WEX Inc. Reports Second Quarter 2019 Financial Results

 Full conversion of large North American oil portfolios completed

PORTLAND, Maine–(BUSINESS WIRE)–WEX Inc. (NYSE: WEX), a leading provider of corporate payment solutions, today reported financial results for the three months ended June 30, 2019.

Second Quarter 2019 Financial Results

Total revenue for the second quarter of 2019 increased 19% to $441.8 million from $370.8 million for the second quarter of 2018. The $71.0 million revenue increase in the quarter includes a $2.1 million negative impact as a result of lower average fuel prices.

Net income attributable to shareholders on a GAAP basis decreased by $24.6 million to $13.8 million, or $0.32 per diluted share, compared with $38.4 million, or $0.88 per diluted share, for the second quarter of 2018. The Company’s adjusted net income attributable to shareholders, which is a non-GAAP measure, was $99.6 million for the second quarter of 2019, or $2.28 per diluted share, up 10% per diluted share from $90.0 million or $2.07 per diluted share for the same period last year. See Exhibit 1 for a full explanation and reconciliation of adjusted net income attributable to shareholders and adjusted net income attributable to shareholders per diluted share to the comparable GAAP measures.

“During the second quarter, WEX made continued progress in shaping 2019 to be another significant milestone year,” said Melissa Smith, WEX’s President and Chief Executive Officer. “We are capitalizing on the extraordinary progress we have made in recent years and building on our strong foundation for sustainable growth. Our recent strategic acquisitions, significant new wins and the conversion of both the Shell and Chevron portfolios positions us well to accelerate our growth and profitability throughout the remainder of the year and beyond.”

Second Quarter 2019 Performance Metrics

  • Average number of vehicles serviced was approximately 13.9 million, an increase of 18% from the second quarter of 2018.
  • Total fuel transactions processed increased 10% from the second quarter of 2018 to 153.7 million. Payment processing transactions increased 10% to 128.0 million.
  • U.S. retail fuel price decreased 4% to $2.91 per gallon from $3.02 per gallon in the second quarter of 2018.
  • Travel and Corporate Solutions purchase volume grew 13% to $10.0 billion from $8.9 billion in the second quarter of 2018.
  • Health and Employee Benefit Solutions average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 17% to 12.6 million from 10.7 million in the second quarter of 2018.

“Our first half results set a strong foundation for our growth in 2019 and reinforce the strength of our execution and the fundamentals of our business model. As we look to the second half of 2019, I expect that we will continue accelerating growth both from a revenue and earnings point of view.” said Roberto Simon, WEX’s Chief Financial Officer.

Financial Guidance and Assumptions

The Company provides revenue guidance on a GAAP basis and earnings guidance on a non-GAAP basis, due to the uncertainty and an indeterminate amount of certain elements that are included in reported GAAP earnings. The updated full year guidance below reflects strong business execution offset by lower average fuel prices and unfavorable foreign exchange rates.

  • For the full year 2019, the Company expects revenue in the range of $1.720 billion to $1.750 billion and adjusted net income in the range of $399 million to $410 million, or $9.10 to $9.35 per diluted share.
  • For the third quarter of 2019, WEX expects revenue in the range of $455 million to $465 million and adjusted net income in the range of $110 million to $115 million, or $2.52 to $2.62 per diluted share.

Third quarter 2019 guidance is based on an assumed average U.S. retail fuel price of $2.72 per gallon. Full year 2019 guidance is based on an assumed average U.S. retail fuel price of $2.72 per gallon. The fuel prices referenced above are based on the applicable NYMEX futures price. The Company’s guidance also assumes that third quarter 2019 fleet credit loss will range from 13 to 18 basis points and full year fleet credit loss will range from 13 to 18 basis points. Our guidance also assumes approximately 43.8 million shares outstanding for the third quarter and full year 2019.

