CORPAY, INC. annual report, FY2013

Business context and reporting period

The supplied filing is FleetCor Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2013—not a filing under the name Corpay, Inc. It describes a global provider of fuel cards and business payment, fleet maintenance, telematics, lodging, toll, and transportation services. FleetCor reported North America and International segments and processed approximately 327.5 million transactions in 2013.

Financial results and liquidity

Adjusted revenues (revenue less merchant commissions), a non-GAAP measure, were $827.0 million; EBITDA was $493.4 million; adjusted net income was $342.7 million; and adjusted diluted EPS was $4.05. These measures are supplemental and not substitutes for GAAP results. The effective tax rate was 29.5%, versus 30.4% in 2012.

Investing cash outflow was $749.1 million, including $728.3 million for acquisitions; financing cash inflow was $435.7 million. Capital expenditures were $20.8 million. At year-end, the company reported $215 million of available capacity under its Credit Facility and approximately $33 million of additional liquidity under its securitization facility. Restricted cash was $48.2 million and primarily represented customer deposits. Management said cash, available borrowing capacity, and operating cash generation were expected to meet needs for at least the next 12 months.

Material changes versus the prior comparable period

• Revenue grew in both segments: North America increased 15.1% to $460.7 million; International increased 41.3% to $434.5 million. International’s share of revenue rose to 48.5% from 43.4%.
• Transactions increased 7.8% to 327.5 million, while consolidated revenue per transaction rose 17.3% to $2.73. Growth reflected organic gains and acquisitions, including a full-year contribution from 2012 deals and 2013 acquisitions.
• International operating margin improved to 46.1% from 41.7%; North America margin declined to 47.9% from 49.1%. Consolidated margin expanded to 47.0%.
• Acquisition spending was substantial: 2013 acquisitions had aggregate purchase prices of $848.2 million, net of cash acquired. Businesses acquired included Fleet Card in Australia, CardLink in New Zealand, VB and DB in Brazil, Epyx in the U.K., and NexTraq in the U.S.
• Goodwill increased to $1.55 billion from $926.6 million, and net other intangible assets rose to $871.3 million from $463.9 million. Total debt increased alongside acquisition funding.
• In the fourth quarter, revenue was $255.5 million, operating income $106.1 million, net income $68.1 million, and diluted EPS $0.80, compared with $202.6 million, $93.2 million, $60.1 million, and $0.70, respectively, in Q4 2012.

Outlook, commentary, risks, contingencies, and unusual items

• No specific revenue, earnings, or EPS guidance was provided. Management expected 2014 capital expenditures of approximately $22 million and technology spending of approximately $57 million, citing platform development and acquisition integration.
• Management cited organic growth, acquisitions, and integration synergies as performance drivers, but said lower fuel prices and unfavorable foreign-exchange movements weighed on results. Foreign exchange reduced 2013 revenue by $5.6 million, primarily due to the Brazilian real and British pound.
• Fuel exposure remains meaningful: the filing estimates 19.6% of 2013 revenue was influenced by absolute fuel prices and 15.7% was tied to fuel-price spreads. Program, transaction, late, and other fees represented 64.7% of revenue.
• Key risks include customer credit losses; fuel-price and spread volatility; competition and pricing pressure; reliance on merchant and oil-company relationships; foreign exchange and geopolitical exposure; regulatory changes; cyber, technology, and service interruptions; and acquisition integration and execution.
• Debt was predominantly variable-rate. The company warned that leverage, interest-rate exposure, covenants, and annual renewal of the securitization facility could constrain flexibility. It reported compliance with credit covenants at year-end. The securitization facility was subsequently extended on February 3, 2014, to February 2, 2015.
• 2013 acquisition-related contingent consideration was estimated at $80.5 million at year-end, with most expected to be paid in 2014; deferred purchase-price payments totaled $35.7 million. The company also recorded $52.6 million of indemnification assets for certain acquired liabilities.
• Goodwill and intangible assets together were approximately 61% of total assets. The annual impairment assessment found reporting-unit fair values above carrying values; future impairment remains possible if forecasts or market assumptions deteriorate.
• The U.K. Office of Fair Trading concluded in October 2013 that it had no grounds to act on alleged abuse of dominance involving Keyfuels. Management said other pending or threatened matters were not expected to have a material adverse effect.
• Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. However, management and the auditor excluded certain 2013 acquisitions from the internal-control assessment; those entities represented 32% of total assets and 8% of revenue at year-end/for 2013, respectively.

Important facts for investors to verify

• Confirm the issuer and period: the source is FleetCor Technologies, Inc.’s FY 2013 10-K, despite the request metadata naming Corpay, Inc. and 2013 Q4.
• Assess whether acquisition-led growth and margin gains are sustainable, separating organic performance from acquired revenue and non-GAAP adjustments.
• Review debt maturities, variable-rate exposure, securitization renewal terms, and the use of cash and borrowing capacity for acquisitions.
• Evaluate credit-loss trends, including the $22.4 million year-end allowance for doubtful accounts and $18.9 million 2013 bad-debt provision.
• Track fuel-price, fuel-spread, foreign-exchange, and international-market effects on revenue, cash generation, and margins.
• Monitor integration of 2013 acquisitions, purchase-price allocations, contingent payments, acquired tax exposures, and the control-assessment exclusions.