WEX Inc. Reports Third 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 September 30, 2020.

“In the third quarter, we again demonstrated our ability to adapt to the rapidly-changing operating environment. While demand remained muted due to global uncertainty around COVID-19, spend volumes across all segments steadily recovered as we progressed through the quarter. Notably, our corporate payments customers and U.S. health business experienced year-over-year top-line growth, driven by the recovery of B2B payments volumes and increased SaaS accounts. We were also encouraged by sequential improvement in the Fleet segment, driven by positive over-the-road volume trends,” said Melissa Smith, WEX's Chair and Chief Executive Officer.

Ms. Smith added, “We remain focused on positioning WEX for sustained long-term growth once market conditions recover. This includes selectively investing in areas of our business that are growing and building upon our technology position by growing our platform of services allowing us to enhance value-added offerings to customers, which is key to our differentiation in the marketplace. I am pleased with our efforts to successfully control what we could during these unprecedented times and deliver against key priorities this quarter. Our sales momentum continues to be strong which is important to meeting our long-term growth targets and creates confidence in the future of WEX.”

Third Quarter 2020 Financial Results

Total revenue for the third quarter of 2020 decreased 17% to $382.1 million from $460.0 million for the third quarter of 2019. This revenue decrease in the quarter includes a $16.7 million unfavorable impact from fuel prices and spreads and $0.7 million positive impact from foreign exchange rates.

Net income attributable to shareholders on a GAAP basis decreased by $80.5 million to a net loss of $65.8 million, or $1.49 per diluted share, compared with net income of $14.6 million, or $0.33 per diluted share, for the third quarter of 2019. The Company's adjusted net income attributable to shareholders, which is a non-GAAP measure, was $70.9 million for the third quarter of 2020, or $1.59 per diluted share, down 39% per diluted share from $113.5 million or $2.59 per diluted share for the same period last year. See Exhibit 1 for a full explanation and reconciliation of adjusted net (loss) income attributable to shareholders and adjusted net income attributable to shareholders per diluted share to the comparable GAAP measures.

Third Quarter 2020 Performance Metrics

  • Average number of vehicles serviced was approximately 15.3 million, an increase of 7% from the third quarter of 2019.
  • Total fuel transactions processed decreased 8% from the third quarter of 2019 to 149.6 million. Payment processing transactions decreased 11% to 120.9 million.
  • Travel and Corporate Solutions' purchase volume decreased 59% to $4.7 billion from $11.5 billion in the third quarter of 2019.
  • Health and Employee Benefit Solutions' average number of Software-as-a-Service (SaaS) accounts in the U.S. grew 12% to 14.6 million from 13.0 million in the third quarter of 2019.

“Although revenue remained pressured this quarter, we saw gradual sequential improvement in business activity and volume across all segments, demonstrating the diversification and resilience of our business model. Additionally, we continued to focus on careful and strategic capital allocation as well as disciplined cost and risk management, which are the building blocks of long-term and sustained shareholder value,” said Roberto Simon, WEX's Chief Financial Officer. “Looking ahead, we expect revenue to level off in the fourth quarter, and to ramp up investments in select high-growth areas of our business to position WEX advantageously for future opportunities. Importantly, we are on track to meet the cost containment program outlined earlier this year, and we have ample liquidity with a strong balance sheet.”

Cost Actions and Liquidity Update

In response to COVID-19 uncertainty, the Company implemented a number of actions to reduce capital and operating expenditures, adjust cost structure and preserve financial flexibility and a strong liquidity position during the second and third quarters of 2020. The total operating expense 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. Third quarter 2020 leverage was 3.2x compared to 3.5x for the end of last year.

