CORRECTING and REPLACING WEX Inc. Reports Fourth Quarter 2014 Financial Results

Strong revenue and operating growth driven by solid execution across segments and progress against strategic initiatives

WEX Inc. Reports Fourth Quarter 2014 Financial Results (Graphic: Business Wire)

CORRECTION...by WEX Inc.

SOUTH PORTLAND, Maine--()--Third paragraph, second sentence of release should read: This includes the impact of a non-operating pre-tax expense of $8.1 million related to a net foreign exchange loss (instead of This excludes the impact of a non-operating pre-tax expense of $8.1 million related to a net foreign exchange loss).

The corrected release reads:

WEX INC. REPORTS FOURTH QUARTER 2014 FINANCIAL RESULTS

Strong revenue and operating growth driven by solid execution across segments and progress against strategic initiatives

WEX Inc. (NYSE: WEX), a leading provider of corporate payment solutions, today reported financial results for the three months and twelve months ended December 31, 2014.

Fourth Quarter 2014 Financial Results

Total revenue for the fourth quarter of 2014 increased 16% to $211.9 million from $182.3 million for the fourth quarter of 2013. Net income to common shareholders on a GAAP basis was $47.9 million, or $1.23 per diluted share, compared with $34.5 million, or $0.88 per diluted share, for the fourth quarter of 2013.

On a non-GAAP basis, the Company's adjusted net income for the fourth quarter of 2014 decreased 18% to $37.2 million, or $0.96 per diluted share, from $45.7 million, or $1.17 per diluted share, for the same period a year ago. This includes the impact of a non-operating pre-tax expense of $8.1 million related to a net foreign exchange loss. Excluding the impact of the foreign exchange losses, adjusted net income results for the quarter and full year would have been in the guidance range. For comparative purposes, adjusted net income for prior periods reflects the exclusion of stock-based compensation expense to conform to the approach that was adopted earlier this year. See Exhibit 1 for a full reconciliation of adjusted net income.

For the full year 2014, revenue increased 14% to $817.6 million from $717.5 million in 2013. Net income to common shareholders on a GAAP basis was $5.18 per diluted share in 2014 compared to $3.82 per diluted share in 2013. On a non-GAAP basis, adjusted net income increased 8% to $4.96 per diluted share from $4.60 per diluted share in 2013.

“We delivered strong top-line growth and solid operating performance throughout 2014," said Melissa Smith, WEX's president and chief executive officer. “Despite the foreign exchange and fuel price headwinds we experienced this quarter, the underlying fundamentals of our business remain very strong and we look to carry this momentum forward into 2015.”

Smith continued, “In 2014, we made significant progress against our strategic objectives to accelerate our growth, make targeted investments and drive scale across the organization. In particular, we made transformative investments including the purchase of ExxonMobil's European commercial fuel card program as well as our entry into the healthcare payments market through our acquisition of Evolution1. These important investments have greatly expanded our addressable market and positioned WEX for future growth. As we look ahead to 2015, we remain well positioned in the markets we serve to capture additional market share and to continue to establish our position as a leading diversified global payments provider.”

Fourth Quarter 2014 Performance Metrics

Where applicable, the performance metrics listed below include the Esso portfolio in Europe;

  • Average number of vehicles serviced worldwide was approximately 8.5 million, an increase of 10% from the fourth quarter of 2013.
  • Total fuel transactions processed increased 3% from the fourth quarter of 2013 to 95.7 million. Payment processing transactions increased 9% to 79.2 million.
  • Average expenditure per payment processing transaction decreased 8% from the fourth quarter of 2013 to $76.66.
  • U.S. retail fuel price decreased 10% to $3.17 per gallon from $3.54 per gallon in the fourth quarter of 2013.
  • Total corporate card purchase volume grew 37% to $4.5 billion, from $3.3 billion for the fourth quarter of 2013.

Financial Guidance and Assumptions

“Through 2014 we saw considerable momentum throughout our business. We are encouraged by our underlying organic growth and the results of our strategic investments that are globalizing the business and penetrating new markets. Our overall capital structure remains strong, and we are well-positioned for long-term growth and value creation.” said Steve Elder, WEX senior vice president and chief financial officer.

  • For the first quarter of 2015, WEX expects revenue in the range of $192 million to $201 million and adjusted net income in the range of $37 million to $40 million, or $0.94 to $1.02 per diluted share.
  • For the full year 2015, the Company expects revenue in the range of $860 million to $890 million and adjusted net income to be in the range of $191 million to $203 million, or $4.90 to $5.20 per diluted share.

