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Wright Express Reports Third-Quarter 2008 Financial Results

Quarterly Results Meet Low End of Guidance

SOUTH PORTLAND, Maine--(BUSINESS WIRE)--Oct. 29, 2008--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 three months ended September 30, 2008.

Total revenue for the third quarter of 2008 increased 24% to $108.5 million from $87.7 million for the third quarter of 2007. Net income to common shareholders on a GAAP basis was $72.3 million, or $1.82 per diluted share, compared with $22.3 million, or $0.55 per diluted share, for the comparable quarter last year. On a non-GAAP basis, the Company's adjusted net income for the third quarter of 2008 was $21.8 million, or $0.55 per diluted share, compared with $22.3 million, or $0.55 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 third quarter of 2008, the Company's GAAP financial results include an unrealized $82.4 million pre-tax, non-cash, mark-to-market gain on these instruments. For the third quarter of 2007, the Company reported an unrealized pre-tax, non-cash, mark-to-market gain of $300,000.

Exhibit 1 reconciles adjusted net income for the third quarters of 2008 and 2007, 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 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 disclosure in accordance with GAAP.

Third-Quarter 2008 Performance Metrics
  • Average number of vehicles serviced was approximately 4.5 million, compared with approximately 4.4 million in the third quarter of 2007.

  • Total fuel transactions processed increased 14% from the third quarter of 2007 to 72.5 million. Payment processing transactions increased 4% to 55.5 million, and transaction processing transactions increased 73% to 16.9 million.

  • Average expenditure per payment processing transaction increased 37% to $80.84 from $59.19 for the same period last year.

  • Average retail fuel price rose 40% to $4.02 per gallon from $2.88 per gallon for the third quarter a year ago.

  • Total MasterCard purchase volume grew 31% to $670.1 million, from $510.6 million for the comparable period in 2007.

To provide investors with additional insight into its operational performance, Wright Express has included in this news release a table of selected non-financial metrics for the five quarters ended September 30, 2008. This table is presented as Exhibit 2.

Management Comments on the Third Quarter

"We met the low end of our guidance for revenue and adjusted net income this quarter, but the challenges were greater than we expected," said Michael Dubyak, Chairman, CEO and President. "The ongoing slowdown in fleet fueling activity accelerated as economic conditions deteriorated in August and September. Although we continued to see good success in acquiring new fleet accounts, which enabled us to partially offset the underlying volume decline in our installed base of customers, the overall 1% growth in payment processing fueling volume we posted was below our internal forecast."

"Our financial results this quarter were bolstered by several positive factors," said Dubyak. "Despite the economic downturn, credit loss was consistent with our internal plan. Lower compensation expenses, including non-recurring items, strengthened our bottom line, and revenue benefited from the increase in fuel prices. In addition, we concluded the third quarter with strong cash flow and ample access to the capital we need to fund our operations."

"We are preparing for continued weakness in fleet activity by taking actions in the near term to reduce costs and credit risk, drive revenue growth and realize the potential of our recently acquired businesses," Dubyak said. "Wright Express continues to perform well operationally and our liquidity position remains strong. We are confident in our ability to manage through the current market turbulence and in our prospects for growth and success in the long term."

Financial Guidance

Wright Express Corporation is issuing financial guidance for the fourth quarter and revising guidance for the full year 2008. The Company's guidance excludes the impact of non-cash, mark-to-market adjustments on the Company's fuel-price-related derivative instruments as well as approximately $1.4 million in amortization of purchased intangibles for the fourth quarter and $4.7 million for the full year. The fuel prices referenced below are based on the applicable NYMEX futures price:

  • For the fourth quarter of 2008, revenue in the range of $81 million to $87 million. This is based on an assumed average retail fuel price of $2.90 per gallon.

  • Fourth-quarter 2008 adjusted net income excluding unrealized gain or loss on derivative instruments as well as the amortization of purchased intangibles in the range of $13 million to $15 million, or $0.32 to $0.37 per diluted share, based on approximately 40 million shares outstanding.

  • For the full year 2008, the Company now expects revenue in the range of $394 million to $400 million. This is based on an assumed average retail fuel price of $3.54 per gallon.

  • For the full year 2008, the Company now expects adjusted net income excluding unrealized gain or loss on derivative instruments as well as the amortization of purchased intangibles in the range of $74 million to $76 million, or $1.86 to $1.91 per diluted share, based on approximately 40 million shares outstanding.

Conference Call Details

In conjunction with this announcement, Wright Express will host a conference call today, October 29, 2008, at 10:00 a.m. (ET). The conference call will be webcast live on the Internet, and can be accessed at the Investor Relations section of the Wright Express website, www.wrightexpress.com. The live conference call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. A replay of the webcast will be available on the Company's website for approximately three months.

