WageWorks Inc. Delivers 37% Revenue Growth

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WageWorks (NYSE: WAGE) reported second-quarter results on Aug. 1. The benefit administrator delivered a sharp increase in sales and profits, driven by robust demand across its product lines.

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WageWorks results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$119.9 million

$87.7 million

37%

Adjusted net income

$17.7 million

$13.3 million

33%

Adjusted EPS

$0.46

$0.36

28%

What happened with WageWorks this quarter?

WageWorks' revenue surged 37% year over year to $119.9 million, fueled by a 46% rise in healthcare revenue, to $70 million, and a 55% jump in COBRA revenue, to $27.7 million.

"Our selling season continues on another record-setting pace; the pipeline is strong, as is demand across all of our products," said chairman and CEO Joseph Jackson during a conference call with analysts.

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Jackson also highlighted WageWorks' recent deal with Automatic Data Processing (NASDAQ: ADP) as an exciting new growth driver:

Turning to ADP: The integration of those businesses is ahead of schedule, and we remain extremely pleased with the many sales opportunities we're seeing from the ongoing partnership we established with ADP as part of the acquisition last November. We are now currently pursuing more than 800 new sales leads, which represents several million dollars in revenue.

Moreover, EBITDA -- adjusted to exclude stock-based compensation, acquisition-related expenses, and certain other items -- leapt 33% to $36.6 million. Adjusted (non-GAAP) operating income jumped 38% to $30.8 million.

All told, adjusted net income increased 33% to $17.7 million, or $0.46 per share.

Looking forward

For the third quarter, WageWorks expects revenue of between $115 million and $117.5 million, with adjusted EBITDA of $34 million to $36 million and non-GAAP EPS of $0.38 to $0.41.

Additionally, WageWorks raised its 2017 full-year revenue and EBITDA guidance slightly, including:

  • Revenue of $479 million to $484 million, up from a prior forecast of $478 million to $484 million
  • Adjusted EBITDA of $142 million to $146 million, up from $141 million to $145 million

However, WageWorks reduced its guidance for full-year adjusted EPS to $1.70 to $1.75 -- down from $1.75 to $1.80 -- mostly due to a higher expected share count resulting from WageWork's recent secondary offering.

"I expect our momentum to continue in the back half of the year and finish 2017 well above our targeted annual growth rate of 15% to 25%, with 9% to 14% of that coming from organic means," added Jackson. "We believe that the demand for consumer-directed benefits continues to build, and obviously, shows no signs of slowing down."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Automatic Data Processing and WageWorks. The Motley Fool has a disclosure policy.