First quarter 2015 guidance is based on an assumed average U.S. retail fuel price of $2.59 per gallon, and approximately 39 million shares outstanding. Full-year 2015 guidance is based on an assumed average U.S. retail fuel price of $2.62 per gallon and approximately 39 million shares outstanding. The fuel prices referenced above are based on the applicable NYMEX futures price.

The Company's guidance also assumes that first quarter and full year 2015 fleet credit loss will range between 10 and 15 basis points. Our guidance also includes exchange rate impacts of approximately 7 cents of earnings per share through January 2015, and assumes that exchange rates will remain in the range of the December 31, 2014 rates for the remainder of the year, and also includes $11 million to $14 million of after tax losses related to the Esso portfolio in Europe.

The Company's guidance excludes the impact of non-cash, mark-to-market adjustments on the Company's fuel-price-related derivative instruments, stock-based compensation 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 December 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 fourth quarter of 2014, the Company's GAAP financial results include an unrealized pre-tax, non-cash, mark-to-market gain of $34.2 million 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 December 31, 2014. This table is presented as Exhibit 2. The Company is also providing selected segment revenue information for the three months and for the years ended December 31, 2014 and 2013 in Exhibit 3.

Conference Call Details

In conjunction with this announcement, WEX will host a conference call today, February 9, 2015, 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 59072490. 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 9 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, Evolution1, WEX Australia, WEX New Zealand and WEX Europe, as well as a majority equity position in UNIK S.A., (Brazil) and WEX Europe Services (England). WEX and its subsidiaries employ more than 2,000 associates. For more information, 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, acquisitions and market expansion; 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 as well as payments 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 the fluctuations of fuel prices; 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 successfully operate and expand ExxonMobil's European commercial fuel card program, or Esso Card; 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 and any resulting negative impact on our reputation, liabilities, or loss of relationships with customers or merchants; 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 or financial regulations impacting the Company’s industrial bank and the Company as the corporate parent or other subsidiaries or affiliates; the impact of the Company’s outstanding notes 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 our Annual Report for the year ended December 31, 2013, filed on Form 10-K with the Securities and Exchange Commission on February 27, 2014. 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.

CONSOLIDATED STATEMENTS OF

INCOME

(in thousands, except per share data) (unaudited)

   

Three months ended
December 31,

   

Year ended
December 31,

      2014       2013       2014       2013  
Revenues            
Fleet payment solutions $ 136,409 $ 133,471 $ 562,169 $ 527,424
Other payment solutions     75,455       48,812       255,478       190,039  
Total revenues     211,864       182,283       817,647       717,463  
Expenses
Salary and other personnel 58,089 42,328 200,809 164,521
Service fees 31,716 23,663 119,876 103,428
Provision for credit losses 8,990 6,514 32,144 20,200
Technology leasing and support 8,397 5,505 30,581 24,217
Occupancy and equipment 4,789 4,149 18,278 15,967
Advertising 2,982 2,797 11,814 11,176
Marketing 1,245 961 3,934 3,684
Postage and shipping 1,498 1,411 5,369 5,140
Communications 2,521 1,891 9,213 7,069
Depreciation, amortization and impairments 20,586 14,940 70,380 58,208
Operating interest expense 1,690 1,082 6,437 4,287
Other 7,840 5,807 30,064 22,827
Gain on sale of subsidiary     (321

)

 

 

      (27,490

)

 

 

 
Total operating expenses     150,022       111,048       511,409       440,724  
Operating income 61,842 71,235 306,238 276,739
Financing interest expense (11,570

)

 

(7,342 ) (36,042

)

 

(29,419 )

Net foreign currency (loss) gain

(8,149

)

 

(744 ) (13,438

)

 

964
Net realized and unrealized gain (loss) on fuel price derivatives 37,155 (7,070 ) 46,212 (9,851 )
Decrease (increase) in amount due under tax receivable agreement     25       (183 )     (1,331

)

 

 

(33 )
Income before income taxes 79,303 55,896 301,639 238,400
Income taxes     32,064       22,005       101,621       90,102  
Net income 47,239 33,891 200,018 148,298

Less: Net loss from non-controlling interests

    (654

)

 

 

(577 )     (2,193

)

 

 

