Printer Friendly Version View printer-friendly version
<< Back

WEX Inc. Reports Third Quarter 2013 Financial Results

Strong revenue and earnings growth driven by double-digit transaction growth and continued purchase volume expansion

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

Third Quarter Financial Results

Total revenue for the third quarter of 2013 increased 19% to $191.5 million from $161.0 million for the third quarter of 2012. Net income to common shareholders on a GAAP basis was $43.8 million, or $1.12 per diluted share, compared with $14.3 million, or $0.37 per diluted share, for the third quarter last year.

On a non-GAAP basis, the Company's adjusted net income for the third quarter of 2013 increased 20% to $50.4 million, or $1.29 per diluted share, from $42.0 million, or $1.08 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 third quarter of 2013, the Company's GAAP financial results include an unrealized pre-tax, non-cash, mark-to-market loss of $2.7 million dollars on these instruments.

“We continue to experience momentum throughout our business, driven by the solid execution of our long-term strategy. For the quarter, revenue increased 19% year-over-year and was towards the high-end of our guidance, while adjusted net income, increasing 20%, exceeded our expectations. Our results were driven by robust volume growth, Other Payments growth, foreign exchange rate contributions and expense management,” commented Michael E. Dubyak, WEX’s chairman and chief executive officer.

“We continue to see ongoing expansion in our domestic fleet business as we realize synergies from Fleet One and further bolster our competitive position. Furthermore, investments in our virtual card product are continuing to generate positive returns as we penetrate attractive geographies including Europe, Asia Pacific and South America. Looking towards the future, we expect to continue to leverage the foundations we are building and our dynamic pipeline to drive growth as we close out the year,” concluded Mr. Dubyak.

Third 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 third quarter of 2013.

  • Average number of vehicles serviced worldwide was approximately 7.6 million, an increase of 10% from the third quarter of 2012.
  • Total fuel transactions processed increased 13% from the third quarter of 2012 to 96.7 million. Payment processing transactions increased 16% to 76.6 million.
  • Average expenditure per payment processing transaction increased 16% from the third quarter of 2012 to $85.43.
  • U.S. retail fuel price decreased 1% to $3.70 per gallon from $3.74 per gallon in the third quarter of 2012.
  • Total corporate card purchase volume grew $771 million, or 24%, to $4.0 billion compared to the third quarter of 2012.

Financial Guidance and Assumptions

“We continue to see considerable strength throughout our business as a result of our strategic focus on our core fleet business, international expansion and growing our virtual card platform. We expect to maintain this momentum in the fourth quarter, and are revising our top- and bottom-line guidance for fiscal 2013 to reflect our results to date, as well as current market conditions. Specifically, we are lowering our revenue guidance, primarily due to lower fuel prices and a slower roll-out of newer customers. At the same time, we are increasing our adjusted net income to reflect our strong earnings results in the third quarter,” said Steve Elder, WEX senior vice president and chief financial officer.

  • For the fourth quarter of 2013, WEX expects revenue in the range of $173 million to $178 million and adjusted net income in the range of $41 million to $44 million, or $1.04 to $1.12 per diluted share.
  • For the full year 2013, the Company expects revenue in the range of $708 million to $713 million and adjusted net income to be in the range of $171 million to $174 million, or $4.37 to $4.44 per diluted share.

Fourth quarter 2013 guidance is based on an assumed average U.S. retail fuel price of $3.47 per gallon, and approximately 39 million shares outstanding. Full-year 2013 guidance is based on an assumed average U.S. retail fuel price of $3.66 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 fourth quarter 2013 fleet credit loss will range between 9 and 14 basis points, and that fleet credit loss for full year 2013 will range between 7 to 9 basis points.

Given the anticipated approval of the MasterCard/Visa merchant litigation settlement, the Company’s full-year guidance assumes 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.

The Company's guidance does not reflect the impact of any future stock repurchases that may occur in 2013, or the impact potential foreign exchange rate fluctuations may have on results. 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 nine months ended September 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 September 30, 2013. This table is presented as Exhibit 2. The Company is also providing selected segment review information for the three and nine months ended September 30, 2013 and 2012 in Exhibit 3.

