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Press release from Business Wire

WEX Inc. Reports Third Quarter 2012 Financial Results

<p class='bwalignc'> <i>Resilient business model and execution on growth strategy drive quarterly results in-line with guidance</i> </p>

Wednesday, October 31, 2012

WEX Inc. Reports Third Quarter 2012 Financial Results06:30 EDT Wednesday, October 31, 2012 SOUTH PORTLAND, Maine (Business Wire) -- WEX Inc. (NYSE: WXS), a leading international provider of physical, digital and virtual corporate card payment solutions, today reported financial results for the three months ended September 30, 2012. Third Quarter Financial Results Total revenue for the third quarter of 2012 increased 6% to $161.0 million from $151.9 million for the third quarter of 2011. Net income to common shareholders on a GAAP basis was $14.3 million, or $0.37 per diluted share, compared with $48.1 million, or $1.23 per diluted share, for the third quarter last year. The current quarter's net income on a GAAP basis included $16.2 million of impairment costs related to the Company's Australian prepaid business which was excluded from adjusted net income. On a non-GAAP basis, the Company's adjusted net income for the third quarter of 2012 increased 9% to $42.0 million, or $1.08 per diluted share, from $38.7 million, or $0.99 per diluted share, for the same period a year ago. Adjusted net income for the third quarter of 2012 included a charge related to a retroactive tax law change in Australian tax legislation that was enacted in the third quarter. Third quarter adjusted net income also included deal and integration related costs associated with the previously announced acquisitions of Fleet One and UNIK, which were not accounted for in the Company's prior full-year 2012 guidance. Together these items reduced earnings approximately $0.10 per share. WEX uses fuel-price derivative instruments to mitigate financial risks associated with the variability in fuel prices in North America. For the third quarter of 2012, the Company's GAAP financial results include an unrealized $12.8 million dollar pre-tax, non-cash, mark-to-market loss on these instruments. See Exhibit 1 for a full reconciliation of adjusted net income. “WEX delivered third quarter results that were consistent with our expectations driven by continued execution against our long-term growth strategy. In our fleet segment, card growth increased 6% over the prior year, better positioning the Company for future growth as the economic environment improves. In addition, we fortified our competitive stance through our acquisition of Fleet One,” said Michael Dubyak, Chairman, President and Chief Executive Officer. “In our other payment solutions segment, we made further headway globalizing our virtual card for the travel industry. We also purchased an equity stake in UNIK, which expands our international footprint into Latin America and more importantly, opens up opportunities to extend our paycard presence and move into the fleet card market in Brazil. Overall, we believe the combination of market opportunities and WEX's growing position as a comprehensive business partner for fleet, virtual and paycard solutions establishes a solid and differentiated platform for building long-term growth,” concluded Mr. Dubyak. Third Quarter 2012 Performance Metrics Average number of vehicles serviced worldwide was approximately 6.9 million, an increase of 6.2% from the third quarter of 2011. Total fuel transactions processed increased 0.8% from the third quarter of 2011 to 85.7 million. Payment processing transactions increased 1.4% to 66.2 million; transaction processing transactions decreased 1.3% to 19.6 million. Average expenditure per domestic payment processing transaction increased 0.5% from the third quarter of 2011 to $72.84. Domestic retail fuel price increased 1.1% to $3.74 per gallon from $3.70 per gallon in the third quarter of 2011. Total corporate card purchase volume grew 32.3% to $3.2 billion, from $2.4 billion for the third quarter of 2010. Financial Guidance and Assumptions “We're pleased with our performance year-to-date and anticipate continued growth as we operate within the current sluggish economic environment. While our updated guidance reflects our expectation for healthy growth in our other payments solutions segment and steady growth in our fleet business, in the short term, we anticipate that deal and integration expenses related to our acquisition of Fleet One will offset these benefits,” said Steve Elder, Senior Vice President and Chief Financial Officer. For the fourth quarter of 2012, WEX expects revenue in the range of $162 million to $169 million and