WEX (WEX) 10-K2021 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

DOCUMENTS INCORPORATED BY REFERENCE

Our forward-looking statements and these factors do not reflect the potential future impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date of the initial filing of this Annual Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

RISK FACTOR SUMMARY

Investment in our securities involves risk. Below is a summary of what we believe to be the principal risks facing our business. You should carefully review and consider this summary along with the risks described more fully in Item 1A, “Risk Factors” of Part I of this Annual Report and other information included in this Annual Report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.

If any of the following risks occurs, our business, financial condition, and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.

The acronyms and abbreviations identified below are used in this Annual Report including the accompanying consolidated financial statements and the notes thereto. The following is provided to aid the reader and provide a reference point when reviewing the Annual Report:

WEX is the global commerce platform that simplifies the business of running a business. We currently operate in three reportable segments: Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions, which are described in more detail below. The Company’s U.S. operations include its parent operating entity WEX Inc., the majority-owned U.S. Health business, and our wholly-owned subsidiaries WEX Bank, FleetOne, WEX Payments and EFS. Our international operations include WEX Europe Services, WEX Australia Pty Ltd, WEX Fuel Cards Australia, WEX Prepaid Cards Australia, Optal Australia Pty Ltd, WEX Canada Inc., WEX Finance Inc., WEX Asia Pty Ltd, Optal Singapore Pte Ltd., Optal Financial Europe Limited, Optal Financial Limited, Optal Limited, eNett International (Singapore) Pte Ltd, and all of their respective operating subsidiaries.

WEX Bank, a Utah industrial bank incorporated in 1998, is an FDIC insured depository institution whose primary regulators are Utah DFI and the FDIC. The functions performed at WEX Bank contribute to the U.S. and Canadian operations of Fleet Solutions and the majority of operations of Travel and Corporate Solutions by providing a funding mechanism, among other services. Additionally, WEX Bank is a depository partner for WEX Inc., who is a non-bank custodian, for certain custodial HSA cash assets.

On April 1, 2021, the Company entered into the Amended and Restated Credit Agreement, which amended and restated the 2016 Credit Agreement. As part of the Amended and Restated Credit Agreement, the lenders agreed to (i) increase

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 HealthcareBank division of Bell Bank, which is owned by State Bankshares, Inc. As a result, and as of the time of the acquisition, WEX Inc. became the passive non-bank custodian of over $3 billion of custodial assets for individual HSA holders. 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.

WEX Inc. has contracted with federally insured bank depository partners, including WEX Bank, to hold these custodial cash assets on behalf of its members. On October 14, 2021, WEX Inc. transferred $960 million of the eligible custodial cash assets previously held by third-party depository partners to WEX Bank as a depository partner. Assets held by WEX Bank can be and have been invested in various fixed income securities in accordance with WEX Bank’s investment policy and applicable FDIC regulations.

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.

To enable us to better serve our customers and integrate our solutions and operations across the Company’s expansive platform, we recently re-organized our Executive Leadership Team. As part of the reorganization, which was effective January 1, 2022, Robert Deshaies was appointed Chief Operating Officer, Americas. In this newly created role, Mr. Deshaies will oversee the strategic growth of, and collaboration across the Company’s fleet, health, travel and corporate payments businesses in the Americas with the goal of creating expansive and fully integrated customer relationships by offering a one-touch experience across the Company’s entire product portfolio. In addition, effective January 3, 2022, Carlos Carriedo was appointed the Company’s Chief Operating Officer, International and will oversee WEX’s operations in Europe, the Middle East and Africa (EMEA) and Asia Pacific (APAC) and Karen Stroup was appointed the Company’s Chief Digital Officer, and will focus on expanding digital commerce and product development opportunities.

The segment discussion following, and included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Annual Report on 10-K, reflects information about our business as of and through December 31, 2021.

Our Fleet Solutions segment is a leader in fleet vehicle payment processing, transaction processing and information management services specifically designed for the needs of fleets of all sizes from small businesses to federal and state government fleets and over-the-road carriers. As of December 31, 2021, approximately 17 million vehicles used our solutions for fleet management.

Payment processing transactions are the primary revenue source in Fleet Solutions. Revenue is earned based on a percentage of the aggregate dollar amount of the customer’s purchase, a fixed amount per transaction, or a combination of both. In a typical domestic payment processing transaction for which we extend short-term credit to the fleet cardholder, we pay the merchant for the purchase price, less the fees we retain and record as revenue, according to their specific merchant agreement, which generally occurs within ten days. Revenue from our WEX Europe Services and Go Fuel Card operations is primarily derived from the difference between the negotiated price of the fuel from the supplier and the price charged to the fleet customer. In both types of transactions, we collect the total purchase price from the fleet customer, normally within 25 days from the billing date.

In our over-the-road business, the amount of time between when we pay the merchants and collect from our customers is significantly reduced relative to the illustration above. Additionally, there are instances in which WEX processes a fleet customer transaction, with the merchant bearing the credit risk and collecting the receivable from the fleet. These unfunded transactions represented approximately 18 percent of total fuel transactions processed.

At the point-of-sale, we capture an array of information. Examples of information captured, which varies by type of customer, includes the amount of the expenditure, the driver, the vehicle, the odometer reading, the fuel or vehicle maintenance provider and the items purchased. We provide standard and personalized information to customers through monthly vehicle analysis reports, custom reports and our websites. We also alert customers of unusual transactions or transactions that fall outside of pre-established parameters. Customers can access their account information through our website including account history and recent transactions and download the related details. In addition, fleet managers can elect to be notified when limits are exceeded in specified purchase categories, including limits on transactions within a time range and gallons per day.

In the over-the-road space, we offer fleets of all sizes customizable payment solutions including real-time interactive and seamless interfaces delivering data integrity, alternative payment and money transfer options, comprehensive settlement solutions, real-time reports and analytics for compliance and cost-optimization and fuel reconciliation and mobile optimization tools.

In addition to revenue derived from payment processing transactions, we recognize account servicing revenue, finance fee revenue and other revenue through the following products and services:

We market our fleet products and services both directly and indirectly to commercial and government vehicle fleet customers with small, medium and large fleets, and over-the-road, long haul fleets. Our direct product suite includes payment processing and transaction processing services, WEX branded fleet cards in North America and Motorpass/Motorcharge-branded fleet cards in Australia. Additionally, the WEX products and services are marketed under the EFS, EFS Transportation Services, T-Chek and Fleet One network brands.

We also market our products and services using the WEX network indirectly through co-branded and private label relationships. With a co-branded relationship product, we market our products and services for, and in collaboration with, fuel providers and fleet management companies using their brand names and our logo on a co-branded fleet card. These companies seek to offer our payment processing and information management services as a component of their total offering to their fleet customers.

Our private label programs market our products and services for, and in collaboration with, fuel retailers, using only their brand names. The fuel retailers with which we have formed strategic relationships offer our payment processing and information management products and services to their fleet customers in order to establish and enhance customer loyalty. These fleets use these products and services to purchase fuel at locations of the fuel retailer with whom we have the private label relationship.

Our Travel and Corporate Solutions segment focuses on the complex payment environment of global B2B payments. Our capabilities and solutions broadly fall into two categories:

Solution    

The Travel and Corporate Solutions segment allows businesses to centralize purchasing, simplify complex supply chain processes, and eliminate the paper check writing associated with traditional purchase order programs. It also enables technology companies and innovators across the globe to streamline their payment needs with a single, integrated technology and issuing partner.

At the core of our Travel and Corporate Solutions product set is a virtual card. Our virtual payments capability is used for transactions where no physical card is presented, including transactions that are increasingly completed online in a digitally connected world, but can also be used over the telephone, by mail, by email, or by fax. Each transaction is assigned a unique VCN on either the Mastercard or Visa networks, with a customized spend limit, expiration date, and various other purchase controls. These controls are in place to limit fraud and unauthorized spending. The unique VCN limits purchase amounts and tracks, settles, and reconciles purchases more easily, creating efficiencies and cost savings for our customers. Our virtual card solution combines (i) wholly-owned, end-to-end highly reliable technology; (ii) global currency capabilities with over 20 currencies active, (iii) wholly-owned global compliance and funding mechanism that allows WEX to be the issuer in addition to the payment processor, and (iv) being a direct member of both the Mastercard and Visa networks.

We surround our core virtual card capabilities with a set of additional solution features to serve our customers. For our Embedded Payments solution, these capabilities include: (i) customized data fields that allow customers to tie together data such as invoice numbers, booking numbers, or purchase orders that ease reconciliation, (ii) a wide variety of different virtual card products with each of the card associations to optimize card acceptance and interchange yield, (iii) bank transfer and check issuance capabilities, (iv) modern, RESTful API, with associated, developer-focused explanation of use, and (v) the ability to optimize our systems and processes for bespoke solutions to large customer needs. For our AP Automation and Spend Management solution, these capabilities include: (i) customizable integrations with different ERPs, (ii) enhanced AP data analysis and supplier enablement teams focused on increasing card acceptance, (iii) a wide variety of different virtual card products with each of the card associations to optimize card acceptance and interchange yield, (iv) bank transfer and check issuance capabilities allowing WEX to fulfill full AP file needs, and (v) different user interfaces oriented toward more simple small business needs as well as complex corporate needs.

We market our Travel and Corporate Solutions segment products and services both directly and indirectly to new and existing customers in a variety of models.

Within our Embedded Payments solutions, we focus on direct sales to leading companies in the travel, fintech, insurance, consumer bill pay, and media verticals. Our customers’ product set is largely focused on aggregating and managing large amounts of payments where a commercial payment solution is required. The use of a commercial virtual card is particularly appealing for its ability to easily reconcile, provide chargeback rights, have global currency capabilities, and generate rebates through interchange economics. Due to their inability to stand in the funds flow, either as a merchant of record or as a regulated money transmitter, a minority of customers who utilize our Embedded Payments offering also integrate our capability for us to have a direct financial relationship with their customers, and most often includes the provision of commercial credit.

Within our AP Automation and Spend Management solutions, we focus on both direct sales to businesses as well as empowering financial institutions to serve their customers directly on the back of our technology. Our direct sales team focuses on new sales directly to mid- and large- market opportunities where our custom ERP integration and supplier enablement functions help corporations turn their AP function from a highly manual and costly endeavor to a highly automated and revenue generating function. Our direct sales force also focuses on cross selling our AP Automation and Spend Management solutions to existing customers in our Fleet Solutions and Health and Employee Benefit Solutions segments. Our AP Automation and Spend Management solutions are made to be white labeled for financial institutions and we power some of the world’s leading financial institutions offering our white labeled technology to their corporate customers.

Our Health and Employee Benefit Solutions segment provides a SaaS platform for consumer directed healthcare benefits and a full-service benefit enrollment solution, bringing together benefits administration, certain compliance services and consumer-directed and benefits accounts. Additionally, the Company provides non-bank custodial services to certain HSA assets.

Our healthcare products provide consumer-directed benefits in the complex healthcare market. We partner with employers, health plans, third-party administrators, financial institutions, payroll companies and the public sector to provide a

Revenue is generated primarily from SaaS licensing fees and servicing fees charged to partners and employers as well as interchange fees on customer debit cards issued under flexible spending, health savings and reimbursement accounts. Cards are branded with either Visa or Mastercard and operate on a restricted open loop network.

The following illustration depicts our business process and parties involved in our healthcare benefits solution:

BPO: Business Process Outsourcing

We market our Health and Employee Benefit Solutions products and services to consumers through an extensive partner network, which includes health plans, third-party administrators, financial institutions, payroll companies benefits consultants, and software providers, as well as individual employer groups.

The demand for our products and services combined with significant operating scale has historically driven strong revenue growth and earnings potential. We have an extensive history of organic revenue growth driven by our various marketing channels, our salesforce, and our growth in transaction volume and other recurring drivers (for example, number of fuel cardholders or software platform participants within our Health and Employee Benefit Solutions segment). Further, we have completed a number of strategic acquisitions to expand our product and service offerings, which have contributed to our revenue growth and diversification of our products and services. We have an experienced and committed management team that has substantial industry knowledge and a proven track record of financial success. The team has been successful in driving strong growth with consistent operating performance. We believe that our management team positions us well to continue successfully implementing our growth strategy and capturing operating efficiencies. In addition, we believe that the following factors, by reportable segment, distinguish us from our competitors and place us in a strong competitive position.

Another factor that places us in a strong competitive position is that we have an enterprise-wide risk management program that helps us identify and manage inherent risks related to our liquidity, extension of credit and interest rates. Our ownership of WEX Bank provides us with access to low cost sources of capital, which provide liquidity to fund our short-term card receivables. We have maintained a long record of low credit losses due to the short-term, non-revolving credit issued to our customer base. Our credit risk management program is enhanced by our proprietary scoring models, managing credit lines

As of December 31, 2021, WEX Inc. and its subsidiaries had over 5,600 employees, of which approximately 4,800 were located in the United States. None of our U.S.-based employees are subject to a collective bargaining agreement. Certain non U.S.-based employees are members of trade unions or works councils.

Everything we do is dependent on the talent and culture of our Company. By leveraging our winning, inclusive, and values-based culture, we will mine, grow, and maximize talent that adapts to our future business. We strive to achieve a fully inclusive workplace that unifies and celebrates the diversity of our people. As of December 31, 2021, our global workforce was 45 percent male and 55 percent female, and approximately 18 percent of our workforce in the U.S. were people of color. Females represented approximately 44 percent of our executive officers, while approximately 11 percent of our executive officers were people of color. Females represented approximately 42 percent of our board of directors, while approximately 25 percent of our board of directors were people of color.