About Wright Express

Wright Express is a leading global provider of payment processing and information management services. Wright Express captures and combines transaction information from its proprietary network with specialized analytical tools and purchasing control capabilities in a suite of solutions that enable fleets to manage their vehicles more effectively. The Company's charge cards are used by commercial and government fleets to purchase fuel and maintenance services for approximately 4.5 million vehicles. Wright Express markets its services directly to fleets and as an outsourcing partner for its strategic relationships and franchisees. The Company's business portfolio includes a MasterCard-branded corporate card as well as TelaPoint, a provider of supply chain software solutions for petroleum distributors and retailers, and Pacific Pride, an independent fuel distributor franchisee network, as well as international subsidiaries. For more information about Wright Express, please visit www.wrightexpress.com.

This press release contains forward-looking statements, including statements regarding: the use of fuel price derivative instruments to mitigate financial risks associated with the variability in fuel prices; preparations for continued weakness in fleet activity; confidence in the Company's ability to manage through the current market turbulence and prospects for growth and success in the long term; expectations for future financial performance; and expectations and guidance for fourth-quarter and full-year 2008 results. These forward-looking statements include a number of risks and uncertainties that could cause actual results to differ materially, including: volatility in fuel prices; fourth-quarter and full-year 2008 fueling patterns; risks related to customer and counterparty bankruptcies and credit failures; changes in interest rates; 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; achievement of the expected benefits of the Company's acquisitions; 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 February 28, 2008, 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.

                      WRIGHT EXPRESS CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (in thousands, except per share data)
                             (unaudited)

----------------------------------------------------------------------
                            Three months ended    Nine months ended
                              September 30,         September 30,
                           -------------------------------------------
                             2008       2007       2008        2007
----------------------------------------------------------------------

Revenues
 Payment processing
  revenue                  $ 83,685  $ 66,987   $ 241,205   $ 188,154
 Transaction
  processing revenue          5,326     3,684      14,561      10,811
 Account servicing
  revenue                     7,645     6,915      22,656      19,423
 Finance fees                 8,109     7,230      23,179      19,362
 Other                        3,766     2,836      11,114       7,697
----------------------------------------------------------------------

  Total revenues            108,531    87,652     312,715     245,447

Expenses
 Salary and other
  personnel                  14,604    16,222      50,038      48,050
 Service fees                 4,923     3,677      15,629      10,788
 Provision for credit
  losses                      9,325     3,300      30,544      12,606
 Technology leasing
  and support                 2,100     2,015       6,478       6,617
 Occupancy and
  equipment                   1,933     1,483       5,783       4,579
 Depreciation and
  amortization                5,216     3,922      14,642      10,562
 Operating interest
  expense                     9,581     9,158      27,667      25,025
 Other                        6,447     4,873      19,516      14,668
----------------------------------------------------------------------

  Total operating
   expenses                  54,129    44,650     170,297     132,895
----------------------------------------------------------------------

Operating income             54,402    43,002     142,418     112,552

Financing interest
 expense                     (3,006)   (3,179)     (9,123)     (9,310)
Loss on
 extinguishment of
 debt                            --        --          --      (1,572)
Net realized and
 unrealized gain
 (loss) on fuel price
 derivatives                 66,034    (4,701)    (31,876)    (25,030)
(Increase) decrease
 in amount due to
 Avis under tax
 receivable agreement        (9,159)       --      (9,159)     78,904
----------------------------------------------------------------------

Income before income
 taxes                      108,271    35,122      92,260     155,544

Income taxes                 35,927    12,859      29,771     108,590
----------------------------------------------------------------------

Net income                   72,344    22,263      62,489      46,954

Changes in available-
 for-sale securities,
 net of tax effect of
 $10 and $(24) in
 2008 and $34 and
 $(14) in 2007                   19        62         (42)        (25)
Changes in interest
 rate swaps, net of
 tax effect of $277
 and $210 in 2008 and
 $(431) and $(593) in
 2007                           495      (622)        367        (856)
Foreign currency
 translation                    (15)       13         (23)         13
----------------------------------------------------------------------

Comprehensive income       $ 72,843  $ 21,716   $  62,791   $  46,086
----------------------------------------------------------------------

Earnings per share:
 Basic                     $   1.86  $   0.56   $    1.60   $    1.17
 Diluted                   $   1.82  $   0.55   $    1.57   $    1.15

Weighted average
 common shares
 outstanding:
 Basic                       38,831    39,990      38,999      40,121
 Diluted                     39,730    41,060      39,920      41,232
      WRIGHT EXPRESS CORPORATION
                CONDENSED CONSOLIDATED BALANCE SHEETS
                (in thousands, except per share data)

