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WEX Inc. Reports Second Quarter 2018 Financial Results
Total Revenue for the Quarter Increased 22%
Second Quarter 2018 Financial Results
Total revenue for the second quarter of 2018 increased 22% to
Net income attributable to shareholders on a GAAP basis increased by
“I am pleased to report another strong quarter and a successful first half of the year, highlighted by top and bottom line results above our guidance range with strong contributions from each of our business segments” said Melissa Smith, WEX’s president and chief executive officer. “We remain focused on our sustained ability to leverage our talent and technology to bring compelling business-to-business products to market, which is allowing us to continue to sign new customers, retain and grow our current base and ultimately drive profitable growth.
Smith continued, “In the first half, we built on our performance from last year, with our employees across the world focused on bringing future-based solutions across many B2B markets through the use of technology and capitalizing on our organic growth opportunities. We are also pleased to report some significant contract wins during the quarter, notably the Shell portfolio, one of the most recognized brands in the industry, further indicating that WEX is the trusted partner of choice. We look forward to carrying this momentum through the second half of 2018 and beyond.”
Second Quarter 2018 Performance Metrics
- Average number of vehicles serviced was approximately 11.8 million, an increase of 8% from the second quarter of 2017.
- Total fuel transactions processed increased 7% from the second quarter of 2017 to 139.2 million. Payment processing transactions increased 7% to 115.9 million.
U.S. retail fuel price increased 25% to
$3.02per gallon from $2.41per gallon in the second quarter of 2017.
Travel and Corporate Solutions purchase volume grew 16% to
$8.9 billion, from $7.7 billionin the second quarter of 2017.
- Health and Employee Benefit Solutions average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 20% to 10.7 million from 8.9 million in the second 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
$1.445 billion to $1.475 billionand adjusted net income in the range of $344 million to $355 million, or $7.90 to $8.15per diluted share. Our assumptions for the full-year include an additional $0.10per diluted share in costs from the Shell integration.
For the third quarter of 2018, WEX expects revenue in the range of
$363 million to $373 millionand adjusted net income in the range of $88 million to $93 million, or $2.03 to $2.13per diluted share.
"We are excited to deliver another quarter of impressive growth and
build upon the first-quarter's momentum. We expect to sustain this
robust level of performance through the balance of the year, allowing us
to invest in the Shell implementation and absorb changes in foreign
exchange rates" said
Third quarter 2018 guidance is based on an assumed average U.S. retail
fuel price of
The Company's guidance also assumes that third quarter 2018 fleet credit loss will range from 11 to 16 basis points and full year will range from 11 to 16 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, 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 derivative 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 translations and fuel prices for each of our reportable segments for the three and six months ended June 30, 2018 and 2017, and in Exhibit 3, a table of selected non-financial metrics for the quarter ended June 30, 2018 and four preceding quarters. The Company is also providing selected segment revenue information for the three and six months ended June 30, 2018 and 2017 in Exhibit 4.
Conference Call Details
In conjunction with this announcement, WEX will host a conference call
today, August 2, 2018, at
Powered by the belief that complex payment systems can be made simple,
WEX (NYSE: WEX) is a leading provider of payment processing and business
solutions across a wide spectrum of sectors, including fleet, travel and
healthcare. WEX operates in more than 10 countries and in more than 20
currencies through more than 3,300 associates around the world. WEX
fleet cards offer approximately 12 million vehicles exceptional payment
security and control; purchase volume in Travel and Corporate Solutions
Segment grew to
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 signings; 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 our 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 December 31, 2017, filed on Form 10-K with the
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|(in thousands, except per share data)|
|Three months ended June 30,||Six months ended June 30,|
|Payment processing revenue||$||178,738||$||141,354||$||347,192||$||277,732|
|Account servicing revenue||78,716||65,677||157,420||127,216|
|Finance fee revenue||51,573||42,085||101,255||85,457|
|Cost of services|
|Provision for credit losses||11,505||16,082||25,495||28,313|
|Depreciation and amortization||20,612||18,376||41,045||35,760|
|Total cost of services||131,760||128,487||266,510||244,903|
|General and administrative||48,488||40,073||103,921||82,250|
|Sales and marketing||57,697||39,983||114,238||80,141|
|Depreciation and amortization||30,020||31,585||59,763||63,439|
|Financing interest expense||(25,505||)||(28,547||)||(52,842||)||(55,695||)|
|Net foreign currency (loss) gain||(26,734||)||10,525||(26,344||)||18,967|
