Third quarter net income at corporate payments services provider Wex Inc. plummeted 70% year-over-year, the result of costs associated with a retroactive change to tax laws and other one-time expenses.
Still, Wex Inc. reported net income of $14.3 million off revenue of $161 million for the third quarter of 2012, which the company formerly known as Wright Express Corp. said benefitted from a diversified product suite and international expansion.
The company, which specializes in physical, virtual and digital corporate card payment services, posted its third quarter financials Wednesday, reiterating the company’s growth and expansion despite a still sluggish economy.
Total revenue of $161 million was up 6% from the third quarter of last year; however 3Q12 net income was $14.3 million, down 70% from $48.1 million in 3Q11. Mike Dubyak, chairman, president and CEO of Wex, said the net income was impacted by one-time costs, including a $16.2 million adjustment to account for a retroactive change in the Australian tax code. Wex posted adjusted net income of $42 million, or $1.08 per diluted share, in 3Q12.
While the company posted increasing numbers in some areas, its fleet card program decreased 1.4%, which Dubyak said was a sign that Wex’s customers, with some 6.5 million vehicles worldwide, were buying less fuel.
“Our fleet card program shows what’s going on in the economy,” Dubyak said. “As we look at our business, we know we’re seeing an economy that’s sluggish, but we continue to diversifying products and we keep diversifying internationally and that’s an opportunity for growth.”
Wex has recently expanded to markets in the United Kingdom and Brazil.
“The U.S. fleet market doesn’t have the growth potential that Wex needs to grow as a company,” said Mike Misasi, an analyst at Mercator Advisory Group who follows the company. “As a country, Brazil is one of the fastest growing payments markets in the world.”
This is due to Brazil’s economic growth and the shift in how consumers are paying, Misasi said. Consumers in Brazil, as well as other Latin and South American countries, have been cash-based for years, but are now adopting credit and prepaid cards rapidly.
Wex bought into a pay card/payroll card in Brazil. The Brazilian payroll cards allow users to take loans out against their payroll and make purchases like a prepaid card.
“This aligns the company with future trends in corporate payments,” Misasi said. “Checks are much more expensive than electronic forms of payment,” so businesses are trying to remove checks as much as possible and instead transfer funds electronically to employees and business partners.
Wex saw a large, complex and fragmented market in prepaid cards. Dubyak said the 285,000 businesses the company serves have underbanked consumers that would benefit from a prepaid payroll product, plus Wex can cross-sell to Fleet One that needs to have access to funds when traveling the country. The FleetOne Over the Road Card optimizes fleet managers buying power, allowing them to buy fuel more efficiently, while tracking and reporting purchases.
“Payroll cards seem like a natural fit, selling cards to companies that are in the trucking business so that their drivers can have access to the pay,” said Adil Moussa, principal at Adil Consulting. “The competition is very steep in this field, and especially with payroll cards, you have less leeway to charge for transactions that generate revenues.”
Federal and state laws are very strict about access to pay in these areas.
“One way to grow revenue from payroll cards is to provide incentives to cardholders to use their cards to shop, and not only at the ATM, which is what a lot of cardholders do,” Moussa said.
After seeing the growth of Expedia and Orbitz corporate cards, Wex also created a corporate card for the travel industry with two online travel company partners in the United Kingdom.