Maintaining our continued growth and position as the global commerce platform that simplifies the business of running a business requires a strategy focused on attracting, developing and retaining exceptional talent. The growth of our people has always been and will always be one of our top priorities. We believe our core values of community, execution, innovation, integrity and relationships differentiate us from our competitors and meaningfully contribute to our growth and business success. Collaboration is essential to doing business and is encouraged and rewarded, as is our culture of curiosity and respectful questioning and direct dialogue. These are essential ingredients to an environment that attracts superior talent and provides the space for innovation that creates business growth.

We take pride in prioritizing and maintaining a positive environment where our employees enjoy their work, respect and support their colleagues, and are encouraged to innovate and collaborate. We foster a culture in which employees are motivated to recognize the value of their contributions—and of our business—to support the growth and development of the communities in which we operate.

We are committed to a core set of shared beliefs and desired behaviors to drive consistency across our organization. Through our Great Leader Behaviors Program, employees are provided a baseline of behaviors and qualities to embody in their daily interactions with colleagues, customers, and partners. It’s not just what we do, but how we do it that matters, and our Great Leader pillars lay the foundation for clear and consistent behavior at all levels. In turn, we are better able to maintain an inclusive, innovative, and collaborative environment for all employees to work, live and thrive.

WEX employees have access to comprehensive training programs, tools and education, including online self-service learning platforms, professional development programs, leadership and mentoring programs, incentives to foster community and engagement, dedicated well-being campaigns, and personal financial counseling. Furthermore, we offer a sabbatical program to rejuvenate and enrich curiosity and personal development. Through these programs, we strive to foster improved individual and business performance, employee engagement, satisfaction and fulfillment.

Thrive in My Career was designed as a virtual learning resource to help employees be self-sufficient and in control of their own growth and development with a focus on leadership development programs. As the COVID-19 pandemic hit, our robust program allowed us to quickly pivot to our online platform and remote resources. We facilitated forums and discussions

We are proud of our talent retention and it is an important component of our talent and management strategy. WEX offers a competitive Total Rewards program for our employees and career development opportunities including access to over 180,000 skill-based training modules. WEX’s robust Total Rewards program includes salary, a 6 percent 401(k) employer match, cash bonuses, and equity awards, as well as health and wellness, career, social, community, and overall well-being benefits. Furthermore, our board of directors and management team regularly evaluate succession planning in order to ensure consistent leadership and growth over time. We actively manage succession plans for our Executive Leadership Team and we are well positioned to have the right talent in place to drive future growth.

At WEX, diversity, equity and inclusion is a strategic priority that is central to our culture, embedded in our values and integral to our business. We are making strides in achieving our vision of a fully-inclusive global workplace that celebrates diversity and fosters a sense of belonging by providing equal access, opportunities and treatment. We embrace our employees’ unique experiences and backgrounds - the cultural influences and identities that make up who we are - to enable a fully engaged and thriving workplace to drive our business forward. Our Board Chair and Chief Executive Officer, along with our Executive Leadership Team, set the expectations, goals and tone, with all employees playing a role in bringing our diversity and inclusion framework to life. Our global diversity, equity and inclusion framework has four focus areas: workplace (create a culture of inclusion to drive innovation), workforce (build tomorrow’s diverse workforce today), community (embrace the diversity in our communities), and marketplace (provide thought leadership to broaden awareness of diversity and inclusion initiatives). This framework is reflected in the following key ways:

In addition, this past year we also released our inaugural Environment, Social and Governance (ESG) Report on how we are addressing the ESG impacts that are more important to our investors, employees and communities. We will continue to increase focus and improve public disclosures related to our environmental commitment, diversity and inclusion initiatives, social responsibility, talent management and development, and governance. This will include the release of a new ESG Report during 2022.

We are committed to the health, safety, and well-being of our employees, contractors, and visitors and to ensuring compliance with health and safety regulations. The COVID-19 pandemic created unique challenges that we managed with employee health and safety as the primary objective. During the first quarter of 2020, the Company took a number of precautionary steps to safeguard its business and employees from the effects of COVID-19 including restricting business travel, temporarily closing offices and canceling participation in various industry events. As of the date of this filing, we have implemented the return of limited business travel and allowed limited participation in various industry events. In addition, we have reopened those offices that were closed and all offices have implemented modified safety protocols; although the vast majority of our employees have largely continued to work remotely in most geographies. Further, we have established policies and guidance on vaccines, masking, and social distancing as well as policies and practices for working from home, business travel, returning to offices, and dividing the workweek between home and office. We surveyed employees to determine the ways of work that best suited them and implemented flexible work arrangements.

Our Health and Safety Policy provides a framework designed to prevent work-related accidents, injuries and illnesses. We provide safety awareness training when onboarding new employees, local emergency evacuation awareness training, and periodic reviews of safety topics. Our Emergency Response Action Plan is reviewed and updated annually. The purpose of this plan is to ensure the protection of all employees in an emergency situation, and it includes emergency evacuation procedures and protocols for how to report various types of emergencies. Our Organizational Resilience Team enlists and trains our authorized Emergency Response Team. Our Incident or Injury Investigation Guidelines establish when, how, and by whom incident and/or injury investigations are processed. The primary focus of such an investigation is to understand why the incident occurred and provide a response within 24 hours of the incident.

We provide competitive and valuable benefits that help our employees thrive while protecting what is most important: health and wellness, families, and overall well-being. Our Total Rewards program consists of five elements: social, health, community, financial, and career, and is designed to support employees in reaching their personal and professional goals. Elements of the Total Rewards program include Company-subsidized health insurance, and fitness facilities along with virtual wellness offerings, recognition programs, paid volunteer time off, and paid time off among other benefits.

We believe that investment in technology is crucial to maintaining and enhancing our competitive position in the marketplace. Our technology infrastructure is supported by secure and redundant data centers and cloud services distributed globally, including locations in the United States, Europe, Australia and Singapore. We are in the process of implementing a Cloud First strategy, consolidating our data centers and migrating our computer workloads to public cloud service providers, with the goal of realizing a number of benefits, including reduced energy usage. Through 2021 we have closed 19 data centers out of our target goal of 27 by the end of 2023.

Our fleet fuel-based closed-loop proprietary platforms capture detailed information from the fuel and maintenance locations within our network. Operating a proprietary network not only enhances our value proposition, it also enables us to limit dependence on third-party processors and to respond rapidly to changing customer needs with system upgrades, while maintaining a more secure environment than an open-loop network typically allows. The majority of payments processed on our virtual card open-loop network are through the Company's internally developed software, while a smaller portion are processed using third-party processors. Our infrastructure has been designed around industry-standard architectures to minimize downtime in the event of outages or catastrophic occurrences. At WEX Health, we maintain an integrated multi-account payment platform, including a mobile application. In Australia, Asia Pacific and the United Kingdom, we use standalone platforms to support operations.

Our Information Security Program consists of a comprehensive set of policies, procedures and guidelines across standard information security domains and all policies are reviewed and updated at least annually to meet applicable federal and state regulations. Our secure networks are designed to isolate our data from unauthorized access. We use secure protocols among all applications, and our employees access critical components on a need-to-know basis. We are continually improving our technology to enhance customer experience and to increase efficiency and security. We also review technologies and

Our businesses are affected by seasonal variations. For example, in a typical year, fuel prices are typically higher during the summer and online travel sales are typically higher during the third quarter. In addition, we experience seasonality in our Health and Employee Benefit Solutions segment as consumer spend is correlated with insurance deductibles, typically resulting in higher spend in the early part of the year until employees meet their deductibles.

We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect the proprietary information and technology used in our business. We generally enter into agreements with clients, consultants, service providers and other partners, whether current or prospective, that contain provisions restricting use and disclosure of our proprietary information and technology. Operationally, we have implemented certain safeguards designed to control access to and distribution of our proprietary information and technology. Despite these efforts, unauthorized parties may attempt to access or use our proprietary information and technology, and third parties may develop similar and/or competing technology independently. We pursue registration and protection of certain trademarks in the U.S. and other countries in which we operate or plan to operate. We market our products and services using the WEX brand name globally, as well as other brand names such as FleetOne, EFS, and benefitexpress in the U.S. and eNett, Go Card and Motorpass internationally, in Europe, and in Australia, respectively. 

The laws and regulations that apply to the Company and its affiliates are often evolving and sometimes ambiguous or inconsistent, and the extent to which they apply to us is at times unclear. Failure to comply with regulations may result in the suspension or revocation of licenses or registrations, the limitation, suspension or termination of services, and/or the imposition of civil and criminal penalties, including fines. The following, while not exhaustive, is a description of certain federal and state laws and regulations in the United States, as well as foreign laws and regulations, that are applicable to our business, and therefore can materially affect our capital expenditures, earnings, and competitive position. In addition, the legal and regulatory framework governing our business is subject to ongoing revision, and changes in that framework could have a significant effect on us.

As an industrial bank organized under the laws of the State of Utah that does not accept demand deposits that may be withdrawn by check or similar means, WEX Bank currently meets the criteria for exemption as an industrial bank from the definition of “bank” under the Bank Holding Company Act. As a result, the Company is generally not subject to the Bank Holding Company Act.

Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which the Company can borrow or otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. These rules also require that the Company or any of its affiliates engage in transactions with WEX Bank only on terms and under circumstances that are substantially the same, or at least as favorable to WEX Bank, as those prevailing at the time for comparable transactions with nonaffiliated companies. “Covered transactions” include loans or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an agreement to repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a guarantee, acceptance, or letter of credit. Although the applicable rules do not serve as an outright ban on engaging in “covered transactions,” they do limit the amount of covered transactions WEX Bank may have with any one affiliate and with all affiliates in the aggregate. Furthermore, with certain exceptions, each loan or extension of credit by WEX Bank to the Company or its other affiliates must be secured by collateral with a market value ranging from 100 percent to 130 percent of the amount of the loan or extension of credit, depending on the type of collateral.

WEX Inc. and WEX Bank have entered into a master service agreement, which establishes the parameters of services provided between them. Under the agreement, WEX Bank provides the financing and makes credit decisions that enable the Fleet Solutions and Travel and Corporate Solutions segments to extend credit to customers. WEX Bank approves customer applications, maintains appropriate credit lines for each customer, is the account issuer, and is the counterparty for the customer relationships for most of WEX Inc.’s U.S. programs. WEX Inc. and its other subsidiaries perform operations such as sales, marketing, merchant relations, customer service, software development and IT services.

The Dodd-Frank Act granted the CFPB general authority to prevent covered persons or service providers from committing or engaging in unfair, deceptive or abusive acts or practices under federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. In addition, the Federal Trade Commission Act, prohibits unfair or deceptive acts or practices in or affecting commerce for entities including WEX Inc. and its subsidiaries that are not directly regulated by CFPB. Additionally, all fifty states and the District of Columbia have their own laws prohibiting unfair or deceptive acts and practices, many of which also include a private right of action.

The CFPB is also engaged in regulating the payments industry, including with respect to prepaid cards under Regulation E, which impose requirements on general-use prepaid cards, store gift cards and electronic gift cards. The extensive nature of these types of regulations and the implementation dates for any such additional rulemaking may result in additional compliance obligations and expense for our business and our customers. From an enforcement perspective, the Dodd Frank Act also gives the state attorneys general the ability to enforce applicable federal consumer protection laws, expanding the sources of regulatory oversight. Relatedly, the Utah DFI is responsible for examining and supervising WEX Bank's compliance with state consumer protection laws and regulations.

In addition, the Durbin Amendment to the Dodd-Frank Act provided that interchange fees that a card issuer or payment network receives or charges for debit transactions will now be regulated by the Federal Reserve and must be “reasonable and proportional” to the cost incurred by the card issuer in authorizing, clearing and settling the transaction. Payment network fees may not be used directly or indirectly to compensate card issuers in circumvention of the interchange transaction fee restrictions. Federal Reserve rules governing debit card interchange fees published in 2011 capped debit card interchange rates at $0.21 per transaction, subject to certain exemptions, plus an additional five basis points (0.0005) times the transaction’s value to reflect a portion of the issuer’s fraud losses plus, for qualifying issuing financial institutions, an additional $0.01 per transaction in debit interchange for fraud prevention costs. As of December 31, 2021, WEX Bank qualified for the small issuer exemption and was not subject to the debit card interchange fees cap. However, on its balance sheet for the year and quarter ended December 31, 2021, WEX Bank, together with its affiliates, including WEX Inc., surpassed total assets of $10 billion thereby making it ineligible for continued exemption as a small issuer. Accordingly under the terms of the Durbin Amendment, WEX Bank will be subject to the debit interchange cap effective on July 1, 2022. As of the date of this filing, WEX Bank has nominal annual revenue from debit card products that would be subject to the interchange fee cap.

The Dodd-Frank Act also establishes federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. Compliance with derivatives regulations have added costs to our business, and any additional requirements, such as future registration requirements or increased regulation of derivative contracts, may add additional costs or may require us to change any fuel price, currency and interest rate hedging practices we may then use to comply with new regulatory requirements. Potential changes could also include clearing and execution methodology of our derivatives transactions.

