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WEX Inc. Reports Second Quarter 2013 Financial Results

Strong volume and transaction growth drive quarterly results to high end of guidance

SOUTH PORTLAND, Maine--(BUSINESS WIRE)--Jul. 31, 2013-- WEX Inc. (NYSE: WEX), a leading provider of corporate payment solutions, today reported financial results for the three months ended June 30, 2013.

Second Quarter Financial Results

Total revenue for the second quarter of 2013 increased 16% to $178.3 million from $153.1 million for the second quarter of 2012. Net income to common shareholders on a GAAP basis was $42.2 million, or $1.08 per diluted share, compared with $30.3 million, or $0.78 per diluted share, for the second quarter last year.

On a non-GAAP basis, the Company's adjusted net income for the second quarter of 2013 increased 5% to $41.1 million, or $1.05 per diluted share, from $39.1 million, or $1.00 per diluted share, for the same period a year ago. See Exhibit 1 for a full reconciliation of adjusted net income.

WEX uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices in North America. For the second quarter of 2013, the Company's GAAP financial results include an unrealized pre-tax, non-cash, mark-to-market gain of $9.8 million dollars on these instruments.

Michael E. Dubyak, WEX chairman and chief executive officer said, “We continued to build on our momentum in the second quarter with revenue and adjusted net income increasing 16% and 5%, respectively, over last year. Key business wins, solid volume growth and favorable fuel prices drove our performance, as we continue to reinvest in our business to better position WEX for the future.”

“Executing on our growth strategy, we furthered our domestic fleet business with contributions from Fleet One and some key private label client wins. In addition, our investments in WEX Virtual are spearheading our expansion into the travel vertical, as we broadened our international presence within Europe, Asia-Pac and South America. With a robust pipeline of opportunities and a strong foundation for growth established in the first half of 2013, we are confident we can continue to deliver solid results while positioning WEX for long-term global success,” concluded Mr. Dubyak.

Second Quarter 2013 Performance Metrics

Where applicable, the performance metrics listed below include activity from Fleet One, acquired October 4, 2012, which positively impacted metrics for the second quarter of 2013.

  • Average number of vehicles serviced worldwide was approximately 7.4 million, an increase of 10% from the second quarter of 2012.
  • Total fuel transactions processed increased 12% from the second quarter of 2012 to 93.4 million. Payment processing transactions increased 15% to 73.8 million.
  • Average expenditure per payment processing transaction increased 13.7% from the second quarter of 2012 to $85.78.
  • U.S. retail fuel price decreased 2.4% to $3.70 per gallon from $3.79 per gallon in the second quarter of 2012.
  • Total corporate card purchase volume grew $359 million, or 13%, to $3.2 billion compared to the second quarter of 2012.

Financial Guidance and Assumptions

“Strong growth across critical areas of our business combined with low credit losses and the addition of Fleet One drove our second quarter performance as compared to the prior year. We believe WEX is well-positioned to sustain this momentum in the back half of the year and our updated guidance for the full-year reflects this view. We expect to have a positive impact from higher fuel prices which we anticipate will be partially offset by a decline in foreign exchange rates,” said Steve Elder, WEX senior vice president and chief financial officer.

  • For the third quarter of 2013, WEX expects revenue in the range of $186 million to $193 million and adjusted net income in the range of $45 million to $48 million, or $1.16 to $1.23 per diluted share.
  • For the full year 2013, the Company expects revenue in the range of $718 million to $728 million and adjusted net income to be in the range of $167 million to $171 million, or $4.27 to $4.37 per diluted share.

Third quarter 2013 guidance is based on an assumed average U.S. retail fuel price of $3.74 per gallon, and approximately 39 million shares outstanding. Full-year 2013 guidance is based on an assumed average U.S. retail fuel price of $3.69 per gallon and approximately 39 million shares outstanding. The fuel prices referenced above are based on the applicable NYMEX futures price. WEX is assuming that exchange rates will remain in the range of the current spot rates.

The Company's guidance also assumes that third quarter 2013 fleet credit loss will range between 8 and 13 basis points, and that fleet credit loss for full year 2013 will range between 8 to 11 basis points.

