Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 9, 2018 (April 9, 2018)
awexlogo9302016a031.jpg
WEX Inc. 
(Exact name of registrant as specified in its charter)
Delaware 
 
001-32426 
 
01-0526993 
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
 
 
97 Darling Avenue, South Portland, ME 
04106
Address of principal executive offices
Zip Code
Registrant's telephone number, including area code
(207) 773-8171
Not Applicable
(Former name or former address if changes since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨



ITEM 7.01 Regulation FD Disclosure.
Change in Financial Statement Presentation
Beginning with its Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, WEX Inc. (the “Company”) is modifying the presentation of certain line items in its consolidated statements of income. Under the new presentation, the Company will segregate costs of services from other operating expenses and has reclassified its operating expenses into functional categories in order to provide additional detail into the underlying drivers of changes in operating expenses and align its presentation with industry practice. There are no changes to the presentation of revenues, non-operating expenses or other statement of income captions. Additionally, the revised presentation will not result in a change to previously reported revenues, operating income, income before income taxes or net income.
The 2017 results that will be included in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 will be recast to conform to the new presentation. In addition, in order to illustrate the effect of this upcoming change, management has included below unaudited quarterly consolidated statements of income for years 2017 and 2016, which have also been recast to conform to the new presentation.
Sources of Operating Expense
Effective with the change in financial statement presentation noted above, the Company now reports expenses in the categories noted below. No changes have been made to non-operating expenses.
Cost of Services
•
Processing costs - The Company’s processing costs consist of expenses related to processing transactions, servicing customers and merchants, 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 and waived finance fees.
•
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 the 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 the 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 and information technology assets, and acquired intangible assets other than those included in cost of services.
    




Included below, the Company's historical consolidated statements of income for each of the quarters in the years ended December 31, 2017 and 2016 have been recast to conform to the changes in presentation described above.
WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended,
 
Year Ended
 
March 31,
2017
 
June 30,
2017
 
September 30, 2017
 
December 31, 2017
 
December 31, 2017
Revenues
 
 
 
 
 
 
 
 
 
Payment processing revenue
$
136,378

 
$
141,354

 
$
145,702

 
$
145,732

 
$
569,166

Account servicing revenue
61,539

 
65,677

 
71,322

 
78,032

 
276,570

Finance fee revenue
43,372

 
42,085

 
50,879

 
51,246

 
187,582

Other revenue
50,068

 
54,768

 
56,099

 
56,295

 
217,230

Total revenues
291,357

 
303,884

 
324,002

 
331,305

 
1,250,548

Cost of services
 
 
 
 
 
 
 
 
 
Processing costs
64,067

 
68,279

 
68,214

 
76,275

 
276,835

Service fees
17,600

 
20,352

 
19,894

 
15,642

 
73,488

Provision for credit losses
12,231

 
16,082

 
19,614

 
13,221

 
61,148

Operating interest
4,848

 
4,464

 
7,382

 
7,788

 
24,482

Depreciation and amortization
17,384

 
18,376

 
18,879

 
19,467

 
74,106

Total cost of services
116,130

 
127,553

 
133,983

 
132,393

 
510,059

General and administrative
42,423

 
41,047

 
52,361

 
48,903

 
184,734

Sales and marketing
40,198

 
39,943

 
41,585

 
41,928

 
163,654

Depreciation and amortization
31,854

 
31,585

 
32,350

 
33,829

 
129,618

Impairment charges and asset write-offs
—

 
16,175

 
—

 
27,996

 
44,171

Gain on divestiture
—

 
—

 
—

 
(20,958
)
 
(20,958
)
Operating income
60,752

 
47,581

 
63,723

 
67,214

 
239,270

Financing interest expense
(27,148
)
 
(28,547
)
 
(25,754
)
 
(25,618
)
 
(107,067
)
Net foreign currency gain (loss)
8,442

 
10,525

 
14,611

 
(3,659
)
 
29,919

Net unrealized gains (losses) on interest rate swap agreements
1,565

 
(2,264
)
 
(150
)
 
2,163

 
1,314

Non-cash adjustments related to tax receivable agreement
—

 
—

 
—

 
15,259

 
15,259

Income before income taxes
43,611

 
27,295

 
52,430

 
55,359

 
178,695

Income taxes
14,535

 
10,655

 
18,570

 
(24,235
)
 
19,525

Net income
29,076

 
16,640

 
33,860

 
79,594

 
159,170

Less: Net loss from non-controlling interest
(325
)
 
(450
)
 
(111
)
 
(210
)
 
(1,096
)
Net income attributable to shareholders
$
29,401

 
$
17,090

 
$
33,971

 
$
79,804

 
$
160,266






WEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(unaudited)
 
 
 
 
 
