News Column

WEX Inc. Reports First Quarter 2014 Financial Results

April 30, 2014

Organic growth from fleet volumes and virtual card spend drives strong quarterly revenue

SOUTH PORTLAND, Maine--(BUSINESS WIRE)-- WEX Inc. (NYSE: WEX), a leading provider of corporate payment solutions, today reported financial results for the three months ended March 31, 2014.

First Quarter Financial Results

Total revenue for the first quarter of 2014 increased 10.1% to $182.1 million from $165.4 million for the first quarter of 2013. Net income to common shareholders on a GAAP basis was $36.5 million, or $0.93 per diluted share, compared with $28.7 million, or $0.73 per diluted share, for the first quarter last year.

On a non-GAAP basis, the Company's adjusted net income for the first quarter of 2014 increased 4% to $41.6 million, or $1.06 per diluted share, from $39.8 million, or $1.02 per diluted share, for the same period a year ago. Please note that beginning this quarter, adjusted net income excludes the expense of stock-based compensation. For comparative purposes, adjusted net income for the prior period also reflects this change. See Exhibit 1 for a full reconciliation of adjusted net income.

“We started the year strong with revenue and adjusted net income increasing during the first quarter of 2014. Our first quarter results were driven by organic growth from our domestic fleet business, which benefited from favorable dynamics in fee income, coupled with benefits associated with new portfolios beginning to come online,” said Melissa Smith, WEX’s president and chief executive officer.

Ms. Smith continued, "We executed against our strategy to further globalize and grow our fleet and other payment segments. We saw accelerated growth in our international businesses, while continuing to announce new partner relationships. We also made significant progress with the integration of ExxonMobil’s European card portfolio during the quarter, achieving noteworthy milestones, including securing merger clearance from the European Commission, and began the process of setting up key systems and infrastructure for the closing of the transaction. For 2014, our focus remains on increasing our growth, enhancing scale, and making targeted international investments.”

First Quarter 2014 Performance Metrics

  • Average number of vehicles serviced worldwide was approximately 7.8 million, an increase of 4.1% from the first quarter of 2013.
  • Total fuel transactions processed increased 5.7% from the first quarter of 2013 to 92.6 million. Payment processing transactions increased 6.7% to 73.3 million.
  • Average expenditure per payment processing transaction decreased 2% from the first quarter of 2013 to $85.94.
  • U.S. retail fuel price decreased 3% to $3.64 per gallon from $3.76 per gallon in the first quarter of 2013.
  • Total corporate card purchase volume grew 39% to $3.7 billion, from $2.6 billion for the first quarter of 2013.

    Financial Guidance and Assumptions

    “We continue to see considerable momentum throughout our business. Our strategic investments to further grow our business and penetrate new markets both domestically and internationally are beginning to bear fruit and we are encouraged by our results to date. Overall, our capital structure remains strong, and we are well positioned to capitalize on opportunities as they become available. Revenue for the first quarter was above our expectations, which was offset in part by higher than expected credit losses. For the remainder of the year, we are increasing our guidance primarily to reflect higher fuel price projections and changes to foreign exchange rates," said Steve Elder, WEX senior vice president and chief financial officer.

  • For the second quarter of 2014, WEX expects revenue in the range of $190 million to $197 million and adjusted net income in the range of $47 million to $50 million, or $1.20 to $1.27 per diluted share.
  • For the full year 2014, the Company expects revenue in the range of $767 million to $787 million and adjusted net income to be in the range of $185 million to $193 million, or $4.75 to $4.95 per diluted share.

    Second quarter 2014 guidance is based on an assumed average U.S. retail fuel price of $3.71 per gallon, and approximately 39 million shares outstanding. Full-year 2014 guidance is based on an assumed average U.S. retail fuel price of $3.57 per gallon and approximately 39 million shares outstanding. 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 second quarter 2014 fleet credit loss will range between 9 and 14 basis points, and that fleet credit loss for full year 2014 will range between 10 to 15 basis points.

    Our guidance includes an income statement impact of $10-$13 million after tax related to our planned acquisition of ExxonMobil's European commercial fuel card program.

    The Company's guidance does not reflect the impact of any future stock repurchases that may occur in 2014. Also, while we have begun a limited program of hedging foreign exchange rate risk, the impact potential foreign exchange rate fluctuations may have on results are excluded from our guidance. Stock compensation expense has been excluded from the adjusted net income guidance in order to make this measure more comparable to the Company’s peers. 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 three months and years ended March 31, 2014 and 2013.

    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.

    WEX uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices in North America. For the first quarter of 2014, the Company's GAAP financial results include an unrealized pre-tax, non-cash, mark-to-market gain of $2.8 million dollars on these instruments.

