BusinessWire

WEX Inc. Reports Second Quarter 2020 Financial Results

PORTLAND, Maine--(BUSINESS WIRE)--WEX Inc. (NYSE: WEX), a leading financial technology service provider, today reported financial results for the three months ended June 30, 2020.

“Our second quarter results reflect the impact of the COVID-19 pandemic and underscore the resilience of our business, where we saw a few bright spots even in this challenged environment. We experienced recovery in spend volume trends throughout the quarter across each of our segments. Additionally, our U.S. Health business remains strong with year-over-year top-line growth, driven by an increase in the number of SaaS accounts as customers continue to rely on WEX products to pay for their essential healthcare needs," said Melissa Smith, WEX’s Chair and Chief Executive Officer.

Ms. Smith added, “Strong execution against our strategic pillars, effective cost management, disciplined capital allocation and our recent balance sheet and liquidity enhancements all position WEX to successfully navigate the current market environment. We continued to have notable new customer wins across each of our business segments, which is an important part of our growth strategy, and have begun to realize the early benefits of our cost containment measures and capital allocation plan outlined last quarter. Looking to the back half of the year, we will continue to focus on providing best-in-class products and services to our customers, winning in the marketplace and laying the foundation for sustained long-term growth."

Second Quarter 2020 Financial Results

Total revenue for the second quarter of 2020 decreased 21% to $347.1 million from $441.8 million for the second quarter of 2019. The $94.7 million revenue decrease in the quarter includes a $29.2 million unfavorable impact from fuel prices and spreads and a $1.7 million negative impact from foreign exchange rates.

Net income attributable to shareholders on a GAAP basis increased by $58.9 million to net income of $72.7 million, or $1.66 per diluted share, compared with net income of $13.8 million, or $0.32 per diluted share, for the second quarter of 2019. The Company's adjusted net income attributable to shareholders, which is a non-GAAP measure, was $53.0 million for the second quarter of 2020, or $1.21 per diluted share, down 47% per diluted share from $99.6 million or $2.28 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.

Second Quarter 2020 Performance Metrics

  • Average number of vehicles serviced was approximately 15.1 million, an increase of 8% from the second quarter of 2019.
  • Total fuel transactions processed decreased 17% from the second quarter of 2019 to 127.9 million. Payment processing transactions decreased 19% to 103.1 million.
  • Travel and Corporate Solutions' purchase volume decreased 68% to $3.2 billion from $10.0 billion in the second quarter of 2019.
  • Health and Employee Benefit Solutions' average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 15% to 14.5 million from 12.6 million in the second quarter of 2019.

“We continue to look for ways to strengthen our balance sheet and enhance our liquidity position in the current uncertain environment. During the quarter, we secured a $400 million investment from Warburg Pincus, which closed at the beginning of the third quarter, and favorably amended our current credit agreement,” said Roberto Simon, WEX’s Chief Financial Officer. “These actions provide us with increased financial flexibility, improved liquidity and additional cash on hand to better focus on our strategic priorities as we navigate the pandemic. Looking ahead, we remain confident in WEX's ability to fund growth initiatives and capitalize on the economic recovery as operating conditions improve.”

Cost Actions and Liquidity Update

In response to COVID-19 uncertainty, the Company implemented a number of actions announced last quarter to reduce discretionary capital and operating expenditures, adjust cost structure and preserve financial flexibility and a strong liquidity position. The total savings resulting from these changes are still expected to be approximately $60-$65 million for the year, compared to our original guidance. The Company believes WEX’s balance sheet and liquidity position remain strong. Second quarter 2020 leverage was 3.1x compared to 3.5x the prior quarter, and there are no significant debt maturities for over two years.

Financial Guidance

On May 7, 2020, the Company withdrew all previously-issued full fiscal year 2020 financial guidance due to COVID-19. Given the continued uncertainty related to COVID-19, the Company is not providing any further financial guidance at this time. WEX continues to carefully monitor the pandemic and the impact on its business; however, given the uncertainty regarding the pandemic's spread, duration, and impact, the Company is currently unable to predict the precise extent to which the COVID-19 pandemic will impact its future operations and 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 1, reconciliations of non - GAAP measures referenced in this news release, in Exhibit 2, tables 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, 2020, and in Exhibit 3, a table of selected non-financial metrics for the quarter ended June 30, 2020 and four preceding quarters. The Company is also providing segment revenue for the three and six months ended June 30, 2020 and 2019 in Exhibit 4 and information regarding segment adjusted operating income margin and adjusted operating income margin in Exhibit 5.