(910 )
Net earnings attributable to WEX Inc.     $ 47,893       $ 34,468       $ 202,211       $ 149,208  
Net earnings attributable to WEX Inc. per share:
Basic $ 1.23 $ 0.88 $ 5.20 $ 3.83
Diluted $ 1.23 $ 0.88 $ 5.18 $ 3.82
Weighted average common shares outstanding:
Basic 38,872 38,983 38,890 38,946
Diluted     38,976       39,103       39,000       39,103  
 

WEX INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data) (unaudited)

    December 31,
2014     2013
Assets            
Cash and cash equivalents $ 284,763 $ 361,486
Accounts receivable (less reserve for credit losses of $13,919 in 2014 and $10,396 in 2013) 1,865,540 1,712,061
Income taxes receivable 6,859
Available-for-sale securities 18,940 15,963
Fuel price derivatives, at fair value 40,969
Property, equipment and capitalized software, net 105,596 72,275
Deferred income taxes, net 5,764 88,965
Goodwill 1,116,365 819,892
Other intangible assets, net 498,045 206,744
Other assets     175,506       154,892  
Total assets     $ 4,118,347       $ 3,432,278  
Liabilities and Stockholders’ Equity
Accounts payable $ 425,956 $ 512,878
Accrued expenses 137,227 92,335
Income taxes payable 16,066
Deposits 979,553 1,088,930
Revolving line-of-credit facilities and term loan 901,564 285,000
Deferred income taxes, net 43,752 13,528
Notes outstanding 400,000 400,000
Other debt 52,975 7,278
Amounts due under tax receivable agreement 69,637 77,785
Fuel price derivatives, at fair value 7,358
Other liabilities     13,372       9,094  
Total liabilities 3,024,036 2,510,252
 
Redeemable non-controlling interest 16,590 18,729
Stockholders’ Equity

Common stock $0.01 par value; 175,000 shares authorized; 43,021 in 2014 and 42,901 in
2013 shares issued; 38,897 in 2014 and 38,987 in 2013 shares outstanding

430 429
Additional paid-in capital 179,077 168,891
Non-controlling interest 17,396 519
Retained earnings 1,081,730 879,519
Accumulated other comprehensive (loss) (50,581

)

 

(15,495 )
Treasury stock at cost; 4,218 shares in 2014 and 4,007 shares in 2013     (150,331

)

 

 

(130,566 )
Total stockholders’ equity     1,077,721       903,297  
Total liabilities and stockholders’ equity     $ 4,118,347       $ 3,432,278  
 

Exhibit 1

Reconciliation of Adjusted Net Income to GAAP Net Earnings

Fourth Quarter and Full Year Ended 2014 and 2013

(in thousands)

(unaudited)

   

Three months ended
December 31,

   

Year ended
December 31,

      2014       2013       2014       2013  
Adjusted net income attributable to WEX Inc.     $ 37,232       $ 45,680       $ 193,610       $ 179,844  
Unrealized gain (loss) on fuel price derivatives 34,187     (6,862 ) 48,327     (5,628 )
Amortization of acquired intangible assets (12,207 ) (8,583 ) (40,622 ) (33,147 )
Stock-based compensation (3,701 ) (2,547 ) (13,790 ) (9,429 )
Deferred loan costs associated with the extinguishment of debt (1,004 )
Non-cash adjustments related to tax receivable agreement 25 (183 ) (1,331 ) (33 )
Gain on divestiture 321 27,490
Expenses and adjustments related to acquisitions (1,635 ) (7,694 ) 658
ANI adjustments attributable to non-controlling interests 1,178 472 2,191 1,443
Tax impact (7,507 )     6,491       (5,970 )     16,504  
Net earnings attributable to WEX Inc.     $ 47,893       $ 34,468       $ 202,211       $ 149,208  
 

Beginning in 2014, adjusted net income attributable to WEX Inc. excludes the expense of stock-based compensation and certain acquisition related expenses. 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 figures previously reported due to this adjustment. The Company believes these adjustments make this non-GAAP measurement more comparable to its peers. In addition, in light of the sale of Pacific Pride Services LLC, the Company has decided that the gain or loss associated with a divestiture will not be included in adjusted net income attributable to WEX Inc., which it believes is consistent with the Company's practice of excluding other non-recurring items associated with strategic transactions. The Company recognized a gain on the sale of Pacific Pride.

