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WageWorks Reports Second Quarter 2016 Financial Results

  • Total revenue in the second quarter 2016 of $87.7 million
  • Second quarter 2016 GAAP net income of $2.9 million or $0.08 per diluted share, Non-GAAP net income of $13.3 million or $0.36 per diluted share
  • Second quarter 2016 non-GAAP adjusted EBITDA of $27.5 million, a 24 percent increase year-over-year

SAN MATEO, Calif., Aug. 09, 2016 (GLOBE NEWSWIRE) -- WageWorks, Inc. (the “Company”) (NYSE:WAGE), a leader in administering Consumer-Directed Benefits (CDBs), which empower employees to save money on taxes while also providing corporate tax advantages for employers, today announced the Company's financial results for its second quarter ended June 30, 2016.

“The first half of 2016 was another strong one for WageWorks. Our selling season is progressing extremely well due to record interest in all of our products. Employers are increasingly choosing us as their administrator for Consumer Directed Benefits because of our service excellence and the ease of use of our programs on one consolidated platform. We have entered into several new channel partnerships and have expanded others. We expect this positive momentum to continue in the second half of the year as we capitalize on the expansion we are seeing in the industry,” said Joe Jackson, Chief Executive Officer of WageWorks.

For the second quarter, WageWorks reported total revenue of $87.7 million, compared to $82.8 million for the second quarter of 2015, an increase of 6 percent. Healthcare revenue was $48.1 million, compared to $43.8 million for the second quarter of 2015, an increase of 10 percent. Commuter revenue was $17.4 million, compared to $16.0 million for the second quarter of 2015, an increase of 9 percent. COBRA revenue was $17.9 million, compared to $12.3 million for the second quarter of 2015, an increase of 46 percent. Other revenue was $4.4 million, compared to $10.6 million for the second quarter of 2015.

GAAP operating income was $4.6 million for the second quarter of 2016, compared to GAAP operating income of $6.8 million for the second quarter of 2015. On a non-GAAP basis, second quarter of 2016 operating income was $22.3 million, an increase compared to non-GAAP operating income of $17.5 million for the second quarter of 2015.

GAAP net income was $2.9 million, or $0.08 per diluted share, for the second quarter of 2016, compared to GAAP net income of $3.5 million, or $0.10 per diluted share, for the second quarter of 2015.

On a non-GAAP net income basis, second quarter of 2016 net income was $13.3 million, or $0.36 per diluted share, an increase compared to non-GAAP net income of $10.3 million, or $0.28 per diluted share, for the second quarter of 2015. Non-GAAP net income for the second quarter of 2015 and 2016 excludes expenses related to stock-based compensation, amortization of acquired intangibles, contingent consideration expense, severance costs related to integration initiatives and the related tax impact of these items.

Non-GAAP adjusted EBITDA was $27.5 million for the second quarter of 2016, a 24 percent increase compared to non-GAAP adjusted EBITDA of $22.2 million for the second quarter of 2015.

The reconciliation of the non-GAAP measures to the comparable GAAP measures for the second quarter 2016 and 2015 is detailed in the tables provided in this press release.

As of June 30, 2016, WageWorks had cash and cash equivalents totaling $569.0 million. This compares to cash and cash equivalents totaling $500.9 million as of December 31, 2015.

The Company's Conference Call Information
WageWorks will host a conference call today, August 9, 2016, at 5:00 p.m. ET to discuss the Company’s second quarter ended June 30, 2016 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 49455016. 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 49455016.