As of December 31, 2021, the most recent FDIC exam report categorized WEX Bank as “well capitalized” under the regulatory framework for prompt corrective action. Section 29 of the Federal Deposit Insurance Act (FDI Act) restricts the acceptance of brokered deposits by an insured depository institution unless the institution is “well capitalized.” For insured depository institutions that are “less than well capitalized,” certain interest rate cap restrictions are imposed.

The applicable laws and regulations in the various jurisdictions in which we operate impose significant anti-money laundering compliance and due diligence obligations on its local entities. We must verify the identity of customers, monitor and report unusual or suspicious account activity, as well as transactions involving amounts in excess of prescribed limits, and refrain from transacting with designated persons or in designated regions, in each case as required by the applicable laws and regulations (such as the Bank Secrecy Act and regulations of the United States Treasury Department and the Internal Revenue Service in the United States). Financial regulators have issued various implementing regulations and have made enforcement a

The GLBA also requires us and WEX Bank to provide initial and annual privacy notices to customers that describe in general terms our information sharing practices. If we or WEX Bank intend to share nonpublic personal information about consumers with affiliates and/or nonaffiliated third parties, we and WEX Bank must provide customers with a notice and a reasonable period of time for each customer to “opt out” of any such disclosure.

We use direct email marketing and text-messaging to reach out to current or potential customers and therefore are subject to various statutes, regulations, and rulings, including the Telephone Consumer Protection Act (TCPA), the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) and related Federal Communication Commission (FCC) orders. Several states have enacted additional, more restrictive and punitive laws regulating commercial email. Foreign legislation exists as well, including Canada’s Anti-Spam Legislation, the European laws that have been enacted pursuant to European Union Directive 2002/58/EC and its amendments (“GDPR”), the UK GDPR, and The Spam Act 2003 in Australia. Although we believe that our email practices comply with the relevant regulatory requirements, violations could result in enforcement actions, statutory fines and penalties, and class action litigation.

The Fair and Accurate Credit Transactions Act of 2003 amended the Fair Credit Reporting Act and requires creditors to adopt identity theft prevention programs to detect, prevent and mitigate identity theft in connection with covered accounts, which can include business accounts for which there is a reasonably foreseeable risk of identity theft.

The Truth in Lending Act, or TILA, was enacted as a consumer protection measure to increase consumer awareness of the cost of credit and to protect consumers from unauthorized charges or billing errors, and is implemented by the Federal Reserve’s Regulation Z. Most provisions of TILA and Regulation Z apply only to the extension of consumer credit, but a limited number of provisions apply to commercial cards as well. One example where TILA and Regulation Z are generally applicable is a limitation on liability for unauthorized use, although a business that acquires 10 or more credit cards for its personnel can agree to more expansive liability.

We are subject to various U.S. laws and regulations governing money transmission and the issuance and sale of payment instruments relating to certain aspects of our business. In the United States, most states license money transmitters and issuers of payment instruments. Through our subsidiaries, we are licensed in all states where required for business. Many states exercise authority over the operations of our services related to money transmission and payment instruments and, as part of this authority, subject us to periodic examinations, which may include a review of our compliance practices, policies and procedures, financial position and related records, privacy and data security policies and procedures, and other matters related to our business. Following these periodic examinations, state agencies can issue us findings and recommendations, prompting us to make changes to our operations and procedures.

As a licensee, we are subject to certain restrictions and requirements, including net worth and surety bond requirements, record keeping and reporting requirements, requirements for regulatory approval of controlling stockholders or direct and indirect changes of control of the licensee and certain other corporate events, and requirements to maintain certain levels of permissible investments in an amount equal to our outstanding payment obligations. Many states also require money transmitters and issuers of payment instruments to comply with federal and state anti-money laundering laws and regulations.

In addition, non-banks that provide certain financial services are required to register with FinCEN as “money services businesses” (“MSBs”). Through a subsidiary we are registered as an MSB. As a result, we have established anti-money laundering compliance programs that include: (i) internal policies and controls; (ii) designation of a compliance officer; (iii) ongoing employee training; and (iv) an independent review function. We have developed and implemented compliance programs comprised of policies, procedures, systems and internal controls to monitor and address various legal requirements and developments.

Government agencies may impose new or additional requirements on money transmission and sales of payment instruments, and we expect that compliance costs will increase in the future for our regulated subsidiaries.

We are subject to various U.S. laws and regulations governing third party administration of employee benefit plans. In the U.S., most states license third party administrators. Many states exercise authority over the operations of our services related to third party administration of employee benefit plans and, as part of this authority, may subject us to periodic examinations, which may include a review of our policies and procedures, financial position and related records, and other matters related to our business. Following these periodic examinations, state agencies can issue us findings and recommendations, prompting us to make changes to our operations and procedures.

As a licensee, we are subject to certain restrictions and requirements, which vary by state, including surety bond requirements and record keeping and reporting requirements.

We are subject to unclaimed or abandoned property state laws in the United States and in certain foreign countries that require us to transfer to certain government authorities the unclaimed property of others that we hold when that property has been unclaimed for a certain period of time. Moreover, we are subject to audit by state and foreign regulatory authorities with regard to our escheatment practices.

WEX Bank is subject to various regulatory requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. Further, a banking regulator may determine that the payment of dividends would be inappropriate and could impose other conditions on the payment of dividends or even prohibit their payment. Further, WEX Bank may not pay a dividend if it is undercapitalized or would become undercapitalized as a result of paying the dividend. Utah law permits WEX Bank to pay dividends out of the net profits of the industrial bank after providing for all expenses, losses, interest, and taxes accrued or due, but if WEX Bank’s surplus account is less than 100 percent of its capital stock, WEX Bank must transfer up to 10 percent of its net profits to the surplus account prior to the payment of any dividends.

Any non-deposit obligation of WEX Bank to the Company is subordinate, in right of payment, to deposits and other indebtedness of WEX Bank. In the event of the Company’s bankruptcy, any commitment by the Company to a federal bank regulatory agency to maintain the capital of WEX Bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

WEX Bank, and therefore the Company, is subject to banking regulations that impose requirements on entities that might control WEX Bank through control of the Company. These requirements are discussed in Item 1A under the heading “Provisions in our charter documents, Delaware law, applicable banking laws and the Convertible Notes may delay or prevent our acquisition by a third party.”

The federal and state governments in the U.S. continue to enact and consider many broad-based legislative and regulatory proposals that could materially impact various aspects of our health-related business. The plans that our partners and clients administer feature consumer accounts that pay for out-of-pocket expenses incurred by employees and qualified dependents. These accounts include CDH accounts such as HSAs, FSAs and HRAs, as well as wellness incentives, commuter benefits, and other account-based arrangements. Most of these accounts are tax-advantaged under the appropriate law.

In addition to tax-related regulation, the Health Care Reform law imposes coverage standards affecting insured and self-insured health benefit plans that impact our current business model, including our relationships with current and future customers, producers and health care providers, products, services, processes and technology. Health Care Reform left many details to be established through regulations. Since the enactment of Health Care Reform, there has been persistent political pressure to significantly modify or repeal Health Care Reform and its associated implementing regulations. The 2017 Tax Act repealed certain provisions of Health Care Reform, including reducing to zero the tax penalty for individuals who decline to obtain Health Care Reform-compliant healthcare coverage. There have been judicial and Congressional challenges to certain aspects of Health Care Reform, and we expect there will be additional challenges and amendments to the ACA in the future. Such challenges may lead to uncertainty and unpredictability in the U.S. health care market, which may materially affect the availability and cost of health coverage, the viability of health care providers and health benefit plans, and the proportion of persons in the U.S. who have health insurance; the distribution between privately funded and government funded health insurance; and the future demand for, and profitability of, the offerings of our health-related business under our current business model.

In connection with the processing of data, we frequently undertake or are subject to specific compliance obligations under privacy and data security-related laws, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, GLBA, and similar state and federal laws governing the collection, use, protection and disclosure of nonpublic personally identifiable information, including individually identifiable health information.

HIPAA and its implementing regulations, as amended by the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, impose requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HIPAA, as amended by the HITECH Act, and its implementing regulations, subjects us to regulations and contractual obligations that impose privacy and security standards and breach notification and reporting requirements. An amendment to the HITECH Act enacted in January 2021 will require consideration of a company’s implementation of recognized security standards in assessing administrative fines and penalties under the HIPAA security standards.

We are also subject to state privacy, security, and breach notification laws that may apply to health information among other categories of personally identifiable information.

The FCPA prohibits the payment of bribes to foreign government officials and political figures and includes anti-bribery provisions enforced by the Department of Justice and accounting provisions enforced by the SEC. The statute has a broad reach, covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only those holding public office but also local citizens affiliated with foreign government-run or -owned organizations. The statute also requires maintenance of appropriate books and records and maintenance of adequate internal controls to prevent and detect possible FCPA violations.

The Company’s Australian operations are subject to laws and regulations of the Commonwealth of Australia governing banking and payment systems, financial services, credit products and Anti-Money Laundering/Combating the Financing of Terrorism (“AML/CTF”). WEX entities may be regulated in Australia under the Corporations Act 2001 (the “Corporations Act”) by the Australian Securities and Investments Commission as Australian Financial Services License (“AFSL”) holders. The AFSL authorizes WEX entities to provide a non-cash payment facility. Optal Australia Pty Limited holds an intermediary authorization under eNett International (Singapore) Pte. Limited’s AFSL. Any material failure by us to comply with the rules and regulations to which AFSL holders are subject could result with us incurring sanctions up to and including suspension or relinquishment of our applicable licenses.

WEX Australia, WEX Fuel Cards Australia and WEX Prepaid Cards Australia operate within a framework of regulatory relief and exemptions afforded them on the basis that they satisfy the requisite conditions. The Company’s Australian operations are also subject to the Privacy Act (1988) and the Australian Privacy Principles. In addition, all entities regulated by the Corporations Act must comply with strict protections for whistleblowers and anti-bribery laws in Australia or face significant penalties.

East and South East Asia

The Company’s operations in East and South East Asia are subject to the operation of the laws and regulation of the countries in which we operate, including laws with regard to banking and payment systems, financial services, AML/CTF and privacy and data protection. In Singapore, WEX Finance Inc., WEX Asia Pte Ltd and Optal Singapore Pte Ltd are licensed under the Banking (Credit Card and Charge Card) Regulations 2013. These entities are supervised by the Monetary Authority of Singapore and must comply with regulations related to the prevention of anti-money laundering and countering the financing of terrorism, as well as regulatory obligations related to cyber hygiene, business conduct, outsourcing, risk management and guidelines on fitness and proper criteria, amongst others. Any material failure by us to comply with these regulations could result with us incurring sanctions up to and including suspension or relinquishment of our applicable licenses. In addition, all of

European Union

The Company’s European operations are subject to laws and regulations of the European Union and the countries in which we operate including, among others, those governing (a) payment services, including the Payment Services Directive (EU 2015/2366 PSD2) and the European Union (Payment Services) Regulations 2018, (b) GDPR, anti-money laundering and counter terrorist regulations, including the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended) in Ireland and the Financial Supervision Act (Wet financieel toezicht – Wft) in the Netherlands, and (c) information security and consumer credit. All European operations must also be compliant with Directive 2018/843/EU - Fifth Money Laundering Directive.

United Kingdom

The Company’s operations in the United Kingdom are subject to applicable laws and regulations in this jurisdiction. WEX Europe UK Limited (WEX UK) and Optal Financial Limited (OFL) are both authorized as e-money institutions under, and must comply with, the Payment Services Regulations 2017 (“PSRs”) and the Electronic Money Regulations 2011 (“EMRs”). These entities are supervised by the Financial Conduct Authority (“FCA”). Among other obligations, the PSRs and EMRs require WEX UK and OFL to safeguard the relevant funds of their customers. A material failure to comply with these regulations could result with us incurring sanctions up to and including suspension or relinquishment of our applicable licenses.

In addition to the PSRs and the EMRs, WEX UK and OFL must also comply with the following anti-money laundering and counter-terrorist regulations: The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017; The Money Laundering and Terrorist Financing (Amendment) Regulations 2019; The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020; and the Proceeds of Crime Act 2002, which was amended by the Terrorism Act 2000 and Proceeds of Crime Act 2002 (Amendment) Regulation 2007. Further, WEX UK and OFL must comply with general guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018; Sanctions and Anti-Money Laundering Act 2018; and Terrorist Asset-Freezing etc. Act 2010. The UK sanctions regime imposes serious and extensive restrictions on dealing with designated persons or entities. The law restricts WEX’s entities from receiving payment from or making funds available to persons or entities on the sanctions list, dealing with their economic resources, and making even legitimate payments to those persons or entities.

GDPR is the governing legislation for collecting and processing personal data in the EU. Following the end of the Brexit transition period on December 31, 2020, most of the EU GDPR was retained in UK law by the European Union (Withdrawal) Act 2018. The retained GDPR is known as the “UK GDPR”. The UK GDPR is supplemented by the Data Protection Act 2018. The UK registered companies must be able to demonstrate their compliance with the data protection principles listed in regulations above.

The main legislation in the UK governing bribery and corruption is the Bribery Act 2010 (the “Act”), which came into force on July 1, 2011. This legislation requires WEX to identify key areas of risk in its trading practices, keep under review the adequacy of its anti-bribery procedures, and train sales staff to ensure they understand what they can and cannot do under the Act.

