UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2018~~March 31, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001–32426

WEX INC.

(Exact name of registrant as specified in its charter)



Delaware		01–0526993
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~97 Darling Avenue, South~~1 Hancock St., Portland, ~~Maine~~ME		~~04106~~04101
(Address of principal executive offices)		(Zip Code)

(207) 773–8171

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S–T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.



Large accelerated filer	☒	~~(Do not check if a smaller reporting company)~~	Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☐
			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).

☐ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Ticker Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	WEX	New York Stock Exchange

Number of shares of common stock outstanding as of ~~July 31, 2018~~April 30, 2019 was ~~43,091,553.~~43,249,922.

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TABLE OF CONTENTS



FORWARD–LOOKING STATEMENTS		3
ACRONYMS AND ABBREVIATIONS		4
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5248
Item 4.	Controls and Procedures	5248
PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	5349
Item 1A.	Risk Factors	5349
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5349
Item 6.	Exhibits	5450
SIGNATURE

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Unless otherwise indicated or required by the context, the terms “we,” “us,” “our,” “WEX,” or the “Company,” in this

Quarterly Report on Form 10–Q mean WEX Inc. and all of its subsidiaries that are consolidated under Generally Accepted Accounting Principles in the United States.

FORWARD–LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for statements that are forward-looking and are not statements of historical facts. This Quarterly Report includes forward-looking statements including, but not limited to, statements about management’s plan and goals. Any statements in this Quarterly Report that are not statements of historical facts are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Forward-looking statements relate to our future plans, objectives, expectations and intentions and are not historical facts and accordingly involve known and unknown risks and uncertainties and other factors that may cause the actual results or performance to be materially different from future results or performance expressed or implied by these forward-looking statements. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report and in oral statements made by our authorized officers:

the effects of general economic conditions on fueling patterns as well as payment and transaction processing activity;

the impact of foreign currency exchange rates on the Company’s operations, revenue and income;

changes in interest rates;

the impact of fluctuations in fuel prices;

the effects of the Company’s business expansion and acquisition efforts;

potential adverse changes to business or employee relationships, including those resulting from the completion of an acquisition;

competitive responses to any acquisitions;

uncertainty of the expected financial performance of the combined operations following completion of an acquisition;

the ~~ability~~failure to successfully integrate the Company’s acquisitions;

the ability to realize anticipated synergies and cost savings;

unexpected costs, charges or expenses resulting from an acquisition;

the Company’s failure to successfully acquire, integrate, operate and expand commercial fuel card programs;

the failure of corporate investments to result in anticipated strategic value;

the impact and size of credit losses;

the impact of changes to the Company’s credit standards;

breaches of the Company’s technology systems or those of our third-party service providers and any resulting negative impact on our reputation, liabilities or relationships with customers or merchants;

the ~~Company’s~~Company’s failure to maintain or renew key commercial agreements;

failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors;

failure to successfully implement the Company’s information technology strategies and capabilities in connection with its technology outsourcing and insourcing arrangements and any resulting cost associated with that failure;

the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates;

the impact of the material weaknesses disclosed in Item 9A of the Company’s annual report on Form 10–K for the year ended December 31, 2018 and the effects of the Company’s investigation and remediation efforts in connection with certain immaterial errors in the financial statements of our Brazilian subsidiary;

the impact of the Company’s outstanding notes on its operations;

the impact of increased leverage on the Company’s operations, results or borrowing capacity generally, and as a result of acquisitions specifically;

the incurrence of impairment charges if our assessment of the fair value of certain of our reporting units changes;

the uncertainties of litigation; as well as

other risks and uncertainties identified in Item 1A of our annual report on Form 10–K for the year ended December 31, ~~2017~~2018 filed with the Securities and Exchange Commission on March ~~1, 2018.~~18, 2019.

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 Quarterly 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.

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ACRONYMS AND ABBREVIATIONS

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



2016 Credit Agreement	Credit agreement entered into on July 1, 2016, as amended from time to time, by and among the Company and certain of its subsidiaries, as borrowers, WEX Card Holding Australia Pty Ltd., as designated borrower, and Bank of America, N.A., as administrative agent on behalf of the ~~lenders, as amended.~~lenders.
2017 Tax Act	2017 Tax Cuts and Jobs Act
Adjusted Net Income or ANI	A non-GAAP measure that adjusts net income attributable to shareholders to exclude unrealized gains and losses on financial instruments, net foreign currency remeasurement gains and losses, acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, restructuring and other costs, ~~an impairment charge,~~ debt restructuring and debt issuance cost amortization, adjustments attributed to our non-controlling ~~interest~~interests and certain tax related items.
~~Segment adjusted operating income~~	A non-GAAP measure that adjusts operating income to exclude specified items that the Company’s management excludes in evaluating segment performance, including acquisition and divestiture related expenses and adjustments including the amortization of purchased intangibles, an impairment charge, the expense associated with stock-based compensation, restructuring and other costs, debt restructuring costs and unallocated corporate expenses.
~~AOC~~	~~AOC Solutions and one of its affiliate companies, 3Delta Systems, Inc.~~
ASC	Accounting Standards Codification
ASU 2014–09	Accounting Standards Update No. 2014–09 Revenue from Contracts with Customers (Topic 606)
ASU 2016–01	~~Accounting Standards Update No. 2016–01 Financial Instruments – Overall (Subtopic 825–10): Recognition and Measurement of Financial Assets and Financial Liabilities~~
~~ASU 2016–~~02	Accounting Standards Update No. 2016–02 Leases (Topic 842)
ASU 2016–13	Accounting Standards Update No. ~~2016–13~~2016-13 Financial ~~Instruments–~~Instruments – Credit Losses (Topic 326)~~: Measurement of Credit Losses on Financial Instruments~~
ASU ~~2016–18~~2018–15	Accounting Standards Update No. ~~2016–18 Statement of Cash Flows (Topic 230)~~2018–15 Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350–40): ~~Restricted Cash~~
~~ASU 2017–07~~	Customer’s Accounting ~~Standards Update 2017–07 Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
Australian Securitization Subsidiary	Southern Cross WEX 2015–1 Trust, a ~~bankruptcy-remote subsidiary~~special purpose entity consolidated by the Company
Average expenditure per payment processing transaction	Average total dollars of spend in a funded fuel transaction
Company	WEX Inc. and all entities included in the unaudited condensed consolidated financial statements
Discovery Benefits (or “DBI”)	Discovery Benefits, Inc.
EBITDA	A non-GAAP measure that adjusts income before income taxes to exclude interest, depreciation and amortization
EFS	Electronic Funds Source, LLC, a provider of customized corporate payment solutions for fleet and corporate customers with a focus on the large and mid-sized over-the-road fleets. On July 1, 2016, the Company acquired WP Mustang Topco LLC, the indirect parent of Electronic Funds Source, LLC and Warburg Pincus Private Equity XI (Lexington), LLC, an affiliated entity, from investment funds affiliated with Warburg Pincus LLC
European Securitization Subsidiary	Gorham Trade Finance B.V., a ~~bankruptcy-remote subsidiary~~special purpose entity consolidated by the Company
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
GAAP	Generally Accepted Accounting Principles in the United States
ICS	Insured Cash Sweep
Indenture	The Notes were issued pursuant to an indenture dated as of January 30, 2013 among the Company, the guarantors listed therein, and The Bank of New York Mellon Trust Company, N.A., as trustee
~~NYSE~~NCI	~~New York Stock Exchange~~Non-controlling interest
Notes	$400 million notes with a ~~4.75%~~4.75 percent fixed rate, issued on January 30, 2013
Noventis	Noventis, Inc.
NYSE	New York Stock Exchange
Over-the-road	Typically heavy trucks traveling long distances
Pavestone Capital	Pavestone Capital, LLC
Payment solutions purchase volume	Total amount paid by customers for transactions
Payment processing transactions	Funded payment transactions where the Company maintains the receivable for total purchase
PPG	Price per gallon of fuel
Redeemable non-controlling interest	The portion of U.S. Health business’ net assets owned by a non-controlling interest subject to redemption rights held by the non-controlling interest
SaaS	Software-as-a-service
SEC	Securities and Exchange Commission
Segment adjusted operating income	A non-GAAP measure that adjusts operating income to exclude specified items that the Company’s management excludes in evaluating segment performance, including acquisition and divestiture related expenses and adjustments including the amortization of purchased intangibles, the expense associated with stock-based compensation, restructuring and other costs, debt restructuring costs and unallocated corporate expenses.
Total fuel transactions	Total of transaction processing and payment processing transactions of our Fleet Solutions segment
~~Transaction processing transactions~~U.S. Health business	~~Unfunded payment transactions where the Company is the processor~~WEX Health and ~~only has receivables for the processing fee~~DBI, collectively
WEX Latin America	UNIK S.A., the ~~Company's~~Company’s Brazilian subsidiary, which has been subsequently branded WEX Latin America
WEX	WEX Inc.
WEX Europe Services	Consists primarily of our European Fleet business acquired by the Company from ExxonMobil on December 1, 2014
WEX Health	Evolution1 ~~and Benaissance, collectively~~

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PART I

Item 1. Financial Statements.

WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues
Payment processing revenue	$	178,738		$	141,354		$	347,192		$	277,732		$	186,798		$	168,454
Account servicing revenue	78,716			65,677			157,420			127,216			87,086			78,704
Finance fee revenue	51,573			42,085			101,255			85,457			46,373			48,881
Other revenue	61,849			54,768			119,838			104,836			61,619			57,989
Total revenues	370,876			303,884			725,705			595,241			381,876			354,028
Cost of services
Processing costs	76,306			69,233			155,928			133,563			91,119			73,106
Service fees	13,809			20,177			26,029			37,755			14,246			12,326
Provision for credit losses	11,505			16,082			25,495			28,313			17,791			14,226
Operating interest	9,528			4,619			18,013			9,512			9,564			8,485
Depreciation and amortization	20,612			18,376			41,045			35,760			20,513			20,450
Total cost of services	131,760			128,487			266,510			244,903			153,233			128,593
General and administrative	48,488			40,073			103,921			82,250			64,405			55,309
Sales and marketing	57,697			39,983			114,238			80,141			64,119			56,541
Depreciation and amortization	30,020			31,585			59,763			63,439			31,184			29,726
Impairment charge	—			16,175			—			16,175
Operating income	102,911			47,581			181,273			108,333			68,935			83,859
Financing interest expense	(25,505		)	(28,547		)	(52,842		)	(55,695		)	(31,112		)	(27,337		)
Net foreign currency (loss) gain	(26,734		)	10,525			(26,344		)	18,967			(3,885		)	390
Net unrealized gain (loss) on financial instruments	2,706			(2,264		)	16,214			(699		)
Net unrealized (loss) gain on financial instruments													(11,912		)	13,508
Income before income taxes	53,378			27,295			118,301			70,906			22,026			70,420
Income taxes	13,938			10,655			29,527			25,190			5,818			17,749
Net income	39,440			16,640			88,774			45,716			16,208			52,671
Less: Net income (loss) from non-controlling interest	142			(450		)	843			(775		)
Less: Net income from non-controlling interests													74			701
Net income attributable to shareholders	$	39,298		$	17,090		$	87,931		$	46,491		$	16,134		$	51,970

Net income attributable to WEX Inc. per share:
Basic	$	0.91		$	0.40		$	2.04		$	1.08		$	0.37		$	1.21
Diluted	$	0.90		$	0.40		$	2.02		$	1.08		$	0.37		$	1.20
Weighted average common shares outstanding:
Basic	43,181			43,002			43,116			42,937			43,220			43,049
Diluted	43,546			43,060			43,524			43,090			43,572			43,450

See notes to unaudited condensed consolidated financial statements.

~~See Note 1, Basis of Presentation, for further details on our change in presentation to a functional income statement.~~

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WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017		2018			2017			2019		2018
Net income	$	39,440		$	16,640	$	88,774		$	45,716		$	16,208	$	52,671
Changes in investment securities, net of tax expense of $60 and $61 for the three and six months ended June 30, 2017, respectively	—			106		—			109
Foreign currency translation	(25,413		)	6,082		(23,478		)	22,702			4,371		1,693
Comprehensive income	14,027			22,828		65,296			68,527			20,579		54,364
Less: Comprehensive (loss) income attributable to non-controlling interest	(342		)	49		649			(234		)
Less: Comprehensive income attributable to non-controlling interests												36		991
Comprehensive income attributable to WEX Inc.	$	14,369		$	22,779	$	64,647		$	68,761		$	20,543	$	53,373

See notes to unaudited condensed consolidated financial statements.

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WEX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)


	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	310,784		$	508,072		$	387,274		$	541,498
Restricted cash	25,009			18,866			138,804			13,533
Accounts receivable (net of allowances of $30,247 in 2018 and $30,207 in 2017)	3,087,354			2,517,980
Accounts receivable (net of allowances of $46,742 in 2019 and $46,948 in 2018)							2,830,555			2,584,203
Securitized accounts receivable, restricted	168,274			150,235			135,438			109,871
Prepaid expenses and other current assets	79,838			69,413			153,093			149,021
Total current assets	3,671,259			3,264,566			3,645,164			3,398,126
Property, equipment and capitalized software (net of accumulated depreciation of $292,111 in 2018 and $264,928 in 2017)	161,708			163,908
Property, equipment and capitalized software (net of accumulated depreciation of $325,067 in 2019 and $307,750 in 2018)							196,977			187,868
Goodwill	1,843,575			1,876,132			2,331,110			1,832,129
Other intangible assets (net of accumulated amortization of $456,537 in 2018 and $392,827 in 2017)	1,103,330			1,154,047
Other intangible assets (net of accumulated amortization of $542,833 in 2019 and $509,055 in 2018)							1,382,279			1,034,194
Investment securities	22,970			23,358			24,772			24,406
Deferred income taxes, net	6,410			7,752			11,091			9,643
Other assets	142,725			253,088			363,849			284,229
Total assets	$	6,951,977		$	6,742,851		$	7,955,242		$	6,770,595
Liabilities and Stockholders’ Equity
Accounts payable	$	1,015,226		$	811,362		$	1,093,128		$	814,742
Accrued expenses	304,346			315,346			278,413			312,268
Restricted cash payable							138,804			13,533
Short-term deposits	828,243			986,989			835,338			927,444
Short-term debt, net	379,538			397,218			184,357			216,517
Other current liabilities	21,959			24,795			86,388			27,067
Total current liabilities	2,549,312			2,535,710			2,616,428			2,311,571
Long-term debt, net	2,125,109			2,027,752			2,809,361			2,133,923
Long-term deposits	326,303			306,865			300,349			345,231
Deferred income taxes, net	130,266			119,283			203,274			151,685
Other liabilities	28,991			32,683			108,949			32,261
Total liabilities	5,159,981			5,022,293			6,038,361			4,974,671
Commitments and contingencies (Note 13)
Commitments and contingencies (Note 15)
Redeemable non-controlling interest							99,993			—
Stockholders’ Equity
Common Stock $0.01 par value; 175,000 shares authorized; 47,514 shares issued in 2018 and 47,352 in 2017; 43,086 shares outstanding in 2018 and 43,022 in 2017	475			473
Common stock $0.01 par value; 175,000 shares authorized; 47,674 issued in 2019 and 47,557 in 2018; 43,246 shares outstanding in 2019 and 43,129 in 2018							476			475
Additional paid-in capital	574,818			569,319			635,046			593,262
Retained earnings	1,493,255			1,404,683			1,456,327			1,481,593
Accumulated other comprehensive loss	(114,079		)	(90,795		)	(112,882		)	(117,291		)
Treasury stock at cost; 4,428 shares in 2018 and 2017	(172,342		)	(172,342		)
Treasury stock at cost; 4,428 shares in 2019 and 2018							(172,342		)	(172,342		)
Total WEX Inc. stockholders’ equity	1,782,127			1,711,338			1,806,625			1,785,697
Non-controlling interest	9,869			9,220			10,263			10,227
Total stockholders’ equity	1,791,996			1,720,558			1,816,888			1,795,924
Total liabilities and stockholders’ equity	$	6,951,977		$	6,742,851		$	7,955,242		$	6,770,595

See notes to unaudited condensed consolidated financial statements.

~~See Note 1, Basis of Presentation, for further details on our change in presentation to a classified balance sheet.~~

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WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common Stock Issued			Additional Paid-In Capital				Accumulated Other Comprehensive Loss				Treasury Stock				Retained Earnings				Non-Controlling Interest				Total Stockholders’ Equity			Common Stock Issued			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Treasury Stock			Retained Earnings			Non-Controlling Interests			Total Stockholders’ Equity
	Shares	Amount									Shares					Retained Earnings			Amount											Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Treasury Stock			Retained Earnings			Non-Controlling Interests			Total Stockholders’ Equity
Balance at December 31, 2016	47,173	$	472	Additional Paid-In Capital			$	Accumulated Other Comprehensive Loss	547,627			Treasury Stock	$	(122,839	)		$	(172,342	)	Non-Controlling Interest			$	Total Stockholders’ Equity			1,244,271	$	8,558	$	1,505,747
Balance at December 31, 2017																											47,352	$	473	$	569,319		$	(89,230	)	$	(172,342	)	$	1,312,660		$	9,220		$	1,630,100
Cumulative-effect adjustment¹	—	—		—				—				—				260				—				260			—	—		—			—			—			638			—			638
Balance at January 1, 2017	47,173	$	472	$	547,627			$	(122,839	)		$	(172,342	)		$	1,244,531			$	8,558			$	1,506,007
Stock issued	170	1		430				—				—				—				—				431
Share repurchases for tax withholdings	—	—		(9,195		)		—				—				—				—				(9,195		)
Stock-based compensation expense	—	—		13,871				—				—				—				—				13,871
Changes in investment securities, net of tax expense of $61	—	—		—				109				—				—				—				109
Foreign currency translation	—	—		—				22,161				—				—				541				22,702
Net income (loss)	—	—		—				—				—				46,491				(775		)		45,716
Balance at June 30, 2017	47,343	$	473	$	552,733			$	(100,569	)		$	(172,342	)		$	1,291,022			$	8,324			$	1,579,641

Balance at December 31, 2017	47,352	$	473	$	569,319			$	(90,795	)		$	(172,342	)		$	1,404,683			$	9,220			$	1,720,558
Cumulative-effect adjustment²	—	—		—				—				—				641				—				641
Balance at January 1, 2018	47,352	$	473	$	569,319			$	(90,795	)		$	(172,342	)		$	1,405,324			$	9,220			$	1,721,199		47,352	$	473	$	569,319		$	(89,230	)	$	(172,342	)	$	1,313,298		$	9,220		$	1,630,738
Stock issued	162	2		1,449				—				—				—				—				1,451			148	2		574			—			—			—			—			576
Share repurchases for tax withholdings	—	—		(11,810		)		—				—				—				—				(11,810		)	—	—		(11,810		)	—			—			—			—			(11,810		)
Stock-based compensation expense	—	—		15,860				—				—				—				—				15,860			—	—		8,955			—			—			—			—			8,955
Foreign currency translation	—	—		—				(23,284		)		—				—				(194		)		(23,478		)	—	—		—			1,403			—			—			290			1,693
Net income	—	—		—				—				—				87,931				843				88,774			—	—		—			—			—			51,970			701			52,671
Balance at June 30, 2018	47,514	$	475	$	574,818			$	(114,079	)		$	(172,342	)		$	1,493,255			$	9,869			$	1,791,996
Balance at March 31, 2018																											47,500	$	475	$	567,038		$	(87,827	)	$	(172,342	)	$	1,365,268		$	10,211		$	1,682,823

Balance at January 1, 2019																											47,557	$	475	$	593,262		$	(117,291	)	$	(172,342	)	$	1,481,593		$	10,227		$	1,795,924
Stock issued																											117	1		404			—			—			—			—			405
Share repurchases for tax withholdings																											—	—		(9,723		)	—			—			—			—			(9,723		)
Stock-based compensation expense																											—	—		9,703			—			—			—			—			9,703
Adjustments of redeemable non-controlling interest																											—	—		41,400			—			—			(41,400		)	—			—
Foreign currency translation																											—	—		—			4,409			—			—			(38		)	4,371
Net income																											—	—		—			—			—			16,134			74			16,208
Balance at March 31, 2019																											47,674	$	476	$	635,046		$	(112,882	)	$	(172,342	)	$	1,456,327		$	10,263		$	1,816,888

¹Includes the impact of ~~modified retrospective transition as part of~~ the Company’s ~~adoption of ASU 2016–09 to recognize previously disallowed excess tax benefits that increased a net operating loss.~~

²~~Includes the impact of~~ modified retrospective adoption as part of Topic 606.

See notes to unaudited condensed consolidated financial statements.

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WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Six Months Ended June 30,
2018 2017
Cash flows from operating activities
Net income $ 88,774
$ 45,716
Adjustments to reconcile net income to net cash used for operating activities:
Net unrealized loss 43
4,457
Stock-based compensation 15,860
13,871
Depreciation and amortization 100,808
99,199
Debt restructuring and debt issuance cost amortization 5,819
4,163
Provision for deferred taxes 11,849
14,924
Provision for credit losses 25,495
28,313
Impairment charge —
16,175
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and securitized receivables (645,356 ) (423,854 )
Prepaid expenses and other current and other long-term assets 117,954
(3,193 )
Accounts payable 220,909
111,251
Accrued expenses (9,322 ) 3,322
Income taxes 2,520
1,458
Other current and other long-term liabilities (9,382 ) (1,665 )
Amounts due under tax receivable agreement (3,827 ) (5,899 )
Net cash used for operating activities (77,856 ) (91,762 )
Cash flows from investing activities
Purchases of property, equipment and capitalized software (34,624 ) (37,480 )
Purchase of equity investment (2,617 ) —
Purchases of investment securities (244 ) (230 )
Maturities of investment securities 100
272
Net cash used for investing activities (37,385 ) (37,438 )
Cash flows from financing activities
Repurchase of share-based awards to satisfy tax withholdings (11,810 ) (9,194 )
Proceeds from stock option exercises 1,451
431
Net change in deposits (138,894 ) 2,631
Net activity on other debt 62,992
22,980
Borrowings on revolving credit facility 931,888
2,353,261
Repayments of revolving credit facility (1,068,522 ) (2,205,038 )
Borrowings on term loans 153,000
—
Repayments on term loans (18,152 ) (17,375 )
Debt issuance costs (2,907 ) —
Net change in securitized debt 22,773
13,662
Net cash (used for) provided by financing activities (68,181 ) 161,358
Effect of exchange rate changes on cash, cash equivalents and restricted cash (7,723 ) (3,930 )
Net change in cash, cash equivalents and restricted cash (191,145 ) 28,228
Cash, cash equivalents and restricted cash, beginning of period ^(a)
526,938
213,342
Cash, cash equivalents and restricted cash, end of period ^(a)
$ 335,793
$ 241,570

Supplemental disclosure of non-cash investing and financing activities
Capital expenditures incurred but not paid $ 1,258
$ 6,076

^(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our unaudited condensed consolidated balance sheets to amounts reported within our unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2018 and 2017:



	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net income	$	16,208		$	52,671
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Net unrealized loss (gain)	12,870			(12,780		)
Stock-based compensation	9,703			8,955
Depreciation and amortization	51,697			50,176
Debt restructuring and debt issuance cost amortization	2,095			3,676
Provision for deferred taxes	3,402			16,296
Provision for credit losses	17,791			14,226
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable and securitized accounts receivable	(239,658		)	(264,475		)
Prepaid expenses and other current and other long-term assets	(7,109		)	121,622
Accounts payable	245,657			119,334
Accrued expenses and restricted cash payable	(43,554		)	(17,404		)
Income taxes	(1,153		)	(1,339		)
Other current and other long-term liabilities	2,161			(3,152		)
Net cash provided by operating activities	70,110			87,806
Cash flows from investing activities
Purchases of property, equipment and capitalized software	(28,385		)	(14,770		)
Acquisitions, net of cash acquired	(568,426		)	—
Purchase of equity investment	—			(2,307		)
Purchases of investment securities	(140		)	(121		)
Maturities of investment securities	85			72
Net cash used for investing activities	(596,866		)	(17,126		)
Cash flows from financing activities
Repurchase of share-based awards to satisfy tax withholdings	(9,723		)	(11,810		)
Proceeds from stock option exercises	405			576
Net change in deposits	(136,717		)	(185,433		)
Net activity on other debt	(57,556		)	(19,027		)
Borrowings on revolving credit facility	863,756			488,503
Repayments on revolving credit facility	(693,600		)	(625,821		)
Borrowings on term loans	550,000			153,000
Repayments on term loans	(15,871		)	(9,076		)
Debt issuance costs	(3,443		)	(2,907		)
Net change in securitized debt	(1,191		)	19,402
Net cash provided by (used for) financing activities	496,060			(192,593		)
Effect of exchange rates on cash, cash equivalents and restricted cash	1,743			(587		)
Net change in cash, cash equivalents and restricted cash	(28,953		)	(122,500		)
Cash, cash equivalents and restricted cash, beginning of period	555,031			522,385
Cash, cash equivalents and restricted cash, end of period	$	526,078		$	399,885

Supplemental disclosure of non-cash investing and financing activities
Capital expenditures incurred but not paid	$	2,046		$	4,801

~~Table of Contents~~

Six Months Ended June 30,
2018 2017
Cash and cash equivalents at beginning of period $ 508,072
$ 190,930
Restricted cash at beginning of period 18,866
22,412
Cash, cash equivalents and restricted cash at beginning of period $ 526,938
$ 213,342

Cash and cash equivalents at end of period $ 310,784
$ 219,001
Restricted cash at end of period 25,009
22,569
Cash, cash equivalents and restricted cash at end of period $ 335,793
$ 241,570

See notes to unaudited condensed consolidated financial statements.

