from the same period last year.
Travel and Corporate Solutions
•Payment solutions purchase volume, which represents the total dollar value of
all WEX-issued transactions that use WEX corporate card products and virtual
card products, was $12.8 billion for the third quarter of 2021, representing an
increase of 172 percent from the same period last year. This increase was driven
primarily by the acquisition of eNett and Optal, recovery in domestic travel and
tourism from the pandemic related lows, and increased volumes in our corporate
payment solutions business.
Health and Employee Benefit Solutions
•Purchase volume, which represents the total dollar value of all transactions
where interchange is earned by the Company, was up approximately 5 percent as
compared to the same period last year.
•Average number of U.S. SaaS accounts, which represents the number of active
Consumer-Directed Health, COBRA, and billing accounts on our U.S. SaaS
platforms, grew by approximately 2.3 million for the third quarter of 2021, a 16
percent increase from the same period in the prior year.

Results of Operations
The Company does not allocate financing interest expense, change in fair value
of contingent consideration, foreign currency gains and losses, unrealized and
realized gains and losses on financial instruments, other non-operating gains
and losses, income taxes and adjustments attributable to non-controlling
interests to our operating segments, as management believes these items are
unpredictable and can obscure a segment's operating trends and results. In
addition, the Company does
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not allocate certain corporate expenses to our operating segments, as these
items are centrally controlled and are not directly attributable to any
reportable segment.
The Company's operating expenses consist of the following:
Cost of Services
•Processing costs - The Company's processing costs consist of expenses related
to processing transactions, servicing customers and merchants and cost of goods
sold related to hardware and other product sales.
•Service fees - The Company incurs costs from third-party networks utilized to
deliver payment solutions. Additionally, other third-parties are utilized in
performing services directly related to generating revenue.
•Provision for credit losses - Changes in the reserve for credit loss are the
result of changes in management's estimate of the losses in the Company's
outstanding portfolio of receivables, including losses from fraud.
•Operating interest - The Company incurs interest expense on the operating debt
obtained to provide liquidity for its short-term receivables.
•Depreciation and amortization - The Company has identified those tangible and
intangible assets directly associated with providing a service that generates
revenue and records the depreciation and amortization associated with those
assets under this category. Such assets include processing platforms and related
infrastructure, acquired developed technology intangible assets and other
similar asset types.
Other Operating Expenses
•General and administrative - General and administrative includes compensation
and related expenses for executive, finance and accounting, other information
technology, human resources, legal and other corporate functions. Also included
are corporate facilities expenses, certain third-party professional service fees
and other corporate expenses.
•Sales and marketing - The Company's sales and marketing expenses relate
primarily to compensation, benefits, sales commissions and related expenses for
sales, marketing and other related activities.
•Depreciation and amortization - The depreciation and amortization associated
with tangible and intangible assets that are not considered to be directly
associated with providing a service that generates revenue are recorded as other
operating expenses. Such assets include corporate facilities, information
technology assets, and acquired intangible assets other than those included in
cost of services.
Fleet Solutions
Revenues
The following table reflects comparative revenue and key operating statistics
within Fleet Solutions:
                                           Three Months Ended September 30,                      Increase (Decrease)                       Nine Months Ended September 30,                       Increase (Decrease)
(In thousands, except per gallon
data)                                         2021                     2020                   Amount                 Percent                  2021                    2020                    Amount                 Percent
Revenues(a)
Payment processing revenue            $         130,006           $   102,418          $          27,588                  27  %       $        367,032           $    305,888          $          61,144                  20  %
Account servicing revenue                        43,671                39,350                      4,321                  11  %                125,955                115,252                     10,703                   9  %
Finance fee revenue                              67,529                46,129                     21,400                  46  %                178,627                143,934                     34,693                  24  %
Other revenue                                    45,155                40,807                      4,348                  11  %                132,972                117,857                     15,115                  13  %
Total revenues                        $         286,361           $   228,704          $          57,657                  25  %       $        804,586           $    682,931          $         121,655                  18  %

Key operating statistics
Payment processing revenue:
Payment processing transactions(b)              134,029               120,900                     13,129                  11  %                382,522                345,577                     36,945                  11  %
Payment processing fuel spend(c)      $      11,907,220           $ 7,609,098          $       4,298,122                  56  %       $     32,079,597           $ 22,157,005          $       9,922,592                  45  %
Average price per gallon of fuel -
Domestic - ($USD/gal)                 $            3.23           $      2.23          $            1.00                  45  %       $           3.01           $       2.29          $            0.72                  31  %
Net payment processing rate(d)                     1.09   %              1.35  %                   (0.26) %              (19) %                   1.14   %               1.38  %                   (0.24) %              (17) %



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(a) The impact of foreign currency exchange rate fluctuations on Fleet Solutions
increased revenue by $0.8 million in the third quarter of 2021 and $8.4 million
in the nine months ended September 30, 2021 as compared to the same periods in
the prior year.
(b) Payment processing transactions represents the total number of purchases
made by fleets that have a payment processing relationship with WEX.
(c) Payment processing fuel spend represents the total dollar value of the fuel
purchased by fleets that have a payment processing relationship with WEX.
(d) Net payment processing rate represents the percentage of the dollar value of
each payment processing transaction that WEX records as revenue from merchants
less certain discounts given to customers and network fees. Continued customer
mix shift to larger over-the-road fleets has resulted in a decline in our net
payment processing rate for the three and nine months ended September 30, 2021,
as compared to the same periods in the prior year.

Fleet Solutions revenue increased $57.7 million for the third quarter of 2021
and $121.7 million for the nine months ended September 30, 2021 as compared to
the same periods in the prior year. Revenues were favorably impacted by higher
domestic fuel prices as well as increased volumes from the pandemic-driven lows
of 2020. Favorable impact from domestic fuel prices was partially offset by
unfavorable European fuel price spreads resulting in an increase of $34.9
million and $67.2 million in revenue for the three and nine months ended
September 30, 2021, respectively, as compared to the same periods in the prior
year.

Finance fee revenue is comprised of the following components:

                                Three Months Ended September               Increase (Decrease)                                                             Increase (Decrease)
                                            30,                                                              Nine Months Ended September 30,
(In thousands)                     2021              2020              Amount              Percent               2021                2020              Amount              Percent
Finance income                 $  53,103          $ 36,232          $   16,871                   47  %       $  139,488          $ 118,043          $   21,445                   18  %
Factoring fee revenue             14,426             9,897               4,529                   46  %           39,139             25,891              13,248                   51  %
Finance fee revenue            $  67,529          $ 46,129          $   21,400                   46  %       $  178,627          $ 143,934          $   34,693                   24  %


Finance income primarily consists of late fees charged for receivables not paid
within the terms of the customer agreement based upon the outstanding customer
receivable balance. This revenue is earned when a customer's receivable balance
becomes delinquent and is calculated using the greater of a minimum charge or a
stated late fee rate multiplied by the outstanding balance that is subject to a
late fee charge. Changes in the absolute amount of such outstanding balances can
be attributed to: (i) changes in fuel prices; (ii) customer specific transaction
volume; and (iii) customer specific delinquencies. Late fee revenue can also be
impacted by: (i) changes in late fee rates; and, (ii) increases or decreases in
customer overdue balances. Late fee rates are determined and set based primarily
on the risk associated with our customers, coupled with a strategic view of
standard rates within our industry. Periodically, we assess the market rates
associated within our industry to determine appropriate late fee rates. We
consider factors such as the Company's overall financial model and strategic
plan, the cost to our business from customers failing to pay timely and the
impact such late payments have on our financial results. These assessments are
typically conducted at least annually but may occur more often depending on
macro-economic factors.
Finance income increased $16.9 million for the third quarter of 2021 and $21.4
million for the nine months ended September 30, 2021 as compared to the same
periods in the prior year. Instances of customer delinquencies increased during
the quarter ended September 30, 2021 as compared to the prior year period,
contributing to the increase in quarterly finance income in conjunction with
improvement in spend volumes and increased fuel prices. Instances of customer
delinquencies for the nine months ended September 30, 2021 continue to remain
low. Increases in average unpaid invoice balances, attributable primarily to
improvement in spend volumes and increased fuel prices, contributed to just over
half the increase in finance income for the nine months ended September 30, 2021
as compared to the same period in the prior year. The remaining increase was
driven by higher weighted average late fee rates. During both the three and nine
months ended September 30, 2021 and 2020, monthly late fee rates and minimum
finance charges ranged up to 9.99 percent and $75, respectively. The weighted
average late fee rate, net of related charge-offs, was 6.4 percent and 6.1
percent for the three and nine months ended September 30, 2021, respectively,
and 5.9 percent and 5.7 percent for the three and nine months ended September
30, 2020, respectively. Concessions to certain customers experiencing financial
difficulties may be granted and are limited to extending the time to pay,
placing a customer on a payment plan or granting waivers of late fees. There
were no material concessions granted to customers experiencing financial
difficulties during the three and nine months ended September 30, 2021 and 2020.

