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WageWorks Reports Third Quarter 2017 Financial Results
  • Total revenue in the third quarter 2017 of $115.7 million, a 30 percent increase year-over-year
  • Third quarter 2017 GAAP net income of $9.7 million or $0.24 per diluted share
  • Third quarter 2017 non-GAAP net income of $18.0 million or $0.45 per diluted shares, a 43 percent increase year-over-year
  • Third quarter 2017 non-GAAP adjusted EBITDA of $37.3 million, a 41 percent increase year-over-year

SAN MATEO, Calif., Nov. 08, 2017 (GLOBE NEWSWIRE) -- WageWorks, Inc. (the “Company”) (NYSE: WAGE), a leader in administering Consumer-Directed Benefits, today announced the Company's financial results for its third quarter ended September 30, 2017.

Executive Quotes

“We are very pleased with our strong third quarter performance which was highlighted by a healthy growth rate and impressive financial metrics” said Joe Jackson, Chairman and Chief Executive Officer of WageWorks. “We completed a successful enterprise sales season and our SMB selling season is well underway.  We continue to see interest in all of our products and our comprehensive platform of integrated offerings remains a competitive differentiator for us.  We recently announced the acquisition of Tango Health’s HSA business and are actively working on a number of other acquisition and channel partner opportunities.  We are executing on all of our growth strategies and are well positioned for continued success.”

Third Quarter Financial Highlights 

For the third quarter, WageWorks reported total revenue of $115.7 million, compared to $88.9 million for the third quarter of 2016, an increase of 30 percent. Healthcare revenue was $66.2 million, compared to $48.5 million for the third quarter of 2016, an increase of 37 percent. Commuter revenue was $18.0 million, compared to $17.6 million for the third quarter of 2016, an increase of 2 percent. COBRA revenue was $27.5 million, compared to $18.7 million for the third quarter of 2016, an increase of 48 percent. Other revenue was $4.0 million, compared to $4.2 million for the third quarter of 2016.

GAAP operating income was $16.8 million for the third quarter of 2017, an increase compared to GAAP operating income of $9.4 million for the third quarter of 2016. On a non-GAAP basis, third quarter of 2017 operating income was $31.1 million, an increase compared to non-GAAP operating income of $21.2 million for the third quarter of 2016.

GAAP net income was $9.7 million, or $0.24 per diluted share, for the third quarter of 2017, compared to GAAP net income of $5.9 million, or $0.16 per diluted share, for the third quarter of 2016.      

On a non-GAAP basis, third quarter of 2017 net income was $18.0 million, or $0.45 per diluted share, an increase compared to non-GAAP net income of $12.5 million, or $0.34 per diluted share, for the third quarter of 2016. Non-GAAP net income for the third quarter of 2017 and 2016 excludes expenses related to stock-based compensation, amortization of acquired intangibles, employee termination and other charges, and the related tax impact of these items.

Non-GAAP adjusted EBITDA was $37.3 million for the third quarter of 2017, an increase of 41 percent as compared to non-GAAP adjusted EBITDA of $26.5 million for the third quarter of 2016.

The reconciliation of the non-GAAP measures to the comparable GAAP measures for the third quarter 2017 and 2016 is detailed in the tables provided in this press release.

As of September 30, 2017, WageWorks had cash and cash equivalents totaling $798.3 million. This compares to cash and cash equivalents totaling $678.3 million as of December 31, 2016.

The Company's Conference Call Information

WageWorks will host a conference call today, November 8, 2017, at 5:00 p.m. ET to discuss the Company’s third quarter ended September 30, 2017 financial results and business outlook. 

The live webcast of the conference call can be accessed under “Investor Relations” section of the Company’s website at www.wageworks.com.  Those wishing to participate in the live call should dial (844) 778-4142 (toll-free) or (661) 378-9625, and enter pass code 9189569.  Following the call, an archived webcast will be available in the “Investor Relations” section of the Company’s website at www.wageworks.com.  A telephone replay will be available for one week at (855) 859-2056 (toll-free) or (404) 537-3406 using the pass code 9189569.

