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Wright Express Reports Second-Quarter 2005 Results
Double-Digit Increase in Total Transactions Drives 21 Percent Revenue Growth; Company Continues to Pay Down Term Debt
SOUTH PORTLAND, Maine, July 27 /PRNewswire-FirstCall/ -- Wright Express Corporation (NYSE: WXS), a leading provider of payment processing and information management services to the U.S. commercial and government fleet industry, today reported financial results for the second quarter ended June 30, 2005.
Revenues for the second quarter of 2005 increased 21 percent to $57.3 million from $47.2 million for the second quarter of 2004. Net income on a GAAP basis for the second quarter was $15.0 million, or $0.37 per diluted share, compared with net income of $13.6 million, or $0.34 per diluted share, for the same period last year. On a non-GAAP basis, the Company's adjusted net income for the second quarter was $11.2 million, or $0.27 per diluted share.
The second quarters of 2005 and 2004 are not directly comparable on a GAAP basis due to the non-cash earnings fluctuations associated with the Company's fuel-price risk management strategy, which is based on derivative instruments. The GAAP financial results for the second quarter of 2005 include a $6.6 million pre-tax, non-cash, mark-to-market gain on these instruments. Exhibit 1 reconciles adjusted net income, which has not been determined in accordance with GAAP, to net income as determined in accordance with GAAP.
In addition, GAAP net income and adjusted net income for the second quarter of 2005 include the effect of certain costs related to the Company operating as an independent public company, which were not present in 2004. If the Company had been incurring these costs during the second quarter of 2004, non-GAAP net income would have been $10.8 million. The Company's adjusted net income for the second quarter of 2005 of $11.2 million would have represented a 3 percent increase over this amount. Exhibit 2 reconciles non- GAAP net income to net income determined in accordance with GAAP for the second quarter of 2004.
Management uses the non-GAAP measures presented within this news release to evaluate the Company's performance on a comparable basis and to eliminate the volatility associated with its derivative instruments. Management believes that investors may find these measures useful for the same purposes, but cautions that they should not be considered a substitute for disclosure in accordance with GAAP.
Second-Quarter 2005 Performance Metrics * Wright Express paid $15 million in principal on its term debt. * Average number of vehicles serviced increased 8 percent from the second quarter of 2004 to approximately 4 million. * Total transactions processed increased 10 percent from the second quarter of 2004 to 56.8 million. Payment processing transactions increased 12 percent to 40.9 million, and transaction processing transactions increased 5 percent to 15.9 million. * Average expenditure per payment processing transaction grew to $44.03, an increase of 21 percent from the same period last year. * Average retail fuel price was $2.20 per gallon, compared with $1.86 per gallon for the second quarter a year ago, an increase of 18 percent. * Total MasterCard purchase volume grew to $225.7 million, an increase of 32 percent from the comparable period a year ago. Comments on the Second Quarter
"Our powerful front-end sales and marketing engine continued to perform well in the second quarter, producing strong growth in transaction volume and revenue," said Michael Dubyak, president and chief executive officer. "The Wright Express team is leveraging all of the Company's marketing channels to win profitable new business across fleets of all sizes. In addition, our MasterCard business continued to grow at a strong pace in the second quarter."
"The Company's predictable and scalable business model is generating consistently strong net income margin and free cash flow," Dubyak said. "We took steps during the second quarter to build on this momentum and further improve the Company's financial performance. We continued executing on our de-leveraging plan, paying down an additional $15 million of term debt. We also developed a revised fuel-price risk management strategy that we began executing in early July. Going forward, this initiative should significantly reduce the sensitivity of the Company's earnings to changes in retail fuel prices."
Fuel-Price Risk Management Program
During the second quarter of 2005, the Company incurred a realized loss on its derivative instruments of $3.9 million before taxes, which was approximately equal to the additional revenue earned. On July 6, 2005, Wright Express began executing on a revised fuel-price risk management strategy that extends the Company's existing risk management program into 2007. The Company believes the structure of the new instruments improves on the program currently in effect. The instruments are intended to be more effective in enhancing the visibility and predictability of the Company's future earnings. In addition, the settlement terms of the Company's existing fuel-price instrument have been amended to provide benefits comparable to those expected from the new instruments.