Conference Call Details

In conjunction with this announcement, WEX will host a conference call today, October 30, 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 7.6 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 http://www.wexinc.com.

Forward-Looking Statements

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
September 30,

 

Nine months ended
September 30,

2013   2012 2013   2012
Revenues
Fleet payment solutions $ 136,874 $ 117,877 $ 393,953 $ 341,709
Other payment solutions 54,651   43,090   141,227   112,444  
Total revenues 191,525 160,967 535,180 454,153
Expenses
Salary and other personnel 41,469 28,823 122,193 87,501
Service fees 29,352 28,968 79,765 74,046
Provision for credit losses 5,015 5,647 13,686 14,874
Technology leasing and support 6,799 4,577 18,712 13,718
Occupancy and equipment 3,822 3,032 11,818 9,062
Depreciation, amortization and impairment 14,160 27,877 43,268 50,591
Operating interest expense 976 1,243 3,205 3,430
Cost of hardware and equipment sold 1,055 759 3,266 2,270
Other 10,984   8,764   33,763   26,541  
Total operating expenses 113,632   109,690   329,676   282,033  
Operating income 77,893 51,277 205,504 172,120
Financing interest expense (7,369 ) (2,302 ) (22,077 ) (6,877 )
Gain (loss) on foreign currency transactions 2,968 180 1,708 (312 )

Net realized and unrealized loss on fuel price derivatives

(3,640

)

(14,026

)

(2,781

)

(12,046

)

Decrease in tax refund due to former shareholders of RD Card Holdings Australia 9,750
Decrease in amount due under tax receivable agreement 150     150    
Income before income taxes 70,002 35,129 182,504 162,635
Income taxes 26,224   20,845   68,097   94,780  
Net income 43,778 14,284 114,407 67,855
Less: Net loss from noncontrolling interest (60 ) (14 ) (333 ) (14 )
Net earnings attributable to WEX Inc. $ 43,838   $ 14,298   $ 114,740   $ 67,869  
Net earnings attributable to WEX Inc. per share:
Basic $ 1.12 $ 0.37 $ 2.95 $ 1.75
Diluted $ 1.12 $ 0.37 $ 2.93 $ 1.74
Weighted average common shares outstanding:
Basic 38,978 38,793 38,934 38,832
Diluted 39,081 38,995 39,102 39,084
 

 

WEX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

       

September 30,
2013

December 31,
2012

  (As Adjusted)
Assets
Cash and cash equivalents $ 391,171 $ 197,662
Accounts receivable (less reserve for credit losses of $8,954 in 2013 and $11,709 in 2012) 1,913,614 1,556,275
Available-for-sale securities 16,208 16,350
Fuel price derivatives, at fair value 488
Property, equipment and capitalized software (net of accumulated depreciation of $139,684 in 2013 and $125,659 in 2012) 70,097 60,097
Deferred income taxes, net 92,693

121,007

Goodwill 824,307 848,248
Other intangible assets, net 209,074 241,950
Other assets 139,805   90,538  
Total assets $ 3,657,457   $

3,132,127

 
Liabilities and Stockholders’ Equity
Accounts payable $ 706,927 $ 527,838
Accrued expenses 79,754

67,681

Income taxes payable 14,228

10,038

Deposits 1,158,196 890,345
Borrowed federal funds 48,400
Revolving line-of-credit facilities and term loan 288,750 621,000
Deferred income taxes, net 11,464 18,407
Notes outstanding 400,000
Amounts due under tax receivable agreement 79,705 86,550
Fuel price derivatives, at fair value 983 1,729
Other liabilities 15,822   20,546  
Total liabilities 2,755,829

