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Wright Express Reports Second-Quarter Results
Payment Processing Transactions Increased 12 Percent; Company Pays Down $15 Million in Financing Debt
SOUTH PORTLAND, Maine, Aug. 1 /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, 2006.
Total revenue for the second quarter of 2006 increased 33 percent to $76.2 million from $57.3 million for the second quarter of 2005. Net income to common shareholders on a GAAP basis for the second quarter of 2006 was $9.9 million, or $0.24 per diluted share, compared with $15.0 million, or $0.37 per diluted share, for the comparable quarter last year. On a non-GAAP basis, the Company's adjusted net income for the second quarter of 2006 increased to $14.1 million, or $0.34 per diluted share, from $11.2 million, or $0.27 per diluted share, for the year-earlier period.
Wright Express uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices. For the second quarter of 2006, the Company's GAAP financial results include an unrealized $7.5 million pre-tax, non-cash, mark-to-market loss on these instruments. For the second quarter of 2005, the Company reported an unrealized pre-tax, non-cash, mark-to-market gain of $6.6 million. Exhibit 1 reconciles adjusted net income for the second quarters of 2006 and 2005, which has not been determined in accordance with GAAP, to net income as determined in accordance with GAAP.
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 scheduled payments on the Company's financing debt and 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 disclosure in accordance with GAAP.
Second-Quarter 2006 Performance Metrics
- Average number of vehicles serviced increased 6 percent from the second quarter of 2005 to approximately 4.3 million.
- Total fuel transactions processed increased 8 percent from the second quarter of 2005 to 61.1 million. Payment processing transactions increased 12 percent to 46 million, and transaction processing transactions decreased 5 percent to 15.1 million.
- Average expenditure per payment processing transaction grew to $57.45, an increase of 30 percent from the same period last year.
- Average retail fuel price increased 30 percent to $2.86 per gallon, from $2.20 per gallon for the second quarter a year ago.
- Total MasterCard purchase volume grew 47 percent to $332.7 million, from $225.7 million for the comparable period in 2005.
- Wright Express paid $15 million in principal on its financing debt during the second quarter of 2006.
"This was another quarter of steady, predictable growth for Wright Express," said Michael Dubyak, president and chief executive officer. "Operating leverage continues to improve as the business grows. We met our guidance for revenue and adjusted net income, and growth in business volume was on target with our expectations for the quarter. The Company's derivatives strategy continued to provide us with good earnings visibility, and our strong operating cash flow enabled us to continue paying down our financing debt."
"We are seeing sustained momentum and growth in demand for fleet and corporate cards across the business," said Dubyak. "Capitalizing on this momentum, our front-end marketing and sales operation continued to grow our sales pipeline and convert the pipeline into active customers during the second quarter. The number of large and medium fleet vehicles we serviced grew 10 percent year-over-year, and we were up 17 percent in the heavy truck market. This was also an excellent quarter for our MasterCard business."
"Looking ahead to the second half of 2006, we remain focused on expanding our core business," Dubyak said. "During the past five years, we have generated significant organic revenue growth, excluding the impact of fuel prices. With creative thinking and steady execution, we expect to continue generating strong increases in business volume. At the same time, it remains our practice to look at the marketplace for opportunities that can accelerate our long-term growth and/or enhance our strategic position by leveraging our core competencies."
Wright Express Corporation is issuing financial guidance for the third quarter of 2006, as well as updating guidance for the full year. The Company's 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 2006, revenue in the range of $75 million to $80 million. This is based on an assumed average retail fuel price of $2.88 per gallon.
- Third-quarter 2006 net income before unrealized gain or loss on derivative instruments in the range of $14 million to $15 million, or $0.34 to $0.37 per diluted share, based on approximately 41 million shares outstanding.
- For the full year 2006, revenue in the range of $290 million to $300 million. This is based on an assumed average retail fuel price of $2.70 per gallon.