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 nine months ended September 30, 2020, and in Exhibit 3, a table of selected non-financial metrics for the quarter ended September 30, 2020 and four preceding quarters. The Company is also providing segment revenue for the three and nine months ended September 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, October 29, 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 (778) 560-2809. The Conference ID number is 2894917. 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 (NYSE: WEX) is a leading financial technology service provider across a wide spectrum of sectors, including fleet, travel and healthcare. WEX operates in 10 countries and in 20 currencies through approximately 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 expectations, financial guidance and potential for providing the same; assumptions underlying the Company's future financial performance; future growth opportunities and expectations; expectations for future revenue performance; future impacts resulting from areas of investment; 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 impact of sales or dispositions of significant amounts of the Company’s outstanding common stock into the public market, or the perception that such sales or dispositions could occur; the possible dilution to the Company’s stockholders caused by the issuance of additional shares of common stock or equity linked securities, the incurrence of impairment charges if our assessment of the fair value of certain of the Company's reporting units changes; the uncertainties of litigation, including the legal proceedings with respect to the purchase agreement relating to the proposed eNett and Optal acquisition; as well as other risks and uncertainties identified in Item 1A of our annual report on Form 10-K for the year ended December 31, 2019 and our quarterly reports on Forms 10-Q for the quarters ended March 31, 2020 and June 30, 2020, filed respectively with the Securities and Exchange Commission on February 28, 2020, May 11, 2020 and August 5, 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 September 30,

 

Nine months ended September 30,

 

2020

 

2019

 

2020

 

2019

Revenues

 

 

 

 

 

 

 

Payment processing revenue

$

171,077

 

 

$

224,756

 

 

$

522,575

 

 

$

626,380

 

Account servicing revenue

112,417

 

 

109,205

 

 

335,736

 

 

303,183

 

Finance fee revenue

46,307

 

 

66,382

 

 

144,945

 

 

175,667

 

Other revenue

52,315

 

 

59,620

 

 

157,623

 

 

178,416

 

Total revenues

382,116

 

 

459,963

 

 

1,160,879

 

 

1,283,646

 

Cost of services

 

 

 

 

 

 

 

Processing costs

102,244

 

 

98,296

 

 

307,152

 

 

288,896

 

Service fees

10,881

 

 

14,905

 

 

34,335

 

 

43,348

 

Provision for credit losses

12,283

 

 

14,847

 

 

66,851

 

 

47,470

 

Operating interest

5,262

 

 

11,508

 

 

20,151

 

 

31,765

 

Depreciation and amortization

26,202

 

 

26,123

 

 

76,115

 

 

68,206

 

Total cost of services

156,872

 

 

165,679

 

 

504,604

 

 

479,685

 

General and administrative

73,131

 

 

65,423

 

 

197,432

 

 

206,075

 

Sales and marketing

64,592

 

 

73,689

 

 

188,118

 

 

210,639

 

Depreciation and amortization

39,314

 

 

36,861

 

 

118,907

 

 

105,264

 

Loss on sale of subsidiary

46,362

 

 

 

 

46,362

 

 

 

Operating income

1,845

 

 

118,311

 

 

105,456

 

 

281,983

 

Financing interest expense

(40,950

)

 

(34,549

)

 

(101,813

)

 

(101,299

)

Net foreign currency loss

(784

)

 

(16,528

)

 

(31,973

)

 

(13,748

)

Net unrealized gain (loss) on financial instruments

3,774

 

 

(5,650

)

 

(32,115

)

 

(39,078

)

(Loss) income before income taxes

(36,115

)

 

61,584

 

 

(60,445

)

 

127,858

 

Income tax provision (benefit)

21,602

 

 

19,137

 

 

(3,852

)

 

37,352

 

Net (loss) income

(57,717

)

 

42,447

 

 

(56,593

)

 

90,506

 

Less: Net income (loss) from non-controlling interests

1,244

 

 

(631

)

 

3,282

 

 

(233

)

Net (loss) income attributable to WEX Inc.

