Business context and reporting period
The supplied filing is FleetCor Technologies, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013; it is not a filing under the name Corpay. FleetCor provides fuel-card and other commercial payment products and services. Its reportable segments are North America and International.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net revenue | $220.9 | $171.8 | $414.5 | $318.0 |
| Operating income | $109.1 | $81.4 | $203.3 | $145.9 |
| Operating margin | 49.4% | 47.4% | 49.1% | 45.9% |
| Net income | $73.1 | $54.4 | $137.8 | $96.5 |
| Diluted EPS | $0.87 | $0.63 | $1.64 | $1.13 |
| EBITDA (non-GAAP) | $125.0 | $93.1 | $233.8 | $169.3 |
- Q2 revenue rose 28.5% and net income rose 34.4% year over year. For the first half, revenue rose 30.4% and net income rose 42.8%.
- Q2 revenue increased in North America 11.4% to $119.5 million and International 57.1% to $101.4 million. International operating income increased 75.8%; North America operating income increased 12.1%.
- Q2 transactions grew 6.4% to 79.0 million. Consolidated revenue per transaction increased 21.2% to $2.80; acquisitions and organic growth contributed, with acquired businesses generally having higher revenue per transaction.
- Operating cash flow was $82.7 million for the first half, versus cash used of $36.8 million in the prior-year period. Investing cash flow was negative $167.1 million, principally reflecting acquisitions; financing cash flow was positive $110.1 million. Cash and cash equivalents increased $9.3 million to $292.9 million.
- At June 30, total notes, credit agreements and securitization debt was $1.034 billion, including $402 million under the receivables securitization facility. Cash was $292.9 million; restricted cash was $48.5 million. Current assets were $1.406 billion and current liabilities $1.301 billion. The company reported $753 million available under its Credit Facility and compliance with its covenants.
- First-half capital expenditures were $10.1 million. The company expected full-year 2013 capital expenditures of approximately $23 million.
Material changes versus the prior comparable period
- Growth reflected organic increases in transaction volume and revenue per transaction, as well as acquisitions. The 2012 and 2013 acquisitions contributed approximately $23 million of incremental Q2 revenue and $37 million of incremental first-half revenue compared with the respective 2012 periods.
- International revenue’s share increased to 45.9% in Q2 from 37.6% a year earlier, partly reflecting acquisitions. The company acquired fuel-card assets in Australia and CardLink in New Zealand during the first half of 2013; the combined purchase price was approximately $159.6 million, net of cash acquired.
- Operating margin improved by 2.0 percentage points in Q2 and 3.2 points for the first half. Management cited organic growth, acquisitions, and acquired-business synergies. Expenses also rose: first-half general and administrative expense increased 26.4%, including approximately $3.6 million of additional one-time deal costs; depreciation and amortization increased 30.8%, largely due to acquisitions.
- First-half debt increased from $945.4 million at December 31, 2012 to $1.034 billion at June 30, 2013, primarily reflecting $104 million of net additional securitization borrowings. The Credit Agreement was amended and extended to March 20, 2018; the $500 million securitization facility was extended to February 3, 2014.
- Foreign currency translation losses were $34.2 million for the first half, compared with $0.1 million in the prior-year period, and reduced accumulated other comprehensive income.
Outlook, management commentary, risks and contingencies
- Management stated that existing cash, borrowing capacity and expected operating cash generation should be sufficient for liquidity needs for at least 12 months, absent major acquisition opportunities. It also noted that $255.2 million of cash was held in foreign subsidiaries and intended to remain permanently reinvested; repatriation could result in U.S. tax.
- Management identified fuel prices and fuel-spread volatility, customer credit risk, economic conditions, interest rates, foreign currency movements, acquisitions and integration, and key business relationships as factors that could affect results. It attributed a slightly negative Q2 macroeconomic impact to lower fuel spreads and fuel prices; the first-half impact was slightly positive overall, primarily from higher fuel spreads.
- The U.K. Office of Fair Trading had provisionally concluded that there were no grounds for action in its investigation of the Keyfuels product line and was expected to issue a final decision in late 2013. The matter remained subject to a final decision and third-party representations.
- Management stated that ordinary-course legal matters were not expected to have a material adverse effect. The filing reports no material changes in market risk from the 2012 Form 10-K and states that disclosure controls were effective as of June 30, 2013.
- Management cautioned that interim results are not necessarily indicative of full-year results. No earnings or revenue guidance is provided in the supplied filing text.
Important facts for investors to verify
- Confirm the issuer identity: the filing names FleetCor Technologies, Inc., while the request metadata names Corpay.
- Assess how much reported growth came from acquisitions versus organic performance, particularly in the International segment, and whether acquired-business synergies are sustainable.
- Review receivables, working-capital cash flows and the $402 million securitization balance, including the facility’s February 2014 termination date and renewal risk.
- Evaluate debt maturities, variable-rate exposure, covenant headroom and the availability of cash held overseas, including potential tax costs of repatriation.
- Monitor fuel-price and spread trends, foreign-exchange effects, customer credit losses, acquisition integration, and the final outcome of the U.K. Keyfuels investigation.