|Net unrealized gain (loss) on financial instruments||2,706||(2,264||)||16,214||(699||)|
|Income before income taxes||53,378||27,295||118,301||70,906|
|Less: Net income (loss) from non-controlling interest||142||(450||)||843||(775||)|
|Net income attributable to shareholders||$||39,298||$||17,090||$||87,931||$||46,491|
|Net income attributable to WEX Inc. per share:|
|Weighted average common shares outstanding:|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|(in thousands, except per share data)|
|Cash and cash equivalents||$||310,784||$||508,072|
|Accounts receivable (net of allowances of $30,247 in 2018 and $30,207 in 2017)||3,087,354||2,517,980|
|Securitized accounts receivable, restricted||168,274||150,235|
|Prepaid expenses and other current assets||79,838||69,413|
|Total current assets||3,671,259||3,264,566|
|Property, equipment and capitalized software (net of accumulated depreciation of $292,111 in 2018 and $264,928 in 2017)||161,708||163,908|
|Goodwill and other intangible assets (net of accumulated amortization of $456,537 in 2018 and $392,827 in 2017)||2,946,905||3,030,179|
|Deferred income taxes, net||6,410||7,752|
|Liabilities and Stockholders’ Equity|
|Short-term debt, net||379,538||397,218|
|Other current liabilities||21,959||24,795|
|Total current liabilities||2,549,312||2,535,710|
|Long-term debt, net||2,125,109||2,027,752|
|Deferred income taxes, net||130,266||119,283|
|Commitments and contingencies|
|Common Stock $0.01 par value; 175,000 shares authorized; 47,514 shares issued in 2018 and 47,352 in 2017; 43,086 shares outstanding in 2018 and 43,022 in 2017||475||473|
|Additional paid-in capital||574,818||569,319|
|Accumulated other comprehensive loss||(114,079||)||(90,795||)|
|Treasury stock at cost; 4,428 shares in 2018 and 2017||(172,342||)||(172,342||)|
|Total WEX Inc. stockholders’ equity||1,782,127||1,711,338|
|Total stockholders’ equity||1,791,996||1,720,558|
|Total liabilities and stockholders’ equity||$||6,951,977||$||6,742,851|
Reconciliation of GAAP Net Income Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders
|(in thousands, except per share data)|
|Three Months Ended June 30,|
|per diluted share||
|Net income attributable to shareholders||$||39,298||$||0.90||$||17,090||$||0.40|
|Unrealized (gains) losses on financial instruments||(2,706||)||(0.06||)||2,264||0.05|
|Net foreign currency remeasurement losses (gains)||26,734||0.61||(10,525||)||(0.24||)|
|Acquisition–related intangible amortization||34,921||0.80||38,114||0.89|
|Other acquisition and divestiture related items||619||0.01||239||0.01|
|Restructuring and other costs||630||0.01||2,398||0.06|
|Debt issuance cost amortization||2,607||0.06||2,209||0.05|
|ANI adjustments attributable to non–controlling interest||(186||)||—||(156||)||—|
|Tax related items||(17,990||)||(0.41||)||(21,022||)||(0.49||)|
|Adjusted net income attributable to shareholders||$||90,832||$||2.09||$||54,200||$||1.26|
|Six Months Ended June 30,|
|per diluted share||
|Net income attributable to shareholders||$||87,931||$||2.02||$||46,491||$||1.08|
|Unrealized (gains) losses on financial instruments||(16,214||)||(0.37||)||699||0.02|
|Net foreign currency remeasurement losses (gains)||26,344||0.61||(18,967||)||(0.44||)|
|Acquisition–related intangible amortization||70,157||1.61||76,093||1.77|
|Other acquisition and divestiture related items||1,256||0.03||2,374||0.06|
|Restructuring and other costs||6,301||0.14||4,145||0.10|
|Debt restructuring and debt issuance cost amortization||9,299||0.21||4,163||0.10|
|ANI adjustments attributable to non–controlling interest||(538||)||(0.01||)||(955||)||(0.02||)|
|Tax related items||(30,883||)||(0.71||)||(37,001||)||(0.86||)|
|Adjusted net income attributable to shareholders||$||169,513||$||3.89||$||107,088||$||2.49|
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, an impairment charge, 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. 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 charge represents a non-cash asset write-off related to our strategic decision to in-source certain technology functions. This charge does not reflect recurring costs that would be relevant to the Company's continuing operations. The Company believes that excluding this nonrecurring expense 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 June 30,|
|FX impact (favorable) / unfavorable||(1,125||)||—||(1,020||)||—||586||—||(1,559||)||—|
|PPG impact (favorable) / unfavorable||(16,591||)||—||—||—||—||—||(16,591||)||—|
|Six months ended June 30,|
|FX impact (favorable) / unfavorable||(4,100||)||—||(2,452||)||—||804||—||(5,748||)||—|
|PPG impact (favorable) / unfavorable||(25,559||)||—||—||—||—||—||(25,559||)||—|
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 June 30,|
|FX impact (favorable) / unfavorable||$||83||$||—||$||(700||)||$||—||$||130||$||—|
|PPG impact (favorable) / unfavorable||(11,241||)||—||—||—||—||—|
|Six months ended June 30,|
|FX impact (favorable) / unfavorable||$||(671||)||$||—||$||(1,461||)||$||—||$||194||$||—|
|PPG impact (favorable) / unfavorable||(17,396||)||—||—||—||—||—|
To determine the estimated earnings impact of FX, revenue and expenses from entities whose functional currency is not denominated in U.S. dollars, as well as revenue and variable expenses from purchase volume transacted in non-U.S. denominated currencies, were translated using the weighted average exchange rates for the same period in the prior year, net of tax.
