Business context and reporting period
The supplied filing is FleetCor Technologies, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2011; the filing does not identify the registrant as Corpay, Inc. FleetCor provided specialized payment programs and services for businesses and commercial fleets, reporting North America and International segments. Revenue is reported net of the wholesale cost of underlying products and services.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding 2010 period.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net revenue | $134.2 | $111.7 | $379.4 | $327.3 |
| Operating income | $61.7 | $49.1 | $172.1 | $146.7 |
| Operating margin | 46.0% | 43.9% | 45.4% | 44.8% |
| Net income | $40.5 | $33.4 | $109.6 | $90.4 |
| Net margin | 30.2% | 29.9% | 28.9% | 27.6% |
| Diluted EPS | $0.48 | $0.41 | $1.31 | $1.12* |
- For the nine months, operating cash flow was $70.5 million, down from $106.9 million, primarily reflecting higher working-capital needs, including accounts receivable. Investing cash outflow was $30.3 million, including $21.9 million for acquisitions and $8.4 million for capital expenditures. Financing cash outflow was $24.0 million.
- At September 30, cash and cash equivalents were $137.3 million; restricted cash was $57.4 million. Management said restricted cash primarily represents Czech customer deposits.
- Total notes payable and securitization borrowings were $446.7 million, including $296.7 million of notes payable and $150.0 million outstanding under the receivables securitization facility. The balance sheet reports $281.5 million of long-term notes and other obligations.
- A new five-year $900 million credit agreement was entered into in June 2011: a $300 million term loan and a $600 million revolver. The company reported $296.3 million outstanding under the new credit facility at quarter-end and no revolver borrowings; it reported covenant compliance. The separate $500 million receivables facility had $150 million outstanding.
*The face income statement reports 2010 nine-month diluted EPS of $1.12; the EPS note reports $1.10.
Material changes versus the prior comparable period
- Q3 revenue rose 20.2%, operating income 25.8% and net income 21.3%. For the first nine months, the respective increases were 15.9%, 17.3% and 21.2%.
- North America drove most of the growth: Q3 segment revenue increased 24.4% and operating income 37.4%. International revenue increased 11.8%, while operating income grew 4.9%; its Q3 segment operating margin declined to 44.6% from 47.5%.
- Management attributed growth to organic program performance, higher average fuel prices, improved fuel-price spreads and favorable foreign exchange. The Mexican prepaid fuel-card and food-voucher acquisition also contributed revenue and transactions, but management said it had lower revenue per transaction and operating margin than other businesses.
- General and administrative expense rose 45.5% in Q3 and 49.2% year to date, primarily from increased stock-based compensation, public-company costs and one-time transaction costs. Nine-month stock-based compensation was $15.6 million versus $2.5 million.
- Net interest expense fell to $3.1 million in Q3 and $9.9 million for the nine months, from $5.6 million and $16.4 million, respectively, reflecting the expired interest-rate swap and lower borrowing costs following refinancing. The refinancing resulted in a $2.7 million nine-month loss on early debt extinguishment.
Outlook, commentary and risks
- No earnings or revenue guidance is provided. Management expected 2011 capital expenditures of approximately $11 million and stated that cash, borrowing capacity and operating cash flows should meet liquidity needs for at least 12 months, absent a major acquisition.
- Management highlighted exposure to fuel-price levels and spreads, customer credit and transaction volumes, interest rates, foreign-exchange movements, economic conditions, and the continuation of key business relationships. Acquisitions and their integration may affect comparability and results.
- Approximately 24.0% of nine-month 2011 revenue was directly influenced by absolute fuel prices and approximately 19.6% came from transactions tied to fuel-price spreads. About 67.7% of revenue was U.S.-dollar denominated.
- The UK Office of Fair Trading was investigating alleged dominance and potentially exclusive arrangements involving the Keyfuels product line. The company did not anticipate a material adverse outcome, but an adverse finding could require contract changes and result in significant fines.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. It reported effective disclosure controls and no material quarter-to-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant and filing identity: the supplied 10-Q names FleetCor Technologies, Inc., while the request metadata names Corpay, Inc.
- Resolve the 2010 nine-month diluted EPS discrepancy: $1.12 on the income statement versus $1.10 in the EPS note.
- Assess whether lower operating cash flow reflects temporary working-capital investment or a continuing cash-conversion trend.
- Review refinancing terms, covenant headroom, revolver availability and the February 2012 securitization-facility termination date and renewal risk.
- Track fuel-price and spread sensitivity, International segment margin performance, acquisition integration, and the outcome of the Keyfuels regulatory investigation.