WageWorks Reports Fourth Quarter and Full Year 2012 Financial Results

WageWorks Reports Fourth Quarter and Full Year 2012 Financial Results

  • Fourth Quarter 2012 total revenue of $46.7 million, a 37% increase year-over-year

  • Full year 2012 total revenue of $177.3 million, a 31% increase over 2011

  • Fourth Quarter 2012 GAAP net income attributable to common stockholders for diluted EPS of $2.7 million or $0.09 per diluted share. Non-GAAP net income per diluted share of $0.13

  • Full year 2012 GAAP net income attributable to common stockholders for diluted EPS of $7.9 million or $0.33 per diluted share. Non-GAAP net income per diluted share of $0.58

  • Fourth Quarter 2012 non-GAAP adjusted EBITDA of $10.4 million, a 57% increase year-over-year

  • Full Year 2012 non-GAAP adjusted EBITDA of $41.4 million, a 37% increase over 2011

SAN MATEO, Calif.--(BUSINESS WIRE)-- WageWorks, Inc. (the "Company") (NYS: WAGE) , a leading provider of Consumer-Directed Benefits (CDBs), such as pretax accounts for health, commuter and other employee benefits, today announced the Company's financial results for its fourth quarter and fiscal year ended December 31, 2012.

"We are very pleased with our accomplishments in 2012," said Joe Jackson, Chief Executive Officer of WageWorks. "We had a successful initial public offering, saw record sales results, established a highly productive channel partnership with Aflac, and completed portfolio purchases of Choice Strategies and Benefit Concepts, as well as the strategic acquisition of TransitChek."


"Our fourth quarter was a very strong close to an excellent year," added Jackson. "We gained a substantial number of new employer clients and employee participants, and maintained our outstanding client renewal rates through the open enrollment period. Our business model provides us significant visibility into our expected operating results for fiscal 2013, and we believe the investments we are making in sales, marketing and product innovation position us well to continue delivering on our growth objectives."

For the fourth quarter, WageWorks reported total revenue of $46.7 million, compared to $34.0 million for the fourth quarter of 2011, an increase of 37 percent. Healthcare revenue was $29.6 million, compared to $22.3 million for the fourth quarter of 2011, an increase of 32 percent. Commuter revenue was $13.5 million, compared to $8.5 million for the fourth quarter of 2011, an increase of 60 percent. Other revenue was $3.6 million, compared to $3.2 million for the fourth quarter of 2011, an increase of 12 percent.

GAAP operating income was $5.3 million for the fourth quarter of 2012, compared to GAAP operating income of $2.4 million for the fourth quarter of 2011. On a non-GAAP basis, fourth quarter of 2012 operating income was $7.7 million, compared to non-GAAP operating income of $4.5 million for the fourth quarter of 2011.

GAAP net income attributable to common stockholders for diluted EPS was $2.7 million, or $0.09 per diluted share, for the fourth quarter of 2012, compared to GAAP net income attributable to common stockholders for diluted EPS of $22.5 million, or $1.03 per diluted share, for the fourth quarter of 2011. In the fourth quarter of 2011, GAAP net income attributable to common stockholders for diluted EPS benefited from the release of the $25.9 million valuation allowance that was determined should no longer be maintained.

On a non-GAAP net income basis, fourth quarter of 2012 net income was $4.3 million, or $0.13 per diluted share, compared to non-GAAP net income of $4.8 million, or $0.16 per diluted share, for the fourth quarter of 2011. Non-GAAP net income for the fourth quarter of 2012 excludes expenses related to stock-based compensation, amortization of acquired intangibles, contingent consideration expense and the related tax impact of these items. For the fourth quarter of 2011, non-GAAP net income also excludes expenses related to accretion of redemption premium expense and loss from revaluation of warrants.

Non-GAAP adjusted EBITDA was $10.4 million for the fourth quarter of 2012, compared to non-GAAP adjusted EBITDA of $6.7 million for the fourth quarter of 2011.

For the full year 2012, WageWorks reported total revenue of $177.3 million, compared to $135.6 million for the full year 2011, an increase of 31 percent. Healthcare revenue was $112.9 million, compared to $90.9 million for full year 2011, an increase of 24 percent. Commuter revenue was $51.8 million, compared to $33.3 million for the full year 2011, an increase of 55 percent. Other revenue was $12.6 million, compared to $11.4 million for the full year 2011, an increase of 10 percent.

