WEX

WEX Inc. (Wright Express Corporation) Q1 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009. Wright Express Corporation (WEX) operates as a leading provider of payment processing and information management services to the vehicle fleet industry. The company operates through two primary segments: Fleet (payment and transaction processing for vehicle fleets) and MasterCard (corporate purchasing solutions). The filing notes that operating results for the quarter are not necessarily indicative of future performance due to economic volatility.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 26% year-over-year, driven primarily by a 40% drop in Fleet payment processing revenue. This was caused by a 39% decrease in average fuel prices (from $3.26 to $2.00 per gallon) and a 7% decline in payment processing transaction volume.
• Profitability: Net income declined 24% to $11.0 million. However, the company reported a significant swing in derivative performance, moving from a $10.6 million loss on fuel price derivatives in Q1 2008 to a $0.7 million gain in Q1 2009.
• Credit Losses: The provision for credit losses improved significantly, dropping 59% to $4.2 million (from $10.4 million in Q1 2008). Credit losses as a percentage of fuel expenditures decreased to 17 basis points from 28 basis points.
• Liquidity Shift: Cash and cash equivalents dropped $160 million to $22.9 million. This was primarily due to the maturity of over $200 million in certificates of deposit (used to finance receivables) which could not be fully reinvested due to lower receivable balances resulting from falling fuel prices.
• Interest Expense: Operating interest expense decreased 45% to $4.8 million, driven by lower interest rates and a reduction in the average balance of operating debt (deposits and borrowed federal funds).

Outlook, Risks, and Management Commentary

• Derivative Strategy: Management expects to receive significant cash gains from its fuel price hedging program in 2009 as current fuel prices remain below the weighted average floor of $2.79. The company maintains a bias toward liquidity for the near term.
• Segment Performance: While the Fleet segment faced headwinds from fuel prices, the MasterCard segment saw purchase volume grow 23% to $649 million, driven by new business from single-use account products.
• Liquidity Position: Despite the cash balance decline, management believes it can adequately fund cash needs for the next 12 months. The company has approximately $313 million available under its revolving credit facility and is in compliance with all financial covenants.
• Risks: Key risks include fuel price volatility, the failure to maintain key merchant agreements, regulatory actions, and the impact of general economic conditions on fleet commercial activity. The filing includes standard forward-looking statement disclaimers regarding these uncertainties.

Investor Verification Checklist

• Cash Burn Rate: Verify the sustainability of the $121.8 million "management operating cash" usage in Q1 2009 and the timeline for stabilizing the cash balance.
• Derivative Exposure: Confirm the notional amounts and strike prices of outstanding fuel price derivatives to assess the magnitude of expected 2009 cash gains.
• Receivable Quality: Monitor the "roll rate" methodology and aging of accounts receivable to ensure the reduced credit loss provision remains adequate given the economic environment.
• Deposit Maturities: Track the maturity schedule of the remaining $342 million in certificates of deposit to understand future refinancing needs and interest rate exposure.
• MasterCard Growth: Validate the 23% volume growth in the MasterCard segment to determine if it can offset continued volatility in the Fleet segment.