    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 March 31, 2014. This table is presented as Exhibit 2. The Company is also providing selected segment revenue information for the three months ended March 31, 2014 and 2013 in Exhibit 3.

    Conference Call Details

    In conjunction with this announcement, WEX will host a conference call today, April 30, 2014, 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. The Conference ID number is 16535750. A replay of the webcast will be available on the Company's website.

    About WEX Inc.

    WEX Inc. (NYSE: WEX) is a leading provider of corporate payment solutions. From its roots in fleet card payments beginning in 1983, WEX has expanded the scope of its business into a multi-channel provider of corporate payment solutions representing more than 7.8 million cardholders and offering 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, WEX Australia, WEX New Zealand and WEX Europe, as well as a majority equity position in UNIK S.A., Brazil. WEX and its subsidiaries employ more than 1,400 associates. For more information about WEX, please visit www.wexinc.com.

    Forward-Looking Statements

    This news release contains forward-looking statements, including statements regarding: financial guidance; assumptions underlying the Company's financial guidance; management’s expectations for future 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 news 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 Company's failure to consummate a previously announced acquisition, including the acquisition of ExxonMobil's European commercial fuel card program; the failure of corporate investments to result in anticipated strategic value; the impact and range of credit losses; the impact of changes to the Company's credit standards; 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 Item 1A. of the Company's annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2014 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.

     

    WEX INC.

    CONSOLIDATED STATEMENTS OF

    INCOME

    (in thousands, except per share data)

    (unaudited)

     

    Three months ended

    March 31,

    2014     2013  
    Revenues
    Fleet payment solutions $135,435 $ 126,039
    Other payment solutions 46,633   39,331  
    Total revenues 182,068 165,370
    Expenses
    Salary and other personnel 43,902 40,077
    Service fees 26,305 23,805
    Provision for credit losses 9,090 3,756
    Technology leasing and support 7,027 5,485
    Occupancy and equipment 4,366 3,805
    Depreciation, amortization and impairment 15,018 14,607
    Operating interest expense 1,288 1,147
    Cost of hardware and equipment sold 948 1,074
    Other 12,587   11,084  
    Total operating expenses 120,531   104,840  
    Operating income 61,537 60,530
    Financing interest expense (7,356) (7,339 )
    Net gain (loss) on foreign currency transactions 1,033 (232 )
    Net realized and unrealized loss on fuel price derivatives 1,845   (7,755 )
    Income before income taxes 57,059 45,204
    Income taxes 20,979   16,627  
    Net income36,080 28,577
    Less: Net loss attributable to non-controlling interest (462) (112 )
    Net earnings attributable to WEX Inc.$36,542   $ 28,689  
    Net earnings attributable to WEX Inc. per share:
    Basic $0.94 $ 0.74
    Diluted $0.93 $ 0.73
    Weighted average common shares outstanding:
    Basic 38,966 38,888
    Diluted 39,145 39,187
     


     

    WEX INC.

    CONSOLIDATED BALANCE SHEETS

    (in thousands, except per share data)

    (unaudited)

     

    March 31,

    2014

     

    December 31,

    2013

    Assets  
    Cash and cash equivalents $354,772 $ 361,486
    Accounts receivable (less reserve for credit losses of $13,163 in 2014 and $10,396 in 2013) 1,980,609 1,712,061
    Available-for-sale securities 16,058 15,963
    Property, equipment and capitalized software (net of accumulated depreciation of $152,380 in 2014 and $145,400 in 2013) 76,920 72,275
    Deferred income taxes, net 78,285 88,965
    Goodwill 828,823 819,892
    Other intangible assets, net 201,737 206,744
    Other assets   163,214     154,892  
    Total assets   $3,700,418     $ 3,432,278  
    Liabilities and Stockholders’ Equity
    Accounts payable $646,721 $ 512,878
    Accrued expenses 86,423 92,335
    Income taxes payable 22,424 16,066
    Deposits 1,190,223 1,088,930
    Revolving line-of-credit facilities and term loan 281,250 285,000
    Deferred income taxes, net 13,444 13,528
    Notes outstanding 400,000 400,000
    Amounts due under tax receivable agreement 77,785 77,785
    Fuel price derivatives, at fair value 4,535 7,358
    Other liabilities   21,370     16,372  
    Total liabilities2,744,175 2,510,252
    Commitments and contingencies
    Redeemable non-controlling interest 19,338 18,729
    Stockholders’ Equity
    Common stock $0.01 par value; 175,000 shares authorized; 42,971 in 2014 and 42,901 in 2013 shares issued; 38,877 in 2014 and 38,987 in 2013 shares outstanding 430 429
    Additional paid-in capital 169,122 168,891
    Non-controlling interest 228 519
    Retained earnings 916,061 879,519
    Accumulated other comprehensive income (1,422) (15,495 )
    Less treasury stock at cost; 4,188 shares in 2014 and 4,007 shares in 2013   (147,514)   (130,566 )
    Total stockholders’ equity   936,905     903,297  
    Total liabilities and stockholders’ equity   $3,700,418     $ 3,432,278  
     


     

    WEX INC.