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WEX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



1.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10–Q and Rule 10–01 of Regulation S–X. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements that are included in the Company’s Annual Report on Form 10–K for the year ended December 31, ~~2017,~~2018, filed with the SEC on March ~~1, 2018.~~18, 2019 and our Form 10–K/A filed with the SEC on March 20, 2019. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 are not necessarily indicative of the results for any future periods or the year ending December 31, ~~2018.~~2019.

Effective January 1, 2019, the Company modified the presentation of the unaudited condensed balance sheets to separately classify its restricted cash payable. The prior period has been reclassified to conform with this presentation. There was no change to current liabilities as a result of this change.

We apply the same accounting policies in preparing our quarterly and annual financial statements, with the exception of the new leasing standard which is required to be adopted on a prospective basis. Refer to Note 2, Recent Accounting Pronouncements, for more information. The Company rounds amounts in the unaudited condensed consolidated financial statements to thousands and calculates all per-share data from underlying whole-dollar amounts. Thus, certain amounts may not foot, crossfoot or recalculate based on reported numbers due to rounding.

~~Changes~~Revision of Prior Period Unaudited Condensed Consolidated Financial Statements for Correction of Immaterial Errors

As more fully described in our 2018 Form 10–K, in 2018 we revised our prior year financial statements to ~~Prior Year Financial Statement Presentation~~

~~Effective January 1, 2018,~~correct for immaterial errors in the ~~Company modified the presentation of the balance sheets and~~financial statements of ~~income~~our Brazilian subsidiary and ~~changed how it allocates~~ certain ~~costs~~other immaterial errors impacting prior years that were not previously recorded. The accompanying quarterly financial statements have been revised for these errors. Collectively, hereinafter these revisions to correct are referred to as the “Revised” financial statements or the “Revision”. Management believes that the effects of this Revision are not material to our ~~segments. These changes enhance the information reported to the users of our financial statements.~~

~~The Company now classifies assets and liabilities as current and non-current within our~~previously issued unaudited condensed consolidated ~~balance sheets as defined according to~~financial statements.

The effects of the ~~normal twelve month operating cycle of~~Revision on our business. Prior period amounts have been recast to conform with this presentation. As a result of this change, total assets and total liabilities have increased by approximately $3.7 million compared to what was reported within our Annual Report on Form 10–K for the year ended December 31, 2017 due to a gross-up of interest rate swap arrangements to reflect their corresponding short and long-term portions. See Note 11, Fair Value, for more information on the fair value of our interest rate swap arrangements.

~~Additionally, the Company has modified the presentation of certain line items in its~~ unaudited condensed consolidated statements of income. Under the new presentation, costs of services are segregated from other operating expenses. Operating expenses have been reclassified into functional categories in order to provide additional detail into the underlying drivers of changes in operating expensesincome and ~~align presentation with industry practice. The revised presentation did not result in a change to previously reported revenues, operating income, income before income taxes or net income.~~cash flows were as follows:

~~Effective with the change in financial statement presentation noted above, the Company now reports expenses in the categories noted below. No changes have been made to non-operating expenses.~~

~~Cost of Services~~



	Three months ended March 31, 2018
(In thousands, except per share data)	As Previously Reported		Brazil Adjustments			Other Immaterial Adjustments			As Revised
Total revenues	$	354,829	$	(801	)	$	—		$	354,028
Processing costs	$	79,640	$	(6,534	)	$	—		$	73,106
Provision for credit losses	$	13,990	$	236		$	—		$	14,226
Operating income	$	78,362	$	5,497		$	—		$	83,859
Income taxes	$	15,589	$	2,343		$	(183	)	$	17,749
Net income	$	49,334	$	3,154		$	183		$	52,671
Net income attributable to shareholders	$	48,633	$	3,154		$	183		$	51,970

Net income attributable to WEX Inc. per share
Basic	$	1.13	$	0.08		$	—		$	1.21
Diluted	$	1.12	$	0.08		$	—		$	1.20

~~Processing costs -~~ ~~The Company’s processing costs consist of expenses related to processing transactions, servicing customers and merchants, cost of goods sold related to hardware and other product sales.~~

~~Service fees -~~ The Company incurs costs from third-party networks utilized to deliver payment solutions. Additionally, other third-parties are utilized in performing services directly related to generating revenue. With the adoption of Topic 606 effective January 1, 2018, fees paid to third-party payment processing networks are no longer recorded as service fees and are now presented as a reduction of revenues.

~~Provision for credit losses -~~ ~~Changes in the reserve for credit loss are the result of changes in management’s estimate of the losses in the Company’s outstanding portfolio of receivables, including losses from fraud.~~

~~Operating interest -~~ ~~The Company incurs interest expense on the operating debt obtained to provide liquidity for its short-term receivables.~~

~~Depreciation and amortization -~~ The Company has identified those tangible and intangible assets directly associated with providing a service that generates revenue and records the depreciation and amortization associated with those assets under this category. Such assets include processing platforms and related infrastructure, acquired developed technology intangible assets, and other similar asset types.



	Three months ended March 31, 2018
(In thousands)	As Previously Reported			Brazil Adjustments		Other Immaterial Adjustments			As Revised
Net cash provided by operating activities	$	85,243		$	—	$	2,563		$	87,806
Effect of exchange rates on cash, cash equivalents and restricted cash	$	(2,577	)	$	—	$	1,990		$	(587	)
Cash, cash equivalents and restricted cash, beginning of period	$	526,938		$	—	$	(4,553	)	$	522,385

~~Table of Contents~~

~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~Other Operating Expenses~~

~~General and administrative -~~ General and administrative includes compensation and related expenses for the executive, finance and accounting, other information technology, human resources, legal and other corporate functions. Also included are corporate facilities expenses, certain third-party professional service fees and other corporate expenses.

~~Sales and marketing -~~ The Company’s sales and marketing expenses relate primarily to compensation, benefits, sales commissions and related expenses for sales, marketing and other related activities. With the adoption of Topic 606 effective January 1, 2018, certain payments to partners are now classified as sales and marketing expenses.

~~Depreciation and amortization -~~ The depreciation and amortization associated with tangible and intangible assets that are not considered to be directly associated with providing a service that generates revenue are recorded as other operating expenses. Such assets include corporate facilities and information technology assets and acquired intangible assets other than those included in cost of services.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



2.	Recent Accounting Pronouncements

The following table provides a brief description of accounting pronouncements adopted during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and recent accounting pronouncements that could have a material effect on our financial statements:



Standard	Description	Date/Method of Adoption	Effect on financial statements or other significant matters
Adopted During the ~~Six~~Three Months Ended ~~June 30, 2018~~March 31, 2019
ASU ~~2014–09~~	This standard supersedes most existing revenue recognition guidance under GAAP. The new revenue recognition standard requires entities to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.	~~The Company adopted this standard on January 1, 2018 using the modified retrospective approach to those contracts that were not completed as of January 1, 2018.~~ ~~Adoption resulted in a cumulative adjustment to retained earnings as of the effective date, without restatement of prior period amounts.~~	The Company’s revenue from discount and interchange, transaction processing and certain fees is within the scope of Topic 606. FASB and its Transition Resource Group have issued clarifications on various aspects of ASU 2014–09. There were three primary impacts to the Company resulting from the adoption of Topic 606, which are described below. Certain amounts paid to partners in our Fleet Solutions and Travel and Corporate Solutions segments have been determined to fall under the “cost to obtain a contract” guidance. As a result, these amounts, which were previously presented as a reduction of revenues, are now reflected within sales and marketing on our unaudited condensed consolidated statements of income. This change increased both reported revenues and expenses for the three and six months ended June 30, 2018 by approximately $16.2 million and $31.1 million, respectively. Network fees paid by all three of our segments, but primarily by our Travel and Corporate Solutions segment, are now presented as a reduction of revenues in our unaudited condensed consolidated statements of income. Prior to January 1, 2018, these amounts were included within service fees. This change reduced both reported revenues and expenses by approximately $4.4 million and $10.0 million for the three and six months ended June 30, 2018, respectively. Certain costs to obtain a contract, such as sales commissions, are to be capitalized and amortized over the life of the customer relationship, with a practical expedient available for contracts under one year in duration. The vast majority of the Company’s commissions will continue to be expensed as incurred. This change resulted in an immaterial impact to operating income for the three and six months ended June 30, 2018. As of January 1, 2018, we recorded $0.6 million cumulative-effect adjustment, net of the associated tax effect, related to the deferral of capitalizable costs to obtain a contract within our Health and Employee Benefit Solutions segment. These commissions are amortized to sales and marketing expense over a useful life that considers the contract term, our commission policy, renewal experience and the transfer of services to which the asset relates.

~~ASU 2017–07~~2016–02	This standard ~~changes the presentation of net benefit pension costs by requiring the disaggregation of certain of its components. Under the guidance, companies are required~~requires lessees to present the service cost component in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost will be presented in the income statement separately from the service cost componentrecognize leases on-balance sheet and ~~outside the subtotal of operating income, if one is presented. Additionally, only the service cost component will be eligible for capitalization under the new guidance.~~disclose key information about leasing arrangements.	The Company adopted ASU ~~2017–07~~2016–02 effective January 1, ~~2018.~~ 2019, using the modified retrospective approach, and all practical expedients permitted under the transition guidance.	In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016–02, Leases (Topic 842), which requires leases with a duration greater than twelve months to be recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. We adopted the new standard using the modified retrospective approach and have elected the package of practical expedients permitted under the transition guidance, including the hindsight practical expedients for expired or existing contracts, which allowed us to carryforward our historical determination of (i) whether a contract is or contains a lease, (ii) lease classification and (iii) initial direct costs. Additionally, we elected the practical expedients which allowed us to (i) not perform an allocation of lease and non-lease components for real estate leases, (ii) continue to account for short-term leases under Topic 840 and (iii) utilize our incremental borrowing rate (“IBR”), rather than the rate implicit in each lease, to calculate the present value of the remaining lease payments. As such, the unaudited condensed consolidated financial statements for the period ended March 31, 2019 are presented under the new standard, while comparative periods presented continue to be reported in accordance with Topic 840. The most significant impact of adoption was the recording of operating lease ROU assets and operating lease liabilities on our unaudited condensed consolidated balance sheets at January 1, 2019. Refer to Note 14, Leases, for more information. The standard did not materially impact our results of operations or cash flows.
ASU 2018–15	This standard clarifies the accounting for capitalizing implementation costs in a cloud computing arrangement that is a service contract. The standard provides that implementation costs be treated using the same criteria used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement.	Effective January 1, 2019, the Company early adopted ASU 2018–15 on a prospective basis.	Under the standard, we now capitalize implementation costs related to our cloud migration of technology platforms to the cloud. Such amounts are amortized over the lesser of the term of the hosting arrangement, considering any explicit renewal options for which we are reasonably certain to exercise, or the useful life of the underlying hosted software. We do not expect that adoption of this standard will have a material impact on our results of operations, cash flows or consolidated financial position.

~~Table of Contents~~

~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~



~~ASU 2016–18~~	This standard clarifies the classification and presentation of restricted cash in the statement of cash flows. Upon adoption, the statement of cash flows must explain the change during the period in the total of cash and cash equivalents and amounts described as restricted cash or cash equivalents.	~~The Company retrospectively adopted ASU 2016–18 effective January 1, 2018.~~	This retrospective adoption resulted in including restricted cash in cash, cash equivalents and restricted cash when reconciling the beginning of year and end of year amounts presented on the unaudited condensed consolidated statements of cash flows. A reconciliation of cash, cash equivalents and restricted cash as reported within our unaudited condensed consolidated balance sheets is included within our unaudited condensed consolidated statements of cash flows.

~~ASU 2016–01~~	This standard requires equity investments, except those accounted for under the equity method of accounting, or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income.	~~The Company adopted ASU 2016–01 effective~~ ~~January 1, 2018.~~	Changes in the fair value of investment securities are now reflected as non-operating income within our unaudited condensed consolidated statements of income. The adoption did not have a material impact on our results of operations, balance sheet or cash flows.
Not Yet Adopted as of ~~June 30, 2018~~March 31, 2019
ASU ~~2016–02 Leases (Topic 842)~~	This standard increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and quantitative disclosures are required.	~~The standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period using modified retrospective adoption.~~	The Company has established an ASU 2016–02 committee whose primary objectives include evaluating potential software solutions, reviewing and summarizing lease contracts, establishing completeness over the lease population, determining which practical expedients, if any, we will utilize to facilitate compliance and updating the Company’s accounting policies and procedures. We expect to recognize right-of-use assets and corresponding lease liabilities on the Company’s consolidated balance sheet following the adoption of ASU 2016–02, but the Company is not able to quantify the impact of adoption at this time. We are also evaluating the impact the standard will have on our consolidated statement of operations, consolidated statement of cash flows and related disclosures2016–13

~~ASU 2016–13 Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~	This standard requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses will be based on historical experience, current conditions and reasonable and supportable forecasts that impact the collectability of the reported amount.	The standard is effective ~~for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.~~January 1, 2020.	The Company is evaluating the impact the standard will have on its consolidated financial statements and related disclosures.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



3.	Revenue

~~The Company adopted~~In accordance with Topic 606, ~~on January 1, 2018, utilizing~~revenue is recognized when, or as, performance obligations are satisfied as defined by the ~~modified retrospective method. See Note 2, Recent Accounting Pronouncements, for further information regarding~~terms of the ~~adoption impact. Under~~contract, in an amount that reflects the ~~modified retrospective method, prior period comparable financial information continues~~consideration to which the Company expects to be ~~presented under the guidance of ASC 605,~~ ~~Revenue Recognition.~~ ~~Please see the Company’s Annual Report on Form 10–K~~entitled in exchange for ~~the year ended December 31, 2017 for our accounting policies applied to revenue recognition prior to adoption of Topic 606.~~

~~The impact of adopting Topic 606 for the three and six months ended June 30, 2018 was as follows:~~

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
(In thousands) Prior to Adoption Impact of Topic 606 As Reported Prior to Adoption Impact of Topic 606 As Reported
Revenues
Payment processing revenue $ 167,874
$ 10,864
$ 178,738
$ 327,504
$ 19,688
$ 347,192
Account servicing revenue 78,716
—
78,716
157,420
—
157,420
Finance fee revenue 51,573
—
51,573
101,255
—
101,255
Other revenue 60,822
1,027
61,849
118,315
1,523
119,838
Total revenues 358,985
11,891
370,876
704,494
21,211
725,705
Cost of services

Processing costs 76,306
—
76,306
155,928
—
155,928
Service fees 18,181
(4,372 ) 13,809
36,076
(10,047 ) 26,029
Provision for credit losses 11,505
—
11,505
25,495
—
25,495
Operating interest 9,528
—
9,528
18,013
—
18,013
Depreciation and amortization 20,612
—
20,612
41,045
—
41,045
Total cost of services 136,132
(4,372 ) 131,760
276,557
(10,047 ) 266,510
General and administrative 48,488
—
48,488
103,921
—
103,921
Sales and marketing 41,505
16,192
57,697
83,150
31,088
114,238
Depreciation and amortization 30,020
—
30,020
59,763
—
59,763
Operating income 102,840
71
102,911
181,103
170
181,273
Financing interest expense (25,505 ) —
(25,505 ) (52,842 ) —
(52,842 )
Net foreign currency loss (26,734 ) —
(26,734 ) (26,344 ) —
(26,344 )
Net unrealized gain on financial instruments 2,706
—
2,706
16,214
—
16,214
Income before income taxes 53,307
71
53,378
118,131
170
118,301
Income taxes 13,919
19
13,938
29,485
42
29,527
Net income 39,388
52
39,440
88,646
128
88,774
Less: Net income (loss) from non-controlling interest 142
—
142
843
—
843
Net income attributable to shareholders $ 39,246
$ 52
$ 39,298
$ 87,803
$ 128
$ 87,931

~~Topic 606 does not apply to rights~~goods or obligations associated with financial instruments, including the Company’s finance fee and interest income from banking relationships and cardholders, certain other fees associated with cardholder arrangements and commissions paid related to such agreements, which continue to be within the scope of ASC Topic 310, ~~Receivables~~ ~~(“Topic 310”).~~

services provided. The vast majority of the Company’s Topic 606 revenue is derived from stand-ready ~~obligations~~commitments to provide payment processing, transaction processing and SaaS services and support. Revenue is recognized based on the value of services transferred to date using a time elapsed output method. For payment processing and transaction processing, services are considered to be transferred when a transaction is captured and the Company has validated that the transaction has no errors. Point-in-time revenue recognized during the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 was not material.

Topic 606 does not apply to rights or obligations associated with financial instruments, including the Company’s finance fee and interest income from banking relationships and cardholders, certain other fees associated with cardholder arrangements and commissions paid related to such agreements, which continue to be within the scope of Topic 310, Receivables. In addition, gains on sale of WEX Latin America receivables are included in other revenue and are within the scope of ASC 860, Transfers and Servicing.

We disaggregate our revenue from contracts with customers by service-type for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See Note 18, Segment Information, for further information.

The following table disaggregates our consolidated revenue for the three months ended March 31, 2019:



	Three Months Ended March 31, 2019
(In thousands)	Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total
Topic 606 revenues
Payment processing revenue	$	107,408	$	59,998	$	19,392	$	186,798
Account servicing revenue	6,800		10,585		37,262		54,647
Other revenue	16,986		1,105		6,776		24,867
Total Topic 606 revenues	$	131,194	$	71,688	$	63,430	$	266,312

Non-Topic 606 revenues
Account servicing revenue	$	32,439	$	—	$	—	$	32,439
Finance fee revenue	45,864		357		152		46,373
Other revenue	23,285		9,603		3,864		36,752
Total non-Topic 606 revenues	$	101,588	$	9,960	$	4,016	$	115,564

Total revenues	$	232,782	$	81,648	$	67,446	$	381,876

Table of Contents

WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following ~~tables disaggregate~~table disaggregates our consolidated revenue for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018:

Three Months Ended June 30, 2018
(In thousands) Fleet Solutions Travel and Corporate Solutions Health and Employee Benefit Solutions Total
Topic 606 revenues
Payment processing revenue $ 112,895
$ 51,289
$ 14,554
$ 178,738
Account servicing revenue 5,384
8,995
26,702
41,081
Other revenue 10,525
1,206
5,274
17,005
Total Topic 606 revenues $ 128,804
$ 61,490
$ 46,530
$ 236,824

Topic 310 revenues
Account servicing revenue $ 37,635
—
—
$ 37,635
Finance fee revenue 45,188
228
6,157
51,573
Other revenue 29,843
14,046
955
44,844
Total Topic 310 revenues $ 112,666
$ 14,274
$ 7,112
$ 134,052

Total revenues $ 241,470
$ 75,764
$ 53,642
$ 370,876


	Six Months Ended June 30, 2018								Three Months Ended March 31, 2018
(In thousands)	Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total		Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total
Topic 606 revenues
Payment processing revenue	$	219,873	$	96,066	$	31,253	$	347,192	$	106,978	$	44,777	$	16,699	$	168,454
Account servicing revenue	13,850		18,464		53,727		86,041		8,466		9,469		27,025		44,960
Other revenue	27,567		2,323		13,416		43,306		17,042		1,117		8,142		26,301
Total Topic 606 revenues	$	261,290	$	116,853	$	98,396	$	476,539	$	132,486	$	55,363	$	51,866	$	239,715

Topic 310 revenues
Non-Topic 606 revenues
Account servicing revenue	$	71,379	—		—		$	71,379	$	33,744	—		—		$	33,744
Finance fee revenue	88,792		487		11,976		101,255		43,604		259		5,018		48,881
Other revenue	50,374		25,203		955		76,532		20,531		11,157		—		31,688
Total Topic 310 revenues	$	210,545	$	25,690	$	12,931	$	249,166
Total non-Topic 606 revenues									$	97,879	$	11,416	$	5,018	$	114,313

Total revenues	$	471,835	$	142,543	$	111,327	$	725,705	$	230,365	$	66,779	$	56,884	$	354,028

Payment Processing Revenue

Payment processing revenue consists primarily of interchange income. Interchange income is a fee paid by a merchant bank (“merchant”) to the card-issuing bank (generally the Company) in exchange for the Company facilitating and processing transactions with cardholders. Interchange fees are set by the card network. WEX processes transactions through both closed-loop and open-loop networks.

Our Fleet Solutions segment interchange income primarily relates to revenue earned on transactions processed through the Company’s proprietary closed-loop fuel networks. In closed-loop fuel network arrangements, written contracts are entered into between the Company and merchants, which determine the interchange fee charged on transactions. The Company extends short-term credit to the fleet cardholder and pays the merchant the purchase price for the ~~cardholder’s~~cardholder��s transaction, less the interchange fees the Company retains. The Company collects the total purchase price from the fleet cardholder. In Europe, interchange income is specifically derived from the difference between the negotiated price of fuel from the supplier and the agreed upon price paid by fleet cardholders.

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~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

Interchange income in our Travel and Corporate Solutions and Health and Employee Benefit Solutions segments relates to revenue earned on transactions processed through open-loop networks. In open-loop network arrangements, there are several intermediaries involved between the merchant and the cardholder, and written contracts do not exist between all parties involved in the ~~process do not exist.~~process. Rather, the transaction is governed by the rates determined by the payment network at the point-of-sale. This framework dictates the interchange rate, the risk of loss, dispute procedures and timing of payment. For these transactions, there is an implied contract between the Company and the merchant. In our Travel and Corporate Solutions segment, the Company remits payment to the card network for the purchase price of the cardholder transaction, less the interchange fees the Company earns. The Company collects the total purchase price from the cardholder. In our Health and Employee Benefit Solutions segment, funding of transactions and collections from cardholders is performed by third-party sponsor banks, who remit a portion of the interchange fee to us.

The Company has determined that the merchant is the customer as it relates to interchange income regardless of the type of network through which transactions are processed. The Company’s primary performance obligation to merchants is a stand-ready commitment to provide payment and transaction processing services as the merchant requires, which is satisfied over time in daily increments. Since the timing and quantity of transactions to be processed by us is not determinable, the total consideration is determined to be variable consideration. The variable consideration for our payment and transaction processing service is usage-based and therefore it specifically relates to our efforts to satisfy our obligation. The variability is satisfied each day the service is provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure interchange income on a daily basis based on the services that are performed on that day.

~~In determining the amount~~

Table of consideration received related to payment and transaction processing services provided, the Company assessed other intermediaries involved in the processing of transactions, including merchant acquirers, card networks, sponsor banks and third-party payment processors, and assessed whether the Company controls such services performed by other intermediaries according to principal-agent guidance in Topic 606. Based on this assessment, theContents

WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The Company determined that WEX does not control the services performed by merchant acquirers, card networks, ~~and~~ sponsor banks and online bill payment aggregators as each of these parties is the primary obligor for their portion of payment and transaction processing services performed. Therefore, interchange income is recognized net of any fees owed to these intermediaries. The Company determined that services performed by third-party payment processors are controlled by WEX as the Company is responsible for directing how the third-party payment processor authorizes and processes transactions on the Company’s behalf. Therefore, such fees paid to third-party payment processors are recorded as service fees within cost of services.

Additionally, the Company enters into contracts with certain large customers or strategic cardholders that provide for fee rebates tied to performance milestones. ~~The Company considered whether~~If such fee rebates constitute consideration payable to a customer or ~~other parties~~to another party that ~~purchase~~purchases services from the customer, ~~per Topic 606. If so, such fee rebates, which~~they are considered variable consideration and are recorded as a reduction in payment processing revenue in the same period that the related interchange income is recognized. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, such variable consideration totaled ~~approximately $222.7~~$198.7 million and ~~$421.2~~$198.5 million, respectively. ~~Fee~~Certain other fee rebates ~~made to certain other partners were determined to be~~that constitute costs to obtain a contract ~~and~~ are recorded as sales and marketing expenses.

Account Servicing Revenue

In our Fleet Solutions segment, account servicing revenue is primarily comprised of monthly fees charged to cardholders based on the number of vehicles serviced. These fees are primarily in return for providing monthly vehicle data reports and are recognized on a monthly basis as the service is provided. Additionally, account servicing revenue includes other fees recognized as revenue when assessed to the cardholder as part of the lending relationship, which is outside the scope of Topic 606. The Company also recognizes account servicing revenue related to reporting services on telematics hardware placements and permit sales to our over-the-road fleet customer base, both of which are within the scope of Topic 606.

In our Travel and Corporate Solutions segment, account servicing ~~reflects revenues earned from our AOC acquisition,~~ primarily ~~consisting~~consists of licensing fees for the use of our accounts receivable and accounts payable SaaS platforms.

In our Health and Employee Benefit Solutions segment, we ~~also~~ recognize account servicing fees for the per-participant per-month fee charged ~~per consumer~~ on our SaaS healthcare technology platform. Customers including health plans, third-party administrators, financial institutions and payroll companies typically enter into three to five year contracts, which contain significant termination penalties.

Our ~~primary performance obligation in our~~ Travel and Corporate Solutions and Health and Employee Benefit Solutions segments ~~is a stand-ready commitment to~~ provide SaaS services and support, which isare stand-ready commitments and are satisfied over time in a series of daily

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~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

increments. Revenue is recognized based on an output method ~~based~~ using days elapsed to measure progress as the Company transfers control evenly over each monthly subscription period.

Finance Fee Revenue

The Company earns revenue on overdue accounts, which is recognized as revenue at the time the fees are assessed. The finance fee 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. On occasion, these fees are waived to maintain customer goodwill. The established reserve for such waived amounts is estimated and offset against the late fee revenue recognized. ~~The Company engages in~~These waived fees amounted to $4.5 million and $4.4 million during the three months ended March 31, 2019 and 2018, respectively. Finance fee revenue includes amounts earned by the Company’s factoring business, which ~~is the purchase of~~purchases accounts receivable from ~~a third-party~~third parties at a discount. ~~The~~Through June 2018, the Company also ~~recognizes~~recognized finance fee revenue earned on the Company’s foreign salary advance product. ~~All finance fees listed above are~~Subsequently, the Company revised its WEX Latin America securitized debt agreement and recognizes gains on the sale of these receivables within ~~the scope of Topic 310 and are recognized at the time of assessment.~~“Other revenue” below. See Note 10, Off-Balance Sheet Arrangements, for further information on our WEX Latin America securitization.