Wright Express Corporation is issuing financial guidance for the third quarter of 2005 and updating its guidance for the full year. This guidance excludes the impact of non-cash, mark-to-market adjustments on the Company's fuel-price-related derivative instruments. The fuel prices referenced below are based on the applicable NYMEX futures price:
For the third quarter of 2005, revenue in the range of $57 million to $60 million. This is based on an assumed average retail fuel price of $2.26 per gallon.
Third-quarter 2005 net income before unrealized gain or loss on derivative contracts in the range of $11 million to $12 million, or $0.27 to $0.29 per diluted share, based on approximately 41 million shares outstanding.
For the full year 2005, revenue in the range of $222 million to $227 million. This is based on an assumed average retail fuel price of $2.17 per gallon.
For the full year 2005, net income before non-recurring charges from the first quarter of 2005 and unrealized gain or loss on derivative contracts in the range of $44 million to $46 million, or $1.08 to $1.13 per diluted share, based on approximately 41 million shares outstanding.
Conference Call Details
In conjunction with this announcement, Wright Express will host a conference call today at 5:00 p.m. (ET) to discuss the Company's financial results, second-quarter highlights, business strategy and business outlook. To access this call by telephone, dial (800) 500-0311 or (719) 457-2698. A telephone replay will be available through midnight on Wednesday, August 3 at (719) 457-0820 or (888) 203-1112. Please indicate passcode 3191406 to access the replay. A live webcast of this conference call will be available at the "Investor Relations" section of the Company's website (http://www.wrightexpress.com), and a webcast archive will be posted on the website for approximately three months.
About Wright Express
Wright Express is a leading provider of payment processing and information management services to the U.S. commercial and government vehicle fleet industry. Wright Express provides these services for more than 290,000 commercial and government fleets containing more than 4 million vehicles. Wright Express markets these services directly as well as through more than 85 strategic relationships, and offers a MasterCard-branded corporate card. The Company employs more than 640 people and maintains its headquarters in South Portland, Maine. For more information about Wright Express, please visit http://www.wrightexpress.com.
This press release contains forward looking statements, including statements regarding Wright Express Corporation's financial guidance for the third quarter and full year 2005 and the long term economic effect of its fuel-price related derivative instruments. These forward-looking statements include a number of risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include: volatility in fuel prices, the effect of the Company's fuel-price related derivative instruments, effects of competition, the potential loss of key strategic relationships, decreased demand for fuel and other vehicle products and services and the effects of general economic conditions on the commercial activity of fleets, the Company's ability to rapidly implement new technology and systems, changes in interest rates and the other risks and uncertainties included from time to time in the Company's filings with the Securities and Exchange Commission, including the final prospectus filed on February 16, 2005, the Company's Form 10-Q for the quarter ended March 31, 2005, and any current reports on Form 8- K. Wright Express Corporation undertakes no obligation to update these forward-looking statements at any future date or dates.