The primary source of factoring fee revenue is calculated as a negotiated
percentage fee of the receivable balance that we purchase. A secondary source of
factoring fee revenue is a flat rate service fee to our customers that request a
non-contractual same day funding of the receivable balance. Factoring fee
revenue increased $4.5 million for the third quarter of 2021 and $13.2 million
for the nine months ended September 30, 2021, as compared with the same periods
in the prior year due to increased shipping demand and increased rates, leading
to an increase in the size and volume of factored invoices.

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Operating Expenses
The following table compares line items within operating income for Fleet
Solutions:
                                   Three Months Ended September
                                                30,                           Increase (Decrease)              Nine Months Ended September 30,              Increase (Decrease)
(In thousands)                        2021               2020              Amount             Percent              2021                2020              Amount             Percent
Cost of services
Processing costs                  $   55,638          $ 49,924          $    5,714                 11  %       $  160,528          $ 146,585          $   13,943                 10  %
Service fees                      $    2,008          $  1,755          $      253                 14  %       $    5,710          $   5,318          $      392                  7  %

Provision for credit losses $ 10,473 $ 8,529 $

 1,944                 23  %       $   26,359          $  47,421          $  (21,062)               (44) %
Operating interest                $    1,505          $  4,122          $   (2,617)               (63) %       $    5,410          $  15,402          $   (9,992)               (65) %

Depreciation and amortization $ 12,398 $ 12,315 $

    83                  1  %       $   37,523          $  35,973          $    1,550                  4  %

Other operating expenses
General and administrative        $   23,694          $ 23,272          $      422                  2  %       $   66,945          $  67,130          $     (185)                 -  %
Sales and marketing               $   44,564          $ 34,906          $    9,658                 28  %       $  127,719          $ 107,730          $   19,989                 19  %
Depreciation and amortization     $   19,446          $ 22,531          $   (3,085)               (14) %       $   58,443          $  67,412          $   (8,969)               (13) %

Operating income                  $  116,635          $ 71,350          $   45,285                 63  %       $  315,949          $ 189,960          $  125,989                 66  %


Cost of services
Processing costs increased by $5.7 million and $13.9 million for the third
quarter and the nine months ended September 30, 2021, respectively, as compared
with the same periods in the prior year. Such increases were primarily driven by
higher business support costs incurred as a result of the increased volumes
experienced during the quarter and year-to-date periods ended September 30, 2021
as compared to the prior year comparable periods.
Service fees for the three and nine months ended September 30, 2021 were
generally consistent with the same periods in the prior year.
Provision for credit losses increased by $1.9 million for the third quarter of
2021 and decreased $21.1 million for the nine months ended September 30, 2021 as
compared to the same periods in the prior year. The increase in the provision
for credit losses during the third quarter of 2021 reflects a slight increase
from recent lows in credit losses. The adoption of the new credit loss
accounting standard during the first quarter of 2020, coupled with an increase
in expected credit losses during the first two quarters of 2020 as a result of
the COVID-19 pandemic, resulted in a higher provision for credit losses in the
first half of the prior year. We generally measure our credit loss performance
by calculating fuel-related credit losses as a percentage of total fuel
expenditures on payment processing transactions. This metric for credit losses
was 5.9 and 6.7 basis points of fuel expenditures for the three and nine months
ended September 30, 2021, respectively, as compared to 10.8 and 20.1
basis points of fuel expenditures for the same periods in the prior year,
respectively.
Operating interest decreased $2.6 million and $10.0 million for the three and
nine months ended September 30, 2021, respectively, as compared to the same
periods in the prior year. The decreases from the comparable periods in 2020
were due primarily to lower interest rates.
Depreciation and amortization remained relatively consistent for both the three
and nine months ended September 30, 2021, as compared with the same periods in
the prior year.
Other operating expenses
General and administrative expenses remained consistent for both the three and
nine months ended September 30, 2021, as compared with the same periods in the
prior year.
Sales and marketing expenses increased $9.7 million and $20.0 million for the
three and nine months ended September 30, 2021, respectively, as compared with
the same periods in the prior year. These increases were primarily driven by
higher partner commissions due to volume growth and a rise in segment expenses
during the three and nine months ended September 30, 2021 as the Company relaxed
prior year cost containment initiatives enacted as a result of the COVID-19
pandemic.
Depreciation and amortization decreased $3.1 million for the third quarter of
2021 and $9.0 million for the nine months ended September 30, 2021 as compared
to the same periods in the prior year. These decreases were due primarily to
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lower ongoing amortization over time resulting from the impact of the
accelerated method of amortization on certain acquired customer relationships.
Travel and Corporate Solutions
Revenues
The following table reflects comparative revenue and key operating statistics
within Travel and Corporate Solutions:
                                       Three Months Ended September 30,                    Increase (Decrease)                    Nine Months Ended September 30,                     Increase (Decrease)
(In thousands)                            2021                     2020                Amount               Percent                  2021                    2020                  Amount               Percent
Revenues(1)
Payment processing revenue        $           79,815          $    53,239          $     26,576                  50  %       $         205,345          $    166,768                 38,577                  23  %
Account servicing revenue                     10,908                9,964                   944                   9  %                  32,817                31,210                  1,607                   5  %
Finance fee revenue                              200                  145                    55                  38  %                     693                   900                   (207)                (23) %
Other revenue                                     79                  948                  (869)                (92) %                   4,551                 4,272                    279                   7  %
Total revenues                    $           91,002          $    64,296          $     26,706                  42  %       $         243,406          $    203,150                 40,256                  20  %


Key operating statistics
Payment processing revenue:
Payment solutions purchase
volume(2)                         $       12,799,555          $ 4,699,737          $  8,099,818                 172  %       $      27,643,249          $ 15,908,913          $  11,734,336                  74  %



(1) The impact of foreign currency exchange rate fluctuations on Travel and
Corporate Solutions increased revenues by $0.2 million and $1.1 million during
the three and nine months ended September 30, 2021, respectively.
(2) Payment solutions purchase volume represents the total dollar value of all
WEX-issued transactions that use WEX corporate card products and virtual card
products.
Travel and Corporate Solutions revenue increased $26.7 million for the third
quarter of 2021 and $40.3 million for the nine months ended September 30, 2021
as compared to the same periods in the prior year. The increases were primarily
driven by travel-related revenues attributable to the acquisition of eNett and
Optal and a general increase in travel demand, coupled with increased purchase
volumes in our corporate payments business as a result of continued strength in
the partner channel.
Concessions to certain customers experiencing financial difficulties may be
granted and are limited to extending the time to pay, placing a customer on a
payment plan or granting waivers of late fees. There were no material
concessions granted to customers during the three and nine months ended
September 30, 2021.