To determine the estimated earnings impact of PPG, revenue and certain variable expenses impacted by changes in fuel prices, were adjusted based on the average retail price of fuel for the same period in the prior year for the portion of our business that earns revenue based on a percentage of fuel spend, net of applicable taxes. For the portions of our business that earn revenue based on margin spreads, revenue was adjusted to the comparable margin from the prior year, net of non-controlling interest and applicable taxes.
Selected Non-Financial Metrics1
|Q2 2018||Q1 2018||Q4 2017||Q3 2017||Q2 2017|
|Payment processing transactions (000s)||115,919||109,827||108,767||110,047||108,134|
|Payment processing gallons of fuel (000s)||3,012,912||2,877,303||2,877,971||2,905,700||2,907,875|
|Average US fuel price (US$ / gallon)||$||3.02||$||2.78||$||2.68||$||2.51||$||2.41|
|Payment processing $ of fuel (000s)||$||9,497,050||$||8,438,143||$||8,199,619||$||7,688,750||$||7,399,901|
|Net payment processing rate||1.19||%||1.27||%||1.18||%||1.17||%||1.18||%|
|Payment processing revenue (000s)||$||112,895||$||106,978||$||95,948||$||90,270||$||87,678|
|Net late fee rate||0.38||%||0.41||%||0.44||%||0.42||%||0.39||%|
|Late fee revenue (000s)||$||35,831||$||34,657||$||35,510||$||32,077||$||28,713|
|Travel and Corporate Solutions:|
|Purchase volume (000s)||$||8,930,421||$||7,940,543||$||7,405,045||$||8,662,533||$||7,676,935|
|Net interchange rate||0.57||%||0.56||%||0.53||%||0.51||%||0.52||%|
|Payment solutions processing revenue (000s)||$||51,289||$||44,777||$||39,332||$||44,177||$||40,276|
|Health and Employee Benefit Solutions:|
|Purchase volume (000s)||$1,253,309||$||1,503,400||$||887,511||$||955,652||$||1,126,854|
|Average number of SaaS accounts (000s)||10,745||10,826||9,774||9,566||8,934|
|1The Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("Topic 606") as of January 1, 2018, utilizing the modified retrospective method of transition. Impacted non-financial metrics have been updated prospectively.|
Definitions and explanations:
Payment processing transactions represents the total number of purchases made by fleets that have a payment processing relationship with WEX.
Payment processing gallons of fuel represents the total number of gallons of fuel purchased by fleets that have a payment processing relationship with WEX.
Payment processing dollars of fuel represents the total dollar value of the fuel purchased by fleets that have a payment processing relationship with WEX.
Net payment processing rate prior to
Net late fee rate represents late fee revenue as a percentage of fuel purchased by fleets that have a payment processing relationship with WEX.
Late fee revenue represents fees charged for payments not made within the terms of the customer agreement based upon the outstanding customer receivable balance.
Purchase volume in the Travel and Corporate Solutions segment represents the total dollar value of all WEX issued transactions that use WEX corporate card products and virtual card products.
Net interchange rate prior to
Purchase volume in the Health and Employee Benefit Solutions segment represents the total US dollar value of all transactions where interchange is earned by WEX.
Average number of Health and Employee Benefit Solutions accounts
represents the number of active
|Segment Revenue Information|
Three months ended
Six months ended
|Payment processing revenue||$||112,895||$||87,678||$||25,217||29||%||$||219,873||$||173,940||$||45,933||26||%|
|Account servicing revenue||43,019||41,311||1,708||4||%||85,229||77,380||7,849||10||%|
|Finance fee revenue||45,188||36,552||8,636||24||%||88,792||72,981||15,811||22||%|
Three months ended
Six months ended
|Travel and Corporate Solutions||2018||2017||Amount||Percent||2018||2017||Amount||Percent|
|Payment processing revenue||$||51,289||$||40,276||$||11,013||27||%||$||96,066||$||75,151||$||20,915||28||%|
|Account servicing revenue||8,995||167||8,828||
|Finance fee revenue||228||159||69||43||%||487||382||105||27||%|
NM - Not meaningful
Three months ended
Six months ended
Health and Employee Benefit
|Payment processing revenue||$||14,554||$||13,400||$||1,154||9||%||$||31,253||$||28,641||$||2,612||9||%|
|Account servicing revenue||26,702||24,199||2,503||10||%||53,727||49,514||4,213||9||%|
|Finance fee revenue||6,157||5,374||783||15||%||11,976||12,094||(118||)||(1||)%|