FleetCor Technologies, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; the filing also reports fourth-quarter results. The supplied filing is for FleetCor Technologies, Inc., not a company named Corpay.
Business context
FleetCor provides commercial fleet, fuel, lodging and related payment programs and processing services in North America and internationally. It processed 214.8 million transactions in 2011, up 12.8% from 190.4 million, and reported results in North America and International segments. Revenue is reported net of the wholesale cost of underlying products and services.
Financial performance
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Revenue | $519.6 million | $433.8 million | +19.8% |
| Operating income | $226.3 million | $170.5 million | +32.7% |
| Operating margin | 43.6% | 39.3% | +4.3 percentage points |
| Net income | $147.3 million | $107.9 million | +36.6% |
| Diluted EPS | $1.76 | $1.34 | — |
| Operating cash flow | $279.6 million | $139.8 million | — |
| Capital expenditures | $13.5 million | $11.2 million | — |
Net margin was 28.4%, versus 24.9% in 2010. The fourth quarter reported revenue of $140.2 million, operating income of $54.2 million and net income of $37.8 million. North America generated $348.8 million of revenue and $153.7 million of segment operating income; International generated $170.8 million and $72.6 million, respectively. North American segment margin rose to 44.1% from 37.1%; International margin declined to 42.5% from 43.6%.
At year-end, cash and cash equivalents were $285.2 million, with a further $55.8 million of restricted cash. Total debt, including $280.0 million outstanding under the securitization facility, was $698.8 million, compared with $469.4 million a year earlier. The new $900 million credit facility had $292.5 million of term loans and $125.0 million of revolver borrowings outstanding; $475 million of revolving capacity remained undrawn. The company reported compliance with its credit-facility covenants and said available cash, borrowing capacity and operating cash flow should meet needs for at least the next 12 months.
Cash flow from investing was negative $347.2 million, primarily reflecting $333.8 million of acquisitions, net of cash acquired. Financing activities provided $236.2 million. The filing does not provide a clear stand-alone free-cash-flow measure.
Material changes and unusual items
- Revenue growth reflected organic program growth, acquisitions, higher average fuel prices, improved fuel-price spreads and favorable foreign exchange, which added $7.4 million to 2011 revenue.
- In December 2011, FleetCor acquired UK fleet-card provider Allstar for approximately $312 million, funded with cash and debt. It acquired a Mexican prepaid fuel-card and food-voucher business in August. The acquired businesses increased volume but had lower revenue per transaction or margins than FleetCor’s other businesses; their 2011 contribution was limited by acquisition timing.
- Interest expense fell to $13.4 million from $20.5 million, while a $2.7 million debt-extinguishment loss arose from refinancing the prior credit facilities.
- The effective tax rate increased to 30.1% from 28.7%; 2010 benefited from a one-time reduction in reserves for uncertain tax positions.
- Comparability with 2009 is affected by the 2010 accounting change that brought the securitization facility onto the balance sheet and changed income-statement presentation. The 2009 income statement was not retrospectively adjusted; management showed 2009 managed-basis adjustments, including $27.2 million of revenue.
Outlook, risks and contingencies
- No formal revenue or earnings guidance is stated. Management anticipated approximately $16 million of capital expenditures and approximately $35 million of technology spending in 2012, in part to support acquisition integration. It expected general and administrative expenses to remain relatively stable or increase slightly as a percentage of revenue in the near term.
- Fuel-price exposure is material: approximately 20% of 2011 revenue was directly influenced by absolute fuel prices and approximately 19% was tied to fuel-price spreads. A fuel-price decline or spread contraction could reduce revenue.
- Customer and partner concentration matters: Chevron represented about 11% of revenue, and the top three major-oil-company relationships represented approximately 21%. The business also faces credit, competitive, economic, foreign-exchange, cybersecurity and regulatory risks.
- FleetCor was awaiting the UK Office of Fair Trading’s conclusions concerning alleged dominance and possible exclusivity in Keyfuels contracts. The regulator could require contract changes or impose fines. The Allstar acquisition was also under review, with a possible referral for further competition review expected by March 28, 2012.
- The $500 million securitization facility requires renewal; it was extended after year-end through February 4, 2013. The filing notes that future renewal terms and capacity are not assured.
- Goodwill and intangible assets were significant; goodwill was $823.5 million and the company reported no impairment in its 2011 annual test. Goodwill and intangible assets together represented approximately 48.3% of total assets.
Most important facts for investors to verify
- Confirm the filing issuer and period: this is FleetCor’s fiscal 2011 Form 10-K, not a Corpay filing.
- Assess how much growth and cash generation came from organic operations versus acquisitions, fuel prices, spreads and foreign exchange; consider the limited post-acquisition contribution from Allstar and the Mexican business.
- Review the debt and working-capital picture, including the $280 million securitization balance, its renewal terms, and the distinction between unrestricted and restricted cash.
- Check subsequent developments in the UK competition matters and the integration and profitability of the 2011 acquisitions.
- Interpret EPS comparisons carefully: basic EPS was $1.83 in 2011 and $3.00 in 2010, while diluted EPS was $1.76 and $1.34, respectively; the IPO and conversion of preferred shares materially changed the share-count basis.
- Note that management’s internal-control assessment and the auditor’s internal-control audit excluded the two businesses acquired in 2011; those businesses represented 26% of total assets and 2.5% of revenue at year-end/for the year, respectively, as disclosed.