----------------------------------------------------------------------
                                              September    December
                                                  30,          31,
                                                 2008         2007
                                              (unaudited)
----------------------------------------------------------------------

Assets
 Cash and cash equivalents                     $   58,409  $   43,019
 Accounts receivable (less reserve for
  credit losses of $16,413 in 2008 and
  $9,466 in 2007)                               1,372,668   1,070,273
 Income taxes receivable                              912       3,320
 Available-for-sale securities                     12,760       9,494
 Property, equipment and capitalized
  software (net of accumulated depreciation
  of $54,098 in 2008 and $43,384 in 2007)          46,643      45,537
 Deferred income taxes, net                       277,312     283,092
 Goodwill                                         315,154     294,365
 Other intangible assets, net                      41,421      20,932
 Other assets                                      19,831      15,044
----------------------------------------------------------------------

Total assets                                   $2,145,110  $1,785,076
----------------------------------------------------------------------

Liabilities and Stockholders' Equity
 Accounts payable                              $  599,123  $  363,189
 Accrued expenses                                  33,309      35,310
 Deposits                                         665,739     599,089
 Borrowed federal funds                            31,480       8,175
 Revolving line-of-credit facility                212,200     199,400
 Fuel price derivatives, at fair value             36,946      41,598
 Other liabilities                                  3,202       4,544
 Amounts due to Avis under tax receivable
  agreement                                       315,010     319,512
 Preferred stock; 10,000 shares authorized:
  Series A non-voting convertible,
   redeemable preferred stock;
   0.1 shares issued and outstanding               10,000      10,000
----------------------------------------------------------------------

 Total liabilities                              1,907,009   1,580,817

 Commitments and contingencies

 Stockholders' Equity
  Common stock $0.01 par value; 175,000
   shares authorized, 40,948 in 2008 and
   40,798 in 2007 shares issued; 38,741 in
   2008 and 39,625 in 2007 shares
   outstanding                                        409         408
  Additional paid-in capital                      100,615      98,174
  Retained earnings                               207,328     144,839
  Other comprehensive (loss) income, net of
   tax:
   Net unrealized loss on available-for-
    sale securities                                   (91)        (49)
   Net unrealized loss on interest rate
    swaps                                          (1,050)     (1,417)
   Net foreign currency translation
    adjustment                                         (8)         15
----------------------------------------------------------------------

  Accumulated other comprehensive loss             (1,149)     (1,451)

  Less treasury stock at cost, 2,207 shares
   in 2008 and 1,173 shares in 2007               (69,102)    (37,711)
----------------------------------------------------------------------

 Total stockholders' equity                       238,101     204,259
----------------------------------------------------------------------

Total liabilities and stockholders' equity     $2,145,110  $1,785,076
----------------------------------------------------------------------

                      WRIGHT EXPRESS CORPORATION
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands)
                             (unaudited)

----------------------------------------------------------------------
                                                   Nine months ended
                                                     September 30,
                                                 ---------------------
                                                   2008        2007
----------------------------------------------------------------------

Cash flows from operating activities
 Net income                                      $  62,489  $  46,954
 Adjustments to reconcile net income to net
  cash provided by (used for) operating
  activities:
  Net unrealized (gain) loss on fuel price
   derivatives                                      (4,652)    14,251
  Stock-based compensation                           3,914      3,150
  Depreciation and amortization                     14,950     11,204
  Loss on extinguishment of debt                        --      1,572
  Deferred taxes                                     5,594     97,213
  Provision for credit losses                       30,544     12,606
  Loss on disposal of property and equipment            66         --
  Changes in operating assets and liabilities,
   net of effects of acquisition:
   Accounts receivable                            (293,517)  (274,779)
   Other assets                                     (3,192)    (3,299)
   Accounts payable                                193,593    121,852
   Accrued expenses                                 (1,621)     5,214
   Income taxes                                      2,057     (1,226)
   Other liabilities                                (1,356)       348
   Amounts due to Avis under tax receivable
    agreement                                       (4,502)   (94,397)
----------------------------------------------------------------------

 Net cash provided by (used for) operating
  activities                                         4,367    (59,337)

Cash flows from investing activities
 Purchases of property and equipment               (12,339)   (12,477)
 Purchases of available-for-sale securities         (4,259)    (1,031)
 Maturities of available-for-sale securities           927        830
 Purchase of trade name                                (44)        --
 Acquisitions, net of cash acquired                (41,526)   (40,428)
----------------------------------------------------------------------