$

(58,961

)

 

$

43,078

 

 

$

(59,875

)

 

$

90,739

 

Change in value of redeemable non-controlling interest

(6,879

)

 

(28,459

)

 

50,437

 

 

(46,179

)

Net (loss) income attributable to shareholders

$

(65,840

)

 

$

14,619

 

 

$

(9,438

)

 

$

44,560

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to shareholders per share:

 

 

 

 

 

 

 

Basic

$

(1.49

)

 

$

0.34

 

 

$

(0.22

)

 

$

1.03

 

Diluted

$

(1.49

)

 

$

0.33

 

 

$

(0.22

)

 

$

1.02

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

44,166

 

 

43,349

 

 

43,720

 

 

43,300

 

Diluted

44,166

 

 

43,811

 

 

43,720

 

 

43,715

 

 

 

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

 

 

 

 

September 30,
2020

 

December 31,
2019

Assets

 

 

 

Cash and cash equivalents

$

1,521,622

 

 

$

810,932

 

Restricted cash

193,615

 

 

170,449

 

Accounts receivable

2,151,741

 

 

2,661,108

 

Securitized accounts receivable, restricted

97,522

 

 

112,192

 

Prepaid expenses and other current assets

66,589

 

 

87,694

 

Total current assets

4,031,089

 

 

3,842,375

 

Property, equipment and capitalized software

193,165

 

 

212,475

 

Goodwill and other intangible assets

3,875,843

 

 

4,016,251

 

Investment securities

31,259

 

 

30,460

 

Deferred income taxes, net

8,514

 

 

12,833

 

Other assets

174,042

 

 

184,024

 

Total assets

$

8,313,912

 

 

$

8,298,418

 

Liabilities and Stockholders’ Equity

 

 

 

Accounts payable

$

893,766

 

 

$

969,816

 

Accrued expenses

322,388

 

 

315,642

 

Restricted cash payable

193,615

 

 

170,449

 

Short-term deposits

1,080,136

 

 

1,310,813

 

Short-term debt, net

127,084

 

 

248,531

 

Other current liabilities

55,420

 

 

34,692

 

Total current liabilities

2,672,409

 

 

3,049,943

 

Long-term debt, net

2,879,474

 

 

2,686,513

 

Long-term deposits

211,775

 

 

143,399

 

Deferred income taxes, net

211,555

 

 

218,740

 

Other liabilities

134,476

 

 

106,422

 

Total liabilities

6,109,689

 

 

6,205,017

 

Commitments and contingencies

 

 

 

Redeemable non-controlling interest

107,220

 

 

156,879

 

Stockholders’ Equity

 

 

 

Total WEX Inc. stockholders’ equity

2,084,930

 

 

1,926,947

 

Non-controlling interest

12,073

 

 

9,575

 

Total stockholders’ equity

2,097,003

 

 

1,936,522

 

Total liabilities and stockholders’ equity

$

8,313,912

 

 

$

8,298,418

 

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

Reconciliation of GAAP Net (Loss) Income Attributable to Shareholders to Adjusted Net Income Attributable to Shareholders

 

 

Three Months Ended September 30,

 

2020

 

2019

 

 

 

per diluted share

 

 

 

per diluted share

Net (loss) income attributable to shareholders

$

(65,840

)

 

$

(1.49

)

 

$

14,619

 

 

$

0.33

 

Unrealized (gain) loss on financial instruments

(3,774

)

 

(0.09

)

 

5,650

 

 

0.13

 

Net foreign currency remeasurement loss

784

 

 

0.02

 

 

16,528

 

 

0.38

 

Acquisition–related intangible amortization

42,831

 

 

0.97

 

 

42,800

 

 

0.98

 

Other acquisition and divestiture related items

20,328

 

 

0.46

 

 

7,907

 

 

0.18

 

Loss on sale of subsidiary

46,362

 

 

1.05

 

 

 

 

 

Stock–based compensation

18,170

 

 

0.41

 

 

9,522

 

 

0.22

 

Other costs

1,045

 

 

0.02

 

 

5,413

 

 

0.12

 

Debt restructuring and debt issuance cost amortization

5,329

 

 

0.12

 

 

3,251

 

 

0.07

 

ANI adjustments attributable to non–controlling interests

6,233

 