GAAP operating income was $18.9 million for the full year 2012, compared to GAAP operating income of $13.6 million for the full year 2011. On a non-GAAP basis, full year 2012 operating income was $31.7 million, compared to non-GAAP operating income of $21.2 million for the full year 2011.

GAAP net income attributable to common stockholders for diluted EPS was $7.9 million, or $0.33 per diluted share, for the full year 2012, compared to GAAP net income attributable to common stockholders for diluted EPS of $28.7 million, or $1.43 per diluted share, for the full year 2011.

On a non-GAAP net income basis, full year 2012 net income was $17.5 million, or $0.58 per diluted share, compared to non-GAAP net income of $21.0 million, or $0.67 per diluted share, for the full year 2011. Non-GAAP net income for the full year 2012 and 2011 excludes expenses related to stock-based compensation, amortization of acquired intangibles, contingent consideration expense, accretion of redemption premium expense, gains or losses from revaluation of warrants and the related tax impact of these items.

Non-GAAP adjusted EBITDA was $41.4 million for the full year 2012, compared to non-GAAP adjusted EBITDA of $30.3 million for the full year 2011.

The reconciliation of the non-GAAP measures to the comparable GAAP measures for the fourth quarter and full year 2012 and 2011 is detailed in the tables provided in this press release.

As of December 31, 2012, WageWorks had cash and cash equivalents totaling $305.1 million. This compares to cash and cash equivalents totaling $238.9 million as of September 30, 2012.

The Company's Conference Call Information

WageWorks will host a conference call today, February 20, 2013, at 5:00 p.m. ET to discuss the Company's fourth quarter and fiscal year ended December 31, 2012 financial results and business outlook.

The live webcast of the conference call can be accessed under "Investor Relations" section of the Company's website at www.wageworks.com. Those wishing to participate in the live call should dial 866 314.9013 (toll-free) or 617-213-8053, and enter pass code 17063258. Following the call, an archived webcast will be available in the "Investor Relations" section of the Company's website at www.wageworks.com. A replay will be available at 888-286-8010 (toll-free) or 617-801-6888 using the pass code 59255846.

Non-GAAP Financial Information

To supplement the Company's financial statements presented on a GAAP basis, the Company provides non-GAAP financial measure of net income, operating income, adjusted EBITDA and diluted earnings per share. By providing information about both the overall GAAP financial performance and the non-GAAP measures, that focus on what management believes to be its ongoing business operations, the Company believes that the additional information enhances investors' overall understanding of the Company's business. The Company's management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the impact of accretion of redemption premium expense, stock-based compensation, amortization of acquired intangibles, gains or losses from revaluation of warrants, contingent consideration expense and the related tax impact of all of these items on the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of the Company's business for planning and forecasting in subsequent periods. The Company's management does not itself, nor does it suggest that investors should consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever the Company uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above. Investors are also encouraged to review the Company's GAAP financial statements as reported in its SEC filings.

Forward-Looking Statements

Statements in the press release and certain matters to be discussed on the third quarter conference call regarding WageWorks, Inc., which are not historical facts, are "forward- looking statements" within the meaning the Private Securities Litigation Reform Act of 1995. These forward looking statements may be identified by terms such as believe, expect, will, provide, should and the negative of these terms or other similar expressions. These statements, including statements relating to continuing to provide value to our employer clients and their employees through our consumer-directed benefits solutions, the expected benefits of Aflac, our acquisition of new employer clients, our retention of exiting employer clients, the expected benefits of our portfolio purchases, the demand for our consumer-directed benefits solutions, the expected benefits of our investments and the potential impact on our future operating results are based on current expectations and assumptions that are subject to risks and uncertainties. Our actual results could differ materially from those we anticipate as a result of various factors, including the continued availability of tax-advantaged consumer-directed benefits to employers and employees, our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets, our ability to raise awareness among employers and employees about the advantages of adopting and participating in consumer-directed benefits programs, our ability to acquire and retain new employer clients and to cross-sell our products to existing employer clients, the participation of employees in our employer clients' consumer-directed benefits programs, our ability to compete effectively with current and future competitors, our ability to provide high quality service in a cost efficient manner and our ability to enhance our product functionality. For a discussion of these and other related risks, please refer to "Risk Factors" in our most recent Form 10-Q, which is available on the SEC's website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date made. You should review our SEC filings carefully and with the understanding that our actual future results may be materially different from what we expect.