Conference Call Details
In conjunction with this announcement, WEX will host a conference call today, July 30, 2020, at 10:00 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 (833) 714-0940 or +1 (778) 560-2809. The Conference ID number is 3368158.

A replay of the webcast and the accompanying slides will be available on the Company's website. A replay of the conference call can also be accessed by dialing (800) 585-8367 or (416) 621-4642, conference ID number 3368158, beginning approximately two hours after the call. The replay will be available through August 21, 2020.

About WEX
Powered by the belief that complex payment systems can be made simple, WEX (NYSE: WEX) is a leading financial technology service provider across a wide spectrum of sectors, including fleet, travel and healthcare. WEX operates in more than 10 countries and in 20 currencies through more than 5,000 associates around the world. WEX fleet cards offer 15 million vehicles exceptional payment security and control; purchase volume in its travel and corporate solutions grew to approximately $40 billion in 2019; and the WEX Health financial technology platform helps 390,000 employers and more than 32 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 and potential for providing the same; assumptions underlying the Company's future financial performance; future growth opportunities and expectations; and, expectations for the macro environment. 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 extent to which the coronavirus (COVID-19) pandemic and measures taken in response thereto adversely impact our business, results of operations and financial condition in excess of current expectations; 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 including the impact of any continued reductions in fuel price and the resulting impact on our revenues and net income; 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 complete or 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; legal, political and economic uncertainty surrounding the United Kingdom's departure from the European Union; the impact of the transition from LIBOR as a global benchmark to a replacement rate; 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, including the legal proceedings with respect to the purchase agreement relating to the proposed eNett and Optal acquisitions; as well as other risks and uncertainties identified in Item 1A of our Annual Report for the year ended December 31, 2019 and our Form 10-Q for the quarter ended March 31, 2020, filed respectively with the Securities and Exchange Commission on February 28, 2020 and May 11, 2020. 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 OPERATIONS
(in thousands, except per share data)
(unaudited)

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

2020

 

2019

 

2020

 

2019

Revenues

 

 

 

 

 

 

 

 

Payment processing revenue

 

$

147,461

 

 

$

214,826

 

 

$

351,498

 

 

$

401,624

 

Account servicing revenue

 

109,479

 

 

106,892

 

 

223,319

 

 

193,978

 

Finance fee revenue

 

42,711

 

 

62,912

 

 

98,638

 

 

109,285

 

Other revenue

 

47,433

 

 

57,177

 

 

105,308

 

 

118,796

 

Total revenues

 

347,084

 

 

441,807

 

 

778,763

 

 

823,683

 

Cost of services

 

 

 

 

 

 

 

 

Processing costs

 

99,991

 

 

99,481

 

 

204,908

 

 

190,600

 

Service fees

 

9,700

 

 

14,197

 

 

23,454

 

 

28,443

 

Provision for credit losses

 

20,581

 

 

14,832

 

 

54,568

 

 

32,623

 

Operating interest

 

6,504

 

 

10,693

 

 

14,889

 

 

20,257

 

Depreciation and amortization

 

25,124

 

 

21,570

 

 

49,913

 

 

42,083

 

Total cost of services

 

161,900

 

 

160,773

 

 

347,732

 

 

314,006

 

General and administrative

 

62,265

 

 

76,247

 

 

124,301

 

 

140,652

 

Sales and marketing

 

54,744

 

 

72,831

 

 

123,526

 

 

136,950

 

Depreciation and amortization

 

39,393

 

 

37,219

 

 

79,593

 

 

68,403

 

Operating income

 

28,782

 

 

94,737

 

 

103,611

 

 

163,672

 

Financing interest expense

 

(28,832)

 

 

(35,638)

 

 

(60,863)

 

 

(66,750)

 

Net foreign currency (loss) gain

 

(2,462)

 

 

6,665

 

 

(31,189)

 

 

2,780

 

Net unrealized loss on financial instruments

 

(3,842)

 

 

(21,516)

 

 

(35,889)

 

 

(33,428)

 

(Loss) income before income taxes

 

(6,354)

 

 

44,248

 

 

(24,330)

 

 

66,274

 

Income tax (benefit) provision

 

(19,747)

 

 

12,397

 

 

(25,454)

 

 

18,215

 

Net income

 

13,393

 

 

31,851

 

 

1,124

 

 

48,059

 

Less: Net income from non-controlling interests

 

675

 

 

324

 

 

2,038

 

 

398

 

Net income (loss) attributable to WEX Inc.