Other Revenue

Other revenue includes transaction processing revenue, professional services including software development projects and ~~marketing~~other services sold subsequent to the core offerings, and the sales of telematics hardware, all of which isare within the scope of Topic 606. Revenue is recognized when control of the services or hardware is transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those services. In addition, international settlement fees and certain other cardholder fees (e.g. replacement card fees) and gains on sale of WEX Latin America receivables are included in other revenue. ~~These cardholder fees are within~~This revenue is outside the scope of Topic ~~310~~606 and ~~are~~is recognized upon completion of the related ~~service.~~service or the sale date of the receivables.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Contract Balances

The Company’s contract assets consist of upfront payments made to customers under long-term contracts and are recorded upon payment or when due. ~~These payments reduce revenue recognition in future periods, as the~~The resulting asset is amortized against revenue as the Company performs its obligations under these arrangements.

The Company’s contract liabilities consist of customer payments received before the Company has satisfied the associated performance obligations and upfront payments due to the customer.

The following table provides information about these contract ~~assets and liabilities from contracts with customers. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.~~balances.


(In thousands)
Contract balance	Location on the unaudited condensed consolidated balance sheets	June 30, 2018		January 1, 2018		Location on the unaudited condensed consolidated balance sheets	March 31, 2019		December 31, 2018
Receivables¹	Accounts receivable, net	$	29,233	$	30,386	Accounts receivable, net	$	41,092	$	32,949
Contract assets	Prepaid expenses and other current assets	$	7,341	$	7,053	Prepaid expenses and other current assets	$	5,576	$	3,819
Contract assets	Other assets	$	48,645	$	49,068	Other assets	$	20,280	$	19,232
Contract liabilities	Other current liabilities	$	23,481	$	26,592	Other current liabilities	$	6,594	$	7,612

¹The majority of the Company’s receivables, which are excluded from the table above, are either due from cardholders, who have not been deemed our customer as it relates to interchange income, or from revenues earned outside of the scope of ~~ASC~~ Topic 606.

~~Impairment losses recognized on our receivables and contract assets were immaterial for the three and six months ended June 30, 2018.~~ In the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, we recognized revenue of ~~$2.2 million and $5.3~~$2.8 million related to contract liabilities ~~as of~~at December 31, 2018. In the three months ended March 31, 2018, ~~and December 31, 2017, respectively.~~revenue recognized related to contract liabilities at January 1, 2018 was immaterial.

Remaining Performance Obligations

The Company’s unsatisfied, or partially unsatisfied performance obligations as of ~~June 30, 2018~~March 31, 2019 represent the remaining minimum monthly fees on a portion of contracts across the lines of business and contractually obligated professional services yet to be provided by the Company. It is not indicative of the Company’s future revenue, as it relates to an insignificant portion of the Company’s operations. ~~As allowed by Topic 606, the Company has elected to exclude from this disclosure the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

The following table includes revenue expected to be recognized ~~in the future~~ related to remaining performance obligations at the end of the reporting period.


(In thousands)	2018		2019		2020		2021		2022		Thereafter		Total		Remaining 2019		2020		2021		2022		2023		2024		Total
Minimum monthly fees¹	$	30,803	$	52,182	$	32,160	$	16,699	$	7,394	$	683	$	139,921	$	45,776	$	40,285	$	23,227	$	12,313	$	3,753	$	639	$	125,993
Professional services²	9,691		4,183		—		—		—		—		13,874		11,655		515		—		—		—		—		12,170
Total remaining performance obligations	$	40,494	$	56,365	$	32,160	$	16,699	$	7,394	$	683	$	153,795	$	57,431	$	40,800	$	23,227	$	12,313	$	3,753	$	639	$	138,163

¹The transaction price allocated to the remaining performance obligations represents the minimum monthly fees on certain service contracts, which contain substantive termination penalties that require the counterparty to pay the Company for the aggregate remaining minimum monthly fees upon an early termination for convenience.

² Includes software development projects and other services sold subsequent to the core offerings, to which the customer is contractually obligated.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



4.	~~Business Acquisition~~Acquisitions

~~AOC~~Asset Acquisition

~~Effective October 18, 2017~~,In December 2016, the Company entered into a contract with Chevron to issue and operate branded commercial fleet cards commencing in 2018. During October 2018, the Company entered into a definitive asset purchase agreement to acquire Chevron’s existing trade accounts receivable and customer portfolio from a third party for approximately $223.4 million, of which a portion will be paid during 2019. During 2018, the consideration paid consisted of approximately $162.8 million to acquire the customer portfolio, with $38.9 million paid into escrow for the carrying value of a portion of the accounts receivable at the date of purchase.

As of March 31, 2019, the deposits for the customer portfolio and accounts receivable are recorded in other assets and prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets, respectively. During the second quarter of 2019, when the Company obtains control of the customer portfolio and the customer accounts are converted onto the Company’s payment processing platform, the amounts will be reclassified to other intangible assets and accounts receivable, respectively. We will account for this transaction under the asset acquisition method of accounting.

Concurrently with entering into the asset purchase agreement, we modified a number of contract terms, including extending the term of Chevron’s agreement, which is the period that we will use to amortize the other intangible asset on a straight-line basis. Transaction costs related to the acquisition were insignificant and expensed as incurred.

Business Acquisitions

In both the three months ended March 31, 2019 and 2018, the acquisition and merger related costs related to completed business combinations were immaterial.

Discovery Benefits, Inc.

On March 5, 2019, the Company acquired ~~certain assets and assumed certain liabilities~~Discovery Benefits, an employee benefits administrator, for a total purchase price of ~~AOC, an industry leader~~$525.6 million, including $50 million which is payable in ~~commercial payments technology.~~January 2020. The acquisition of AOC, a longstanding technology provider for our virtual card product, will broaden our capabilities, increase our pool of employees with payments platform expertise and allow us to evolve with the needs of our customers and partners through the use of AOC’s payments processing technology platforms.

~~The Company purchased AOC for $129.8 million, which~~ was primarily funded with cash on hand and through borrowings under the 2016 Credit Agreement. The ~~Company records adjustments~~seller of Discovery Benefits obtained a 4.9 percent equity interest in the U.S. Health business. The fair value of the equity interest was determined to ~~the assets acquired and liabilities assumed throughout the measurement period, which may~~ be ~~up to one year from~~$100.0 million on the acquisition date. ~~The Company~~See Note 12, Redeemable Non-Controlling Interest, for further information.

This acquisition has obtained information to assist in determining the fair values of certain assets acquired and liabilities assumed since the acquisition, resulting primarily in the recording of other intangible assets and goodwill. Goodwill is calculatedbeen accounted for as the consideration in excess of net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized, including synergies derived from the acquisition. The goodwill and intangible assets recorded from thisa business combination, ~~were assigned~~with preliminary goodwill reflecting the comprehensive suite of products and services for our partners and customers and opening go-to-market channels to include consulting firms and brokers in our ~~Travel~~Health and ~~Corporate~~Employee Benefit Solutions segment.

~~During the second quarter of 2018, the Company assigned $21.6 million~~ The majority of the ~~purchase price to an acquired processing platform that~~goodwill associated with this acquisition is still under research and development and has not reached technological feasibility. While research and development continues, this asset will not be amortized. Additionally, it will be subjected to impairment testing at least annually, but more frequently if events of circumstances indicate that it is more likely than not that the asset is impaired. This intangible asset will considered indefinite lived until completion or abandonment of the project. The Company has not finalized the purchase accounting is still reviewing the valuation and tax basis of assets acquired and liabilities assumed in this business combination. Additionally, we are performing procedures to verify the completeness and accuracy of the data used in the independent valuation for intangible assets identified in the table below. The preliminary estimates could change significantly upon completion of this evaluation. The goodwill recognized in this business combination will be deductible for ~~income~~ tax purposes.

1916

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities ~~acquired:~~acquired, based on the estimated fair value at the date of acquisition:


(In thousands)	As Reported December 31, 2017			Measurement Period Adjustments			As Reported, June 30, 2018
Total consideration	$	129,828		$	—		$	129,828
Cash consideration, net of cash and restricted cash acquired of $125,865										$	249,781
Fair value of redeemable non-controlling interest										100,000
Deferred cash consideration										50,000
Total consideration, net of cash and restricted cash acquired										$	399,781
Less:
Cash	15,546			—			15,546
Accounts receivable	4,171			100			4,271			10,367
Property and equipment	2,530			(1,329		)	1,201			4,904
Customer relationships ^(a)	15,000			200			15,200
Developed technologies ^(b)	24,100			—			24,100
Trademarks and trade names ^(c)	1,460			10			1,470
In-process research and development	—			21,600			21,600
Customer relationships^(a)(d)										213,600
Developed technologies^(b)(d)										38,900
Trademarks and trade names^(c)(d)										13,800
Other assets										13,589
Accounts payable										(3,024		)
Accrued expenses										(7,399		)
Restricted cash payable										(125,346		)
Deferred income taxes										(22,200		)
Other liabilities	(685		)	(448		)	(1,133		)	(10,015		)
Recorded goodwill	$	67,706		$	(20,133	)	$	47,573		$	272,605

^(a)Weighted average life ~~– 9.0~~- 7.3 years.

^(b) Weighted average life ~~– 3.4~~- 5.4 years.

^(c)Weighted average life - 7.3 years.

^(d) The weighted average life of all amortizable intangible assets acquired in this business combination is 7.0 years.

Since the acquisition date, DBI has contributed $8.6 million in total revenues and $1.1 million income before income taxes to Company operations.

Noventis, Inc.

On January 24, 2019, the Company acquired Noventis, a long-time customer and electronic payments network focused on optimizing payment delivery for bills and invoices to commercial entities, for $343.1 million, which was primarily funded with cash on hand and through borrowings under the 2016 Credit Agreement. Excluded from the consideration is $5.6 million paid to certain Noventis shareholders who held unvested option awards at the acquisition date. The modification of these awards to accelerate the vesting resulted in the Company recording this expense as general and administrative expense in our unaudited condensed consolidated statement of income.

This acquisition, which expands our reach as a corporate payments supplier and provides more channels to billing aggregators and financial institutions in our Travel and Corporate Payment Solutions segment, was accounted for as a business combination, resulting in the recording of goodwill. The goodwill associated with this acquisition is not deductible for tax purposes.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following is a summary of the preliminary allocation of the purchase price to the assets and liabilities acquired, based on the estimated fair value at the date of acquisition:



(In thousands)
Total consideration, net of cash and restricted cash acquired of $51,538	$	291,564

Less:
Accounts receivable	23,002
Property and equipment	549
Network relationships^{(a) (c)}	100,900
Developed technologies^{(b) (c)}	15,000
Other assets	2,487
Accounts payable	(36,794		)
Deferred income tax liabilities	(24,121		)
Other liabilities	(2,518		)
Recorded goodwill	$	213,059

^(a) Weighted average life - 8.3 years.

^(b) Weighted average life - 2.9 years.

^(c) ~~Weighted average life – 4.3 years.~~

^{(a) (b) (c)}The weighted average life of ~~these amortized~~all amortizable intangible assets acquired in this business combination is ~~5.5~~7.6 years.

Since the acquisition date, Noventis has contributed $9.2 million in total revenues and $1.8 million loss before income taxes to Company operations.

Pavestone Capital, LLC

On February 14, 2019, the ~~operations~~Company acquired Pavestone Capital, a recourse factoring company that provides working capital to businesses, for a purchase price of ~~AOC contributed~~$28.1 million, subject to net ~~revenues~~working capital adjustments. This acquisition, which has been accounted for as a business combination, complements our existing factoring business and as a result the purchase price is primarily allocated to goodwill and accounts receivable in amounts of ~~approximately $6.7~~$12.8 million and ~~net loss~~$14.6 million, respectively. The goodwill associated with this acquisition is deductible for tax purposes.

Since the acquisition date, Pavestone Capital revenues and income before income taxes, ~~of approximately $0.6 million during the year ended December 31, 2017.~~which are recorded in our Fleet Solutions segment, were not material to Company operations. No pro forma information has been included in these financial statements as the operations of ~~AOC~~Pavestone Capital for the period that they were not part of the Company are not material to the Company’s revenues, net income and earnings per share.

The Company has not finalized the purchase accounting for Discovery Benefits, Noventis or Pavestone and is currently evaluating the tax basis and allocation of the net assets acquired. Additionally, the Company is performing a valuation of intangible assets acquired in the business combinations. The preliminary estimates could change significantly upon completion of these valuations.

Pro Forma Supplemental Information

The pro forma information below gives effect to the Discovery Benefits and Noventis acquisitions as if they had been completed on January 1, 2018. These pro forma results have been calculated after applying the Company’s accounting policies, adjustments to reflect amortization associated with intangibles acquired and interest expense associated with the incremental borrowings under the 2016 Credit Agreement used to fund the acquisition and related income tax results. The pro forma financial information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes to be reasonable but not necessarily indicative of future results of operations or the results that would have been reported if the acquisitions had been completed on January 1, 2018.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following represents unaudited pro forma operational results as if the acquisitions had occurred January 1, 2018:



	Three Months Ended March 31,
	2019		2018
Total revenues	$	400,982	$	381,826
Net income attributable to shareholders	$	18,810	$	42,487
Net income attributable to WEX Inc. per share:
Basic	$	0.44	$	0.99
Diluted	$	0.43	$	0.98

GO Fuel Card

On March 26, 2019, the Company entered into an agreement to acquire Go Fuel Card, a European fuel card business, for a total purchase price of €235.0 million (equivalent of $265.5 million on date of agreement). We expect that this acquisition will strengthen our position in the European market and reduce our sensitivity to retail fuel prices. This transaction is expected to close late in the second quarter or early in the third quarter of 2019, subject to regulatory approvals and other customary closing conditions.



5.	Accounts Receivable

In general, the Company’s trade receivables provide for payment terms of 30 days or less. Receivables not paid within the terms of the agreement are generally subject to late fees based upon the outstanding receivable balance.

The Company extends revolving credit to certain small ~~fleets. These accounts are also subject to late fees, and balances that are not paid in full~~fleets, which are subject to interest charges based on the revolving ~~balance.~~balance not paid in full. The Company had approximately ~~$18.0~~$43.0 million and ~~$12.2~~$18.9 million in receivables with revolving credit balances as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The increase in revolving credit balances during the three months ended March 31, 2019 was due to the onboarding of a significant customer portfolio.

Concentration of Credit Risk

The receivables portfolio consists of a large group of homogeneous smaller balances across a wide range of industries, which are collectively evaluated for impairment. No one customer receivable balance represented 10 percent or more of the outstanding receivables balance at ~~June 30, 2018~~March 31, 2019 or December 31, ~~2017.~~2018. The following table presents the outstanding balance of trade accounts receivable that are less than 30 and 60 days past due, in each case, as a percentage of total trade accounts receivable:


Delinquency Status	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
29 days or less past due	98	%	95	%	96	%	95	%
59 days or less past due	99	%	97	%	98	%	98	%

Reserves for Accounts Receivable

Receivables are generally written off when they are 150 days past due or upon declaration of bankruptcy of the customer. The reserve for credit losses is primarily calculated by an analytic model that also takes into account other factors, such as the actual charge-offs for the preceding reporting periods, expected charge-offs and recoveries for the subsequent reporting periods, a review of past due accounts receivable balances, changes in payment patterns, known fraudulent activity in the portfolio, as well as leading economic and market indicators.

2019

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table presents changes in the accounts receivable allowances:


	Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2018			2017			2019			2018
Balance, beginning of year	$	30,207		$	20,092		$	46,948		$	33,387
Provision for credit losses	25,495			28,313			17,791			14,226
Charges to other accounts¹	9,556			7,779			4,533			4,442
Charge-offs	(38,232		)	(33,050		)	(24,800		)	(19,221		)
Recoveries of amounts previously charged-off	3,505			3,349			2,215			1,926
Currency translation	(284		)	275			55			99
Balance, end of period	$	30,247		$	26,758		$	46,742		$	34,859

¹The Company earns revenue by assessing monthly finance fees on accounts with overdue balances. These fees are recognized as revenue at the time the fees are assessed. The finance fee 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. On occasion, these fees are waived to maintain relationship goodwill. Charges to other accounts represents the offset against the late fee revenue recognized when the Company establishes a reserve for such waived amounts.



6.	Earnings per Share

Basic earnings per share is computed by dividing net income attributable to shareholders by the weighted average number of shares of common stock and vested deferred stock units (“DSUs”) outstanding during the year. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options ~~the~~and assumed issuance of unvested ~~restricted stock units and deferred stock units, and unvested~~ performance-based ~~restricted stock units~~awards for which the performance condition has been met as of the date of determination using the treasury stock method unless the effect is anti-dilutive. The treasury stock method assumes that proceeds, including cash received from the exercise of employee stock options and the average unrecognized compensation expense for unvested share-based compensation awards, would be used to purchase the Company’s common stock at the average market price during the period.

The following table summarizes net income attributable to shareholders and reconciles basic and diluted shares outstanding used in the earnings per share computations:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(In thousands)	2018		2017		2018		2017		2019		2018
Net income attributable to shareholders	$	39,298	$	17,090	$	87,931	$	46,491	$	16,134	$	51,970

Weighted average common shares outstanding – Basic	43,181		43,002		43,116		42,937		43,220		43,049
Dilutive impact of share-based compensation awards	365		58		408		153		352		401
Weighted average common shares outstanding – Diluted	43,546		43,060		43,524		43,090		43,572		43,450

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and March 31, 2018, ~~and June 30, 2017,~~ an immaterial number of outstanding share-based compensation awards were excluded from the computation of diluted earnings per share, as the effect of including these awards would be anti-dilutive.



7.	Derivative Instruments

The Company is exposed to certain market risks relating to its ongoing business operations. From time to time, the Company enters into derivative instrument arrangements to manage various risks including interest rate ~~risk, foreign exchange risk and commodity price~~ risk.

~~Interest Rate Swap Agreements~~

~~During 2016 and 2017,~~As of December 31, 2018 we ~~entered into five~~had four interest rate swap ~~contracts. Collectively, these derivative~~ contracts ~~are intended~~in effect with a notional amount at inception collectively of $1.0 billion, with maturity dates from December 30, 2020 to ~~fix~~December 31, 2022, at interest rates between 1.108 percent and 2.212 percent. On March 12, 2019, the ~~future~~Company entered into three additional interest ~~payments associated with $1.3 billion of our variable~~ rate ~~borrowings at between 0.896% and 2.212%. At June 30, 2018, we had variable-rate borrowings of $1.7 billion under our 2016 Credit Agreement.~~swap contracts.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table presents the notional amounts, fixed ~~and variable~~ interest rates and maturities of the interest rate swap agreements ~~are as follows:~~entered into during the three months ended March 31, 2019:

Tranche A

Tranche B

Tranche C

Tranche D

Tranche E

Tranche A

Tranche B

Tranche C

Notional amount at inception (in thousands)

$300,000

$200,000

$400,000

$150,000

$250,000

$150,000

$100,000

$200,000

Amortization

N/A

5% annually

N/A

Maturity date

12/30/2022

12/31/2020

12/31/2018

3/12/2022

3/12/2023

Fixed interest rate

2.204%

2.212%

1.108%

1.125%

0.896%

2.41750%

2.42500%

2.41325%

Collectively, as of March 31, 2019, these outstanding interest rate swap contracts are intended to fix the future interest payments associated with $1.5 billion of our variable rate borrowings. At March 31, 2019, we had variable-rate borrowings of $2.4 billion under our 2016 Credit Agreement.

The following table presents information on the location and amounts of interest rate swap gains and losses:


(In thousands)		Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income Statement	2018		2017			2018		2017			Location of Gain (Loss) Recognized in Income Statement	2019			2018
Interest rate swap agreements – unrealized portion	Net unrealized gain (loss) on financial instruments	$	3,944	$	(2,264	)	$	17,452	$	(699	)	Net unrealized (loss) gain on financial instruments	$	(12,209	)	$	13,508
Interest rate swap agreements – realized portion	Financing interest income (expense)	$	1,363	$	(77	)	$	1,676	$	(620	)	Financing interest income	$	2,116		$	313

See Note 11, Fair Value, for more information regarding the valuation of the Company’s interest rate swaps.



8.	Deposits

WEX Bank has issued certificates of deposit with maturities ranging from ~~four weeks~~one year to ~~three~~five years, with interest rates ranging from ~~1.15%~~1.30 percent to ~~2.90%~~3.52 percent as of ~~June 30, 2018~~both March 31, 2019 and ~~from 1.00% to 2.15% as of~~ December 31, ~~2017.~~2018. WEX Bank may issue brokered deposits, subject to FDIC rules governing minimum financial ratios, which include risk-based asset and capital requirements. As of ~~June 30, 2018,~~March 31, 2019, all brokered deposits were in denominations of $250 thousand or less, corresponding to FDIC deposit insurance limits.

The Company requires deposits from certain customers as collateral for credit that has been extended. These deposits are generally non-interest bearing. Interest-bearing brokered money market deposits are issued ~~in denominations of $250 thousand or less, and pay interest~~ at variable rates based on LIBOR or the Federal Funds rate. Money market deposits may be withdrawn by the holder at any time, although notification may be required and the monthly number of transactions is limited. Interest-bearing brokered money market deposits, ~~and~~ customer deposits and certificates of deposit with maturities within one year are classified as short-term deposits on our unaudited condensed consolidated balance sheets.

WEX Bank is required to maintain reserves against a percentage of certain customer deposits by keeping balances with the Federal Reserve Bank. The required reserve based on the outstanding customer deposits was $11.2 million and $11.1 million at March 31, 2019 and December 31, 2018, respectively.

The following table presents the composition of deposits:


(In thousands)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Interest-bearing brokered money market deposits	$	317,685		$	285,899		$	238,940		$	283,790
Customer deposits	77,000			70,211			128,402			138,072
Certificates of deposit with maturities within 1 year ^(a)	433,558			630,879			467,996			505,582
Short-term deposits	828,243			986,989			835,338			927,444
Certificates of deposit with maturities greater than 1 year and less than 5 years ^(a)	326,303			306,865			300,349			345,231
Total deposits	$	1,154,546		$	1,293,854		$	1,135,687		$	1,272,675

Weighted average cost of funds on certificates of deposit outstanding	1.85		%	1.51		%	2.40		%	2.36		%
Weighted average cost of interest-bearing brokered money market deposits	2.12		%	1.49		%	2.55		%	2.49		%

^(a)Certificates of deposit are classified as short-term or long-term within our unaudited condensed consolidated balance sheets based on maturity date.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Sources of Funds

ICS Purchases

WEX Bank participates in the ICS service offered by Promontory Interfinancial Network, which allows WEX Bank to purchase brokered money market demand accounts and demand deposit accounts in an amount not to exceed $125.0 million as part of a one-way buy program. ~~At June 30, 2018, the~~There were no outstanding ~~balance~~balances for ICS purchases ~~totaled $50.0 million, which purchases are classified as interest-bearing brokered money market deposits in the table above. As of~~at March 31, 2019 and December 31, ~~2017, the company had made no such ICS purchases.~~2018.



9.	Financing and Other Debt

The following table summarizes the Company’s total outstanding debt:


(In thousands)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Revolving line-of-credit facility under 2016 Credit Agreement ^(a)	$	—		$	136,535		$	169,206		$	—
Term loans under 2016 Credit Agreement ^(a)	1,737,723			1,602,875			2,279,213			1,745,084
Notes outstanding ^(a)	400,000			400,000			400,000			400,000
Securitized debt	144,533			126,901			105,932			106,872
Participation debt	204,493			184,990			55,677			114,849
Borrowed federal funds	44,000			—			591			—
WEX Latin America debt	7,889			9,747			17,052			16,242
Total gross debt	$	2,538,638		$	2,461,048		$	3,027,671		$	2,383,047

Current portion of gross debt	$	387,228		$	404,233		$	192,736		$	223,241
Less: Unamortized debt issuance costs	(7,690		)	(7,015		)	(8,379		)	(6,724		)
Short-term debt, net	$	379,538		$	397,218		$	184,357		$	216,517

Long-term gross debt	$	2,151,410		$	2,056,815		$	2,834,935		$	2,159,806
Less: Unamortized debt issuance costs	(26,301		)	(29,063		)	(25,574		)	(25,883		)
Long-term debt, net	$	2,125,109		$	2,027,752		$	2,809,361		$	2,133,923

Supplemental information under 2016 Credit Agreement:
Letters of credit ^(b)	$	53,731		$	27,500		$	53,534		$	53,514
Borrowing capacity ^(c)	$	516,269		$	405,965
Borrowing capacity on revolving credit facility^(c)							$	547,260		$	666,486

^(a)See Note 11, Fair Value, for more information regarding the Company’s 2016 Credit Agreement and ~~notes outstanding.~~Notes.

^(b) Collateral for lease agreements, virtual card and fuel payment processing activity at the Company’s foreign ~~subsidiaries~~subsidiaries.

^(c) Contingent on maintaining compliance with the financial covenants as defined in the Company’s 2016 Credit ~~Agreement~~Agreement.

