Business context and reporting period
This is FleetCor Technologies, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014. The filing identifies FleetCor—not Corpay—as the registrant. FleetCor provided fuel-card and workforce payment products and related services across North America and internationally. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net revenue | $273.5 | $220.9 | $527.4 | $414.5 |
| Operating income | $134.5 | $109.1 | $248.6 | $203.3 |
| Operating margin | 49.2% | 49.4% | 47.1% | 49.1% |
| Net income | $88.5 | $73.1 | $163.7 | $137.8 |
| Diluted EPS | $1.03 | $0.87 | $1.91 | $1.64 |
| Operating cash flow | — | $157.7 | $82.7 | |
| Investing cash flow | — | ($201.4) | ($167.1) | |
| Financing cash flow | — | $1.8 | $110.1 |
Q2 revenue rose 23.8%, operating income 23.3%, net income 21.1%, and diluted EPS from $0.87 to $1.03. For the first half, revenue rose 27.2%, operating income 22.3%, net income 18.8%, and diluted EPS from $1.64 to $1.91. Net margin was 32.4% in Q2 versus 33.1% a year earlier, and 31.0% for the first half versus 33.2%.
Cash and cash equivalents were $297.6 at June 30, 2014, down from $338.1 at year-end 2013; restricted cash was $46.2. Total debt, including the receivables securitization facility, was $1,471.4, compared with $1,486.4 at year-end. This included $424.4 outstanding under the $500 million securitization facility. The company reported $295 million available under its credit facility and approximately $14.5 million of additional securitization capacity. It stated that cash, borrowing capacity, and operating cash generation should cover liquidity needs for at least 12 months. The current portion of notes payable and lines of credit on the balance sheet was $596.7; the debt note reports total current debt including securitization of $1,021.1.
Material changes and drivers
- Growth reflected acquisitions completed in 2013 and organic increases in transaction volume and revenue per transaction. Q2 transactions increased 14.3% to 90.2 million; consolidated revenue per transaction rose 8.4% to $3.03.
- International revenue grew 32.8% in Q2 and 34.8% for the first half; North America revenue grew 16.2% and 20.5%, respectively. Management attributed much of the increase to acquisitions.
- First-half operating margin declined 2.0 percentage points. Management cited lower fuel spreads and fuel prices, higher stock-based compensation and bad-debt expense, increased acquired-intangible amortization, and a shift in earnings mix. Q2 operating margin was broadly stable.
- First-half depreciation and amortization increased 60.1% to $48.8; interest expense rose 49.5% to $10.8, primarily reflecting acquisition financing. Stock-based compensation was $18.3 for the half, versus $8.1 a year earlier.
- First-half operating cash flow improved to $157.7, while investing cash outflow reached $201.4, including $189.9 for acquisitions. Cash declined by $40.5 over the period.
Outlook, risks and unusual items
- Management anticipated approximately $23 million of 2014 capital expenditures, primarily for processing-system enhancements and acquisition integration. The filing provides no specific revenue or earnings guidance.
- Management said lower fuel-spread margins negatively affected consolidated revenue and results; fuel prices, spread volatility, customer credit losses, foreign exchange, interest rates, economic conditions, financing access, and acquisition integration were identified as risks.
- On April 28, 2014, FleetCor acquired a 44% equity-method interest in Masternaut, a European fleet-telematics provider. The investment generated a $1.5 equity-method loss in the first half; management cited approximately $2.1 of basis-difference amortization.
- Acquisition-related contingent consideration was $86.7 at June 30, with potential payments tied to acquired businesses’ performance. The company also reported acquired uncertain tax positions and contingent liabilities, partly offset by a $56.2 indemnification asset.
- Management stated that debt covenants were met and that no material legal proceedings were pending. Disclosure controls were assessed as effective; no material changes in internal control over financial reporting were reported.
Important facts for investors to verify
- Confirm the issuer and corporate lineage: this 2014 filing is for FleetCor Technologies, Inc., despite the request metadata naming Corpay, Inc.
- Assess how much reported growth came from acquisitions versus organic growth, and whether acquired businesses sustain transaction and revenue-per-transaction gains.
- Track fuel spreads, bad-debt expense, and operating-margin trends, especially the first-half margin compression.
- Review acquisition-related cash requirements, contingent consideration, debt maturities, and remaining borrowing capacity.
- Distinguish GAAP results from management’s supplemental non-GAAP measures, including adjusted EBITDA and adjusted net income.