2,292,534

Commitments and contingencies
Redeemable noncontrolling interest 19,762 21,662
Stockholders’ Equity
Common stock $0.01 par value; 175,000 shares authorized; 42,897 in 2013 and 42,586 in 2012 shares issued; 38,982 in 2013 and 38,908 in 2012 shares outstanding 429 426
Additional paid-in capital 166,615 162,470
Retained earnings 845,051 730,311
Accumulated other comprehensive income 337 37,379
Less treasury stock at cost; 4,007 shares in 2013 and 3,766 in 2012 (130,566 ) (112,655 )
Total stockholders’ equity 881,866   817,931  
Total liabilities and stockholders’ equity $ 3,657,457   $

3,132,127

 
 

 

WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
 

Nine months ended
September 30,

2013  

2012

Cash flows from operating activities
Net income $ 114,407 $ 67,855
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Fair value change of fuel price derivatives (1,234 ) 1,841
Stock-based compensation 6,882 8,806
Depreciation, amortization and impairment 45,021 35,604
Goodwill impairment 16,171
Deferred taxes

23,207

35,392
Provision for credit losses 13,686 14,874
Loss on disposal of property, equipment and capitalized software 637
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable (384,715 ) (306,350 )
Other assets (39,289 ) (55,572 )
Accounts payable 185,284 163,203
Accrued expenses

13,030

(5,755 )
Income taxes

5,463

16,904
Other liabilities (826 ) (12,034 )
Amounts due under tax receivable agreement (6,841 ) (6,245 )
Net cash used for operating activities (25,288 ) (25,306 )
Cash flows from investing activities
Purchases of property, equipment and capitalized software (30,122 ) (21,796 )
Purchases of available-for-sale securities (1,704 ) (224 )
Maturities of available-for-sale securities 1,065 1,228
Acquisitions, net of cash   (26,217 )
Net cash used for investing activities (30,761 ) (47,009 )
Cash flows from financing activities
Excess tax benefits from equity instrument share-based payment arrangements 6,509 3,049
Repurchase of share-based awards to satisfy tax withholdings (10,917 ) (2,941 )
Proceeds from stock option exercises 1,671 1,862
Net change in deposits 267,859 512,456
Net change in borrowed federal funds (48,400 ) (6,900 )
Other financing debt (3,003 ) (19,560 )
Loan origination fee (12,023 )
Borrowings on notes outstanding 400,000
Net activity on 2011 revolving line-of-credit (438,500 ) 12,200
Net activity on 2011 term loan (182,500 ) (7,500 )
Net activity on 2013 term loan 288,750
Purchase of shares of treasury stock (17,911 ) (11,288 )
Net cash provided by financing activities 251,535 481,378
Effect of exchange rate changes on cash and cash equivalents (1,977 ) 449  
Net change in cash and cash equivalents 193,509 409,512
Cash and cash equivalents, beginning of period 197,662   25,791  
Cash and cash equivalents, end of period $ 391,171   $ 435,303  
Supplemental cash flow information
Interest paid $ 20,291 $ 9,676
Income taxes paid $ 33,013 $ 39,455
Significant non-cash transactions
Reduction of rapid! – estimated earn out $ $ 839
Acquisition of UNIK - estimated earn out $ $ 991
Increase in UNIK – estimated earn out $ 198 $
 

 

Exhibit 1

Reconciliation of Adjusted Net Income to GAAP Net Earnings

Three and Nine Months Ended September 30, 2013 and 2012

(in thousands)

(unaudited)

 
 

Three months ended
September 30,

 

Nine months ended
September 30,

2013   2012 2013   2012
Adjusted net income WEX Inc. $ 50,422 $ 42,035 $ 129,790 $ 116,681
Unrealized (loss) gains on fuel price derivatives (2,733 ) (12,849 ) 1,234 (1,841 )
Amortization of acquired intangible assets (8,051 ) (5,411 ) (24,564 ) (15,481 )
Goodwill impairment (16,171 ) (16,171 )
Deferred loan costs associated with the extinguishment of debt (1,004 )
Non-cash adjustments related to tax receivable agreement 150 150
Change in tax refund due to former shareholders of RD Card Holdings Australia 9,750
Other adjustments related to Fleet One acquisition 658 658
ANI adjustments attributable to noncontrolling interest 313 77 971 77
Tax impact 3,079   6,617   7,505   (25,146 )
Net earnings attributable to WEX Inc. $ 43,838   $ 14,298   $ 114,740   $ 67,869  
 