Three Months Ended,
 
Year Ended
 
March 31,
2016
 
June 30,
2016
 
September 30, 2016
 
December 31, 2016
 
December 31, 2016
Revenues
 
 
 
 
 
 
 
 
 
Payment processing revenue
$
111,057

 
$
126,080

 
$
146,182

 
$
137,300

 
$
520,619

Account servicing revenue
44,522

 
47,433

 
58,815

 
60,242

 
211,012

Finance fee revenue
23,506

 
32,704

 
36,138

 
46,592

 
138,940

Other revenue
26,843

 
27,719

 
46,621

 
46,706

 
147,889

Total revenues
205,928

 
233,936

 
287,756

 
290,840

 
1,018,460

Cost of services
 
 
 
 
 
 
 
 
 
Processing costs
50,395

 
58,691

 
65,214

 
65,896

 
240,196

Service fees
20,042

 
21,608

 
21,773

 
15,944

 
79,367

Provision for credit losses
3,917

 
6,443

 
9,489

 
13,499

 
33,348

Operating interest
1,386

 
1,505

 
2,599

 
6,896

 
12,386

Depreciation and amortization
11,142

 
11,381

 
19,218

 
21,138

 
62,879

Total cost of services
86,882

 
99,628

 
118,293

 
123,373

 
428,176

General and administrative
36,840

 
38,928

 
53,147

 
56,642

 
185,557

Sales and marketing
29,957

 
32,017

 
34,958

 
33,895

 
130,827

Depreciation and amortization
11,122

 
11,728

 
26,790

 
29,132

 
78,772

Operating income
41,127

 
51,635

 
54,568

 
47,798

 
195,128

Financing interest expense
(21,558
)
 
(30,418
)
 
(35,064
)
 
(26,378
)
 
(113,418
)
Net foreign currency gain (loss)
16,124

 
(4,823
)
 
5,932

 
(24,898
)
 
(7,665
)
Net unrealized gains on interest rate swap agreements
—

 
—

 
—

 
12,908

 
12,908

Net realized and unrealized gains on fuel price derivatives
711

 
—

 
—

 
—

 
711

Non-cash adjustments related to tax receivable agreement
—

 
—

 
(168
)
 
(395
)
 
(563
)
Income before income taxes
36,404

 
16,394

 
25,268

 
9,035

 
87,101

Income taxes
13,183

 
4,482

 
6,065

 
5,895

 
29,625

Net income
23,221

 
11,912

 
19,203

 
3,140

 
57,476

Less: Net gain (loss) from non-controlling interest
135

 
(655
)
 
(493
)
 
(2,148
)
 
(3,161
)
Net income attributable to shareholders
$
23,086

 
$
12,567

 
$
19,696

 
$
5,288

 
$
60,637

Changes to Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available and is evaluated regularly by the Company's Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and assess performance. The Company’s CODM is its Chief Executive Officer. The operating segments are aggregated into the reportable segments described below:
•
Fleet Solutions provides customers with payment and transaction processing services specifically designed for the needs of commercial and governmental fleets. This segment also provides information management services to fleet customers.
•
Travel and Corporate Solutions focuses on the complex payment environment of business-to-business payments, providing customers with payment processing solutions for their corporate payment and transaction monitoring needs.
•
Health and Employee Benefit Solutions is comprised of our healthcare payment products and SaaS platforms with which we provide simplified payment capabilities in a complex healthcare market as well as employee benefit products in Brazil.
In evaluating the financial performance of each segment, the CODM reviews segment adjusted operating income.




Effective January 1, 2018, the Company revised how it allocates certain costs in its measure of segment adjusted operating income. The primary change is how the Company allocates information technology and corporate related costs to its segments. Certain information technology and corporate related costs that support multiple segments, which were previously included in Fleet Solutions, are now being allocated to the segment that they support. Certain residual unallocated corporate costs represent the portion of expenses relating to general corporate functions including acquisition expenses, certain finance, legal, information technology, human resources, administrative and executive expenses and other expenses. These expenses are recorded in unallocated corporate expenses, as these items are centrally and directly controlled and are not included in internal measures of segment operating performance.
Additionally, segment adjusted operating income excludes: (i) acquisition and divestiture related items (including acquisition-related intangible amortization); (ii) stock-based compensation; (iii) restructuring and other costs; (iv) gains on divestitures; (v) debt restructuring costs; (vi) reserves for regulatory penalties; and (vii) impairment charges and asset write-offs. For the year ended December 31, 2016, segment adjusted operating income further excluded a vendor settlement.
The following tables present the Company’s reportable segment results on an adjusted operating income basis for each of the quarters in the years ended December 31, 2017 and 2016 and reconciles the segment adjusted operating income to income before income taxes.
 