WEX must also comply with the UK Modern Slavery Act 2015, which sets out the UK Government’s legal requirements for how organizations must address and report on modern slavery.

The Company’s principal executive offices are located at 1 Hancock St, Portland, ME 04101. Our telephone number is (207) 773-8171, and our Internet address is www.wexinc.com. The Company’s annual, quarterly and current reports, proxy statements and certain other information filed with the SEC, as well as amendments thereto, may be obtained free of charge from our website. These documents are posted to our website as soon as reasonably practicable after we have filed or furnished these documents with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The Company’s Audit Committee Charter, Leadership Development and Compensation Committee Charter, Finance Committee Charter, Corporate Governance Committee Charter, Technology Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics are available without charge through the “Governance” portion of the Investor Relations page of the Company’s website. Copies will also be provided, free of charge, to any stockholder upon written request to Investor Relations at the address above or by telephone at (866) 230-1633.

The spread and continued outbreak of the COVID-19 pandemic has significantly increased economic uncertainty while reducing economic activity. The pandemic has resulted in transformational change in business and consumer behavior, as well as the implementation by authorities and businesses around the world of numerous measures aimed at containing the virus, at various times, such as travel bans and restrictions, quarantines, shelter in place orders, business shutdowns, vaccination requirements, and mask mandates, among others, while some markets have also implemented multi-step policies with the goal of resuming activities that are or have previously been restricted. The effects of the pandemic, along with the measures implemented to combat the pandemic, continue to change and evolve as the pandemic changes and evolves. The regions in which we operate are continuously in varying stages of dealing with, and suffering impacts from, the COVID-19 pandemic. Certain jurisdictions and industries have experienced recoveries from the various stages of the pandemic, only to then face a resurgence or increase in new COVID-19 cases. Vaccination requirements, childcare needs and other issues, have led to individuals exiting the workforce, either permanently or temporarily. New variants of the virus that causes COVID-19 have been discovered and people continue to fall ill to COVID-19. These events have not only impacted and disrupted, and may continue to impact and disrupt, business and consumer spending and other habits, they have also impacted, and may further impact, our workforce and operations and the operations of our customers, suppliers and business partners.

In particular, we expect that we may continue to experience impacts on our business and results of operations due to a number of factors, including, but not limited to:

These and other factors may remain prevalent for a significant and unknown period of time and may continue to materially affect our business, results of operations and financial condition even after the COVID-19 pandemic has subsided. There are no comparable recent events that provide guidance as to the ultimate and total impact of the COVID-19 global pandemic and its direct and indirect effects, and therefore the ultimate effects are highly uncertain and subject to change. The extent to which the COVID-19 pandemic will continue to impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the pandemic, its continued severity, whether resultant changes in business and consumer behavior continue for extended periods of time or, indefinitely, the success of the actions to contain the virus or treat its impact, the

In addition, increased volatility or significant disruption of global financial markets due in part to the lasting effect of the pandemic could have a negative impact on our ability to access capital markets and other funding sources on acceptable terms or at all and impede our ability to comply with debt covenants. Even after the COVID-19 pandemic has subsided, we may continue to experience impacts to our business as a result of the virus’s global economic impact and its potential effect on the ways people and businesses conduct themselves, including the continued reduced demand for worldwide travel, permanent shifts in the workforce, the availability of credit, impacts on our liquidity, continued governmental restrictions, and continued volatility in fuel demand and prices.

The foregoing and other continued effects on our business as a result of the COVID-19 pandemic could result in a material adverse effect on our business, results of operations, financial condition, cash flows and our ability to service our indebtedness and could heighten the risks in certain of the other risk factors described herein.

Our Fleet Solutions segment is our largest segment and customers and fuel retailer partners in this segment primarily purchase or sell fuel. Accordingly, a significant part of our overall revenue is derived from fuel purchases, making our revenues in this segment subject to historically volatile fuel prices. A portion of our total revenues result from fees paid to us by fuel providers based on a negotiated percentage of the purchase price of fuel purchased by our customers. We estimate that during 2022, each one cent decline in average domestic fuel prices below average actual prices would result in a $1.5 million decline in 2022 revenue. We are currently exposed to the full impact of fuel price declines and our net income is exposed to fuel price volatility. Therefore, extended declines in the price of fuel, as well as declines in the amount of fuel purchased by our customers or sold by our fuel retailer partners would have a material adverse effect on our total revenues and therefore our business, financial condition, and operating results.

Some of these factors can vary by region and may change quickly, adding to market volatility, while others may have longer-term effects. The long-term effects of these and other factors on prices for fuel could be substantial. The recent Russian military invasion into Ukraine, and the resulting sanctions imposed on Russia by the U.S. and certain other countries, could significantly affect worldwide fuel prices, the long-term effects of which we cannot predict.

Another component of our revenue stream comes from the late fees that our customers pay on past due balances. As a result, a decrease in the price of fuel may lead to a decline in the amount of late fees we earn from customers who fail to pay us timely. Alternatively, an increase in the price of fuel could lead to higher amounts of receivables or payables we fund, thereby

In addition to its impact on the price of fuel, the market demand for and supply of fuel and other vehicle products and services may affect the number of transactions or the volume of fuel sold. Fewer gallons sold equates to a lesser purchase price of fuel on which our negotiated percentage revenue is determined. Another of our revenue streams comes from a flat fee derived from a fuel purchase transaction. Accordingly, in a soft fuel demand environment, which could be caused by a number of factors, including higher prices and domestic and global economic conditions, fewer transactions will occur resulting in less revenue to us. The factors that affect the demand for and supply of fuel are beyond our control and include general local, regional, or worldwide economic conditions, the implementation of fuel efficiency standards, legislation and regulation of greenhouse gases, and the development by vehicle manufacturers and adoption by our fleet customers and others of vehicles with greater fuel efficiency, or alternative fuel sources, such as electric, hydrogen, or natural gas powered vehicles, including hybrid vehicles, among other factors. Although alternative fuel vehicles currently make up a small fraction of overall vehicle sales, and the effectiveness of certain alternative fuels usage with various vehicle types is still being developed, there is a trend, which we expect to continue, toward the adoption of alternative fuel vehicles, particularly electric vehicles, by fleets. This trend in forecasted uptake in the usage of electric vehicles, while noticeable in North America, is more pronounced in Europe. Therefore, the continued adoption of alternative fuel vehicles by our customers or others, an increase in the speed at which such adoption occurs, or any material expansion in the usage of alternative fuel vehicles to heavier duty vehicles such as over-the-road trucks, could adversely affect our revenues through reduced fossil fuel demand. Moreover, at present, there is a continued trend toward increased vehicle hybridization and increased fuel efficiency of ICE vehicles that may have a negative impact on the amount of fossil fuel sold and, therefore, our revenues. On the supply side, disruptions to supply caused by factors such as geopolitical issues, war (such as the ongoing conflict between Russia and Ukraine), weather, climate change, infrastructure, labor shortages, or economic conditions could also affect the amount of fuel purchased by our customers. To the extent that our customers require, or have access to, less fossil fuel, that decline in purchase volume or transactions could reduce our revenues, or any growth in our revenues, and have a material adverse effect on our business, financial condition and operating results. In addition, if we are unable to develop products and introduce them to the market to service the trend toward alternative fuel vehicles, then we may not be able to replace a decrease in revenue caused by any decrease in fossil fuel volume, which could have a material adverse effect on our business, financial condition and operating results. For further information on how legislation and regulation of greenhouse gases could affect our business and in particular result in the decrease of the volume of fossil fuels sold, see Item 1A - Risk Factors “Legislation and regulation of, and private business actions related to, greenhouse gases (“GHG”) and related divestment and other efforts could adversely affect our business.”

A significant source of revenue in our Travel and Corporate Solutions segment and Health and Employee Benefit Solutions segment, and a small but increasing source of revenue in our Fleet Solutions segment, comes from processing transactions through the Mastercard and Visa networks. Licensing with the Mastercard and Visa schemes is achieved through WEX Bank and its regulated subsidiaries, our regulated and other subsidiaries in Singapore, Japan and Australia, and our Dutch, UK, and Irish licensed e-money institutions. In the case of the Health and Employee Benefit Solutions segment, the scheme license is held by a third party sponsor bank. We may from time to time establish additional licensed e-money institutions, regulated subsidiaries or other subsidiaries to license with the Mastercard and Visa schemes as necessary. If our licensed, regulated or other subsidiaries or our third party sponsor bank should stop providing, or are otherwise unable to provide, services, for any reason, or, in the case of our third party sponsor bank, determine to provide sponsorship on materially less favorable terms, we would need to find other appropriate institutions to provide those services in the applicable jurisdictions.

In addition, Mastercard and Visa routinely update and modify their requirements. Changes in the requirements may make it significantly more expensive for us to maintain compliance with our license conditions. In addition we have agreed to deliver a certain percentage of our transaction volume in certain of our business areas to certain networks. If we do not comply with Mastercard’s or Visa’s requirements, as the case may be, we could face fines, additional fees, suspensions or termination of registration. Any suspension of a license could limit or eliminate our ability to provide Mastercard or Visa payment processing services in a given jurisdiction, which would materially affect our operations and revenues. Further, the termination of a registration, or any changes in the payment network rules that would impair a registration, could require us to stop providing Mastercard or Visa payment processing services in the applicable jurisdictions. If we are unable to find a replacement financial institution to provide sponsorship, we may no longer be able to provide such payment processing services to affected

Our business and operating results are materially affected by general conditions in the economy, both in the U.S. and internationally. We generate a substantial part of our revenue based on the volume of purchase and other transactions we process. Our transaction volume is correlated with general economic conditions and the amount of business activity in the economies in which we operate, particularly in the U.S., Europe, the United Kingdom, Asia, Australia, and New Zealand. Downturns in these economies are generally characterized by reduced commercial activity and, consequently, reduced demand and use of fuel, travel related services, health care services, CDH accounts, and other business related products and services by our customers or partners and our customers' or partners' customers. The commercial payments industry in general, and our commercial payment solutions business specifically, depend heavily upon the overall level of spending. Unfavorable changes in economic conditions, which are typically beyond our control and include declining consumer confidence, increasing unemployment, a restructured workforce and business patterns, inflation, recession, changes in the political climate, war (including the conflict between Russia and Ukraine) or other changes, may lead to a reduction or plateau in spending by those whose spending directly or indirectly contributes to our revenues, resulting in reduced or stagnant demand for, or use of, our products and services. As a result, a sustained decline in general economic conditions in the U.S. or internationally could have a material adverse effect on our business, financial condition, and operating results.

A substantial portion of our revenue is generated by network processing fees charged to merchants, known as interchange fees, associated with transactions processed using our payment systems, including those using Mastercard or Visa branded cards or using the Mastercard or Visa system. Interchange fee amounts associated with these payment methods are affected by a number of factors, including regulatory limits in certain of the markets in which we operate and fee or program changes imposed or allowed by our third-party partners, including Mastercard and Visa. In addition, interchange fees are continually the subject of intense legal, regulatory, and legislative scrutiny and competitive pressures in the markets in which we operate, any of which could result in interchange fees being limited, lowered, or eliminated altogether in any given jurisdiction in the future. Future changes may further restrict or otherwise impact the way we do business or limit our ability to charge certain fees to customers. Moreover, temporary or permanent decreases in, limitations on or elimination of the interchange fees associated with our card or virtual payment transactions, could have a material adverse effect on our business, financial condition, and operating results.

In addition, effective July 1, 2022, WEX Bank will become subject to the caps on debit card interchange fees set forth in the Durbin Amendment to the Dodd-Frank Act. Although WEX Bank’s debit card products are a minimal part of its business at present, the applicability of the Durbin Amendment interchange fee caps may limit the viability or profitability of any prepaid or debit scheme product WEX may want to develop in the future.

We are subject to credit risks posed by our counterparties, many of which are small-to mid-sized businesses. Because we often fund a counterparty’s entire receivable or payable, as the case may be, while our revenue is generated from only a small percentage of that amount, our risk of loss is amplified by a counterparty’s failure to pay. Although we use various formulas and models to screen potential counterparties and establish appropriate credit limits, these formulas and models cannot eliminate all potential credit risks and may not prevent us from approving applications that are fraudulently completed. Moreover, businesses that are good credit risks at the time of application may deteriorate over time and we may fail to detect such changes. In addition, changes to our policies on the types and profiles of businesses to which we extend credit could also have an adverse impact on our credit losses. In times of economic slowdown, the number of our counterparties who default on payments owed to us tends to increase. Inflationary market conditions and rising interest rates may also have an effect on the amount of receivables or payables we fund and our counterparty’s ability to pay. Accordingly, if we fail to adequately manage our credit risks, or if economic conditions affect the businesses of our counterparties or of their customers, credit defaults could increase and our provision for credit losses on the income statement could be significantly higher, all of which could have a material adverse effect on our business, financial condition and operating results.

As a global commerce platform, we must constantly adapt and respond to the technological advances offered by our competitors and the requirements of our partners, customers, and potential partners and customers, including those related to the Internet and the cloud, in order to maintain and improve upon our competitive position. We may not be able to expand our technological capabilities and service offerings as rapidly as our competitors, or at all, which could jeopardize our competitive position.