- For the full year 2006, net income before unrealized gain or loss on derivative instruments in the range of $54 million to $56 million, or $1.32 to $1.38 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 tomorrow, August 2, at 8:30 a.m. (ET) to discuss the Company's second-quarter financial results and business outlook. To access this call by telephone, dial (800) 231-9012 or (719) 457-2617 (Conference code: 5086745). A live webcast of this conference call will be available at the "Investor Relations" section of the Company's website (http://www.wrightexpress.com). A replay of the webcast will be available 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 approximately 295,000 commercial and government fleets containing 4.3 million vehicles. Wright Express markets these services directly as well as through more than 100 strategic relationships, and offers a MasterCard-branded corporate card. The Company employs more than 650 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: expectation that its operating leverage will continue to improve as the business grows; expectation to see sustained momentum and growth for fleet and corporate cards; intention to remain focused on expanding its core business; expectation to continue to generate strong increases in business volume; intention to explore further opportunities to accelerate growth and/or enhance its strategic position through potential alliances or acquisitions; and expectations and guidance for third-quarter and full-year 2006 results.
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; third-quarter and full-year 2006 fueling patterns; 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; potential corporate transactions including alliances, mergers, acquisitions and divestitures; 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 annual report on Form 10-K filed on March 15, 2006, and the Company's other periodic and current reports. Wright Express Corporation undertakes no obligation to update these forward-looking statements at any future date or dates.
Condensed Financial Statements and Supplemental Exhibit Follow ... CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands, except per share data) (unaudited) Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 Revenues Payment processing revenue $57,693 $41,809 $104,649 $76,618 Transaction processing revenue 4,343 4,288 8,553 8,395 Account servicing revenue 5,926 5,792 11,841 11,411 Finance fees 5,243 3,052 10,481 6,247 Other 2,959 2,370 5,278 6,842 Total revenues 76,164 57,311 140,802 109,513 Expenses Salary and other personnel 15,196 13,450 29,550 32,167 Service fees 3,377 3,005 6,417 6,547 Provision for credit losses 2,302 1,940 6,220 4,877 Technology leasing and support 1,934 2,099 3,797 4,176 Occupancy and equipment 1,703 1,432 3,295 2,874 Depreciation and amortization 2,692 2,684 5,206 4,656 Operating interest expense 6,042 3,192 10,649 5,453 Other 4,406 3,482 8,249 7,401 Total operating expenses 37,652 31,284 73,383 68,151 Operating income 38,512 26,027 67,419 41,362 Financing interest expense (3,666) (4,133) (7,394) (5,519) Net realized and unrealized (losses) gains on derivative instruments (20,509) 2,658 (27,987) (41,544) Income (loss) before income taxes 14,337 24,552 32,038 (5,701) Provision (benefit) for income taxes 4,481 9,568 10,832 (2,212) Net income (loss) 9,856 14,984 21,206 (3,489) Change in net unrealized loss on available-for-sale securities, net of tax effect of $(21) and $(62) in 2006 and $27 and $(3) in 2005 (55) 49 (118) (6) Change in net unrealized gain on interest rate swaps, net of tax effect of $(49) and $37 in 2006 and $8 and $8 in 2005 (20) 13 48 13 Comprehensive income (loss) $9,781 $15,046 $21,136 $(3,482) Earnings (loss) per share: Basic $0.24 $0.37 $0.53 $(0.09) Diluted $0.24 $0.37 $0.52 $(0.09) Weighted average common shares outstanding: Basic 40,331 40,186 40,288 40,186 Diluted 41,086 41,072 41,035 40,186 CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) June 30, 2006 December 31, (unaudited) 2005 Assets Cash and cash equivalents $16,600 $44,994 Accounts receivable (less reserve for credit losses of $5,188 in 2006 and $4,627 in 2005) 890,857 652,132 Available-for-sale securities 5,987 20,878 Property, equipment and capitalized software, net 39,548 38,543 Deferred income taxes, net 506,678 513,018 Intangible assets, net 2,421 2,421 Goodwill 135,047 135,047 Other assets 11,559 13,388 Total assets $1,608,697 $1,420,421 Liabilities and Stockholders' Equity Accounts payable $396,127 $254,381 Accrued expenses 19,721 22,197 Deposits 414,316 338,251 Borrowed federal funds 9,350 39,027 Revolving line-of-credit facility 48,000 53,000 Term loan, net 151,398 167,508 Derivative instruments, at fair value 45,598 36,710 Other liabilities 1,163 331 Amounts due to Cendant Corporation under tax receivable agreement 414,798 424,277 Preferred