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WEX Earnings Ahead Of Forecasts; Guidance Higher

WEX Earnings Ahead Of Forecasts; Guidance Higher

WEX, Inc. (NYSE: WEX), a multi-channel provider of corporate payment solutions, reported earnings of $1.72 per share, down 9 percent year-over-year, but $0.03 per share higher than the consensus estimate. Additionally, the company increased earnings guidance for the year.

Total revenue increased 8 percent to $381.9 million. Adjusted operating margin was 470 basis points lower at 34.1 percent. Management called out increases in processing costs associated with converting the Shell and Chevron portfolios onto their platform, as well as increased processing costs due to recent acquisitions as culprits. Other operating headwinds included: a 320 basis point increase in credit loss in the fleet division; higher general and administrative costs due to recent acquisitions; and increased sales and marketing expenses due to new business wins.

WEX's Key Performance Indicators – Financial

On the call, management said that it expects growth and profitability to ramp higher throughout the year and noted several earnings tailwinds ahead. The conversion of the Shell portfolio to the platform is complete and the Chevron conversion is more than 50 percent completed and will be finished in the second quarter of 2019. Further, the company plans to close on the European-based "Go Fuel Card" brand (acquired from EG Group, a European fuel station and convenience retailer) this quarter. As the conversions and acquisitions are streamlined, there will be incremental revenue and cost synergies. Management expects organic volume growth in the travel and corporate solutions division to occur in the double-digit range in 2019 with the net interchange percentage approximately 10-15 basis points better year-over-year.

Revenue in the company's fleet services division climbed 1 percent year-over-year to $232.8 million. Payment processing transactions increased 5 percent to 115.4 million transactions as the number of vehicles serviced rose 14 percent to 13.1 million and total fuel transactions increased 7 percent to $140.5 million. Lower fuel prices were a modest headwind in the quarter, down 4 percent to $2.67 per gallon. The division's net payment processing rate (the percentage of each payment that WEX records as revenue from merchants, less discounts and network fees) was flat year-over-year at 1.27 percent.

Travel and corporate solutions revenue increased 22 percent to $81.6 million as purchase volumes increased 6 percent year-over-year. The net interchange rate (net payment processing rate) increased 15 basis points to 0.71 percent.  

Health and employee benefit solutions revenue increased 19 percent year-over-year to $67.4 million as the average number of SaaS accounts in the U.S. grew 17.6 percent to 12.7 million accounts.

WEX Key Performance Indicators – Metrics

Management's increased guidance estimates full-year 2019 revenue of $1.705 billion to $1.745 billion and adjusted earnings per share of $9.10 to $9.50, higher than the current NASDAQ consensus estimate of $8.48. For the second quarter of 2019, WEX expects revenue of $438 million to $443 million and adjusted earnings per share of $2.22 to $2.28, compared to the current NASDAQ consensus estimate of $2.15.

WEX's net debt leverage ratio increased to 4x from 3.1x given recent acquisitions. The company has $96.5 million in cash and $547 million available borrowing capacity on its revolver. Management said that it plans to de-lever the balance sheet by 0.5x to 0.75x per year (2.5x to 3.5x is the leverage goal), but reiterated their willingness to take increased debt leverage if the right opportunity comes along.

WEX Stock Chart – SONAR

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