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WEX Inc. Reports Third Quarter 2018 Financial Results
Total Revenue for the Quarter Increased 18%
Third Quarter 2018 Financial Results
Total revenue for the third quarter of 2018 increased 18% to
Net income attributable to shareholders on a GAAP basis increased by
"Following an impressive first half of the year, our momentum continued
this quarter with double-digit year-over-year revenue and profitability
growth, driven by strong performance across our core businesses. Healthy
volumes, strong international growth, and higher fuel prices all
contributed to our performance being ahead of expectations," said
Smith continued, "Following our market launch of programs for Shell and
the recent signing of critical agreements related to the conversion of
Third Quarter 2018 Performance Metrics
- Average number of vehicles serviced was approximately 11.7 million, an increase of 6% from the third quarter of 2017.
- Total fuel transactions processed increased 7% from the third quarter of 2017 to 141.7 million. Payment processing transactions increased 7% to 117.7 million.
U.S. retail fuel price increased 22% to
$3.06per gallon from $2.51per gallon in the third quarter of 2017.
Travel and Corporate Solutions purchase volume grew 11% to
$9.6 billionfrom $8.7 billionin the third quarter of 2017.
- Health and Employee Benefit Solutions average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 16% to 11.1 million from 9.6 million in the third quarter of 2017.
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 an indeterminate amount of certain elements that are included in reported GAAP earnings.
For the full year 2018, the Company expects revenue in the range of
$1.48 billion to $1.49 billionand adjusted net income in the range of $354 million to $359 million, or $8.13 to $8.23per diluted share.
For the fourth quarter of 2018, WEX expects revenue in the range of
$370 million to $380 millionand adjusted net income in the range of $89 million to $94 million, or $2.05 to $2.15per diluted share.
“We are pleased to report our ninth consecutive quarter of double-digit
top-line growth, led by strong performance in our Travel and Corporate
Solutions segment as well as the Fleet segment. With our underlying
growth engine, solid fundamentals, strong execution, and favorable
industry dynamics, we are positioned well to build on our terrific
momentum and look forward to a strong close to 2018,” said
Fourth quarter 2018 guidance is based on an assumed average U.S. retail
fuel price of
The Company's guidance also assumes that fourth quarter 2018 fleet credit loss will range from 12 to 17 basis points and full year fleet credit loss will range from 12 to 13 basis points.
The Company's adjusted net income guidance, which is a non-GAAP measure, 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 and certain tax related items. We are unable to reconcile our adjusted net income guidance to the comparable GAAP measure without unreasonable effort because of the difficulty in predicting the amounts to be adjusted, including but not limited to, foreign currency exchange rates, unrealized gains and losses on financial instruments and acquisition and divestiture related items, which may have a significant impact on our financial results.
As previously disclosed, beginning in the first quarter of 2018, the Company has modified the presentation of certain line items in its unaudited condensed consolidated statements of income. Under the new presentation, the Company segregates costs of services from other operating expenses and has reclassified its operating expenses into functional categories in order to provide additional detail into the underlying drivers of changes in operating expenses and align its presentation with industry practice. There are no changes to the presentation of revenues, non-operating expenses or other statement of income captions. Additionally, the revised presentation does not result in a change to previously reported revenues, operating income, income before income taxes or net income. Amounts from the prior period have been recast to reflect the new presentation.
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.
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 rates and fuel prices for
each of our reportable segments for the three and nine months ended
Conference Call Details
In conjunction with this announcement, WEX will host a conference call
Powered by the belief that complex payment systems can be made simple,
This earnings release contains forward-looking statements, including
statements regarding: financial guidance; assumptions underlying the
Company's financial guidance; future growth opportunities; expectations
for customer conversions; profitability; technology advances; and,
market expansion. Any statements that are not statements of historical
facts may be deemed to be forward-looking statements. When used in this
earnings release, 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. 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; the ability to
realize anticipated synergies and cost savings; unexpected costs,
charges or expenses resulting from an acquisition; the Company's ability
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 the Company's third-party