Condensed Financial Statements and Supplemental Exhibits Follow ... WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED RESULTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three months ended Six months ended June 30, June 30, 2005 2004 2005 2004 Revenues Payment processing revenue $41,809 $32,921 $76,618 $61,117 Transaction processing revenue 4,288 4,190 8,395 9,507 Account servicing revenue 5,792 5,253 11,411 10,338 Finance fees 3,052 2,280 6,247 4,434 Other 2,370 2,595 6,842 5,441 Total revenues 57,311 47,239 109,513 90,837 Expenses Salary and other personnel 13,450 12,215 32,167 24,291 Service fees 3,005 1,617 6,547 4,742 Provision for credit losses 1,940 1,920 4,877 4,549 Technology leasing and support 2,099 1,860 4,176 3,524 Occupancy and equipment 1,432 1,340 2,874 2,517 Depreciation and amortization 2,684 2,059 4,656 4,171 Operating interest expense 3,192 987 5,453 2,072 Operating interest income - (664) - (1,275) Other 3,482 3,601 7,401 6,876 Total expenses 31,284 24,935 68,151 51,467 Operating income 26,027 22,304 41,362 39,370 Financing interest expense (4,133) - (5,519) - Realized and unrealized gains (losses) on derivative instruments 2,658 - (41,544) - Income (loss) before income taxes 24,552 22,304 (5,701) 39,370 Provision (benefit) for income taxes 9,568 8,676 (2,212) 15,315 Net income (loss) $14,984 $13,628 $(3,489) $24,055 Earnings (loss) per share (on a pro forma basis for 2004): Basic $0.37 $0.34 $(0.09) $0.60 Diluted $0.37 $0.34 $(0.09) $0.59 Weighted average common shares outstanding (on a pro forma basis for 2004): Basic 40,186 40,185 40,186 40,185 Diluted 41,072 41,105 40,186 41,105 WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) June 30, December 31, 2005 2004 (unaudited) Assets Cash and cash equivalents $27,548 $31,806 Accounts receivable (less reserve for credit losses of $4,715 in 2005 and $4,212 in 2004) 606,863 447,169 Due from related parties - 134,182 Property, equipment and capitalized software, net 37,957 37,474 Deferred income taxes, net 489,377 502 Goodwill 135,047 135,047 All other assets 30,786 26,509 Total assets $1,327,578 $812,689 Liabilities and Stockholders' or Member's Equity Accounts payable $282,548 $197,647 Accrued expenses 17,408 17,410 Deposits 294,520 194,360 Borrowed federal funds 6,583 27,097 Revolving line-of-credit facility 50,000 - Term loan 182,674 - Derivative instruments, at fair value 27,821 - Other liabilities 404 459 Due to related parties - 91,466 Amounts due to Cendant under tax receivable agreement 409,032 - Preferred stock; 10,000,000 shares authorized: Series A non-voting convertible, redeemable preferred stock; 100 shares authorized, issued and outstanding 10,000 - Total liabilities 1,280,990 528,439 Commitments and contingencies Stockholders' or Member's Equity Member's contribution - 182,379 Common stock $0.01 par value; 175,000,000 shares authorized; 40,188,687 shares issued and outstanding 402 - Additional paid-in capital 49,666 - Retained earnings (accumulated deficit) (3,489) 101,869 Other comprehensive income (loss), net of tax: Net unrealized gain (loss) on interest rate swaps 13 - Net unrealized gain (loss) on available-for-sale securities (4) 2 Accumulated other comprehensive income (loss) 9 2 Total stockholders' or member's equity 46,588 284,250 Total liabilities and stockholders' or member's equity $1,327,578 $812,689 WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six months ended June 30, 2005 2004 Cash flows from operating activities Net income (loss) $(3,489) $24,055 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Net unrealized loss on derivative instruments 27,821 - Non-cash charge for stock-based compensation 6,031 - Depreciation and amortization 5,333 4,171 Deferred taxes (161) (191) Provision for credit losses 4,877 4,549 Loss (gain) on disposal of property and equipment (118) 157 Changes in operating assets and liabilities: Accounts receivable (164,571) (137,740) Other assets (1,706) (960) Accounts payable 84,901 81,925 Accrued expenses 31 773 Deposits 100,160 85,941 Borrowed federal funds (20,514) (23,966) Other liabilities (55) (728) Amounts due to Cendant under tax receivable agreement (6,379) - Due to/from related parties 45,051 (28,346) Net cash provided by operating activities 77,212 9,640 Cash flows from investing activities Purchases of property and equipment (5,145) (4,066) Sales of property and equipment 125 23 Purchases of available-for-sale securities (1,096) (972) Maturities of available-for-sale securities 121 333 Net cash used for investing activities (5,995) (4,682) Cash flows from financing activities Dividends paid (305,887) (11,985) Net borrowings on revolving line of credit 50,000 - Loan