We face and expect to continue to face competition in each of our segments from multiple companies that seek to offer competing capabilities and services. Historically, we have been able to provide customers with a wide spectrum of services and capabilities and, therefore, we have not considered price to be the exclusive or even the primary basis on which we compete. As our competitors have continued to develop their service offerings, it has become increasingly more challenging for us to compete solely on the basis of superior capabilities, technology, customer integration or service and price has become an increasingly important decision factor for our customers. In some areas of our business we have been forced to respond to competitive pressures by reducing our fees and our margins. We have seen erosion of our historical profit margins as we encourage existing strategic relationships to sign long-term contracts. If these trends continue and if competition intensifies, our profitability may be adversely impacted.

Our services are currently focused on the fleet, travel, corporate payments, and health businesses. Some of our competitors are larger than we are and have successfully garnered significant share in these businesses. To the extent that our competitors are regarded as leaders in specific businesses, they may have an advantage over us as we attempt to further penetrate these businesses.

As set forth above, the competitive landscape in which we operate could affect our revenues and margins and have a material adverse effect on our business, financial condition, and operating results.

We believe our employees, including our executive leadership team, are our most important resource. The market for workers and leaders of all skill levels in the workplace today, but especially in fintech, technology and other specialized areas, and in the geographic areas in which our operations are centralized, is intensely competitive. We may be unable to attract highly qualified and diverse employees as we grow, retain the individuals we employ, or, as the workplace undergoes a structural shift largely due to the pandemic, to attract other highly qualified and diverse employees, particularly if we do not offer employment terms, benefits and conditions that are competitive with the rest of the labor market, which has become more expensive as the competitive nature of the labor market has and will likely continue to drive up labor costs. Failure to attract, hire, develop,

In addition to the regulatory and private sector efforts described above, there have also been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of equities issued by companies connected to fossil fuels as well as to pressure lenders and other financial services companies to limit or curtail activities with companies similarly connected. If these efforts are successful, and if our business is deemed to be sufficiently tied to the use of fossil fuels by such communities, our ability to access capital markets may be limited and our stock price may be negatively impacted.

Members of the investment community have recently increased their focus on sustainability practices with regard to the oil and gas industry, including practices related to GHGs and climate change. An increasing percentage of the investment community considers sustainability factors in making investment decisions, and an increasing number of entities consider sustainability factors in awarding business. If we are unable to appropriately address sustainability enhancement, we may lose customers, partners, or merchants, our stock price may be negatively impacted, our reputation may be negatively affected, and it may be more difficult for us to effectively compete.

The acquisition and integration of a business involves a number of risks and may result in unforeseen operating difficulties in assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired business.

In addition, the process of integrating and operating any acquired business, technology, service or product requires significant management attention and resources and integration may take longer than desired. If we fail to timely or effectively integrate an acquired business, its technology or other assets, this failure may lead to us not achieving certain or all of the desired benefits of the acquisition or may otherwise expose us to any shortcomings or risks of the acquired business, its technology systems or assets prior to their integration into our established systems. Thus, the integration may divert significant management attention from our ongoing business operations and could lead to a disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could affect our ability to achieve the anticipated benefits of an acquisition or otherwise adversely affect our business and financial results.

We have been an active acquirer of assets and businesses, and, as part of our growth strategy, we expect to seek to continue to acquire businesses, commercial account portfolios and other assets in the future. We have substantially expanded our overall business, operating segments, customer base, headcount and operations through acquisitions. Our future growth and profitability depend, in part, upon our continued successful expansion within the business segments in which we currently operate. As part of our strategy to expand, we look for acquisition opportunities and partnerships with other businesses that will allow us to increase our market penetration, technological capabilities, product offerings and distribution capabilities.

We cannot assure you that our investments, businesses, or operations (including through third parties) outside the United States will produce desired levels of revenue or costs or that they will not be disrupted or affected by one or more of the factors listed above. Any further expansion of our international operations could impose substantial burdens on our resources, divert management’s attention from U.S. operations and otherwise harm our business.

We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Such currencies include, but are not limited to, the Australian dollar, the Canadian dollar, the Euro, British Pound sterling, the Singapore dollar, and the New Zealand dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Realized and unrealized gains and losses on foreign currency transactions as well as the re-measurement of our cash, receivable and payable balances that are denominated in foreign currencies, are recorded directly in the consolidated statements of operation. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies that we use to conduct our business will affect our revenues, net income and the value of balance sheet items denominated in those currencies. Volatility in foreign currency exchange rates, particularly fluctuations in the U.S. dollar against other currencies, could have a material adverse effect on our business, financial condition, and operating results.

As of December 31, 2021, WEX Inc. is the passive non-bank custodian, under designation by the U.S. Department of the Treasury, of approximately $3.82 billion of custodial assets for individual HSA holders. WEX Inc. has contracted with federally insured bank depository partners, one of which is its wholly-owned subsidiary, WEX Bank, to hold custodial cash assets from approximately 1.8 million HSA accounts.

As a non-bank custodian, WEX Inc. is required to comply with the provisions of Treasury Regulations Section 1.408-2(e) (the “Treasury Regulations”), including the net worth and administration of fiduciary duties requirements, among other requirements. If WEX Inc. should fail to comply with the Treasury Regulations, including the net worth and administration of fiduciary duties requirements, such failure would materially and adversely affect its ability to maintain its current custodial accounts and to grow by adding additional custodial accounts, and it could result in the institution of procedures for the revocation of its authorization to operate as a non-bank custodian, any or all of which could materially adversely affect our business, financial condition, or results of operations.

As a non-bank custodian, WEX Inc. relies on various federally insured depository partners, including WEX Bank, to hold custodial cash assets. If any material adverse event were to affect one or more of these depository partners, including a significant decline in financial condition, a decline in the quality of service, loss of deposits, inability to comply with applicable banking and financial services regulatory requirements, or systems failure, our business, financial condition, or results of operations could be materially and adversely affected. In addition, if WEX Inc. were required to change depository partners, we could not accurately predict the success of such change or that the terms of our agreements with such new depository partners would be on equal or better terms as the agreements we have with our current depository partners.

Our goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically from downturns in customer demand, the high level of competition existing within our industry, the level of overall economic activity and other factors. Individual reporting units may be relatively more impacted by these factors than the Company as a whole. As a result, demand for the services of one or more of the reporting units could decline, which could adversely affect our operations and cash flow, and could result in an impairment of goodwill. Our reporting units are tested annually during the fourth fiscal quarter of each year, or on an interim basis if impairment indicators exist in order to determine whether their carrying value exceeds their fair value. We use a combination of discounted cash flow analyses and comparable company pricing multiples to determine the fair value of our reporting units and to determine the amount of any goodwill impairment. In addition, our definite-lived intangible assets are tested for impairment if an event occurs or circumstances change that would indicate the carrying value may not be recoverable.

In addition to public health crises, such as the COVID-19 global pandemic, other unpredictable events, such as political unrest, war, including the conflict between Russia and Ukraine, terrorist attacks, power failures, natural disasters (such as wildfires or hurricanes) and severe weather, including conditions arising from climate change could interrupt our operations by causing disruptions in global markets, economic conditions, fuel supply or demand, travel and tourism, and the use of health care services. Such events could also trigger large-scale technology failures, delays, or security lapses. Such events, if continuing or significant, could affect our revenues by reducing the demand for our products and services, by limiting our ability to provide our services or by resulting in security or other issues to our technology systems and the information contained therein. As a result, such events could cause a material adverse effect on our business, financial condition, and operating results.

The recent Russian military invasion into Ukraine, and the resulting sanctions imposed on Russia by the U.S. and certain other countries, could damage or disrupt international commerce and the global economy and significantly affect worldwide fuel prices and supply, the spreads on fuel transactions, the global demand for travel and the financial health of our customers. These effects could cause a material adverse effect on our business, financial condition and operating results.

Revenue from our European Fleet business is primarily derived from transactions in which our revenue is tied to the difference between the negotiated price of the fuel from the supplier and the price charged to the fleet customer. The merchant’s cost of fuel and the amount we charge to our fleet customer for fuel are dependent on several factors including, among others, the factors described elsewhere in this Item 1A, “Risk Factors” affecting fuel prices. We experience fuel price related revenue contraction when the merchant’s cost of fuel increases at a faster rate than the fuel price we charge to our fleet customers, or the fuel price we charge to our fleet customers decreases at a faster rate than the merchant’s cost of fuel. If the foregoing scenarios exist or persist we would generate less revenue, which could have a material adverse effect on our business, financial condition and operating results.

The Company is subject to legal proceedings and claims in the ordinary course of business and may become involved in legal proceedings that could be material. These proceedings may include, without limitation, commercial or contractual disputes, intellectual property matters, personal injury claims, stockholder claims, and employment matters. No assurances can be given that any such proceedings and claims will not have a material adverse impact on the Company’s financial statements. Legal proceedings are inherently uncertain and there is no guarantee that we will be successful in defending ourselves in any such proceedings, or that our assessment of the materiality of these matters and the likely outcome or potential losses and

WEX Bank is a Utah industrial bank incorporated in 1998 that operates under an industrial loan charter (ILC). WEX Bank is also an FDIC-insured depository institution. Deposits issued by WEX Bank are currently used to support and fund substantially all of the U.S. and Canadian operations in our Fleet Solutions segment and a substantial portion of the global operations of our Travel and Corporate Solutions segment. WEX Bank's ILC enables it to issue certificates of deposit, accept money market deposits and borrow on federal funds lines of credit from other banks, which we believe provides us access to lower cost funds than many of our competitors, thus helping us to offer competitive products to our customers.

WEX Bank operates under a uniform set of state lending laws, and its operations are subject to extensive state and federal regulation. The bank’s primary regulators are the Utah DFI and the FDIC. Continued licensing and federal deposit insurance are subject to ongoing satisfaction of compliance and safety and soundness requirements. Adverse changes to its ILC could impact WEX Bank's ability to operate and/or attract funds or limit our ability to provide competitive offerings to our customers. If industrial loan charters were eliminated or if changes to such charters limited or effectively prohibited us from operating as we currently operate, without our operations being “grandfathered”, we would either need to outsource our credit support activities or perform these activities ourselves, which would subject us to the credit laws of each individual state in which we conduct business. Furthermore, we could not be a Mastercard and/or Visa issuer and would have to work with another financial institution to issue the product or otherwise sell the portfolio. Any such changes would be disruptive to our operations and could result in significant incremental costs and reduce or eliminate any perceived or actual competitive advantage, resulting in a material adverse effect on our business, financial condition and operating results. In addition, changes in the bank regulatory environment, including the implementation of new or varying measures or interpretations by the State of Utah or the federal government, may significantly affect or restrict the manner in which we conduct business in the future, could subject us to greater regulatory oversight requirements or could create a default under our Amended and Restated Credit Agreement.

WEX Bank is subject to extensive federal and state regulation and supervision, including that of the FDIC, the CFPB, and the Utah DFI. Banking regulations are primarily intended to protect depositors, depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders or noteholders. These regulations affect our payment operations, capital structure, investment practices, dividend policy, and growth, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, damages, civil money penalties or reputational damage, which could have a material adverse effect on our business, financial condition and operating results. While we have policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. The U.S. Congress, federal regulatory agencies and state legislatures and regulatory agencies frequently revise banking and securities laws, regulations and policies. We cannot predict whether, or in what form, any other proposed regulations or statutes will be adopted or the extent to which our business may be affected by any new regulation or statute. Such changes could subject our business to additional costs, limit the types of financial services and products we may offer and increase the ability of non-banks to offer competing services and products, among other things.

Volatility or adverse conditions in the economy or credit or other financial markets may limit WEX Bank’s ability to attract and retain deposits at a time when it would like or need to do so. Currently there are a limited number of industrial banks. Recently, other entities have received ILCs and have begun operating industrial banks and several more have applied for an ILC. If our competitors acquire an ILC and begin to operate an industrial bank, this could increase other entities’ access to these lower cost deposits. In addition, a significant credit rating downgrade, material capital market disruptions, or significant

WEX Bank uses collectively brokered and non-brokered deposits, including certificates of deposit and interest-bearing money-market deposits, to finance its operations, which primarily involves financing payments on behalf of our customers. Certificates of deposit carry fixed interest rates from issuance to maturity, which vary and are relatively short term in duration. The interest-bearing money market deposits are issued at both fixed and variable rates. Upon maturity, the deposits will likely be replaced by issuing new deposits to the extent that they are needed. In a rising interest rate environment, WEX Bank would not be able to replace maturing deposits with deposits that carry the same or lower interest rates. Therefore, rising interest rates would result in reduced net income to the extent that certificates of deposit and interest-bearing money market deposits mature and are replaced with deposits that carry higher interest rates and we are otherwise unable to increase the fees we otherwise receive under contracts. Rising interest rates could also therefore limit our ability to offer competitive product offerings to our customers. At December 31, 2021, WEX Bank had outstanding $566.4 million in contractual deposits, consisting of certificates of deposit and certain money market deposits that have fixed maturity and interest rates, maturing within one year, $652.2 million in such contractual deposits maturing between one and 3.5 years, $960.0 million in HSA cash assets which have been deposited with WEX Bank by its custodian, WEX Inc., and are invested by WEX Bank in certain financial instruments, and $370.8 million in interest-bearing money market deposits, for an aggregate exposure of $2,549.5 million in deposits at WEX Bank.