service providers and any resulting negative impact on the Company's
reputation, liabilities or relationships with customers or merchants;
the 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
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
for the year ended
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|(in thousands, except per share data)|
|Three months ended September 30,||Nine months ended September 30,|
|Payment processing revenue||$||182,871||$||145,702||$||530,063||$||423,434|
|Account servicing revenue||78,748||71,322||236,168||198,538|
|Finance fee revenue||53,703||50,879||154,958||136,336|
|Cost of services|
|Provision for credit losses||21,435||19,614||46,930||47,927|
|Depreciation and amortization||19,013||18,879||60,058||54,639|
|Total cost of services||144,114||134,807||410,624||379,710|
|General and administrative||51,799||51,538||155,720||133,788|
|Sales and marketing||54,611||41,585||168,849||121,726|
|Depreciation and amortization||29,054||32,349||88,817||95,788|
|Financing interest expense||(25,718||)||(25,754||)||(78,560||)||(81,449||)|
|Net foreign currency (loss) gain||(1,094||)||14,611||(27,438||)||33,578|
|Net unrealized gain (loss) on financial instruments||2,157||(150||)||18,371||(849||)|
|Income before income taxes||76,033||52,430||194,334||123,336|
|Less: Net (loss) income from non-controlling interest||(40||)||(111||)||803||(886||)|
|Net income attributable to shareholders||$||57,322||$||33,971||$||145,253||$||80,462|
|Net income attributable to WEX Inc. per share:|
|Weighted average common shares outstanding:|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|(in thousands, except per share data)|
|Cash and cash equivalents||$||533,361||$||508,072|
|Accounts receivable (net of allowances of $38,103 in 2018 and $30,207 in 2017)||3,124,204||2,517,980|
|Securitized accounts receivable, restricted||142,575||150,235|
|Prepaid expenses and other current assets||85,842||69,413|
|Total current assets||3,908,678||3,264,566|
Property, equipment and capitalized software (net of accumulated
depreciation of $312,921 in 2018
and $264,928 in 2017)
|Goodwill and other intangible assets (net of accumulated amortization of $480,950 in 2018 and $392,827 in 2017)||2,908,025||3,030,179|
|Deferred income taxes, net||8,610||7,752|
|Liabilities and Stockholders’ Equity|
|Short-term debt, net||238,864||397,218|
|Other current liabilities||26,848||24,795|
|Total current liabilities||2,612,465||2,535,710|
|Long-term debt, net||2,140,875||2,027,752|
|Deferred income taxes, net||140,478||119,283|
|Commitments and contingencies|
Common Stock $0.01 par value; 175,000 shares authorized; 47,528
shares issued in 2018 and 47,352 in 2017;
43,100 shares outstanding in 2018 and 43,022 in 2017
|Additional paid-in capital||584,047||569,319|
|Accumulated other comprehensive loss||(123,260||)||(90,795||)|
|Treasury stock at cost; 4,428 shares in 2018 and 2017||(172,342||)||(172,342||)|
|Total WEX Inc. stockholders’ equity||1,839,497||1,711,338|
|Total stockholders’ equity||1,849,257||1,720,558|
|Total liabilities and stockholders’ equity||$||7,159,742||$||6,742,851|
Reconciliation of GAAP Net Income Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders
(in thousands, except per share data)
|Three Months Ended September 30,|
|Net income attributable to shareholders||$||57,322||$||1.31||$||33,971||$||0.79|
|Unrealized (gains) losses on financial instruments||(2,157||)||(0.05||)||150||—|
|Net foreign currency remeasurement losses (gains)||1,094||0.03||(14,611||)||(0.34||)|
|Acquisition–related intangible amortization||33,439||0.77||38,510||0.89|
|Other acquisition and divestiture related items||1,536||0.04||1,006||0.02|
|Restructuring and other costs||1,973||0.05||6,024||0.14|
|Debt restructuring and debt issuance cost amortization||2,216||0.05||4,287||0.10|
|ANI adjustments attributable to non–controlling interest||(351||)||(0.01||)||(207||)||—|
|Tax related items||(11,936||)||(0.27||)||(16,130||)||(0.37||)|
|Adjusted net income attributable to shareholders||$||95,359||$||2.19||$||61,483||$||1.43|
|Nine Months Ended September 30,|
|Net income attributable to shareholders||$||145,253||$||3.33||$||80,462||$||1.87|
|Unrealized (gains) losses on financial instruments||(18,371||)||(0.42||)||849||0.02|
|Net foreign currency remeasurement losses (gains)||27,438||0.63||(33,578||)||(0.78||)|
|Acquisition–related intangible amortization||103,596||2.38||114,603||2.66|
|Other acquisition and divestiture related items||2,792||0.06||3,380||0.08|
|Restructuring and other costs||8,274||0.19||10,169||0.24|
|Debt restructuring and debt issuance cost amortization||11,515||0.26||8,450||0.20|
|ANI adjustments attributable to non–controlling interest||(889||)||(0.02||)||(1,162||)||(0.03||)|
|Tax related items||(42,819||)||(0.98||)||(53,131||)||(1.23||)|
|Adjusted net income attributable to shareholders||$||264,872||$||6.08||$||168,571||$||3.91|
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, impairment charges, debt restructuring and debt issuance cost amortization, similar adjustments attributable to our non-controlling interest and certain tax related items.
Although adjusted net income is not calculated in accordance with U.S. 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 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.
- 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.