origination fees paid for revolving line of credit (1,704) - Borrowings on term loan, net of loan origination fees 217,116 - Repayments on term loan (35,000) - Net cash used for financing activities (75,475) (11,985) Net change in cash and cash equivalents (4,258) (7,027) Cash and cash equivalents, beginning of period 31,806 22,134 Cash and cash equivalents, end of period $27,548 $15,107 WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) (unaudited) Six months ended June 30, 2005 2004 Supplemental cash flow information: Interest paid $7,975 2,041 Income taxes paid $3,870 - During the six months ended June 30, 2005 the following non-cash transactions occurred: * The Company's tax basis of its assets increased resulting in a deferred tax asset of $488,719. The Company entered into a tax receivable agreement with its former parent company, which provides that the Company will make payments estimated at $415,411 over the next 15 years. The difference between the asset recorded and the liability payable to Cendant Corporation was recorded as $73,308 of stockholders' equity. * The Company issued 40,000 shares of common stock upon the completion of the Company's initial public offering and as part of the conversion of the Company from a Delaware limited liability company to a Delaware corporation. The Company did not receive any proceeds from this offering as Cendant received all common stock proceeds from the offering concurrent with their sale of 100% of their interest in the Company. * The Company issued one hundred shares of preferred stock as part of the conversion of the Company from a Delaware limited liability company to a Delaware corporation. The Company did not receive any proceeds from this offering as Cendant received all preferred stock proceeds from this conversion. Exhibit 1 Wright Express Corporation Reconciliation of Adjusted Net Income to GAAP Net Income Second Quarter 2005 (in thousands) (unaudited) Three months ended June 30, 2005 Adjusted net income (i) $11,160 Non-cash, mark-to-market adjustments on derivative instruments 6,553 Tax impact (2,729) GAAP net income $14,984
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 derivative instruments. 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 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; and * 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.
For the same reasons, Wright Express 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 Wright Express may not be comparable to similarly titled measures employed by other companies.
Exhibit 2 Wright Express Corporation Reconciliation of Non-GAAP Net Income to GAAP Net Income Second Quarter 2004 (in thousands) (unaudited) Three months ended June 30, 2004 Non-GAAP net income $10,816 Loss of interest income on cash balances 664 Incremental public company expenses, net of Cendant allocations 1,080 Founders grant vesting expense recognized in 2005 400 Savings from vesting Cendant restricted stock units (126) Additional interest on operating debt balances used to pay a dividend to Cendant 95 Interest expense on financing debt balances 2,431 Tax impact (1,732) GAAP net income $13,628
Although non-GAAP net income is not calculated in accordance with generally accepted accounting principles, this measure is integral to the Company's internal reporting. Management considers this an important measure because it includes the effect of new costs related to the Company's operating for the first time as an independent public company, as well as financing costs related to the indebtedness incurred to pay a $306 million dividend to Cendant prior to the initial public offering. However, because non-GAAP net income has not been determined in accordance with generally accepted accounting principles, it should not be considered as a substitute for net income, operating income or cash flows from operating activities as determined in accordance with GAAP. In addition, non-GAAP net income as used by Wright Express may not be comparable to similarly titled measures employed by other companies. The non-GAAP adjustments are based upon available information the Company believes to be reasonable as of today. The non-GAAP results are not necessarily indicative of the future results of operations.
(1) The number of fully diluted shares for adjusted net income is 41,072. News media contact: Investor contact: Jessica Roy Steve Elder Wright Express Wright Express 207.523.6763 207.523.7769 Jessica_Roy@wrightexpress.com Steve_Elder@wrightexpress.com
SOURCE Wright Express Corporation 07/27/2005
Jessica Roy, +1-207-523-6763, Jessica_Roy@wrightexpress.com, or
Steve Elder, +1-207-523-7769, Steve_Elder@wrightexpress.com both of Wright Express