|View printer-friendly version|
WEX Inc. Reports First Quarter 2017 Financial Results
First Quarter 2017 Financial Results
Total revenue for the first quarter of 2017 increased 41% to
Net earnings attributable to shareholders on a GAAP basis increased
“I am pleased to report a strong start to the year, highlighted by a top
line beat and bottom line results at the upper end of our guidance
Smith continued, “Overall, our performance this quarter is a result of our leading customer service, strategic partnerships and innovative product offerings. We look forward carrying this momentum through 2017 as we open up additional market growth opportunities, establish new client relationships, and solidify existing ones."
First Quarter 2017 Performance Metrics
- Average number of vehicles serviced worldwide was approximately 10.6 million, an increase of 11% from the first quarter of 2016.
- Total fuel transactions processed increased 24% from the first quarter 2016 to 123.9 million. Payment processing transactions increased 15% to 102.8 million.
Average expenditure per payment processing transaction was
$68.90, which represents an increase of 42% from the first quarter of 2016.
U.S. retail fuel price increased 22% to
$2.40per gallon from $1.97per gallon in the first quarter of 2016.
Total Travel and Corporate Solutions card purchase volume grew 35% to
$6.6 billion, from $4.9 billionin the first quarter of 2016.
Total Healthand Benefits Solutions purchase volume grew 23% to $1.3 billion, from $1.1 billionin the first quarter of 2016.
Financial Guidance and Assumptions
The Company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis, due to the uncertainty and indeterminate amount of certain elements that are included in reported GAAP earnings.
For the full year 2017, the Company expects revenue in the range of
$1.165 billion to $1.205 billionand adjusted net income in the range of $221 million to $237 million, or $5.15 to $5.50per diluted share.
For the second quarter of 2017, WEX expects revenue in the range of
$286 million to $296 millionand adjusted net income in the range of $51 million to $54 million, or $1.19 to $1.26per diluted share.
"The entire organization performed well this past quarter, with our net
revenue growing in excess of 40%, in part due to the return on the
investments we made in 2016. As we continue our progress in 2017, we
expect to further strengthen our financial position, continue to drive
organic growth, and further expand into high-value, attractive markets,"
Second quarter 2017 guidance is based on an assumed average U.S. retail
fuel price of
The Company's guidance also assumes that second quarter 2017 fleet credit loss will range between 11 and 16 basis points, and full year 2017 fleet credit loss will range between 10 and 15 basis points.
The Company's adjusted net income guidance, which is a non-GAAP measure, excludes unrealized gains and losses on derivative instruments, net foreign currency remeasurement gains and losses, acquisition and divestiture related items, stock-based compensation, restructuring and other costs, debt issuance cost amortization, similar adjustments attributed to our non-controlling interest and certain tax related items.
Management uses the non-GAAP measures presented within this news release to evaluate the Company's performance on a comparable basis. Management believes that investors may find these measures useful for the same purposes, but cautions that they should not be considered a substitute for, or superior to, disclosure in accordance with GAAP.
WEX historically used fuel-price derivative instruments to mitigate
financial risks associated with the variability in fuel prices in
To provide investors with additional insight into its operational
performance, WEX has included in this news release in Exhibit 2, a table
illustrating the impact of foreign currency translations and fuel prices
for each of our operating segments for the three months ended
Conference Call Details
In conjunction with this announcement, WEX will host a conference call
This news release contains forward-looking statements, including
statements regarding: management’s expectations for future growth
opportunities; market growth opportunities; trajectory for future
growth; client expansion; business momentum; strengthening of financial
position; expansion into high-value markets; financial guidance; and,
assumptions underlying the Company's financial guidance. Any statements
that are not statements of historical facts may be deemed to be
forward-looking statements. When used in this news release, the words
"may," "could," "anticipate," "plan," "continue," "project," "intend,"
"estimate," "believe," "expect" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain such words. These forward-looking statements are
subject to a number of risks and uncertainties that could cause actual
results to differ materially, including: 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 to
successfully integrate the Company's acquisitions, including
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three months ended
|Payment processing revenue||$||136,378||$||111,057|
|Account servicing revenue||61,539||44,522|
|Finance fee revenue||43,372||23,506|
|Salary and other personnel||
|Provision for credit losses||12,231||3,917|
|Technology leasing and support||12,516||11,076|
|Occupancy and equipment||6,367||5,712|
|Depreciation and amortization||49,238||22,264|
|Operating interest expense||4,848||1,386|
|Cost of hardware and equipment sold||1,029||905|