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 as well as the goodwill impairment, deferred loan costs associated with the extinguishment of debt, the net impact of tax rate changes on the Company's deferred tax asset and related changes in the tax-receivable agreements including the former shareholder of RD Card HoldingsAustralia, adjustments related to the acquisition of Fleet One and adjustments attributable to noncontrolling interest. 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 as well as the goodwill impairment, deferred loan costs associated with the extinguishment of debt, the net impact of tax rate changes on the Company's deferred tax asset and related changes in the tax-receivable agreements including the former shareholder of RD Card Holdings Australia, adjustments related to the acquisition of Fleet One and adjustments attributable to noncontrolling interest 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

 
    Q3 2013   Q2 2013   Q1 2013   Q4 2012   Q3 2012
Fleet Payment Solutions – Payment Processing Revenue:        
Payment processing transactions (000s)

76,578

73,797

68,742

70,091

66,155
Gallons per payment processing transaction

22.7

22.8

22.8

22.7

19.3
Payment processing gallons of fuel (000s)

1,737,069

1,684,050

1,567,230

1,592,347

1,274,798
Average US fuel price (US$ / gallon)

$

3.70

3.70

3.76

3.69

3.74
Average Australian fuel price (US$ / gallon) $

5.30

5.23

5.75

5.82

5.42
Payment processing $ of fuel (000s)

$

6,542,052

6,330,221

6,011,767

6,083,379

4,868,631
Net payment processing rate*

1.40%

1.40%

1.38%

1.40%

1.62%
Fleet payment processing revenue (000s)

$

91,273

88,422

83,194

85,371

78,803
 
Other Payment Solutions – Payment Processing Revenue:**
Payment solutions purchase volume (000s)

$

3,953,513

3,181,931

2,635,062

2,494,508

3,182,032
Net interchange rate

0.95%

0.99%

0.96%

0.94%

0.90%
Payment solutions processing revenue (000s)

$

37,349

31,467

25,238

23,322

28,544
 

*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 Nine Months Ended September 30, 2013 and 2012

(in thousands)

(unaudited)

 

Fleet Payment Solutions

               
 
(in thousands)

Three months ended
September 30,

Increase

Nine months ended
September 30,

Increase
  2013   2012 Amount Percent 2013   2012 Amount Percent
Revenues
Payment processing revenue $ 91,273 $ 78,803 $ 12,470 16 % $262,889 $ 231,109 $ 31,780 14 %
Transaction processing revenue 5,044 4,097 947 23 % 14,551 12,235 2,316 19 %
Account servicing revenue 19,069 17,657 1,412 8 % 56,247 48,592 7,655 16 %
Finance fees 15,688 12,604 3,084 24 % 42,669 35,422 7,247 20 %
Other   5,800   4,716   1,084   23 % 17,597   14,351   3,246   23 %
Total revenues 136,874 117,877 18,997 16 % 393,953 341,709 52,244 15 %
 

Other Payment Solutions

 

Three months ended
September 30,

Increase (decrease)

Nine months ended
September 30,

Increase (decrease)
(in thousands)   2013   2012 Amount Percent 2013   2012 Amount Percent
Revenues
Payment processing revenue $ 39,314 $ 29,653 $ 9,661 33 % $ 99,941 $ 75,731 $ 24,210 32 %
Transaction processing revenue 1,000 1,531 (531 ) (35 )% 3,763 5,128 (1,365 )

(27

)%

Account servicing revenue 3,092 1,627 1,465 90 % 8,383 3,891 4,492 115 %
Finance fees 1,618 521 1,097 211 % 4,777 840 3,937 469 %
Other   9,627   9,758   (131 ) (1 )%   24,363     26,854   (2,491 ) (9 )%
Total revenues 54,651 43,090 11,561 27 % 141,227 112,444 28,783 26 %

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