FleetCor Technologies, Inc. — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2013. The filing identifies FleetCor Technologies, Inc. as the registrant; it describes a fuel-card and workforce-payment business operating in North America and internationally. Financial amounts below are in U.S. dollars; statement amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net revenue | $225.2 | $186.9 | $639.7 | $504.9 |
| Operating income | $111.3 | $85.8 | $314.6 | $231.8 |
| Operating margin | 49.4% | 45.9% | 49.2% | 45.9% |
| Net income | $78.6 | $59.6 | $216.4 | $156.1 |
| Diluted EPS | $0.93 | $0.69 | $2.56 | $1.82 |
| Adjusted net income per diluted share (non-GAAP) | $1.08 | $0.83 | $2.97 | $2.16 |
| EBITDA (non-GAAP) | $129.3 | $99.4 | $363.2 | $268.7 |
Q3 revenue grew 20.4% year over year, operating income 29.6%, and net income 31.8%. For the nine months, revenue grew 26.7%, operating income 35.7%, and net income 38.6%. The company reported 84.3 million Q3 transactions, up 6.4%, and consolidated revenue per transaction of $2.67, up 13.2%.
- Segment results: Q3 North America revenue was $115.3 million (+13.6%) and operating income $59.1 million (+19.9%); International revenue was $109.9 million (+28.6%) and operating income $52.2 million (+42.7%). Nine-month International revenue rose 42.7% and operating income 60.8%, compared with North America growth of 15.0% and 19.6%, respectively.
- Cash flow: Nine-month operating cash flow was $208.0 million, versus $33.1 million; investing cash outflow was $392.3 million, versus $203.5 million, largely reflecting acquisitions. Financing cash inflow was $253.6 million, versus $176.2 million. Cash and cash equivalents increased $62.0 million to $345.7 million.
- Liquidity and debt: At September 30, cash was $345.7 million and restricted cash $50.0 million. Total notes, credit agreements, and securitization borrowings were $1.134 billion, compared with $925.1 million at year-end 2012. This included $394.0 million outstanding under the receivables securitization facility. Current liabilities were $1.597 billion and current assets $1.491 billion. The company reported $617 million available under its Credit Facility and $8.7 million available under the securitization facility.
- Margins and expenses: Q3 operating margin improved 3.5 percentage points. Nine-month operating margin improved 3.3 points. Depreciation and amortization increased 31.6% for the nine months, mainly due to acquired intangible assets. Nine-month effective tax rate was 28.7%, versus 29.5%.
Material changes and drivers
- Growth reflected organic increases in transactions and revenue per transaction, acquisitions, and acquisition-related synergies. Acquisitions contributed approximately $18 million of incremental Q3 revenue and $56 million for the nine-month period versus the comparable 2012 periods.
- International revenue increased as a share of total revenue, from 45.7% to 48.8% in Q3 and from 42.2% to 47.6% for the nine months. Management attributed much of this growth to acquisitions and higher-revenue-per-transaction offerings.
- During the first nine months, FleetCor completed acquisitions with aggregate purchase price of approximately $482.5 million, including $104.3 million estimated contingent earn-outs. Goodwill increased to $1.242 billion from $926.6 million, principally due to acquisitions.
- Foreign exchange movements were unfavorable to revenue by approximately $2.3 million in Q3 and $3.5 million for the nine months, primarily from the Brazilian real and British pound. Management cited higher fuel spreads as supportive, while lower fuel prices offset some growth.
Outlook, risks, and unusual items
- Management expected 2013 capital expenditures of approximately $23 million. It stated that cash, borrowing capacity, and operating cash generation were expected to meet liquidity needs for at least the next 12 months, absent major acquisition opportunities.
- After quarter-end, the company completed acquisitions with aggregate purchase price of approximately $500 million: Epyx, DB Trans, and NexTraq. These transactions were funded using existing cash and credit facilities; approximately $400 million of the reported post-quarter borrowing capacity was used for acquisitions completed after September 30.
- Management identified exposure to fuel prices and fuel-spread volatility, customer credit losses, economic conditions, foreign currency, interest rates, key business relationships, financing access, and acquisition integration and execution. It cautioned that forward-looking statements are subject to these and other risks.
- Acquisition-related costs were approximately $1.8 million in Q3 and $4.2 million for the nine months. Remaining estimated contingent acquisition earn-outs were reported at approximately $109.8 million in the MD&A, with payments expected primarily in 2013 and 2014; the notes report a slightly different estimate and schedule.
- The UK Office of Fair Trading announced on October 31, 2013 that it had no grounds to act on allegations concerning the company’s Keyfuels product. Management said ordinary-course legal matters were not expected to have a material adverse effect. The company reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Reconcile the different contingent earn-out estimates and payment schedules presented in the notes and MD&A.
- Assess the funding, integration, and returns of the approximately $500 million of post-quarter acquisitions, including their effect on debt and available credit.
- Separate organic growth from acquisition-driven revenue and profit growth, particularly in the International segment.
- Monitor working-capital and receivables funding needs, including the $500 million securitization facility, which was scheduled to terminate February 3, 2014.
- Review the sensitivity of results to fuel prices and spreads, foreign exchange, customer credit quality, and the company’s acquisition assumptions and purchase-price allocations.