|Total operating expenses||230,605||164,801|
|Financing interest expense||(27,148||)||(21,558||)|
|Net foreign currency gain||8,442||16,124|
|Net unrealized gains on interest rate swap agreements||1,565||—|
|Net realized and unrealized gain on fuel price derivatives||—||711|
|Income before income taxes||43,611||36,404|
|Less: Net (loss) gain from non-controlling interest||(325||)||135|
|Net earnings attributable to shareholders||$||29,401||$||23,086|
|Net earnings attributable to WEX Inc. per share:|
|Weighted average common shares outstanding:|
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|Cash and cash equivalents||$||203,995||$||190,930|
|Accounts receivable (less reserve for credit losses of $23,566 in 2017 and $20,092 in 2016)||2,246,815||2,054,701|
|Securitized accounts receivable, restricted||101,185||97,417|
|Income taxes receivable||9,792||10,765|
|Property, equipment and capitalized software (net of accumulated depreciation of $240,160 in 2017 and $228,336 in 2016)||171,254||167,278|
|Deferred income taxes, net||7,042||6,934|
|Other intangible assets, net||1,228,670||1,265,468|
|Liabilities and Stockholders’ Equity|
|Revolving line-of-credit facilities and term loans, net||1,795,640||1,599,291|
|Deferred income taxes, net||163,465||152,906|
|Notes outstanding, net||395,718||395,534|
|Amounts due under tax receivable agreement||47,302||47,302|
|Commitments and contingencies|
Common stock $0.01 par value; 175,000 shares authorized; 47,327 shares issued in 2017 and 47,173 in 2016; 42,899 shares outstanding in 2017 and 42,841 in 2016
|Additional paid-in capital||545,135||547,627|
|Accumulated other comprehensive loss||
|Treasury stock at cost; 4,428 shares in 2017 and 2016||(172,342||)||(172,342||)|
|Total stockholders’ equity||1,549,218||1,505,747|
|Total liabilities and stockholders’ equity||$||6,175,762||$||5,997,097|
Reconciliation of GAAP Net Earnings Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders
(in thousands, excepts per share data)
Three months ended
|Net earnings attributable to shareholders||$||29,401||$||0.68||$||23,086||$||0.59|
|Unrealized (gains) losses on derivative instruments||(1,565||)||(0.04||)||5,007||0.13|
|Net foreign currency remeasurement gain||(8,442||)||(0.20||)||(16,124||)||(0.42||)|
|Acquisition and divestiture related items||40,114||0.93||27,945||0.72|
|Restructuring and other costs||1,747||0.04||1,589||0.04|
|Debt issuance cost amortization||1,954||0.05||772||0.02|
|ANI adjustments attributable to non-controlling interest||(799||)||(0.02||)||69||—|
|Tax related items||(15,979||)||(0.37||)||(8,515||)||(0.22||)|
|Adjusted net income attributable to shareholders||$||52,888||$||1.23||$||38,072||$||0.98|
The Company's non-GAAP adjusted net income excludes unrealized gains and losses on derivatives, net foreign currency remeasurement gains and losses, acquisition and divestiture related items, stock-based compensation, restructuring and other costs, debt issuance cost amortization, similar adjustments attributed to our non-controlling interest and certain tax related items.
Although adjusted net income is not calculated in accordance with generally accepted accounting principles (GAAP), this non-GAAP measure is integral to the Company's reporting and planning processes and the chief operating decision maker of the Company uses pre-tax adjusted income to allocate resources. The Company considers this measure integral because it excludes 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 derivative instruments, including fuel price related derivatives and interest rate swap agreements, 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 derivative contracts. The non-cash, mark-to-market adjustments on derivative 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, ticking fees, 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 and acquisition related asset impairments. 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 costs are related to employee termination benefits from 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. 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 provide insight into the fundamentals of current or past operations of our business.
- Debt issuance cost amortization is a non-cash item and is unrelated to the continuing operations of the Company. Because these costs are 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, and the non-cash adjustments related to tax receivable agreement have no significant impact on the ongoing operations of the business.
- The tax related items are the difference between the Company’s U.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 U.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. The Company is unable to reconcile our adjusted net income guidance to the comparable GAAP measure because of the difficulty in predicting the amounts to be adjusted.
The table below shows the impact of certain macro factors on reported revenue:
Segment Revenue Results
Travel and Corporate
Health and Employee
|Total WEX Inc.|
|Three months ended March 31,|
|FX impact (favorable) / unfavorable||81||—||915||—||(1,861||)||—||(865||)||—|
|PPG impact (favorable) / unfavorable||(15,431||)||—||—||—||—||—||(15,431||)||—|
To determine the impact of foreign exchange translation (“FX”) on revenue, revenue from entities whose functional currency is not denominated in U.S. dollars, as well as revenue from purchase volume transacted in non-U.S. denominated currencies, were translated using the weighted average exchange rates for the same period in the prior year.