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Operating Expenses
The following table compares line items within operating income for Travel and
Corporate Solutions:
                                  Three Months Ended September
                                              30,                            Increase (Decrease)               Nine Months Ended September 30,              Increase (Decrease)
(In thousands)                       2021              2020               Amount              Percent              2021               2020              Amount              Percent
Cost of services
Processing costs                 $  15,360          $ 12,904          $     2,456                  19  %       $   50,900          $ 43,356          $    7,544                  17  %
Service fees                     $   3,924          $  3,663          $       261                   7  %       $   11,711          $ 12,095          $     (384)                 (3) %

Provision for credit losses $ 3,575 $ 3,722 $

 (147)                 (4) %       $    5,568          $ 19,227          $  (13,659)                (71) %
Operating interest               $     619          $  1,117          $      (498)                (45) %       $    1,609          $  4,630          $   (3,021)                (65) %

Depreciation and amortization $ 6,425 $ 4,937 $ 1,488

                  30  %       $   19,267          $ 13,704          $    5,563                  41  %

Other operating expenses
General and administrative       $  16,429          $  6,948          $     9,481                 136  %       $   60,187          $ 21,290          $   38,897                 183  %
Sales and marketing              $  26,128          $ 20,971          $     5,157                  25  %       $   88,516          $ 54,027          $   34,489                  64  %

Depreciation and amortization $ 5,305 $ 5,685 $

  (380)                 (7) %       $   17,920          $ 18,088          $     (168)                 (1) %

Operating income (loss)          $  13,237          $  4,349          $     8,888                 204  %       $  (12,272)         $ 16,733          $  (29,005)               (173) %


Cost of services
Processing costs for the three and nine months ended September 30, 2021
increased $2.5 million and $7.5 million, respectively, from the same periods in
the prior year, due primarily to the acquisition of eNett and Optal. For the
nine months ended September 30, 2021, this increase was partly offset by a
reduction of costs as a result of the sale of the Company's Brazilian subsidiary
during the third quarter of 2020.
Service fees for both the three and nine months ended September 30, 2021
remained relatively consistent with the comparable prior year periods.
Provision for credit losses remained consistent for the third quarter of 2021
and decreased $13.7 million for the nine months ended September 30, 2021 as
compared to the same periods in the prior year. The decrease in the provision
for the nine months ended September 30, 2021 is due primarily to the sale of our
WEX Latin America business during the third quarter of 2020. Additionally, the
prior year was unfavorably impacted by increased expected credit losses as a
result of the COVID-19 pandemic.
Operating interest expense decreased $0.5 million for the third quarter of 2021
and $3.0 million for the nine months ended September 30, 2021 as compared to the
same periods in the prior year, primarily as a result of lower interest rates.
Depreciation and amortization expenses for the three and nine months ended
September 30, 2021 increased by $1.5 million and $5.6 million, respectively, as
compared to the same periods in the prior year, due primarily to the acquisition
of eNett and Optal.
Other operating expenses
General and administrative expenses for the third quarter of 2021 and nine
months ended September 30, 2021 increased by $9.5 million and $38.9 million,
respectively, as compared to the same periods in the prior year. The increases
are primarily due to integration costs related to the acquisition of eNett and
Optal. The nine months ended September 30, 2021 was also impacted by a vendor
contract termination payment from the first quarter of 2021.
Sales and marketing expenses increased for the third quarter of 2021 and nine
months ended September 30, 2021 by $5.2 million and $34.5 million, respectively,
as compared to the same periods in the prior year. These increases were
primarily due to higher relative commission payments associated with corporate
payments volumes and the acquisition of eNett and Optal.
Depreciation and amortization expenses during both the third quarter of 2021 and
nine months ended September 30, 2021 remained consistent with the same periods
in the prior year.
Health and Employee Benefit Solutions
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Revenues

The following table reflects comparative revenue and key operating statistics within Health and Employee Benefit Solutions:

                                     Three Months Ended September 30,                   Increase (Decrease)                   Nine Months Ended
September 30,                   Increase (Decrease)
(In thousands)                           2021                    2020               Amount              Percent                  2021                    2020               Amount              Percent
Revenues

Payment processing revenue $ 16,305 $ 15,420

     $      885                   6  %       $          55,564          $    49,919          $    5,645                  11  %
Account servicing revenue                   83,145               63,103              20,042                  32  %                 230,572              189,274              41,298                  22  %
Finance fee revenue                             40                   33                   7                  21  %                     101                  111                 (10)                 (9) %
Other revenue                                5,911               10,560              (4,649)                (44) %                  18,775               35,494             (16,719)                (47) %
Total revenues                   $         105,401          $    89,116          $   16,285                  18  %       $         305,012          $   274,798          $   30,214                  11  %

Key operating statistics
Payment processing revenue:
Purchase volume(1)               $       1,173,913          $ 1,120,786          $   53,127                   5  %       $       3,969,270          $ 3,730,417          $  238,853                   6  %
Account servicing revenue:
Average number of SaaS
accounts(2)                                 16,912               14,599               2,313                  16  %                  16,268               14,515               1,753                  12  %



(1) Purchase volume represents the total U.S. dollar value of all transactions
where interchange is earned by WEX.
(2) Average number of SaaS accounts represents the number of active
Consumer-Directed Health, COBRA, and billing accounts on our SaaS platforms in
the U.S.
Payment processing revenue increased $0.9 million and $5.6 million during the
third quarter of 2021 and nine months ended September 30, 2021, respectively, as
compared to the same periods in the prior year due to increasing cardholder
spend volumes.
Account servicing revenue increased $20.0 million and $41.3 million for the
third quarter of 2021 and nine months ended September 30, 2021, respectively, as
compared to the same periods in the prior year. The increase for both the three
and nine month periods ended September 30, 2021 is primarily due to growth in
participants and revenues recognized from the benefitexpress Acquisition. The
increase for the nine months ended September 30, 2021 also includes
approximately $7 million of revenue resulting from COBRA related services we
provided as a result of the American Rescue Plan Act legislation. These
additional COBRA-related service revenues were primarily earned during the
second quarter of 2021.
Finance fee revenue was not material to Health and Employee Benefit Solutions'
operations for each of the three and nine months ended September 30, 2021 and
2020.
Other revenue decreased $4.6 million for the third quarter of 2021 and $16.7
million for the nine months ended September 30, 2021 as compared to the same
periods in the prior year. The decreases were due primarily to lower U.S. Health
professional services revenue coupled with the absence of revenues associated
with the Company's former WEX Latin America business, which was sold during the
third quarter of 2020.

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Operating Expenses
The following table compares line items within operating income for Health and
Employee Benefit Solutions:
                                   Three Months Ended September
                                               30,                           Increase (Decrease)              Nine Months Ended September 30,              Increase (Decrease)
(In thousands)                        2021              2020              Amount             Percent              2021                2020              Amount             Percent
Cost of services
Processing costs                  $  50,209          $ 39,340          $   10,869                 28  %       $  135,749          $ 117,135          $   18,614                 16  %
Service fees                      $   8,314          $  5,463          $    2,851                 52  %       $   21,730          $  16,922          $    4,808                 28  %

Provision for credit losses $ 79 $ 32 $

   47                147  %       $      221          $     203          $       18                  9  %
Operating interest                $       -          $     23          $      (23)              (100) %       $        -          $     119          $     (119)              (100) %

Depreciation and amortization $ 9,403 $ 8,950 $

   453                  5  %       $   27,081          $  26,438          $      643                  2  %

Other operating expenses
General and administrative        $  10,116          $  9,041          $    1,075                 12  %       $   26,315          $  26,322          $       (7)                 -  %
Sales and marketing               $  11,533          $  8,715          $    2,818                 32  %       $   29,942          $  26,361          $    3,581                 14  %
Depreciation and amortization     $  15,032          $ 10,536          $    4,496                 43  %       $   40,423          $  31,634          $    8,789                 28  %