About WageWorks

WageWorks (NYS: WAGE) is a leading provider of Consumer-Directed Benefits (CDBs) in the United States. WageWorks administers and operates a broad array of CDBs, including pretax spending accounts, such as health and dependent care Flexible Spending Accounts (FSAs), as well as Commuter Benefit Services, including transit and parking programs, Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), and other employee benefits.

WageWorks is headquartered in San Mateo, California, with offices in major locations throughout the United States. For more information, please visit the website at www.wageworks.com.

WAGEWORKS, INC.

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended December 31,

Year Ended December 31,

2011

2012

2011

2012

(unaudited)

(in thousands, except per share amounts)

Revenues:

Healthcare

$

22,327

$

29,552

$

90,917

$

112,905

Commuter

8,465

13,515

33,325

51,817

Other

3,213

3,590

11,395

12,560

Total revenues

34,005

46,657

135,637

177,282

Operating expenses:

Cost of revenues (excluding amortization of internal use software)

14,504

16,760

55,651

64,647

Technology and development

3,184

5,103

13,526

18,849

Sales and marketing

5,506

8,964

20,697

30,341

General and administrative

5,247

7,086

20,876

28,839

Amortization and change in contingent consideration

3,167

3,429

11,327

15,674

Total operating expenses

31,608

41,342

122,077

158,350

Income from operations

2,397

5,315

13,560

18,932

Other income (expenses):

Interest income

9

3

36

36

Interest expense

(172

)

(459

)

(494

)

(1,772

)

Gain on revaluation of warrants

(217

)

-

351

381

Other income

-

2

-

48

Income before income taxes

2,017

4,861

13,453

17,625

Income tax benefit (provision)

20,503

(2,119

)

19,868

(7,126

)

Net income

22,520

2,742

33,321

10,499

Accretion of redemption premium expense

(904

)

-

(6,209

)

(2,301

)

Net income attributable to common stockholders

$

21,616

$

2,742

$

27,112

$

8,198

Add back: accretion of redemption premium related to
dilutive redeemable preferred stock

904

-

1,587

(260

)

Net income attributable to common stockholders for diluted EPS

$

22,520

$

2,742

$

28,699

$

7,938

Basic net income per share attributable to common stockholders

$

14.02

$

0.09

$

17.65

$

0.45

Diluted net income per share attributable to common stockholders

$

1.03

$

0.09

$

1.43

$

0.33

Shares used in basic net income per share calculations

1,542

29,761

1,536

18,138

Shares used in diluted net income per share calculations

21,825

31,898

20,086

24,414

STOCK-BASED COMPENSATION EXPENSE

Total stock-based compensation expense included in the Consolidated Statements of Income is as follows:

Three Months Ended December 31,

Year Ended December 31,

2011

2012

2011

2012

(unaudited)

Cost of revenues

$

48

$

62

219

$

282

Technology and development

59

102

256

323

Sales and marketing

83

178

391

476

General and administrative

342

552

1,378

2,669

$

532

$

894

$

2,244

$

3,750

WAGEWORKS, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2011

December 31, 2012

(unaudited)

(in thousands, except per share amounts)

ASSETS

Current assets:

Cash and cash equivalents

$

154,621

$

305,052

Restricted cash, current portion

2,383

1,147

Accounts receivable, less allowance for doubtful accounts of $69 and $403 at December 31, 2011 and December 31, 2012, respectively

15,647

22,924

Deferred tax asset - current

1,291

11,855

Prepaid expenses and other current assets

5,887

6,309

Total current assets

179,829

347,287

Restricted cash, net of current portion

2,526

2,432

Property and equipment, net

19,014

24,777

Goodwill

46,233

94,827

Acquired intangible assets, net

12,555

47,506

Deferred tax asset

16,978

-

Other assets

1,561

1,938

Total assets

$

278,696

$

518,767

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

Accounts payable and accrued expenses

$

21,415

$

42,034

Customer obligations

169,959

249,801

Short-term contingent payment

8,976

6,818

Short-term debt

14,901

-

Other current liabilities

394

2,726

Total current liabilities

215,645

301,379

Long-term debt

-

44,371

Warrants

1,119

-

Long-term contingent payment, net of current portion

-