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| WXS > SEC Filings for WXS > Form 10-Q on 30-Oct-2009 | All Recent SEC Filings |
30-Oct-2009
Quarterly Report
• MasterCard - The MasterCard segment provides customers with a payment processing solution for their corporate purchasing and transaction monitoring needs. The MasterCard products are used by businesses to facilitate purchases of products and utilize our information management capabilities.
Summary
Below are key items from the third quarter of 2009:
• Average number of vehicles serviced increased 3 percent from the third
quarter of 2008 to approximately 4.6 million.
• Total fleet transactions (payment processing and transaction processing transactions) processed declined 7 percent from the third quarter of 2008 to 67.1 million. Payment processing transactions decreased 4 percent to 53.0 million, and transaction processing transactions decreased 17 percent to 14.1 million.
• Average expenditure per payment processing transaction for the third quarter of 2009 decreased 35 percent to $52.50 from $80.84 for the same period last year. This decrease was driven by lower average retail fuel prices. The average fuel price per gallon during the three months ended September 30, 2009, was $2.58, a 36 percent decrease from the same period last year.
• Realized gains on our fuel price derivatives were $3.8 million compared to realized losses of $16.3 million for the third quarter of 2008.
• Credit losses in the fleet segment were $5.2 million for the three months ended September 30, 2009, versus $9.0 million for the three months ended September 30, 2008.
• Total MasterCard purchase volume grew $205.6 million to $875.8 million for the three months ended September 30, 2009, an increase of 31 percent over the same period last year. Revenue associated with such transactions increased 40 percent from $6.8 million in the third quarter of 2008 to $9.7 million during the third quarter of 2009.
• Our operating interest expense, which includes interest accruing on deposits and borrowed federal funds, decreased to $2.8 million during the three months ended September 30, 2009, from $9.6 million during the three months ended September 30, 2008.
Results of Operations
Fleet
The following table reflects comparative operating results and key
operating statistics within our fleet segment:
Three months ended Nine months ended
September 30, Increase (decrease) September 30, Increase (decrease)
(in thousands, except per
transaction and per gallon data) 2009 2008 Amount Percent 2009 2008 Amount Percent
Revenues
Payment processing revenue $ 50,211 $ 76,802 $ (26,591 ) (35 )% $ 134,404 $ 222,094 $ (87,690 ) (39 )%
Transaction processing revenue 4,538 5,326 (788 ) (15 )% 13,199 14,561 (1,362 ) (9 )%
Account servicing revenue 9,528 7,636 1,892 25 % 27,770 22,610 5,160 23 %
Finance fees 8,650 8,027 623 8 % 22,807 22,935 (128 ) (1 )%
Other 2,071 2,463 (392 ) (16 )% 6,436 7,454 (1,018 ) (14 )%
Total service revenues 74,998 100,254 (25,256 ) (25 )% 204,616 289,654 (85,038 ) (29 )%
Product Revenues
Hardware and equipment sales 710 808 (98 ) (12 )% 2,718 2,410 308 13 %
Total revenues 75,708 101,062 (25,354 ) (25 )% 207,334 292,064 (84,730 ) (29 )%
Total operating expenses 44,069 48,997 (4,928 ) (10 )% 128,272 154,823 (26,551 ) (17 )%
Operating income 31,639 52,065 (20,426 ) (39 )% 79,062 137,241 (58,179 ) (42 )%
Financing interest expense (1,355 ) (3,006 ) 1,651 55 % (5,423 ) (9,123 ) 3,700 41 %
Loss on foreign currency transactions (16 ) - (16 ) NM (28 ) - (28 ) NM
Gain on extinguishment of debt - - - NM 136,485 - 136,485 NM
Net realized and unrealized gains (losses) on fuel
price derivatives 3,687 66,034 (62,347 ) (94 )% (13,770 ) (31,876 ) 18,106 57 %
Decrease in amounts due under tax receivable
agreement - (9,159 ) 9,159 NM (570 ) (9,159 ) 8,589 NM
Income (loss) before income taxes 33,955 105,934 (71,979 ) (68 )% 195,756 87,083 108,673 125 %
Income taxes 13,562 35,050 (21,488 ) (61 )% 73,892 27,804 46,088 166 %
Net income $ 20,393 $ 70,884 $ (50,491 ) (71 )% $ 121,864 $ 59,279 $ 62,585 106 %
Key operating statistics
Payment processing revenue:
Payment processing transactions 53,036 55,519 (2,483 ) (4 )% 153,912 164,684 (10,772 ) (7 )%
Average expenditure per payment processing
transaction $ 52.50 $ 80.84 $ (28.34 ) (35 )% $ 47.03 $ 75.16 $ (28.13 ) (37 )%
Average price per gallon of fuel $ 2.58 $ 4.02 $ (1.44 ) (36 )% $ 2.31 $ 3.75 $ (1.44 ) (38 )%
Transaction processing revenue:
Transaction processing transactions 14,101 16,943 (2,842 ) (17 )% 42,613 45,482 (2,869 ) (6 )%
Account servicing revenue:
Average number of vehicles serviced (a) 4,615 4,463 152 3 % 4,672 4,464 208 5 %
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(a) Does not include Pacific Pride vehicle information.