2016 Credit Agreement

~~The~~As of December 31, 2018, the 2016 Credit Agreement, ~~provides~~as amended, provided for a secured tranche A ~~and~~term loan in an original principal amount of $480.0 million, a secured tranche B term loan ~~facilities~~ in ~~amounts equal to $455.0~~an original principal amount of $1,335.0 million and ~~$1,335.0 million respectively, and~~ a ~~$570.0~~$720.0 million secured revolving credit facility, with a $250.0 million sublimit for letters of credit and $20.0 million sublimit for swingline loans. Under the 2016 Credit Agreement, ~~amounts due under~~ the ~~revolving credit facility~~Company has granted a security interest in substantially all of the assets of the Company, subject to exceptions including the assets of WEX Bank and the tranche A term loan facility mature in July 2021, while amounts due under the tranche B term loan facility mature in July 2023. Prior to maturity, amounts borrowed under the credit facility will be reduced by mandatory quarterly payments of $5.7 million and $3.4 million for tranche A and tranche B term loan facilities, respectively.certain foreign subsidiaries.

On January ~~17, 2018,~~18, 2019, the Company ~~repriced the secured term loans under~~entered into a Fifth Amendment to the 2016 Credit Agreement, which ~~reduced~~provided additional tranche A term loans in the ~~applicable interest rate margin~~principal amount of $300 million, increasing the outstanding principal on the tranche A term loans to $723.7 million as of such date. In addition, subject to certain conditions, the Fifth Amendment provided delayed draw commitments for ~~the Company’s~~an incremental $275.0 million tranche BA term loan ~~facility by 50 basis points for both Eurocurrency Rate (as defined in~~and an incremental $25.0 million of revolving credit commitments (subject to conversion of the ~~2016 Credit Agreement) borrowings~~delayed draw incremental tranche A term loan commitments and ~~base rate borrowings and increased~~incremental revolving credit commitments to commitments of the ~~outstanding amounts on these tranche B term loans from $1,182.0 million to $1,335.0 million. In addition, the repricing made certain~~ other ~~changes to the 2016 Credit Agreement, including increasing the maximum consolidated leverage ratio for both the period of December 31, 2018 through September 30,~~type). On March 5, 2019, ~~and upon the occurrence of an acquisition meeting certain specified criteria, permitting the incurrence of unsecured indebtedness as long as~~ the Company isdrew down this commitment in ~~pro forma compliance with~~order to fund the ~~financial covenants, resetting the six month soft call period for a repricing~~acquisition of ~~the~~Discovery Benefits, consisting of $250.0 million of tranche B Aterm loans and ~~resetting and amending the test for~~an incremental ~~loans. Following~~$50.0 million of revolving credit commitments.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Amounts due under the ~~repricing,~~2016 Credit Agreement mature in July 2023, subject to earlier maturity as more fully described below. Prior to maturity, amounts borrowed under the ~~applicable interest rate margin~~credit facility will be reduced by mandatory quarterly payments of $12.5 million and $3.4 million for ~~the~~tranche A and tranche B term loan facilities, respectively.

The revolving loans ~~was set at 2.25% for Eurocurrency borrowings~~ and ~~1.25% for base rate borrowings.~~

~~As of June 30, 2018, amounts~~tranche A loans outstanding under the 2016 Credit Agreement ~~bore~~bear interest at variable rates, at the Company’s option, plus an applicable margin determined based on the Company’s consolidated leverage ratio. The tranche B loans bear interest at a variable rate ~~equal to the Eurocurrency Rate~~ plus a margin ~~of 2.00% with respect~~equal to ~~the tranche A term loan facility,~~2.25 percent for base rate loans and ~~2.25% with respect to the tranche B term loan facility (with the Eurocurrency Rate subject to a 0.00% floor).~~1.25 percent for eurocurrency rate loans. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, amounts outstanding under the 2016 Credit Agreement bore a weighted average effective interest rate of ~~4.4~~4.6 percent and ~~4.2~~4.7 percent, respectively.

The Company accounted for the January 2018 repricing as both a debt extinguishment and debt modification by evaluating the refinancing on a creditor by creditor basis. During the first quarter of 2018, the Company recorded a loss on extinguishment of debt of $1.1 million related to the write-off of unamortized debt issuance costs and incurred general and administrative expenses of $3.0 million related to third-party costs associated with the modified debt. The loss on extinguishment and third-party costs are reflected as financing interest expense and service fees, respectively, within our unaudited condensed consolidated statements of income. In addition, the Company incurred and capitalized $2.9 million of new debt issuance costs related to the repricing.

The Company maintains interest rate swap agreements to manage the interest rate risk associated with its outstanding variable-interest rate borrowings under the 2016 Credit Agreement. See Note 7, Derivative Instruments, for further discussion.

The Company accounted for the January 2019 Credit Agreement amendment as a debt modification. As part of this transaction, the Company incurred and expensed $4.4 million of third party costs, which are classified within general and administrative expenses in our unaudited condensed consolidated statements of income. In addition, the Company incurred and capitalized $3.4 million of lender costs associated with the January 2019 debt amendment. These debt issuance costs are being amortized into interest expense over the 2016 Credit Agreement’s term using the effective interest method.

Debt Covenants

As more fully described in the Company’s Annual Report on Form ~~10–~~10–K for the year ended December 31, ~~2017,~~2018, the 2016 Credit Agreement and the Indenture contain covenants that limit the ability of the Company and its subsidiaries, including its restricted subsidiaries and, in certain limited circumstances, WEX Bank and the Company’s other regulated subsidiaries, to (i) incur additional debt, (ii) pay dividends or make other distributions on, redeem or repurchase capital stock, or make investments or other restricted payments, (iii) enter into transactions with affiliates, (iv) dispose of assets or issue stock of restricted subsidiaries or regulated subsidiaries, (v) create liens on assets, or (vi) effect a consolidation or merger or sell all, or substantially all, of the Company’s assets. As of ~~June 30, 2018,~~March 31, 2019, the Company was in compliance with all material covenants of its 2016 Credit Agreement and the Indenture.

Notes Outstanding

As of both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company had $400.0 million of ~~4.75%~~4.75 percent fixed-rate senior notes outstanding, which will mature on February 1, 2023. Interest is payable semiannually in arrears on February 1 and August 1 of each ~~year, commencing on August 1, 2013.~~year.

Australian Securitization Facility

The Company ~~has entered into~~maintains a ~~one year~~ securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, ~~Ltd expiring~~Ltd., which expires April 2019. Subsequent to March 31, 2019, this agreement was extended through April 2020. Under the terms of the agreement, each month, on a revolving basis, the Company sells certain of its Australian receivables to the Company’s Australian Securitization Subsidiary. The Australian Securitization Subsidiary, in turn, uses the receivables as collateral to issue asset-backed commercial paper (“securitized debt”) for approximately 85 percent of the securitized receivables. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for general corporate purposes.

The Company pays a variable interest rate on the outstanding balance of the securitized debt, based on the Australian Bank Bill Rate plus an applicable margin. The interest rate was ~~2.87%~~2.90 percent and ~~2.53%~~2.89 percent as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The Company had ~~$91.1~~$78.7 million and ~~$90.0~~$87.0 million of securitized debt under this facility as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

~~WEX Latin America Securitization Facility~~

During the second quarter of 2017, WEX Latin America entered into a securitized debt agreement to sell certain unsecured receivables associated with our salary payment card product to an investment fund managed by an unrelated third-party financial institution. Under the terms of the agreement, the investment fund’s purchase price incorporates a discount relative to the face value of the transferred receivables.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

This securitization arrangement does not meet the derecognition conditions and accordingly WEX Latin America continues to report the transferred receivables in our unaudited condensed consolidated balance sheets with no change in the basis of accounting. Additionally, we recognize the cash proceeds received from the investment fund and record offsetting securitized debt in our unaudited condensed consolidated balance sheets.

During the six months ended June 30, 2018, WEX Latin America paid $2.6 million in exchange for a non-controlling equity investment in the securitization facility. This equity investment is recorded within other assets in our unaudited condensed consolidated balance sheets.

The Company had $30.1 million and $19.0 million of securitized debt under this facility as of June 30, 2018 and December 31, 2017, respectively. During the three and six months ended June 30, 2018, the Company recognized approximately $2.3 million and $4.4 million, respectively, of operating interest under this financing arrangement. Operating interest for the three and six months ended June 30, 2017 was immaterial.

European Securitization Facility

On April 7, 2016, the Company entered into a ~~five-year~~five year securitized debt agreement with the Bank of Tokyo-Mitsubishi UFJ, Ltd. Under the terms of the agreement, the Company sells certain of its receivables from selected European countries to its European Securitization Subsidiary. The European Securitization Subsidiary, in turn, uses the receivables as collateral to issue securitized debt. The amount collected on the securitized receivables is restricted to pay the securitized debt and is not available for general corporate purposes. The amounts of receivables to be securitized under this agreement ~~will be~~is determined by management on a monthly basis. The interest rate was ~~1.14~~0.87 percent and ~~1.11~~0.98 percent as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The Company had ~~$23.3~~$26.4 million and ~~$17.9~~$18.0 million of securitized debt under this facility as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

Participation Debt

~~Historically,~~From time to time, WEX Bank ~~maintained three separate~~enters into participation agreements with third-party banks to fund ~~customer~~customers’ balances that ~~exceeded~~exceed WEX Bank’s lending limit to an individual ~~customer. In June 2018, WEX Bank entered into a fourth participation agreement with a third-party bank to fund an additional customer’s balance.~~customers. Associated unsecured borrowings carry a variable interest rate of 1 month to 3 month LIBOR plus a margin of 225 basis points.

The ~~balance of~~following table provides the amounts outstanding under the participation debt ~~was approximately $204.5 million and $185.0 million at~~agreements in place:



	March 31, 2019					December 31, 2018
(In thousands)	Amounts Outstanding			Remaining Funding Capacity		Amounts Outstanding			Remaining Funding Capacity
Short-term debt, net^(a)	$	5,677		$	124,323	$	64,849		$	65,151
Long-term debt, net^(b)	$	50,000		$	—	$	50,000		$	—

Average interest rate	4.85		%			4.30		%

^(a)Amounts outstanding under agreements terminating on June 30, ~~2018~~2019 and ~~December 31, 2017, respectively. The~~on demand.

^(b)Amounts outstanding ~~commitment as of June 30, 2018 will mature in amounts of $85.0 million and $50.0 million~~under an agreement terminating on August ~~28, 2018 and August~~ 31, ~~2020, respectively, with the remaining $69.5 million maturing on demand.~~2020.

Borrowed Federal Funds

WEX Bank borrows from ~~lines of credit on a~~uncommitted federal funds ~~rate basis~~lines to supplement the financing of ~~its~~the Company’s accounts receivable. ~~There were $44.0 million of borrowings against these~~Our federal funds lines of credit were $327.4 million and $309.0 million as of ~~June 30,~~March 31, 2019 and December 31, 2018, ~~bearing~~respectively. As of March 31, 2019 there were outstanding borrowings of $0.6 million at an interest ~~at 2.13% and~~rate of 2.64 percent. There were no outstanding borrowings as of December 31, ~~2017. As of June 30, 2018, the Company’s federal funds available lines of credit was $106.0 million.~~2018.

WEX Latin America Debt

WEX Latin America had debt of approximately ~~$7.9~~$17.1 million and ~~$9.7~~$16.2 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. This is comprised of credit facilities and loan arrangements related to our accounts receivable. ~~The average interest rate was 16.9 percent and 21.2 percent as of June 30, 2018 and December 31, 2017, respectively.~~ These borrowings are recorded in short-term debt, net on the Company’s unaudited condensed consolidated balance ~~sheets for~~sheets. As of March 31, 2019 and December 31, 2018, the ~~periods presented.~~interest rate was 24.74 percent and 23.59 percent, respectively.



10.	Off–Balance Sheet ~~Arrangement~~Arrangements

WEX Europe Services Accounts Receivable Factoring

During the first quarter of 2017, WEX Europe Services entered into a factoring arrangement with an unrelated third-party financial institution (the “Purchasing ~~Bank.”~~Bank”). Under this arrangement, the Purchasing Bank establishes a credit limit for each customer account. The factored receivables are without recourse to the extent that the customer balances are maintained at or below the established credit limit. For customer receivable balances in excess of the Purchasing Bank’s credit limit, the Company maintains the risk of default. Additionally, there are no indications of the Company’s continuing involvement in the factored receivables.

~~Table of Contents~~

~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

The Company obtained a ~~true sale~~true-sale opinion from an independent attorney, which states that the factoring agreement provides legal isolation upon ~~seller~~WEX Europe Services bankruptcy or receivership under local law and creates a sale of receivables for amounts transferred both below and above the established credit limits. As such, transfers under this arrangement are treated as sales and

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

are accounted for as reductions in trade receivables because the agreements transfer effective control of the receivables to the Purchasing Bank. The Company records the proceeds as cash provided by operating activities.

The Company sold approximately ~~$190.7~~$150.0 million and ~~$360.9~~$170.2 million of receivables under this arrangement during the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and March 31, 2018, respectively. Proceeds received are recorded net of applicable expenses, interest and commissions. The loss on factoring was ~~$1.2~~$0.8 million and ~~$2.3~~$1.1 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018, respectively, ~~and immaterial for the three and six months ended June 30, 2017,~~ and was recorded within cost of services in the unaudited condensed consolidated statements of income. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017, the Company had associated factoring~~2018, an immaterial amount of outstanding transferred receivables ~~of approximately $75.4 million and $61.8 million, respectively, of which approximately $4.6 million and $3.7 million, respectively,~~ were in excess of the established credit limit. Charge-backs on balances in excess of the credit limit during the three ~~and six~~ months ended March 31, 2019 and during the three months ended March 31, 2018 were insignificant.

WEX Bank Accounts Receivable Factoring

In August 2018, WEX Bank entered into a receivables purchase agreement with an unrelated third-party financial institution to sell certain of our trade receivables under non-recourse transactions. WEX Bank continues to service the receivables post-transfer with no participating interest. The Company obtained a true-sale opinion from an independent attorney, which states that the factoring agreement provides legal isolation upon WEX Bank bankruptcy or receivership under local law. As such, transfers under this arrangement are treated as a sale and are accounted for as a reduction in trade receivables because the agreements transfer effective control of the receivables to the buyer.

The Company sold approximately $2.0 billion of receivables under this arrangement during the three months ended March 31, 2019. Proceeds from the sale, which are reported net of a negotiated discount rate, are recorded in operating activities within the Company’s unaudited condensed consolidated statement of cash flows. The loss on factoring was $0.6 million for the three months ended March 31, 2019 and was recorded within cost of services in the unaudited condensed consolidated statements of income.

WEX Latin America Securitization of Receivables

During the second quarter of 2017, WEX Latin America entered into a securitized debt agreement to transfer certain unsecured receivables associated with our salary payment card product to an investment fund managed by an unrelated third-party financial institution. WEX Latin America holds a non-controlling equity interest in the investment fund. During the three months ended March 31, 2019, the Company did not make equity contributions to the investment fund.

As of December 31, 2017 and through June 30, 2018, this securitization arrangement did not meet the derecognition conditions due to continuing involvement with the transferred assets and accordingly WEX Latin America reported the transferred receivables and securitized debt on our unaudited condensed consolidated balance sheets. During the three months ended March 31, 2018, the Company recognized approximately $2.1 million of operating interest expense under this financing arrangement.

During the third quarter of 2018, the securitization agreements were ~~insignificant. There were no charge-backs on balances~~amended, resulting in ~~excess~~the Company giving up effective control of the ~~credit limit during~~transferred receivables to the buyer. Additionally, the Company received a true-sale opinion from an independent attorney stating that the amended agreements provide legal isolation upon WEX Latin America bankruptcy or receivership under local law. As such, transfers under this arrangement are treated as a sale and are accounted for as a reduction in trade receivables.

During the three ~~and six~~ months ended ~~June 30, 2017.~~March 31, 2019, the Company sold $20.7 million of receivables and recognized a $3.7 million gain on sale, consisting of the difference between the sales price and the carrying value of the receivables, which is recorded within other revenue in our unaudited condensed consolidated statement of income. Cash proceeds from the transfer of these receivables is reflected as an operating activity within our unaudited condensed consolidated statement of cash flows.



11.	Fair Value

The Company holds mortgage-backed securities, fixed-income securities, money market funds, derivatives (see Note 7, Derivative Instruments) and certain other financial instruments that are carried at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market quotes are not readily accessible or available. Various factors are considered in determining the fair value of the Company’s obligations, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options and derivatives; price activity for equivalent instruments; and the Company’s own credit standing.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Instruments whose significant value drivers are unobservable.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. We did not have any transfers between Level 1 and Level 2 of the fair value hierarchy during either of the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 or ~~June 30, 2017.~~March 31, 2018.

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~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company’s ~~assets and liabilities~~financial instruments that are measured at fair ~~value and the related hierarchy levels:~~value:


(In thousands)	Fair Value Hierarchy	June 30, 2018		December 31, 2017		Fair Value Hierarchy	March 31, 2019		December 31, 2018
Assets
Financial Assets:
Money market funds^(a)						1	$	5,991	$	71,228
Investment securities
Municipal bonds	2	$	469	$	534	2	$	334	$	404
Asset-backed securities	2	328		345		2	271		279
Mortgage-backed securities	2	279		305		2	268		260
Fixed-income mutual fund	1	21,894		22,174		1	23,899		23,463
Investment securities ^(a)		$	22,970	$	23,358
Total investment securities							$	24,772	$	24,406
Executive deferred compensation plan trust ^(b)	1	$	6,946	$	6,798	1	$	7,585	$	6,398
Interest rate swaps ^(c)	2	$	31,674	$	19,595
Interest rate swaps ^(d)(c)						2	$	10,805	$	17,994

Liabilities
Interest rate swaps ^(d)(c)	2	$	—	$	5,373
Interest rate swaps^(d)						2	$	5,020	$	—

^(a)~~Not deemed available for current operations~~The fair value is recorded in cash and ~~have been classified as long-term assets.~~cash equivalents.

^(b) The fair value ~~of these instruments~~ is recorded in prepaid expenses and other ~~assets.~~current assets and other assets based on the timing of payment obligations.

^(c)The fair value ~~of these instruments~~ is recorded in prepaid expenses and other current assets or other assets depending on the timing of expected discounted cash flows.

^(d)The fair value ~~of these instruments~~ is recorded in other current liabilities ~~based~~or other liabilities depending on the timing of expected discounted cash flows.

Money Market Funds

A portion of the Company’s cash and cash equivalents are invested in a money market fund that primarily consists of short-term government securities, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market prices in an active market.

Investment Securities

When available, the Company uses quoted market prices to determine the fair value of investment securities; such inputs are classified as Level 1 of the fair-value hierarchy. These securities primarily consist of an open-ended mutual fund, which is invested in fixed-income securities and is held in order to satisfy the regulatory requirements of WEX Bank. For mortgage-backed and asset-backed debt securities and municipal bonds, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally valued using Level 2 inputs.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Executive Deferred Compensation Plan Trust

The ~~obligations related to~~investments held in the executive deferred compensation plan trust are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active markets.

Interest Rate Swaps

The Company determines the fair value of its interest rate swaps based on the discounted cash flows of the difference between the projected fixed payments on the swaps and the implied floating payments using the current LIBOR curve, which are Level 2 inputs of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Notes Outstanding

The Notes outstanding had a fair value of ~~$402.0~~$399.0 million and ~~$410.0~~$392.0 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. The fair value of the Notes is based on market rates for the issuance of our debt and is classified as Level 2 in the fair value hierarchy.

2016 Credit Agreement

The Company determines the fair value of the amount outstanding under its 2016 Credit Agreement based on the market rates for the issuance of the Company’s debt, which are Level 2 inputs in the fair value hierarchy. As of both ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the carrying value of the 2016 Credit Agreement approximated its fair value.

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~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

Other Assets and Liabilities

~~The carrying values of~~Our financial instruments, other than those presented above, include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities. The carrying values of such assets and liabilities approximate their respective fair values due to ~~the~~their short-term ~~nature of such instruments.~~nature. The carrying values of certificates of deposit, interest-bearing brokered money market deposits, securitized debt, participation debt and borrowed federal funds approximate their respective fair values, as the interest rates on these financial instruments are variable market-based rates. All other financial instruments are reflected at fair value on the unaudited condensed consolidated balance sheets.



12.	Redeemable Non-Controlling Interest

On March 5, 2019, the Company acquired Discovery Benefits, an employee benefits administrator. The seller of Discovery Benefits obtained a 4.9 percent equity interest in the newly formed parent company of WEX Health and Discovery Benefits (“the U.S. Health business”). The seller’s 4.9 percent non-controlling interest in WEX Health and DBI was initially established at carrying value and fair value, respectively. On the date of acquisition, the excess of the fair value of the 4.9 percent equity interest in WEX Health over its carrying value was recognized as an equity transaction, resulting in a $41.4 million increase to additional paid-in capital.

The agreement provides the seller with a put right and the Company with a call right for the equity interest, which can be exercised no earlier than five and seven years following the date of acquisition, respectively. Upon exercise of the put or call right, the purchase price is calculated based on a revenue multiple of peer companies (as defined in the agreement) applied to trailing twelve month revenues of the U.S. Health business. The put option makes the non-controlling interest redeemable and, therefore, the non-controlling interest is classified as temporary equity outside of stockholders’ equity. The redeemable non-controlling interest is reported at the higher of its redemption value or the non-controlling interest holder’s proportionate share of the U.S. Health business’ net carrying value.

Subsequent remeasurement of the equity interest to fair value resulted in an increase to redeemable non-controlling interest of $41.4 million and an offsetting decrease to retained earnings that did not impact earnings per share. As of March 31, 2019, the carrying amount for this redeemable non-controlling interest was greater than the redemption value, resulting in no adjustment to reflect the non-controlling interest at redemption value. Subsequent increases or decreases in the redemption value of the non-controlling interest will be offset against retained earnings and impact earnings per share.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table presents the changes in the Company’s redeemable non-controlling interest:



(In thousands)	Three months ended March 31, 2019
Balance, beginning of period	$	—
Acquisition of Discovery Benefits at fair value	25,757
Establishing redeemable non-controlling interest for WEX Health at carrying value	32,843
Adjustment to redeemable non-controlling interest to reflect WEX Health at fair value	41,400
Net loss attributable to redeemable non-controlling interest	(7		)
Balance, end of period	$	99,993



13.	Income Taxes

The Company’s effective tax rate was ~~26.1 percent and 25.0~~26.4 percent for the ~~second~~first quarter ~~and first half~~ of ~~2018, respectively,~~2019 as compared to ~~39.0 percent and 35.5~~25.2 percent for the ~~second~~first quarter ~~and first half~~ of ~~2017, respectively.~~2018. The ~~decline~~increase in our tax rate was primarily due to the ~~2017 Tax Act, which reduced the U.S. federal corporate income~~increase in unrecognized tax ~~rate from 35 percent to 21 percent effective January 1, 2018.~~benefits in 2019.

During the fourth quarter of 2017, the Company recorded a provisional amount of one-time income tax benefit of $60.6 million associated with the 2017 Tax Act and it has not changed at June 30, 2018. This estimate may be impacted by further analysis and future clarification and guidance regarding available taxWhile our accounting methods and elections, earnings and profits computations and state tax conformity to federal tax changes. As of June 30, 2018, we are still evaluating the effects of the Global Intangible Low Taxed Income (“GILTI”) provisions as guidance and interpretations continue to emerge. However, we do not expect the impact to be material to our financial statements. We have not determined the accounting policy of either treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred, or factoring such amounts into the Company’s measurement of its deferred taxes. However, the standard requires that we reflectfor the impact of the ~~GILTI provisions~~2017 Tax Cut and Jobs Act (“TCJA”) as ~~a period expense until~~of December 31, 2018 was deemed to be complete, amounts recorded were based on prevailing regulations and available information as of December 31, 2018. Additional guidance issued by the ~~accounting policy is finalized. Therefore, we have included the provisional estimate of GILTI related~~Internal Revenue Service (“IRS”) may continue to ~~current year operations in~~impact our ~~estimated annual effective tax rate and will update the impact and accounting policy as the analysis related to the GILTI provisions is completed.~~recorded amounts after December 31, 2018.

Undistributed earnings ~~and profits~~ of certain foreign subsidiaries of the Company amounted to ~~$76.6~~$77.0 million and ~~$58.7~~$64.9 million at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. These earnings and profits are considered to be indefinitely reinvested. The 2017 Tax Act imposes a one-time “transition tax” on foreign undistributed earnings and profits, which will be included with our 2017 U.S. Income Tax Return. At December 31, 2017, the Company estimated the transition tax and recorded a provisional transition tax obligation of $9.1 million. However, the Company is continuing to gather additional information to more precisely compute the amount of the transition tax and our provisional estimate could change. The Company intends to offset the “transition tax” liability with tax attributes. For the period ending June 30, 2018, except for GILTI, as indicated above, the Company did not record United States federal income tax on its share of the income of its foreign subsidiaries. Upon distribution of these earnings ~~and profits~~ in the form of dividends or otherwise, the Company would be subject to withholding taxes payable, where applicable, to foreign countries, ~~where applicable, and to certain state income taxes,~~ but would have no further federal income tax liability.



~~13.~~14.	Leases

We have operating leases for buildings, primarily for office space. For building leases with terms greater than twelve months, we account for lease and non-lease components as a single lease component. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Short-term lease payments are recognized on a straight-line basis and variable short-term lease payments are recognized in the period in which the obligation is incurred. We determine whether or not a contract contains a lease at inception of the contract. Many of our lease agreements contain renewal or termination clauses that we factor into our determination of the lease term if we are reasonably certain to exercise any such options.