Non-GAAP Financial Information

To supplement the Company’s financial statements presented on a GAAP basis, the Company provides non-GAAP financial measure of net income, operating income, adjusted EBITDA and diluted earnings per share. By providing information about both the overall GAAP financial performance and the non-GAAP measures that focus on what management believes to be its ongoing business operations, the Company believes that the additional information enhances investors’ overall understanding of the Company’s business. The Company’s management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes stock-based compensation, amortization of acquired intangibles, employer paid taxes for selling stockholders, employee termination and other charges, and the related tax impact of all of these items on the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of the Company’s business for planning and forecasting in subsequent periods. The Company’s management does not itself, nor does it suggest that investors should consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever the Company uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above. Investors are also encouraged to review the Company’s GAAP financial statements as reported in its SEC filings.

Forward-Looking Statements

Statements in this press release and certain matters to be discussed on the third quarter conference call regarding WageWorks, Inc., which are not historical facts, are “forward-looking statements” within the meaning the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terms such as believe, expect, will, provide, should and the negative of these terms or other similar expressions. These statements, including statements relating to our acquisition of new employer clients, the expected benefits of our acquisitions, channel partnerships, and carrier relationships, the demand for our consumer-directed benefits solutions, market trends for the industries in which we compete, the expected benefits of our investments and the potential impact on our future operating results and are based on current expectations and assumptions that are subject to risks and uncertainties. Our actual results could differ materially from those we anticipate as a result of various factors, including the continued availability of tax-advantaged consumer-directed benefits, our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets, our ability to acquire and retain new employer clients, and our ability to identify and execute on channel partner and carrier opportunities. For a discussion of these and other related risks, please refer to “Risk Factors” in our most recent report on Form 10-K, which is available on the SEC’s website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date made and we disclaim any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise. You should review our SEC filings carefully and with the understanding that our actual future results may be materially different from what we expect.      

About WageWorks

WageWorks, Inc. (NYSE: WAGE) is a leader in administering Consumer-Directed Benefits (CDBs). WageWorks is solely dedicated to administering CDBs, including pre-tax spending accounts, such as Health Savings Accounts (HSAs), health and dependent care Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), as well as Commuter Benefit Services, including transit and parking programs, wellness programs, COBRA, and other employee benefits. WageWorks makes it easier to understand and take advantage of Consumer-Directed Benefits for more than 100,000 employers and approximately 6.5 million people. WageWorks is headquartered in San Mateo, California, with offices in major locations throughout the United States. For more information, visit www.wageworks.com.

 
WAGEWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
                 
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2017   2016   2017   2016
                                 
Revenues:                
Healthcare   $ 66,203     $ 48,478     $ 210,187     $ 146,918  
Commuter   17,966     17,580     54,376     52,339  
COBRA   27,540     18,670     83,581     51,955  
Other   4,037     4,196     12,483     12,439  
Total revenues   115,746     88,924     360,627     263,651  
Operating expenses:                
Cost of revenues (excluding amortization of internal use software)   38,805     30,566     129,410     90,237  
Technology and development   13,949     11,668     43,852     32,656  
Sales and marketing   16,401     14,012     47,244     42,317  
General and administrative   20,220     16,130     63,410     47,875  
Amortization and change in contingent consideration   9,698     6,944     28,920     26,084  
Employee termination and other charges   (148 )   162     1,500     475  
Total operating expenses   98,925     79,482     314,336     239,644  
Income from operations   16,821     9,442     46,291     24,007  
Other income (expense):                
Interest income   340     117     502     300  
Interest expense   (1,987 )   (465 )   (5,047 )   (1,279 )
Other income (expense)   (25 )   22     (246 )   24  
Income before income taxes   15,149     9,116     41,500     23,052  
Income tax provision   (5,464 )   (3,222 )   (1,613 )   (8,509 )
Net income   $ 9,685     $ 5,894     $ 39,887     $ 14,543  
                 