 

$

12,718

 

 

$

31,527

 

 

$

(914)

 

 

$

47,661

 

Reduction (accretion) of redeemable non-controlling interest

 

59,940

 

 

(17,720)

 

 

57,316

 

 

(17,720)

 

Net income attributable to shareholders

 

$

72,658

 

 

$

13,807

 

 

$

56,402

 

 

$

29,941

 

 

 

 

 

 

 

 

 

 

Net income attributable to shareholders per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.67

 

 

$

0.32

 

 

$

1.30

 

 

$

0.69

 

Diluted

 

$

1.66

 

 

$

0.32

 

 

$

1.28

 

 

$

0.69

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

43,574

 

 

43,329

 

 

43,495

 

 

43,277

 

Diluted

 

43,779

 

 

43,761

 

 

43,896

 

 

43,667

 

WEX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 

 

 

June 30,
2020

 

December 31,
2019

Assets

 

 

 

 

Cash and cash equivalents

 

$

1,271,523

 

 

$

810,932

 

Restricted cash

 

178,170

 

 

170,449

 

Accounts receivable

 

1,942,723

 

 

2,661,108

 

Securitized accounts receivable, restricted

 

89,636

 

 

112,192

 

Prepaid expenses and other current assets

 

78,793

 

 

87,694

 

Total current assets

 

3,560,845

 

 

3,842,375

 

Property, equipment and capitalized software

 

205,189

 

 

212,475

 

Goodwill and other intangible assets

 

3,921,450

 

 

4,016,251

 

Investment securities

 

31,224

 

 

30,460

 

Deferred income taxes, net

 

8,789

 

 

12,833

 

Other assets

 

179,242

 

 

184,024

 

Total assets

 

$

7,906,739

 

 

$

8,298,418

 

Liabilities and Stockholders’ Equity

 

 

 

 

Accounts payable

 

$

833,782

 

 

$

969,816

 

Accrued expenses

 

253,013

 

 

315,642

 

Restricted cash payable

 

178,170

 

 

170,449

 

Short-term deposits

 

1,155,160

 

 

1,310,813

 

Short-term debt, net

 

119,374

 

 

248,531

 

Other current liabilities

 

50,123

 

 

34,692

 

Total current liabilities

 

2,589,622

 

 

3,049,943

 

Long-term debt, net

 

2,653,887

 

 

2,686,513

 

Long-term deposits

 

264,198

 

 

143,399

 

Deferred income taxes, net

 

182,583

 

 

218,740

 

Other liabilities

 

128,766

 

 

106,422

 

Total liabilities

 

5,819,056

 

 

6,205,017

 

Commitments and contingencies

 

 

 

 

Redeemable non-controlling interest

 

99,804

 

 

156,879

 

Stockholders’ Equity

 

 

 

 

Total WEX Inc. stockholders’ equity

 

1,976,945

 

 

1,926,947

 

Non-controlling interest

 

10,934

 

 

9,575

 

Total stockholders’ equity

 

1,987,879

 

 

1,936,522

 

Total liabilities and stockholders’ equity

 

$

7,906,739

 

 

$

8,298,418

 

Exhibit 1
Reconciliation of Non - GAAP Measures
(in thousands, except per share data)
(unaudited)

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

       

 

 

Three Months Ended June 30,

 

 

2020

 

2019

 

   

per diluted share

 

 

 

per diluted share

Net income attributable to shareholders

 

$

72,658

 

 

$

1.66

 

 

$

13,807

 

 

$

0.32

 

Unrealized loss on financial instruments

 

 

3,842

 

 

 

0.09

 

 

 

21,516

 

 

 

0.49

 

Net foreign currency remeasurement loss (gain)

 

 

2,462

 

 

 

0.06

 

 

 

(6,665

)

 

 

(0.15

)

Acquisition–related intangible amortization

 

 

42,478

 

 

 

0.97

 

 

 

39,814

 

 

 

0.91

 

Other acquisition and divestiture related items

 

 

7,735

 

 

 

0.18

 

 

 

7,017

 

 

 

0.16

 

Stock–based compensation

 

 

15,069

 

 

 

0.34

 

 

 

14,992

 

 

 

0.34

 

Other costs

 

 

4,695

 

 