The following table presents supplemental balance sheet information related to our leases:



(In thousands)	Balance Sheet Location	March 31, 2019
Assets
Operating lease ROU assets	Other assets	$	80,806
Liabilities
Current operating lease liabilities	Other current liabilities	12,135
Non-current operating lease liabilities	Other liabilities	80,320
Total lease liabilities		$	92,455

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table presents the weighted average remaining lease term and discount rate:



Operating leases	March 31, 2019
Weighted average remaining term (in years)	8.7
Weighted average discount rate	4.6	%

The following table presents the maturities of our lease liabilities:



(In thousands)	March 31, 2019
Remaining 2019	$	12,070
2020	15,275
2021	14,810
2022	13,420
2023	11,238
2024 and thereafter	47,688
Total lease payments	$	114,501
Less: Imputed interest	22,046
Total lease obligations	$	92,455
Less: Current portion of lease obligations	12,135
Long-term lease obligations	$	80,320

In addition to the total lease obligations presented in the table above, we have a 14 year building operating lease with undiscounted payment obligations of $30.0 million that is expected to commence during 2020.

We recognized $4.0 million of operating lease expense during the three months ended March 31, 2019, which includes immaterial short-term leases and variable lease costs. These amounts are classified as general and administrative expense on our unaudited condensed consolidated statements of income.

The following table presents supplemental cash flow and other information related to our leases:



(In thousands)	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,075
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	14,646



15.	Commitments and Contingencies

Litigation

The Company is subject to legal proceedings and claims in the ordinary course of business. As of the date of this filing, the current estimate of a reasonably possible loss contingency from all legal proceedings is not material to the Company’s consolidated financial position, results of operations, cash flows or liquidity.

Commitments

Significant commitments and contingencies as of ~~June 30, 2018~~March 31, 2019 are consistent with those discussed in Note ~~18,~~19, Commitments and Contingencies, to the consolidated financial statements in the Annual Report on Form 10–K for the year ended December 31, ~~2017.~~2018.



~~14.~~16.	Stock–Based Compensation

The fair value of restricted stock units (“RSUs”), ~~deferred stock units (“DSUs”),~~DSUs, performance-based restricted stock units (“PBRSUs”), and service-based ~~stock options and market performance-based~~ stock options awarded during the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 totaled ~~$2.7~~$38.1 million, ~~and $30.1 million, respectively,~~ as compared to ~~$17.2~~$27.4 million ~~and $45.3 million, respectively,~~ for the three ~~and six~~ months ended ~~June 30, 2017. Grant activity during~~March 31, 2018. The fair value of RSUs, DSUs and PBRSUs is based on the ~~three and six months ended June 30, 2017 includes certain~~closing market ~~performance-based stock options awarded to members~~price of ~~senior management.~~

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~The fair value of RSUs, DSUs and PBRSUs is based on the closing market price of~~ the Company’s stock on the grant date as reported by the NYSE. The fair value of each service-based stock option award is estimated on the grant date using a Black-Scholes-Merton option-pricing model. During the first half of 2017, we granted performance-based stock options for which we estimated the grant date fair value using a Monte-Carlo simulation model that simulated a distribution of future stock price paths based on historical volatility levels.

The table below ~~summarizes~~presents the ~~assumptions used to calculate the~~weighted average fair value of service-based stock options by year of ~~grant:~~grant and the assumptions used in estimating those fair values:


							2019			2018
Weighted average fair value							$	58.28		$	51.27
	2018			2017
Weighted average expected life (in years)	6.0			6.0			6.0			6.0
Weighted average exercise price	$	158.23		$	104.95		$	184.81		$	158.23
Expected stock price volatility	27.35		%	30.67		%	27.21		%	27.35		%
Risk-free interest rate	2.69		%	2.13		%	2.37		%	2.69		%
Weighted average fair value	$	51.27		$	35.58



~~15.~~17.	Restructuring Activities

~~Restructuring~~

In the first quarter of 2015, the Company commenced a restructuring initiative (the “2015 Restructuring Initiative”) as a result of its global review of operations. The review of operations identified certain initiatives to further streamline the business, improve the Company’s efficiency and globalize the Company’s operations, all with an objective to improve scale and increase profitability going forward. The Company continued its efforts to improve its overall operational efficiency and began a second restructuring initiative (the “2016 Restructuring Initiative”) during the second quarter of 2016. In connection with the EFS acquisition, the Company initiated a third restructuring program in the third quarter of 2016 (the “Acquisition Integration Restructuring Initiative”).

~~The~~Total restructuring ~~expenses related~~charges incurred to date under these initiatives, which primarily ~~consist~~consisted of employee costs and office closure costs, ~~directly associated with the respective programs. The Company has determined the amount~~were $24.8 million as of expenses related to these initiatives is probable and reasonably estimable. As such, the Company has recorded the impact on the unaudited condensed consolidated statements of income and in accrued expenses and current liabilities on the unaudited condensed consolidated balance sheets.March 31, 2019. Restructuring charges incurred ~~to date under these initiatives~~during the three months ended March 31, 2019 and 2018 were ~~$24.7 million as of June 30, 2018.~~

~~The majority of the balances under these initiatives are expected to be paid through 2018.~~immaterial. Based on current plans, which are subject to change, the ~~amount of additional restructuring costs that the~~ Company ~~expects~~does not expect to incur any material charges under these ~~initiatives is immaterial.~~

~~The following table presents the Company’s 2015 Restructuring Initiative liability:~~

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2018 2017 2018 2017
Balance, beginning of period $ 2,337
$ 5,231
$ 2,680
$ 5,231
Restructuring (reversals) charges (33 ) 1,223
(47 ) 1,533
Cash paid (1,082 ) (2,488 ) (1,491 ) (2,836 )
Liability transfer to 2016 Restructuring Initiative —
(1,158 ) —
(1,158 )
Impact of foreign currency translation (79 ) 200
1
238
Balance, end of period $ 1,143
$ 3,008
$ 1,143
$ 3,008

~~Table of Contents~~

~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~The following table presents the Company’s 2016 Restructuring Initiative liability:~~

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2018 2017 2018 2017
Balance, beginning of period $ 438
$ 3,202
$ 738
$ 3,662
Restructuring charges 34
219
30
(314 )
Cash paid (41 ) (487 ) (356 ) (487 )
Liability transfer from 2015 Restructuring Initiative —
1,158
—
1,158
Impact of foreign currency translation (21 ) 250
(2 ) 323
Balance, end of period $ 410
$ 4,342
$ 410
$ 4,342

~~The following table presents the Company’s Acquisition Integration Restructuring Initiative liability:~~

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2018 2017 2018 2017
Balance, beginning of period $ 201
$ 2,139
$ 5,093
$ 1,764
Restructuring charges 54
234
239
941
Cash paid (222 ) (889 ) (5,323 ) (1,479 )
Other —
(151 ) 22
107
Impact of foreign currency translation (1 ) —
1
—
Balance, end of period $ 32
$ 1,333
$ 32
$ 1,333

~~The following table presents the Company’s total restructuring liability:~~

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2018 2017 2018 2017
Balance, beginning of period $ 2,976
$ 10,572
$ 8,511
$ 10,657
Restructuring charges 55
1,676
222
2,160
Cash paid (1,345 ) (3,864 ) (7,170 ) (4,802 )
Other —
(151 ) 22
107
Impact of foreign currency translation (101 ) 450
—
561
Balance, end of period $ 1,585
$ 8,683
$ 1,585
$ 8,683
initiatives.



~~16.~~18.	Segment Information

~~Operating~~The Company determines its operating segments ~~are defined as components of an enterprise about which separate financial~~and reports information ~~is available and is evaluated regularly by~~in accordance with how the Company’s chief operating decision maker (“CODM”) ~~in deciding how to allocate~~allocates resources and ~~assess~~assesses performance. The Company’s CODM is its Chief Executive Officer. The operating segments are aggregated into the three reportable segments described below.

Fleet Solutions primarily provides customers with payment and transaction processing services specifically designed for the needs of commercial and government fleets. This segment also provides information management services to these fleet customers.

Travel and Corporate Solutions focuses on the complex payment environment of business-to-business payments, providing customers with payment processing solutions for their corporate payment and transaction monitoring needs.

Health and Employee Benefit Solutions provides healthcare payment products and SaaS consumer directed platforms, as well as payroll related benefits to customers.

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following tables present the Company’s reportable segment ~~results:~~revenues:


	Three Months Ended June 30, 2018								Three Months Ended March 31, 2019
(In thousands)	Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total		Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total
Revenues
Payment processing revenue	$	112,895	$	51,289	$	14,554	$	178,738	$	107,408	$	59,998	$	19,392	$	186,798
Account servicing revenue	43,019		8,995		26,702		78,716		39,239		10,585		37,262		87,086
Finance fee revenue	45,188		228		6,157		51,573		45,864		357		152		46,373
Other revenue	40,368		15,252		6,229		61,849		40,271		10,708		10,640		61,619
Total revenues	$	241,470	$	75,764	$	53,642	$	370,876	$	232,782	$	81,648	$	67,446	$	381,876

Interest income	$	1,040	$	122	$	6,321	$	7,483	$	2,221	$	377	$	159	$	2,757


	Three Months Ended June 30, 2017								Three Months Ended March 31, 2018
(In thousands)	Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total		Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total
Revenues
Payment processing revenue	$	87,678	$	40,276	$	13,400	$	141,354	$	106,978	$	44,777	$	16,699	$	168,454
Account servicing revenue	41,311		167		24,199		65,677		42,210		9,469		27,025		78,704
Finance fee revenue	36,552		159		5,374		42,085		43,604		259		5,018		48,881
Other revenue	34,763		14,398		5,607		54,768		37,573		12,274		8,142		57,989
Total revenues	$	200,304	$	55,000	$	48,580	$	303,884	$	230,365	$	66,779	$	56,884	$	354,028

Interest income	$	696	$	315	$	5,495	$	6,506	$	995	$	421	$	5,967	$	7,383

Six Months Ended June 30, 2018
(In thousands) Fleet Solutions Travel and Corporate Solutions Health and Employee Benefit Solutions Total
Revenues
Payment processing revenue $ 219,873
$ 96,066
$ 31,253
$ 347,192
Account servicing revenue 85,229
18,464
53,727
157,420
Finance fee revenue 88,792
487
11,976
101,255
Other revenue 77,941
27,526
14,371
119,838
Total revenues $ 471,835
$ 142,543
$ 111,327
$ 725,705

Interest income $ 2,035
$ 543
$ 13,089
$ 15,667

Six Months Ended June 30, 2017
(In thousands) Fleet Solutions Travel and Corporate Solutions Health and Employee Benefit Solutions Total
Revenues
Payment processing revenue $ 173,940
$ 75,151
$ 28,641
$ 277,732
Account servicing revenue 77,380
322
49,514
127,216
Finance fee revenue 72,981
382
12,094
85,457
Other revenue 66,826
26,858
11,152
104,836
Total revenues $ 391,127
$ 102,713
$ 101,401
$ 595,241

Interest income $ 1,820
$ 361
$ 12,354
$ 14,535

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~~WEX INC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~In evaluating~~The CODM evaluates the financial performance of each segment ~~the CODM reviews~~using segment adjusted operating income, which excludes: (i) acquisition and divestiture related items (including acquisition-related intangible amortization); (ii) debt restructuring costs; (iii) stock-based compensation; (iv) restructuring and other costs; and (v) ~~certain impairment charges.~~unallocated corporate expenses. Additionally, we do not allocate foreign currency gains and losses, financing interest expense, unrealized and realized gains and losses on ~~derivative~~financial instruments, income taxes and net gains or losses from non-controlling ~~interest~~interests to our operating segments.

Effective January 1, 2018, the Company revised how it allocates certain costs in its measure of segment adjusted operating income. The primary change is how the Company allocates information technology and corporate related costs to its segments. Certain information technology and corporate related costs that support multiple segments, which were previously included in Fleet Solutions, are now being allocated to the segment that they support. Certain residual unallocated corporate costs represent the portion of expenses relating to general corporate functions including acquisition expenses, certain finance, legal, information technology, human resources, administrative, executive and other expenses. These expenses are recorded in unallocated corporate expenses, as these items are centrally and directly controlled and are not included in internal measures of segment operating performance. Segment results for the three and six months ended June 30, 2017 have been recast to conform to the current presentation as described above.

~~The following table reconciles segment adjusted operating income to income before income taxes:~~

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2018 2017 2018 2017
Segment adjusted operating income
Fleet Solutions $ 113,725
$ 91,037
$ 215,633
$ 175,020
Travel and Corporate Solutions 34,448
21,516
59,697
40,702
Health and Employee Benefit Solutions 13,323
12,191
31,962
30,390
Total segment adjusted operating income $ 161,496
$ 124,744
$ 307,292
$ 246,112

Reconciliation:
Total segment adjusted operating income $ 161,496
$ 124,744
$ 307,292
$ 246,112
Less:
Unallocated corporate expenses 15,044
12,823
28,964
25,121
Acquisition-related intangible amortization 34,921
38,114
70,157
76,093
Other acquisition and divestiture related items 619
239
1,256
2,374
Debt restructuring costs 466
—
3,481
—
Stock-based compensation 6,905
7,414
15,860
13,871
Restructuring and other costs 630
2,398
6,301
4,145
Impairment charge —
16,175
—
16,175
Operating income 102,911
47,581
181,273
108,333
Financing interest expense (25,505 ) (28,547 ) (52,842 ) (55,695 )
Net foreign currency (loss) gain (26,734 ) 10,525
(26,344 ) 18,967
Net unrealized gain (loss) on financial instruments 2,706
(2,264 ) 16,214
(699 )
Income before income taxes $ 53,378
$ 27,295
$ 118,301
$ 70,906

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WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table reconciles segment adjusted operating income to income before income taxes:



	Three Months Ended March 31,
(In thousands)	2019			2018
Segment adjusted operating income
Fleet Solutions	$	92,975		$	107,973
Travel and Corporate Solutions	34,387			25,249
Health and Employee Benefit Solutions	19,780			18,071
Total segment adjusted operating income	$	147,142		$	151,293

Reconciliation:
Total segment adjusted operating income	$	147,142		$	151,293
Less:
Unallocated corporate expenses	16,942			13,920
Acquisition-related intangible amortization	33,888			35,236
Other acquisition and divestiture related items	9,780			637
Debt restructuring costs	4,400			3,015
Stock-based compensation	10,442			8,955
Restructuring and other costs	2,755			5,671
Operating income	68,935			83,859
Financing interest expense	(31,112		)	(27,337		)
Net foreign currency (loss) gain	(3,885		)	390
Net unrealized (loss) gain on financial instruments	(11,912		)	13,508
Income before income taxes	$	22,026		$	70,420



~~17.~~19.	Supplementary Regulatory Capital Disclosure

The Company’s subsidiary, WEX Bank, is subject to various regulatory capital requirements administered by the FDIC and the Utah Department of Financial Institutions. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, WEX Bank must meet specific capital guidelines that involve quantitative measures of WEX Bank’s assets, liabilities and certain off-balance sheet items. WEX Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can ~~result in the initiation of~~initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a material ~~adverse~~ effect on our business, results of operations and financial condition.

Quantitative measures established by regulation to ensure capital adequacy require WEX Bank to maintain minimum

amounts and ratios as defined in the regulations. As of ~~June 30, 2018 and December~~March 31, ~~2017,~~2019, the most recent FDIC exam report categorized WEX Bank ~~met all~~as “well capitalized” under the ~~requirements~~regulatory framework for prompt corrective action. There are no conditions or events subsequent to ~~be deemed “well-capitalized” pursuant to FDIC regulation and for purposes~~that examination report that management believes have changed WEX Bank’s capital rating.

Table of ~~the Federal Deposit Insurance Act.~~Contents

WEX INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table presents WEX Bank’s actual and regulatory minimum capital amounts and ~~ratios are presented in the following table:~~ratios:


(In thousands)	Actual Amount		Ratio		Minimum for Capital Adequacy Purposes Amount		Ratio		Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions Amount		Ratio		Actual Amount		Ratio		Minimum for Capital Adequacy Purposes Amount		Ratio		Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions Amount		Ratio
June 30, 2018
March 31, 2019
Total Capital to risk-weighted assets	$	334,555	12.09	%	$	221,347	8.0	%	$	276,683	10.0	%	$	317,780	12.01	%	$	211,640	8.0	%	$	264,550	10.0	%
Tier 1 Capital to average assets	$	321,557	11.56	%	$	111,265	4.0	%	$	139,082	5.0	%	$	302,413	10.92	%	$	110,746	4.0	%	$	138,432	5.0	%
Common equity to risk-weighted assets	$	321,557	11.62	%	$	124,507	4.5	%	$	179,844	6.5	%	$	302,413	11.43	%	$	119,048	4.5	%	$	171,958	6.5	%
Tier 1 Capital to risk-weighted assets	$	321,557	11.62	%	$	166,010	6.0	%	$	221,347	8.0	%	$	302,413	11.43	%	$	158,730	6.0	%	$	211,640	8.0	%
December 31, 2017
December 31, 2018
Total Capital to risk-weighted assets	$	316,129	13.38	%	$	188,991	8.0	%	$	236,239	10.0	%	$	323,178	12.82	%	$	201,749	8.0	%	$	252,186	10.0	%
Tier 1 Capital to average assets	$	304,555	12.50	%	$	97,452	4.0	%	$	121,815	5.0	%	$	305,734	10.88	%	$	112,401	4.0	%	$	140,501	5.0	%
Common equity to risk-weighted assets	$	304,555	12.89	%	$	106,308	4.5	%	$	153,555	6.5	%	$	305,734	12.12	%	$	113,484	4.5	%	$	163,921	6.5	%
Tier 1 Capital to risk-weighted assets	$	304,555	12.89	%	$	141,743	6.0	%	$	188,991	8.0	%	$	305,734	12.12	%	$	151,312	6.0	%	$	201,749	8.0	%

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information that will assist the reader with understanding our financial statements, the changes in key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting estimates affect our financial statements. The discussion also provides information about the financial results of the three segments of our business to provide a better understanding of how those segments and their results affect our financial condition and results of operations as a whole. Additionally, certain corporate costs not allocated to our operating segments are discussed below.

Our MD&A is presented in the following sections:

Overview

Summary

Results of Operations

Liquidity, ~~and~~ Capital Resources and Cash Flows

Critical Accounting Policies and Estimates

Recently Adopted Accounting Standards

This discussion should be read in conjunction with our audited consolidated financial statements as of December 31, ~~2017,~~2018, the notes accompanying those financial statements and MD&A as contained in our Annual Report on Form 10–K filed with the SEC on March ~~1, 2018~~18, 2019, our Form 10–K/A filed with the SEC on March 20, 2019, and in conjunction with the unaudited condensed consolidated financial statements and notes in Part I – Item 1 of this report. 2018 amounts have been revised to reflect the immaterial revision as more fully described in Part I – Item 1 – Note 1, Basis of Presentation, of our unaudited condensed consolidated financial statements.

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Overview

WEX Inc. is a leading provider of corporate payment solutions. We have expanded the scope of our business into a multi-channel provider of corporate payment solutions. We currently operate in three business segments: Fleet Solutions, Travel and Corporate Solutions and Health and Employee Benefit Solutions. Our business model enables us to provide exceptional payment security and control across a spectrum of payment sectors. The Fleet Solutions segment provides customers with fleet vehicle payment processing services specifically designed for the needs of commercial and government fleets. Fleet Solutions revenue is earned primarily from payment processing, account servicing and financing fees. Management estimates that WEX fleet cards are accepted at over 90 percent of fuel locations in each of the United States and ~~Australia.~~Australia, as well as wide acceptance in Europe. The Travel and Corporate Solutions segment focuses on the complex payment environment of business-to-business payments, providing customers with payment processing solutions for their corporate payment and transaction monitoring needs. The Health and Employee Benefit Solutions segment provides healthcare payment products and SaaS platform consumer-directed healthcare payments, as well as payroll related benefits to customers in Brazil.

The Company’s U.S. operations include WEX Inc. and our wholly-owned subsidiaries WEX Bank, WEX FleetOne, EFS and ~~WEX Health.~~the U.S. Health business. Our international operations include our wholly-owned operations, WEX Fuel Cards Australia, WEX Prepaid Cards Australia, WEX Canada, WEX New Zealand, WEX Asia, WEX Europe Limited, WEX Latin America and a controlling interest in WEX Europe Services Limited and its subsidiaries.

~~Effective January 1,~~

Summary

Below are selected items from the first quarter of 2019:

Average number of vehicles serviced increased 14 percent from the first quarter of 2018 to approximately 13.1 million for the first quarter of 2019, resulting entirely from organic growth.

Total fuel transactions processed increased 7 percent from the first quarter of 2018 to 140.5 million for the first quarter of 2019. Total payment processing transactions in our Fleet Solutions segment increased 5 percent to 115.4 million for the first quarter of 2019 as compared to the same period last year resulting entirely from organic growth.

The average U.S. fuel price per gallon during the first quarter of 2019 was $2.67, a 4 percent decrease from the same period last year.

Our Travel and Corporate Solutions’ purchase volume grew to $8.4 billion for the first quarter of 2019, an increase of 6 percent from the same period last year, driven primarily by our Noventis acquisition and growth in our corporate payment products.

Our Health and Employee Benefit Solutions’ average number of U.S. SaaS accounts grew by approximately 1.9 million, an 18 percent increase from the same period in the prior year, due primarily to a strong 2019 open enrollment season. Likewise, U.S. purchase volume grew by $154.2 million, a 10 percent increase from the same period of the prior year.

Our effective tax rate was 26.4 percent for the first quarter of 2019 as compared to 25.2 percent in the same period last year. The increase in our tax rate was primarily due to the increase in unrecognized tax benefits in 2019.

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Results of Operations

The Company does not allocate foreign currency gains and losses, financing interest expense, unrealized and realized gains and losses on financial instruments, income taxes and net gains or losses from non-controlling interests to our operating segments as management believes these items are unpredictable and can obscure underlying trends. In addition, the Company ~~modified the presentation of~~does not allocate certain ~~line~~corporate expenses to our operating segments, as these items ~~in its unaudited condensed consolidated statements of income. Under the new presentation, costs of services~~ are ~~segregated from other operating expenses. Operating expenses have been reclassified into functional categories in order~~centrally controlled and are not directly attributable to ~~provide additional detail into the underlying drivers of changes in~~any reportable segment.

The Company’s operating expenses ~~and align its presentation with industry practice. This revised presentation did not result in a change to~~consist of the ~~presentation of revenues, non-operating expenses or other statement of income captions or a change to previously reported revenues, operating income, income before income taxes or net income.~~

~~Sources of Operating Expense~~following:

Cost of Services

Processing costs - The Company’s processing costs consist of expenses related to processing transactions, servicing customers and merchants and cost of goods sold related to hardware and other product sales.

Service fees - The Company incurs costs from third-party networks utilized to deliver payment ~~solutions; additionally,~~solutions. Additionally, other third-parties are utilized in performing services directly related to generating revenue. ~~With the adoption of Topic 606 effective January 1, 2018, fees paid to third-party payment processing networks are no longer recorded as service fees and are now presented as a reduction of revenues.~~

Provision for credit losses - Changes in the reserve for credit loss are the result of changes in management’s estimate of the losses in the Company’s outstanding portfolio of receivables, including losses from fraud.

Operating interest - The Company incurs interest expense on the operating debt obtained to provide liquidity for its short-term receivables.

Depreciation and amortization - The Company has identified those tangible and intangible assets directly associated with providing a service that generates revenue and records the depreciation and amortization associated with those assets under this category. Such assets include processing platforms and related infrastructure, acquired developed technology intangible assets and other similar asset types.

Other Operating Expenses

General and administrative - General and administrative includes compensation and related expenses for ~~the~~ executive, finance and accounting, other information technology, human resources, legal and other corporate functions. Also included are corporate facilities expenses, certain third-party professional service fees and other corporate expenses.

Sales and marketing - The Company’s sales and marketing expenses relate primarily to compensation, benefits, sales commissions and related expenses for sales, marketing and other related activities. ~~With the adoption of Topic 606 effective January 1, 2018, certain payments to partners are now classified as sales and marketing expenses.~~

Depreciation and amortization - The depreciation and amortization associated with tangible and intangible assets that are not considered to be directly associated with providing a service that generates revenue are recorded as other operating expenses. Such assets include corporate facilities and information technology assets, and acquired intangible assets other than those included in cost of services.

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Effective January 1, 2018, the Company changed how it allocates certain costs. These changes enhance the information reported to the users of our quarterly and annual filings. The primary change is how the Company allocates information technology and corporate-related costs to its segments. Certain information technology and corporate-related costs that support multiple segments, which were previously included entirely within the Fleet Solutions segment, are now being allocated to the segment that they support. Certain residual unallocated corporate costs represent the portion of expenses relating to general corporate functions including acquisition expenses, certain finance, legal, information technology, human resources, administrative and executive expenses and other expenses. These expenses are recorded in unallocated corporate expenses, as these items are centrally and directly controlled and are not included in internal measures of segment operating performance.

~~Summary~~

~~Below are selected items from the second quarter of 2018:~~

~~Average number of vehicles serviced increased 8 percent from the second quarter of 2017 to approximately 11.8 million for the second quarter of 2018, resulting entirely from organic growth.~~

Total fuel transactions processed increased 7 percent from the second quarter of 2017 to 139.2 million for the second quarter of 2018. Total payment processing transactions in our Fleet Solutions segment increased 7 percent to 115.9 million for the second quarter of 2018 as compared to the same period last year resulting entirely from organic growth.

~~The average U.S. fuel price per gallon during the second quarter of 2018 was $3.02, a 25 percent increase from the same period last year.~~

Credit loss expense in the Fleet Solutions segment was $11.0 million during the second quarter of 2018, as compared to $15.1 million in the same period last year, driven primarily by a significant decrease in fraud losses. Our credit losses were 11.2 basis points of fuel expenditures for the second quarter of 2018, as compared to 20.5 basis points of fuel expenditures in the same period last year.

Our Travel and Corporate Solutions’ purchase volume grew by approximately $1,253.5 million from the second quarter of 2017 to $8,930.4 million for the second quarter of 2018, an increase of 16 percent, driven by higher customer purchase volumes across all geographies, most significantly within the U.S. travel business.