Basic net income per share   $ 0.24     $ 0.16     $ 1.05     $ 0.40  
Diluted net income per share   $ 0.24     $ 0.16     $ 1.02     $ 0.39  
                 
Shares used in basic net income per share calculations   39,641     36,605     38,028     36,312  
Shares used in diluted net income per share calculations   40,264     37,454     39,106     37,078  
                         


STOCK-BASED COMPENSATION EXPENSE
(in thousands) (unaudited)
 
Total stock-based compensation expense included in the Condensed Consolidated Statements of Income is as follows:
         
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2017   2016   2017   2016
                                 
Cost of revenues   $ 1,824     $ 1,581     $ 5,554     $ 4,549  
Technology and development   527     671     1,794     1,815  
Sales and marketing   719     789     2,166     2,287  
General and administrative   5,002     4,490     15,582     13,722  
Total   $ 8,072     $ 7,531     $ 25,096     $ 22,373  


 
WAGEWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
         
    September 30, 2017   December 31, 2016
    (unaudited)    
ASSETS        
Current assets:        
Cash and cash equivalents   $ 798,266     $ 678,300  
Restricted cash   332     332  
Short-term investments   94,087      
Accounts receivable, net   183,237     92,888  
Prepaid expenses and other current assets   21,410     19,422  
Total current assets   1,097,332     790,942  
Property and equipment, net   69,963     56,902  
Goodwill   297,409     297,409  
Acquired intangible assets, net   161,281     176,489  
Deferred tax assets   16,562     16,309  
Other assets   7,009     5,300  
Total assets   $ 1,649,556     $ 1,343,351  
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable and accrued expenses   $ 90,961     $ 72,966  
Customer obligations   702,432     603,842  
Other current liabilities   223     467  
Total current liabilities   793,616     677,275  
Long-term debt   244,791     248,848  
Other non-current liabilities   10,468     9,131  
Total liabilities   1,048,875     935,254  
Stockholders' Equity:        
Common stock, par value $0.001 per share (authorized 1,000,000 shares; 40,095 shares issued and 39,616 shares outstanding at September 30, 2017 and 37,247 shares issued and 36,902 shares outstanding at December 31, 2016)   41     37  
Additional paid-in capital   563,893     403,459  
Treasury stock at cost (480 shares at September 30, 2017 and 345 shares at December 31, 2016)   (22,309 )   (14,374 )
Accumulated other comprehensive loss   (35 )    
Retained earnings   59,091     18,975  
Total stockholders’ equity   600,681     408,097  
Total liabilities and stockholders’ equity   $ 1,649,556     $ 1,343,351  


 
WAGEWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
    Nine Months Ended
September 30,
    2017   2016
Cash flows from operating activities:        
Net income   $ 39,887     $ 14,543  
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation   7,941     6,202  
Amortization and change in contingent consideration   28,920     25,986  
Amortization of debt issuance costs   294     111  
Stock-based compensation expense   25,096     22,373  
Loss on disposal of fixed assets   98     185  
Provision for doubtful accounts   4,299     1,238  
Deferred taxes       (424 )
Other   (99 )    
Excess tax benefits related to stock-based compensation arrangements       (8,824 )
Changes in operating assets and liabilities:        
Accounts receivable   (94,648 )   (14,102 )
Prepaid expenses and other current assets   (2,488 )   919  
Other assets   (1,709 )   (50 )
Accounts payable and accrued expenses (1)   14,615     6,076  
Customer obligations   98,590     148,495  
Other liabilities   1,093     (688 )
Net cash provided by operating activities   121,889     202,040  
Cash flows from investing activities:        
Purchases of property and equipment   (28,489 )   (20,529 )
Purchases of short-term investments   (99,445 )    
Proceeds from sales of short-term investments   5,398      
Purchases of intangible assets   (2,107 )   (20,777 )
Net cash used in investing activities   (124,643 )   (41,306 )
Cash flows from financing activities:        
Proceeds from public stock offering, net of underwriting discounts, commissions and other costs   130,832      
Proceeds from exercise of common stock options   10,834     10,705  
Proceeds from issuance of common stock under Employee Stock Purchase Plan   2,172     1,672  
Payments of debt issuance costs   (1,851 )   (200 )
Payments of debt principal   (2,500 )    
Payments of contingent consideration       (653 )
Payment for treasury stock acquired   (7,935 )   (9,371 )
Taxes paid related to net share settlement of stock-based compensation arrangements(1)   (8,832 )   (5,995 )
Excess tax benefits related to stock-based compensation arrangements       8,824  
Net cash provided by financing activities   122,720     4,982  
Net increase in cash and cash equivalents   119,966     165,716  
Cash and cash equivalents at beginning of period   678,300     500,918  
Cash and cash equivalents at end of period   $ 798,266     $ 666,634  