Operating income                  $     715          $  7,016          $   (6,301)               (90) %       $   23,551          $  29,664          $   (6,113)               (21) %


Cost of services
Processing costs increased $10.9 million for the third quarter of 2021 and $18.6
million for the nine months ended September 30, 2021 as compared to the same
periods in the prior year. The increase in processing costs for the third
quarter of 2021 primarily resulted from the benefitexpress Acquisition. The
increase for the nine months ended September 30, 2021 was primarily driven by
higher costs to support partner growth and increases as a result of the
benefitexpress Acquisition, partly offset by an absence of expenses associated
with the Company's former WEX Latin America business.
Service fees for the three and nine months ended September 30, 2021 increased
$2.9 million and $4.8 million, respectively, as compared with the same periods
in the prior year. These increases were driven by costs associated with COBRA
related services we provided as a result of the American Rescue Plan Act,
increased custodial management fees as a result of the April 2021 acquisition of
contractual rights to serve as custodian to certain HSAs from Bell Bank, and
growth in existing partner volumes.
Provision for credit losses was not material to Health and Employee Benefit
Solutions' operations for each of the three and nine months ended September 30,
2021 and 2020.
Operating interest was not material for each of the three and nine month periods
ending September 30, 2021 and 2020.
Depreciation and amortization expense for the third quarter of 2021 and nine
months ended September 30, 2021 remained consistent with the same periods in the
prior year.
Other operating expenses
General and administrative expenses increased $1.1 million for the third quarter
2021 and remained consistent for the nine months ended September 30, 2021 as
compared to the same periods in the prior year. The third quarter increase was
primarily due to the benefitexpress Acquisition.
Sales and marketing expenses in the third quarter of 2021 and nine months ended
September 30, 2021 increased $2.8 million and $3.6 million, respectively, as
compared to the same periods in the prior year due to increased segment expenses
as the Company relaxed prior year cost containment initiatives enacted as a
result of the COVID-19 pandemic and due to the benefitexpress Acquisition.
Depreciation and amortization increased $4.5 million and $8.8 million,
respectively, for the three and nine months ended September 30, 2021 as compared
to the same periods of the prior year primarily as a result of the April 2021
acquisition of contractual rights to serve as custodian of certain HSAs and the
amortization of customer relationships and technology acquired as part of the
benefitexpress Acquisition.
Unallocated corporate expenses
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Unallocated corporate expenses represent the portion of expenses relating to
general corporate functions, including acquisition and divestiture expenses,
certain finance, legal, information technology, human resources, administrative
and executive expenses and other expenses not directly attributable to a
reportable segment.
The following table compares line items within operating income for unallocated
corporate expenses:
                                   Three Months Ended September                                                Nine Months Ended September
                                               30,                           Increase (Decrease)                           30,                           Increase (Decrease)
(In thousands)                        2021              2020              Amount             Percent              2021              2020              Amount             Percent
Other operating expenses
General and administrative        $  29,247          $ 33,870          $   (4,623)               (14) %       $  92,013          $ 82,690          $    9,323                 11  %
Depreciation and amortization     $     518          $    562          $      (44)                (8) %       $   1,574          $  1,773          $     (199)               (11) %
Loss on sale of subsidiary        $       -          $ 46,362          $  (46,362)                   NM       $       -          $ 46,362          $  (46,362)                   NM


NM - Not Meaningful
General and administrative expenses decreased $4.6 million for the third quarter
of 2021 and increased $9.3 million for the nine months ended September 30, 2021
as compared to the same periods in the prior year. The decrease in expense for
the third quarter of 2021 resulted from a decrease in litigation costs
associated with the eNett and Optal transaction, offset in part by increased
employee compensation. The increase in expense for the nine months ended
September 30, 2021 was primarily due to increased compensation-related costs.
The decrease in litigation costs associated with the eNett and Optal transaction
during the nine months ended September 30, 2021 was partially offset by
increased professional fees incurred in connection with the amendment and
restatement of our 2016 Credit Agreement.
Loss on the sale of subsidiary relates to the write-off of the associated assets
and liabilities of the Company's former WEX Latin America subsidiary as of the
September 30, 2020 sale date.
Unallocated depreciation and amortization was not material to the Company's
operations for each of the three and nine months ended September 30, 2021 and
2020.
Non-operating income and expense
The following table reflects comparative results for certain amounts excluded
from operating income:
                                       Three Months Ended September
                                                   30,                           Increase (Decrease)              Nine Months Ended September 30,              Increase (Decrease)
(In thousands)                            2021              2020              Amount             Percent              2021                2020              Amount             Percent
Financing interest expense            $  32,493          $ 40,950          $   (8,457)               (21) %       $   98,250          $ 101,813          $   (3,563)                (3) %
Change in fair value of contingent
consideration                         $  (2,800)         $      -          $   (2,800)                   NM       $   44,900          $       -          $   44,900                    NM
Other income                          $   3,617          $      -          $    3,617                    NM       $    3,617          $       -          $    3,617                    NM
Net foreign currency loss             $  (9,962)         $   (784)         $   (9,178)                   NM       $  (11,375)         $ (31,973)         $   20,598                 64  %
Net unrealized gain (loss) on
financial instruments                 $   6,424          $  3,774          $    2,650                 70  %       $   19,470          $ (32,115)         $   51,585                    NM

Income tax provision (benefit) $ 19,340 $ 21,602 $ (2,262)

               (10) %       $   16,924          $  (3,852)         $   20,776                    NM
Net income from non-controlling
interests                             $     134          $  1,244          $   (1,110)               (89) %       $    1,099          $   3,282          $   (2,183)               (67) %
Change in value of redeemable
non-controlling interest              $   3,416          $  6,879          $   (3,463)               (50) %       $   72,283          $ (50,437)         $  122,720                    NM


