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Wright Express Reports Third-Quarter 2005 Results
14 Percent Increase in Total Fuel Transactions Drives 41 Percent Revenue
Company Continues to Pay Down Term Debt
SOUTH PORTLAND, Maine, Oct. 26 /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 third quarter ended September 30, 2005.
Total revenues for the third quarter of 2005 increased 41 percent to $67.4 million from $47.9 million for the third quarter of 2004. Net loss on a GAAP basis for the third quarter was $6.2 million, or $0.15 per share, compared with net income of $12.9 million, or $0.31 per diluted share, for the same period last year. On a non-GAAP basis, the Company's adjusted net income for the third quarter was $13.4 million, or $0.33 per diluted share.
The third quarters of 2005 and 2004 are not directly comparable on a GAAP basis due to the non-cash earnings fluctuations associated with the Company's fuel-price risk management strategy, which is based on derivative instruments. The GAAP financial results for the third quarter of 2005 include an unrealized $29.7 million pre-tax, non-cash, mark-to-market loss on these instruments. Exhibit 1 reconciles adjusted net income, which has not been determined in accordance with GAAP, to net income as determined in accordance with GAAP.
In addition, GAAP net income and adjusted net income for the third quarter of 2005 include the effect of certain costs related to the Company operating as an independent public company, which were not present in 2004. If the Company had been incurring these costs during the third quarter of 2004, non- GAAP net income would have been $10.3 million. The Company's adjusted net income for the third quarter of 2005 of $13.4 million would have represented a 30 percent increase over this amount. Exhibit 2 reconciles non-GAAP net income to net income determined in accordance with GAAP for the third quarter of 2004.
Management uses the non-GAAP measures presented within this news release to evaluate the Company's performance on a comparable basis and to eliminate the volatility associated with its derivative instruments. Management believes that investors may find these measures useful for the same purposes, but cautions that they should not be considered a substitute for disclosure in accordance with GAAP.
Third-Quarter 2005 Performance Metrics * Average number of vehicles serviced increased 9 percent from the third quarter of 2004 to approximately 4.2 million. * Total fuel transactions processed increased 14 percent from the third quarter of 2004 to 60.9 million. Payment processing transactions increased 19 percent to 44.3 million, and transaction processing transactions increased 4 percent to 16.5 million. * Average expenditure per payment processing transaction grew to $50.72, an increase of 39 percent from the same period last year. * Average retail fuel price was $2.57 per gallon, compared with $1.86 per gallon for the third quarter a year ago, an increase of 38 percent. * Total MasterCard purchase volume grew to $252.4 million, an increase of 38 percent from the comparable period a year ago. * Wright Express paid $5.5 million in principal on its term debt. The total paid year-to-date is $40.5 million.
Comments on the Third Quarter
"Wright Express Corporation's financial results this quarter reflected sustained and solid organic gains in business volume," said Michael Dubyak, president and chief executive officer. "Our front-end sales and marketing engine drove growth in each of our core markets -- large, mid-sized and small fleets -- and through all of our marketing channels: co-brand, private label and direct. Despite higher fuel prices, fleet fuel purchasing and demand for fuel card solutions remained very strong during the quarter. We posted increases in the number of vehicles serviced, transactions processed and expenditure per transaction, as well as in MasterCard purchase volume."
"Wright Express also performed well from an operational standpoint," said Dubyak. "Along with our front-end growth initiatives, our strengths in portfolio management and product differentiation are what truly drive the business. Capitalizing on these strengths, we made significant progress this quarter in acquiring and retaining customers, in minimizing credit loss, and in creating products that add value by meeting new customer needs."
"Our third-quarter results demonstrate the scalability of our business model," said Dubyak. "In addition to the strong growth in transaction volume, the quarter was highlighted by solid sales, low credit loss, reduced leverage, increased productivity and greater profitability. We are developing additional channel opportunities in our core business, as well as exploring ideas for penetrating new markets. Looking forward, although there tends to be less fueling activity during the fourth quarter, these drivers should have a positive impact on our business. At the same time, our fuel-price risk management strategy should continue to support the visibility and predictability of our future cash flow and earnings."
Wright Express Corporation is issuing financial guidance for the fourth quarter of 2005 and updating its guidance for the full year. This guidance excludes the impact of non-cash, mark-to-market adjustments on the Company's fuel-price-related derivative instruments. The fuel prices referenced below are based on the applicable NYMEX futures price:
* For the fourth quarter of 2005, revenue in the range of $63 million to $68 million. This is based on an assumed average retail fuel price of $2.58 per gallon. * Fourth-quarter 2005 net income before unrealized gain or loss on derivative contracts in the range of $12 million to $13 million, or $0.29 to $0.32 per diluted share, based on approximately 41 million shares outstanding. * For the full year 2005, revenue in the range of $240 million to $245 million. This is based on an assumed average retail fuel price of $2.35 per gallon. * For the full year 2005, net income before non-recurring charges from the first quarter of 2005 and unrealized gain or loss on derivative contracts in the range of $48 million to $49 million, or $1.17 to $1.20 per diluted share, based on approximately 41 million shares outstanding.