stock; 10,000 shares authorized: Series A non-voting convertible preferred stock; 0.1 shares authorized, issued and outstanding 10,000 10,000 Total liabilities 1,510,471 1,345,682 Commitments and contingencies Stockholders' Equity Common stock $0.01 par value; 175,000 shares authorized; 40,353 shares issued and outstanding as of June 30, 2006, 40,210 shares issued and outstanding as of December 31, 2005 404 402 Additional paid-in capital 57,369 55,020 Retained earnings 39,859 18,653 Other comprehensive income (loss), net of tax: Net unrealized gain on interest rate swaps 796 748 Net unrealized loss on available-for-sale securities (202) (84) Accumulated other comprehensive income 594 664 Total stockholders' equity 98,226 74,739 Total liabilities and stockholders' equity $1,608,697 $1,420,421 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six months ended June 30, 2006 2005 Cash flows from operating activities Net income (loss) $21,206 $(3,489) Adjustments to reconcile net income (loss) to net cash used in operating activities: Net unrealized loss on derivative instruments 8,888 27,821 Stock-based compensation 1,553 6,031 Depreciation and amortization 5,766 5,333 Deferred taxes 6,365 (161) Provision for credit losses 6,220 4,877 Loss (gain) on disposal of property and equipment 5 (118) Changes in operating assets and liabilities: Accounts receivable (244,945) (164,571) Other assets 1,744 (1,706) Accounts payable 141,746 84,901 Accrued expenses (2,476) 31 Other liabilities 832 (55) Amounts due to Cendant under tax receivable agreement (9,479) (6,379) Due to/from related parties -- 45,051 Net cash used in operating activities (62,575) (2,434) Cash flows from investing activities Purchases of property and equipment (6,216) (5,145) Sales of property and equipment -- 125 Purchases of available-for-sale securities (66) (1,096) Maturities of available-for-sale securities 14,777 121 Net cash provided by (used in) investing activities 8,495 (5,995) Cash flows from financing activities Dividends paid -- (305,887) Excess tax benefits of equity instrument share-based payment arrangements 251 -- Payments in lieu of issuing shares of common stock (682) -- Proceeds from stock option exercises 1,229 -- Net increase in deposits 76,065 100,160 Net decrease in borrowed federal funds (29,677) (20,514) Net (repayments) borrowings on revolving line of credit (5,000) 50,000 Loan origination fees paid for revolving line of credit -- (1,704) Borrowings on term loan, net of loan origination fees of $2,884 in 2005 -- 217,116 Repayments on term loan (16,500) (35,000) Net cash provided by financing activities 25,686 4,171 Net change in cash and cash equivalents (28,394) (4,258) Cash and cash equivalents, beginning of period 44,994 31,806 Cash and cash equivalents, end of period $16,600 $27,548 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) (unaudited) Six months ended June 30, 2006 2005 Supplemental cash flow information: Interest paid $17,362 $7,975 Income taxes paid $925 $3,870
There were no significant non-cash transactions during the six months ended June 30, 2006.
During the six months ended June 30, 2005 the following significant non-cash transactions occurred:
- The tax basis of our assets increased as a result of our initial public offering creating a deferred tax asset of $488,719 based upon our estimated tax rate at June 30, 2005. We entered into a tax receivable agreement with Cendant Corporation, our former parent company, which provided that we will make total payments estimated at $415,411 as of June 30, 2005. The difference between the initial asset recorded and the initial liability payable to our former parent company was recorded as $73,308 of stockholders' equity.
- We issued 40,000 shares of common stock upon the completion of our initial public offering and as part of the conversion from a Delaware limited liability company to a Delaware corporation. We did not receive any proceeds from this offering as our former parent company received all common stock proceeds from the offering concurrent with its sale of 100 percent of its interest in us.
- We issued 0.1 shares of preferred stock as part of the conversion from a Delaware limited liability company to a Delaware corporation. We did not receive any proceeds from this offering as our former parent company received all preferred stock proceeds from this conversion.
Exhibit 1 Wright Express Corporation Reconciliation of Adjusted Net Income to GAAP Net Income Second Quarter 2006 and 2005 (in thousands) (unaudited) Three months ended Three months ended June 30, 2006 June 30, 2005 Adjusted net income $14,121 $11,160 Non-cash, mark-to-market adjustments on derivative instruments (7,462) 6,553 Tax impact 3,197 (2,729) GAAP net income $9,856 $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.
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