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (in thousands)

    (unaudited)

      Three months ended

    March 31,

    2014

       

    2013

     
    Cash flows from operating activities
    Net income $36,080 $ 28,577
    Adjustments to reconcile net income to net cash provided by (used for) operating activities:
    Fair value change of fuel price derivatives (2,823) 5,882
    Stock-based compensation 2,423 2,406
    Depreciation, amortization and impairment 15,612 15,156
    Deferred taxes 10,066 9,021
    Provision for credit losses 9,090 3,756
    Loss on disposal of property, equipment and capitalized software 338 63
    Changes in operating assets and liabilities, net of effects of acquisition:
    Accounts receivable (271,782) (228,297 )
    Other assets (8,455) (2,971 )
    Accounts payable 131,448 190,068
    Accrued expenses (6,499) 2,984
    Income taxes 5,708 776
    Other liabilities 1,038   1,145  
    Net cash used for operating activities (77,756) 28,566
    Cash flows from investing activities
    Purchases of property, equipment and capitalized software (11,382) (5,560 )
    Purchases of available-for-sale securities (70) (65 )
    Maturities of available-for-sale securities 93   502  
    Net cash used for investing activities (11,359) (5,123 )
    Cash flows from financing activities
    Excess tax benefits from equity instrument share-based payment arrangements 1,010 5,589
    Repurchase of share-based awards to satisfy tax withholdings (3,306) (9,985 )
    Proceeds from stock option exercises 104 146
    Net change in deposits 101,288 135,276
    Net change in borrowed federal funds (48,400 )
    Other financing debt 3,429 787
    Loan origination fee (12,023 )
    Borrowings on notes outstanding 400,000
    Net activity on 2011 revolving line-of-credit (438,500 )
    Net activity on 2011 term loan (182,500 )
    Net activity on 2013 term loan (3,750) 296,250
    Purchase of shares of treasury stock (16,948) (17,911 )
    Net cash provided by financing activities 81,827 128,729

    Effect of exchange rate changes on cash and cash equivalents

    574   (114 )
    Net change in cash and cash equivalents (6,714)

    152,058

    Cash and cash equivalents, beginning of period 361,486   197,662  
    Cash and cash equivalents, end of period $354,772   $

    349,720

     
    Supplemental cash flow information
    Interest paid $13,262 $ 4,351
    Income taxes paid $4,041 $ 1,226
     


     
    Exhibit 1
     

    Reconciliation of Adjusted Net Income to GAAP Net Earnings

    (in thousands)

    (unaudited)

     

    Three months ended

    March 31,

    2014     2013  
    Adjusted net income attributable to WEX Inc.$41,612 $ 39,840
    Unrealized gain (loss) on fuel price derivatives 2,823 (5,882 )
    Amortization of acquired intangible assets (8,287) (8,379 )
    Stock-based compensation (2,423) (2,406 )
    Deferred loan costs associated with the extinguishment of debt (1,004 )
    ANI adjustments attributable to non-controlling interests 185 346
    Tax impact 2,632   6,174  
    Net earnings attributable to WEX Inc.$36,542   $ 28,689  
     


    Beginning this quarter, adjusted net income attributable to WEX Inc. excludes the expense of stock-based compensation. For comparative purposes, adjusted net income attributable to WEX Inc. for the prior period has been adjusted to reflect the exclusion of stock-based compensation and differs from the figure previously reported due to this adjustment. We believe this adjustment makes this non-GAAP measurement more comparable to our peers.

    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 fuel price related derivative instruments, and excludes the amortization of purchased intangibles as well as the goodwill impairment, stock-based compensation, deferred loan costs associated with the extinguishment of debt, the net impact of tax rate changes on the Company's deferred tax asset and related changes in the tax-receivable agreements including the former shareholder of RD Card Holdings Australia, adjustments related to the acquisition of Fleet One and adjustments attributable to non-controlling interest. 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 fuel-price related 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;
  • 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; and
  • The amortization of purchased intangibles as well as the goodwill impairment, deferred loan costs associated with the extinguishment of debt, net impact of tax rate changes on the Company's deferred tax asset and related changes in the tax-receivable agreements including the former shareholder of RD Card Holdings Australia, adjustments related to the acquisition of Fleet One and adjustments attributable to non-controlling interest have no significant impact on the ongoing operations of the business.
  • Stock-based compensation is different from other forms of compensation, as it is a non-cash expense. For example, a cash salary generally has a fixed and unvarying cash cost. In contrast, the expense associated with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to us is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time.

