FleetCor Technologies, Inc. (now identified in the request as Corpay, Inc.) — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. The filing itself names FleetCor Technologies, Inc. as the registrant and was signed August 10, 2015. Amounts below are in U.S. dollars.
Business context and results
FleetCor provided fuel-card, commercial-payment, stored-value and related services through North America and International segments. Results were substantially affected by the November 2014 Comdata acquisition, including its high-volume, low-revenue-per-transaction stored-value business.
- Q2 revenue: $404.6 million, up 47.9% year over year. North America revenue rose 104.9% to $284.6 million; International revenue fell 10.9% to $120.0 million.
- Q2 profit: Operating income was $169.2 million, up 25.8%; net income was $98.7 million, up 11.4%. Diluted EPS was $1.05 versus $1.03.
- Q2 margins: Consolidated operating margin declined to 41.8% from 49.2%. North America segment margin fell to 38.5% from 49.2%; International margin was 49.6% versus 49.1%.
- First half: Revenue was $820.8 million, up 55.6%; operating income was $332.9 million, up 33.9%; net income was $192.8 million, up 17.8%; diluted EPS was $2.05 versus $1.91. Consolidated operating margin fell to 40.6% from 47.1%.
- Non-GAAP measures: Q2 adjusted revenue was $382.9 million, adjusted net income $138.9 million and adjusted diluted EPS $1.48, versus $253.2 million, $108.9 million and $1.27, respectively, in Q2 2014. First-half adjusted revenue was $771.7 million and adjusted net income $274.9 million, versus $489.5 million and $205.0 million. These company-defined measures exclude specified items, including stock compensation and amortization.
Cash flow, debt and liquidity
- First-half cash flow: Operating cash flow was $198.4 million, compared with $157.7 million in 2014. Investing used $24.2 million, versus $201.4 million, largely reflecting lower acquisition spending. Financing used $253.3 million, including substantial credit-facility repayments and $39.8 million of contingent-consideration payments.
- Cash: Unrestricted cash and equivalents were $384.2 million at June 30, down from $477.1 million at year-end. Restricted cash was $129.4 million. The six-month net cash decrease was $92.9 million.
- Debt: Notes, credit agreements and securitization borrowings totaled $3.36 billion, down from $3.59 billion at December 31, 2014. This includes $764 million outstanding under a $1.2 billion receivables securitization facility. The company reported covenant compliance.
- Available liquidity: Management reported approximately $654 million available under its credit facility and $48 million of additional securitization capacity. It believed cash, borrowing capacity and operating cash generation would cover needs for at least 12 months.
Material changes, outlook and risks
- Comdata contributed approximately $141 million of Q2 revenue and $281 million of first-half revenue versus the comparable 2014 periods. The acquisition also raised processing, general and administrative, depreciation and amortization expenses, and interest expense; these costs contributed to lower reported operating margins.
- Q2 transaction volume increased 382% to 435.1 million, including approximately 296 million Comdata SVS transactions. Excluding SVS, Q2 consolidated revenue per transaction declined 11.5% to $2.68. First-half volume increased 389% to 866.7 million; excluding SVS, revenue per transaction declined 6.8% to $2.77.
- Management estimated that foreign exchange and lower fuel prices, partly offset by higher fuel spreads, reduced Q2 adjusted revenue by approximately $47 million and first-half adjusted revenue by approximately $76 million. International revenue and operating income were pressured by unfavorable currency movements; management also cited softness in Russia and Brazil.
- No specific earnings or revenue guidance is provided in the supplied filing text. Management described plans to continue investing in sales and marketing and to pursue strategic acquisitions. Its liquidity outlook is subject to financing availability and business conditions.
- Key risks include fuel-price and spread volatility, foreign-exchange movements, customer credit losses, economic conditions, interest rates, regulatory actions, financing access, and the ability to integrate acquisitions and maintain business relationships. The Comdata acquisition accounting remained preliminary. Management said ordinary-course litigation reserves were recorded and did not expect ultimate liability, if any, to materially affect financial position, results or liquidity.
- Management reported disclosure controls were effective as of June 30, 2015, with no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm the registrant identity and relationship between the historical FleetCor filing and Corpay, Inc.; the filing text names FleetCor Technologies, Inc.
- Assess the extent to which reported growth and transaction volume reflect Comdata/SVS acquisition effects versus organic growth, particularly given SVS’s low revenue per transaction.
- Review margin pressure, acquired-intangible amortization, stock-based compensation and the sustainability of management’s non-GAAP adjustments.
- Track debt repayment, interest expense, securitization usage, covenant headroom and the availability of stated borrowing capacity.
- Monitor fuel prices and spreads, foreign exchange exposure, and continued weakness in International markets; compare management’s estimated macroeconomic impacts with subsequent results.
- Review completion of Comdata purchase accounting and any changes to acquired contingencies, intangible-asset values or goodwill.