The Company’s adjusted net income guidance, which is a non-GAAP measure, excludes unrealized gains and losses on financial instruments, net foreign currency remeasurement gains and losses, acquisition related intangible amortization, other acquisition and divestiture related items, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, similar adjustments attributable to our non-controlling interests and certain tax related items. We are unable to reconcile our adjusted net income guidance to the comparable GAAP measure without unreasonable effort because of the difficulty in predicting the amounts to be adjusted, including but not limited to, foreign currency exchange rates, unrealized gains and losses on financial instruments, acquisition and divestiture related items and adjustments to the redemption value of a non-controlling interest, which may have a significant impact on our financial results.

Additional Information

Management uses the non-GAAP measures presented within this news release to evaluate the Company’s performance on a comparable basis. 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 in Exhibit 2, a table illustrating the impact of foreign currency rates and fuel prices for each of our reportable segments for the three and six months ended June 30, 2019, and in Exhibit 3, a table of selected non-financial metrics for the quarter ended June 30, 2019 and four preceding quarters. The Company is also providing selected segment revenue information for the three and six months ended June 30, 2019 and 2018 in Exhibit 4.

Conference Call Details

In conjunction with this announcement, WEX will host a conference call today, August 1, 2019, at 9:00 a.m. (ET). As previously announced, the conference call will be webcast live on the Internet, and can be accessed along with the accompanying slides at the Investor Relations section of the WEX website, 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 1586638. A replay of the webcast and the accompanying slides will be available on the Company’s website.

About WEX

Powered by the belief that complex payment systems can be made simple, WEX Inc. (NYSE: WEX) is a leading provider of payment processing and business solutions across a wide spectrum of sectors, including fleet, travel and healthcare. WEX operates in more than 10 countries and in more than 20 currencies through approximately 4,900 associates around the world. WEX fleet cards offer approximately 14 million vehicles exceptional payment security and control, our travel and corporate solutions business processes over $35 billion of purchase volume annually and the WEX Health financial technology platform helps approximately 343,000 employers and more than 28 million consumers better manage healthcare expenses. For more information, visit www.wexinc.com.

Forward-Looking Statements

This earnings release contains forward-looking statements, including statements regarding: financial guidance; assumptions underlying the Company’s financial guidance; future growth opportunities and expectations; and, market expansion. 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 “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” 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 as well as payment and transaction processing activity; the impact of foreign currency exchange rates on the Company’s operations, revenue and income; changes in interest rates; the impact of fluctuations in fuel prices; the effects of the Company’s business expansion and acquisition efforts; potential adverse changes to business or employee relationships, including those resulting from the completion of an acquisition; competitive responses to any acquisitions; uncertainty of the expected financial performance of the combined operations following completion of an acquisition; the failure to successfully integrate the Company’s acquisitions; the ability to realize anticipated synergies and cost savings; unexpected costs, charges or expenses resulting from an acquisition; the Company’s ability to successfully acquire, integrate, operate and expand commercial fuel card programs; the failure of corporate investments to result in anticipated strategic value; the impact and size of credit losses; the impact of changes to the Company’s credit standards; breaches of the Company’s technology systems or those of the Company’s third-party service providers and any resulting negative impact on the Company’s reputation, liabilities or relationships with customers or merchants; the Company’s failure to maintain or renew key commercial agreements; failure to expand the Company’s technological capabilities and service offerings as rapidly as the Company’s competitors; failure to successfully implement the Company’s information technology strategies and capabilities in connection with its technology outsourcing and insourcing arrangements and any resulting cost associated with that failure; the actions of regulatory bodies, including banking and securities regulators, or possible changes in banking or financial regulations impacting the Company’s industrial bank, the Company as the corporate parent or other subsidiaries or affiliates; the impact of the material weaknesses disclosed in Item 9A of the Company’s annual report on Form 10-K for the year ended December 31, 2018 and in Item 4 of the Company’s quarterly report on Form 10-Q for the quarter ending March 31, 2019 and the effects of the Company’s investigation and remediation efforts in connection with certain immaterial errors in the financial statements of our Brazilian subsidiary; the impact of the Company’s outstanding notes on its operations; the impact of increased leverage on the Company’s operations, results or borrowing capacity generally, and as a result of acquisitions specifically; 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 our Annual Report for the year ended December 31, 2018, filed on Form 10-K with the Securities and Exchange Commission on March 18, 2019. The Company’s forward-looking statements 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 earnings 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 INCOME