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 other 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 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-related 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.
  • The amortization of purchased intangibles, deferred loan costs associated with the extinguishment of debt, acquisition related expenses, non-cash adjustments related to the Company's tax receivable agreement 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.
  • The gain or loss from a divestiture is not indicative of the performance of the ongoing operations of the business.
  • The Company considers certain acquisition-related costs, such as investment banking fees, financing fees and warranty and indemnity insurance, to be unpredictable, dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired 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 facilitates the comparison of our financial results to the Company's historical operating results and to other companies in our industry.

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. The Company is unable to reconcile our adjusted net income guidance to the comparable GAAP measure because of the difficulty in predicting the amounts to be adjusted.

Exhibit 2

Selected Non-Financial Metrics

      Q4 2014       Q3 2014       Q2 2014       Q1 2014       Q4 2013
Fleet Payment Solutions – Payment Processing Revenue:(1)                        
Payment processing transactions (000s) 79,195 80,379 78,390 73,327 72,962
Gallons per payment processing transaction 23.4 23.1 23.2 23.2 23.2
Payment processing gallons of fuel (000s) 1,850,304 1,859,894 1,816,204 1,703,887 1,691,884
Average US fuel price (US$ / gallon) $ 3.17 $ 3.61 $ 3.76 $ 3.64 $ 3.54
Average Australian fuel price (US$ / gallon) $ 4.63 $ 5.22 $ 5.44 $ 5.34 $ 5.30
Payment processing $ of fuel (000s) $ 6,071,384 $ 6,842,202 $ 6,933,978 $ 6,301,668 $ 6,112,394
Net payment processing rate 1.37 % 1.37 % 1.36 % 1.36 % 1.40 %
Fleet payment processing revenue (000s) $ 83,336 $ 93,462 $ 94,550 $ 85,702 $ 85,402
 
Other Payment Solutions – Payment Processing Revenue:(2)
Payment solutions purchase volume (000s) $ 4,500,724 $ 5,477,610 $ 4,339,339 $ 3,670,609 $ 3,287,160
Net interchange rate 0.89 % 0.83 % 0.86 % 0.81 % 0.96 %
Payment solutions processing revenue (000s) $ 40,279 $ 45,476 $ 37,460 $ 29,683 $ 31,536

(1)As of December 1, 2014, includes metrics for the Esso portfolio in Europe where applicable.

(2)Excludes payment processing revenue from rapid! PayCard and UNIK. As of July 16, 2014, includes interchange volume and associated revenue for Evolution1.

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 dollars 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 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

Fourth Quarter and Full Year Ended 2014 and 2013

(in thousands)

(unaudited)

Fleet Payment Solutions                                                                
    Three months ended
December 31,
Increase (decrease)     Year ended
December 31,
    Increase (decrease)
      2014       2013       Amount     Percent     2014       2013       Amount     Percent
Revenues                                
Payment processing $ 83,336 $ 85,402 $ (2,066 )

(2)

%

$ 357,050 $ 348,291 $ 8,759 3 %
Transaction processing 4,096 4,893 (797 )

(16)

%

18,448 19,444 (996 )

(5)

%

Account servicing 21,074 18,876 2,198 12 % 81,217 75,123 6,094 8 %
Finance fees 21,801 16,851 4,950 29 % 75,703 59,520 16,183 27 %
Other     6,102       7,449       (1,347 )    

(18)

%

    29,751       25,046       4,705       19 %
Total revenues $ 136,409 $ 133,471 $ 2,938 2 % $ 562,169 $ 527,424 $ 34,745 7 %
Other Payment Solutions                                                            
    Three months ended
December 31,
    Increase (decrease)     Year ended
December 31,
    Increase (decrease)
      2014   2013       Amount     Percent     2014       2013       Amount     Percent
Revenues                            
Payment processing $ 42,810 $ 33,674 $ 9,136 27 % $ 162,937 $ 133,615 $ 29,322 22 %
Transaction processing 2,100 1,864 236 13 % 7,190 5,627 1,563 28 %
Account servicing 14,678 3,500 11,178 319 % 34,292 11,883 22,409 189 %
Finance fees 1,139 1,591 (452 )

(28)

%

5,180 6,368 (1,188 )

(19)

%

Other     14,728   8,183       6,545       80 %     45,879       32,546       13,333       41 %
Total revenues $ 75,455 $ 48,812 $ 26,643 55 % $ 255,478 $ 190,039 $ 65,439 34 %

Contacts

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

Release Summary

WEX Inc. Reports Fourth Quarter 2014 Financial Results; Strong revenue and operating growth driven by solid execution across segments and progress against strategic initiatives

Contacts

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