Given the high likelihood that the pending merchant litigation settlement will be approved, the Company’s full-year guidance continues to assume a negative impact to the Company’s interchange rate, which is expected to be approximately 10 basis points for an 8 month period and began on July 29, 2013. We expect an impact of approximately $0.07 per share in 2013.

The Company's guidance does not reflect the impact of any future stock repurchases that may occur in 2013. In addition, this guidance excludes the impact of non-cash, mark-to-market adjustments on the Company's fuel-price-related derivative instruments and the amortization of purchased intangibles as well as the related tax impacts.

Additional Information

Exhibit 1 reconciles adjusted net income, which has not been determined in accordance with GAAP, to net income as determined in accordance with GAAP for the three and six months ended June 30, 2013 and 2012.

Management uses the non-GAAP measures presented within this news release to evaluate the Company's performance on a comparable basis, to eliminate the volatility associated with its derivative instruments and to measure the amount of cash that is available for making payments on the Company's financing debt and for discretionary purposes. 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.

To provide investors with additional insight into its operational performance, WEX has included in this news release a table of selected non-financial metrics for the five quarters ended June 30, 2013. This table is presented as Exhibit 2. The Company is also providing selected segment review information for the three months ended June 30, 2013 and 2012 in Exhibit 3.

Conference Call Details

In conjunction with this announcement, WEX will host a conference call today, July 31, 2013, at 10:00 a.m. (ET). As previously announced, the conference call will be webcast live on the Internet, and can be accessed at the Investor Relations section of the WEX website, http://www.wexinc.com. The live conference call also can be accessed by dialing (866) 334-7066 or (973) 935-8463. A replay of the webcast will be available on the Company's website.

About WEX Inc.

WEX Inc. (NYSE: WEX) is a leading provider of corporate payment solutions. From its roots in fleet card payments beginning in 1983, WEX has expanded the scope of its business into a multi-channel provider of corporate payment solutions representing more than 7.5 million cardholders and offering exceptional payment security and control across a wide spectrum of business sectors. The Company’s operations include WEX Bank, Fleet One, Pacific Pride, rapid! PayCard, Wright Express Australia, Wright Express New Zealand and CorporatePay Limited, England, as well as a majority equity position in UNIK S.A., Brazil. WEX and its subsidiaries employ more than 1,400 associates. For more information about WEX, please visit WEXInc.com.

Forward Looking Statement

This news release contains forward-looking statements, including statements regarding: financial guidance; assumptions underlying the Company's financial guidance; management’s expectations for future growth opportunities; and, confidence in future performance. 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 and the commercial activity of fleets; the effects of the Company’s business expansion and acquisition efforts; the Company’s failure to successfully integrate the businesses it has acquired; the failure of corporate investments to result in anticipated strategic value; the impact and range of credit losses; breaches of the Company’s technology systems and any resulting negative impact on our reputation, liability, or loss of relationships with customers or merchants; fuel price volatility; the Company’s failure to maintain or renew key agreements; failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors; the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking regulations impacting the Company’s industrial bank and the Company as the corporate parent; the impact of foreign currency exchange rates on the Company’s operations, revenue and income; changes in interest rates; the impact of the Company’s outstanding bonds on its operations; financial loss if the Company determines it necessary to unwind its derivative instrument position prior to the expiration of a contract; 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 the Company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013 and the Company's subsequent periodic and current reports. The Company's 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 this news release and undue reliance should not be placed on these statements. The Company disclaims any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

 

WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

 
 
 

Three months ended
June 30,

  Six months ended
June 30,
    2013   2012   2013   2012
     
Revenues
  Fleet payment solutions $ 131,040 $ 114,685 $ 257,079 $ 223,832
  Other payment solutions     47,245       38,379       86,576       69,354  
 