 

0.11

 

 

 

4,746

 

 

 

0.11

 

Debt restructuring and debt issuance cost amortization

 

 

2,578

 

 

 

0.06

 

 

 

8,453

 

 

 

0.19

 

ANI adjustments attributable to non–controlling interests

 

 

(60,558

)

 

 

(1.38

)

 

 

17,298

 

 

 

0.40

 

Tax related items

 

 

(38,004

)

 

 

(0.87

)

 

 

(21,342

)

 

 

(0.49

)

Adjusted net income attributable to shareholders

 

$

52,955

 

 

$

1.21

 

 

$

99,636

 

 

$

2.28

 

 

 

Six Months Ended June 30, 2020

 

 

2020

 

2019

 

 

 

 

per diluted share

 

 

 

per diluted share

Net income attributable to shareholders

 

$

56,402

 

 

$

1.28

 

 

$

29,941

 

 

$

0.69

 

Unrealized loss on financial instruments

 

 

35,889

 

 

 

0.82

 

 

 

33,428

 

 

 

0.77

 

Net foreign currency remeasurement loss (gain)

 

 

31,189

 

 

 

0.71

 

 

 

(2,780

)

 

 

(0.06

)

Acquisition–related intangible amortization

 

 

85,016

 

 

 

1.94

 

 

 

73,702

 

 

 

1.69

 

Other acquisition and divestiture related items

 

 

15,677

 

 

 

0.36

 

 

 

16,797

 

 

 

0.38

 

Stock–based compensation

 

 

26,889

 

 

 

0.61

 

 

 

25,434

 

 

 

0.58

 

Other costs

 

 

6,935

 

 

 

0.16

 

 

 

7,501

 

 

 

0.17

 

Debt restructuring and debt issuance cost amortization

 

 

4,660

 

 

 

0.11

 

 

 

14,949

 

 

 

0.34

 

ANI adjustments attributable to non–controlling interests

 

 

(58,334

)

 

 

(1.33

)

 

 

16,725

 

 

 

0.38

 

Tax related items

 

 

(71,684

)

 

 

(1.63

)

 

 

(41,237

)

 

 

(0.94

)

Adjusted net income attributable to shareholders

 

$

132,639

 

 

$

3.02

 

 

$

174,460

 

 

$

4.00

Reconciliation of GAAP Operating Income to Total Segment Adjusted Operating Income and Adjusted Operating Income

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2020

 

2019

 

2020

 

2019

Operating income

 

$

28,782

 

 

$

94,737

 

 

$

103,611

 

 

$

163,672

 

Unallocated corporate expenses

 

13,953

 

 

18,177

 

 

30,496

 

 

35,119

 

Acquisition-related intangible amortization

 

42,478

 

 

39,814

 

 

85,016

 

 

73,702

 

Other acquisition and divestiture related items

 

7,735

 

 

7,017

 

 

15,677

 

 

16,797

 

Stock-based compensation

 

15,069

 

 

14,992

 

 

26,889

 

 

25,434

 

Other costs

 

4,695

 

 

4,746

 

 

6,935

 

 

7,501

 

Debt restructuring costs

 

687

 

 

5,078

 

 

765

 

 

9,478

 

Total segment adjusted operating income

 

$

113,399

 

 

$

184,561

 

 

$

269,389

 

 

$

331,703

 

Unallocated corporate expenses

 

(13,953)

 

 

(18,177)

 

 

(30,496)

 

 

(35,119)

 

Adjusted operating income

 

$

99,446

 

 

$

166,384

 

 

$

238,893

 

 

$

296,584

 

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.

The Company's non-GAAP adjusted operating income excludes acquisition-related intangible amortization, other acquisition and divestiture related items, stock-based compensation, other costs, and debt restructuring costs. Total segment adjusted operating income incorporates the same adjustments and further excludes unallocated corporate expenses.

Although adjusted net income, adjusted operating income and total segment adjusted operating income are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), these non-GAAP measures are 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 these measures integral because they exclude 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, accounts receivable and accounts 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.
  • We exclude other costs 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 includes costs related to further streamline the business, improve the Company’s efficiency, create synergies and globalize the Company’s operations.

Contacts

News media contact:
WEX Inc.
Jessica Roy, 207-523-6763
Jessica.Roy@wexinc.com
or
Investor contact:
WEX Inc.
Steve Elder, 207-523-7769
Steve.Elder@wexinc.com


Read full story here