NM - Not Meaningful
Financing interest expense decreased $8.5 million for the third quarter of 2021
and $3.6 million for the nine months ended September 30, 2021 as compared to the
same periods in the prior year. The decrease for the third quarter of 2021 is
primarily due to a reduction in investment banking fees that were incurred in
the third quarter of 2020 in anticipation of our eNett and Optal acquisition.
The decrease for the nine months ended September 30, 2021 compared to the prior
year comparable period is primarily due to lower effective interest rates on the
collective Tranche A Term Loans and Tranche B Term Loans and Revolving Credit
Facility.
During the nine months ended September 30, 2021, the Company's contingent
consideration derivative liability associated with WEX Inc.'s April 2021
acquisition of certain contractual rights from Bell Bank to serve as custodian
or sub-custodian to certain HSA assets, increased as a result of the steepening
of the Federal Funds futures curve. The decrease in fair value during the third
quarter of 2021 was due to a decrease in the period of potential future
volatility as a result of the passage of time.
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During the quarter ended September 30, 2021, the Company recognized other income
of $3.6 million resulting from a gain on the sale of a fully impaired equity
investment.
Our foreign currency exchange exposure is primarily related to the remeasurement
of our cash, receivable and payable balances, including intercompany
transactions that are denominated in foreign currencies. The Company incurred
net foreign currency losses of $10.0 million in the third quarter of 2021 and
$11.4 million in the nine months ended September 30, 2021. The losses resulted
from the weakening of foreign currencies relative to the U.S. dollar. The
Company's net foreign currency losses for the three and nine months ended
September 30, 2020 resulted from the remeasurement of assets and liabilities,
and losses on intercompany transactions, resulting from the U.S. dollar
strengthening relative to numerous major foreign currencies in which we
transact. The majority of these losses were recorded during the three months
ended March 31, 2020 as a result of weakening foreign currencies stemming from
the COVID-19 pandemic.
The Company incurred unrealized gains on financial instruments of $6.4 million
in the third quarter of 2021 and $19.5 million in the nine months ended
September 30, 2021. The gains for the three and nine months ended September 30,
2021 were primarily due to a reduction in the interest rate swap liabilities due
to a decrease in remaining future settlements. The net unrealized gain on
financial instruments for the third quarter of 2020 resulted primarily from a
reduction in the fair value of interest rate swap liabilities due to a decrease
in the remaining future settlements. The net unrealized losses on financial
instruments for the nine months ended September 30, 2020 resulted primarily from
a decrease in the LIBOR forward yield curve.
The Company's effective tax rate was 27.2 percent and 16.6 percent for the three
and nine months ended September 30, 2021 as compared to (59.8) percent and 6.4
percent for the three and nine months ended September 30, 2020. Income tax
expense is based on an estimated annual effective rate, which requires the
Company to make its best estimate of annual pretax income or loss. The Company's
effective tax rates for the current year reflected the excess tax benefits
arising from stock-based compensation and jurisdictional earnings mix. Effective
tax rates were significantly lower in the prior year primarily due to the
jurisdictional earnings mix and decrease in estimated income before income taxes
with relatively significant non-deductible expenses, including the loss on the
sale of WEX Latin America.
Net income from non-controlling interests relates to our non-controlling
interests in the U.S. Health business and our non-controlling interests in WEX
Europe Services through April 13, 2021, at which time we purchased the remaining
interest in WEX Europe Services. Such amounts were not material to Company
operations for each of the three and nine months ended September 30, 2021 and
2020.
During the three and nine months ended September 30, 2021, the change in value
of our redeemable non-controlling interest in the U.S. Health business increased
by $3.4 million and $72.3 million, respectively, due to increases in the
trailing twelve month net revenues for the three and nine months ended September
30, 2021 as well as an increase in the market set multiple used to value the
non-controlling interest redemption value for the nine months ended September
30, 2021. During the nine months ended September 30, 2020, the redeemable
non-controlling interest in the U.S. Health business decreased due substantially
to a second quarter change in the redemption value resulting from a
pandemic-driven decline in revenue multiples of peer companies.
Non-GAAP Financial Measures That Supplement GAAP Measures
The Company's non-GAAP adjusted net income excludes unrealized gains and losses
on financial instruments, net foreign currency remeasurement gains and losses,
change in fair value of contingent consideration, acquisition-related intangible
amortization, other acquisition and divestiture related items, loss on sale of
subsidiary, stock-based compensation, other costs, debt restructuring and debt
issuance cost amortization, similar adjustments attributable to our
non-controlling interests, and certain tax related items.

Although adjusted net income is not calculated in accordance with GAAP, this
non-GAAP measure is integral to the Company's reporting and planning processes
and the CODM uses segment adjusted operating income to allocate resources among
our operating segments. The Company considers this measure integral because it
excludes the above-specified items that the Company's management excludes in
evaluating the Company's performance. Specifically, in addition to evaluating
the Company's performance on a GAAP basis, management evaluates the Company's
performance on a basis that excludes the above items because:
•Exclusion of the non-cash, mark-to-market adjustments on financial instruments,
including interest rate swap agreements and investment securities, helps
management identify and assess trends in the Company's underlying business that
might otherwise be obscured due to quarterly non-cash earnings fluctuations
associated with these
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financial instruments. Additionally, the non-cash, mark-to-market adjustments on
financial instruments are difficult to forecast accurately, making comparisons
across historical and future quarters difficult to evaluate.
•Net foreign currency gains and losses primarily result from the remeasurement
to functional currency of cash, accounts receivable and accounts payable
balances, certain intercompany notes denominated in foreign currencies and any
gain or loss on foreign currency hedges relating to these items. The exclusion
of these items helps management compare changes in operating results between
periods that might otherwise be obscured due to currency fluctuations.
•The change in fair value of contingent consideration, which is related to the
acquisition of certain contractual rights to serve as custodian or sub-custodian
to HSAs, is dependent upon changes in future interest rate assumptions and has
no significant impact on the ongoing operations of the Company. Additionally,
the non-cash, mark-to-market adjustments on financial instruments are difficult
to forecast accurately, making comparisons across historical and future quarters
difficult to evaluate.
•The Company considers certain acquisition-related costs, including investment
banking fees, warranty and indemnity insurance, certain integration-related
expenses and amortization of acquired intangibles, as well as gains and losses
from divestitures to be unpredictable, dependent on factors that may be outside
of our control and unrelated to the continuing operations of the acquired or
divested business or the Company. In addition, the size and complexity of an
acquisition, which often drives the magnitude of acquisition-related costs, may
not be indicative of such future costs. The Company believes that excluding
acquisition-related costs and gains or losses on divestitures facilitates the
comparison of our financial results to the Company's historical operating
results and to other companies in our industry.
•The loss on sale of subsidiary relates to the divestiture of the Company's
former Brazilian subsidiary as of the date of sale, September 30, 2020, and the
associated write-off of its assets and liabilities. As previously discussed,
gains and losses from divestitures are considered by the Company to be
unpredictable and dependent on factors that may be outside of our control. The
exclusion of these gains and losses are consistent with the Company's practice
of excluding other non-recurring items associated with strategic transactions.
•Stock-based compensation is different from other forms of compensation, as it
is a non-cash expense. For example, a cash salary generally has a fixed and
unvarying cash cost. In contrast, the expense associated with an equity-based
award is generally unrelated to the amount of cash ultimately received by the
employee, and the cost to the Company is based on a stock-based compensation
valuation methodology and underlying assumptions that may vary over time.
•We exclude certain other costs when evaluating our continuing business
performance when such items are not consistently occurring and do not reflect
expected future operating expense, nor provide insight into the fundamentals of
current or past operations of our business. These include costs related to
certain identified initiatives (including technology initiatives) to further
streamline the business, improve the Company's efficiency, create synergies, and
globalize the Company's operations, all with an objective to improve scale and
efficiency and increase profitability going forward. For the nine months ended
September 30, 2021, other costs additionally included a penalty of $10.3 million
incurred on a vendor contract termination. For the nine months ended September
30, 2020, other costs included certain costs incurred in association with the
COVID-19 pandemic, including the cost of providing additional health, welfare
and technological support to our employees as they work remotely.
•Debt restructuring and debt issuance cost amortization are unrelated to the
continuing operations of the Company. Debt restructuring costs do not reflect
expected future operating expense, nor do they provide insight into the
fundamentals of current or past operations of our business. In addition, since
debt issuance cost amortization is dependent upon the financing method, which
can vary widely company to company, we believe that excluding these costs helps
to facilitate comparison to historical results as well as to other companies
within our industry.
•The adjustments attributable to non-controlling interests, including
adjustments to the redemption value of a non-controlling interest, have no
significant impact on the ongoing operations of the business.
•The tax related items are the difference between the Company's GAAP tax
provision and a pro forma tax provision based upon the Company's adjusted net
income before taxes as well as the impact from certain discrete tax items. The
methodology utilized for calculating the Company's adjusted net income tax
provision is the same methodology utilized in calculating the Company's GAAP tax
provision.
For the same reasons, WEX believes that adjusted net income may also be useful
to investors as one means of evaluating the Company's performance. However,
because adjusted net income is a non-GAAP measure, it should not be considered
as a substitute for, or superior to, net income, operating income or cash flows
from operating activities as
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determined in accordance with GAAP. In addition, adjusted net income as used by
WEX may not be comparable to similarly titled measures employed by other
companies.
The following table reconciles net income (loss) attributable to shareholders to
adjusted net income attributable to shareholders:
                                                 Three Months Ended 

September 30, Nine Months Ended September 30, (In thousands)

                                       2021                2020               2021                2020

Net income (loss) attributable to shareholders $ 48,318 $ (65,840) $ 11,897 $ (9,438) Unrealized (gain) loss on financial instruments (6,424)

            (3,774)            (19,470)            32,115
Net foreign currency remeasurement loss               9,962                784              11,375             31,973

Change in fair value of contingent consideration     (2,800)                 -              44,900                  -
Acquisition-related intangible amortization          46,965             42,831             134,713            127,847
Other acquisition and divestiture related items       3,395             20,328              28,881             36,005