  Total revenues 178,285 153,064 343,655 293,186
 
Expenses
Salary and other personnel 40,647 29,963 80,724 58,678
Service fees 26,608 24,770 50,413 45,078
Provision for credit losses 4,915 4,184 8,671 9,227
Technology leasing and support 6,428 4,874 11,913 9,141
Occupancy and equipment 4,191 3,214 7,996 6,030
Depreciation, amortization and impairment 14,501 11,397 29,108 22,714
Operating interest expense 1,082 1,076 2,229 2,187
Cost of hardware and equipment sold 1,137 784 2,211 1,511
  Other     11,695       9,922       22,779       17,777  
 
    Total operating expenses     111,204       90,184       216,044       172,343  
 
Operating income 67,081 62,880 127,611 120,843
 
Financing interest expense (7,369 ) (2,290 ) (14,708 ) (4,575 )
Loss on foreign currency transactions (1,028 ) (472 ) (1,260 ) (492 )

Decrease in tax refund due to former shareholders of RD Card Holdings Australia

9,750 9,750

Net realized and unrealized gains on fuel price derivatives

    8,614       20,792       859       1,980  
 
Income before income taxes 67,298 90,660 112,502 127,506
 
Income taxes     25,246       60,325       41,873       73,935  
 
Net income 42,052 30,335 70,629 53,571
 
Less: Net loss from noncontrolling interest     (161 )           (273 )      
 
Net earnings attributable to WEX Inc.   $ 42,213     $ 30,335     $ 70,902     $ 53,571  
 
Net earnings attributable to WEX Inc. per share:
Basic $ 1.08 $ 0.78 $ 1.82 $ 1.38
Diluted $ 1.08 $ 0.78 $ 1.81 $ 1.37
 
Weighted average common shares outstanding:
Basic 38,934 38,883 38,911 38,852
Diluted 39,039 39,084 39,136 39,114
 
 

 

WEX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 
 
    June 30,
2013
  December 31,
2012
   
Assets
Cash and cash equivalents $ 299,559 $ 197,662
Accounts receivable (less reserve for credit losses of $10,430 in 2013 and $11,709 in 2012) 1,831,892 1,555,814
Available-for-sale securities 16,735 16,350
Fuel price derivatives, at fair value 2,238

Property, equipment and capitalized software (net of accumulated depreciation of $136,247 in 2013 and $125,659 in 2012)

59,054 60,097
Deferred income taxes, net 98,424 118,535
Goodwill 816,051 844,285
Other intangible assets, net 215,699 241,810
  Other assets     109,275       90,538  
 
Total assets   $ 3,448,927     $ 3,125,091  
 
Liabilities and Stockholders' Equity
Accounts payable $ 725,454 $ 527,838
Accrued expenses 73,860 60,532
Income taxes payable 4,873 10,151
Deposits 987,819 890,345
Borrowed federal funds 48,400
Revolving line-of-credit facilities and term loan 292,500 621,000
Deferred income taxes, net 15,003 18,407
Notes outstanding 400,000
Amounts due under tax receivable agreement 82,491 86,550
Fuel price derivatives, at fair value 1,729
  Other liabilities     19,728       20,546  
 
Total liabilities 2,601,728 2,285,498
 
Commitments and contingencies
 

 

Redeemable noncontrolling interest 19,650 21,662
Stockholders' Equity

Common stock $0.01 par value; 175,000 shares authorized, 42,886 in 2013 and 42,586 in 2012 shares issued; 38,971 in 2013 and 38,908 in 2012 shares outstanding

429 426
Additional paid-in capital 163,747 162,470
Retained earnings 801,213 730,311
Accumulated other comprehensive (loss) income (7,274 ) 37,379
 
  Less treasury stock at cost; 4,007 shares in 2013 and 3,766 in 2012     (130,566 )     (112,655 )
 
  Total stockholders' equity     827,549       817,931  
 
Total liabilities and stockholders’ equity   $ 3,448,927     $ 3,125,091  
 

 

WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
 
        Six months ended
June 30,
      2013       2012  
 
Cash flows from operating activities
Net income $ 70,629 $ 53,571
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Fair value change of fuel price derivatives (3,967 ) (11,008 )
Stock-based compensation 4,388 6,151
Depreciation and amortization 30,251 23,412
Deferred taxes 18,703 27,425
Provision for credit losses 8,671 9,227
Loss on disposal of property, plant and equipment 555 125
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable (301,165 ) (217,007 )
Other assets (8,239 ) (52,864 )
Accounts payable 205,774 114,143
Accrued expenses 14,047 (7,539 )
Income taxes (4,149 ) 17,770
Other liabilities 1,313 (9,824 )
      Amounts due under tax receivable agreement     (4,411 )     (4,135 )
 
Net cash provided by (used for) operating activities 32,400 (50,553 )
 
Cash flows from investing activities
Purchases of property and equipment (13,017 ) (15,934 )
Purchases of available-for-sale securities (1,632 ) (154 )
Maturities of available-for-sale securities 583 698
  Acquisitions, net of cash           (27,783 )
 
Net cash used for investing activities (14,066 ) (43,173 )
 
Cash flows from financing activities
Excess tax benefits from equity instrument share-based payment arrangements 6,280 2,444
Repurchase of share-based awards to satisfy tax withholdings (10,917 ) (2,940 )
Proceeds from stock option exercises 1,526 1,373
Net change in deposits 97,480 267,961
Net change in borrowed federal funds (48,400 ) (6,900 )
Other financing debt (1,215 )
Loan origination fee (12,023 )
Borrowings on notes outstanding 400,000
Net activity on 2011 revolving line-of-credit (438,500 ) 30,400
Net activity on 2011 term loan (182,500 ) (5,000 )
Net activity on 2013 term loan 292,500
  Purchase of shares of treasury stock     (17,911 )     (11,288 )
 
Net cash provided by financing activities 86,320 276,050
 
Effect of exchange rate changes on cash and cash equivalents     (2,757 )     (113 )
 
Net change in cash and cash equivalents 101,897 182,211
Cash and cash equivalents, beginning of period 197,662 25,791
                 
 
Cash and cash equivalents, end of period   $ 299,559     $ 208,002  
 
Supplemental cash flow information
Interest paid $ 7,291 $ 6,432
Income taxes paid $ 21,256 $ 26,319
 
Significant non-cash transactions
Reduction of rapid! – estimated earn out $ $ 839
Increase in UNIK – estimated earn out $ 198 $
 

 

Exhibit 1

Reconciliation of Adjusted Net Income to GAAP Net Earnings

Three and Six Months Ended June 30, 2013 and 2012

(in thousands)

(unaudited)

 
 
  Three months ended
June 30,
  Six months ended
June 30,
    2013   2012   2013   2012
   
Adjusted net income WEX Inc. $ 41,059 $ 39,079 $ 79,368 $ 74,646
Unrealized gains on fuel price derivatives 9,849 24,563 3,967 11,008
Amortization of acquired intangible assets (8,134 ) (4,984 ) (16,513 ) (10,070 )
Deferred loan costs associated with the extinguishment of debt (1,004 )

Change in tax refund due to former shareholders of RD Card Holdings Australia

9,750

9,750

ANI adjustments attributable to noncontrolling interest 312 658
Tax impact     (873 )     (38,073 )     4,426       (31,763 )
 
Net earnings attributable to WEX Inc.   $ 42,213     $ 30,335     $ 70,902     $ 53,571  
 
 

Although adjusted net income is not calculated in accordance with generally accepted accounting principles (GAAP), this measure is integral to the Company's reporting and planning processes. The Company considers this measure integral because it eliminates the non-cash volatility associated with the fuel price related derivative instruments, and excludes the amortization of purchased intangibles, deferred loan cost associated with the extinguishment of debt, adjustments attributable to noncontrolling interest, the net impact of tax rate changes on the Company's deferred tax asset and related changes in the tax-receivable agreement including the former shareholder of RD Card Holdings Australia. 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 fuel-price related derivative instruments 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 fuel-price 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; and
  • The amortization of purchased intangibles, deferred loan cost associated with the extinguishment of debt, adjustments attributable to noncontrolling interest, the net impact of tax rate changes on the Company's deferred tax asset and related tax refund due to former shareholders of RD Card Holdings Australia have no impact on the ongoing operations of the business.

