WEX Inc. Reports Third Quarter 2012 Financial Results

WEX Inc. Reports Third Quarter 2012 Financial Results

Resilient business model and execution on growth strategy drive quarterly results in-line with guidance

SOUTH PORTLAND, Maine--(BUSINESS WIRE)-- WEX Inc. (NYS: WXS) , a leading international provider of physical, digital and virtual corporate card payment solutions, today reported financial results for the three months ended September 30, 2012.


Third Quarter Financial Results

Total revenue for the third quarter of 2012 increased 6% to $161.0 million from $151.9 million for the third quarter of 2011. Net income to common shareholders on a GAAP basis was $14.3 million, or $0.37 per diluted share, compared with $48.1 million, or $1.23 per diluted share, for the third quarter last year. The current quarter's net income on a GAAP basis included $16.2 million of impairment costs related to the Company's Australian prepaid business which was excluded from adjusted net income.

On a non-GAAP basis, the Company's adjusted net income for the third quarter of 2012 increased 9% to $42.0 million, or $1.08 per diluted share, from $38.7 million, or $0.99 per diluted share, for the same period a year ago. Adjusted net income for the third quarter of 2012 included a charge related to a retroactive tax law change in Australian tax legislation that was enacted in the third quarter. Third quarter adjusted net income also included deal and integration related costs associated with the previously announced acquisitions of Fleet One and UNIK, which were not accounted for in the Company's prior full-year 2012 guidance. Together these items reduced earnings approximately $0.10 per share.

WEX uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices in North America. For the third quarter of 2012, the Company's GAAP financial results include an unrealized $12.8 million dollar pre-tax, non-cash, mark-to-market loss on these instruments. See Exhibit 1 for a full reconciliation of adjusted net income.

"WEX delivered third quarter results that were consistent with our expectations driven by continued execution against our long-term growth strategy. In our fleet segment, card growth increased 6% over the prior year, better positioning the Company for future growth as the economic environment improves. In addition, we fortified our competitive stance through our acquisition of Fleet One," said Michael Dubyak, Chairman, President and Chief Executive Officer.

"In our other payment solutions segment, we made further headway globalizing our virtual card for the travel industry. We also purchased an equity stake in UNIK, which expands our international footprint into Latin America and more importantly, opens up opportunities to extend our paycard presence and move into the fleet card market in Brazil. Overall, we believe the combination of market opportunities and WEX's growing position as a comprehensive business partner for fleet, virtual and paycard solutions establishes a solid and differentiated platform for building long-term growth," concluded Mr. Dubyak.

Third Quarter 2012 Performance Metrics

  • Average number of vehicles serviced worldwide was approximately 6.9 million, an increase of 6.2% from the third quarter of 2011.

  • Total fuel transactions processed increased 0.8% from the third quarter of 2011 to 85.7 million. Payment processing transactions increased 1.4% to 66.2 million; transaction processing transactions decreased 1.3% to 19.6 million.

  • Average expenditure per domestic payment processing transaction increased 0.5% from the third quarter of 2011 to $72.84.

  • Domestic retail fuel price increased 1.1% to $3.74 per gallon from $3.70 per gallon in the third quarter of 2011.

  • Total corporate card purchase volume grew 32.3% to $3.2 billion, from $2.4 billion for the third quarter of 2010.

Financial Guidance and Assumptions

"We're pleased with our performance year-to-date and anticipate continued growth as we operate within the current sluggish economic environment. While our updated guidance reflects our expectation for healthy growth in our other payments solutions segment and steady growth in our fleet business, in the short term, we anticipate that deal and integration expenses related to our acquisition of Fleet One will offset these benefits," said Steve Elder, Senior Vice President and Chief Financial Officer.

  • For the fourth quarter of 2012, WEX expects revenue in the range of $162 million to $169 million and adjusted net income in the range of $39 million to $42 million, or $1.01 to $1.08 per diluted share.

  • For the full year 2012, the Company expects revenue in the range of $616 million to $623 million and adjusted net income to be in the range of $156 million to $159 million, or $3.99 to $4.06 per diluted share.

Fourth quarter 2012 guidance is based on an assumed average U.S. retail fuel price of $3.65 per gallon, and approximately 39 million shares outstanding. Full-year 2012 guidance is based on an assumed average U.S. retail fuel price of $3.73 per gallon and approximately 39 million shares outstanding. In addition, the fuel prices referenced above are based on the applicable NYMEX futures price. WEX is assuming the exchange rate of the Australian dollar will remain at a premium to the US dollar for the remainder of the year.

The Company's guidance also assumes that fourth quarter 2012 domestic fleet credit loss will range between 10 and 15 basis points, and that domestic fleet credit loss for full year 2012 will range between 9 to 11 basis points.

The Company's guidance does not reflect the impact of any future stock repurchases that may occur in 2012. In addition, this guidance excludes the impact of non-cash, mark-to-market adjustments on the Company's fuel-price-related derivative instruments and the amortization of purchased intangibles as well as the related tax impacts.

Additional Information

Exhibit 1 reconciles adjusted net income, which has not been determined in accordance with GAAP, to net income as determined in accordance with GAAP for the third quarters of 2012 and 2011.

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, 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 a table of selected non-financial metrics for the five quarters ended September 30, 2012. This table is presented as Exhibit 2. The Company is also providing selected segment review information for the three months ending September 30, 2012 and 2011 in Exhibit 3.

Conference Call Details

In conjunction with this announcement, WEX will host a conference call today, October 31, 2012, at 10:00 a.m. (ET). As previously announced, the conference call will be webcast live on the Internet, and can be accessed at the Investor Relations section of the WEX website, http://www.wexinc.com. The live conference call also can be accessed by dialing (866) 334-7066 or (973) 935-8463. A replay of the webcast will be available on the Company's website.