    For the same reasons, WEX 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 WEX may not be comparable to similarly titled measures employed by other companies.

    The tax impact of the foregoing adjustments is the difference between the Company’s U.S. GAAP tax provision and a pro forma tax provision based upon the Company’s adjusted net income before taxes. The methodology utilized for calculating the Company’s adjusted net income tax provision is the same methodology utilized in calculating the Company’s U.S. GAAP tax provision.

     

    Exhibit 2

    Selected Non-Financial Metrics

      Q1 2014  

    Q4 2013

      Q3 2013   Q2 2013   Q1 2013
    Fleet Payment Solutions – Payment Processing Revenue:
    Payment processing transactions (000s) 73,327 72,962 76,578 73,797 68,742
    Gallons per payment processing transaction 23.2 23.2 22.7 22.8 22.8
    Payment processing gallons of fuel (000s) 1,703,887 1,691,884 1,737,069 1,684,050 1,567,230
    Average US fuel price (US$ / gallon) $3.64 3.54 3.70 3.70 3.76
    Average Australian fuel price (US$ / gallon) $5.34 5.30 5.30 5.23 5.75
    Payment processing $ of fuel (000s) $

    6,301,668

    6,112,394 6,542,052 6,330,221 6,011,767
    Net payment processing rate 1.36% 1.40 % 1.40 % 1.40 % 1.38 %
    Fleet payment processing revenue (000s) $85,702 85,402 91,273 88,422 83,194
    Other Payment Solutions – Payment Processing Revenue:*
    Payment solutions purchase volume (000s) $3,670,609 3,287,160 3,953,513 3,181,931 2,635,062
    Net interchange rate

    0.82

    % 0.96 % 0.95 % 0.99 % 0.96 %
    Payment solutions processing revenue (000s) $30,272 31,536 37,349 31,467 25,238
     


    *Excludes payment processing revenue from rapid! PayCard and UNIK

    Definitions and explanations:

    Payment processing transactions represents the total number of purchases made by fleets that have a payment processing relationship with WEX.

    Payment processing gallons of fuel represents the total number of gallons of fuel purchased by fleets that have a payment processing relationship with WEX.

    Payment processing $ of fuel represents the total dollar value of the fuel purchased by fleets that have a payment processing relationship with WEX.

    Net payment processing rate represents the percentage of the dollar value of each payment processing transaction that WEX records as revenue from merchants less any discounts given to fleets or strategic relationships.

    Payment solutions purchase volume represents the total dollar value of all transactions that use corporate charge card products including single use account products.

    Net interchange rate represents the percentage of the dollar value of each transaction that WEX records as revenue less any discounts given to customers.

     
    Exhibit 3

    Segment Revenue Information

    (in thousands)

    (unaudited)

    Fleet Payment Solutions          
    (in thousands)Three months ended March 31,Increase (decrease)
    2014   2013   Amount Percent
    Revenues
    Payment processing revenue $85,702 $ 83,194 $ 2,508 3 %
    Transaction processing revenue 4,890 4,610 $ 280 6 %
    Account servicing revenue 19,355 18,563 $ 792 4 %
    Finance fees 17,320 13,248 $ 4,072 31 %
    Other 8,168   6,424   $ 1,744   27 %
    Total revenues 135,435126,039 9,396 7 %
     
    Other Payment Solutions
    Three months ended March 31,Increase (decrease)
    (in thousands)

    2014

     

    2013

      Amount Percent
    Revenues
    Payment processing revenue $31,902 $ 27,132 $ 4,770 18 %
    Transaction processing revenue 1,695 1,548 $ 147 9 %
    Account servicing revenue 3,173 2,443 $ 730 30 %
    Finance fees 1,442 1,469 $ (27 ) (2 )%
    Other 8,421   6,739   $ 1,682   25 %
    Total revenues 46,633 39,331 7,302 19 %





    News media contact:

    WEX Inc.

    Jessica Roy, 207-523-6763

    Jessica.Roy@wexinc.com

    or

    Investor contact:

    WEX Inc.

    Michael E. Thomas, 207-523-6743

    Michael.Thomas@wexinc.com

    Source: WEX Inc.


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    Source: Business Wire