Business context and reporting period
FleetCor Technologies, Inc. (the registrant named in the filing) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. The filing describes a global commercial payments business with North America and International segments and products including fuel, corporate payments, tolls, lodging and gift cards. The request metadata names Corpay, Inc.; verify the issuer identity, as the filing itself is for FleetCor.
Financial performance and liquidity
| Metric | Three months ended September 30, 2018 | Nine months ended September 30, 2018 |
|---|---|---|
| Net revenue | $619.6 million; +7.2% year over year | $1,790.1 million; +9.2% |
| Operating income / margin | $281.1 million / 45.4%; prior-year margin 40.3% | $806.0 million / 45.0%; prior-year margin 39.3% |
| Net income | $157.7 million; versus $202.8 million | $509.5 million; versus $457.5 million |
| Diluted EPS | $1.71; versus $2.18 | $5.50; versus $4.87 |
| Adjusted net income / diluted EPS (non-GAAP) | $246.6 million / $2.68; versus $202.8 million / $2.18 | $717.9 million / $7.75; versus $574.8 million / $6.12 |
| Cash from operations | Not presented for the quarter | $555.4 million; versus $431.6 million |
For the nine-month period, investing activities used $71.3 million, financing activities used $356.3 million, and capital expenditures were $56.3 million. At September 30, cash and cash equivalents were $924.4 million and restricted cash was $264.1 million. Total debt including the securitization facility was $4.473 billion; approximately $675 million remained available under the credit facility, while the $1.2 billion securitization facility had no additional availability. The company reported compliance with debt covenants.
Material changes versus the prior comparable period
- Management reported organic revenue growth of approximately 11% for the quarter and 10% for the nine months, calculated on a comparable ASC 606 basis and excluding specified acquisition, disposition and macroeconomic effects.
- Reported 2018 revenue reflects ASC 606, adopted January 1, 2018 using the modified retrospective method. Netting certain commissions and processing costs reduced reported revenue by approximately $28.0 million in the quarter and $75.5 million in the nine months; prior periods were not restated. The company’s reconciliation estimated 2018 revenue before this presentation effect at $647.5 million for the quarter and $1,865.6 million for the nine months.
- Operating income and margins rose in both periods. However, quarterly GAAP net income and EPS fell, in part because third-quarter 2017 included a $175.0 million pretax gain on the NexTraq sale. The nine-month comparison also includes that prior-year gain; adjusted results exclude specified items and are non-GAAP.
- Foreign exchange movements were a headwind: management estimated an approximately $26 million quarterly revenue impact and $25 million for the nine months, primarily associated with Brazil. Higher fuel prices supported revenue, while fuel-price spread effects varied by period.
- Net interest expense increased 22.9% in the quarter and 31.4% in the nine months, reflecting borrowings and higher LIBOR. The company repurchased $380.7 million of shares in the first nine months; no repurchases occurred in the third quarter.
Outlook, commentary, risks and unusual items
- No formal earnings or revenue guidance is provided in the supplied filing text. Management said cash, borrowing capacity and operating cash generation were expected to cover liquidity needs for at least the next 12 months, subject to forecasts and market conditions.
- In October 2018, FleetCor reached agreement on terms to sell and transition the Chevron portfolio for approximately $160 million; management expected a pretax gain less transaction costs. This was a subsequent event, not a completed quarter-end transaction.
- The company recorded a $7.1 million impairment/write-off of its Qui investment in the third quarter. It also recorded a $22.7 million adjustment to provisional Tax Act amounts, including transition-tax-related effects; tax accounting remained subject to completion within the measurement period.
- Management cited exposure to economic conditions, customer credit losses, fuel prices and spreads, foreign exchange, interest rates, regulation, key business relationships, acquisitions and integration, international operations, litigation and cybersecurity. The filing notes previously announced unauthorized system access; management concluded disclosure controls were effective and said IT controls had been enhanced.
- Shareholder class-action and derivative lawsuits remained pending. The company disputed the allegations and said it could not reasonably estimate possible losses or a range of losses.
Important facts for investors to verify
- Confirm the issuer: this filing identifies FleetCor Technologies, Inc., not Corpay, Inc.
- Assess reported growth and margins alongside the ASC 606 presentation change; 2017 GAAP results were not restated, and management’s organic-growth measures are non-GAAP/comparable-basis measures.
- Separate recurring operating performance from prior-year NexTraq sale gains and investment impairments when evaluating net income and adjusted results.
- Monitor debt, interest costs, working-capital needs, and the fact that the securitization facility was fully utilized at quarter-end.
- Verify the completion, proceeds and accounting gain from the announced Chevron portfolio sale, and follow the tax adjustment, litigation and unauthorized-access disclosures.