Conference Call Details
In conjunction with this announcement, Wright Express will host a conference call today at 5:00 p.m. (ET) to discuss the Company's financial results, third-quarter highlights, business strategy and business outlook. To access this call by telephone, dial (800) 500-0311 or (719) 457-2698. A telephone replay will be available through midnight on Tuesday, November 1 at (719) 457-0820 or (888) 203-1112. Please indicate passcode 6860924 to access the replay. A live webcast of this conference call will be available at the "Investor Relations" section of the Company's website (http://www.wrightexpress.com), and a webcast archive will be posted on the website for approximately three months.
About Wright Express
Wright Express is a leading provider of payment processing and information management services to the U.S. commercial and government vehicle fleet industry. Wright Express provides these services for more than 298,000 commercial and government fleets containing 4.2 million vehicles. Wright Express markets these services directly as well as through more than 90 strategic relationships, and offers a MasterCard-branded corporate card. The Company employs more than 635 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: development of additional channel opportunities and ideas for penetrating new markets; fueling activity in the fourth quarter and its impact on business; the fuel-price management strategy's support of the visibility and predictability of future cash flow and earnings; and financial guidance for the fourth quarter and full year 2005. 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, fourth quarter 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; changes in interest rates and the other risks and uncertainties included from time to time in the Company's filings with the Securities and Exchange Commission, including the final prospectus filed on February 16, 2005, the Company's Quarterly Reports on Form 10-Q and any current reports on Form 8-K. Wright Express Corporation undertakes no obligation to update these forward-looking statements at any future date or dates.
Condensed Financial Statements and Supplemental Exhibits Follow ... WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED RESULTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three months ended Nine months ended September 30, September 30, 2005 2004 2005 2004 Revenues Payment processing revenue $50,271 $33,758 $126,889 $94,875 Transaction processing revenue 4,526 4,364 12,921 13,871 Account servicing revenue 5,868 5,403 17,279 15,741 Finance fees 4,143 2,461 10,390 6,895 Other 2,587 1,901 9,429 7,342 Total revenues 67,395 47,887 176,908 138,724 Expenses Salary and other personnel 13,463 12,483 45,630 36,774 Service fees 3,045 2,060 9,592 6,802 Provision for credit losses 2,326 1,684 7,203 6,233 Technology leasing and support 2,270 2,423 6,446 5,947 Occupancy and equipment 1,569 1,767 4,443 4,284 Depreciation and amortization 2,526 1,679 7,182 5,850 Operating interest expense 4,139 1,752 9,592 3,824 Operating interest income - (846) - (2,121) Other 3,987 3,770 11,388 10,646 Total expenses 33,325 26,772 101,476 78,239 Operating income 34,070 21,115 75,432 60,485 Financing interest expense (3,740) - (9,259) - Realized and unrealized gains (losses) on derivative instruments (38,450) - (79,994) - Income (loss) before income taxes (8,120) 21,115 (13,821) 60,485 Provision (benefit) for income taxes (1,935) 8,213 (4,147) 23,528 Net income $(6,185) $12,902 $(9,674) $36,957 Earnings (loss) per share (on a pro forma basis for 2004): Basic $(0.15) $0.32 $(0.24) $0.92 Diluted $(0.15) $0.31 $(0.24) $0.90 Weighted average common shares outstanding (on a pro forma basis for 2004): Basic 40,194 40,185 40,189 40,185 Diluted 40,194 41,104 40,189 41,104 WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) September 30, December 31, 2005 2004 (unaudited) Assets Cash and cash equivalents $31,223 $31,806 Accounts receivable (less reserve for credit losses of $5,378 in 2005 and $4,212 in 2004) 802,719 447,169 Due from related parties - 134,182 Property, equipment and capitalized software, net 38,207 37,474 Deferred income taxes, net 495,497 502 Goodwill 135,047 135,047 All other assets 32,431 26,509 Total assets $1,535,124 $812,689 Liabilities and Stockholders' or Member's Equity Accounts payable $359,758 $197,647 Accrued expenses 20,105 17,410 Deposits 413,922 194,360 Borrowed federal funds - 27,097 Revolving line-of-credit facility 50,000 - Term loan, net 177,360 - Derivative instruments, at fair value 57,566 - Other liabilities 420 459 Due to related parties - 91,466 Amounts due to Cendant under tax receivable agreement 404,488 - Preferred stock; 10,000 shares authorized: Series A non-voting convertible, redeemable preferred stock; 0.1 shares authorized, issued and outstanding 10,000 - Total liabilities 1,493,619 528,439 Commitments and contingencies Stockholders' or Member's Equity Member's contribution - 182,379 Common stock $0.01 par value; 175,000 shares authorized 40,199 shares issued and outstanding 402 - Additional paid-in capital 50,204 - Retained earnings (accumulated deficit) (9,674) 101,869 Other comprehensive income, net of tax: Net unrealized gain on interest rate swaps 630 - Net unrealized gain (loss) on available-for-sale securities (57) 2 Accumulated other comprehensive income 573 2 Total stockholders' or