Wright Express Corporation (now WEX Inc.) — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing; fourth-quarter figures are identified separately below. Amounts are in U.S. dollars.
Business context and reporting period
The company provides business payment processing and information-management services through Fleet Payment Solutions and Other Payment Solutions. Its operations include a Utah-chartered industrial bank that funds domestic receivables and supports customer credit. In 2011, the company acquired rapid! PayCard for approximately $18 million; the Australia operations acquired in 2010 contributed a full year of results.
Financial and operating performance
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Revenue | $553.1 million | $390.4 million | +42% |
| Operating income | $233.3 million | $150.7 million | +55% |
| Operating margin | 42.2% | 38.6% | +3.6 percentage points |
| Net income | $133.6 million | $87.6 million | +52% |
| Diluted earnings per share | $3.43 | $2.25 | +52% |
| Net cash from operating activities | $51.2 million | $(10.6) million | Improved |
| Management operating cash (non-GAAP) | $162.4 million | $83.7 million | +94% |
Net margin was 24.2%, compared with 22.4% in 2010. The company defines management operating cash by adjusting operating cash flow for changes in brokered deposits and borrowed federal funds; it is not a GAAP cash-flow measure.
Fourth quarter: Revenue was $139.8 million versus $114.9 million in Q4 2010; operating income was $60.7 million versus $43.0 million; net income was $32.8 million versus $18.5 million; diluted EPS was $0.84 versus $0.47.
- Fleet Payment Solutions revenue rose 33% to $436.7 million; segment operating income rose 50% to $191.8 million. Fleet transactions increased 15% to 319.4 million.
- Other Payment Solutions revenue rose 90% to $116.4 million; segment operating income rose 80% to $41.5 million. Corporate purchase-card volume increased 76% to $7.8 billion, driven mainly by the single-use account product.
- Domestic average fuel prices increased 27% to $3.62 per gallon. The company said about 47% of total revenue came from fees calculated as a percentage of fuel purchase prices.
- Credit-loss provision increased 39% to $27.5 million; fleet credit losses remained 14.9 basis points of customer spend, unchanged from 2010.
Balance sheet, debt and liquidity
- At year-end, total assets were $2.28 billion, total liabilities $1.57 billion, and stockholders’ equity $709.3 million. Cash and cash equivalents were $25.8 million.
- Accounts receivable, net, was $1.32 billion, with an $11.5 million credit-loss reserve. Approximately 96.6% of gross receivables were current and 99.4% were less than 90 days past due.
- Borrowings under the 2011 credit agreement were $295.3 million, down from $407.3 million in 2010. The agreement provides a $200 million term loan and a $700 million revolving facility; reported year-end availability was $592.8 million, subject to covenants. The company reported covenant compliance.
- Wright Express Financial Services Corporation had $693.7 million in deposits and $6.9 million in borrowed federal funds, which principally fund domestic receivables; these are bank funding liabilities, distinct from the company’s credit-agreement borrowings.
- Management said it expected to fund cash needs for at least the next 12 months. Capital expenditures were approximately $25 million in 2011; management estimated $28–$32 million for 2012.
Material changes, outlook and risks
- The company refinanced its prior facilities in May 2011 with a five-year credit agreement and reduced financing-facility borrowings by approximately $112 million during the year.
- Fuel derivatives generated an $11.9 million net loss in 2011, including $22.7 million of realized losses and $10.9 million of unrealized gains. They do not qualify for hedge accounting, so fair-value changes affect current earnings. Management’s disclosed 2012 collars covered 80% of estimated North American earnings exposure to fuel-price changes for each quarter.
- Management described growth priorities as expanding the North American fleet business, international growth, and diversification through corporate purchasing and payroll-card products. The filing provides no specific 2012 revenue or earnings guidance.
- Proposed Australian tax-consolidation changes could affect deductibility of approximately $68 million of amortization and cause a one-time impact on the recorded tax rate; the filing does not quantify that impact.
- Principal risks include fuel-price and interest-rate movements, credit and fraud losses, dependence on strategic relationships (the top five generated about 21% of 2011 revenue), competition and fee pressure, technology or data-security disruptions, foreign exchange, acquisition integration, and regulation of the industrial bank. Goodwill impairment was not recorded, but the company said the recent Australia and rapid! PayCard reporting units had fair values close to carrying values.
- The company reported no material legal proceedings as of filing and received unqualified audit opinions on its financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of revenue growth reflects higher fuel prices and acquisitions versus underlying transaction, customer, and fee growth.
- Whether customer credit quality and loss rates remain stable as receivables and spending grow.
- Realized and unrealized fuel-derivative results, hedge coverage, and sensitivity to fuel prices and interest rates.
- Actual 2012 capital spending, covenant headroom, revolver availability, deposit funding costs, and repayment needs.
- The Australian tax-law outcome and any related tax-rate effect; also monitor impairment assumptions for recently acquired businesses.
- Progress and profitability of rapid! PayCard and Other Payment Solutions, including the single-use account business.