Loss on sale of subsidiary                                -             46,362                   -             46,362
Stock-based compensation                             22,166             18,170              62,771             45,059
Other costs                                           1,711              1,045              15,653              7,980

Debt restructuring and debt issuance cost
amortization                                          2,879              5,329              19,432              9,989

ANI adjustments attributable to non-controlling
interests                                             2,848              6,233              69,854            (52,101)
Tax related items                                   (17,904)              (614)            (82,722)           (72,298)

Adjusted net income attributable to shareholders $ 111,116 $ 70,854 $ 297,284 $ 203,493



Liquidity and Capital Resources
We believe that our cash generating capability, financial condition and
operations, together with the sources of cash listed below, will be adequate to
fund our cash needs for at least the next 12 months.
The table below summarizes our primary short-term sources and uses of cash:
Sources of cash                                         Uses of cash(1)
•Borrowings on our Amended and Restated Credit          •Payments on our Amended and Restated Credit
Agreement                                               Agreement
•Convertible Notes                                      •Payments on maturities and withdrawals of
•Deposits                                               certificates of deposit and money market
•Borrowed federal funds                                 deposits
•Participation debt                                     •Payments on borrowed federal funds
•Accounts receivable factoring and securitization       •Working capital needs of the business
arrangements                                            •Capital expenditures


(1) Our long-term cash requirements consist primarily of amounts owed on our
Amended and Restated Credit Agreement and various facilities lease agreements.
The table below summarizes our cash activities:
                                                                  Nine Months Ended September 30,
(In thousands)                                                        2021                2020
Cash flows (used for) provided by operating activities           $   (10,355)         $  774,456
Cash flows used for investing activities                         $  (610,734)         $  (74,958)
Cash flows provided by financing activities                      $   

477,739 $ 42,266



Operating Activities
We fund a customer's entire receivable as part of fleet and certain of our
travel payment processing transactions, while the revenue generated by these
transactions is only a small percentage of that amount. Consequently, cash flows
from operations are impacted significantly by changes in accounts receivable and
accounts payable balances, which directly impact our capital resource
requirements.
Cash generated by operating activities for the nine months ended September 30,
2021 decreased $784.8 million as compared to the same period in the prior year.
The decrease was substantially related to an increase in accounts receivable
balances resulting from higher customer spend volumes and fuel prices, which was
partially offset by a corresponding increase in accounts payable balances.
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Investing Activities
Cash used for investing activities for the nine months ended September 30, 2021
increased $535.8 million as compared to the same period in the prior year,
primarily resulting from $558.2 million of payments made for acquisitions,
including the acquisition of certain contractual rights to serve as custodian or
sub-custodian of HSAs from Bell Bank and the benefitexpress Acquisition.
Financing Activities
Cash provided by financing activities for the nine months ended September 30,
2021 totaled $477.7 million, due primarily to an increase in deposits of
$558.0 million. The early redemption of the Company's $400.0 million of Notes,
as further described within the preceding Summary section of this MD&A, was
substantially offset by additional term loan borrowings of $65.0 million, net of
quarterly repayments, and net borrowings of $213.4 million against our Revolving
Credit Facility (as defined below). Cash provided by financing activities for
the nine months ended September 30, 2020 totaled $42.3 million due primarily to
the completion of a private placement with Warburg Pincus on July 1, 2020, which
netted $389.2 million of proceeds. This increase was partly offset by a decrease
in deposits and participation debt.
Amended and Restated Credit Agreement
On April 1, 2021, the Company amended and restated the 2016 Credit Agreement
(the "Amended and Restated Credit Agreement"). As part of the Amended and
Restated Credit Agreement, the lenders agreed to (i) increase commitments under
the Company's secured revolving credit facility from $870.0 million to
$930.0 million (the "Revolving Credit Facility"), (ii) provide additional senior
secured tranche A term loans (the "Tranche A Term Loans") resulting in an
aggregate outstanding principal amount of the Tranche A Term Loans equal to
$978.4 million, (iii) re-establish the senior secured tranche B term loans'
aggregate principal at $1,442.0 million (the "Tranche B Term Loans"), (iv)
eliminate the 0.75 percent eurocurrency rate floor with respect to the Revolving
Credit Facility, and (v) make certain other changes to the previously existing
2016 Credit Agreement, including without limitation, (a) extending the maturity
dates for the Tranche A Term Loans and Revolving Credit Facility to April 1,
2026 and the maturity date for the Tranche B Term Loans to April 1, 2028, (b)
providing additional flexibility with respect to certain negative covenants,
prepayments and other provisions of the Company's previously existing 2016
Credit Agreement, and (c) revising the Company's maximum consolidated leverage
ratio for all future quarters, including a reduction from 7.50 to 1:00 to 6.25
to 1:00 for quarters ending through September 30, 2021, with step-downs in
periods thereafter.
As of September 30, 2021, the Company had an outstanding principal amount of
$954.0 million on the Tranche A Term Loans, an outstanding principal amount of
$1,434.8 million on the Tranche B Term Loans, borrowings of $213.4 million on
the Revolving Credit Facility and letters of credit of $51.6 million drawn
against the Revolving Credit Facility.
The Revolving Credit Facility and the Tranche A Term Loans bear interest at
variable rates, at the Company's option, plus an applicable margin determined
based on the Company's consolidated leverage ratio. The Tranche B Term Loans
bear interest at variable rates, at the Company's option, plus an applicable
margin, which is fixed at 1.25 percent for base rate borrowings and 2.25 percent
with respect to eurocurrency rate borrowings. Under the Amended and Restated
Credit Agreement, the Company pays a quarterly commitment fee at a rate per
annum ranging from 0.25 percent to 0.50 percent of the daily unused portion of
the Revolving Credit Facility, determined based on the Consolidated Leverage
Ratio. Prior to maturity, the Tranche A Term Loans and Tranche B Term Loans
require scheduled quarterly payments of $12.2 million and $3.6 million,
respectively, due on the last day of each March, June, September and December.
Under the terms of the Amended and Restated Credit Agreement, incremental loans
could be made available upon the request of the Company, subject to specified
terms and conditions, including receipt of lender commitments. Such incremental
loans may not exceed the greater of (x) $375.0 million and (y) 75 percent of
consolidated EBITDA, adjusted for certain voluntary prepayments and repurchases
of term loans, reductions of commitments under the Revolving Credit Facility,
and Incremental Facilities, as defined within the Amended and Restated Credit
Agreement, established or incurred, or that could be established or incurred
without causing the Company's consolidated secured leverage ratio to exceed 4:00
to 1:00.
See Part I - Item 1 - Note 9, Financing and Other Debt, in this report for
further information regarding the Amended and Restated Credit Agreement.
Convertible Notes Outstanding
On July 1, 2020, the Company closed on a private placement with Warburg Pincus,
pursuant to which the Company issued $310.0 million in aggregate principal
amount of its Convertible Senior Notes due 2027. The issuance of the Convertible
Notes provided the Company with net proceeds of approximately $299.2 million
after original issue discount. The Convertible
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Notes have a seven-year term and mature on July 15, 2027, unless earlier
converted, repurchased or redeemed. Interest on the Convertible Notes is
calculated at a fixed rate of 6.5 percent per annum, payable semi-annually in
arrears on January 15 and July 15 of each year. At the Company's option,
interest is either payable in cash, through accretion to the principal amount of
the Convertible Notes, or a combination of cash and accretion. The Company has
paid, and expects to continue to pay interest in cash as it comes due.