(in thousands, except per share data)

(unaudited)

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2019

 

2018

 

2019

 

2018

Revenues

 

 

 

 

 

 

 

Payment processing revenue

$

214,826

 

 

$

178,738

 

 

$

401,624

 

 

$

347,192

 

Account servicing revenue

106,892

 

 

78,716

 

 

193,978

 

 

157,420

 

Finance fee revenue

62,912

 

 

51,553

 

 

109,285

 

 

100,434

 

Other revenue

57,177

 

 

61,791

 

 

118,796

 

 

119,780

 

Total revenues

441,807

 

 

370,798

 

 

823,683

 

 

724,826

 

Cost of services

 

 

 

 

 

 

 

Processing costs

99,481

 

 

77,483

 

 

190,600

 

 

150,571

 

Service fees

14,197

 

 

13,809

 

 

28,443

 

 

26,029

 

Provision for credit losses

14,832

 

 

13,636

 

 

32,623

 

 

27,862

 

Operating interest

10,693

 

 

9,528

 

 

20,257

 

 

18,013

 

Depreciation and amortization

21,570

 

 

20,612

 

 

42,083

 

 

41,045

 

Total cost of services

160,773

 

 

135,068

 

 

314,006

 

 

263,520

 

General and administrative

76,247

 

 

47,589

 

 

140,652

 

 

103,022

 

Sales and marketing

72,831

 

 

57,697

 

 

136,950

 

 

114,238

 

Depreciation and amortization

37,219

 

 

30,020

 

 

68,403

 

 

59,763

 

Operating income

94,737

 

 

100,424

 

 

163,672

 

 

184,283

 

Financing interest expense

(35,638

)

 

(25,505

)

 

(66,750

)

 

(52,842

)

Net foreign currency gain (loss)

6,665

 

 

(26,734

)

 

2,780

 

 

(26,344

)

Net unrealized (loss) gain on financial instruments

(21,516

)

 

2,706

 

 

(33,428

)

 

16,214

 

Income before income taxes

44,248

 

 

50,891

 

 

66,274

 

 

121,311

 

Income taxes

12,397

 

 

12,325

 

 

18,215

 

 

30,074

 

Net income

31,851

 

 

38,566

 

 

48,059

 

 

91,237

 

Less: Net income from non-controlling interests

324

 

 

142

 

 

398

 

 

843

 

Net income attributable to WEX Inc.

$

31,527

 

 

$

38,424

 

 

$

47,661

 

 

$

90,394

 

Accretion of non-controlling interest

(17,720

)

 

 

 

(17,720

)

 

 

Net income attributable to shareholders

$

13,807

 

 

$

38,424

 

 

$

29,941

 

 

$

90,394

 

 

 

 

 

 

 

 

 

Net income attributable to WEX Inc. per share:

 

 

 

 

 

 

 

Basic

$

0.32

 

 

$

0.89

 

 

$

0.69

 

 

$

2.10

 

Diluted

$

0.32

 

 

$

0.88

 

 

$

0.69

 

 

$

2.08

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

43,329

 

 

43,181

 

 

43,277

 

 

43,116

 

Diluted

43,761

 

 

43,546

 

 

43,667

 

 

43,524

 

 

WEX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

June 30,

2019

 

December 31,

2018

Assets

 

 

 

Cash and cash equivalents

$

768,393

 

 

$

541,498

 

Restricted cash

131,794

 

 

13,533

 

Accounts receivable

3,202,961

 

 

2,584,203

 

Securitized accounts receivable, restricted

130,424

 

 

109,871

 

Prepaid expenses and other current assets

74,163

 

 

149,021

 

Total current assets

4,307,735

 

 

3,398,126

 

Property, equipment and capitalized software

196,914

 

 

187,868

 

Goodwill and other intangible assets

3,840,302

 

 

2,866,323

 

Investment securities

30,167

 

 

24,406

 

Deferred income taxes, net

11,691

 

 

9,643

 

Other assets

186,340

 

 

284,229

 

Total assets

$

8,573,149

 

