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Wright Express Reports Fourth-Quarter Financial Results
Total revenue for the fourth quarter of 2006 increased 10% to $70.8 million from $64.4 million for the fourth quarter of 2005. Net income to common shareholders on a GAAP basis for the fourth quarter of 2006 was $19.0 million, or $0.46 per diluted share, compared with $28.3 million, or $0.69 per diluted share, for the comparable quarter last year. On a non-GAAP basis, the Company's adjusted net income for the fourth quarter of 2006 was $13.4 million, or $0.33 per diluted share, compared with $13 million, or $0.32 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 fourth quarter of 2006, the Company's GAAP financial results include an unrealized $10.0 million pre-tax, non-cash, mark-to-market gain on these instruments. For the fourth quarter of 2005, the Company reported an unrealized pre-tax, non-cash, mark-to-market gain of $20.9 million.
For the year ended December 31, 2006, net income on a GAAP basis was $74.6 million, or $1.81 per diluted share, compared with $18.7 million, or $0.46 per diluted share, for full-year 2005. On a non-GAAP basis, adjusted net income increased 14% to $55.8 million for full-year 2006 from $48.9 million a year earlier.
The Company's cash flow statement for 2006 includes $87 million related to the purchase of the receivables associated with the ExxonMobil fleet portfolio, which was purchased by Wright Express and transitioned to a payment processing relationship.
Exhibit 1 reconciles adjusted net income for the three- and 12-month periods ended December 31, 2006 and December 31, 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.
Fourth-Quarter 2006 Performance Metrics - Average number of vehicles serviced increased 3% from the fourth quarter of 2005 to approximately 4.4 million. - Total fuel transactions processed increased 2% from the fourth quarter of 2005 to 59.2 million. Payment processing transactions increased 4% to 45.1 million, and transaction processing transactions decreased 5% to 14.1 million. - Average expenditure per payment processing transaction decreased 4% to $48.69 from $50.64 for the same period last year. - Average retail fuel price declined 6% to $2.37 per gallon, from $2.53 per gallon for the fourth quarter a year ago. - Total MasterCard purchase volume grew 46% to $332.9 million, from $228.6 million for the comparable period in 2005. - Wright Express paid $42 million in principal on its term loan and line of credit during the fourth quarter of 2006.
To provide investors with additional insight into its operational performance, Wright Express has introduced in this news release a table of selected non-financial metrics for the five quarters ended December 31, 2006. This table is presented as Exhibit 2.
Management Comments on the Fourth Quarter
"This was another solid quarter in several key areas of our business," said Michael Dubyak, president and chief executive officer. "In terms of bringing in new business, servicing our accounts at a high level, maintaining strong margins and generating healthy cash flow, Wright Express continued to perform well. The 10-year contract extensions we signed with ExxonMobil and Imperial Oil of Canada (Esso Canada) demonstrate that our strategic relationships recognize our strengths in marketing and portfolio management. With the signings, we have now locked in our two largest private label partners for the next 10 years."
"Our results for the quarter also reflected a larger-than-anticipated positive mismatch on our derivatives," Dubyak said. "At the same time, however, we saw slower growth in transaction volume with a slight decline in the number of transactions per active vehicle. Although credit loss was higher this quarter, primarily due to a second reserve associated with one customer, credit quality across our overall portfolio has improved. We also booked an additional non-cash charge of $1 million related to our stock-based compensation programs unrelated to stock options."
"The past year was successful for Wright Express, and we expect further progress in 2007," said Dubyak. "Our derivatives strategy remains in place, with the goal of continuing to enhance earnings stability and visibility. We will see positive results from this strategy as the year unfolds. We also anticipate excellent results at the front end of our business in 2007. Demand from new customers for fleet card products is strong, our sales pipeline looks good, and we are committed to investing in the new products and powerful sales organization necessary to capitalize on this potential."
Share Repurchase Program
Wright Express also is announcing that its board of directors has approved a share repurchase program authorizing the Company to purchase up to $75 million of its common stock over the next 24 months. The program will be funded primarily through the Company's future cash flows. Share repurchases will be made on the open market and may be commenced or suspended at any time. The Company's management, based on its evaluation of market and economic conditions and other factors, will determine the timing and number of shares repurchased.
"Our strong cash flow enabled Wright Express to pay down $42 million on our financing debt in the fourth quarter, raising total repayments for the year to more than $70 million," Dubyak said. "As a result, we concluded 2006 at the low end of our targeted leverage range. This share repurchase program reflects our confidence in the Company's ability to both generate healthy levels of cash from operations in the future, and support further reinvestment in the growth of our business, while also enabling us to enhance shareholder value by repurchasing our stock."
