WageWorks Reports Strong First Quarter 2013 Financial Results

WageWorks Reports Strong First Quarter 2013 Financial Results

  • Total revenue of $56.1 million, a 27% increase year-over-year

  • First quarter 2013 GAAP net income of $4.6 million or $0.14 per diluted share. Non-GAAP net income per diluted share of $0.20

  • First quarter 2013 non-GAAP adjusted EBITDA of $14.0 million, a 47% increase year-over-year

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 first quarter ended March 31, 2013.

"WageWorks experienced strong results in the first quarter of 2013, as we continue to execute on our growth strategy," said Joe Jackson, Chief Executive Officer of WageWorks. "Our unique dedication to pretax health and commuter benefits positions WageWorks well for continued growth, as these cost savings strategies are top of mind for employers, employees and their families."


For the first quarter, WageWorks reported total revenue of $56.1 million, compared to $44.3 million for the first quarter of 2012, an increase of 27 percent. Healthcare revenue was $35.7 million, compared to $29.2 million for the first quarter of 2012, an increase of 22 percent. Commuter revenue was $14.7 million, compared to $12.0 million for the first quarter of 2012, an increase of 23 percent. Other revenue was $5.7 million, compared to $3.1 million for the first quarter of 2012, an increase of 84 percent.

GAAP operating income was $7.5 million for the first quarter of 2013, compared to GAAP operating income of $3.8 million for the first quarter of 2012. On a non-GAAP basis, first quarter of 2013 operating income was $11.2 million, compared to non-GAAP operating income of $7.4 million for the first quarter of 2012.

GAAP net income was $4.6 million, or $0.14 per diluted share, for the first quarter of 2013, compared to GAAP net income of $0.3 million, or $0.02 per diluted share, for the first quarter of 2012.

On a non-GAAP net income basis, first quarter of 2013 net income was $6.9 million, or $0.20 per diluted share, compared to non-GAAP net income of $3.9 million, or $0.12 per diluted share, for the first quarter of 2012. Non-GAAP net income for the first quarter of 2013 excludes expenses related to stock-based compensation, amortization of acquired intangibles, contingent consideration expense and the related tax impact of these items. For the first quarter of 2012, non-GAAP net income also excludes expenses related to accretion of redemption premium expense.

Non-GAAP adjusted EBITDA was $14.0 million for the first quarter of 2013, compared to non-GAAP adjusted EBITDA of $9.5 million for the first quarter of 2012.

The reconciliation of the non-GAAP measures to the comparable GAAP measures for the first quarter 2013 and 2012 is detailed in the tables provided in this press release.

As of March 31, 2013, WageWorks had cash and cash equivalents totaling $329.2 million. This compares to cash and cash equivalents totaling $305.1 million as of December 31, 2012.

The Company's Conference Call Information

WageWorks will host a conference call today, May 9, 2013, at 5:00 p.m. ET to discuss the Company's first quarter ended March 31, 2013 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 866-515-2914 (toll-free) or 617-399-5128, and enter pass code 91583853. 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 74802897.

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 first 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, our acquisition of new employer clients, our retention of existing employer clients, the expected benefits of our portfolio purchases, the demand for our consumer-directed benefits solutions, the industry trends regarding consumer-directed health plans, 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 report on Form 10-Q for the fiscal period ended March 31, 2013 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 and we disclaim any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise. 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 March 31,

2012

2013

(unaudited)

(in thousands, except per share amounts)

Revenues:

Healthcare

$

29,230

$

35,727

Commuter

11,992

14,707

Other

3,088

5,681

Total revenues

44,310

56,115

Operating expenses:

Cost of revenues (excluding amortization of internal use software)

17,057

20,613

Technology and development

4,340

5,817

Sales and marketing

7,209

8,515

General and administrative

7,478

9,209

Amortization and change in contingent consideration

4,438

4,462

Total operating expenses

40,522

48,616

Income from operations

3,788

7,499

Other income (expenses):

Interest income

10

7

Interest expense

(405

)

(378

)

Loss on revaluation of warrants

(26

)

-

Other income

15

19

Income before income taxes

3,382

7,147

Income tax provision

(1,372

)

(2,511

)

Net income

2,010

4,636

Accretion of redemption premium expense

(1,523

)

-

Net income attributable to common stockholders

$

487

$

4,636

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

(174

)

-

Net income attributable to common stockholders for diluted EPS

$

313

$

4,636

Basic net income per share attributable to common stockholders

$

0.32

$

0.14

Diluted net income per share attributable to common stockholders

$

0.02

$

0.14

Shares used in basic net income per share calculations

1,546

32,226

Shares used in diluted net income per share calculations

16,986

33,841

STOCK-BASED COMPENSATION EXPENSE

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

Three Months Ended March 31,

2012

2013

(unaudited)

(in thousands)

Cost of revenues

$

47

$

112

Technology and development

58

150

Sales and marketing

87

185

General and administrative

367

626

$

559

$

1,073

WAGEWORKS, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2012

March 31, 2013

(unaudited)

(in thousands, except per share amounts)

ASSETS

Current assets:

Cash and cash equivalents

$

305,052

$

329,182

Restricted cash, current portion

1,147

330

Accounts receivable, less allowance for doubtful accounts of $403 and $420 at December 31, 2012 and March 31, 2013, respectively

22,924

32,708

Deferred tax assets - current

11,855

11,855

Prepaid expenses and other current assets

6,309

8,068

Total current assets

347,287

382,143

Restricted cash, net of current portion

2,432

-

Property and equipment, net

24,777

24,947

Goodwill

94,827

94,827

Acquired intangible assets, net

47,506

46,223

Other assets

1,938

1,834

Total assets

$

518,767

$

549,974

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

42,034

$

37,487

Customer obligations

249,801

259,753

Short-term contingent payment

6,818

7,001

Other current liabilities

2,726

3,499

Total current liabilities

301,379

307,740

Long-term debt

44,371

44,390

Long-term contingent payment, net of current portion

11,772

11,963

Deferred tax liability

2,450

2,346

Other non-current liabilities

2,384

2,127

Total liabilities

362,356

368,566

Stockholders' equity:

Common stock, $0.001 par value. Authorized 1,000,000 shares; issued 31,771 shares at

December 31, 2012 and 33,483 shares at March 31, 2013

32

34

Treasury stock at cost 200 shares at December 31, 2012 and March 31, 2013

(546

)

(546

)

Additional paid-in capital

221,046

241,405

Accumulated deficit

(64,121

)

(59,485

)

Total stockholders' equity

156,411

181,408

Total liabilities and stockholders' equity

$

518,767

$

549,974

WAGEWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

2012

2013

(unaudited)

(in thousands)

Cash flows from operating activities:

Net income

$

2,010

$

4,636

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

686

909

Amortization and change in contingent consideration

4,438

4,462

Stock-based compensation

559

1,073

Revaluation of warrants

26

-

Loss on disposal of fixed assets

24

71

Provision for doubtful accounts

70

35

Deferred taxes

1,006

2,407

Excess tax benefit from the exercise of stock options

-

(2,511

)

Changes in operating assets and liabilities:

Accounts receivable

(3,244

)

(9,819

)

Prepaid expenses and other current assets

172

(2,600

)

Other assets

(6

)

104

Accounts payable and accrued expenses

(1,911

)

(3,941

)

Customer obligations

3,113

9,952

Other liabilities

1,056