NM Not meaningful.
Revenues
Payment processing revenue decreased $26.6 million for the three months
ended September 30, 2009, compared to the same period last year. The primary
component of this decrease was a $26.5 million decrease in revenue associated
with a 36 percent decrease in the average price per gallon of fuel.
Payment processing revenue decreased $87.7 million for the nine months
ended September 30, 2009, compared to the same period last year. The primary
component of this decrease was an $80.4 million decrease in revenue associated
with a 38 percent decrease in the average price per gallon of fuel. During 2008,
we had renegotiated agreements with several of our merchants to change
our pricing with them to include a fixed fee component and a percentage fee
component. The renegotiated pricing has reduced the impact of fuel price
volatility on our payment processing revenues. We benefited from this change as
lower fuel prices drove our net payment processing rate up due to the fixed
component of the transaction fees.
Transaction processing revenue decreased $0.8 million for the three months
ended September 30, 2009, compared to the same period in 2008, and decreased
$1.4 million for the nine months ended September 30, 2009, as compared to the
same period in 2008. These decreases in revenue, as well as the decreases in
transaction processing transactions, are due to prevailing economic conditions.
The decrease for the nine months ended September 30, 2009, was partially offset
by the acquisition of Pacific Pride during the first quarter of 2008.
Account servicing revenue increased $1.9 million for the three months ended
September 30, 2009, compared to the same period in 2008, and increased
$5.2 million for the nine months ended September 30, 2009, as compared to the
same period in 2008. This increase is due both to our WEXSmartTM telematics
program and expansion into international markets following our August 2008
acquisition of Financial Automation Limited.
Our finance fees have increased $0.6 million for the three months ended
September 30, 2009, as compared to the same period in 2008, and decreased
$0.1 million for the nine months ended September 30, 2009, as compared to the
same period in 2008. During December of 2008, we adjusted our late fee charged
to delinquent customers to encourage timely payments. These adjustments
contributed approximately $3.1 million of additional revenues for the three
months ended September 30, 2009, and $8.5 million additional revenues for the
nine months ended September 30, 2009. These increases in revenue were offset by
a decline on delinquent balances due to lower average price per gallon, as
compared to the same period on the prior year.
The following table compares selected expense line items within our Fleet
segment for the three months ended September 30:
Increase
(in thousands) 2009 2008 (decrease)
Expense
Provision for credit losses $ 5,210 $ 9,001 (42 )%
Operating interest expense $ 2,489 $ 8,874 (72 )%
Salary and other personnel $ 17,982 $ 13,817 30 %
Depreciation and amortization $ 5,310 $ 5,093 4 %
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Changes in operating expenses for the three months ended September 30,
2009, as compared to the corresponding period a year ago, include the following:
• We generally measure our credit loss performance by calculating credit
losses as a percentage of total fuel expenditures on payment processing
transactions ("Fuel Expenditures"). This metric for credit losses was 18.7
basis points of Fuel Expenditures for the three months ended September 30,
2009, compared to 20.1 basis points of Fuel Expenditures for the same
period last year. We use a roll rate methodology to calculate the amount
necessary for our ending receivable reserve balance. This methodology takes
into account total receivable balances, recent charge off experience and
the dollars that are delinquent to calculate the total reserve. In
addition, management undertakes a detailed evaluation of the receivable
balances to help ensure further overall reserve adequacy. The expense we
recognized in the quarter is the amount necessary to bring the reserve to
its required level after charge offs. Provision for credit loss decreased
$3.8 million for the three months ended September 30, 2009, as compared to
the same period in 2008. Approximately $3.2 million of this decrease was
associated with lower fuel expenditures during the current quarter,
primarily as a result of decreases in the price of fuel. Improvements in
receivables aging and ultimate charge offs accounted for the remainder of
the change.
• Operating interest expense decreased $6.4 million for the three months ended September 30, 2009, compared to the same period in 2008. Approximately $2.9 million of the decrease in operating interest expense is due to our total average operating debt balance, which consists of our deposits and borrowed federal funds, decreasing to $478 million for the third quarter of this year as compared to $756 million for the third quarter of 2008. The remaining decrease is due to lower interest rates. For the third quarter of 2009, the average interest rate on our deposits and borrowed federal funds was 1.6 percent. For the third quarter of 2008, this average interest rate was 4.2 percent. The interest rates we pay on certificates of deposit have been declining for the past several quarters, and we expect to continue to benefit from low interest rates for the remainder of the year.