~~Our Health and Employee Benefit Solutions’ average number of U.S. SaaS accounts grew by approximately~~ ~~1.8 million, a~~ ~~20%~~ ~~increase from the same period in the prior year, due primarily to customer signings. Likewise, U.S. purchase volume grew by $126.5 million, an 11% increase from the same period of the prior year.~~

Our effective tax rate was 26.1 percent for the second quarter of 2018 as compared to 39.0 percent in the same period last year. The decline in our tax rate was primarily due to the 2017 Tax Act, which reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. Our effective rate may fluctuate due to changes in estimates made under the 2017 Tax Act as more guidance and clarification is released by the regulators, the mix of earnings among different tax jurisdictions, as well as from impacts that statutory tax rate and earnings mix changes have on our net deferred tax assets.

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~~Results of Operations~~

Certain information technology and corporate related costs that support multiple segments were previously included entirely within the Fleet Solutions segment. Effective January 1, 2018, such amounts are allocated to the operating segment that they support. Prior year amounts have been recast to conform with the changes in segment profitability described above.

Fleet Solutions

Revenues

The following table reflects comparative revenue and key operating statistics within Fleet Solutions:


	Three Months Ended June 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)					Three Months Ended March 31,						Increase (Decrease)
(In thousands, except per transaction and per gallon data)	2018			2017			Amount			Percent		2018			2017			Amount			Percent		2019			2018			Amount			Percent
Revenues(a)
Payment processing revenue	$	112,895		$	87,678		$	25,217		29	%	$	219,873		$	173,940		$	45,933		26	%	$	107,408		$	106,978		$	430		NM
Account servicing revenue	43,019			41,311			1,708			4	%	85,229			77,380			7,849			10	%	39,239			42,210			(2,971		)	(7	)%
Finance fee revenue	45,188			36,552			8,636			24	%	88,792			72,981			15,811			22	%	45,864			43,604			2,260			5	%
Other revenue	40,368			34,763			5,605			16	%	77,941			66,826			11,115			17	%	40,271			37,573			2,698			7	%
Total revenues	$	241,470		$	200,304		$	41,166		21	%	$	471,835		$	391,127		$	80,708		21	%	$	232,782		$	230,365		$	2,417		1	%

Key operating statistics ^(b)
Payment processing revenue:
Payment processing transactions	115,919			108,134			7,785			7	%	225,746			210,899			14,847			7	%	115,404			109,827			5,577			5	%
Payment processing fuel spend	$	9,497,050		$	7,399,901		$	2,097,149		28	%	$	17,935,194		$	14,480,018		$	3,455,176		24	%	$	8,462,078		$	8,438,143		$	23,935		NM
Average price per gallon of fuel – Domestic – ($USD/gal)	$	3.02		$	2.41		$	0.61		25	%	$	2.90		$	2.41		$	0.49		20	%	$	2.67		$	2.78		$	(0.11	)	(4	)%
Net payment processing rate	1.19		%	1.18		%	0.01		%	1	%	1.23		%	1.20		%	0.03		%	3	%	1.27		%	1.27		%	—		%	NM

^{NM - Not Meaningful}

^(a) ~~Key operating statistics have been modified to provide added insight into segment~~The impact of foreign currency exchange rate fluctuations decreased Fleet Solutions revenue ~~trends. Metrics for~~by $2.7 million in the three ~~and six~~ months ended ~~June 30, 2017 have been conformed to the current year presentation.~~

^(b) The Company adopted the requirements of ASU 2014–09 (“the new revenue recognition standard”) as of January 1, 2018, utilizing the modified retrospective method of transition. Impacted non-financial metrics have been updated prospectively.

~~Payment processing revenue increased $25.2 million for the second quarter of 2018 and $45.9 million for the first half of 2018 as~~March 31, 2019, compared to the same ~~periods~~period in the prior year.

Fleet Solutions revenue for the first quarter of 2019 was generally consistent with the same period in the prior year, ~~primarily due to higher average domestic~~as increased transaction volume was offset by lower fuel prices and the unfavorable impact ~~from the adoption~~ of the new revenue recognition standard and increased payment processing volumes due to organic growth. Upon adoption of the new revenue recognition standard, we reclassified certain amounts paid to partners from a reduction of revenue to selling expense and fees paid to third-party payment processing networks from service fees to a reduction of revenue.

Account servicing revenue increased by $1.7 million for the second quarter of 2018 and $7.8 million for the first half of 2018 as compared to the same periods in the prior year due primarily to an increase in the average number of vehicles serviced and an increase in fees to certain customers as part of domestic price modernization efforts over the course of the prior year.

Other revenue increased by $5.6 million for the second quarter of 2018 and $11.1 million for the first half of 2018 as compared to the same periods in the prior year, resulting primarily from higher relative EFS transaction processing revenue, the impact from the adoption of the new revenue recognition standard and benefits from our price modernization efforts.

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foreign currency change rate fluctuations.

Finance fee revenue is comprised of the following components:


	Three Months Ended June 30,				Increase (Decrease)				Six Months Ended June 30,				Increase (Decrease)				Three Months Ended March 31,				Increase (Decrease)
(In thousands)	2018		2017		Amount		Percent		2018		2017		Amount		Percent		2019		2018		Amount			Percent
Finance income	$	35,831	$	29,927	$	5,904	20	%	$	70,489	$	60,523	$	9,966	16	%	$	37,526	$	34,874	$	2,652		8	%
Factoring fee revenue	8,992		6,532		2,460		38	%	17,722		12,289		5,433		44	%	8,338		8,730		(392		)	(4	)%
Cardholder interest income	365		93		272		292	%	581		169		412		244	%
Finance fee revenue	$	45,188	$	36,552	$	8,636	24	%	$	88,792	$	72,981	$	15,811	22	%	$	45,864	$	43,604	$	2,260		5	%

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. ~~Finance income~~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 ~~$5.9 million for the second quarter of 2018 and $10.0~~$2.7 million for the first ~~half~~quarter of ~~2018~~2019 as compared to the same ~~periods~~period in the prior year, primarily due to ~~changes~~an increase in ~~overdue outstanding balances resulting from higher~~weighted average ~~domestic fuel prices and volumes.~~late fee rates. During ~~both~~ the ~~second~~first quarter ~~and first half~~ of ~~2018 and 2017,~~2019, monthly late fee rates and minimum finance charges ranged ~~from 0~~up to 9.99 percent and $75, respectively, as compared to monthly late fee rates and minimum finance charges of up to 7.99 percent ~~with a minimum~~and $75, respectively, during the first quarter of ~~$75.~~2018. The weighted average late fee rate, net of related charge-offs, was ~~4.4~~4.8 percent and ~~4.5~~4.6 percent for the ~~three~~first quarter of 2019 and ~~six months ended June 30,~~ 2018, ~~respectively, as compared to 4.3 percent for both the three and six months ended June 30, 2017.~~ respectively.

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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 ~~both~~either of the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 or ~~2017.~~2018.

The primary source of factoring fee revenue is calculated as a negotiated percentage fee of the receivable balance that we purchase. A secondary source of factoring fee revenue is a flat rate service fee to our customers that request a non-contractual same day funding of the receivable balance. Factoring fee revenue ~~increased $2.5 million for the second quarter of 2018 and $5.4 million~~ for the first ~~half~~quarter of ~~2018 as compared to~~2019 was generally consistent with the same ~~periods~~period in the prior ~~year, due to higher relative receivable balances purchased resulting from increased customer demand for our services.~~

~~Cardholder interest income was not material to Fleet Solutions’ operations for the three or six months ended June 30, 2018 or 2017.~~

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year.

Operating Expenses

The following table compares line items within operating income for Fleet ~~Solutions for the three months ended June 30, 2018 and 2017:~~Solutions:


	Three Months Ended June 30,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
(In thousands)	2018		2017		Amount			Percent		2019		2018		Amount			Percent
Cost of services
Processing costs	$	47,709	$	44,588	$	3,121		7	%	$	52,536	$	43,028	$	9,508		22	%
Service fees	$	2,018	$	1,140	$	878		77	%	$	1,650	$	1,587	$	63		4	%
Provision for credit losses	$	11,000	$	15,141	$	(4,141	)	(27	)%	$	13,963	$	12,989	$	974		7	%
Operating interest	$	3,663	$	2,227	$	1,436		64	%	$	4,398	$	3,176	$	1,222		38	%
Depreciation and amortization	$	9,643	$	12,071	$	(2,428	)	(20	)%	$	10,096	$	10,162	$	(66	)	(1	)%

Other operating expenses
General and administrative	$	18,542	$	15,269	$	3,273		21	%	$	16,956	$	21,347	$	(4,391	)	(21	)%
Sales and marketing	$	38,758	$	28,874	$	9,884		34	%	$	44,783	$	37,846	$	6,937		18	%
Depreciation and amortization	$	20,479	$	23,302	$	(2,823	)	(12	)%	$	18,839	$	20,625	$	(1,786	)	(9	)%
Impairment charge	$	—	$	12,212	$	(12,212	)	(100	)%

Operating income	$	89,658	$	45,480	$	44,178		97	%	$	69,561	$	79,605	$	(10,044	)	(13	)%

Cost of services

Processing costs increased ~~$3.1~~$9.5 million for the ~~second~~first quarter of ~~2018 as compared to the same period in the prior year, due primarily to volume-related increases, including incremental headcount.~~

~~Service fees increased $0.9 million for the second quarter of 2018~~2019 as compared to the same period in the prior year, due primarily to higher ~~bank~~expenses associated with the onboarding of customer acquisitions.

Service fees ~~resulting from increased volumes.~~for the first quarter of 2019 were generally consistent with the same period in the prior year.

Provision for credit losses ~~decreased~~increased by ~~$4.1~~$1.0 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year. The ~~decrease~~increase in credit loss was due to ~~a decline in~~discrete fraud losses ~~partly offset by increases in receivable balances due~~and a slight deterioration of roll rates relative to ~~higher average domestic fuel prices and volume growth.~~last year.

We generally measure our credit loss performance by calculating fuel-related credit losses as a percentage of total fuel expenditures on payment processing transactions. This metric for credit losses was ~~11.2~~15.7 basis points of fuel expenditures for the ~~second~~first quarter of ~~2018,~~2019, as compared to ~~20.5~~12.5 basis points of fuel expenditures for the same period in the prior year. We generally use a roll-rate methodology to calculate the amount necessary for our ending receivable reserve balance. This methodology considers total receivable balances, recent charge-off experience, recoveries on previously charged-off accounts and the dollars that are delinquent to calculate the total reserve. In addition, management undertakes a detailed evaluation of the receivable balances to help further ensure overall reserve adequacy. The expense we recognized in the quarter is the amount necessary to bring the reserve to its required level based on accounts receivable aging and net charge-offs.

Operating interest increased ~~$1.4~~$1.2 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year, primarily due to higher interest rates paid on ~~deposits and an increase in deposits resulting from higher average domestic fuel prices and incremental volumes.~~deposits.

Depreciation and amortization ~~decreased by $2.4 million~~ for the ~~second~~first quarter of ~~2018 as compared to~~2019 was generally consistent with the same period in the prior ~~year, primarily due to lower relative depreciation on our internal use software processing platforms. Depreciation and amortization was unfavorably impacted during the second quarter~~year.

Table of ~~2017 as we accelerated the amortization of our existing over-the-road payment processing technology as result of the EFS acquisition.~~Contents

Other operating expenses

General and administrative expenses ~~increased $3.3~~decreased $4.4 million for the ~~second~~first quarter of ~~2018~~2019, as compared to the same period in the prior year, due primarily to ~~higher~~decreased professional ~~fees.~~fees associated with the insourcing of certain technology in the prior year.

Sales and marketing expenses increased ~~$9.9~~$6.9 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year, due primarily to ~~a reclassification of~~increased commission payments to over-the-road partners ~~which are included~~due to volume increases, higher marketing costs incurred related to significant 2018 customer acquisitions and an increase in ~~sales and marketing expenses as~~

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~~a result of adopting the new revenue recognition standard. Prior to January 1, 2018, these payments were reflected as a reduction of revenue.~~personnel related costs.

Depreciation and amortization decreased by ~~$2.8~~$1.8 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year, due primarily to ~~lower relative~~the impact of the accelerated method of amortization on ~~certain~~ acquired ~~intangibles.~~

During the second quarter of 2017, we incurred a non-cash impairment charge due to a write-off related to in-sourcing certain technology functions. There were no impairment charges incurred during the second quarter of 2018.

~~The following table compares line items within operating income for Fleet Solutions for the six months ended June 30, 2018 and 2017:~~

Six Months Ended June 30, Increase (Decrease)
(In thousands) 2018 2017 Amount Percent
Cost of services
Processing costs $ 96,804
$ 86,418
$ 10,386
12 %
Service fees $ 3,604
$ 2,616
$ 988
38 %
Provision for credit losses $ 23,988
$ 27,722
$ (3,734 ) (13 )%
Operating interest $ 6,838
$ 3,595
$ 3,243
90 %
Depreciation and amortization $ 19,806
$ 24,012
$ (4,206 ) (18 )%

Other operating expenses
General and administrative $ 39,890
$ 32,862
$ 7,028
21 %
Sales and marketing $ 76,604
$ 58,815
$ 17,789
30 %
Depreciation and amortization $ 41,103
$ 46,440
$ (5,337 ) (11 )%
Impairment charge $ —
$ 12,212
$ (12,212 ) (100 )%

Operating income $ 163,198
$ 96,435
$ 66,763
69 %

~~Cost of services~~

~~Processing costs increased $10.4 million for the first half of 2018 as compared to the same period in the prior year, due primarily to volume-related increases, including incremental headcount.~~

Service fees for the first half of 2018 increased $1.0 million for the first half of 2018 as compared to the same period in the prior year, due primarily to higher bank fees resulting from increased volumes.

Provision for credit losses decreased by $3.7 million for the first half of 2018 as compared to the same period in the prior year. Credit losses were 11.8 basis points of fuel expenditures for the first half of 2018, as compared to 19.1 basis points for the same period in the prior year. The decrease in credit loss was due primarily to a decline in fraud losses, partly offset by increases in receivable balances due to higher average domestic fuel prices and volume growth.

Operating interest increased $3.2 million for the first half of 2018 as compared to the same period in the prior year, primarily due to higher interest rates paid on deposits and an increase in deposits resulting from higher average domestic fuel prices and incremental volumes.

Depreciation and amortization decreased by $4.2 million for the first half of 2018 as compared to the same period in the prior year, primarily due to lower relative depreciation on our internal use software processing platforms. Depreciation and amortization was unfavorably impacted during the first half of 2017 as we accelerated the amortization of our existing over-the-road payment processing technology as result of the EFS acquisition.

~~Other operating expenses~~

~~General and administrative expenses increased $7.0 million for the first half of 2018 as compared to the same period in the prior year, due primarily to higher professional fees.~~

Sales and marketing expenses increased $17.8 million for the first half of 2018 as compared to the same period in the prior year, due primarily to a reclassification of payments to partners, which are included in sales and marketing expenses as a

~~Table of Contents~~

~~result of adopting the new revenue recognition standard. Prior to January 1, 2018, these payments were reflected as a reduction of revenue.~~

Depreciation and amortization decreased by $5.3 million for the first half of 2018 as compared to the same period in the prior year, primarily due to lower relative amortization on certain acquired intangibles.

During the first half of 2017, we incurred a non-cash impairment charge due to a write-off related to in-sourcing certain technology functions. There were no impairment charges incurred during the first half of 2018.customer relationships.

Travel and Corporate Solutions

Revenues

The following table reflects comparative revenue and key operating statistics within Travel and Corporate Solutions:



	Three Months Ended March 31,				Increase (Decrease)
(In thousands)	2019		2018		Amount			Percent
Revenues^(a)
Payment processing revenue	$	59,998	$	44,777	$	15,221		34	%
Account servicing revenue	10,585		9,469		1,116			12	%
Finance fee revenue	357		259		98			38	%
Other revenue	10,708		12,274		(1,566		)	(13	)%
Total revenues	$	81,648	$	66,779	$	14,869		22	%

Key operating statistics
Payment processing revenue:
Payment solutions purchase volume	$	8,405,661	$	7,940,543	$	465,118		6	%

Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
(In thousands, except payment solutions purchase volume in millions) 2018 2017 Amount Percent 2018 2017 Amount Percent
Revenues
Payment processing revenue $ 51,289
$ 40,276
$ 11,013
27 % $ 96,066
$ 75,151
$ 20,915
28 %
Account servicing revenue 8,995
167
8,828
NM
18,464
322
18,142
NM
Finance fee revenue 228
159
69
43 % 487
382
105
27 %
Other revenue 15,252
14,398
854
6 % 27,526
26,858
668
2 %
Total revenues $ 75,764
$ 55,000
$ 20,764
38 % $ 142,543
$ 102,713
$ 39,830
39 %

Key operating statistics ^(a)

Payment processing revenue:
Payment solutions purchase volume $ 8,930
$ 7,677
$ 1,253
16 % $ 16,871
$ 14,277
$ 2,594
18 %

^(a)The ~~Company adopted~~impact of foreign currency exchange rate fluctuations decreased Travel and Corporate Solutions revenue by $1.5 million in the ~~requirements of~~three months ended March 31, 2019, compared to the ~~new revenue recognition standard as of January 1, 2018, utilizing~~same period in the ~~modified retrospective method of transition. Impacted non-financial metrics have been updated prospectively.~~prior year.

~~NM - not meaningful~~

Payment processing revenue increased ~~$11.0 million for the second quarter of 2018 and $20.9~~$15.2 million for the first ~~half~~quarter of ~~2018~~2019 as compared to the same ~~periods~~period in the prior year, due primarily to ~~an increase in volumes in all geographies, including our U.S. corporate charge card purchase~~the acquisition of Noventis, combined with volume and profitability increases from our WEX travel product as well as in Europe, Australia, and Brazil. The impact of the adoption of the new revenue recognition standard also contributed to revenue growth. Upon adoption of the new revenue recognition standard, we reclassified certain amounts paid to partners from a reduction of revenue to sales and marketing expense and fees paid to third-partycorporate payment ~~processing networks from service fees to a reduction of revenue.~~product.

Account servicing revenue increased ~~$8.8 million for the second quarter of 2018 and $18.1~~$1.1 million for the first ~~half~~quarter of ~~2018~~2019 as compared to the same ~~periods~~period in the prior year, due to the acquisition of ~~AOC during October 2017.~~Noventis.

Finance fee revenue was not material to Travel and Corporate Solutions’ operations for either of the three ~~or six~~ months ended ~~June 30, 2018~~March 31, 2019 or ~~2017.~~2018.

Concessions to certain customers experiencing financial difficulties may be granted and are limited to extending the time to pay, placing a customer on a payment plan or granting waivers of late fees. There were no material concessions granted to customers during either of the three ~~or six~~ months ended ~~June 30,~~March 31, 2019 or 2018. As of June 30, 2017, customer balances with such concessions totaled $12.1 million. For the three and six months ended June 30, 2017, customer balances with such concessions resulted in approximately $0.7 million and $1.3 million in waived late fees, respectively.

Other revenue decreased $1.6 million for the ~~second~~first quarter of ~~2018 and first half of 2018 was generally consistent with~~2019 as compared to the same ~~periods~~period in the prior year, ~~as volume related increases were partly offset by~~due primarily to a recent contract amendment that impacted income statement classification of revenue recognized. As a result, we expect a decline in international settlement fees going forward with an ~~unfavorable adoption impact~~associated increase in payment processing revenue for the remainder of the new revenue recognition standard. During the second quarter and first half of 2018, payment of network fees are now reflected as a reduction of revenue resulting from the adoption of the new revenue recognition standard. Prior to January 1, 2018, these network fees were classified as a selling expense.

year.

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Operating Expenses

The following table compares line items within operating income for Travel and Corporate ~~Solutions for the three months ended June 30, 2018 and 2017:~~Solutions:


	Three Months Ended June 30,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
(In thousands)	2018		2017		Amount			Percent		2019		2018		Amount			Percent
Cost of services
Processing costs	$	10,314	$	5,690	$	4,624		81	%	$	14,531	$	12,655	$	1,876		15	%
Service fees	$	7,461	$	16,340	$	(8,879	)	(54	)%	$	6,269	$	6,489	$	(220	)	(3	)%
Provision for credit losses	$	979	$	255	$	724		284	%	$	3,695	$	846	$	2,849		337	%
Operating interest	$	3,306	$	2,073	$	1,233		59	%	$	3,957	$	2,675	$	1,282		48	%
Depreciation and amortization	$	4,774	$	1,487	$	3,287		221	%	$	3,818	$	4,453	$	(635	)	(14	)%

Other operating expenses
General and administrative	$	5,717	$	3,997	$	1,720		43	%	$	12,570	$	7,118	$	5,452		77	%
Sales and marketing	$	12,318	$	5,003	$	7,315		146	%	$	12,566	$	13,279	$	(713	)	(5	)%
Depreciation and amortization	$	3,759	$	2,386	$	1,373		58	%	$	4,833	$	3,156	$	1,677		53	%
Impairment charge	$	—	$	3,963	$	(3,963	)	(100	)%

Operating income	$	27,136	$	13,806	$	13,330		97	%	$	19,409	$	16,108	$	3,301		20	%

Cost of services

Processing costs increased ~~$4.6~~$1.9 million for the ~~second~~first quarter of ~~2018 as compared to the same period in the prior year. The increase is due primarily to the acquisition of AOC.~~

Service fees decreased $8.9 million for the second quarter of 2018 as compared to the same period in the prior year, due primarily to the adoption of the new revenue recognition standard and cost savings as a result of the AOC acquisition, partly offset by incremental expenses resulting from higher relative purchase volumes. Upon the adoption of the new revenue recognition standard, we reclassified network fees paid from service fees to a reduction of revenue.

~~Provision for credit losses was not material to the operations of Travel and Corporate Solutions for both the three months ended June 30, 2018 and 2017.~~

Operating interest expense increased $1.2 million for the second quarter of 2018 as compared to the same period in the prior year, due primarily to higher interest rates paid on deposits and an increase in deposits resulting from incremental volumes.

Depreciation and amortization increased $3.3 million for the second quarter of 2018 as compared to the same period in the prior year, due primarily to higher relative amortization on acquired developed technology intangible assets and the acquisition of AOC.

~~Other operating expenses~~

~~General and administrative expenses increased $1.7 million for the second quarter of 2018~~2019 as compared to the same period in the prior year, due primarily to the acquisition of ~~AOC.~~Noventis.

~~Sales and marketing expenses~~Service fees for the first quarter of 2019 were generally consistent with the same period in the prior year.

Provision for credit losses increased ~~$7.3~~$2.8 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year, due primarily to a ~~reclassification of~~reserve established on amounts owed by a corporate payments to partners, which are included in sales and marketing expenses as a result of adopting the new revenue recognition standard. Prior to January 1, 2018, these payments were reflected as a reduction of revenue.customer.

~~Depreciation and amortization for the second quarter of 2018~~Operating interest expense increased ~~$1.4~~$1.3 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year, ~~due~~ primarily ~~to intangibles acquired in the AOC acquisition.~~

~~During the second quarter of the prior year, we incurred a non-cash impairment charge~~ due to ~~a write-off related to in-sourcing certain technology functions.~~higher interest rates paid on deposits.

~~Table of Contents~~

~~The following table compares line items within operating income for Travel~~Depreciation and ~~Corporate Solutions for the six months ended June 30, 2018 and 2017:~~

Six Months Ended June 30, Increase (Decrease)
(In thousands) 2018 2017 Amount Percent
Cost of services
Processing costs $ 22,968
$ 10,354
$ 12,614
122 %
Service fees $ 13,951
$ 30,089
$ (16,138 ) (54 )%
Provision for credit losses $ 1,825
$ (157 ) $ 1,982
NM
Operating interest $ 5,982
$ 3,639
$ 2,343
64 %
Depreciation and amortization $ 9,227
$ 2,338
$ 6,889
295 %

Other operating expenses
General and administrative $ 12,835
$ 7,640
$ 5,195
68 %
Sales and marketing $ 25,598
$ 9,972
$ 15,626
157 %
Depreciation and amortization $ 6,915
$ 5,241
$ 1,674
32 %
Impairment charge $ —
$ 3,963
$ (3,963 ) (100 )%

Operating income $ 43,242
$ 29,634
$ 13,608
46 %

~~NM - not meaningful~~

~~Cost of services~~

~~Processing costs increased $12.6 million~~amortization expenses for the first ~~half~~quarter of ~~2018 as compared to~~2019 were generally consistent with the same period in the prior year. ~~The increase is due primarily to the acquisition of AOC.~~

~~Service fees decreased $16.1~~Other operating expenses

General and administrative expenses increased $5.5 million for the first ~~half~~quarter of ~~2018~~2019 as compared to the same period in the prior year, ~~due primarily~~resulting from cash paid to ~~the adoption~~accelerate vesting of options awards as part of the ~~new revenue recognition standard~~Noventis acquisition.

Sales and ~~cost savings as a result of the AOC acquisition, partly offset by incremental~~marketing expenses ~~resulting from higher relative purchase volumes. Upon the adoption of the new revenue recognition standard, we reclassified network fees paid from service fees to a reduction of revenue.~~

~~Provision for credit losses increased $2.0 million~~ for the first ~~half~~quarter of ~~2018 due primarily to adjustments to reflect recent charge-off experience.~~2019 were generally consistent with the same period in the prior year.

~~Operating interest expense increased $2.3 million~~Depreciation and amortization expenses for the first ~~half~~quarter of ~~2018~~2019 increased $1.7 million as compared to the same period in the prior year, due primarily to higher ~~interest rates paid~~depreciation on ~~deposits and an increase in deposits resulting from incremental volumes.~~

Depreciation and amortization increased $6.9 million for the first half of 2018 primarily due to higher relative amortization on acquired developed technology intangible assets and the acquisition of AOC.