adjusted net income in the range of $39 million to $42 million, or $1.01 to $1.08 per diluted share. For the full year 2012, the Company expects revenue in the range of $616 million to $623 million and adjusted net income to be in the range of $156 million to $159 million, or $3.99 to $4.06 per diluted share. Fourth quarter 2012 guidance is based on an assumed average U.S. retail fuel price of $3.65 per gallon, and approximately 39 million shares outstanding. Full-year 2012 guidance is based on an assumed average U.S. retail fuel price of $3.73 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 the exchange rate of the Australian dollar will remain at a premium to the US dollar for the remainder of the year. The Company's guidance also assumes that fourth quarter 2012 domestic fleet credit loss will range between 10 and 15 basis points, and that domestic fleet credit loss for full year 2012 will range between 9 to 11 basis points. The Company's guidance does not reflect the impact of any future stock repurchases that may occur in 2012. 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 third quarters of 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 September 30, 2012. This table is presented as Exhibit 2. The Company is also providing selected segment review information for the three months ending September 30, 2012 and 2011 in Exhibit 3. Conference Call Details In conjunction with this announcement, WEX will host a conference call today, October 31, 2012, 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. (NYSE: WXS) is a leading international provider of physical, digital and virtual corporate card payment solutions. From its roots as a pioneer in fleet card payments in 1983, WEX now provides its more than 350,000 customers ― representing more than 6.5 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 press 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; 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 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; 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 for the year ended December 31, 2011, filed on Form 10-K with the Securities and Exchange Commission on February 28, 2012 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 press 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 OFCOMPREHENSIVE INCOME(in thousands, except per share data)(unaudited)       Three months endedSeptember 30,   Nine months endedSeptember 30,     2012   2011   2012   2011             Revenues Fleet payment solutions $117,877 $ 117,054 $341,709 $ 329,236   Other payment solutions     43,090       34,824       112,444       84,004     Total revenues 160,967 151,878 454,153 413,240   Expenses Salary and other personnel 28,823 27,388 87,501 79,492 Service fees 28,968 20,774 74,046 51,978 Provision for credit losses 5,647 8,677 14,874 20,464 Technology leasing and support 4,577 3,895 13,718 11,851 Occupancy and equipment 3,032 2,761 9,062 8,846 Depreciation and amortization 27,877 11,767 50,591 33,644 Operating interest expense 1,243 1,449 3,430 4,188 Cost of hardware and equipment sold 759 1,166 2,270 3,042   Other     8,764       8,757       26,541       27,144         Total operating expenses     109,690       86,634       282,033       240,649     Operating income 51,277 65,244 172,120 172,591   Financing interest expense (2,302) (3,100 ) (6,877) (9,087 ) Gain (loss) on foreign currency transactions 180 (855 ) (312) (363 ) Net realized and unrealized gain (loss) on fuel price derivatives (14,026) 13,952 (12,046) (4,991 ) Decrease in tax refund due to former shareholder of RD Card Holdings Australia — — 9,750 — Increase in amount due under tax receivable agreement     —       (875 )     —       (875 )   Income before income taxes 35,129 74,366 162,635 157,275   Income taxes     20,845       26,266       94,780       56,445     Net income before noncontrolling interest 14,284 48,100 67,855 100,830   Less: Net earnings from noncontrolling interest     (14)     —       (14)     —     Net earnings attributable to WEX Inc.14,298 48,100 67,869 100,830   Changes in available-for-sale securities, net of tax effect of $27 and $68 in 2012 and $57 and $90 in 2011 44 88 114 144 Changes in interest rate swaps, net of tax effect of $— and $35 in 2012 and $65 and $146 in 2011 — 113 60 252 Foreign currency translation     9,006       (29,888 )     7,189       (11,407 )   Comprehensive income attributable to WEX Inc.   $23,348     $ 18,413     $75,232     $ 89,819     Net earnings attributable to WEX Inc. per share: Basic $0.37 $ 1.24 $1.75 $ 2.61 Diluted $0.37 $ 1.23 $1.74 $ 2.59   Weighted average common shares outstanding: Basic 38,793 38,747 38,832 38,662 Diluted 38,995 38,951 39,084 38,938                                         WEX INC.