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, contingent consideration expense 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 the press release and certain matters to be discussed on the first 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 continuing to provide value to our employer clients and their employees through our consumer-directed benefits solutions, our acquisition of new employer clients, our retention of existing employer clients, the expected benefits of our channel partnerships, carrier, and exchange relationships, the demand for our consumer-directed benefits solutions, the industry trends regarding consumer-directed health plans, the expected benefits of our investments and the potential impact on our future operating results 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 to employers and employees, our ability to successfully identify, acquire and integrate additional portfolio purchases or acquisition targets, our ability to raise awareness among employers and employees about the advantages of adopting and participating in consumer-directed benefits programs, our ability to acquire and retain new employer clients and to cross-sell our products to existing employer clients, our ability to identify and execute on channel partner, carrier,and exchange opportunities, the participation of employees in our employer clients’ consumer-directed benefits programs our ability to compete effectively with current and future competitors, our ability to provide high quality service in a cost efficient manner, and our ability to enhance our product functionality. For a discussion of these and other related risks, please refer to “Risk Factors” in our most recent report on Form 10-Q, 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 (NYSE:WAGE) is a leader in administering Consumer-Directed Benefits (CDBs), which empower employees to save money on taxes while also providing corporate tax advantages for employers. 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 58,000 employers and approximately 4.5 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.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, Six Months Ended June 30,
2015 2016 2015 2016
(unaudited)
(in thousands, except per share amounts)
Revenues:
Healthcare$ 43,814 $ 48,070 $ 91,103 $ 98,440
Commuter 16,028 17,383 31,925 34,759
COBRA 12,313 17,879 24,883 33,285
Other 10,602 4,393 20,142 8,243
Total revenues 82,757 87,725 168,053 174,727
Operating expenses:
Cost of revenues (excluding amortization of internal use software) 29,775 28,411 61,846 59,671
Technology and development 11,783 11,157 22,368 20,988
Sales and marketing 12,490 14,385 25,621 28,305
General and administrative 13,119 17,130 26,684 31,745
Amortization and change in contingent consideration 6,732 11,695 13,011 19,140
Employee termination and other charges 2,080 313 2,080 313
Total operating expenses 75,979 83,091 151,610 160,162
Income from operations 6,778 4,634 16,443 14,565
Other income (expenses):
Interest income 17 97 19 183
Interest expense (609) (409) (1,184) (814)
Other income (expense) 222 6 288 2
Income before income taxes 6,408 4,328 15,566 13,936
Income tax provision (2,890) (1,475) (6,409) (5,287)
Net income$ 3,518 $ 2,853 $ 9,157 $ 8,649
Basic net income per share$ 0.10 $ 0.08 $ 0.26 $ 0.24
Diluted net income per share$ 0.10 $ 0.08 $ 0.25 $ 0.23
Shares used in basic net income per share calculations 35,761 36,361 35,659 36,139
Shares used in diluted net income per share calculations 36,596 37,195 36,634 36,862
STOCK-BASED COMPENSATION EXPENSE
Total stock-based compensation expense included in the Consolidated Statements of Income is as follows:
Three Months Ended June 30, Six Months Ended June 30,
2015 2016 2015 2016
(unaudited)
(in thousands)
Cost of revenues$ 898 $ 1,818 $ 1,699 $ 2,968
Technology and development 295 659 342 1,144
Sales and marketing 668 791 1,332 1,498
General and administrative 2,952 5,583 5,876 9,232
$ 4,813 $ 8,851 $ 9,249 $ 14,842


WAGEWORKS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2015 June 30, 2016
(unaudited)
(in thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents$ 500,918 $ 568,993
Restricted cash, current portion 332 332
Accounts receivable, less allowance for doubtful accounts of $1,071 and $1,861 at December 31, 2015 and June 30, 2016, respectively 72,271 93,979
Prepaid expenses and other current assets 13,254 18,239
Total current assets 586,775 681,543
Property and equipment, net 47,955 48,426
Goodwill 157,109 157,109
Acquired intangible assets, net 82,616 90,769
Deferred tax assets 9,837 9,837
Other assets 4,447 4,275
Total assets$ 888,739 $ 991,959
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$ 60,541 $ 71,399
Customer obligations 400,821 468,153
Short-term contingent payment 739
Other current liabilities 2,893 1,589
Total current liabilities 464,994 541,141
Long-term debt 78,996 79,064
Other non-current liabilities 7,780 10,152
Total liabilities 551,770 630,357
Stockholders' equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 36,055 shares issued and 35,936 shares outstanding at December 31, 2015 and 36,925 shares issued and 36,580 shares outstanding at June 30, 2016) 36 38
Additional paid-in capital 343,166 368,519
Treasury stock at cost (119 shares at December 31, 2015 and 345 shares at June 30, 2016) (5,003) (14,374)
Retained earnings (accumulated deficit) (1,230) 7,419
Total stockholders' equity 336,969 361,602
Total liabilities and stockholders’ equity$ 888,739 $ 991,959


WAGEWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
2015 2016
(unaudited)
(in thousands)
Cash flows from operating activities:
Net income $ 9,157 $ 8,649
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 3,153 3,813
Amortization and change in contingent consideration 13,011 19,042
Stock-based compensation 9,249 14,842
Loss on disposal of fixed assets 27 199
Provision for doubtful accounts 246 996
Deferred taxes 1,804 -
Excess tax benefit related to stock-based compensation (4,255) (5,287)
Changes in operating assets and liabilities:
Accounts receivable (2,797) (22,704)
Prepaid expenses and other current assets (2,999) 302
Other assets 2,057 172
Accounts payable and accrued expenses 8,628 (1,848)
Customer obligations 46,697 67,332
Other liabilities 3,983 1,136
Net cash provided by operating activities 87,961 86,644
Cash flows from investing activities:
Purchases of property and equipment (11,258) (10,430)
Cash paid for acquisition of intangible assets - (14,259)
Net cash used in investing activities (11,258) (24,689)
Cash flows from financing activities:
Proceeds from exercise of common stock 2,812 9,665
Proceeds from issuance of common stock (Employee Stock Purchase Plan) 1,378 1,192
Payment of contingent consideration (2,070) (653)
Payment for treasury stock acquired - (9,371)
Excess tax benefit related to stock-based compensation 4,255 5,287
Net cash provided by (used in) financing activities 6,375 6,120
Net increase in cash and cash equivalents 83,078 68,075
Cash and cash equivalents at beginning of period 413,301 500,918
Cash and cash equivalents at end of period $ 496,379 $ 568,993


GAAP to Non-GAAP Reconciliations
(In millions, except per share data)
(unaudited)
The following tables detail the reconciliation of GAAP financial measures to non-GAAP financial measures
included in this release:
Operating income:
Three Months Ended June 30, Six Months Ended June 30,
2015 2016 2015 2016
GAAP income from operations$ 6.8 $ 4.6 $ 16.4 $ 14.6
Stock-based compensation expense 4.8 8.8 9.2 14.8
Amortization of acquired intangibles 3.8 8.6 7.6 12.9
Employee termination and other charges 2.1 0.3 2.1 0.3
Contingent consideration expense - - 0.1 -
Non-GAAP income from operations$ 17.5 $ 22.3 $ 35.4 $ 42.6
Non-GAAP income from operations as a percentage of total revenue 21.1% 25.4% 21.1% 24.4%
Net income:
Three Months Ended June 30, Six Months Ended June 30,
2015 2016 2015 2016
GAAP net income$ 3.5 $ 2.9 $ 9.2 $ 8.7
Stock-based compensation expense 4.8 8.8 9.2 14.8
Amortization of acquired intangibles 3.8 8.6 7.6 12.9
Employee termination and other charges 2.1 0.3 2.1 0.3
Contingent consideration expense - - 0.1 -
Tax effect of above adjustments * (3.9) (7.3) (7.4) (11.5)
Non-GAAP net income$ 10.3 $ 13.3 $ 20.8 $ 25.2
Weighted-average shares outstanding used in computing GAAP and
Non- GAAP per share amounts (diluted)
36.6 37.2 36.6 36.9
Non-GAAP diluted net income per share$ 0.28 $ 0.36 $ 0.57 $ 0.68
* Tax effect adjustment assumes a 40% tax rate
Reconciliation of GAAP net income to Non-GAAP Adjusted EBITDA:
Three Months Ended June 30, Six Months Ended June 30,
2015 2016 2015 2016
GAAP net income$ 3.5 $ 2.9 $ 9.2 $ 8.7
Interest income (0.0) (0.1) (0.0) (0.2)
Interest expense 0.6 0.4 1.2 0.8
Income tax provision 2.9 1.5 6.4 5.3
Depreciation 1.6 2.0 3.2 3.8
Amortization and change in contingent consideration 6.7 11.7 13.0 19.1
Stock-based compensation expense 4.8 8.8 9.2 14.8
Employee termination and other charges 2.1 0.3 2.1 0.3
Adjusted EBITDA$ 22.2 $ 27.5 $ 44.2 $ 52.6


Investor Contact: Staci Mortenson ICR 203-682-8273 Staci.mortenson@icrinc.com Media Contact: Britta Meyer WageWorks, Inc. 650-577-5208 Britta.Meyer@wageworks.com

Source:WageWorks, Inc.