 Net cash used for investing activities            (57,241)   (53,106)

Cash flows from financing activities
 Excess tax benefits from equity instrument
  share-based payment arrangements                     140      1,713
 Payments in lieu of issuing shares of common
  stock                                             (2,076)    (1,180)
 Proceeds from stock option exercises                  415      3,065
 Net increase in deposits                           66,650    161,265
 Net increase (decrease) in borrowed federal
  funds                                             23,305    (65,396)
 Net borrowings on revolving line-of-credit
  facility                                          12,800    206,700
 Loan origination fees paid for revolving
  line-of-credit facility                           (1,556)      (998)
 Net repayments on 2005 revolving line-of-
  credit facility                                       --    (20,000)
 Repayments on term loan                                --   (131,000)
 Repayments of acquired debt                            --       (374)
 Purchase of shares of treasury stock              (31,391)   (30,424)
----------------------------------------------------------------------

 Net cash provided by financing activities          68,287    123,371

Effect of exchange rates on cash and cash
 equivalents                                           (23)        13
----------------------------------------------------------------------

Net change in cash and cash equivalents             15,390     10,941
Cash and cash equivalents, beginning of period      43,019     35,060
----------------------------------------------------------------------

Cash and cash equivalents, end of period         $  58,409  $  46,001
----------------------------------------------------------------------

Supplemental cash flow information
 Interest paid                                   $  22,303  $  31,226
 Income taxes paid                               $  22,222  $  10,646

 Significant non-cash transactions:
  Capitalized software licensing agreement       $      --  $   2,872

                              Exhibit 1
                      Wright Express Corporation
       Reconciliation of Adjusted Net Income to GAAP Net Income
                          Third Quarter 2008
                            (in thousands)
                             (unaudited)

                                 Three months ended Three months ended
                                 September 30, 2008 September 30, 2007

Adjusted net income                       $ 21,786            $22,314
Non-cash, mark-to-market
 adjustments on derivative
 instruments                                82,372                331
Amortization of purchased
 intangibles                                (1,313)              (408)
Tax impact of mark-to-market
 adjustments and amortization of
 purchased intangibles                     (30,501)                26
                                 -------------------------------------
GAAP net income                           $ 72,344            $22,263
                                 -------------------------------------

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 and excludes the amortization of purchased intangibles. 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;

  • 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 has no impact on the operations of the business.

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
                    Selected Non-Financial Metrics

                       Q3 2008   Q2 2008   Q1 2008   Q4 2007   Q3 2007
                    --------------------------------------------------
Fleet Payment
 Processing
 Revenue:
Payment processing
 transactions
 (000s)                 55,519    55,940    53,225    53,379    53,595
Gallons per payment
 processing
 transaction              20.1      19.9      20.1      20.5      20.6
Payment processing
 gallons of fuel
 (000s)              1,115,908 1,112,153 1,070,829 1,093,510 1,103,268
Average fuel price  $     4.02      3.96      3.26      3.06      2.88
Payment processing
 $ of fuel (000s)   $4,488,293 4,403,377 3,485,857 3,346,443 3,172,482
Net payment
 processing rate         1.71%     1.82%     1.87%     1.91%     1.93%
Fleet payment
 processing revenue
 (000s)             $   76,802    80,217    65,075    64,015    61,230

MasterCard Payment
 Processing
 Revenue:
MasterCard purchase
 volume (000s)      $  670,137   622,844   525,699   484,343   510,585
Net interchange
 rate                    1.03%     1.07%     1.05%     1.10%     1.13%
MasterCard payment
 processing revenue
 (000s)             $    6,883     6,692     5,536     5,323     5,757

Definitions:

Payment processing transactions represents the total number of purchases made by fleets that have a payment processing relationship with Wright Express.

Payment processing gallons of fuel represents the total number of gallons of fuel purchased by fleets that have a payment processing relationship with Wright Express.

Payment processing $ of fuel represents the total dollar value of the fuel purchased by fleets that have a payment processing relationship with Wright Express.

Net payment processing rate represents the percentage of the dollar value of each payment processing transaction that Wright Express records as revenue from merchants less any discounts given to fleets or strategic relationships.

MasterCard purchase volume represents the total dollar value of all transactions that use a Wright Express MasterCard-branded product.

Net interchange rate represents the percentage of the dollar value of each MasterCard transaction that Wright Express records as revenue less any discounts given to customers.

CONTACT: News media contact:
Wright Express
Jessica Roy, 207-523-6763
Jessica_Roy@wrightexpress.com
or
Investor contact:
Wright Express
Steve Elder, 207-523-7769
Steve_Elder@wrightexpress.com

SOURCE: Wright Express Corporation