Wright Express Corporation is issuing financial guidance for the first quarter and full year 2007. 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 first quarter of 2007, revenue in the range of $65 million to $70 million. This is based on an assumed average retail fuel price of $2.34 per gallon. - First-quarter 2007 net income excluding unrealized gain or loss on derivative instruments in the range of $13 million to $14.5 million, or $0.32 to $0.35 per diluted share, based on approximately 41 million shares outstanding. - For the full year 2007, revenue in the range of $290 million to $310 million. This is based on an assumed average retail fuel price of $2.37 per gallon. - For the full year 2007, net income excluding unrealized gain or loss on derivative instruments in the range of $71 million to $75 million, or $1.71 to $1.81 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, February 7, at 5:00 p.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 (800) 361-0912 or (913) 981-5559. 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 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 125 strategic relationships, and offers a MasterCard-branded corporate card. The Company employs more than 675 people and maintains its headquarters in South Portland, Maine. For more information about Wright Express, please visit wrightexpress.com.
This press release contains forward-looking statements, including statements regarding: our belief that credit quality across our overall portfolio is improving; expectations for further progress in 2007; the ability of our derivatives strategy to enhance earnings stability and visibility; expectations for positive results from the derivative strategy in 2007; anticipation of excellent results at the front end of the business in 2007; expectations for our sales pipeline; sources of funding for the share repurchase program; adequacy of cash flows to support business reinvestment and the share repurchase program and expectations and guidance for first- quarter and full-year 2007 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; first-quarter and full-year 2007 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/A filed on November 20, 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.
News media contact: Jessica Roy 207.523.6763 Jessica_Roy@wrightexpress.com Investor contact: Steve Elder Wright Express 207.523.7769 Steve_Elder@wrightexpress.com WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED RESULTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three months ended Year ended December 31, December 31, 2006 2005 2006 2005 Revenues Payment processing revenue $50,736 $46,527 $214,641 $173,416 Transaction processing revenue 4,274 4,215 17,528 17,136 Account servicing revenue 6,060 5,656 23,999 22,935 Finance fees 5,713 5,379 22,351 15,769 Other 3,973 2,648 12,728 12,077 Total revenues 70,756 64,425 291,247 241,333 Expenses Salary and other personnel 15,230 14,356 60,016 59,986 Service fees 4,795 2,332 14,525 11,924 Provision for credit losses 5,477 1,610 16,695 8,813 Technology leasing and support 1,950 2,144 7,823 8,590 Occupancy and equipment 1,315 1,431 6,157 5,874 Depreciation and amortization 3,048 2,736 10,988 9,918 Operating interest expense 5,855 4,927 23,415 14,519 Other 4,535 3,704 16,525 15,092 Total operating expenses 42,205 33,240 156,144 134,716 Operating income 28,551 31,185 135,103 106,617 Financing interest expense (3,461) (3,707) (14,447) (12,966) Realized and unrealized gains (losses)on derivative instruments 5,669 14,216 (4,180) (65,778) Income before income taxes 30,759 41,694 116,476 27,873 Provision for income taxes 11,800 13,367 41,867 9,220 Net income $18,959 $28,327 $74,609 $18,653 Earnings per share: Basic $0.47 $0.70 $1.85 $0.46 Diluted $0.46 $0.69 $1.81 $0.46 Weighted average common shares outstanding: Basic 40,441 40,206 40,373 40,194 Diluted 41,604 41,337 41,553 40,735 WRIGHT EXPRESS CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) December 31, 2006 2005 Assets Cash and cash equivalents $35,060 $44,994 Accounts receivable (less reserve for credit losses of $9,749 in 2006 and $4,627 in 2005) 802,165 652,132 Income tax refunds receivable, net - 3,300 Available-for-sale securities 8,023 20,878 Property, equipment and capitalized software, net 39,970 38,543 Deferred income taxes, net 377,276 403,078 Intangible assets, net 2,421 2,421 Goodwill 272,861 272,861 Other assets 13,239 10,088 Total assets $1,551,015 $1,448,295 Liabilities and Stockholders' Equity Accounts payable $297,102 $254,381 Accrued expenses 26,065 22,197 Income taxes payable 813 - Deposits 394,699 338,251 Borrowed federal funds 65,396 39,027 Revolving line-of-credit facility 20,000 53,000 Term loan, net 129,760 167,508 Derivative instruments, at fair value 4,524 36,710 Other liabilities 1,170 331 Amounts due to Avis (formerly Cendant) under tax receivable agreement 418,359 424,277 Preferred stock; 10,000 shares authorized: Series A non-voting convertible, redeemable preferred stock; 0.1 shares authorized, issued and outstanding 10,000 10,000 Total liabilities 1,367,888 1,345,682 Commitments and contingencies Stockholders' Equity Common stock $0.01 par value; 175,000 shares