• Salary and other personnel expenses increased $4.2 million for the three months ended September 30, 2009, as compared to the same period last year. This increase is primarily due to the reversal of stock-based compensation and short-term incentive program bonuses that occurred during the third quarter of 2008, reducing expenses in that period by approximately $2.5 million. Furthermore, during 2009, we are currently expecting higher stock-based compensation and short-term incentive program bonuses based on current financial performance.
• Depreciation and amortization expenses increased approximately $0.2 million for the three months ended September 30, 2009, as compared to the same period in 2008. Approximately $0.1 million of the increase is amortization related to our acquisitions.
The following table compares selected expense line items within our Fleet segment for the nine months ended September 30:
Increase
(in thousands) 2009 2008 (decrease)
Expense
Provision for credit losses $ 10,512 $ 28,940 (64 )%
Operating interest expense $ 9,571 $ 25,513 (62 )%
Salary and other personnel $ 52,688 $ 47,647 11 %
Depreciation and amortization $ 15,760 $ 14,100 12 %
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Changes in operating expenses for the nine months ended September 30, 2009,
as compared to the corresponding period a year ago, include the following:
• Credit losses were 14.5 basis points of Fuel Expenditures for the nine
months ended September 30, 2009, compared to 23.3 basis points of Fuel
Expenditures for the same period last year. Provision for credit loss
decreased $18.4 million for the nine months ended September 30, 2009.
Approximately $7.5 million of this decrease was associated with lower fuel
expenditures during the nine month period, primarily as a result of
decreases in the price of fuel. Improvements in receivables aging and
ultimate charge offs accounted for the remainder of the change.
• Operating interest expense decreased $15.9 million for the nine months ended September 30, 2009, compared to the same period in 2008. Approximately $8.5 million of the decrease in operating interest expense is due to our total average operating debt balance decreasing to $433 million for the first nine months of this year as compared to $685 million for the first nine months of 2008. The remaining decrease is due to lower interest rates. For the nine months ended September 30, 2009, the average interest rate on our deposits and borrowed federal funds was 2.6 percent, as compared to 4.5 percent for the same period in the prior year.
• Salary and other personnel expenses increased $5.0 million for the nine months ended September 30, 2009, as compared to the same period last year. This increase is primarily due to the reversal of stock-based compensation and short-term incentive program bonuses during the third quarter of 2008. Furthermore, during 2009, we are currently expecting stock-based compensation and short-term incentive programs bonuses based on current financial performance.
• Depreciation and amortization expenses increased $1.7 million for the nine months ended September 30, 2009, as compared to the same period in 2008. Approximately $0.6 million of the increase is amortization related to our acquisitions, and the remainder is additional depreciation as we place new assets into service.
In June of 2009, we entered into a Tax Receivable Prepayment Agreement with
Realogy Corporation ("Realogy"). Realogy had previously acquired the right to
receive 62.5 percent of the payments made by us to Cendant Corporation (now Avis
Budget Group, Inc. or "Avis") under our 2005 Tax Receivable Agreement with
Cendant. We paid Realogy $51 million, including bank fees and legal expenses, as
a prepayment in full to settle the remaining obligations to Realogy under the
2005 Tax Receivable Agreement. These obligations were recorded on our balance
sheet at approximately $187 million and this transaction resulted in a gain of
approximately $136 million. We are still required to pay the remainder of the
obligation under our tax receivable agreement.
The effective tax rate was 37.7 percent for the nine months ended September
30, 2009, as compared to 32.3 percent for the same period ended September 30,
2008. The increase from the prior period is primarily due to the inclusion, in
2008, of $8.5 million in tax rate true up benefits as compared to $0.5 million
of tax rate true up benefits in 2009.