 

0.14

 

 

27,149

 

 

0.62

 

Tax related items

(614

)

 

(0.01

)

 

(19,348

)

 

(0.44

)

Dilutive impact of stock awards1

 

 

(0.01

)

 

 

 

 

Adjusted net income attributable to shareholders

$

70,854

 

 

$

1.59

 

 

$

113,491

 

 

$

2.59

 

 

Nine Months Ended September 30, 2020

 

2020

 

2019

 

 

 

per diluted share

 

 

 

per diluted share

Net (loss) income attributable to shareholders

$

(9,438

)

 

(0.22

)

 

$

44,560

 

 

1.02

 

Unrealized loss on financial instruments

32,115

 

 

0.73

 

 

39,078

 

 

0.89

 

Net foreign currency remeasurement loss

31,973

 

 

0.73

 

 

13,748

 

 

0.31

 

Acquisition–related intangible amortization

127,847

 

 

2.92

 

 

116,502

 

 

2.67

 

Other acquisition and divestiture related items

36,005

 

 

0.82

 

 

24,704

 

 

0.57

 

Loss on sale of subsidiary

46,362

 

 

1.06

 

 

 

 

 

Stock–based compensation

45,059

 

 

1.03

 

 

34,956

 

 

0.80

 

Other costs

7,980

 

 

0.18

 

 

12,914

 

 

0.30

 

Debt restructuring and debt issuance cost amortization

9,989

 

 

0.23

 

 

18,200

 

 

0.42

 

ANI adjustments attributable to non–controlling interests

(52,101

)

 

(1.19

)

 

43,874

 

 

1.00

 

Tax related items

(72,298

)

 

$

(1.65

)

 

$

(60,585

)

 

$

(1.39

)

Dilutive impact of stock awards1

 

 

(0.03

)

 

 

 

 

Adjusted net income attributable to shareholders

$

203,493

 

 

$

4.61

 

 

$

287,951

 

 

$

6.59

 

1 As the Company reported a net loss for the three and nine months ended September 30, 2020, under U.S. Generally Accepted Accounting Principles ("GAAP"), the diluted weighted average shares outstanding equals the basic weighted average shares outstanding for those periods. The non-GAAP adjustments described above resulted in adjusted net income attributable to shareholders (versus a loss on a GAAP basis) for the third quarter of 2020 and nine months ended September 30, 2020. Therefore, dilutive common stock equivalents have been included in the calculation of adjusted diluted weighted average shares outstanding to arrive at adjusted per share data.

 

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

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2020

 

2019

 

2020

 

2019

Operating income

$

1,845

 

 

$

118,311

 

 

$

105,456

 

 

$

281,983

 

Unallocated corporate expenses

14,817

 

 

17,016

 

 

45,313

 

 

52,135

 

Acquisition-related intangible amortization

42,831

 

 

42,800

 

 

127,847

 

 

116,502

 

Other acquisition and divestiture related items

15,430

 

 

7,907

 

 

31,107

 

 

24,704

 

Loss on sale of subsidiary

46,362

 

 

 

 

46,362

 

 

 

Stock-based compensation

18,170

 

 

9,522

 

 

45,059

 

 

34,956

 

Other costs

1,045

 

 

5,413

 

 

7,980

 

 

12,914

 

Debt restructuring costs

(240

)

 

1,162

 

 

525

 

 

10,640

 

Total segment adjusted operating income

$

140,260

 

 

$

202,131

 

 

$

409,649

 

 

$

533,834

 

Unallocated corporate expenses

(14,817

)

 

(17,016

)

 

(45,313

)

 

(52,135

)

Adjusted operating income

$

125,443

 

 

$

185,115

 

 

$

364,336

 

 

$

481,699

 

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, loss on sale of a subsidiary, 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. 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. Additionally, the non-cash mark-to-market adjustments on financial instruments are difficult to forecast accurately, making comparisons across historical and future quarters difficult to evaluate.
  • 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.

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