The Convertible Notes may be converted at the option of the holders at any time
prior to maturity, or earlier redemption or repurchase of the Convertible Notes,
based upon an initial conversion price of $200 per share of common stock. The
Company may settle conversions of Convertible Notes, at its election, in cash,
shares of the Company's common stock, or a combination thereof. The initial
conversion price is subject to adjustments customary for convertible debt
securities and a weighted average adjustment in the event of issuances of equity
and equity linked securities by the Company at prices below the then applicable
conversion price for the Convertible Notes or the then market price of the
Company's common stock, subject to certain exceptions. It is the Company's
intention to settle all conversions of the Convertible Notes in shares of the
Company's common stock.

The Company will have the right, at any time after July 1, 2023, to redeem the
Convertible Notes in whole or in part if the closing price of WEX's common stock
is at least 200 percent of the conversion price of the Convertible Notes for 20
trading days (whether or not consecutive) out of any 30 consecutive trading day
period prior to the time the Company delivers a redemption notice (including at
least one of the five trading days immediately preceding the last day of such 30
trading day period), subject to the right of holders of the Convertible Notes to
convert its Convertible Notes prior to the redemption date.
The indenture associated with the Convertible Notes includes a debt incurrence
covenant that restricts the Company from incurring certain indebtedness,
including disqualified stock and preferred stock issued by the Company or its
subsidiaries, subject to customary exceptions, including if, after giving effect
to any such proposed incurrence or issuance, and the receipt and application of
the proceeds therefrom, the ratio of (x) the Company's consolidated EBITDA for
the most recent four fiscal quarters for which financial statements are
available, to (y) the Company's consolidated fixed charges for such period would
be greater than 1.5:1.0. The indenture contains other customary terms and
covenants, including customary events of default.
Deposits
WEX Bank's regulatory status enables it to raise capital to fund the Company's
working capital requirements by issuing deposits, subject to FDIC rules
governing minimum financial ratios. WEX Bank accepts its deposits through: (i)
certain customers as required collateral for credit that has been extended
("customer deposits") and (ii) contractual arrangements for brokered and
non-brokered certificate of deposit and money market deposit products. Customer
deposits are generally non-interest bearing, certificates of deposit are issued
at fixed rates and money market deposits are issued at both fixed and variable
rates based on LIBOR or the Federal Funds rate.
Deposits are classified based on their contractual maturities. Certificates of
deposit and certain fixed term money market deposit products have fixed
contractual maturities. Money market deposits without fixed terms may be
withdrawn by the holder at any time, although the allowed number of transactions
may be limited and notification may be required. Customer deposits are released
at the termination of the relationship, net of any customer receivable, or upon
reevaluation of the customer's credit in limited instances.
As of September 30, 2021 and December 31, 2020 we had $1.6 billion and $1.1
billion, respectively, in deposits. Remaining maturities on the deposits
outstanding as of September 30, 2021 ranged from less than 1 month to
approximately 4 years. See Part I - Item 1 - Note 8, Deposits, in this report
for further information regarding our deposits.
Borrowed Federal Funds
WEX Bank borrows from uncommitted federal funds lines to supplement the
financing of the Company's accounts receivable. Our federal funds lines of
credit were $561.0 million and $376.0 million as of September 30, 2021 and
December 31, 2020, respectively. There were outstanding borrowings of
$40.0 million and $20.0 million as of September 30, 2021 and December 31, 2020,
respectively.
Participation Debt
From time to time, WEX Bank enters into participation agreements with
third-party banks to fund customers' balances that exceed WEX Bank's lending
limit to individual customers. Associated unsecured borrowings generally carry a
variable interest rate set according to an applicable reference rate plus a
margin, which ranged from 225 to 250 basis points as of September 30, 2021.
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As of September 30, 2021 and December 31, 2020, the Company had outstanding
participation agreements for the borrowing of up to $61.5 million through
December 31, 2021. There was $1.5 million borrowed against these participation
agreements as of September 30, 2021 with an average interest rate of 2.36
percent. There were no amounts borrowed against participation agreements as of
December 31, 2020.
WEX Europe Services Accounts Receivable Factoring
WEX Europe Services has entered into a factoring arrangement with an unrelated
third-party financial institution (the "Purchasing Bank") to sell certain of its
accounts receivable in order to accelerate the collection of the Company's cash
and reduce the internal costs, thereby improving liquidity. The agreement
remains in effect through December 31, 2021, after which the agreement
automatically renews annually unless either party gives not less than 90 days
written notice of their intention to withdraw. Under this arrangement, the
Purchasing Bank establishes a credit limit for each customer account. The
factored receivables are without recourse to the extent that the customer
balances are maintained at or below the established credit limit. For customer
receivable balances in excess of the Purchasing Bank's credit limit, the Company
maintains the risk of default. The Company obtained a true sale opinion from an
independent attorney, which states that the factoring agreement creates a sale
of receivables under local law for amounts transferred both below and above the
established credit limits. As a result, the Purchasing Bank is deemed the
purchaser of these receivables and is entitled to enforce payment of these
amounts from the debtor. The Company continues to service these receivables
post-transfer with no participating interest. Available capacity is dependent on
the level of our trade accounts receivable eligible to be sold and the financial
institution's willingness to purchase such receivables. As such, this factoring
arrangement can be reduced or eliminated at any time due to market conditions
and changes in the credit worthiness of our customers, which would negatively
impact our liquidity.
WEX Bank Accounts Receivable Factoring
WEX Bank has entered into a receivables purchase agreement with an unrelated
third-party financial institution to sell certain of our trade receivables under
non-recourse transactions, which extends through August 2022, after which the
agreement can be renewed for successive one-year periods assuming WEX provides
advance written notice that is accepted by the purchaser. WEX Bank continues to
service the receivables post-transfer with no participating interest. The
Company obtained a true-sale opinion from an independent attorney, which states
that the factoring agreement provides legal isolation upon WEX Bank bankruptcy
or receivership under local law. As such, transfers under this arrangement are
treated as a sale. Proceeds from the sale are reported net of negotiated
discount rates and are accounted for as a reduction in trade accounts receivable
because effective control of the receivables is transferred to the buyer.
Securitization Facilities
The Company is a party to two securitized debt agreements. Under these
agreements, our subsidiaries sell trade accounts receivable to bankruptcy-remote
subsidiaries consolidated by the Company. Amounts collected on the securitized
receivables are restricted to pay the securitized debt and are not available for
general corporate purposes. See Part I - Item 1 - Note 9, Financing and Other
Debt, in this report for more information regarding these facilities.
Regulatory Risk
The Company's subsidiary, WEX Bank, is subject to various regulatory capital
requirements administered by the FDIC and the Utah Department of Financial
Institutions. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, WEX Bank must meet specific capital guidelines that
involve quantitative measures of WEX Bank's assets, liabilities and certain
off-balance sheet items. WEX Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors. Failure to meet minimum capital requirements can
initiate certain mandatory and possible additional discretionary actions by
regulators that, if undertaken, could limit our business activities and have a
material adverse effect on our business, results of operations and financial
condition. Qualitative measures established by regulation to ensure capital
adequacy require WEX Bank to maintain minimum amounts and ratios as defined in
the regulations. As of September 30, 2021, WEX Bank met all the requirements to
be deemed "well-capitalized" pursuant to FDIC regulation and for purposes of the
Federal Deposit Insurance Act. See Part I - Item 1 - Note 18, Supplementary
Regulatory Capital Disclosure, in this report for further information.
Interest Rate Risk
As of September 30, 2021, we had variable-rate borrowings of $2.6 billion under
our Amended and Restated Credit Agreement, which bore a weighted average
effective interest rate of 2.2 percent. We periodically review our projected
borrowings under our Amended and Restated Credit Agreement and the current
interest rate environment to determine if we should use interest rate swaps to
reduce exposure to interest rate volatility.
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As of September 30, 2021, we maintained eleven interest rate swap contracts with
a collective notional amount of $2.3 billion that are intended to economically
