WEX Inc., the South Portland-based payment technology company, reported Wednesday morning that while its revenue increased slightly in the third quarter, its adjusted net income fell by 25 percent, in part because of falling U.S. gas prices.

The company’s revenue for the quarter, which ended Sept. 30, was $226.1 million, a 2 percent increase from revenue during the same quarter last year, but its adjusted net income fell 25 percent to $49.9 million, according to the company’s quarterly earnings report.

WEX, one of the area’s largest employers with about 700 local employees out of a global workforce of 2,000, has been on a buying spree over the past two years as it expands into payment processing for the health care industry. WEX was founded in 1983 as Wright Express, which developed technology to simplify payment processing for companies that operate fleets of vehicles.

Wednesday’s earnings report is the first since WEX announced two major acquisitions earlier this month. The company on Oct. 16 announced it would acquire a health care billing software company in Nebraska for $80 million, followed a few days later by news it would spend $1.5 billion in cash and stock to acquire Nashville-based Electronic Funds Source, which also handles vehicle fleets payments.

Although the company’s third-quarter numbers came in below expectations, Melissa Smith, WEX’s CEO, said Wednesday morning that its underlying fundamentals remain strong and that the company’s announced acquisitions, which are expected to be complete sometime in the fourth quarter, would help diversify the company’s revenue streams and reduce its exposure to volatility in gas prices.

Roughly three-quarters of WEX’s revenue comes from handling fuel payments for companies with small- and medium-sized fleets of cars, vans and trucks, making it susceptible to drops in gas prices, according to Smith. Falling prices at the pump have so far this year eroded $80 million in company revenue, Smith said.


The remaining quarter of the company’s revenue, lumped together in its financial statements as “other payment solutions,” comes from handling payments in the health care and travel industries.

The acquisition of the Benaissance, the Omaha-based health care billing company, will continue WEX’s strategy to grow its business in health care payments that began last summer with its announced acquisition of North Dakota-based Evolution1 for $532.5 million in cash.

Still, revenue from sources other than vehicle fleet payments will remain roughly a quarter of WEX’s business, Smith said. In fact, the size of EFS’ business will likely increase the share of revenue that comes from vehicle fleet payments.

EFS primarily provides payment services to medium-sized and large fleets of “over-the-road” vehicles such as tractor-trailers, whereas WEX specializes in local fleets of cars, trucks and vans, in addition to small over-the-road fleets. Because EFS’s business model is less susceptible to gas prices, the acquisition will reduce the percentage of WEX’s revenue exposed to fuel prices from 40 percent to between 25 percent and 30 percent, said Smith.

“The diversification is not just about the different type of businesses, but different mechanisms of earning revenue,” she said.

WEX has had to borrow heavily to acquire Benaissance and EFS, which worried some analysts. The EFS acquisition will push WEX’s debt-to-earnings ratio well above its historical average, according to Moody’s bond-rating service analysts Warren Kornfeld and Robert Young. Following the EFS announcement, they reiterated their negative outlook on WEX bonds, rating them below investment grade.


But Smith believes those concerns are overblown. She said the company can handle the debt because of its healthy cash flow.

“We keep the leverage ratio relative to the amount of cash flow we generate at what we think is a very sustainable level,” she said. “The cash flow of our core business is highly predictable, so we de-lever very quickly.”

While the company may take some time to mitigate the debt, it will maintain its aggressive global acquisitions strategy, Smith said.

“Our acquisition pipelines will continue to evolve,” she said. “Clearly we’re considerate of where we’ll be from a leverage perspective, but it’s important for us to continue to be a participant in that part of the marketplace.”

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