(1) Reflects retrospective reclassification for the nine months ended September 30, 2016, due to the adoption of ASU 2016-09 during the first quarter of 2017, for employee taxes on withheld shares. 

 
WAGEWORKS, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except for percentage and per share data)
(unaudited)
                 
The following tables detail the reconciliation of GAAP financial measures to non-GAAP financial measures included in this release:    
                 
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2017   2016     2017   2016  
        (1)         (1)  
Operating income:                
GAAP income from operations   $ 16,821     $ 9,442     $ 46,291     $ 24,007  
Stock-based compensation expense   8,072     7,531     25,096     22,373  
Amortization of acquired intangibles   6,376     4,105     19,375     16,967  
Employer paid taxes for selling stockholders           363      
Employee termination and other charges   (148 )   162     1,500     475  
Non-GAAP income from operations   $ 31,121     $ 21,240     $ 92,625     $ 63,822  
Non-GAAP income from operations as a percentage of total revenue   26.9 %   23.9 %   25.7 %   24.2 %
                 
Net income:                
GAAP net income   $ 9,685     $ 5,894     $ 39,887     $ 14,543  
Stock-based compensation expense   8,072     7,531     25,096     22,373  
Amortization of acquired intangibles   6,376     4,105     19,375     16,967  
Employer paid taxes for selling stockholders           363      
Employee termination and other charges   (148 )   162     1,500     475  
Tax effect of above adjustments *   (6,017 )   (5,144 )   (33,033 )   (16,638 )
Non-GAAP net income   $ 17,968     $ 12,548     $ 53,188     $ 37,720  
Weighted-average shares outstanding used in computing GAAP and Non-GAAP per share amounts (diluted)   40,264     37,454     39,106     37,078  
Non-GAAP diluted net income per share   $ 0.45     $ 0.34     $ 1.36     $ 1.02  
                 
*  Tax effect adjustments assume a 40% tax rate plus stock excess tax benefits recorded in income tax benefit (provision).                
                 
Reconciliation of GAAP net income to Non-GAAP Adjusted EBITDA:                
GAAP net income   $ 9,685     $ 5,894     $ 39,887     $ 14,543  
Interest income   (340 )   (117 )   (502 )   (300 )
Interest expense   1,987     465     5,047     1,279  
Income tax provision   5,464     3,222     1,613     8,509  
Depreciation   2,872     2,389     7,941     6,202  
Amortization and change in contingent consideration   9,698     6,944     28,920     26,084  
Stock-based compensation expense   8,072     7,531     25,096     22,373  
Employer paid taxes for selling stockholders           363      
Employee termination and other charges   (148 )   162     1,500     475  
Adjusted EBITDA   $ 37,290     $ 26,490     $ 109,865     $ 79,165  


(1)
Prior period non-GAAP results have been adjusted to present in thousands.    

Investor Contact:
Staci Mortenson
ICR
203-682-8273
Staci.mortenson@icrinc.com

Media Contact:
Elizabeth Anderson
WageWorks, Inc.
972-984-0800
Elizabeth.anderson@wageworks.com

 

WageWorks, Inc.