As of December 31, 2021, the most recent FDIC exam report categorized WEX Bank as “well capitalized” under the regulatory framework for prompt corrective action. Under applicable regulations, however, if WEX Bank were to be no longer categorized as “well capitalized” under such framework, it would not be able to finance its operations through the acceptance of brokered deposits without the approval of the FDIC and/or could be subject to rate cap on the deposits. WEX Bank’s inability to accept brokered deposits, or a loss of a significant amount of its brokered deposits, could adversely affect its liquidity and therefore its ability to support and fund the Company's operations it currently supports and funds. Additionally, such circumstances could require WEX Bank to raise deposit rates in an attempt to attract new deposits, or to obtain funds through other sources at higher rates, which would affect the Company's ability to offer competitive products to our customers in our segments served by WEX Bank and would have a material adverse effect on our business, financial condition, and operating results.

WEX Bank must maintain minimum amounts of regulatory capital. If WEX Bank does not meet these capital requirements, its regulators have broad discretion to institute a number of corrective actions that could have a direct material effect on our financial condition. WEX Bank, as an institution insured by the FDIC, must maintain certain capital ratios, paid-in capital minimums and adequate allowances for loan losses. Under the Dodd-Frank Act, we are also required to serve as a source of financial strength for WEX Bank. If WEX Bank were to fail to meet any of the capital requirements to which it is subject, or if required under Dodd-Frank’s source of strength requirements, we may be forced to provide WEX Bank with additional capital, which could impair our ability to service our indebtedness or may not be permitted under the terms of our Amended and Restated Credit Agreement.

In addition, substantially all of the transactions of, and therefore the revenues derived from, the U.S. and Canadian operations of our Fleet Solutions segment and the global operations of our Travel and Corporate Solutions segment flow through WEX Bank. Due to the applicable regulatory regime, WEX Bank is limited in the ways it can transfer its cash or other assets to WEX Inc. One of the primary methods by which funds are transferred to WEX Inc. is through the payment of a dividend by WEX Bank to us. However, WEX Bank is subject to various regulatory requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. Further, a banking regulator may determine that the payment of dividends would be inappropriate and could impose other conditions on the payment of dividends or even prohibit their payment. Accordingly, WEX Bank may be unable to make any, or may only be able to make limited amounts, of its cash or other assets available to us, which could affect our ability to service our indebtedness, make acquisitions, enhance product offerings, or fund corporate needs, among other things, any of which could have a material adverse effect on our business, operations, or financial condition.

WEX Bank currently meets the criteria for exemption of an industrial bank from the definition of “bank” under the Bank Holding Company Act. Elimination of this exemption or WEX Bank’s failure to qualify for this exemption in the future would cause us to become subject to regulation under the Bank Holding Company Act. This would require us to divest WEX Bank or become a Bank Holding Company and to possibly cease certain non-banking activities which may be impermissible for a Bank Holding Company and could create a default under our Amended and Restated Credit Agreement. Failure to qualify for or the elimination of this exemption could thus have an adverse effect on our revenue and business.

Sections 23A and 23B of the FRA and the implementing regulations limit the extent to which we can borrow or otherwise obtain credit from or engage in other “covered transactions” with WEX Bank. “Covered transactions” include loans or extensions of credit, purchases of or investments in securities, purchases of assets, including assets subject to an agreement to repurchase, acceptance of securities as collateral for a loan or extension of credit, or the issuance of a guarantee, acceptance, or letter of credit. Although the applicable rules do not serve as an outright ban on engaging in “covered transactions,” they do limit the amount of covered transactions WEX Bank may have with any one affiliate and with all affiliates in the aggregate. The applicable rules also require that we engage in such transactions with WEX Bank only on terms and under circumstances that are substantially the same, or at least as favorable to WEX Bank, as those prevailing at the time for comparable transactions with nonaffiliated companies. Furthermore, with certain exceptions, each loan or extension of credit by WEX Bank to the Company or its other affiliates must be secured by collateral with a market value ranging from 100 percent to 130 percent of the amount of the loan or extension of credit, depending on the type of collateral. Accordingly, WEX Bank may be unable to provide credit or engage in transactions with us, including transactions intended to help us service our indebtedness.

In addition to the risk that we fail to adequately assess and monitor credit risks posed by our counterparties and the risk that volatility or adverse conditions in the economy or credit or other financial markets may negatively impact us, the value of WEX Bank’s investment of custodial cash assets in securities and other financial instruments can be materially affected by market fluctuations, which could affect our business, financial position or results of operations.

Market volatility, including, but not limited to interest rate volatility, illiquid market conditions and other disruptions in the financial markets may make it extremely difficult to value certain financial instruments. Subsequent valuation of financial instruments in future periods, in light of factors then prevailing, may result in significant changes in the value of these instruments. Any of these factors could cause a decline in the value of WEX Bank’s financial instruments, which may have an adverse effect on WEX Bank’s business, financial conditions, results of operations, cost of capital, capital requirements, and ability to fund customer’s withdrawal of depository assets. In addition, at the time of any future disposition of these financial instruments, the price that WEX Bank ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value.

Risks Related to our Indebtedness

In addition, the Amended and Restated Credit Agreement requires that we meet certain financial covenants, including a consolidated EBITDA to consolidated interest charge coverage ratio and a consolidated leverage ratio, as described in Item 8, Note 16, Financing and Other Debt, Debt Covenants. The Amended and Restated Credit Agreement also contains various affirmative and negative covenants that, subject to certain customary exceptions, restrict our ability to, among other things, create liens over our property, incur additional indebtedness, enter into sale and lease-back transactions, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, change the nature of our business, enter into certain agreements which restrict our ability to pay dividends or other distributions or create liens on our property, transact business with affiliates and/or merge or consolidate with any other person.

Our ability to comply with these provisions may be affected by events beyond our control, including prevailing economic, financial, and industry conditions. Failure to comply with the financial covenants or any other non-financial or restrictive covenants in our Amended and Restated Credit Agreement, for any reason, could create a default. Upon a default, our lenders could accelerate the indebtedness under the facilities (except only the requisite lenders under the revolving credit facility and the tranche A term loan facility may accelerate the revolving credit facility due to a breach of the financial covenants), foreclose against their collateral or seek other remedies, which could trigger a default under the Convertible Notes and would jeopardize our ability to continue our current operations. The Convertible Notes also contain customary negative and affirmative covenants, including, without limitation, certain covenants placing certain limitations on our ability to incur additional debt, and events of default that if breached could allow the requisite noteholders to accelerate the maturity of the

Convertible Notes, and to exercise their rights and remedies under the Convertible Notes, and could also trigger a cross-default under the Amended and Restated Credit Agreement.

Because a significant portion of our debt under the Amended and Restated Credit Agreement bears interest at variable rates, increases in interest rates could materially increase our interest expense. Under our Amended and Restated Credit Agreement, we had $2.5 billion of indebtedness outstanding at December 31, 2021, of which approximately 26 percent was at variable interest rates for which we had not entered into interest rate swap agreements to fix the future interest payments and reduce interest rate volatility. An increase in interest rates would increase the cost of borrowing under that portion of our Amended and Restated Credit Agreement. As of December 31, 2021, outstanding interest rate swap contracts are intended to fix the future interest payments associated with $1.9 billion of the $2.5 billion of outstanding borrowings under the Amended and Restated Credit Agreement. However, these swap agreements expire at various points prior to the maturity of the Amended and Restated Credit Agreement, including $300 million of swap agreements which expire on December 31, 2022, which we may not be able to effectively replace. If we are able to enter into new swap agreements, such agreements might fix a portion of our interest payments at a rate higher than the expired swaps. Moreover, any swaps we enter into may not be effectively mitigate the risk of increasing interest rates.

Our Amended and Restated Credit Agreement uses LIBOR as a reference rate for our term loans and revolving credit facility, such that the interest due pursuant to such loans may be calculated using LIBOR (subject to a stated minimum value). On July 17, 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that it intended to stop encouraging or compelling banks to submit rates for the calibration of LIBOR by the end of 2021. On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, with the support of the United States Federal Reserve and the FCA, announced that it planned to consult on ceasing publication of LIBOR on December 31, 2021 for only the one week and two month LIBOR tenors (for which publication has now ceased), and on June 30, 2023 for all other LIBOR tenors, including the LIBOR tenors that we use. While this announcement extends the transition period to June 2023, including with respect to the LIBOR tenors that we use, the United States Federal Reserve concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021. In light of these recent announcements, the future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR's phaseout could cause LIBOR to perform differently than in the past or cease to exist. In June 2017, the Alternative Reference Rates Committee selected the Secured Overnight Financing Rate (“SOFR”), a new index calculated by reference to short-term repurchase agreements backed by Treasury securities, as its preferred replacement for U.S. dollar LIBOR. Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question. As such, the future of LIBOR and the potential alternatives at this time are uncertain. If the method for calculation of LIBOR changes, if LIBOR is no longer available after June 2023 or if lenders have increased costs due to the phase-out of LIBOR or changes in law, we may suffer from potential increases in interest rate costs on our floating debt rate and our hedging arrangements may not perform as expected.

Since the above announcements, the Company has taken steps to identify and assess the potential impact of the prospective cessation of LIBOR publication. Some of the Company’s financial instruments have been moved to reference rates other than LIBOR. However, as of December 31, 2021, approximately $1.1 billion in notional value of our swap agreements and the approximately $2.5 billion outstanding under our Amended and Restated Credit Agreement use LIBOR tenors for which publication ceases in June 2023. As such, our Amended and Restated Credit Agreement, which was executed in 2021, as well as the affected swap agreements, contain provisions that provide for the transition of the reference rate from LIBOR to SOFR under certain circumstances. However, as stated above there is no guarantee that SOFR attains market acceptance. Accordingly, we may need to renegotiate our Amended and Restated Credit Agreement and the variable rate loans thereunder, and/or our swap agreements, if SOFR does not obtain market acceptance and/or if other LIBOR alternatives are established, which may have the adverse effects set forth above.

In addition, the purchase agreement by which WEX Inc. purchased certain contractual rights to serve as custodian or sub-custodian to certain HSAs from HealthcareBank includes certain 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. Accordingly, if the Federal Funds rate increases, we may owe the seller under this agreement an amounts equalling up to $225 million. For more information, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity - Asset Acquisition and HSA Investments.

Risks Related to Regulation

Our operations are subject to substantial regulation both domestically and internationally. In addition, there are often new regulatory efforts which could result in significant constraints and may impact our operations. These existing and emerging laws and regulations can make the expansion or operations of our business very difficult and negatively impact our revenue or increase our compliance costs. Failure to comply with applicable laws or regulations may result, among other things, in the suspension or revocation of licenses or registrations, the limitation, suspension or termination of services, and/or the imposition of civil and criminal penalties, including fines. Among the regulations that impact us or could impact us are those governing: interchange rates, interest rate and fee restrictions, credit access and disclosure requirements, collection and pricing requirements, compliance obligations, data security and data breach requirements, identity theft avoidance programs, health care mandates, the cost and scope of public and private health insurance coverage, and anti-money laundering compliance programs. We also often must obtain permission from government regulators to conduct business in new locations or in connection with the transfer of licenses for businesses that we acquire. Changes to these regulations, including expansion of consumer-oriented regulation to business-to-business transactions, could materially adversely affect our operations, financial condition and results of operations and could further increase our compliance costs and limit our ability to expand to new markets.

We also conduct business with other highly regulated businesses such as banks, payment card issuers, and health insurance providers. These industries are subject to significant potential new regulations, laws, or reforms that could negatively affect these businesses, their ability to maintain or expand their products and services, and the costs associated with doing so. These developments could also negatively impact our business

The Dodd-Frank Act also created the CFPB to regulate the offering of consumer financial products or services under the federal consumer financial laws. The CFPB assumed rulemaking authority under the existing federal consumer financial protection laws, and enforces those laws against and examines certain non-depository institutions and insured depository institutions with total assets greater than $10 billion and their affiliates. In addition, the CFPB was granted general authority to prevent covered persons or service providers from committing or engaging in unfair, deceptive or abusive acts or practices under federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The CFPB is also engaged in rulemaking and regulation of the payments industry, in particular with respect to prepaid cards. The CFPB amended several aspects of its prepaid accounts rule, which became effective on April 1, 2019. The extensive nature of these types of regulations and the implementation dates for any such additional rulemaking may result in additional compliance obligations and expense for our business and our customers. The

WEX Inc., and its U.S. subsidiaries are also subject to the Federal Trade Commission Act and similar state laws and regulations, which prohibit unfair or deceptive acts or practices in or affecting commerce. The Federal Trade Commission Act applies to all businesses operating in the United States, and WEX Bank is subject to FDIC jurisdiction as it relates to the Federal Trade Commission Act.

The applicable laws and regulations in the various jurisdictions in which WEX operates impose significant anti-money laundering compliance and due diligence obligations on the local entities, including WEX Bank, WEX Payments, Inc., WEX Europe UK Limited, Optal Financial Europe Limited, Optal Financial Limited, and WEX Europe (Netherlands) B.V., as well as our other regulated subsidiaries. We must verify the identity of customers, monitor and report unusual or suspicious account activity, as well as transactions involving amounts in excess of prescribed limits, and refrain from transacting with designated persons or in designated regions, in each case as required by the applicable laws and regulations (such as the Bank Secrecy Act and regulations of the United States Treasury Department and the Internal Revenue Service regulations in the United States, the Money Laundering and Terrorist Financing Regulations 2019 in the U.K. and the Act on Financial Supervision in the Netherlands). Financial regulators have issued various implementing regulations and have made enforcement a high priority. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could result in the imposition of fines or penalties and other serious legal and reputational consequences, including restrictions on regulated subsidiaries’ ability to take on new business, which may impact our business, financial condition, and operating results.