(Unaudited)
 
Three Months Ended,
 
Year Ended
 
March 31,
2017
 
June 30,
2017
 
September 30, 2017
 
December 31, 2017
 
December 31, 2017
Segment adjusted operating income
 
 
 
 
 
 
 
 
 
Fleet Solutions
$
83,983

 
$
91,037

 
$
92,696

 
$
104,132

 
$
371,848

Travel and Corporate Solutions
19,186

 
21,516

 
28,992

 
26,966

 
96,660

Health and Employee Benefit Solutions
18,199

 
12,191

 
11,509

 
8,819

 
50,718

Total segment adjusted operating income
$
121,368

 
$
124,744

 
$
133,197

 
$
139,917

 
$
519,226

 
 
 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
 
 
Total segment adjusted operating income
$
121,368

 
$
124,744

 
$
133,197

 
$
139,917

 
$
519,226

Less:
 
 
 
 
 
 
 
 
 
Unallocated corporate expenses
12,298

 
12,823

 
12,935

 
15,698

 
53,754

Acquisition-related intangible amortization
37,979

 
38,114

 
38,510

 
39,207

 
153,810

Other acquisition and divestiture related items
2,135

 
239

 
1,006

 
1,620

 
5,000

Stock-based compensation
6,457

 
7,414

 
8,483

 
8,133

 
30,487

Restructuring and other costs
1,747

 
2,398

 
6,024

 
960

 
11,129

Impairment charges and asset write-offs
—

 
16,175

 
—

 
27,996

 
44,171

Debt restructuring
—

 
—

 
2,516

 
47

 
2,563

Gain on divestiture
—

 
—

 
—

 
(20,958
)
 
(20,958
)
Operating income
60,752

 
47,581

 
63,723

 
67,214

 
239,270

Financing interest expense
(27,148
)
 
(28,547
)
 
(25,754
)
 
(25,618
)
 
(107,067
)
Net foreign currency gain (loss)
8,442

 
10,525

 
14,611

 
(3,659
)
 
29,919

Net unrealized gains (losses) on interest rate swap agreements
1,565

 
(2,264
)
 
(150
)
 
2,163

 
1,314

Non-cash adjustments related to tax receivable agreement
—

 
—

 
—

 
15,259

 
15,259

Income before income taxes
$
43,611

 
$
27,295

 
$
52,430

 
$
55,359

 
$
178,695





 
(Unaudited)
 
Three Months Ended,
 
Year Ended
 
March 31,
2016
 
June 30,
2016
 
September 30, 2016
 
December 31, 2016
 
December 31, 2016
Segment adjusted operating income
 
 
 
 
 
 
 
 
 
Fleet Solutions
$
48,065

 
$
61,594

 
$
86,778

 
$
89,020

 
$
285,457

Travel and Corporate Solutions
15,320

 
16,535

 
25,488

 
23,356

 
80,699

Health and Employee Benefit Solutions
11,885

 
10,507

 
10,053

 
10,673

 
43,118

Total segment adjusted operating income
$
75,270

 
$
88,636

 
$
122,319

 
$
123,049

 
$
409,274

 
 
 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
 
 
Total segment adjusted operating income
$
75,270

 
$
88,636

 
$
122,319

 
$
123,049

 
$
409,274

Less:
 
 
 
 
 
 
 
 
 
Unallocated corporate expenses
10,900

 
11,402

 
11,830

 
12,069

 
46,201

Acquisition-related intangible amortization
12,646

 
12,565

 
33,855

 
38,763

 
97,829

Other acquisition and divestiture related items
4,765

 
2,179

 
13,100

 
835

 
20,879

Stock-based compensation
4,243

 
4,870

 
5,199

 
5,430

 
19,742

Restructuring and other costs
1,589

 
5,985

 
3,767

 
2,654

 
13,995

Vendor settlement
—

 
—

 
—

 
15,500

 
15,500

Operating income
41,127

 
51,635

 
54,568

 
47,798

 
195,128

Financing interest expense
(21,558
)
 
(30,418
)
 
(35,064
)
 
(26,378
)
 
(113,418
)
Net foreign currency gain (loss)
16,124

 
(4,823
)
 
5,932

 
(24,898
)
 
(7,665
)
Net unrealized gains on interest rate swap agreements
—

 
—

 
—

 
12,908

 
12,908

Net realized and unrealized gains on fuel price derivatives
711

 
—

 
—

 
—

 
711

Non-cash adjustments related to tax receivable agreement
—

 
—

 
(168
)
 
(395
)
 
(563
)
Income before income taxes
$
36,404

 
$
16,394

 
$
25,268

 
$
9,035

 
$
87,101





SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: April 9, 2018
WEX Inc.
By:     /s/ Roberto Simon
Name:    Roberto Simon
Title:    Chief Financial Officer