Business context and reporting period
This is FLEETCOR Technologies, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020; the filing does not identify the registrant as CorPay. FLEETCOR provides business payment solutions across fuel, corporate payments, tolls, lodging, gift and other products. It reported three geographic segments: North America, Brazil and International.
Key financial results
Amounts are in U.S. dollars; figures are rounded to millions except per-share amounts.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue, net | $661.1 | $621.8 | +6.3% |
| Operating income | $201.0 | $284.2 | -29.3% |
| Operating margin | 30.4% | 45.7% | -15.3 percentage points |
| Net income | $147.1 | $172.1 | -14.6% |
| Diluted EPS | $1.67 | $1.93 | -13.5% |
| Operating cash flow | $420.0 | $297.5 | +$122.5 |
| Capital expenditures | $18.3 | $14.5 | +$3.8 |
- Revenue growth included approximately 5% organic growth on a constant-currency, fuel-price/spread and pro forma basis, plus about $22 million from 2019 acquisitions. Management estimated a roughly $6 million adverse overall macroeconomic impact and $21 million adverse foreign-exchange impact, partly offset by about $15 million of favorable fuel spreads.
- Processing expense rose 81% to $233.7 million, primarily reflecting a $90.1 million customer-receivable provision/write-off and approximately $10 million of additional expected credit-loss expense associated with COVID-19. The resulting impairment was a major contributor to lower operating income and margins.
- Adjusted net income, a non-GAAP measure, was $264.5 million versus $238.4 million; adjusted diluted EPS was $3.00 versus $2.67. These measures exclude specified items, including the customer-receivable write-off; they should not be treated as substitutes for GAAP results.
- Revenue by product: fuel $292 million, corporate payments $120 million, tolls $83 million, lodging $57 million, gift $42 million and other $67 million. Corporate payments and lodging grew; tolls and gift declined as reported.
- By segment, revenue was North America $434.7 million (+9.5%), Brazil $99.0 million (-6.4%) and International $127.4 million (+6.9%). North America operating income fell 50.3%, chiefly because of the receivable write-off; Brazil operating income fell 6.4%, while International operating income rose 8.8%.
Cash, debt and liquidity
- At March 31, cash and cash equivalents were $1,070.7 million and restricted cash was $481.6 million, for combined cash and restricted cash of $1,552.2 million. Restricted cash was not freely available for general use.
- Total debt, including the securitization facility, was $5.16 billion, up from $5.04 billion at December 31, 2019. This included $4.34 billion of notes and credit-facility obligations and $819 million outstanding under the securitization facility. The company reported $352 million of unused Credit Facility capacity and no additional securitization capacity at quarter-end.
- Operating cash flow increased to $420.0 million, which management attributed primarily to favorable working-capital timing. Cash used in investing was $18.7 million; cash used in financing was $314.5 million, including $530.2 million of share repurchases. Foreign-exchange effects reduced cash and restricted cash by $209.9 million.
- In April, the company added a $250 million revolving facility and reduced the securitization facility’s maximum size from $1.2 billion to $1.0 billion. Management said the new revolver was undrawn as of May 11, 2020. The company reported compliance with debt covenants at March 31.
Outlook, risks, contingencies and unusual items
- No numerical earnings or revenue guidance is provided. Management warned that COVID-19 could further depress transaction volumes, business travel, fuel-related activity and customer spending, increase credit losses and affect liquidity. The duration and financial impact were described as uncertain.
- Management described actions including moving most employees to work from home, reducing discretionary spending, furloughing contractors, executive pay cuts, tightening customer credit and securing additional liquidity. It said these actions might not be sufficient to offset the pandemic’s effects.
- The $90.1 million receivable charge related to a customer in the foreign-currency trading business that entered liquidation. The filing also reports a $7 million credit from a purchase-price settlement and significant currency-translation losses; foreign-currency translation reduced other comprehensive income by $575.1 million.
- A shareholder class-action settlement of $50 million received final court approval on April 14, 2020; the company stated that insurance covers the full settlement. A separate FTC lawsuit concerning advertising and marketing practices remained unresolved; the company could not estimate a reasonably possible loss range in the financial-statement note.
- The company repurchased $530.2 million of shares during the quarter. It stated it did not intend to repurchase additional shares in the medium term. Its securitization facility was scheduled to mature in November 2020 before the subsequent April amendment.
Important facts for investors to verify
- Whether subsequent-quarter disclosures quantify COVID-19 effects on transaction volumes, revenue, customer credit quality and cash generation.
- The collectability and remaining exposure associated with the customer receivable write-off, and whether credit-loss provisions remain elevated.
- Available borrowing capacity, covenant headroom, and the terms and usage of the April revolving facility and amended securitization facility.
- Whether operating cash flow remains strong after adjusting for working-capital timing and the unusually large noncash credit-loss provision.
- Developments in the FTC matter and derivative litigation, including any material costs, settlement terms or financial exposure.
- How much reported growth reflects organic performance versus acquisitions, currency movements and fuel-spread effects; adjusted measures are non-GAAP and exclude significant items.