WageWorks Inc. Sees Strong Growth Across All Core Business Lines

By Markets Fool.com

Image source: WageWorks.

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WageWorks (NYSE: WAGE) saw its second-quarter sales rise as the manager of consumer-directed benefits -- such as flexible spending accounts, health savings accounts, and commuter benefit services-- continues to take share in its core markets. The company reported quarterly results Aug. 9.

WageWorks results: The raw numbers

Metric

Q2 2016

Q2 2015

Growth (YOY)

Revenue

$87.725 million

$82.757 million

6%

Net income

$2.853 million

$3.518 million

(19%)

Earnings per share

$0.08

$0.10

(20%)

Data source: WageWorks Q2 2016 earnings press release.

What happened with WageWorks this quarter?

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Total revenue rose 6% year over year to $87.7 million, driven by sales increases in WageWorks' healthcare (up 10% to $48.1 million), commuter (up 9% to $17.4 million), and COBRA (up 46% to $17.9 million) segments. Impressively, WageWorks' organic growth rate across its core healthcare, commuter, and COBRA businesses was 16% in the second quarter.

"The first half of 2016 was another strong one forWageWorks," saidCEO Joe Jackson in a press release. "Our selling season is progressing extremely well due to record interest in all of our products."

Other revenue, however, declined to$4.4 million from$10.6 millionin the year-ago quarter, due to a public exchange relationship that the company ended in 2015.

All told,EBITDA (earnings before interest, taxes, depreciation, and amortization) -- adjusted to exclude stock-based compensation, acquisition-related expenses, and certain other items -- jumped 24% to $27.5 million. Adjusted (non-GAAP) operating income was$22.3 million, an increase of 27% from the prior-year quarter. And non-GAAP net income surged 29% to$13.3 million, or$0.36per share.

Looking forward

For the third quarter, WageWorks expects revenue and adjusted EBITDA of $86 million to $88 million and $25.2 million to $26.2 million, respectively. The company is also targeting third-quarter non-GAAP net income of $0.32 to $0.33 per share.

Additionally, management reiterated its 2016 full-year outlook, including:

  • Revenue of $356 million to $366 million
  • Adjusted EBITDA of $107 million to $111 million
  • Non-GAAP EPS of $1.35 to $1.41

Jackson also highlighted a major catalyst that should help to propel WageWorks' growth in the coming quarters during the company's earnings conference call:

Our plans to transition the existing participants on the United States Office of Personnel Management's federal flexible spending account program to our platform on September 1 remain on track. To remind you, this opportunity includes approximately 2.3 million eligible employees and brings approximately 350,000 participants to our platform.

With the OPM deal and several new partnerships likely to drive WageWorks' revenue and profits higher in the years ahead, management is optimistic about the company's future.

"Overall, it is clear we are successfully executing on our growth strategy," said Jackson. "With our record results in a new sales area and expanding revenue opportunities through our partner, carrier, and channel partner relationships, we are positioning ourselves well for a strong finish to 2016 while simultaneously creating a solid foundation for 2017 and beyond."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends WageWorks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.