authorized 40,430 in 2006 and 40,210 in 2005 shares issued and outstanding 404 402 Additional paid-in capital 89,325 82,894 Retained earnings 93,262 18,653 Other comprehensive income, net of tax: Net unrealized gain on interest rate swaps 234 748 Net unrealized loss on available-for-sale securities (98) (84) Accumulated other comprehensive income 136 664 Total stockholders' equity 183,127 102,613 Total liabilities and stockholders' equity $1,551,015 $1,448,295 WRIGHT EXPRESS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2006 2005 Cash flows from operating activities Net income $74,609 $18,653 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Change in net unrealized loss on derivative instruments (32,186) 36,710 Stock-based compensation 4,273 6,994 Depreciation and amortization 12,081 11,100 Gain on sale of investment (2,188) - Deferred taxes 34,409 4,228 Provision for credit losses 16,695 8,813 Loss (gain) on disposal of property and equipment 59 (72) Change in operating assets and liabilities: Accounts receivable (79,944) (213,776) Income taxes 4,113 (3,300) Other assets (4,214) (1,268) Accounts payable 42,721 56,734 Accrued expenses 3,868 4,787 Other liabilities 839 (128) Amounts due to Avis(formerly Cendant) under tax receivable agreement (14,685) (15,468) Due to/from related parties - 45,051 Net cash provided by (used for) operating activities 60,450 (40,942) Cash flows from investing activities Purchases of property and equipment (12,474) (11,017) Proceeds from sale of investment 2,188 - Sales of property and equipment - 125 Purchases of available-for-sale securities (2,154) (3,637) Maturities of available-for-sale securities 14,982 425 Purchases of fleet card receivables (86,784) - Net cash used for investing activities (84,242) (14,104) Cash flows from financing activities Dividends paid - (305,887) Excess tax benefits of equity instrument share-based payment arrangements 1,047 60 Payments in lieu of issuing shares of common stock (734) - Proceeds from stock option exercises 2,228 328 Net increase in deposits 56,448 143,891 Net increase in borrowed federal funds 26,369 11,930 Net (repayments) borrowings on revolving line of credit (33,000) 53,000 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 (38,500) (50,500) Net cash provided by financing activities 13,858 68,234 Net change in cash and cash equivalents (9,934) 13,188 Cash and cash equivalents, beginning of period 44,994 31,806 Cash and cash equivalents, end of period $35,060 $44,994 Exhibit 1 Wright Express Corporation Reconciliation of Adjusted Net Income to GAAP Net Income Fourth Quarter and Full Year 2006 and 2005 (in thousands) (unaudited) Three months Three months ended ended Year ended Year ended December 31, December 31, December 31, December 31, 2006 2005 2006 2005 Adjusted net income(1) $13,441 $12,999 $55,788 $48,909 Non-cash, mark-to-market adjustments on derivative instruments 10,010 20,856 32,186 (36,710) Termination of derivative instruments - - - (8,450) Conversion of restricted stock units and stock options - - - (5,723) Tax impact (4,492) (5,528) (13,365) 20,627 GAAP net income $18,959 $28,327 $74,609 $18,653
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 and annual 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 and years difficult to evaluate; - The termination of derivative instruments during the first quarter of 2005 was a non-recurring event effected by the Company's former parent company as part of the process of preparing the Company for its initial public offering; and - The conversion of restricted stock units and stock options was a non-recurring event resulting from the need to convert the equity incentives held by the Company's employees so that they were exercisable following the initial public offering for Company common stock instead of for common stock of the Company's former parent.
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.
(1) The number of diluted shares for adjusted net income is approximately 41.1 million Exhibit 2 Wright Express Corporation Selected Non Financial Metrics Q4 2006 Q3 2006 Q2 2006 Q1 2006 Q4 2005 Fleet Payment Processing Revenue: Payment processing transactions (000's) 45,075 46,800 45,998 43,459 43,176 Gallons per payment processing transaction 20.6 20.2 20.1 20.2 20.0 Payment processing gallons of fuel (000's) 926,605 944,458 924,343 876,917 865,015 Average fuel price $ 2.37 2.87 2.86 2.41 2.53 Payment processing $ of fuel (000's) $2,194,543 2,712,120 2,642,456 2,113,614 2,186,301 Net payment processing rate 2.13% 2.02% 2.03% 2.06% 2.02% Fleet payment processing revenue (000's) $46,647 54,841 53,590 43,597 44,144 MasterCard Payment Processing Revenue: MasterCard purchase volume (000's) $332,934 365,739 332,706 269,361 228,648 Net interchange rate 1.23% 1.21% 1.23% 1.25% 1.04% MasterCard payment processing revenue (000's) $4,089 4,416 4,105 3,357 2,371 Definitions: Payment processing transactions represents the total number of fuel 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.
SOURCE Wright Express Corporation
Jessica Roy, +1-207-523-6763, or Jessica_Roy@wrightexpress.com, or Investors, Steve Elder, +1-207-523-7769, or Steve_Elder@wrightexpress.com, both of Wright Express