About WEX Inc.

WEX Inc. (NYS: WXS) is a leading international provider of physical, digital and virtual corporate card payment solutions. From its roots as a pioneer in fleet card payments in 1983, WEX now provides its more than 350,000 customers ― representing more than 6.5 million cardholders ― with exceptional payment security and control across a wide spectrum of business sectors. The Company's operations include WEX Bank, Fleet One, Pacific Pride, rapid! PayCard, Wright Express Prepaid Cards Australia, Wright Express Fuel Cards Australia, Wright Express New Zealand and CorporatePay Limited, England, as well as a majority equity position in UNIK S.A., Brazil. WEX and its subsidiaries employ more than 1,300 associates. For more information about WEX, please visit WEXInc.com.

Forward Looking Statement

This press release contains forward-looking statements, including statements regarding: financial guidance; assumptions underlying the Company's financial guidance; management's expectations for the impact of recent acquisitions and equity investments; the Company's positioning for future growth; and, confidence in future performance. 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 "may," "could," "anticipate," "plan," "continue," "project," "intend," "estimate," "believe," "expect" 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 and the commercial activity of fleets; the effects of the Company's business expansion and acquisition efforts; the Company's failure to successfully integrate the businesses it has acquired; the impact and range of credit losses; breaches of the Company's technology systems and any resulting negative impact on our reputation, liability, or loss of relationships with customers or merchants; fuel price volatility; the Company's failure to maintain or renew key agreements; failure to expand the Company's technological capabilities and service offerings as rapidly as the Company's competitors; the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking regulations impacting the Company's industrial bank and the Company as the corporate parent; the impact of foreign currency exchange rates on the Company's operations, revenue and income; changes in interest rates; financial loss if the Company determines it necessary to unwind its derivative instrument position prior to the expiration of a contract; 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 the Company's Annual Report for the year ended December 31, 2011, filed on Form 10-K with the Securities and Exchange Commission on February 28, 2012 and the Company's subsequent periodic and current reports. The Company's forward-looking statements and these factors do not reflect the potential future impact of any alliance, merger, acquisition, disposition or stock repurchases. The forward-looking statements speak only as of the date of this press release and undue reliance should not be placed on these statements. The Company disclaims any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

WEX INC.

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2012

2011

2012

2011

Revenues

Fleet payment solutions

$

117,877

$

117,054

$

341,709

$

329,236

Other payment solutions

43,090

34,824

112,444

84,004

Total revenues

160,967

151,878

454,153

413,240

Expenses

Salary and other personnel

28,823

27,388

87,501

79,492

Service fees

28,968

20,774

74,046

51,978

Provision for credit losses

5,647

8,677

14,874

20,464

Technology leasing and support

4,577

3,895

13,718

11,851

Occupancy and equipment

3,032

2,761

9,062

8,846

Depreciation and amortization

27,877

11,767

50,591

33,644

Operating interest expense

1,243

1,449

3,430

4,188

Cost of hardware and equipment sold

759

1,166

2,270

3,042

Other

8,764

8,757

26,541

27,144

Total operating expenses

109,690

86,634

282,033

240,649

Operating income

51,277

65,244

172,120

172,591

Financing interest expense

(2,302

)

(3,100

)

(6,877

)

(9,087

)

Gain (loss) on foreign currency transactions

180

(855

)

(312

)

(363

)

Net realized and unrealized gain (loss) on fuel price derivatives

(14,026

)

13,952

(12,046

)

(4,991

)

Decrease in tax refund due to former shareholder of RD Card

Holdings Australia

9,750

Increase in amount due under tax receivable agreement

(875

)

(875

)

Income before income taxes

35,129

74,366

162,635

157,275

Income taxes

20,845

26,266

94,780

56,445

Net income before noncontrolling interest

14,284

48,100

67,855

100,830

Less: Net earnings from noncontrolling interest

(14

)

(14

)

Net earnings attributable to WEX Inc.

14,298

48,100

67,869

100,830

Changes in available-for-sale securities, net of tax effect of $27 and

$68 in 2012 and $57 and $90 in 2011

44

88

114

144

Changes in interest rate swaps, net of tax effect of $— and $35

in 2012 and $65 and $146 in 2011

113

60

252

Foreign currency translation

9,006

(29,888

)

7,189

(11,407

)

Comprehensive income attributable to WEX Inc.

$

23,348

$

18,413

$

75,232

$

89,819

Net earnings attributable to WEX Inc. per share:

Basic

$

0.37

$

1.24

$

1.75

$

2.61

Diluted

$

0.37

$

1.23

$

1.74

$

2.59

Weighted average common shares outstanding:

Basic

38,793

38,747

38,832

38,662

Diluted

38,995

38,951

39,084

38,938

WEX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

September 30,
2012

December 31,
2011

Assets

Cash and cash equivalents

$

435,303

$

25,791

Accounts receivable (less reserve for credit losses of $10,068 in 2012 and $11,526 in 2011)

1,630,699

1,323,915

Available-for-sale securities

16,223

17,044

Income taxes receivable

7,755

Fuel price derivatives, at fair value

428

410

Property, equipment and capitalized software (net of accumulated depreciation of

$121,348 in 2012 and $109,133 in 2011)

65,741

62,078

Deferred income taxes, net

104,425

143,524

Goodwill

579,204

549,504

Other intangible assets, net

137,197

109,656

Other assets

93,213

38,383

Total assets

$