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 tax impact of the foregoing adjustments is 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. 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.

 

Exhibit 2

Selected Non-Financial Metrics

 
    Q2 2013  

Q1 2013

  Q4 2012   Q3 2012   Q2 2012
Fleet Payment Solutions – Payment Processing Revenue:        
Payment processing transactions (000s)

73,797

68,742

70,091

66,155

63,912

Gallons per payment processing transaction

22.8

22.8

22.7

19.3

19.5

Payment processing gallons of fuel (000s)

1,684,050

1,567,230

1,592,347

1,274,798

1,243,466

Average US fuel price (US$ / gallon)

$

3.70

3.76

3.69

3.74

3.79

Average Australian fuel price (US$ / gallon) $

5.23

5.75

5.82

5.42

5.60

Payment processing $ of fuel (000s)

$

6,330,221

6,011,767

6,083,379

4,868,631

4,823,656

Net payment processing rate*

1.40%

1.38%

1.40%

1.62%

1.63%

Fleet payment processing revenue (000s)

$

88,422

83,194

85,371

78,803

78,451

 
Other Payment Solutions – Payment Processing Revenue:**
Payment solutions purchase volume (000s)

$

3,181,931

2,635,062

2,494,508

3,182,032

2,822,657

Net interchange rate

0.99%

0.96%

0.94%

0.90%

0.90%

Payment solutions processing revenue (000s)

$

31,467

25,238

23,322

28,544

25,417

 

*The decline in the net payment process rate during Q4 2012 is primarily due to the acquisition of Fleet One in October of 2012.
** Excludes payment processing revenue from rapid! Paycard and UNIK

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 $ 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.

Payment solutions purchase volume represents the total dollar value of all transactions that use corporate charge card products including single use account 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.

 

Exhibit 3

Segment Revenue Information

Three and Six Months Ended June 30, 2013 and 2012

(in thousands)

(unaudited)

 

Fleet Payment Solutions

 

(in thousands, except per

 

Three months ended
June 30,

 

Increase (decrease)

 

Six months ended
June 30,

 

Increase (decrease)

transaction and per gallon data)     2013     2012   Amount   Percent     2013     2012   Amount   Percent
             
Revenues
Payment processing revenue $ 88,422 $ 78,451 $ 9,971 13 % $ 171,616 $ 152,306 $ 19,310 13 %
Transaction processing revenue 4,897 4,157 740 18 % 9,507 8,138 1,369 17 %
Account servicing revenue 18,615 15,481 3,134 20 % 37,178 30,935 6,243 20 %
Finance fees 13,733 11,629 2,104 18 % 26,981 22,818 4,163 18 %
Other     5,373     4,967     406   8 %     11,797     9,635     2,162   22 %
 
Total revenues 131,040 114,685 16,355 14 % 257,079 223,832 33,247 15 %
 
 

Other Payment Solutions

 
 

Three months ended
June 30,

 

Increase (decrease)

  Six months ended
June 30,
 

Increase (decrease)

(in thousands)     2013     2012   Amount   Percent     2013     2012   Amount   Percent
             
Revenues
Payment processing revenue $ 33,495 $ 25,913 $ 7,582 29

 

%

$ 60,627 $ 46,078 $ 14,549 32

 

%

Transaction processing revenue 1,215 1,559 (344 ) (22

)

%

2,763 3,597 (834 ) (23

)

%

Account servicing revenue 2,848 1,220 1,628 133

 

%

5,291 2,264 3,027 134

 

%

Finance fees 1,690 148 1,542 (1,042

)

%

3,159 319 2,840 890

 

%

Other     7,997     9,539     (1,542 )   (16

)

%

    14,739     17,096     (2,360 )   (14

)

%

 
Total revenues 47,245 38,379 8,866 23

 

%

86,576 69,354 17,222 25

 

%

Source: WEX Inc.

WEX Inc.
News media contact:
Jessica Roy, (207) 523-6763
Jessica.Roy@wexinc.com
or
Investor Relations contact:
Michael E. Thomas, (207) 523-6743
Michael.Thomas@wexinc.com