To determine the impact of price per gallon of fuel (“PPG”) on revenue, revenue variable to changes in fuel prices was calculated based on the average retail price of fuel for the same period in the prior year for the portion of our business that earns revenue based on a percentage of fuel spend. For the portions of our business that earns revenue based on margin spreads, revenue was calculated utilizing the comparable margin from the prior year.
The table below shows the impact of certain macro factors on Adjusted Net Income:
Segment Estimated Earnings Impact
Travel and Corporate
Health and Employee
|Three months ended March 31,|
|FX impact (favorable) / unfavorable||$||56||—||$||254||—||$||(307||)||—|
|PPG impact (favorable) / unfavorable||(8,875||)||—||—||—||—||—|
|Realized gain on hedge settlement||—||3,636||—||—||—||—|
To determine the estimated earnings impact of FX, revenue and expenses from entities whose functional currency is not denominated in U.S. dollars, as well as revenue and variable expenses from purchase volume transacted in non-US denominated currencies, were translated using the weighted average exchange rates for the same period in the prior year, net of tax and non-controlling interest where applicable.
To determine the estimated earnings impact of PPG, revenue and certain variable expenses impacted by changes in fuel prices, were adjusted based on the average retail price of fuel for the same period in the prior year for the portion of our business that earns revenue based on a percentage of fuel spend, net of applicable taxes. For the portions of our business that earn revenue based on margin spreads, revenue was adjusted to the comparable margin from the prior year, net of non-controlling interest and applicable taxes.
Selected Non-Financial Metrics
|Q1 2017||Q4 2016||Q3 2016||Q2 2016||Q1 2016|
|Fleet Solutions – Payment Processing Revenue:|
|Payment processing transactions (000s)||102,765||99,662||102,947||94,155||89,097|
|Gallons per payment processing transaction||27.0||27.4||27.0||22.6||22.7|
|Payment processing gallons of fuel (000s)||2,775,590||2,731,994||2,776,622||2,126,372||2,018,310|
|Average US fuel price (US$ / gallon)||$||2.40||$||2.30||$||2.24||$||2.29||$||1.97|
|Average Australian fuel price (US$ / gallon)||$||3.76||$||3.50||$||3.45||$||3.29||$||3.10|
|Payment processing $ of fuel (000s)||$||7,080,117||$||6,672,281||$||6,593,406||$||5,236,151||$||4,336,399|
|Net payment processing rate||1.22||%||1.23||%||1.26||%||1.35||%||1.44||%|
|Payment processing revenue (000s)||$||86,262||$||81,767||$||83,132||$||70,711||$||62,290|
|Travel and Corporate Solutions – Payment Processing Revenue:|
|Purchase volume (000s)||$||6,599,797||$||6,351,741||$||7,138,956||$||5,595,326||$||4,879,001|
|Net interchange rate||0.53||%||0.71||%||0.74||%||0.77||%||0.71||%|
|Payment processing revenue (000s)||$||34,875||$||45,390||$||52,551||$||43,194||$||34,626|
|Health and Employee Benefit Solutions:|
|Purchase volume (000s)||$||1,347,219||$||803,045||$||875,598||$||1,051,839||$||1,092,552|
Definitions and explanations:
Payment processing transactions represents the total number of purchases made by fleets that have a payment processing relationship with WEX.
Payment processing gallons of fuel represents the total number of gallons of fuel purchased by fleets that have a payment processing relationship with WEX.
Payment processing dollars of fuel represents the total dollar value of the fuel purchased by fleets that have a payment processing relationship with WEX.
Net payment processing rate represents the percentage of the dollar value of each payment processing transaction that WEX records as revenue from merchants less any discounts given to fleets or strategic relationships.
Purchase volume in the Travel and Corporate Solutions segment represents the total dollar value of all transactions that use WEX corporate card products and virtual card products.
Net interchange rate represents the percentage of the dollar value of each transaction that WEX records as revenue less any discounts given to customers.
Purchase volume in the Health and Employee Benefit Solutions segment represents the total US dollar value of all transactions where interchange is earned by WEX.
Segment Revenue Information
Three months ended
|Payment processing revenue||$||86,262||$||62,290||$||23,972||38.5||%|
|Account servicing revenue||36,069||25,438||10,631||41.8||%|
|Finance fee revenue||36,429||21,938||14,491||66.1||%|
|Travel and Corporate Solutions|
Three months ended
|Payment processing revenue||$||34,875||$||34,626||$||249||0.7||%|
|Account servicing revenue||155||272||(117||)||(43.0||)%|
|Finance fee revenue||223||75||148||197.3||%|
|Health and Employee Benefit Solutions|
Three months ended
|Payment processing revenue||$||15,241||$||14,141||$||1,100||7.8||%|
|Account servicing revenue||25,315||18,812||6,503||34.6||%|
|Finance fee revenue||6,720||1,493||5,227||350.1||%|