We own fuel price-sensitive derivative instruments that we purchase on a periodic basis to manage the impact of volatility in fuel prices on our cash flows. These fuel derivative instruments do not qualify for hedge accounting. Accordingly, both realized and unrealized gains and losses on our fuel price-sensitive derivative instruments affect our net income. Activity related to the changes in fair value and settlements of these instruments and the changes in average fuel prices in relation to the underlying strike price of the instruments is shown in the following table:
Three months ended Nine months ended
September 30, September 30,
(in thousands, except per gallon data) 2009 2008 2009 2008
Fuel price derivatives, at fair value,
beginning of period $ 20,249 $ (119,318 ) $ 49,294 $ (41,598 )
Net change in fair value 3,687 66,034 (13,770 ) (31,876 )
Cash (receipts) payments on settlement (3,787 ) 16,338 (15,375 ) 36,528
Fuel price derivatives, at fair value,
end of period $ 20,149 $ (36,946 ) $ 20,149 $ (36,946 )
Collar range:
Floor $ 2.86 $ 2.53 $ 2.70 $ 2.55
Ceiling $ 2.92 $ 2.59 $ 2.76 $ 2.61
Average fuel price, beginning of period $ 2.53 $ 4.26 $ 1.97 $ 3.15
Average fuel price, end of period $ 2.58 $ 3.83 $ 2.58 $ 3.83
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Changes in fuel price derivatives for the three months ended September 30,
2009, as compared to the corresponding period a year ago, include the following:
• Fuel prices increased 2 percent from July 1st through September 30th of
2009. Due to the lack of movement in fuel prices, the fair value of the
fuel price derivative instruments held at September 30, 2009, remained
relatively flat as compared to June 30, 2009. In the same period for the
prior year, the average fuel price decreased 10 percent from $4.26 to
$3.83, resulting in a change in the fair value of the instruments.
Changes in fuel price derivatives for the nine months ended September 30,
2009, as compared to the corresponding period a year ago, include the following:
• Fuel prices increased over 31 percent during the first nine months of 2009.
Accordingly, the fair value of the fuel price derivative instruments held
at September 30, 2009, has declined as compared to December 31, 2008. In
the same period for the prior year, the average fuel price increased
22 percent, resulting in a decrease in the fair value of the instruments.
We expect that our fuel price derivatives program will continue to be important to our business model going forward, and we expect to purchase derivatives in the future. However, we have reduced some of our exposure to fuel price volatility because of the fixed fee component of our new pricing arrangements.
MasterCard
The following table reflects comparative operating results and key
operating statistics within our MasterCard segment:
Three months ended Nine months ended
September 30, Increase (decrease) September 30, Increase (decrease)
(in thousands) 2009 2008 Amount Percent 2009 2008 Amount Percent
Revenues
Payment processing revenue $ 9,660 $ 6,883 $ 2,777 40 % $ 24,253 $ 19,111 $ 5,142 27 %
Account servicing revenue 12 9 3 33 % 37 46 (9 ) (20) %
Finance fees 140 82 58 71 % 326 244 82 34 %
Other 1,122 495 627 127 % 2,494 1,250 1,244 100 %
Total revenues 10,934 7,469 3,465 46 % 27,110 20,651 6,459 31 %
Total operating expenses 6,227 5,132 1,095 21 % 18,130 15,474 2,656 17 %
Operating income 4,707 2,337 2,370 101 % 8,980 5,177 3,803 73 %
Income taxes 1,737 877 860 98 % 3,314 1,967 1,347 68 %
Net income $ 2,970 $ 1,460 $ 1,510 103 % $ 5,666 $ 3,210 $ 2,456 77 %
Key operating statistics
Payment processing revenue:
MasterCard purchase volume $ 875,752 $ 670,137 $ 205,615 31 % $ 2,296,269 $ 1,818,679 $ 477,590 26 %
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Payment processing revenue and the related operating expenses increased due
to higher MasterCard purchase volume, primarily driven by our single use account
product. The revenue increase during the nine months ended September 30, 2009,
was partially offset by a decrease in the net interchange rate as a result of a
new contract we signed with one of our largest customers.
Other revenue has increased during the three months and nine months ended
September 30, 2009, as the volume of cross-border fees increased over prior
year. These fees are associated with our single use account product being used
for international travel. This increase is partially offset by an increase in
associated service fees expense.
Credit loss, which is included in operating expense, was $0.4 million
higher during the nine months ended September 30, 2009, as compared to the same
period in the prior year primarily due to a bankruptcy that occurred during the
first quarter of 2009.
Operating interest was $0.8 million lower during the during the nine months
ended September 30, 2009, as compared to the same period in the prior year
primarily due to lower interest rates during the current year.
Liquidity, Capital Resources and Cash Flows
Our primary source of liquidity is management operating cash, which we
define as cash from operations adjusted for changes in deposits and borrowed
federal funds. Management operating cash is not a measure in accordance with
generally accepted accounting principles ("GAAP"). During the first nine months
of 2009, we used approximately $144.0 million in management operating cash as
compared to approximately $94.3 million of management operating cash generated
in the first nine months of 2008.
Management Operating Cash
We focus on management operating cash as a key element in achieving maximum
stockholder value, and it is the primary measure we use internally to monitor
cash flow performance from our core operations. Since deposits and borrowed
. . .
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