- Impairment charges represent non-cash asset write-offs, which do not reflect recurring costs that would be relevant to the Company’s continuing operations. The Company believes that excluding these nonrecurring expenses 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 interest 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 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 September 30,|
|FX impact (favorable) / unfavorable||1,733||—||848||—||1,048||—||3,629||—|
|PPG impact (favorable) / unfavorable||(17,801||)||—||—||—||—||—||
|Nine months ended September 30,|
|FX impact (favorable) / unfavorable||(2,367||)||—||(1,604||)||—||1,852||—||(2,119||)||—|
|PPG impact (favorable) / unfavorable||(43,360||)||—||—||—||—||—||(43,360||)||—|
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 earn 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 September 30,|
|FX impact (favorable) / unfavorable||$||585||$||—||$||413||$||—||$||143||$||—|
|PPG impact (favorable) / unfavorable||(12,217||)||—||—||—||—||—|
|Nine months ended September 30,|
|FX impact (favorable) / unfavorable||$||(86||)||$||—||$||
|PPG impact (favorable) / unfavorable||(29,613||)||—||—||—||—||—|
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-U.S. denominated currencies, were translated using the weighted average exchange rates for the same period in the prior year, net of tax.
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 Metrics1
|Q3 2018||Q2 2018||Q1 2018||Q4 2017||Q3 2017|
|Payment processing transactions (000s)||117,680||115,919||109,827||108,767||110,047|
|Payment processing gallons of fuel (000s)||3,051,585||3,012,912||2,877,303||2,877,971||2,905,700|
|Average US fuel price (US$ / gallon)||$||3.06||$||3.02||$||2.78||$||2.68||$||2.51|
|Payment processing $ of fuel (000s)||$||9,723,609||$||9,497,050||$||8,438,143||$||8,199,619||$||7,688,750|
|Net payment processing rate||1.19||%||1.19||%||1.27||%||1.18||%||1.17||%|
|Payment processing revenue (000s)||$||116,023||$||112,895||$||106,978||$||95,948||$||90,270|
|Net late fee rate||0.43||%||0.38||%||0.41||%||0.44||%||0.42||%|
|Late fee revenue (000s)||$||41,641||$||35,831||$||34,657||$||35,510||$||32,077|
|Travel and Corporate Solutions:|
|Purchase volume (000s)||$||9,620,787||$||8,930,421||$||7,940,543||$||7,405,045||$||8,662,533|
|Net interchange rate||0.56||%||0.57||%||0.56||%||0.53||%||0.51||%|
|Payment solutions processing revenue (000s)||$||54,345||$||51,289||$||44,777||$||39,332||$||44,177|
|Health and Employee Benefit Solutions:|
|Purchase volume (000s)||$||1,061,215||$||1,253,309||$||1,503,400||$||887,511||$||955,652|
|Average number of SaaS accounts (000s)||11,057||10,745||10,826||9,774||9,566|
|1The Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("Topic 606") as of January 1, 2018, utilizing the modified retrospective method of transition. Impacted non-financial metrics have been updated prospectively.|
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 prior to
Net late fee rate represents late fee revenue as a percentage of fuel purchased by fleets that have a payment processing relationship with WEX.
Late fee revenue represents fees charged for payments not made within the terms of the customer agreement based upon the outstanding customer receivable balance.
Purchase volume in the Travel and Corporate Solutions segment represents the total dollar value of all WEX issued transactions that use WEX corporate card products and virtual card products.
Net interchange rate prior to
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.
Average number of Health and Employee Benefit Solutions accounts
represents the number of active
|Segment Revenue Information|
Three months ended
Nine months ended
|Payment processing revenue||$||116,023||$||90,270||$||25,753||29||%||$||335,896||$||264,210||$||71,686||27||%|
|Account servicing revenue||42,810||44,858||(2,048||)||(5||)%||128,039||122,238||5,801||5||%|
|Finance fee revenue||51,644||40,773||10,871||27||%||140,436||113,754||26,682||23||%|
Three months ended
Nine months ended
|Travel and Corporate Solutions||2018||2017||Amount||Percent||2018||2017||Amount||Percent|
|Payment processing revenue||$||54,345||$||44,177||$||10,168||23||%||$||150,411||$||119,328||$||31,083||26||%|
|Account servicing revenue||9,120||206||8,914||NM||27,584||528||27,056||NM|
|Finance fee revenue||670||87||583||670||%||1,157||469||688||147||%|
NM - Not meaningful
Three months ended
Nine months ended
|Health and Employee Benefit Solutions||2018||2017||Amount||Percent||2018||2017||Amount||Percent|
|Payment processing revenue||$||12,503||$||11,255||$||1,248||11||%||$||43,756||$||39,896||$||3,860||10||%|
|Account servicing revenue||26,818||26,258||560||2||%||80,545||75,772||4,773||6||%|
|Finance fee revenue||1,389||10,019||(8,630||)||(86||)%||13,365||22,113||(8,748||)||(40||)%|