Business context and reporting period
FleetCor Technologies, Inc. (the registrant named in this filing; trading symbol FLT) reported unaudited results for the three months ended March 31, 2019, compared with the same period in 2018. Its business provides commercial payment solutions across fuel, corporate payments, tolls, lodging, gift and related products, through North America and International segments.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $621.8 million | $585.5 million | +6.2% |
| Operating income | $284.2 million | $260.1 million | +9.3% |
| Operating margin | 45.7% | 44.4% | +1.3 percentage points |
| Net income | $172.1 million | $174.9 million | -1.6% |
| Diluted EPS | $1.93 | $1.88 | +2.7% |
| Adjusted net income (non-GAAP) | $238.4 million | $233.5 million | +2.1% |
| Adjusted diluted EPS (non-GAAP) | $2.67 | $2.50 | +6.8% |
| Operating cash flow | $297.5 million | $200.7 million | +$96.8 million |
| Cash and restricted cash | $1,372.6 million | — | Includes $315.1 million restricted |
Total debt, including the receivables securitization facility, was $4.516 billion at March 31, 2019, versus $4.819 billion at year-end 2018. The company reported $569 million of available capacity under its credit facility and no additional availability under its $1.2 billion securitization facility. It said cash, borrowing capacity and operating cash generation should meet liquidity needs for at least the next 12 months. The company was in compliance with debt covenants.
Material changes versus the prior comparable period
- Revenue growth was led by North America, up 9.0%; International revenue rose 1.7%. Management reported approximately 11% organic growth on a constant fuel-price, spread, foreign-exchange and acquisition basis.
- Corporate Payments revenue rose 16%; fuel revenue rose 7%. Reported toll revenue declined 1%, though management attributed a substantial offset to foreign exchange; gift revenue was approximately flat.
- Operating income and margin improved, but net income declined as interest expense rose 25.7% to $39.1 million and the company recorded a $15.7 million investment impairment.
- Processing expense increased 10.8%, including approximately $10 million of incremental bad-debt expense. The provision for receivable losses was $22.2 million, compared with $12.0 million.
- Operating cash flow increased, with management citing higher earnings and favorable working-capital timing. Financing cash outflow was $272.9 million, primarily reflecting reduced net borrowings under the credit facility.
- On January 1, 2019, the company adopted the new lease standard, recognizing operating-lease right-of-use assets and liabilities; comparative periods were not restated.
Outlook, commentary, risks and unusual items
- No specific revenue, earnings or EPS guidance is provided in the filing. Management stated that available liquidity should fund requirements for at least 12 months, while noting future financing may be sought and may not be available on favorable terms.
- Management estimated foreign-exchange movements reduced year-over-year revenue by approximately $28 million and described the overall macroeconomic effect on consolidated revenue as negative by approximately $23 million. Favorable fuel spreads partly offset currency headwinds; fuel-price changes were essentially neutral.
- Interest-rate exposure remains relevant: the company had $3.574 billion of notes and other obligations plus $942 million of securitization borrowings. Three swaps hedge $2.0 billion of variable-rate debt; their fair-value loss contributed $20.7 million to other comprehensive loss, net of tax.
- The $15.7 million telematics investment impairment was a non-cash unusual item. Adjusted net income excludes this impairment along with other specified items; the measure is non-GAAP and should be considered alongside GAAP results.
- Subsequent to quarter-end, the company completed two acquisitions on April 1, including NvoicePay, for an aggregate purchase price of approximately $255 million. The filing says they were not material to financial results.
- Contingencies include shareholder class and derivative suits alleging misleading statements and a proposed Fuelman customer class action alleging overcharges. The company disputes the claims; it said it could not reasonably estimate potential losses. Management cautioned that resolution could adversely affect a particular period.
- Other stated risks include foreign-exchange and fuel-price volatility, customer credit losses, regulatory actions, litigation, cybersecurity, financing availability, and acquisition integration. Management reported no material changes to previously disclosed risk factors and that disclosure controls were effective.
Important facts for investors to verify
- Whether organic growth and transaction trends persist after adjusting for foreign exchange, fuel prices and spreads, and acquisitions; reported growth and management’s adjusted growth figures are not directly interchangeable.
- Whether bad-debt expense and receivables growth signal a sustained change in customer credit quality.
- How higher interest costs, variable-rate debt and the new swaps affect future earnings and cash flow.
- Whether the NvoicePay and other acquisitions deliver expected strategic and financial benefits, and how they affect debt and liquidity.
- Developments and potential financial exposure in the disclosed shareholder and Fuelman litigation, for which losses were not estimable.
- The distinction between unrestricted cash and restricted customer-related cash, and the company’s capacity under its credit and securitization facilities.