 

$

6,770,595

 

Liabilities and Stockholders’ Equity

 

 

 

Accounts payable

$

1,225,558

 

 

$

814,742

 

Accrued expenses

333,072

 

 

312,268

 

Restricted cash payable

131,794

 

 

13,533

 

Short-term deposits

1,087,795

 

 

927,444

 

Short-term debt, net

173,627

 

 

216,517

 

Other current liabilities

85,208

 

 

27,067

 

Total current liabilities

3,037,054

 

 

2,311,571

 

Long-term debt, net

2,764,800

 

 

2,133,923

 

Long-term deposits

500,555

 

 

345,231

 

Deferred income taxes, net

199,625

 

 

151,685

 

Other liabilities

109,825

 

 

32,261

 

Total liabilities

6,611,859

 

 

4,974,671

 

Commitments and contingencies

 

 

 

Redeemable non-controlling interest

117,727

 

 

 

Stockholders’ Equity

 

 

 

Total WEX Inc. stockholders’ equity

1,832,965

 

 

1,785,697

 

Non-controlling interest

10,598

 

 

10,227

 

Total stockholders’ equity

1,843,563

 

 

1,795,924

 

Total liabilities and stockholders’ equity

$

8,573,149

 

 

$

6,770,595

 

 

Exhibit 1

Reconciliation of GAAP Net Income Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders

(in thousands, except per share data)

(unaudited)

 

Three Months Ended June 30,

 

2019

 

2018

 

 

 

per diluted

share

 

 

 

per diluted

share

Net income attributable to shareholders

$

13,807

 

 

$

0.32

 

 

$

38,424

 

 

$

0.88

 

Unrealized loss (gain) on financial instruments

21,516

 

 

0.49

 

 

(2,706

)

 

(0.06

)

Net foreign currency remeasurement (gain) loss

(6,665

)

 

(0.15

)

 

26,734

 

 

0.61

 

Acquisition–related intangible amortization

39,814

 

 

0.91

 

 

34,921

 

 

0.80

 

Other acquisition and divestiture related items

7,017

 

 

0.16

 

 

619

 

 

0.01

 

Stock–based compensation

14,992

 

 

0.34

 

 

6,905

 

 

0.16

 

Other costs

4,746

 

 

0.11

 

 

630

 

 

0.01

 

Debt restructuring and debt issuance cost amortization

8,453

 

 

0.19

 

 

2,607

 

 

0.06

 

ANI adjustments attributable to non–controlling interests

17,298

 

 

0.40

 

 

(186

)

 

 

Tax related items

(21,342

)

 

(0.49

)

 

(17,990

)

 

(0.41

)

Adjusted net income attributable to shareholders

$

99,636

 

 

$

2.28

 

 

$

89,958

 

 

$

2.07

 

 

 

Six Months Ended June 30,

 

2019

 

2018

 

 

 

per diluted

share

 

 

 

per diluted

share

Net income attributable to shareholders

$

29,941

 

 

$

0.69

 

 

$

90,394

 

 

$

2.08

 

Unrealized loss (gain) on financial instruments

33,428

 

 

0.77

 

 

(16,214

)

 

(0.37

)

Net foreign currency remeasurement (gain) loss

(2,780

)

 

(0.06

)

 

26,344

 

 

0.61

 

Acquisition–related intangible amortization

73,702

 

 

1.69

 

 

70,157

 

 

1.61

 

Other acquisition and divestiture related items

16,797

 

 

0.38

 

 

1,256

 

 

0.03

 

Stock–based compensation

25,434

 

 

0.58

 

 

15,860

 

 

0.36

 

Other costs

7,501

 

 

0.17

 

 

6,301

 

 

0.14

 

Debt restructuring and debt issuance cost amortization

14,949

 

 

0.34

 

 

9,299

 

 

0.21

 

ANI adjustments attributable to non–controlling interests

16,725

 

 

0.38

 

 

(538

)

 

(0.01

)

Tax related items

(41,237

)

 

(0.94

)

 

(30,883

)

 

(0.71

)

Adjusted net income attributable to shareholders

$

174,460

 

 

$

4.00

 

 

$

171,976

 

 

$

3.95

 

 

The Company’s non-GAAP adjusted net income excludes unrealized gains and losses on financial instruments, net foreign currency remeasurement gains and losses, acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, other costs, debt restructuring and debt issuance cost amortization, similar adjustments attributable to our non-controlling interests and certain tax related items.

