WageWorks Beats on Q4 Earnings & Revs, Guides Ahead


WageWorks, Inc. (WAGE) delivered fourth-quarter 2013 operating earnings of 13 cents per share, beating the Zacks Consensus Estimate by a penny. Earnings improved 18% year over year.

For full year 2013, WageWorks delivered earnings of 56 cents per share on revenues of $219.3 million. While the top line rose 23.7% year over year, the bottom line improved 12%.

WageWorks experienced sturdy new sales year and client renewal period along with improvement in enrollment rates. It benefitted from investments in increasing sales force and broker network, developing channel partnerships, portfolio purchases and increasing awareness of the value Consumer-Directed Benefits (CDBs) offer.

WageWorks is also capitalizing on the opportunities offered by the rise in employer adoption of private exchanges and expects to gain from the potential impact of the Department of Treasury’s introduction of the carryover provision for Healthcare Flexible Spending Accounts late last year.

Behind the Headlines

Total revenue of WageWorks grossed nearly $55 million in the quarter, improving 17.8% year over year. The upside was driven by solid contributions from Healthcare revenues (up 11%), Commuter revenues (up 12%) and Other revenues (soaring 93%). Results also outpaced the Zacks Consensus Estimate of $54 million.

Gross margin contracted 400 basis points to 60% in the fourth quarter.

Adjusted operating income came in at $10.4 million, up 35.1% over the fourth quarter of 2012.

Operating expenses rose 14.1% year over year due to higher cost of revenues, sales and marketing expenses, and general and administrative expenses.

Adjusted earnings before income taxes, interest expenses, interest income, depreciation and amortization (:EBITDA) improved 30% year over year to $13.5 million. The increase was attributable to the ramping up of expenses to support the new plan year due to the addition of Ceridian and the Towers Watson One Exchange Active business.

Financial Update

WageWorks exited 2013 with cash and cash equivalents of $360.3 million, increasing 17.4% year over year.

Cash flow from operating activities was $61.7 million in 2013, up almost 10% over 2012.

Long-term debt of the company stood at $29.4 million at the end of 2013, down 33.6% year over year.

Looking Ahead

For first-quarter 2014, WageWorks expects to deliver operating earnings of 20–22 cents per share on total revenue of $61.6–$62.2 million. Net income is expected in the range of 13–15 cents per share.

Adjusted EBITDA for first quarter is expected in the range of $16.7 million to $17.3 million.

For full-year 2014, revenues are estimated between $238.5 million and $241.5 million. WageWorks predicts organic growth rate to range between 9.5% and 10.5% and expects it to accelerate in the second half of the year as the majority of the Ceridian accounts are onboarded.

EBITDA for 2014 is expected in the range of $65 million to $68 million.

While operating income is expected at 79–87 cents per share, net income is estimated in the range of 50–58 cents per share. The Zacks Consensus Estimate, currently pegged at 73 cents, falls short of the company guidance.

WageWorks expects revenue to increase 15% to 25% annually over the next three years with 9% to 14% growth comings from organic sources. Gross margin is anticipated in the range of 63% to 67%, up from 62% to 66% while operating margin to be between 13% and 18% from 12% and 17%. EBITDA margin is expected to be in the range to 26% to 32% from 24% to 30%.

Zacks Rank

WageWorks presently holds a Zacks Rank #3 (Hold).

Performance of Other Business Service Providers

SouFun Holdings Ltd. (SFUN) reported fourth-quarter operating earnings of $1.41 per share exceeding the Zacks Consensus Estimate by 34.5%. Results surged 86% year over¬ year.

Rentrak Corporation (RENT) delivered fourth-quarter 2013 operating loss of 3 cents per share, narrower than the Zacks Consensus Estimate loss of 13 cents and year-ago loss of 15 cents per share.

Viad Corp. (VVI) posted fourth-quarter loss per share of 20 cents, wider than the Zacks Consensus Estimate loss of 17 cents but narrower than the loss of 34 cents per share incurred in the year-ago quarter.

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