~~Other operating expenses~~

~~General and administrative expenses increased $5.2 million for the first half of 2018 as compared to the same period in the prior year, due primarily to the acquisition of AOC.~~

Sales and marketing expenses increased $15.6 million for the first half of 2018 as compared to the same period in the prior year, due primarily to a reclassification of payments to partners, which are included in sales and marketing expenses as a result of adopting the new revenue recognition standard. Prior to January 1, 2018, these payments were reflected as a reduction of revenue.

~~Depreciation and amortization increased $1.7 million for the first half of 2018 as compared to the same period in the prior year, due primarily to intangibles acquired in the AOC acquisition.~~

~~During the first half of the prior year, we incurred a non-cash impairment charge due to a write-off related to in-sourcing certain technology functions.~~

internal use software.

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Health and Employee Benefit Solutions

Revenues

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



	Three Months Ended March 31,				Increase (Decrease)
(In thousands, except purchase volume in millions)	2019		2018		Amount			Percent
Revenues^(a)
Payment processing revenue	$	19,392	$	16,699	$	2,693		16	%
Account servicing revenue	37,262		27,025		10,237			38	%
Finance fee revenue	152		5,018		(4,866		)	(97	)%
Other revenue	10,640		8,142		2,498			31	%
Total revenues	$	67,446	$	56,884	$	10,562		19	%

Key operating statistics
Payment processing revenue:
Purchase volume	$	1,657,588	$	1,503,400	$	154,188		10	%
Account servicing revenue:
Average number of SaaS accounts	12,729		10,826		1,903			18	%

Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
(In thousands, except purchase volume in millions) 2018 2017 Amount Percent 2018 2017 Amount Percent
Revenues
Payment processing revenue $ 14,554
$ 13,400
$ 1,154
9 % $ 31,253
$ 28,641
$ 2,612
9 %
Account servicing revenue 26,702
24,199
2,503
10 % 53,727
49,514
4,213
9 %
Finance fee revenue 6,157
5,374
783
15 % 11,976
12,094
(118 ) (1 )%
Other revenue 6,229
5,607
622
11 % 14,371
11,152
3,219
29 %
Total revenues $ 53,642
$ 48,580
$ 5,062
10 % $ 111,327
$ 101,401
$ 9,926
10 %

Key operating statistics (U.S. only) ^(a)

Payment processing revenue:
Purchase volume $ 1,253
$ 1,127
$ 126
11 % $ 2,756
$ 2,474
$ 282
11 %
Account servicing revenue:
Average number of SaaS accounts 10,745
8,934
1,811
20 % 10,786
8,755
2,031
23 %

^(a)The ~~Company adopted~~impact of foreign currency exchange rate fluctuations decreased Health and Employee Benefit Solutions revenue by $0.6 million in the ~~requirements of~~three months ended March 31, 2019, compared to the ~~new revenue recognition standard as of January 1, 2018, utilizing~~same period in the ~~modified retrospective method of transition. Impacted non-financial metrics have been updated prospectively.~~prior year.

Payment processing revenue increased ~~$1.2 million for the second quarter of 2018 and $2.6~~$2.7 million for the first ~~half~~quarter of ~~2018~~2019 as compared to the same ~~periods~~period in the prior year, resulting from higher U.S. Health business purchase volume, primarily due to existing customer growth and the acquisition of Discovery Benefits.

Account servicing revenue increased $10.2 million for the first quarter of 2019 as compared to the same period in the prior year, primarily due to ~~an increase in purchase volume as a result~~the acquisition of ~~customer signings.~~

~~Account servicing revenue increased $2.5 million for the second quarter of 2018~~Discovery Benefits and ~~$4.2 million for the first half of 2018 as compared to the same periods in the prior year, primarily due to~~existing WEX Health ~~customer signings and existing~~ customer growth, which resulted in a higher number of participants using our SaaS healthcare technology ~~platform, and higher revenue earned on health savings account assets, partly offset by an unfavorable impact from customer mix.~~platform.

Finance fee revenue ~~increased $0.8~~decreased $4.9 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior ~~year, primarily due to an increase in late fees assessed. Finance fee revenue for~~year. During the first ~~half~~quarter of 2018, ~~was generally consistent with~~ the ~~same period~~Company recognized finance fee income on our WEX Latin America salary advance product. During the third quarter of 2018, we amended our WEX Latin America securitization agreement, resulting in sale accounting treatment upon the ~~prior year.~~transfer of related customer receivables; see other revenue below.

Other revenue ~~for the second quarter of 2018 was generally consistent with the same period in the prior year. Other revenue~~ increased ~~$3.2~~$2.5 million for the first ~~half~~quarter of ~~2018~~2019 as compared to the same period in the prior year, ~~resulting~~ primarily ~~from higher~~due to realized gains on the sale of WEX ~~Health ancillary fees.~~Latin America customer receivables under a securitization arrangement. Prior to an amendment of this securitization arrangement during the third quarter of 2018, the revenue associated with these customer receivables was primarily included in finance fee revenue.

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Table of Contents

Operating Expenses

The following table compares line items within operating income for Health and Employee Benefit ~~Solutions for the three months ended June 30, 2018 and 2017:~~Solutions:

Three Months Ended June 30, Increase (Decrease)
(In thousands) 2018 2017 Amount Percent
Cost of services
Processing costs $ 18,283
$ 18,955
$ (672 ) (4 )%
Service fees $ 4,330
$ 2,697
$ 1,633
61 %
Provision for credit losses $ (474 ) $ 686
$ (1,160 ) NM
Operating interest $ 2,559
$ 319
$ 2,240
702 %
Depreciation and amortization $ 6,195
$ 4,818
$ 1,377
29 %

Other operating expenses
General and administrative $ 5,661
$ 5,580
$ 81
1 %
Sales and marketing $ 6,591
$ 6,100
$ 491
8 %
Depreciation and amortization $ 5,424
$ 5,551
$ (127 ) (2 )%

Operating income $ 5,073
$ 3,874
$ 1,199
31 %

~~NM - not meaningful~~



	Three Months Ended March 31,				Increase (Decrease)
(In thousands)	2019		2018		Amount			Percent
Cost of services
Processing costs	$	24,052	$	17,403	$	6,649		38	%
Service fees	$	6,327	$	4,144	$	2,183		53	%
Provision for credit losses	$	133	$	392	$	(259	)	(66	)%
Operating interest	$	1,209	$	2,634	$	(1,425	)	(54	)%
Depreciation and amortization	$	6,599	$	5,817	$	782		13	%

Other operating expenses
General and administrative	$	6,893	$	5,893	$	1,000		17	%
Sales and marketing	$	6,770	$	5,400	$	1,370		25	%
Depreciation and amortization	$	6,978	$	5,431	$	1,547		28	%

Operating income	$	8,485	$	9,770	$	(1,285	)	(13	)%

Cost of services

Processing costs for the second quarter of 2018 decreased slightly as compared to the same period in the prior year as the favorable impact of lower bank fees in WEX Latin America resulting from a shift in product mix was partly offset by higher WEX Health processing costs resulting from volume increases.

~~Service fees~~ increased ~~$1.6~~$6.6 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year, due primarily to ~~revenue growth on~~the acquisition of Discovery Benefits and volume-related WEX Health ~~payment processing and health savings account assets.~~increases.

Service fees increased $2.2 million for the first quarter of 2019 as compared to the same period in the prior year, due primarily to costs incurred as a result of higher asset balances of participants utilizing our SaaS healthcare offerings.

Provision for credit losses was not material to Health and Employee Benefit Solutions’ operations for both the ~~second quarters of 2018~~three months ended March 31, 2019 and ~~2017.~~2018.

Operating interest ~~increased $2.2~~decreased $1.4 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior ~~year, primarily resulting from interest expense associated with~~year. During the ~~ramp up~~third quarter of 2018, we amended our WEX Latin America ~~securitized debt~~securitization agreement, ~~which we entered into during~~resulting in sale accounting treatment upon the ~~second quarter~~transfer of ~~2017.~~related customer receivables. As such, our associated cost of funding is now embedded in the gain on sale of the receivables and is recorded within other revenue.

Depreciation and amortization expenses increased ~~$1.4~~$0.8 million for the ~~second~~first quarter of ~~2018~~2019 as compared to the same period in the prior year, resulting from higher depreciation expense on capitalized WEX Health internal-use software development costs.

Other operating expenses

~~Other operating~~General and administrative expenses ~~for the second quarter of 2018 were generally consistent with the same period in the prior year.~~

~~Table of Contents~~

~~The following table compares line items within operating income for Health and Employee Benefit Solutions for the six months ended June 30, 2018 and 2017:~~

Six Months Ended June 30, Increase (Decrease)
(In thousands) 2018 2017 Amount Percent
Cost of services
Processing costs $ 36,156
$ 36,791
$ (635 ) (2 )%
Service fees $ 8,474
$ 5,050
$ 3,424
68 %
Provision for credit losses $ (318 ) $ 748
$ (1,066 ) NM
Operating interest $ 5,193
$ 2,278
$ 2,915
128 %
Depreciation and amortization $ 12,012
$ 9,410
$ 2,602
28 %

Other operating expenses
General and administrative $ 11,554
$ 10,928
$ 626
6 %
Sales and marketing $ 11,991
$ 11,301
$ 690
6 %
Depreciation and amortization $ 10,855
$ 11,091
$ (236 ) (2 )%

Operating income $ 15,410
$ 13,804
$ 1,606
12 %

~~NM - not meaningful~~

~~Cost of services~~

Processing costs for the first half of 2018 decreased slightly as compared to the same period in the prior year as the favorable impact of lower bank fees in WEX Latin America resulting from a shift in product mix was partly offset by higher WEX Health processing costs resulting from volume increases.

~~Service fees~~ increased ~~$3.4~~$1.0 million for the first ~~half~~quarter of ~~2018 as compared to the same period in the prior year,~~2019, due primarily to ~~revenue growth on WEX Health payment processing~~the acquisition of Discovery Benefits.

Sales and ~~health savings account assets.~~

~~Provision for credit losses was not material to Health and Employee Benefit Solutions’ operations for both the first half of 2018 and 2017.~~

~~Operating interest~~marketing increased ~~$2.9~~$1.4 million for the first ~~half~~quarter of ~~2018 as compared~~2019 due primarily to the ~~same period in the prior year, primarily resulting from interest expense associated with the ramp up~~acquisition of ~~our WEX Latin America securitized debt agreement, which we entered into during the second quarter of 2017.~~Discovery Benefits.

Depreciation and amortization increased ~~$2.6~~$1.5 million for the first ~~half~~quarter of ~~2018 as compared~~2019, due primarily to the ~~same period in the prior year, resulting from higher depreciation expense on capitalized internal-use software development costs.~~

~~Other operating expenses~~

~~Other operating expenses for the first half~~amortization of ~~2018 were generally consistent~~customer relationship intangible assets associated with the ~~same period in the prior year.~~Discovery Benefits acquisition.

Unallocated corporate expenses

Unallocated corporate expenses represent the portion of expenses relating to general corporate functions including acquisition expenses, certain finance, legal, information technology, human resources, administrative and executive expenses and other expenses not directly attributable to a reportable segment.

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The following table compares line items within operating income for unallocated corporate ~~expenses for the three and six months ended June 30, 2018 and 2017:~~expenses:


	Three Months Ended June 30,				Increase (Decrease)				Six Months Ended June 30,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
(In thousands)	2018		2017		Amount		Percent		2018		2017		Amount			Percent		2019		2018		Amount			Percent
Other operating expenses
General and administrative	$	18,568	$	15,227	$	3,341	22	%	$	39,642	$	30,820	$	8,822		29	%	$	27,986	$	20,951	$	7,035		34	%
Sales and marketing	$	30	$	6	$	24	400	%	$	45	$	53	$	(8	)	(15	)%	$	—	$	15	$	(15	)	(100	)%
Depreciation and amortization	$	358	$	346	$	12	3	%	$	890	$	667	$	223		33	%	$	534	$	514	$	20		4	%

General and administrative expenses increased ~~$3.3~~$7.0 million for the ~~second~~first quarter of ~~2018 as compared to the same period in the prior year,~~2019, due primarily to higher personnel related costs, including incremental headcount and share based compensation, and higher professional fees. General and administrative expenses increased $8.8 million for the first half of 2018 as compared to the same period in the prior year, due primarily to higher personnel related costs, including incremental headcount and share based compensation, and increased professional fees attributed to recently completed acquisitions and debt restructuring costs incurred as part of our January ~~2018~~2019 debt ~~repricing.~~amendment.

Other unallocated corporate expenses were not material to the Company’s ~~operations.~~operations for both the three months ended March 31, 2019 and 2018.

Non-operating income and expense

The following table reflects comparative results for certain amounts excluded from operating ~~income for the three and six months ended June 30, 2018 and 2017:~~income:


	Three Months Ended June 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)					Three Months Ended March 31,						Increase (Decrease)
(In thousands)	2018			2017			Amount			Percent		2018			2017			Amount			Percent		2019			2018			Amount			Percent
Financing interest expense	$	(25,505	)	$	(28,547	)	$	(3,042	)	(11	)%	$	(52,842	)	$	(55,695	)	$	(2,853	)	(5	)%	$	(31,112	)	$	(27,337	)	$	3,775		14	%
Net foreign currency (loss) gain	$	(26,734	)	$	10,525		$	(37,259	)	NM		$	(26,344	)	$	18,967		$	(45,311	)	NM		$	(3,885	)	$	390		$	(4,275	)	NM
Net unrealized gain (loss) on financial instruments	$	2,706		$	(2,264	)	$	4,970		NM		$	16,214		$	(699	)	$	16,913		NM
Net unrealized (loss) gain on financial instruments																							$	(11,912	)	$	13,508		$	(25,420	)	NM
Income taxes	$	13,938		$	10,655		$	3,283		31	%	$	29,527		$	25,190		$	4,337		17	%	$	5,818		$	17,749		$	(11,931	)	(67	)%
Net income (loss) from non-controlling interest	$	142		$	(450	)	$	592		NM		$	843		$	(775	)	$	1,618		NM
Net income from non-controlling interests																							$	74		$	701		$	(627	)	(89	)%

NM - not meaningful

Financing interest expense ~~decreased $3.0 million~~ for the ~~second~~first quarter of ~~2018 as compared to the same period in the prior year. This decrease was~~2019 increased $3.8 million, primarily due to ~~lower~~higher effective interest rates ~~including the impact of $1.3 billion in interest rate swaps~~and outstanding ~~as of June 30, 2018, and a decrease in average~~ borrowings under our 2016 Credit Agreement. Financing interest expense decreased $2.9 million for the first half of June 30, 2018 as compared to the same period in the prior year, as the favorable impact of lower effective interest rates underon our 2016 Credit Agreement, ~~was~~ partly offset by the absence of a loss on debt extinguishment recognized in the ~~extinguishment of debt~~prior year as part of our January 2018 debt repricing.

Our foreign currency exchange exposure is primarily related to the remeasurement of our cash, receivable and payable balances, including intercompany transactions that are denominated in foreign currencies. The Company incurred net foreign currency losses of ~~$26.7 million in the second quarter of 2018 and $26.3~~$3.9 million in the first ~~half~~quarter of ~~2018~~2019, due primarily to losses recognized on intercompany loans resulting from ~~the weakening of three~~a strengthening of the ~~major foreign currencies in which we transact, the Euro,~~ British ~~pound and Brazilian real. During the second quarter and first half of 2017, the Company benefited from the U.S. dollar weakening~~Pound relative to the ~~British pound.~~Euro. During the three months ended March 31, 2018, foreign currency remeasurement did not have a material impact on our operations.

Net unrealized ~~gains~~gain on financial instruments ~~increased $5.0 million for the second quarter of 2018 and $16.9~~decreased $25.4 million for the first ~~half~~quarter of ~~2018~~2019 as compared to the same ~~periods~~period in the prior ~~year. Late in~~year, primarily due to an unrealized loss on the ~~fourth quarter of 2017, the Company entered into two~~Company’s outstanding interest rate swap ~~agreements with aggregate notional amounts of $500.0 million. The favorable impact of our swap agreements resulted~~contracts recognized during the three months ended March 31, 2019, resulting from a decrease in short term interest rates. During the three months ended March 31, 2018, the Company benefited from increases in ~~the variable~~short-term interest ~~rates combined with a higher notional amount of interest rate swaps outstanding.~~rates.

Our effective tax rate was ~~26.1 percent and 25.0~~26.4 percent for the ~~second~~first quarter ~~and first half~~ of ~~2018~~2019 as compared to ~~39.0~~25.2 percent ~~and 35.5 percent in~~for the same ~~periods~~period last year. The ~~decline~~increase in our tax rate was primarily due to ~~the 2017 Tax Act, which reduced the U.S. federal corporate income~~an increase in unrecognized tax ~~rate from 35 percent to 21 percent effective January 1, 2018.~~

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and future clarification and guidance regarding available tax accounting methods and elections, earnings and profits computations, state tax conformity to federal tax changes. As of June 30, 2018, we are still evaluating the effects of the Global Intangible Low Taxed Income (“GILTI”) provisions as guidance and interpretations continue to emerge, however, we do not expect the impact to be material to our financial statements. We have not determined accounting policy of either treating taxes due on future U.S. inclusionsbenefits in taxable income related to GILTI as a current period expense when incurred or factoring such amounts into the Company’s measurement of its deferred taxes. However, the standard requires that we reflect the impact of the GILTI provisions as a period expense until the accounting policy is finalized. Therefore, we have included the provisional estimate of GILTI related to current-year operations in our estimated annual effective tax rate, and will be updating the impact and accounting policy as the analysis related to the GILTI provisions is completed.

2019.

Net income ~~or loss~~ from non-controlling ~~interest~~interests relates to our ~~75 percent ownership stake~~non-controlling interests in WEX Europe ~~Services.~~Services and the U.S. Health business. Such amounts were not material to Company operations for both the ~~second quarter~~three months ended March 31, 2019 and ~~first half of 2018 and 2017.~~2018.

Non–GAAP Financial Measures That Supplement GAAP Measures

The Company’s non-GAAP adjusted net income excludes unrealized gains and losses on financial instruments, net foreign currency remeasurement gains and losses, acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, restructuring and other costs, ~~an impairment charge,~~ debt restructuring and debt issuance cost amortization, similar adjustments attributable to our non-controlling ~~interest~~interests and certain tax related items.

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Although adjusted net income is not calculated in accordance with GAAP, this non-GAAP measure is integral to the Company’s reporting and planning ~~processes;~~processes and the ~~Company’s chief operating decision maker~~CODM of the Company uses segment adjusted operating income to allocate resources among our operating segments. The Company considers this measure integral because it excludes the above-specified items that the Company’s management excludes in evaluating the Company’s performance. Specifically, in addition to evaluating the Company’s performance on a GAAP basis, management evaluates the Company’s performance on a basis that excludes the above items because:

Exclusion of the non-cash, mark-to-market adjustments on financial instruments, including interest rate swap agreements and investment securities, helps management identify and assess trends in the Company’s underlying business that might otherwise be obscured due to quarterly non-cash earnings fluctuations associated with these financial instruments. Additionally, the non-cash, mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future quarters difficult to evaluate.

Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, receivable and payable balances, certain intercompany notes denominated in foreign currencies and any gain or loss on foreign currency hedges relating to these items. The exclusion of these items helps management compare changes in operating results between periods that might otherwise be obscured due to currency fluctuations.

The Company considers certain acquisition-related costs, including certain financing costs, investment banking fees, warranty and indemnity insurance, certain integration-related expenses and amortization of acquired intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In ~~prior periods not reflected above, the Company has adjusted for goodwill impairments, acquisition-related asset impairments and gains and losses on divestitures. In~~ addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses of divestitures facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in our industry.

Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to the Company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time.

Restructuring and other costs are related to certain identified initiatives to further streamline the business, improve the Company’s efficiency, create synergies and to globalize the Company’s operations, all with an objective to improve scale and increase profitability going forward. This also includes other immaterial costs that the Company has incurred and are non-operational and non-recurring. We exclude these items when evaluating our continuing business performance as such items are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business.

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Impairment charge represents a non-cash asset write-off related to our strategic decision to in-source certain technology functions. This charge does not reflect recurring costs that would be relevant to the Company’s continuing operations. The Company believes that excluding this nonrecurring expense facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in its industry.

Debt restructuring and debt issuance cost amortization are unrelated to the continuing operations of the Company. Debt restructuring costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. In addition, since debt issuance cost amortization is dependent upon the financing method which can vary widely company to company, we believe that excluding these costs helps to facilitate comparison to historical results as well as to other companies within our industry.

The adjustments attributable to non-controlling interests, including adjustments to the redemption value of a non-controlling interest, have no significant impact on the ongoing operations of the business.

The tax related items are the difference between the Company’s GAAP tax provision and a pro forma tax provision based upon the Company’s adjusted net income before taxes as well as the impact from certain discrete tax items. The methodology utilized for calculating the Company’s adjusted net income tax provision is the same methodology utilized in calculating the Company’s GAAP tax provision.

For the same reasons, WEX believes that adjusted net income may also be useful to investors as one means of evaluating the Company’s performance. However, because adjusted net income is a non-GAAP measure, it should not be considered as a substitute for, or superior to, net income, operating income or cash flows from operating activities as determined in accordance with GAAP. In addition, adjusted net income as used by WEX may not be comparable to similarly titled measures employed by other companies.

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The following table reconciles net income attributable to shareholders to adjusted net income attributable to shareholders:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2018			2017			2018			2017			2019			2018
Net income attributable to shareholders	$	39,298		$	17,090		$	87,931		$	46,491		$	16,134		$	51,970
Unrealized (gains) losses on financial instruments	(2,706		)	2,264			(16,214		)	699
Net foreign currency remeasurement losses (gains)	26,734			(10,525		)	26,344			(18,967		)
Unrealized loss (gain) on financial instruments													11,912			(13,508		)
Net foreign currency remeasurement loss (gain)													3,885			(390		)
Acquisition-related intangible amortization	34,921			38,114			70,157			76,093			33,888			35,236
Other acquisition and divestiture related items	619			239			1,256			2,374			9,780			637
Stock-based compensation	6,905			7,414			15,860			13,871			10,442			8,955
Restructuring and other costs	630			2,398			6,301			4,145			2,755			5,671
Impairment charge	—			16,175			—			16,175
Debt restructuring and debt issuance cost amortization	2,607			2,209			9,299			4,163			6,496			6,692
ANI adjustments attributable to non-controlling interest	(186		)	(156		)	(538		)	(955		)
ANI adjustments attributable to non-controlling interests													(573		)	(352		)
Tax related items	(17,990		)	(21,022		)	(30,883		)	(37,001		)	(19,895		)	(12,893		)
Adjusted net income attributable to shareholders	$	90,832		$	54,200		$	169,513		$	107,088		$	74,824		$	82,018

Liquidity, ~~and~~ Capital Resources and Cash Flows

We believe that our cash generating capability, financial condition and operations, together with our revolving credit facility, ~~term~~terms loans and notes outstanding, as well as other available methods of financing (including deposits, participation loans, borrowed federal funds and securitization facilities), will be adequate to fund our cash needs for at least the next 12 months.

Our short-term cash requirements consist primarily of funding the working capital needs of our business, payments on maturities and withdrawals of brokered deposits and borrowed federal funds, required capital expenditures, repayments on our credit facility, interest payments on our credit facility and other operating expenses. WEX Bank can fund our short-term domestic cash requirements through the issuance of brokered deposits and borrowed federal funds. Any remaining cash needs are primarily funded through operations. Our long-term cash requirements consist primarily of amounts owed ~~and corresponding interest payments~~ on our 2016 Credit Agreement and Notes, amounts due to Wyndham Worldwide Corporation as part of our tax receivable agreement and various facilities lease agreements.

Undistributed earnings and profits of certain foreign subsidiaries of the Company amounted to an estimated $76.6 million and $58.7 million as of June 30, 2018 and December 31, 2017, respectively. These earnings and profits are considered to be indefinitely reinvested. As discussed in Item 1 – Note 12, Income Taxes, the United States enacted the 2017 Tax Act in December

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2017, which impacted undistributed earnings and profits, among other things. The 2017 Tax Act imposes a one-time “transition tax” on foreign undistributed earnings and profits, which will be included with our 2017 U.S. Income Tax Return. At December 31, 2017, the Company estimated the transition tax and recorded a provisional transition tax obligation of $9.1 million. However, the Company is continuing to gather additional information to more precisely compute the amount of the transition tax and our provisional estimate could change. The Company intends to offset the “transition tax” liability with tax attributes. Upon distribution of these earnings and profits in the form of dividends or otherwise, the Company would be subject to withholding taxes payable to foreign countries, where applicable, and to certain state income taxes, but would have no further federal income tax liability. The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom.

Earnings outside of the United States are accompanied by certain financial risks, such as changes in foreign currency exchange rates. Changes in foreign currency exchange rates may reduce the reported value of our foreign currency revenues, net of expenses, and cash flows. We cannot predict changes in currency exchange rates, the impact of exchange rate changes, nor the degree to which we will be able to manage the impact of currency exchange rate changes.

Undistributed earnings and profits of certain foreign subsidiaries of the Company amounted to an estimated $77.0 million and $64.9 million as of March 31, 2019 and December 31, 2018, respectively. These earnings are considered to be indefinitely reinvested. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to withholding taxes payable, where applicable, to foreign countries, but would have no further federal income tax liability. The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom.

We fund a ~~customer's~~customer’s entire receivable as part of fleet and travel payment processing transactions, while the revenue generated by these transactions is only a small percentage of that amount. As a consequence, cash flows from operations are significantly impacted by changes in accounts receivable and accounts payable balances, which directly impact our capital resource requirements. See discussion of cash flows provided by (used for) ~~provided by~~ operating and financing activities below for more information.