Although adjusted net income is not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), this non-GAAP measure is integral to the Company’s reporting and planning processes and the chief operating decision maker of the Company uses segment adjusted operating income to allocate resources among our operating segments. The Company considers this measure integral because it excludes the above-specified items that the Company’s management excludes in evaluating the Company’s performance. 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 financial instruments, including interest rate swap agreements and investment securities, 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 these financial instruments.
  • Net foreign currency gains and losses primarily result from the remeasurement to functional currency of cash, receivable and payable balances, certain intercompany notes denominated in foreign currencies and any gain or loss on foreign currency hedges relating to these items. The exclusion of these items helps management compare changes in operating results between periods that might otherwise be obscured due to currency fluctuations.
  • The Company considers certain acquisition-related costs, including certain financing costs, investment banking fees, warranty and indemnity insurance, certain integration related expenses and amortization of acquired intangibles, as well as gains and losses from divestitures to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired or divested business or the Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. The Company believes that excluding acquisition-related costs and gains or losses of divestitures facilitates the comparison of our financial results to the Company’s historical operating results and to other companies in our industry.
  • 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 the Company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time.
  • Other costs includes other immaterial costs that the Company has incurred and are non-operational and non-recurring. We exclude these items when evaluating our continuing business performance as such items are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. This also includes costs related to certain identified initiatives to further streamline the business, improve the Company’s efficiency, create synergies and globalize the Company’s operations, remediate the prior year material weaknesses, all with an objective to improve scale and efficiency and increase profitability going forward.
  • Debt restructuring and debt issuance cost amortization are unrelated to the continuing operations of the Company. Debt restructuring costs are not consistently occurring and do not reflect expected future operating expense, nor do they provide insight into the fundamentals of current or past operations of our business. In addition, since debt issuance cost amortization is dependent upon the financing method which can vary widely company to company, we believe that excluding these costs helps to facilitate comparison to historical results as well as to other companies within our industry.
  • The adjustments attributable to non-controlling interests, including adjustments to the redemption value of a non-controlling interest, have no significant impact on the ongoing operations of the business.
  • The tax related items are 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 as well as the impact from certain discrete tax items. 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.

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 table below shows the impact of certain macro factors on reported revenue:

Exhibit 2

Segment Revenue Results

(in thousands)

(unaudited)

 

 

Fleet Solutions

 

Travel and Corporate

Solutions

 

Health and Employee

Benefit Solutions

 

Total WEX Inc.

 

Three months ended June 30,

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

Reported revenue

$

267,314

 

 

$

241,412

 

 

$

91,350

 

 

$

75,764

 

 

$

83,143

 

 

$

53,622

 

 

$

441,807

 

 

$

370,798

 

FX impact (favorable) / unfavorable

$

1,859

 

 

$

 

 

$

1,367

 

 

$

 

 

$

301

 

 

$

 

 

$

3,527

 

 

$

 

PPG impact (favorable) / unfavorable

$

2,050

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

2,050

 

 

$

 

 

Six months ended June 30,

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

Reported revenue

$

500,096

 

 

$

471,777

 

 

$

172,998

 

 

$

142,543

 

 

$

150,589

 

 

$

110,506

 

 

$

823,683

 

 

$

724,826

 

FX impact (favorable) / unfavorable

$

4,574

 

 

$

 

 

$

2,883

 

 

$

 

 

$

920

 

 

$

 

 

$

8,377

 

 

$

 

PPG impact (favorable) / unfavorable

$

6,516

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

6,516

 

 

$

 

Contacts

News media:

WEX Inc.

Jessica Roy, 207-523-6763

Jessica.Roy@wexinc.com

or

Investors:

WEX Inc.

Steve Elder, 207-523-7769

Steve.Elder@wexinc.com

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