Regulators often monitor other approaches to the governance of the payment industry. As a result, a law or regulation enacted in one jurisdiction could result in similar developments in another. In addition, law and regulation involving one product could influence the extension of regulations to other product offerings.

The expansion of certain regulations could negatively impact our business in other geographies or for other products. Rules and regulations concerning interchange and business operations regulations, for example, may differ from country to country which adds complexity and expense to our operations.

These varying and increasingly complex regulations could limit our ability to globalize our products and could significantly and adversely affect our business, financial condition and operating results.

Governmental bodies in the United States and abroad have adopted, or are considering the adoption of, laws and regulations restricting the transfer of, and requiring safeguarding of, non-public personal information. For example, in the United States, all financial institutions must undertake certain steps to ensure the privacy and security of consumer financial information. In November 2021, U.S. federal banking regulators issued a final rule effective April 1, 2022, that requires banking organizations to notify their primary federal regulators within 36 hours of certain computer security incidents. The California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020, and the California Privacy Rights Act, which will expand the CCPA when it becomes effective on January 1, 2023, impose additional restrictions on the collection, processing and disclosure of personally-identifiable data, including imposing breach reporting requirements and increased penalties on data privacy incidents. In 2021, Virginia and Colorado adopted their own comprehensive privacy laws, which will take effect in 2023. Several other states are considering privacy legislation during their 2022 legislation sessions. In Europe, the adoption of General Data Protection Regulation (commonly referred to as GDPR) also requires additional privacy protections and extends the scope of the EU data protection laws to all companies processing data of EU residents, regardless of the

We are subject to taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. Any of these changes could have a material adverse effect on our profitability. For example, the 2017 Tax Act enacted in December 2017 had a significant impact on our tax obligation and effective tax rate for the fourth quarter of 2017. We are also subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance that the outcomes from these examinations will not materially adversely affect our financial condition and operating results.

We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

We are subject to the FCPA and the United Kingdom’s Bribery Act 2010 (“UKBA”), as we own subsidiaries organized under UK law, which serve as holding companies for other subsidiaries. The FCPA generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. The UKBA is broader in its reach and prohibits bribery in purely commercial contexts in addition to bribery of government officials, and it does not allow certain exceptions that are permitted by the FCPA. Other countries in which we operate or have operated, including Brazil, and other countries where we intend to operate, also have anti-corruption laws, which we are, have been or will be subject to.

Our employees and agents interact with government officials on our behalf, including as necessary to obtain licenses and other regulatory approvals necessary to operate our business. We also have a number of contracts with third-parties that are owned or controlled by foreign governments. These interactions and contracts create a risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of the FCPA, UKBA or other similar laws, we could be held liable for such unauthorized actions taken by our employees or agents.

Although we have policies and procedures designed to ensure that we, our employees, agents and intermediaries comply with the FCPA and UKBA, such policies or procedures may not work effectively all of the time or protect us against liability for actions taken by our employees, agents and intermediaries with respect to our business or any businesses that we may acquire. In the event that we believe, or have reason to believe, that our employees, agents or intermediaries have or may have violated applicable anti-corruption laws, we may be required to investigate or have a third party investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Our continued operation and expansion outside the United States could increase the risk of such violations in the future. Violations of the FCPA, the UKBA or similar laws and regulations, can result in significant expenses, require implementation of new and additional controls and procedures, divert management attention, and otherwise have a negative impact on us. Any determination that we have violated the FCPA, UKBA or laws of any other jurisdiction can subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our financial condition and results of operations. The possibility of violations of the FCPA, UKBA or other similar laws or regulations may increase as we expand globally and into countries with recognized corruption problems.

Under the Financial Services Modernization Act of 1999, also referred to as the Gramm-Leach-Bliley Act or GLBA, and some state laws, we and WEX Bank are required to maintain a comprehensive written information security program that includes administrative, technical and physical safeguards relating to consumer information. This requirement generally does not extend to information about companies or about individuals who obtain financial products or services for business, commercial, or agricultural purposes.

The GLBA also requires us and WEX Bank to provide initial and annual privacy notices to customers that describe in general terms our information sharing practices. If we or WEX Bank intend to share nonpublic personal information about consumers with affiliates and/or nonaffiliated third parties, we and WEX Bank must provide customers with a notice and a reasonable period of time for each customer to “opt out” of any such disclosure. In addition to U.S. federal privacy laws with which we must comply, states also have adopted statutes, regulations and other measures, such as the CCPA and CPRA, governing the collection and distribution of nonpublic personal information about customers. In some cases, these state measures are preempted by federal law, but if not, we and WEX Bank must monitor and seek to comply with individual state privacy laws in the conduct of our businesses.

When we handle individually identifiable health information, regulations issued under Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, our contracts with our customers, and supplemental state laws require us to implement privacy and data security measures and to comply with breach notification requirements. We may be subject to contractual damages and civil or criminal penalties if we are found to violate these privacy, security and breach notification requirements. An amendment to the HITECH Act enacted in January 2021 will require consideration of a company's implementation of recognized security standards in assessing administrative fines and penalties under the HIPAA security standards. This action will potentially heighten enforcement risks if we fail to adequately implement the recognized security standards, while mitigating such risks if the recognized measures are successfully implemented.

Our efforts to comply with existing and future health and financial data laws and regulations, both in the U.S. and abroad, are costly and time-consuming. In addition, any cybersecurity incident, any incident involving our handling of protected and sensitive information, failure to comply with applicable breach notification and reporting requirements, or any violation of international, federal or state privacy laws could consume significant financial and managerial resources, expose us to liability in excess of any applicable insurance policies, litigation, regulatory scrutiny, and/or cause damage to our reputation which may discourage customers from using, renewing, or expanding their use of our services or cause us to be in breach of our contracts with them. We may also be required to expend significant resources to implement additional data protection measures or to modify the features and functionality of our system offerings in a way that is less attractive to customers.

We utilize a combination of proprietary and third-party technologies, including third-party owned and operated “cloud” technologies or third-party managed technology platforms, data-centers, and processing systems, to conduct our business and interact with our customers, partners and suppliers, among others. This includes technology that we have developed, have contracted with others to develop, have outsourced to a single provider to operate or have obtained through third-parties by way of service agreements. As we have increased the number of platforms as well as the size of our networks and information systems, our reliance on these technologies has become increasingly important to our operating activities.

The potential negative impact that a platform, network or information system shutdown may have on our operating activities has increased. To the extent that our proprietary technology or a third-party providers’ technology does not work as agreed to or as expected, or if we experience outages or unavailability resulting from ours or our third-party providers’ operations and the services provided, our ability to efficiently and effectively deliver services could be adversely impacted and our business and results of operations could be adversely affected. Shutdowns may be caused by cyberattacks or unexpected catastrophic events such as natural disasters or other unforeseen events, such as software or hardware defects, including defects in software or hardware provided by third party vendors. Any failure by our customers or partners to access the technology that we develop internally could have an adverse effect on our business, results of operations and financial condition. Although we make substantial investments in technology, there is no guarantee that it will function as intended once it is placed into operation. Lastly, given our reliance on technology, we regularly assess our technology plans, including both platforms and technology infrastructure. To the extent that we conclude that certain technologies should be retired, that existing platforms should be consolidated, or that we should change our technology strategies, we may be required to impair or accelerate depreciation on certain assets. Any of these potential changes or failures in our technology strategies may also divert management’s attention and have a material adverse effect on our business and results of operations.

Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and effectively prevent fraud and operate successfully as a public company. The failure to develop or maintain effective internal control over financial reporting and disclosure controls and procedures could harm our reputation or operating results, or cause us to fail to meet our reporting obligations, or trigger a default under the Amended and Restated Credit Agreement.

Our financial reporting and disclosure controls and procedures are reliant, in part, on information we receive from disparate internal financial reporting systems and third parties that supply information to us regarding transactions that we process. In addition, because our strategy includes pursuing growth through acquisitions of other businesses, which are at different levels of maturity and which may have underdeveloped financial reporting systems and processes, we depend on dispersed financial systems to process, summarize and report financial transactions for our distributed operations. To the extent these systems do not properly transmit information to our financial ledgers, we could fail to properly summarize and report financial results.

As we expand our business operations domestically and internationally, and as we implement new accounting standards promulgated by the FASB, we will need to maintain effective internal control over financial reporting and disclosure controls and procedures. If we are unable to do so, our external auditors could issue a qualified opinion on the effectiveness of our internal control over financial reporting.

Ineffective internal control over financial reporting and disclosure controls and procedures could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities or affect our ability to access the capital markets and could result in regulatory proceedings against us by, among others, the SEC. WEX recently settled an investigation by the SEC with respect to the revision of WEX’s financial statements noted in its Annual Report on Form 10K/A for the year ended December 31, 2018, due to issues involving WEX’s formal Brazil subsidiary. For more information about this settlement, please see Item 3 - Legal Proceedings.

Material weaknesses in internal control over financial reporting have in the past and could in the future lead to deficiencies in the preparation of financial statements. Deficiencies in the preparation of financial statements, could lead to litigation claims against us. The defense of any such claims may cause the diversion of management’s attention and resources, and we may be required to pay damages if any such claims or proceedings are not resolved in our favor. Any litigation, even if resolved in our favor, could cause us to incur significant legal and other expenses. Such events could also affect our ability to raise capital to fund future business initiatives.

The sale or other dispositions of significant amounts of our outstanding common stock into the public market in the future, or the perception that sales or other dispositions could occur, could adversely impact the market price of our common stock.

As of the date of this filing, we are not involved in any material legal proceedings. However, from time to time, we are subject to legal proceedings and claims in the ordinary course of business, including but not limited to: commercial disputes; contract disputes; employment litigation; disputes regarding our intellectual property rights; alleged infringement or misappropriation by us of intellectual property rights of others; and, matters relating to our compliance with applicable laws and regulations.

In the fourth quarter of 2021, WEX settled claims arising from the previously disclosed investigation by the SEC with respect to the revision of WEX’s financial statements noted in its Annual Report on Form 10-K/A for the year ended December 31, 2018, due to issues involving WEX’s former Brazil subsidiary (which was sold in September 2020). WEX agreed to entry of an administrative order, which the SEC disclosed on December 13, 2021, in which the SEC made findings that WEX neither admitted nor denied, including that WEX did not comply with provisions of the federal securities laws requiring public companies to file accurate periodic reports, to make and keep accurate books, records, and accounts, and to maintain a system of internal accounting controls sufficient to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles. WEX believes it has fully remediated these issues, and paid a civil penalty of $350,000 in connection with the settlement.

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; 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 its Amended and Restated Credit Agreement, including pro forma compliance with a consolidated leverage ratio, testing consolidated funded indebtedness less (i) an amount up to $400.0 million of consolidated funded indebtedness due to permitted securitization transactions, (ii) the amount of consolidated funded indebtedness constituting the non-recourse portion of permitted factoring transactions, and (iii) an amount up to $400.0 million of unrestricted cash and cash equivalents denominated in U.S. dollars or other lawful currencies (provided that such other currencies are readily convertible to, and deliverable in, U.S. dollars) held by the Company and its subsidiaries) to consolidated EBITDA of less than 2.75:1.00 for the most recent period of four fiscal quarters.

The discussion below focuses on the factors affecting our consolidated results of operations for the years ended December 31, 2021 and 2020, financial condition at December 31, 2021 and 2020 and, where appropriate, factors that may affect our future financial performance, unless stated otherwise. This discussion should be read in conjunction with the consolidated financial statements, and notes to the consolidated financial statements.

Our Company’s management regularly monitors key performance indicators to measure our current performance and project future performance. A recurring, more extensive list of key performance indicators is included by segment within the Results of Operations section of this MD&A. Management believes the following key performance indicators by segment were of particular importance to our overall performance in 2021 as they provide enhanced information and data underlying our financial results.

Recent Events

On April 1, 2021, the Company entered into the Amended and Restated Credit Agreement, which amended and restated its 2016 Credit Agreement. Information regarding this amendment and restatement, and its impact on the Company’s operations and financial condition, is included within our Liquidity and Capital Resources discussion later in MD&A.

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 HealthcareBank 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 October 14, 2021, under its rights as non-bank custodian, 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. Financial impacts resulting from this acquisition and transfer of assets are reflected within the Company’s Health and Employee Benefit Solutions segment. Additional information regarding this acquisition, including the initial cash consideration paid, deferred cash payments and the potential for additional consideration payable is included within our Liquidity and Capital Resources discussion later in MD&A.

On April 13, 2021, the Company acquired the remaining 25 percent non-controlling interest in WEX Europe Services, which operates part of our European Fleet business within our Fleet Solutions segment. This transaction further streamlines the European Fleet business in order to create revenue synergies and manage the associated cost structure. For further information, including purchase price paid, see the discussion of this acquisition within the Liquidity and Capital Resources section later in MD&A.