hedge the LIBOR component of future interest payments associated with our
variable rate borrowings. The fixed rates on those interest rate swap contracts
range between 0.435 percent and 2.413 percent.
Foreign Currency Exchange Risk
Earnings outside of the United States are accompanied by certain financial
risks, such as changes in foreign currency exchange rates. Changes in foreign
currency exchange rates may reduce the reported value of our foreign currency
revenues, net of expenses, and cash flows. We cannot predict changes in currency
exchange rates, the impact of exchange rate changes, nor the degree to which we
will be able to manage the impact of currency exchange rate changes.
Undistributed Earnings
Undistributed earnings of certain foreign subsidiaries of the Company amounted
to an estimated $116.5 million and $58.5 million as of September 30, 2021 and
December 31, 2020, respectively. The Company continues to maintain its
indefinite reinvestment assertion for its investments in foreign subsidiaries
except for any historical undistributed earnings and future earnings for WEX
Australia. Upon distribution of these earnings in the form of dividends or
otherwise, the Company would be subject to withholding taxes payable to foreign
countries, where applicable, but would generally have no further federal income
tax liability. It is not practicable to estimate the unrecognized deferred tax
liability, however, it is not expected to be material.
Off-Balance Sheet Arrangements
Even though off-balance sheet arrangements are not recorded as liabilities under
GAAP, such arrangements may potentially impact our liquidity, capital resources
and results of operations. These arrangements serve a variety of business
purposes, however, the Company is not dependent on them to maintain its
liquidity and capital resources. We are not aware of any circumstances that are
reasonably likely to cause the off-balance sheet arrangements to have a material
adverse effect on liquidity and capital resources. As of both September 30, 2021
and December 31, 2020, we had posted letters of credit totaling $51.6 million as
collateral under the terms of our lease agreement for our corporate offices,
other corporate matters and for payment processing activity at certain foreign
subsidiaries.
See Part I - Item 1 - Note 10, Off-Balance Sheet Arrangements, in this report
for further information about the Company's off-balance sheet arrangements.
Contractual Obligations
Certain of the Company's subsidiaries are required to purchase a minimum amount
of fuel from suppliers on an annual basis. If the minimum requirement is not
fulfilled, they are subject to penalties based on the amount of spend below the
minimum annual volume commitment. The Company incurred penalties of $1.5 million
and $4.5 million during the three and nine months ended September 30, 2021,
respectively.
With the exception of the changes as a result of the Amended and Restated Credit
Agreement and our Notes Redemption, as discussed earlier within this Liquidity
and Capital Resources section and in Part I - Item 1 - Note 9, Financing and
Other Debt, in this report, there were no material changes to our contractual
obligations from the information previously provided in Item 7 of our Annual
Report on Form 10-K for the year ended December 31, 2020.
Share Repurchase Program
We currently have authorization from our board of directors to repurchase up to
$150 million of our common stock through September 30, 2025, subject to earlier
termination by the board of directors. The program is funded either through our
future cash flows or through borrowings on our Amended and Restated Credit
Agreement. Share repurchases may be made through open market purchases,
privately negotiated transactions, block trades or otherwise. The Company's
management, based on its evaluation of market and economic conditions and other
factors, determines the timing and number of shares repurchased. As of
September 30, 2021, no shares have been repurchased under the program.
Asset and Business Acquisitions
On April 1, 2021, WEX Inc. completed the acquisition from Bell Bank of certain
contractual rights to serve as custodian or sub-custodian to HSAs from the
Healthcare Bank division of Bell Bank, which is owned by State Bankshares, Inc.
This acquisition increases the Company's role in its customer-directed
healthcare ecosystem and aligns with its growth strategy. On the closing of the
acquisition, WEX Inc. paid Bell Bank initial cash consideration of
$200.0 million. Pursuant to the purchase agreement, WEX Inc. agreed to make an
additional deferred cash payment of $25.0 million in July 2023 and a second
additional deferred cash payment of $25.0 million in January 2024. As of June 1,
2021, in connection with the acquisition by
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WEX Health of Cirrus Holdings, LLC, the second deferred payment of $25.0 million
was reduced by the amount of $12.5 million (the "Payment Offset"). As a result
of the Payment Offset, WEX Inc. continues to owe Bell Bank $12.5 million for the
second additional deferred cash payment, which is due and payable in January
2024.
The purchase agreement also includes potential additional consideration payable
annually that is calculated on a quarterly basis and is contingent, and based,
upon any future increases in the Federal Funds rate. The contingent payment
period began on July 1, 2021 and shall extend until the earlier of (i) the year
ending December 31, 2030, or (ii) the date when the cumulative amount paid as
contingent consideration equals $225.0 million in the aggregate.
On April 13, 2021, the Company both entered into a share purchase agreement for,
and consummated the acquisition of, the remaining interest in WEX Europe
Services it did not own previously, which consisted of 25 percent of the issued
ordinary share capital, for a purchase price of $97.0 million. As a result of
the transaction, the Company now owns 100 percent of the issued ordinary share
capital of WEX Europe Services, which operates part of our fleet business in the
United Kingdom and Europe.
On June 1, 2021, WEX Inc.'s subsidiary, WEX Health, Inc., completed the
benefitexpress Acquisition. Pursuant to the terms of the definitive purchase
agreement, WEX Health consummated the benefitexpress Acquisition for total
consideration of approximately $275 million, subject to certain working capital
and other adjustments. WEX Health is owned by PO Holding, which is majority
owned by WEX Inc., with a non-controlling interest being held by SBI, which is
owned by State Bankshares, Inc., the owner of Bell Bank. To facilitate the
benefitexpress Acquisition, WEX Inc., PO Holding, SBI and Bell Bank entered into
the Subscription Agreement pursuant to which WEX Inc. purchased approximately
$262.5 million in value of shares in PO Holding and SBI acquired approximately
$12.5 million in value of shares in PO Holding in exchange for SBI granting the
Payment Offset.
Dividends
The Company has not declared any dividends on its common stock since it
commenced trading on the NYSE on February 16, 2005. The timing and amount of
future dividends, if any, will be: (i) dependent upon the Company's results of
operations, financial condition, cash requirements and other relevant factors;
(ii) subject to the discretion of the Board of Directors of the Company; and
(iii) payable only out of the Company's surplus or current net profits in
accordance with the General Corporation Law of the State of Delaware.
The Company has certain restrictions on the dividends it may pay under the
Amended and Restated Credit Agreement, including pro forma compliance with a
consolidated leverage ratio of 2.75:1.00.
Critical Accounting Policies and Estimates
Our critical accounting policy for the recording of our convertible debt changed
effective January 1, 2021 with the adoption of ASU 2020-06. We have included the
2021 implemented policy below. We have no other material changes to our critical
accounting policies and estimates discussed in our Annual Report on Form 10-K
for the year ended December 31, 2020.
Convertible Notes
                                                                                       Effect if Actual Results Differ
                                                                                       from
Description                    Assumptions/Approach Used                               Assumptions

ASU 2020-06 no longer Prior to January 1, 2021, the Convertible Notes Under the "if-converted" method, requires that the

              were recorded at a debt discount with an initial        approximately 1.6 million shares
Company bifurcate its          carrying value of $237.5 million, with the              of the Company's common stock
convertible debt's             residual $54.7 million recognized within                associated with the assumed
conversion feature             additional paid-in capital on the Company's             conversion of these Convertible

between a liability and December 31, 2020 condensed consolidated balance Notes as of the beginning of the equity component. In

           sheet. Effective January 1, 2021, the convertible       period have been excluded from
addition, the standard         debt and its conversion feature are now accounted       diluted shares outstanding for
requires the application       for as a single unit of account, with an                the three and nine months ended
of the if-converted            effective interest rate of 7.5 percent.                 September 30, 2021 as the effect
method to calculate the                                                                of including such shares would
impact of convertible          It is the Company's current intention to settle         be anti-dilutive.
instruments on diluted         all conversion of the Convertible Notes in shares
earnings per share.            of the Company's stock.


Recently Adopted Accounting Standards See Note 1, Basis of Presentation, to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

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