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except per share data)(unaudited)         September 30,2012   December 31,2011           Assets Cash and cash equivalents $435,303 $ 25,791 Accounts receivable (less reserve for credit losses of $10,068 in 2012 and $11,526 in 2011) 1,630,699 1,323,915 Available-for-sale securities 16,223 17,044 Income taxes receivable — 7,755 Fuel price derivatives, at fair value 428 410 Property, equipment and capitalized software (net of accumulated depreciation of $121,348 in 2012 and $109,133 in 2011) 65,741 62,078 Deferred income taxes, net 104,425 143,524 Goodwill 579,204 549,504 Other intangible assets, net 137,197 109,656   Other assets     93,213       38,383     Total assets   $3,062,433     $ 2,278,060     Liabilities and Stockholders' Equity Accounts payable $586,941 $ 409,226 Accrued expenses 50,010 54,738 Income taxes payable 9,434 — Deposits 1,206,114 693,654 Borrowed federal funds — 6,900 Fuel price derivatives, at fair value 2,274 415 Revolving line-of-credit facilities and term loan 300,000 295,300 Other liabilities 14,992 15,749   Amounts due under tax receivable agreement     86,518       92,763       Total liabilities     2,256,283       1,568,745     Commitments and contingencies (Note 14)     Redeemable noncontrolling interest (Note 11)     22,113       —     WEX Inc. Stockholders' Equity Common stock $0.01 par value; 175,000 shares authorized, 42,488 in 2012 and 42,252 in 2011 shares issued; 38,810 in 2012 and 38,765 in 2011 shares outstanding 425 423 Additional paid-in capital 157,058 146,282 Retained earnings 701,258 633,389 Other comprehensive income (loss), net of tax: Net unrealized gain on available-for-sale securities 314 200 Net unrealized loss on interest rate swaps — (60 )       Net foreign currency translation adjustment     37,637       30,448     Accumulated other comprehensive income 37,951 30,588       Less treasury stock at cost, 3,766 shares in 2012 and 3,566 in 2011     (112,655)     (101,367 )     Total equity     784,037       709,315     Total liabilities and stockholders' equity   $3,062,433     $ 2,278,060                         WEX INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)             Nine months endedSeptember 30,       2012       2011     Cash flows from operating activities Net income $67,855 $ 100,830 Adjustments to reconcile net income to net cash used for operating activities: Fair value change of fuel price derivatives 1,841 (13,785 ) Stock-based compensation 8,806 7,429 Depreciation and amortization 35,604 35,267 Goodwill impairment 16,171 — Deferred taxes 35,392 20,297 Provision for credit losses 14,874 20,464 Loss on disposal of property and equipment — 715 Changes in operating assets and liabilities, net of effects of acquisition: Accounts receivable (306,350) (383,951 ) Other assets (55,572) (7,981 ) Accounts payable 163,203 148,480 Accrued expenses (5,755) 6,674 Income taxes 16,904 (2,765 ) Other liabilities (12,034) (962 )       Amounts due under tax receivable agreement     (6,245)     (5,187 )   Net cash used for operating activities (25,306) (74,475 )   Cash flows from investing activities Purchases of property and equipment (21,796) (19,862 ) Purchases of available-for-sale securities (224) (8,353 ) Maturities of available-for-sale securities 1,228 769 Acquisition of CorporatePay, net of cash (27,783) — Acquisition of ReD – adjustment — 3,734 Acquisition of rapid!, net of earn out — (8,081 )   Cash assumed in UNIK acquisition     1,566       —     Net cash used for investing activities (47,009) (31,793 )   Cash flows from financing activities Excess tax benefits from share-based payment arrangements 3,049 3,788 Repurchase of share-based awards to satisfy tax withholdings (2,941) (2,547 ) Proceeds from stock option exercises 1,862 2,755 Net increase in deposits 512,456 170,974 Net (decrease)increase in borrowed federal funds (6,900) 9,229 Loan origination fee paid for 2011 revolving line-of-credit facility — (6,184 ) Net (repayments) borrowing on 2007 revolving line-of-credit facility — (332,300 ) (Repayments) borrowings on term loan — (75,000 ) Net borrowings in 2011 revolving line-of-credit facility 12,200 165,200 Borrowings on 2011 term note agreement — 200,000 Repayment of 2011 term note agreement (7,500) (5,000 ) Other financing debt (19,560) —   Purchase of shares of treasury stock     (11,288)     —     Net cash provided by financing activities 481,378 130,915   Effect of exchange rate changes on cash and cash equivalents     449       (615 )   Net change in cash and cash equivalents 409,512 24,032 Cash and cash equivalents, beginning of period     25,791       18,045     Cash and cash equivalents, end of period   $435,303     $ 42,077     Supplemental cash flow information Interest paid $9,676 $ 11,439 Income taxes paid $39,455 $ 35,066   Significant non-cash transaction Acquisition of rapid! – estimated earn out $— $ 10,000 Reduction of rapid! – estimated earn out $839 $ — Acquisition of UNIK– estimated earn out $1,013 $ —     Exhibit 1Reconciliation of Adjusted Net Income to GAAP Net IncomeThree and Nine Months Ended September 30, 2012 and 2011(in thousands)(unaudited)         Three months endedSeptember 30,   Nine months endedSeptember 30,     2012   2011   2012   2011     Total adjusted net income WEX Inc.   $42,035     $ 38,707     $116,681     $ 103,418     Unrealized gains (losses) on fuel price derivatives (12,848) 20,728 (1,840) 13,785 Amortization of acquired intangible assets (5,411) (5,778 ) (15,481) (16,722 ) Goodwill impairment (16,171) — (16,171) — Change in tax refund due to former shareholders of RD Card Holdings Australia — — 9,750 — Non-cash adjustment related to the tax receivable agreement — (875 ) — (875 ) Net earnings attributable to noncontrolling interest 77 — 77 — Tax impact     6,616       (4,682 )     (25,147)     1,224     Net earnings attributable to WEX Inc.   $14,298     $ 48,100     $67,869     $ 100,830       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, the net impact of tax rate changes on the Company's deferred tax asset and related changes in the tax-receivable agreement including the former shareholder of RD Card Holdings Australia. 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, goodwill impairment and related tax refund due to former shareholders of RD Card Holdings Australia have no impact on the operations of the business. 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 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 GAAP tax provision.   Exhibit 2Selected Non-Financial Metrics       Q3 2012   Q2 2012   Q1 2012   Q4 2011   Q3 2011 Fleet Payment Solutions – Payment Processing Revenue:         Payment processing transactions (000s) 66,155 63,912 60,557 60,598 65,230 Gallons per payment processing transaction 19.3 19.5 19.5 19.6 19.3 Payment processing gallons of fuel (000s) 1,274,798 1,243,466 1,178,090 1,185,522 1,261,088 Average US fuel price (US$ / gallon) $ 3.74 3.79 3.72 3.53 3.70 Average Australian fuel price (US$ / gallon) $ 5.42 5.60 5.80 5.45 5.50 Payment processing $ of fuel (000s) $ 4,868,631 4,823,656 4,503,698 4,304,150 4,778,493 Net payment processing rate 1.62% 1.63% 1.64% 1.66% 1.64% Fleet payment processing revenue (000s) $ 78,803 78,451 73,855 71,276 78,381   Other Payment Solutions – Payment Processing Revenue:* Payment solutions purchase volume (000s) $ 3,182,032 2,822,657 2,189,578 2,018,097 2,404,668 Net interchange rate .90% 0.90% 0.90% 0.98% 0.99% Payment solutions processing revenue (000s) $ 28,544 25,417 19,747 19,845 23,723 *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 3Segment Revenue InformationThree and Nine Months Ended September 30, 2012 and 2011(in thousands)(unaudited)   Fleet Payment Solutions   (in thousands, except per   Three months endedSeptember 30,   Increase (decrease)   Nine months endedSeptember 30,   Increase (decrease)transaction and per gallon data)     2012     2011   Amount   Percent     2012     2011   Amount   Percent                   Revenues Payment processing revenue $78,803 $ 78,381 $ 422 1 % $231,109 $ 222,480 $ 8,629 4 % Transaction processing revenue 4,097 4,305 (208 ) (5 )% 12,235 12,472 (237 ) (2 )% Account servicing revenue 17,657 17,014 643 4 % 48,592 45,420 3,172 7 % Finance fees 12,604 12,791 (187 ) (1 )% 35,422 33,821 1,601 5 %   Other     4,716     4,563     153     3 %     14,351     15,043     (692 )   (5 )%   Total revenues 117,877 117,054 823 1 % 341,709 329,236 12,473 4 %     Other Payment Solutions       Three months endedSeptember 30,   Increase (decrease)   Nine months endedSeptember 30,   Increase (decrease)(in thousands)     2012     2011   Amount   Percent     2012     2011   Amount   Percent                 Revenues Payment processing revenue $29,653 $ 24,025 $ 5,628 23 % $75,731 $ 57,344 $ 18,387 32 % Transaction processing revenue 1,531 1,661 (130 ) (8 )% 5,128 5,261 (133 ) (3 )% Account servicing revenue 1,627 955 672 70 % 3,891 1,994 1,897 95 % Finance fees 521 190 331 174 % 840 529 311 59 %   Other     9,757     7,993     1,764     22 %     26,853     18,876     7,977     42 %   Total revenues 43,089 34,824 8,265 24 % 112,443 84,004 28,439 34 % News media contact:WEX Inc.Jessica Roy, 207-523-6763Jessica.Roy@wexinc.comorInvestor contact:WEX Inc.Michael E. Thomas, 207-523-6743Michael.Thomas@wexinc.com