WEX Inc. Reports Fourth Quarter 2012 Financial Results
Strong virtual card spend growth and Fleet One acquisition drive quarterly results
Significant growth investments planned in 2013
Fourth Quarter Financial Results
Total revenue for the fourth quarter of 2012 increased 21% to $169 million from $140.0 million for the fourth quarter of 2011. Net income to common shareholders on a GAAP basis was $29.1 million, or $0.74 per diluted share, compared with $32.8 million, or $0.84 per diluted share, for the fourth quarter last year. The current quarter's net income on a GAAP basis reflected several items related to the acquisition of Fleet One, including an $8.9 million charge related to the discontinuation of WEX's OTR platform and a $1.7 million expense related to the termination of Fleet One's MasterCard business. These items are excluded from adjusted net income.
On a non-GAAP basis, the Company's adjusted net income for the fourth quarter of 2012 increased 9% to $41.8 million, or $1.07 per diluted share, from $38.4 million, or $0.98 per diluted share, for the same period a year ago. As previously announced, fourth quarter GAAP net income and adjusted net income both included $4.8 million of deal and integration related costs associated with the acquisition of Fleet One.
For the full year 2012, revenue increased 13% to $623 million from $553 million in 2011. Net income to common shareholders on a GAAP basis was $2.48 per diluted share in 2012 compared to $3.43 per diluted share in 2011. In addition to the expenses outlined above, full year 2012 GAAP net income included an impairment charge in the third quarter related to the Company's Australian prepaid business. On a non-GAAP basis, adjusted net income increased 12% to $4.06 per diluted share from $3.64 per diluted share in 2011. For the full year 2012, adjusted net income included a charge related to a retroactive change in Australian tax law that was enacted in the third quarter, as well as deal and integration costs associated with the Company's acquisition of Fleet One.
WEX uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices in North America. For the fourth quarter of 2012, the Company's GAAP financial results include an unrealized gain of $0.1 million dollar pre-tax, non-cash, mark-to-market gain on these instruments. See Exhibit 1 for a full reconciliation of adjusted net income.
"2012 was a great year for WEX as illustrated by our financial results. Over the past year, we made great strides in executing against our multi-pronged strategy, setting the stage for strong potential revenue expansion in 2013," said Michael E. Dubyak, WEX chairman, president and chief executive officer. "As we look to the upcoming year, there are a number of emerging opportunities across our business to drive our future growth including global prospects for our successful virtual card product. Given our track record of targeting investments to yield strong performance, we plan to accelerate the level and timing of our strategic investments to maximize the potential of our businesses. Overall, we believe these actions will better position WEX for the long-term while also advancing our status as a comprehensive business partner for fleet, virtual and paycard solutions," concluded Mr. Dubyak.
Fourth Quarter 2012 Performance Metrics
Where applicable, the performance metrics listed below include activity from Fleet One, acquired October 4, 2012, which positively impacted metrics for the fourth quarter.
Average number of vehicles serviced worldwide was approximately 7.6 million, an increase of 14% from the fourth quarter of 2011.
Total fuel transactions processed increased 12.1% from the fourth quarter of 2011 to 89.7 million. Payment processing transactions increased 15.7% to 70.1 million; transaction processing transactions increased 1.1% to 19.6 million.
Average expenditure per domestic payment processing transaction increased 23.4% from the fourth quarter of 2011 to $86.53.
Domestic retail fuel price increased 5.9% to $3.74 per gallon from $3.53 per gallon in the fourth quarter of 2011.
Total corporate card purchase volume grew 23.6% to $2.5 billion, from $2.0 billion for the fourth quarter of 2011.
Financial Guidance and Assumptions
"Over the past year we have delivered solid financial results while actively investing in our business to drive future growth, and we expect this momentum to persist into 2013. While we anticipate continued strong revenue growth in both our Fleet and Other Payments segments in 2013, we expect these benefits to be impacted by higher interest expense as a result of our recent bond offering and an elevated level of investments in growth opportunities, particularly related to the globalization of our virtual card product. With a strong foundation to build upon, we believe these actions will contribute to the long-term sustainability of our business," said Steve Elder, WEX senior vice president and chief financial officer.
For the first quarter of 2013, WEX expects revenue in the range of $158 million to $165 million and adjusted net income in the range of $34 million to $37 million, or $0.89 to $0.96 per diluted share.
For the full year 2013, the Company expects revenue in the range of $721 million to $741 million and adjusted net income to be in the range of $168 million to $176 million, or $4.30 to $4.50 per diluted share.
First quarter 2013 guidance is based on an assumed average U.S. retail fuel price of $3.72 per gallon, and approximately 39 million shares outstanding. Full-year 2013 guidance is based on an assumed average U.S. retail fuel price of $3.65 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 that exchange rates will remain in the range of the current spot rates.
The Company's guidance also assumes that first quarter 2013 domestic fleet credit loss will range between 9 and 14 basis points, and that domestic fleet credit loss for full year 2013 will range between 9 to 14 basis points.
The Company's guidance does not reflect the impact of any future stock repurchases that may occur in 2013, any potential write-offs related to refinancing our credit facility or the impact of the resolution of the pending MasterCard merchant litigation. 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.
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 three months and years ended December 31, 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 December 31, 2012. This table is presented as Exhibit 2. The Company is also providing selected segment review information for the three months and years ended December 31, 2012 and 2011 in Exhibit 3.
Conference Call Details
In conjunction with this announcement, WEX will host a conference call today, February 6, 2013, 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 provider of corporate card payment solutions. From its roots as a pioneer in fleet card payments in 1983, WEX now provides its 7.6 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 news 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; planned investments in growth opportunities; 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 failure of corporate investments to result in anticipated strategic value; 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; the impact of the Company's outstanding bonds on its operations; 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 Exhibit 99.2 of the Company's current report on Form 8-K furnished to the Securities and Exchange Commission on January 22, 2013 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 news 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.
CONDENSED CONSOLIDATED STATEMENTS OF
(in thousands, except per share data)
Three months ended
For the year ended
Fleet payment solutions
Other payment solutions
Salary and other personnel
Provision for credit losses
Technology leasing and support
Occupancy and equipment
Depreciation and amortization
Operating interest expense
Cost of hardware and equipment sold
Total operating expenses
Financing interest expense
Gain (loss) on foreign currency transactions
Net realized and unrealized (loss) on fuel price derivatives
Decrease in tax refund due to former shareholder of RD Card
Increase in amount due under tax receivable agreement
Income before income taxes
Net income before noncontrolling interest
Less: Net earnings from noncontrolling interest
Net earnings attributable to WEX Inc.
Changes in available-for-sale securities, net of tax effect of $(71) and
Changes in interest rate swaps, net of tax effect of $— and $35
Foreign currency translation
Comprehensive income attributable to WEX Inc.
Net earnings attributable to WEX Inc. per share:
Weighted average common shares outstanding:
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Cash and cash equivalents
Accounts receivable (less reserve for credit losses of $11,709 in 2012 and $11,526 in 2011)
Income taxes receivable
Fuel price derivatives, at fair value
Property, equipment and capitalized software, net