Corpay, Inc. (formerly FLEETCOR Technologies, Inc.) — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The filing is made under the name FLEETCOR Technologies, Inc.; it does not use the Corpay name in the supplied filing text.
Business context and financial performance
The company provides business payment solutions, including Fleet, Corporate Payments, Lodging, Brazil, and stored-value and payroll card services. Financial amounts below are in U.S. dollars.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $948.2 million | $861.3 million | $1,849.5 million | $1,650.5 million |
| Operating income | $412.7 million | $370.5 million | $787.8 million | $688.2 million |
| Operating margin | 43.5% | 43.0% | 42.6% | 41.7% |
| Net income | $239.7 million | $262.2 million | $454.5 million | $480.1 million |
| Diluted EPS | $3.20 | $3.35 | $6.08 | $6.10 |
| Adjusted net income (non-GAAP) | $314.3 million | $326.1 million | $597.4 million | $615.8 million |
| EBITDA margin (non-GAAP) | 52.4% | 52.1% | 51.8% | 51.1% |
Q2 revenue increased 10.1% year over year; six-month revenue increased 12.1%. Management attributed growth chiefly to organic expansion and acquisitions. GAAP net income fell 8.6% in Q2 and 5.3% for the first half, with higher interest expense a major factor. Diluted EPS also declined despite fewer weighted-average shares.
For Q2, Corporate Payments revenue grew 30.2%, Lodging 16.8%, and Brazil 12.7%; Fleet grew 1.4%, while Other declined 14.5%. Six-month growth was strongest in Corporate Payments (27.0%), Lodging (22.4%), and Brazil (15.6%).
Cash flow, debt and liquidity
- Cash flow: First-half operating cash flow was $826.7 million, compared with $41.9 million in 2022, primarily due to favorable working-capital movements. Investing cash outflow was $201.2 million, including acquisitions and $78.9 million of capital expenditures. Financing cash outflow was $241.8 million.
- Cash and liquidity: Cash and cash equivalents were $1.254 billion at June 30; restricted cash was $1.457 billion. Management reported approximately $2.1 billion of liquidity, including $1.3 billion of unrestricted cash and $0.8 billion available under the credit facility. No additional liquidity was available under the securitization facility.
- Debt: Total notes, credit-agreement borrowings, and securitization obligations were $6.749 billion, down from $7.037 billion at year-end 2022. The company was in compliance with credit and securitization covenants. The May 2023 credit amendment transitioned the Term Loan B benchmark from LIBOR to SOFR.
- Interest cost: First-half net interest expense rose to $168.3 million from $45.1 million. Average borrowing rates were materially higher than in 2022; interest-rate swaps provided a $16.3 million first-half benefit to interest expense.
Material changes, outlook and risks
- Management estimated first-half macroeconomic impacts on revenue of approximately $18 million negative from fuel prices and $20 million negative from foreign exchange, partly offset by approximately $15 million from favorable fuel-price spreads. It also cited $21 million of incremental bad-debt expense, including higher losses among micro-SMB customers.
- During the first half, the company acquired Global Reach, Mina Digital, and Business Gateway AG. Aggregate purchase price was approximately $135.1 million, including a previously held investment; acquisition accounting remained preliminary.
- The company signed definitive documents to sell its Russia business. Regulatory approvals were received in August 2023, and management expected a third-quarter closing subject to remaining transaction elements, including funding. At June 30, Russian assets were not classified as held for sale; $216.5 million of Russian cash was reclassified as restricted. No impairment had been recognized.
- No specific earnings or revenue guidance is provided in the supplied filing text. Management stated that cash, borrowing capacity, and expected operating cash flows should meet planned needs for the next 12 months and foreseeable future, based on current assumptions.
- Legal and regulatory: In the FTC case concerning U.S. fuel-card marketing practices, the court granted summary judgment on liability in 2022 and denied the FTC’s claim for monetary relief. A permanent injunction was issued June 8, 2023; the company appealed on August 3. The company could not reasonably estimate potential losses or their range. Separate derivative lawsuits seek approximately $118 million in one complaint; defendants dispute the allegations.
- Other notable risks include interest-rate and foreign-exchange exposure, customer credit losses, fuel-price volatility, access to banking services, the Russia-Ukraine conflict, and acquisition integration. Management reported disclosure controls effective and no material change in internal controls during the quarter.
Important facts for investors to verify
- Whether organic growth and segment momentum persist after accounting for acquisitions, fuel prices, spreads, and foreign exchange.
- Whether credit losses and receivables quality stabilize, particularly among micro-SMB customers.
- How higher borrowing costs affect earnings and cash generation, and whether hedges offset a meaningful portion of rate exposure.
- Completion, funding, and accounting consequences of the Russia-business sale, including treatment of restricted cash and any impairment or disposal effects.
- Developments and potential financial or operational effects of the FTC injunction and appeal, and the derivative litigation.
- Reconcile non-GAAP adjusted earnings and EBITDA with GAAP results; the filing cautions these supplemental measures are not substitutes for GAAP measures.