member's equity 41,505 284,250 Total liabilities and stockholders' or member's equity $1,535,124 $812,689 WRIGHT EXPRESS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine months ended September 30, 2005 2004 Cash flows from operating activities Net income (loss) $(9,674) $36,957 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Net unrealized loss on derivative instruments 57,566 - Stock-based compensation 6,434 - Depreciation and amortization 8,131 5,850 Deferred taxes (6,520) - Provision for credit losses 7,203 6,233 Loss (gain) on disposal of property and equipment (118) 802 Changes in operating assets and liabilities: Accounts receivable (362,753) (158,049) Other assets (846) (2,090) Accounts payable 162,111 85,982 Accrued expenses 2,863 1,493 Deposits 219,562 68,928 Borrowed federal funds (27,097) 13,060 Other liabilities (39) (718) Amounts due to Cendant under tax receivable agreement (10,923) - Due to/from related parties 45,051 (25,691) Net cash provided by operating activities 90,951 32,757 Cash flows from investing activities Purchases of property and equipment (7,899) (7,047) Sales of property and equipment 125 1,346 Purchases of available-for-sale securities (3,115) (980) Maturities of available-for-sale securities 330 688 Net cash used for investing activities (10,559) (5,993) Cash flows from financing activities Dividends paid (305,887) (19,924) Net borrowings on revolving line of credit 50,000 - Loan origination fees paid for revolving line of credit (1,704) - Borrowings on term loan, net of loan origination fees of $2,884 217,116 - Repayments on term loan (40,500) - Net cash used for financing activities (80,975) (19,924) Net change in cash and cash equivalents (583) 6,840 Cash and cash equivalents, beginning of period 31,806 22,134 Cash and cash equivalents, end of period $31,223 $28,974 Supplemental cash flow information: Interest paid $14,013 $3,861 Income taxes paid $8,293 $-
The following non-cash transactions occurred during the nine months ended September 30, 2005:
* The Company's tax basis of its assets increased, which increased deferred tax assets by $488,719. The Company entered into a tax receivable agreement with its former parent company, Cendant Corporation, which provides that the Company will make payments estimated at a total of $415,411 over the next 15 years. The difference between the asset recorded and the liability payable to Cendant Corporation was recorded as $73,308 of stockholders' equity. * The Company issued 40,000 shares of common stock upon the completion of the Company's initial public offering and as part of the conversion of the Company from a Delaware limited liability company to a Delaware corporation. The Company did not receive any proceeds from this offering as Cendant received all common stock proceeds from the offering concurrent with their sale of 100% of their interest in the Company. * The Company issued 0.1 shares of preferred stock as part of the conversion of the Company from a Delaware limited liability company to a Delaware corporation. The Company did not receive any proceeds from this offering as Cendant received all preferred stock proceeds from this conversion. Exhibit 1 Wright Express Corporation Reconciliation of Adjusted Net Income to GAAP Net Loss Third Quarter 2005 (in thousands) (unaudited) Three months ended September 30, 2005 Adjusted net income(1) $13,408 Non-cash, mark-to-market adjustments on derivative instruments (29,745) Tax impact 10,152 GAAP net income $(6,185)
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.
(1) The number of diluted shares for adjusted net income is 41,143. Exhibit 2 Wright Express Corporation Reconciliation of Non-GAAP Net Income to GAAP Net Income Third Quarter 2004 (in thousands) (unaudited) Three months ended September 30, 2004 Non-GAAP net income $10,295 Loss of interest income on cash balances 846 Incremental public company expenses, net of Cendant allocations 832 Founders grant vesting expense recognized in 2005 402 Savings from vesting Cendant restricted stock units (341) Additional interest on operating debt balances used to pay a dividend to Cendant 124 Interest expense on financing debt balances 2,347 Tax impact (1,603) GAAP net income $12,902
Although non-GAAP net income is not calculated in accordance with generally accepted accounting principles (GAAP), this measure is integral to the Company's internal reporting. Management considers this an important measure because it includes the effect of new costs related to the Company's operating for the first time as an independent public company, as well as financing costs related to the indebtedness incurred to pay a $306 million dividend to Cendant prior to the initial public offering. However, because non-GAAP net income has not been determined in accordance with generally accepted accounting principles, it should not be considered as a substitute for net income, operating income or cash flows from operating activities as determined in accordance with GAAP. In addition, non-GAAP net income as used by Wright Express may not be comparable to similarly titled measures employed by other companies. The non-GAAP adjustments are based upon available information the Company believes to be reasonable as of today. The non-GAAP results are not necessarily indicative of the future results of operations.
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