WEX currently operates in three reportable segments: Fleet Solutions, Travel and Corporate Solutions, and Health and Employee Benefit Solutions. Our Fleet Solutions segment is a leader in fleet vehicle payment processing, transaction processing and information management services specifically designed for the needs of fleets of all sizes from small businesses to federal and state government fleets and over-the-road carriers. Our Travel and Corporate Solutions segment focuses on the complex payment environment of B2B payments, enabling customers to utilize our payments solutions to integrate into their own workflows and manage their accounts payable automation and spend management functions. Our Health and Employee Benefit Solutions segment provides a SaaS platform for consumer directed healthcare benefits and a full-service benefit enrollment solution, bringing together benefits administration, certain compliance services and consumer-directed and benefits accounts. Additionally, the Company serves as a non-bank custodian to certain HSA assets. Our Health and Employee Benefit Solutions segments provided payroll related benefits to customers in Brazil until September 30, 2020, the date of sale of our former subsidiary UNIK S.A.

The Company does not allocate foreign currency gains and losses, financing interest expense, unrealized gains and losses on financial instruments, change in fair value of contingent consideration, other income, 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 not allocate certain corporate expenses to our operating segments, as these items are centrally controlled and are not directly attributable to any reportable segment.

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. During the first quarter of 2020, the Company took a number of precautionary steps to safeguard its business and employees from the effects of COVID-19 including restricting business travel, temporarily closing offices and canceling participation in various industry events. Additionally, in an effort to rescale the business and safeguard shareholder value, we took certain measures during 2020 to both permanently reduce headcount and furlough employees across our worldwide offices where necessary. Aside from the employee furloughs, which ended during the third quarter of 2020, we continued to suspend most travel for employees during 2021, our office capacity generally remained limited and, since mid-March 2020, our employees have largely continued to work remotely in most geographies.

The spread of COVID-19, and conditions arising in connection with it, including restrictions on businesses and individuals and wider changes in business and customer behavior, had a negative impact on the Company’s businesses during the year ended December 31, 2020. During 2021 we generally saw recovery across our reportable segments with improvements in transaction volumes, revenues and earnings, as further discussed within the following Results of Operations section. As of December 31, 2021, the COVID-19 pandemic is continuing to evolve and its impact on the business going forward cannot reasonably be foreseen as it will depend on many factors outside of our control.

Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020

Fleet Solutions payment processing revenue increased $108.5 million for 2021, as compared to 2020. Revenues were favorably impacted by higher domestic fuel prices as well as increased volumes from the pandemic-driven lows of 2020.

Fleet Solutions account servicing revenue increased $14.5 million for 2021, as compared to 2020, due to an increase in miscellaneous card fees. Such increases were driven by volume recoveries in the North American fleet and over-the-road businesses, which had been impacted by the COVID-19 pandemic, and increased monthly fees resulting from increased card penetration.

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 $39.6 million in 2021, as compared to 2020. Increases in average unpaid invoice balances, attributable primarily to improvement in spend and increased fuel prices, contributed to over half the increase in finance income, as compared to 2020. The remaining increase was driven by higher weighted average late fee rates. For both 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 6.1 percent and 5.7 percent for 2021 and 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 2021 or 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 for 2021 increased $17.4 million, as compared to 2020, due to increased shipping demand and increased rates, leading to an increase in the size and volume of factored invoices.

Other revenue increased $13.1 million in 2021, as compared to 2020, due primarily to the increase in transaction processing volumes in our over-the-road business and an increase in domestic servicing revenues due to higher levels of spend as compared to the lows of 2020, which resulted from travel bans and restrictions as a result of the COVID-19 pandemic.

NM - Not meaningful

Processing costs increased $21.0 million for 2021, as compared to 2020, primarily driven by higher business support costs incurred as a result of the increased volumes experienced, coupled with increased employee compensation costs.

Service fees for 2021 were generally consistent with service fees in 2020.

Provision for credit losses decreased $18.8 million for 2021, as compared to 2020. The reduction in credit losses stemmed from a number of factors including increased collections efforts in 2021 resulting from initiatives implemented in late 2020 and overall improvements in the collection environment due to the availability of government stimulus monies that helped support customers during 2021. 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 7.6 basis points of fuel expenditures for 2021, as compared to 16.7 basis points of fuel expenditures for 2020.

Operating interest expense decreased $11.5 million in 2021, as compared to 2020. The decrease is primarily due to lower interest rates.

Depreciation and amortization expenses remained generally consistent between 2021 and 2020.

General and administrative expenses remained consistent between 2021 and 2020.

Sales and marketing expenses increased $27.1 million in 2021, as compared to 2020. This increase was primarily driven by higher partner commissions due to volume growth and a rise in segment expenses as the Company relaxed prior year cost containment initiatives enacted as a result of the COVID-19 pandemic.

Depreciation and amortization expenses decreased $11.2 million in 2021, as compared to 2020, due primarily to lower ongoing amortization over time resulting from the impact of the accelerated method of amortization on certain acquired customer relationships.

Impairment charges consisted of a non-cash goodwill impairment charge of $53.4 million for our WEX Fleet Europe reporting unit, which was identified during the annual goodwill assessment completed in the fourth quarter of 2020. No impairment to any of our reporting units was identified during the year ended December 31, 2021. See Item 8 – Note 9, Goodwill and Other Intangible Assets, of our consolidated financial statements for more information.

Travel and Corporate Solutions total revenue increased $47.1 million for 2021, as compared to 2020. The increase was primarily driven by travel-related revenues attributable to the acquisition of eNett and Optal and increased purchase volumes in our corporate payments business as a result of continued strength in the partner channel. These increases were in part offset by a reduction in net interchange rate due to rate changes for travel-related customers and unfavorable product mix. Additionally, the net interchange rate was driven lower by the impact of an accounting change in the fourth quarter of 2021, which required a shift from gross revenue presentation to net for one customer.

Finance fee revenue was not material to Travel and Corporate Solutions’ operations in 2021 or 2020. 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 to customers experiencing financial difficulties during either 2021 or 2020.

NM - Not meaningful

Processing costs increased $12.1 million in 2021, as compared to 2020, due primarily to the acquisition of eNett and Optal. 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.

Despite significant increases in volumes, service fees decreased $2.6 million in 2021, as compared to 2020. This decrease was due primarily to savings from the conversion to an internal transaction processing platform during 2020, offset by an increase in service fees due to the acquisition of eNett and Optal.

Provision for credit losses decreased $14.6 million in 2021, as compared to 2020. The prior year provision for credit losses included a specific reserve taken on a customer in Brazil prior to the sale of WEX Latin America during the third quarter of 2020. Additionally, the prior year was unfavorably impacted by increased credit losses as a result of the COVID-19 pandemic.

Operating interest expense decreased $3.1 million in 2021, as compared to 2020, primarily as a result of lower interest rates.

Depreciation and amortization expenses increased $5.6 million in 2021, as compared to 2020, due primarily to the acquisition of certain developed technology from eNett and Optal.

General and administrative expenses increased $44.2 million in 2021, as compared to 2020. The increase is primarily due to integration costs related to the acquisition of eNett and Optal and a vendor contract termination payment from the first quarter of 2021.

Sales and marketing expenses increased $21.0 million in 2021, as compared to 2020, primarily due to higher relative commission payments associated with corporate payments volumes and the acquisition of eNett and Optal.

Depreciation and amortization expenses increased $1.2 million in 2021, as compared to 2020, due primarily to the acquisition of certain customer relationships from eNett and Optal, offset in part by lower ongoing amortization over time resulting from the impact of the accelerated method of amortization on certain acquired customer relationships.

Legal settlement expenses were $162.5 million in 2020 due to the settlement of legal proceedings related to the eNett and Optal acquisition, and represents the consideration paid to the sellers of eNett and Optal in excess of the businesses’ fair values.

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

Payment processing revenue increased $6.6 million in 2021, as compared to 2020, due primarily to increased cardholder enrollment and increased cardholder spend volumes.

Account servicing revenue increased $60.6 million for 2021, as compared to 2020. The increase is primarily due to growth in participants and revenue recognized as a result of the benefitexpress Acquisition. In addition, account servicing revenue for 2021 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 in either 2021 or 2020.

Other revenue decreased $16.8 million in 2021 as compared to 2020. The decrease was primarily due 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. These decreases were offset in part by interest income earned on the investment of HSA deposits received during the fourth quarter of 2021.

The following table compares line items within operating income and presents segment adjusted operating income and segment adjusted operating income margin for Health and Employee Benefit Solutions:

Processing costs increased $30.7 million in 2021, as compared to 2020. The increase was primarily driven by higher costs to support partner growth and increases as a result of the benefitexpress Acquisition.

Service fees increased $7.6 million in 2021, as compared to 2020. This increase was 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 or sub-custodian to certain HSAs from Bell Bank, and growth in existing partner volumes.

Provision for credit losses and operating interest was not material to Health and Employee Benefit Solutions’ operations in either 2021 or 2020.

Depreciation and amortization expenses increased $1.1 million in 2021, as compared to 2020, resulting primarily from the amortization of technology assets acquired as part of the benefitexpress Acquisition.

General and administrative expenses increased $3.5 million in 2021, as compared to 2020, due primarily to integration costs related to the benefitexpress Acquisition.

Sales and marketing expenses increased $4.3 million in 2021, as compared to 2020, due to in part to the benefitexpress Acquisition and in part to increased segment expenses as the Company relaxed prior year cost containment initiatives enacted as a result of the COVID-19 pandemic.

Depreciation and amortization expenses increased $13.4 million in 2021, as compared to 2020, 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 acquired as part of the benefitexpress Acquisition.

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:

General and administrative expenses decreased $13.3 million for 2021, as compared to 2020, primarily due to a decrease in professional fees and litigation costs associated with the eNett and Optal transaction, offset in part by increased employee compensation and professional fees incurred in connection with the amendment and restatement of our 2016 Credit Agreement.

Depreciation and amortization expense in 2021 remained consistent with that of 2020.

Loss on 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.

The following table reflects comparative results for certain amounts excluded from operating income:

NM - Not meaningful

Financing interest expense decreased $28.7 million in 2021, as compared to 2020. Financing interest expense in 2020 was unfavorably impacted by financing fees incurred in connection with the eNett and Optal acquisition. Lower interest expense as a result of the redemption of the Company’s Notes in March 2021 was largely offset by having a full year of interest on the Convertible Notes issued in July 2020.

For the twelve months ended December 31, 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.

During 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. During 2021, net foreign currency loss was $12.3 million, as compared to $25.8 million in 2020. The losses in 2021 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 the 2020 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 $39.2 million during 2021 primarily due to a reduction in the interest rate swap liabilities driven by a decrease in remaining future settlements, coupled with an increase in the LIBOR forward yield curve. The net unrealized losses on financial instruments during 2020 resulted primarily from a decrease in the LIBOR forward yield curve.

Net income from non-controlling interests relates to our non-controlling interest in the U.S. Health business and our non-controlling interest 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 2021 or 2020.

The redemption value of the Company's redeemable non-controlling interest in the U.S. Health business increased during 2021 due to increases in the trailing twelve month net revenues as well as an increase in the market set multiple used to value the non-controlling interest redemption value resulting in expense of $135.2 million for the year ended December 31, 2021. The income recognized during the year ended December 31, 2020 was substantially due to a second quarter change in the redemption value resulting from a decline in revenue multiples of peer companies due to the COVID-19 pandemic.

Discussion and analysis of the year ended December 31, 2020 compared to the year ended December 31, 2019 is included under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10–K for the year ended December 31, 2020, as filed with the SEC on March 1, 2021.

In addition to evaluating the Company’s performance on a GAAP basis, the CODM of the Company uses segment adjusted operating income, a non-GAAP measure, to allocate resources among our operating segments. The Company considers this measure, which excludes unallocated corporate expenses, acquisition-related intangible amortization, other acquisition and divestiture related items, legal settlement, impairment charges, loss on sale of subsidiary, debt restructuring costs, stock-based compensation and other costs integral in evaluating the Company’s performance.

WEX believes that adjusted net income, a non-GAAP measure that similarly excludes all items discussed in the paragraph above except unallocated corporate expenses, and further excludes unrealized gains and losses on financial instruments, net foreign currency gains and losses, change in fair value of contingent consideration, debt issuance cost amortization, other adjustments attributable to non-controlling interests, and tax related items, is also integral to the Company’s reporting and planning processes.

Segment adjusted operating income and adjusted net income may be useful to investors as a means of evaluating our performance. However, because segment adjusted operating income and adjusted net income are non-GAAP measures, they should not be considered as a substitute for, or superior to, net income, operating income or cash flows from operating activities as determined in accordance with GAAP. Segment adjusted operating income and adjusted net income as used by WEX may not be comparable to similarly titled measures employed by other companies.

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:

The following table reconciles net income (loss) attributable to shareholders to adjusted net income attributable to shareholders:

The following table reconciles total segment adjusted operating income to income (loss) before income taxes:

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. Preparation of these financial statements requires us to make estimates and judgments that affect reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. We continually evaluate our judgments and estimates in determination of our financial condition and operating results. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are based on information available as of the date of the financial statements and, accordingly, actual results could differ from these estimates, sometimes materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and operating results and require management’s most subjective judgments. Our consolidated financial statements are based on the selection and application of critical accounting policies and estimates, the most significant of which are included in the tables below.