FleetCor Technologies, Inc. — Q1 2015 Form 10-Q
Entity note: The filing identifies the registrant as FleetCor Technologies, Inc.; the request metadata names Corpay, Inc. The filing covers the three months ended March 31, 2015 and is unaudited.
Business context and reporting period
FleetCor provides fuel cards, commercial payment and data solutions, stored-value products, and workforce payment services. It reports North America and International segments. Q1 comparisons are substantially affected by the November 2014 Comdata acquisition, whose results are included in North America.
Key financial results
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $416.2 million | $253.9 million | +63.9% |
| Operating income | $163.8 million | $114.1 million | +43.5% |
| Operating margin | 39.4% | 45.0% | Down 5.6 percentage points |
| Net income | $94.2 million | $75.1 million | +25.4% |
| Net margin | 22.6% | 29.6% | Down 7.0 percentage points |
| Diluted EPS | $1.00 | $0.88 | +13.6% |
| Operating cash flow | $67.4 million | $51.5 million | +30.9% |
Adjusted revenue, a non-GAAP measure, was $388.8 million versus $236.3 million. Adjusted net income was $135.9 million versus $96.1 million; adjusted diluted EPS was $1.45 versus $1.12. The company excludes specified items, including stock compensation and amortization, in these measures.
Segment revenue was $298.8 million in North America (+136.4%) and $117.4 million internationally (-8.0%). Segment operating margins were 36.7% and 46.0%, respectively. Total transactions increased to 431.3 million from 87.6 million, largely because Comdata added approximately 301 million stored-value transactions; the company says these transactions carry low revenue per transaction.
Balance sheet, cash flow, and debt
At March 31, 2015, cash and cash equivalents were $379.4 million, down from $477.1 million at year-end; restricted cash was $129.6 million. Total assets were $8.50 billion and stockholders’ equity was $2.78 billion. Operating cash flow was $67.4 million; investing cash outflow was $9.0 million and financing cash outflow was $142.6 million. Cash declined $97.7 million during the quarter.
Total notes, credit agreements, and securitization borrowings were $3.48 billion, down from $3.59 billion at December 31, 2014. The balance included $679.0 million outstanding under the $1.2 billion receivables securitization facility. The company reported approximately $480 million of available credit-facility capacity and $51 million of additional securitization capacity. It was in compliance with debt covenants at quarter-end.
Material changes, outlook, and risks
- Acquisitions completed in 2014, principally Comdata, contributed approximately $145 million of year-over-year quarterly revenue. Management also cited organic growth, partly offset by adverse market and currency effects.
- Management estimated unfavorable foreign-exchange effects of approximately $20 million on revenue and an approximately $30 million adverse effect on adjusted revenue from macroeconomic factors overall, including lower fuel prices, partly offset by higher fuel spreads.
- Operating margin fell mainly because of Comdata-related expenses, acquired-intangible amortization, and higher stock-based compensation. Interest expense rose to $19.6 million from $5.5 million, primarily reflecting acquisition-related borrowings and higher leverage.
- Foreign-currency translation reduced other comprehensive income by $93.1 million; the filing also reports $1.9 million of foreign-exchange losses in other expense.
- No formal earnings or revenue guidance is provided. Management said cash, borrowing capacity, and expected operating cash generation should meet liquidity needs for at least the next 12 months. Management also expects to pursue acquisitions and invest in sales and marketing. Approximately $233.9 million of cash held in foreign subsidiaries was considered permanently reinvested; repatriation could entail U.S. taxes.
- Risks highlighted include fuel-price and spread volatility, customer credit losses, interest rates, foreign exchange, economic conditions, financing availability, and risks in integrating acquisitions. Acquisition accounting for Comdata remained preliminary. Management said ordinary-course legal matters were not expected to materially affect financial position, results, or liquidity; no material legal proceedings were reported.
Important facts for investors to verify
- How much reported growth and transaction growth is attributable to Comdata versus organic performance, particularly excluding low-yield stored-value transactions.
- Whether operating margins and cash generation improve as acquisition-related amortization, integration costs, and compensation expenses evolve.
- Debt repayment capacity, variable-rate exposure, covenant headroom, and availability under credit and securitization facilities.
- The eventual purchase-accounting adjustments for Comdata and the carrying value and impairment risk of goodwill and intangible assets.
- The sensitivity of revenue and adjusted revenue to fuel prices, fuel spreads, and foreign-exchange movements, and the potential tax cost of repatriating foreign cash.