The table below summarizes our cash activities:


	Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2018			2017			2019			2018
Cash flows used for operating activities	$	(77,856	)	$	(91,762	)
Cash flows provided by operating activities							$	70,110		$	87,806
Cash flows used for investing activities	$	(37,385	)	$	(37,438	)	$	(596,866	)	$	(17,126	)
Cash flows (used for) provided by financing activities	$	(68,181	)	$	161,358
Cash flows provided by (used for) financing activities							$	496,060		$	(192,593	)

Operating Activities

Cash ~~used for~~provided by operating activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 decreased ~~$13.9~~$17.7 million as compared to the same period in the prior year, resulting from an increase in accounts receivable due to higher fuel prices and volumes as compared to the same period last year, partly offset by an increase in accounts payable due to higher volumes, a return of collateral as a result of contract renegotiations and higherlower relative net income adjusted for non-cash charges.

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Investing Activities

Cash used for investing activities for the ~~six~~three months ended ~~June 30, 2018 was generally consistent with~~March 31, 2019 increased $579.7 million as compared to the same period in the prior ~~year. For the six months ended June 30, 2018, cash used for investing activities consisted of $34.6~~year, resulting from $568.4 million of ~~capital additions primarily related to the development of internal-use software as we expand globally and provide competitive products and services to our customers.~~payments made for acquisitions.

Financing Activities

Cash ~~used for~~provided by financing activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 increased ~~$229.5~~$688.7 million as compared to the same period in the prior year, primarily due to ~~net repayments under our 2016 Credit Agreement and repayments of deposits as we have taken steps to reduce~~higher overall borrowings in connection with funding the ~~size of our balance sheet exposure. These factors were partly offset by $153.0 million of borrowings as a result of the January 2018 debt repricing.~~acquisitions.

Securitization Facilities

The Company is a party to ~~three~~two securitized debt agreements. Under ~~two of~~ these agreements, our subsidiaries sell trade accounts receivable to bankruptcy-remote subsidiaries consolidated by the Company. Under the third agreement, the Company sells certain unsecured salary advance receivables to an investment fund managed by an unrelated third-party financial institution at a discount relative to the face value of the transferred receivables. Amounts collected on the securitized receivables are restricted to pay the securitized debt and are not available for general corporate purposes. See Part I – Item 1 – Note 9, Financing and Other Debt, for more information regarding these facilities.

Deposits and Borrowed Federal Funds

WEX Bank issues certificates of deposit in various maturities ranging ~~from four weeks~~between one year to ~~three~~five years, with interest rates ranging from ~~1.15~~1.30 percent to ~~2.90 percent and from 1.00 percent to 2.15~~3.52 percent as of ~~June 30, 2018~~both March 31, 2019 and December 31, ~~2017,~~

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~~respectively.~~2018. As of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, we had approximately ~~$759.9~~$768.3 million and ~~$937.7~~$850.8 million of certificates of deposit outstanding, respectively.

WEX Bank also issues money market deposits with interest rates ranging from 2.52 percent to 2.60 percent as of March 31, 2019, and 2.48 percent to 2.53 percent as of December 31, 2018. As of ~~June 30, 2018,~~March 31, 2019, we had approximately ~~$317.7~~$238.9 million of interest-bearing brokered money market deposits with a weighted average interest rate of ~~2.12~~2.55 percent, compared to ~~$285.9~~$283.8 million of interest-bearing brokered money market deposits at December 31, ~~2017,~~2018, with a weighted average interest rate of ~~1.49~~2.49 percent.

WEX Bank may issue additional brokered deposits without limitation, subject to FDIC rules governing minimum financial ratios, which include risk-based asset and capital requirements. As of ~~June 30, 2018,~~March 31, 2019, all brokered deposits were in denominations of $250 thousand or less, corresponding to FDIC deposit insurance limits. Interest-bearing brokered money market funds may be withdrawn at any time. We believe that our brokered deposits are paying competitive yields and that there continues to be consumer demand for these instruments.

We also carry non-interest bearing deposits that are required for certain customers as collateral for their credit accounts. We had ~~$77.0~~$128.4 million and ~~$70.2~~$138.1 million of these deposits on hand at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

WEX Bank also borrows from uncommitted federal lines of credit ~~on a federal funds rate basis~~ to supplement the financing of our accounts receivable. Our federal funds lines of credit were ~~$150.0~~$327.4 million and $309.0 million as of ~~June 30, 2018. There was $44.0 million~~March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019 there were outstanding ~~on these lines~~borrowings of ~~credit as of June 30, 2018.~~$0.6 million. There were no outstanding borrowings as of December 31, ~~2017.~~2018.

The Bank is required to maintain reserves against a percentage of certain customer deposits by keeping balances with the Federal Reserve Bank. The required reserve based on the outstanding customer deposits was $11.2 million and $11.1 million at March 31, 2019 and December 31, 2018, respectively.

2016 Credit Agreement

~~The~~As of December 31, 2018, the 2016 Credit Agreement, ~~provides~~as amended provided for a secured tranche A ~~and~~term loan in an original principal amount of $480.0 million, a secured tranche B term loan ~~facilities~~ in ~~amounts equal to $455.0 million and~~the original principal amount of $1.3 billion ~~respectively,~~ and a ~~$570.0~~$720.0 million secured revolving credit facility, with a $250.0 million sublimit for letters of credit and $20.0 million sublimit for swingline loans. The amounts due under the 2016 Credit Agreement, as amended, mature in July 2023, subject to certain adjustments. On January 18, 2019, the Company entered into a Fifth Amendment to the 2016 Credit Agreement, which provided for an additional tranche A term loans in the principal amount of $300.0 million, increasing the outstanding principal on the tranche A term loans to $723.7 million as of such date. In addition, subject to certain conditions, the amendment provides delayed draw commitments for an incremental $275.0 million tranche A term loan and an incremental $25.0 million of revolving credit commitments (subject to conversion of the delayed draw incremental tranche A term loan commitments and incremental revolving credit commitments to commitments of the other type). On March 5, 2019, the Company drew down this commitment in order to fund the acquisition

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of Discovery Benefits, consisting of $250.0 million in tranche A term loans and an incremental $50.0 million of revolving credit commitments. Under the 2016 Credit Agreement, ~~amounts due under~~ the ~~revolving credit facility~~Company has granted a security interest in certain assets of the Company, subject to exceptions including the assets of WEX Bank and certain foreign subsidiaries.

Incremental loans of up to the tranche A term loan facility mature in July 2021, while amounts due under the tranche B term loan facility mature in July 2023. Prior to maturity, amounts under the credit facility will be reduced by mandatory quarterly paymentsgreater of ~~$5.7~~$375.0 million and ~~$3.4 million for tranche A~~50 percent of consolidated EBITDA, plus the amount of certain prepayments and ~~tranche B term loan facilities, respectively. On January 17, 2018, the Company repriced the secured term loans~~plus an unlimited amount subject to satisfaction of a consolidated leverage ratio test could be made available under the 2016 Credit Agreement ~~which reduced~~upon the ~~applicable interest rate margin for~~request of the ~~Company’s tranche B term loan facility by 50 basis points for both Eurocurrency Rate (as defined in~~Company subject to specified terms and conditions, including receipt of lender commitments. Proceeds from the 2016 Credit ~~Agreement) borrowings~~Agreement may be used for working capital purposes, acquisitions, payment of dividends and ~~base rate borrowings.~~other restricted payments, refinancing of indebtedness and other general corporate purposes.

~~Our credit agreements contain~~

The 2016 Credit Agreement contains various financial covenants requiring us to maintain certain financial ratios. In addition to the financial covenants, the ~~credit agreements contain~~2016 Credit Agreement contains various customary restrictive covenants including restrictions in certain situations on the payment of dividends. WEX Bank is not subject to certain of these restrictions. We were in compliance with all material covenants and restrictions at ~~June 30, 2018. WEX Bank is not subject to certain of these restrictions.~~March 31, 2019.

As of ~~June 30, 2018,~~March 31, 2019, we had no$169.2 million in borrowings against our ~~$570.0~~$770.0 million revolving credit ~~facility. After considering outstanding letters of credit, our borrowing capacity under this revolving credit~~ facility, ~~was $516.3 million as of June 30, 2018.~~which terminates in July 2023 (subject to earlier termination if certain long-term debt is not repaid or refinanced by specified dates). The combined outstanding debt under ~~our~~out tranche A term loan facility and our tranche B term loan facility totaled ~~$1.7~~$2.3 billion at ~~June 30, 2018.~~March 31, 2019. Prior to maturity, amounts borrowed under the credit facility will be reduced by mandatory quarterly payments of $12.5 million and $3.4 million for tranche A and tranche B term loan facilities, respectively. As of ~~June 30, 2018,~~March 31, 2019, amounts outstanding under the 2016 Credit Agreement bore a ~~weighted~~weighed average effective interest rate of ~~4.4~~4.6 percent.

See Part I – Item 1 – Note 9, Financing and Other Debt, in this report and Part I – Item 1 – Note ~~13,~~15, Financing and Other Debt, in the notes to the consolidated financial statements in our Annual Report on Form 10–K for the fiscal year ended December 31, ~~2017~~2018 for further information regarding the 2016 Credit Agreement.

WEX Latin America Debt

WEX Latin America had debt of approximately ~~$7.9~~$17.1 million and ~~$9.7~~$16.2 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. This is ~~composed~~comprised of credit facilities held in Brazil and loan arrangements related to our accounts ~~receivable. The average~~receivable, with various maturity dates. As of March 31, 2019 and December 31, 2018, the interest rate was ~~16.9~~24.74 percent and ~~21.2~~23.59 percent, ~~as of June 30, 2018 and December 31, 2017,~~ respectively. ~~These borrowings are recorded in short-term debt, net on the Company’s unaudited condensed consolidated balance sheets for the periods presented.~~

Participation Debt

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a variable interest rate of 1 month to 3 month LIBOR plus a margin of 225 basis points. ~~The balance~~Amounts outstanding under the participation agreements as of ~~the debt was approximately $204.5 million and $185.0 million at June 30, 2018 and December~~March 31, ~~2017, respectively. The commitment will mature in amounts of $85.0~~2019 were $5.7 million and $50.0 million and were recorded in short-term debt, net and long-term debt, net, respectively, based on ~~August 28,~~the contractual termination of the agreements. Amounts outstanding under the participation agreements as of December 31, 2018 were $64.8 million and ~~August~~$50.0 million and were recorded in short-term debt, net and long-term debt, net, respectively, based on the contractual termination of the agreement. The Company had total funding capacity of $180.0 million at both March 31, ~~2020, respectively, with the remaining $69.5 million maturing on demand.~~2019 and December 31, 2018 under these agreements.

WEX Europe Services Accounts Receivable Factoring

During the first quarter of 2017, WEX Europe Services ~~uses~~entered into a ~~substantially non-recourse~~ factoring arrangement ~~to sell receivables to a~~with an unrelated third-party financial institution (the “Purchasing Bank”) to ~~manage~~sell certain of its ~~working capital~~accounts receivable in order to accelerate the collection of the Company’s cash and ~~cash flows.~~reduce the internal costs, thereby improving liquidity. Under this arrangement, the Purchasing Bank establishes a credit limit for each customer account. The factored receivables are without recourse to the extent that the customer balances are maintained at or below the established credit limit. The Company obtained a true sale opinion from an independent attorney, which states that the factoring agreement creates a sale of receivables under local law for amounts transferred both below and above the established credit limits. Additionally, there are no indications of the Company’s continuing involvement in the factored receivables. As a result, the Purchasing Bank is deemed the purchaser of these receivables and is entitled to enforce payment of these amounts from the debtor. Available capacity is dependent on the level of our trade accounts receivable eligible to be sold and the financial ~~institutions’~~institution’s willingness to purchase such receivables. As such, ~~these~~this factoring ~~arrangements~~arrangement can be reduced or eliminated at any time due to market conditions and changes in the credit worthiness of our customers, which would negatively impact our liquidity.

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WEX Bank Accounts Receivable Factoring

In August 2018, WEX Bank entered into a receivables purchase agreement with an unrelated third-party financial institution to sell certain of our trade receivables under non-recourse transactions. WEX Bank continues to service the receivables post-transfer with no participating interest. The Company obtained a true-sale opinion from an independent attorney, which states that the factoring agreement provides legal isolation upon WEX Bank bankruptcy or receivership under local law. As such, transfers under this arrangement are treated as a sale. Proceeds from the sale are reported net of negotiated discount rate and are accounted for as a reduction in trade receivables because the agreements transfer effective control of the receivables to the buyer.

WEX Latin America Securitization of Receivables

During the second quarter of 2017, WEX Latin America entered into a securitized debt agreement to transfer certain unsecured receivables associated with our salary payment card product to an investment fund managed by an unrelated third-party financial institution. As of December 31, 2017 and through June 30, 2018, this securitization arrangement did not meet the derecognition conditions due to continuing involvement with the transferred assets and accordingly WEX Latin America reported the transferred receivables and securitized debt on our unaudited condensed consolidated balance sheets.

During the third quarter of 2018, the securitization agreements were amended, resulting in the Company giving up effective control of the transferred receivables to the buyer. Additionally, the Company received a true-sale opinion from an independent attorney stating that the amended agreements provide legal isolation upon WEX Latin America bankruptcy or receivership under local law. As such, the securitization arrangement meets the derecognition conditions and transfers under this arrangement are treated as a sale and are accounted for as a reduction in trade receivables. See Part I – Item 1 – Note 10, ~~Off–Balance~~Off-Balance Sheet ~~Arrangement, to the unaudited condensed consolidated financial statements of this Form 10–Q~~Arrangements, for further information.

Other Liquidity Matters

At ~~June 30, 2018,~~March 31, 2019, we had variable-rate borrowings of ~~$1.7~~$2.4 billion under our 2016 Credit Agreement. We periodically review our projected borrowings under our 2016 Credit Agreement and the current interest rate environment in order to ascertain whether interest rate swaps should be used to reduce our exposure to interest rate volatility. ~~We maintain five~~As of March 31, 2019 we maintained seven interest rate swap contracts that mature between December ~~2018~~2020 and ~~December 2022.~~March 2023. Collectively, these derivative contracts are intended to fix the future interest payments associated with ~~$1.3~~$1.5 billion of our variable rate borrowings at between ~~0.896%~~1.108 percent and ~~2.212%.~~2.425 percent. See Part I – Item 1 – Note 7, Derivative Instruments, and Note 11, Fair Value, for further information.

We currently have authorization from our board of directors to purchase up to $150 million of our common stock until September 2021, which is entirely unused as of ~~June 30, 2018.~~March 31, 2019. The program is funded either through our future cash flows or through borrowings on our 2016 Credit Agreement. Share repurchases are made on the open market and may be commenced or suspended at any time. The Company’s management, based on its evaluation of market and economic conditions and other factors, determines the timing and number of shares repurchased.

The Company’s subsidiary, WEX Bank, is subject to various regulatory capital requirements administered by the FDIC and the Utah Department of Financial Institutions. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, WEX Bank must meet specific capital guidelines that involve quantitative measures of WEX Bank’s assets, liabilities and certain off-balance sheet items. WEX Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements can ~~result in the initiation of~~initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a material adverse effect on our business, results of operations and financial condition.

Qualitative measures established by regulation to ensure capital adequacy require WEX Bank to maintain minimum amounts and ratios as defined in the regulations. As of ~~June 30, 2018,~~March 31, 2019, WEX Bank met all the requirements to be deemed “well-capitalized” pursuant to FDIC regulation and for purposes of the Federal Deposit Insurance Act. See Part I – Item 1 – Note ~~17, Supplementary~~19, Supplemental Regulatory Capital Disclosure, for further information.

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~~Board of ~~directors~~Directors of the Company and (iii) payable only out of the Company’s surplus or current net profits in accordance with the General Corporation Law of the State of Delaware.

The Company has certain restrictions on the dividends it may pay under its revolving credit agreement, including ~~the requirement to maintain~~ pro forma compliance with a ratio of consolidated funded indebtedness to consolidated EBITDA of less than 2.50:1.00 for the most recent period of four fiscal quarters.

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Off–Balance Sheet Arrangements

Even though off-balance sheet arrangements are not recorded as liabilities under GAAP, such arrangements may potentially impact our liquidity, capital resources and results of operations. These arrangements serve a variety of business purposes, however the Company is not dependent on them to maintain its liquidity and capital resources. ~~The Company is~~We are not aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on liquidity and capital resources. As of ~~June 30, 2018,~~March 31, 2019, we had posted letters of credit totaling approximately ~~$53.7~~$53.5 million as collateral under the terms of our lease agreement for our corporate offices, other corporate matters and for payment processing activity at certain foreign subsidiaries.

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~~Contractual Obligations~~

On January 17, 2018, the Company repriced the secured term loans under the 2016 Credit Agreement, which reduced the applicable interest rate margin for the Company’s tranche B term loan facility by 50 basis points for both LIBOR borrowings and base rate borrowings. The Company also increased the outstanding amounts under these tranche B term loans from $1.182 billion to $1.335 billion. All other contractual obligations are consistent with those disclosed in our Annual Report on Form 10–K for the year ended December 31, 2017.

Critical Accounting Policies and Estimates

~~As of January 1, 2018, we adopted the new revenue recognition standard using the modified retrospective approach.There were three primary impacts on the Company of adopting Topic 606.~~

~~Certain amounts paid to partners in our Fleet Solutions and Travel and Corporate Solutions segments~~We have been determined to fall under the “cost to obtain a contract” guidance. As a result, these amounts, which were previously presented as a reduction of revenues, are now reflected within sales and marketing on our unaudited condensed consolidated statements of income. This change increased both reported revenues and expenses for the three and six months ended June 30, 2018 by approximately $16.2 million and $31.1 million, respectively.

Network fees paid to third party payment processing networks by all three of our segments, but primarily by our Travel and Corporate Solutions segment, are now presented as a reduction of revenues in our unaudited condensed consolidated statements of income. Prior to January 1, 2018, these amounts were included within service fees. This change reduced both reported revenues and expenses by approximately $4.4 million and $10.0 million, respectively, for the three and six months ended June 30, 2018.

Certain costs to obtain a contract, such as sales commissions, are to be capitalized and amortized over the life of the customer relationship, with a practical expedient available for contracts under one year in duration. The vast majority of the Company’s commissions will continue to be expensed as incurred.

As of January 1, 2018, we recorded $0.6 million cumulative-effect adjustment, net of the associated tax effect, related to the deferral of capitalizable costs to obtain a contract within our Health and Employee Benefit Solutions segment. These commissions will be amortized to sales and marketing expense over a useful life which considers the contract term, our commission policy, renewal experience and the transfer of services to which the asset relates.

See Part I – Item 1 – Note 3, Revenue, to the unaudited condensed consolidated financial statements of this Form 10–Q for further information regarding the adoption of the new revenue standard.

~~Other than this adoption, there have been~~ no material changes to ~~the~~our critical accounting policies and estimates discussed in our Annual Report on Form 10–K for the year ended December 31, ~~2017.~~2018.

Recently Adopted Accounting Standards

See Part I – Item 1 – Note 2, Recent Accounting Pronouncements, to the unaudited condensed consolidated financial ~~Statements~~statements of this Form 10–Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

WeAs of March 31, 2019, we have no material changes to the market risk disclosures in our Annual Report on Form 10–K for the year ended December 31, ~~2017.~~2018.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the principal executive officer and principal financial officer of WEX Inc. evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~June 30, 2018.~~March 31, 2019. “Disclosure controls and procedures” are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including

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its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. ~~Based~~

As disclosed in our Annual Report on ~~their evaluation,~~Form 10–K, Item 9A, for the ~~principal executive officer and principal financial officer of WEX Inc.~~year ended December 31, 2018, management concluded that our internal control over financial reporting was not effective at December 31, 2018. As of this date, management identified material weaknesses in internal control over financial reporting relating to the following control deficiencies:

We did not maintain an effective control environment at our Brazilian subsidiary as evidenced by: (i) an insufficient number of personnel with an appropriate level of knowledge of the Company’s ~~disclosure~~processing platforms and overall financial reporting process, and (ii) an insufficient number of personnel appropriately qualified to perform control activities.

We did not have control activities that were designed and operating effectively at our Brazilian subsidiary as evidenced by: (i) reconciliation of balance sheet accounts not being prepared consistently, (ii) lack of precision in review controls to identify all potential errors and (iii) lack of oversight and approval of journal entries.

We did not have sufficient monitoring activities in place to ensure effective corporate oversight and monitoring of control activities at our individually insignificant subsidiaries.

We are actively engaged in the implementation of a remediation plan to ensure that controls contributing to the material weaknesses are designed appropriately and will operate effectively. The remediation actions that we are taking and expect to take include the following:

Evaluating the sufficiency, experience, and training of our internal personnel at our Brazilian subsidiary and hiring additional qualified personnel or using external resources.

Implementing control activities at our Brazilian subsidiary that address relevant financial statement risks, including account reconciliations, variance analysis and journal entry procedures.

Implementing additional corporate monitoring activities over our individually insignificant subsidiaries.

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Management believes that these efforts will effectively remediate the material weaknesses. However, the material weaknesses in our internal control over financial reporting will not be considered remediated until the new controls are fully implemented, in operation for a sufficient period of time, and tested and concluded by management to be designed and operating effectively. We cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. Management will test, evaluate, and audit the implementation of these new processes and internal controls during fiscal 2019 to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material error in the Company’s financial statements. Subject to the foregoing, management is working towards having these remediation efforts completed by the time we issue our December 31, 2019 financial statements. Management is committed to continuous improvement of our internal control over financial reporting and will continue to diligently review our financial reporting controls and procedures.

As described in Part I – Item 1 – Note 1, Basis of Presentation, of our unaudited condensed consolidated financial statements, the Company has revised prior period financial statements to correct for the errors resulting from the material weaknesses described above. As a result of the procedures ~~were effective as~~performed to correct these errors, we believe that the consolidated financial statements included in this Quarterly Report on Form 10–Q fairly present, in all material respects, our financial position, results of ~~June 30, 2018.~~operations and cash flows for the periods presented in conformity with GAAP.

We believe that the remediation measures described above will strengthen our internal control over financial reporting and remediate the material weaknesses we have identified. We expect that our remediation efforts, including design, implementation and testing will continue throughout fiscal year 2019.

Changes in Internal Control Over Financial Reporting

~~There~~Other than the remediation efforts on the material weakness identified above, there has been no change in our internal control over financial reporting during the quarter ended ~~June 30, 2018,~~March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

As of the date of this filing, we are not involved in any material legal proceedings. We also were not involved in any material legal proceedings that were terminated during the ~~second~~first quarter of ~~2018.~~2019. However, from time to time, we are subject to legal proceedings and claims in the ordinary course of business. As of the date of this filing, the current estimate of a reasonably possible loss contingency from all legal proceedings is not material to the Company’s consolidated financial position, results of operations, cash flows or liquidity.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10–K for the year ended December 31, ~~2017,~~2018, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10–K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On September 20, 2017, our board of directors approved a share repurchase program authorizing the purchase of up to $150 million of our common stock expiring on September 2021. Share repurchases are to be made on the open market and can be commenced or suspended at any time.

We did not purchase any shares of our common stock during the quarter ended ~~June 30, 2018.~~March 31, 2019. The approximate dollar value of shares that were available to be purchased under our share repurchase program was $150 million as of ~~June 30, 2018.~~March 31, 2019.

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Item 6. Exhibits.



	Exhibit No.	Description
	3.1	Certificate of Incorporation (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8–K filed with the SEC on March 1, 2005, File No. 001-32426)
	3.2	Certificate of Ownership and Merger merging WEX Transitory Corporation with and into Wright Express Corporation (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on October 30, 2012, File No. 001-32426)
	3.3	Amended and Restated By-Laws of WEX Inc. (incorporated by reference to Exhibit No. 3.1 to our Current Report on Form 8-K filed with the SEC on ~~October 30, 2012,~~April 16, 2019, File No. 001-32426)
	10.1	Fifth Amendment to Credit Agreement, dated as of January 18, 2019, by and among WEX Inc., the subsidiaries of WEX Inc. identified therein, the lenders party thereto, the Incremental Term A-3 Lenders (as defined therein), the Incremental Revolving Lenders (as defined therein), and Bank of America, N.A., as administrative agent, swing line lender and L/C issuer. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8–K filed with the SEC on January 22, 2019)
	10.2	Consent and Amendment Under Credit Agreement, dated as of February 27, 2019, by and among WEX Inc., the subsidiaries of WEX Inc. identified therein, the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K field with the SEC on March 1, 2019)
*	31.1	Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended
*	31.2	Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended
*	32.1	Certification of Chief Executive Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
*	32.2	Certification of Chief Financial Officer of WEX INC. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code
*	101.INS	XBRL Instance Document
*	101.SCH	XBRL Taxonomy Extension Schema Document
*	101.CAL	XBRL Taxonomy Calculation Linkbase Document
*	101.LAB	XBRL Taxonomy Label Linkbase Document
*	101.PRE	XBRL Taxonomy Presentation Linkbase Document
*	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document



*	These exhibits have been filed with this Quarterly Report on Form 10–Q.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	WEX INC.

~~August 8, 2018~~May 10, 2019	By:	/s/ Roberto Simon
		Roberto Simon
		Chief Financial Officer
		(principal financial officer and principal accounting officer)

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	Six Months Ended June 30, 2017
(In thousands)	Fleet Solutions		Travel and Corporate Solutions		Health and Employee Benefit Solutions		Total
Revenues
Payment processing revenue	$	173,940	$	75,151	$	28,641	$	277,732
Account servicing revenue	77,380		322		49,514		127,216
Finance fee revenue	72,981		382		12,094		85,457
Other revenue	66,826		26,858		11,152		104,836
Total revenues	$	391,127	$	102,713	$	101,401	$	595,241

Interest income	$	1,820	$	361	$	12,354	$	14,535