FleetCor Technologies, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with Q1 2015 unless noted. The filing identifies the registrant as FleetCor Technologies, Inc. (the request metadata names Corpay, Inc.). Amounts below are U.S. dollars; financial statement figures are in millions unless otherwise indicated.
Business context
FleetCor provides fuel cards, commercial payment and data solutions, stored-value products, and related workforce payment services. It reports North America and International segments. Revenue is reported net of the wholesale cost of underlying products and services.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $414.3 | $416.2 |
| Operating income / margin | $176.0 / 42.5% | $163.8 / 39.4% |
| Net income | $110.0 | $94.2 |
| Diluted EPS | $1.17 | $1.00 |
| Operating cash flow | $121.5 | $67.4 |
| Cash used in investing / financing | $(20.7) / $(157.4) | $(9.0) / $(142.6) |
- Net margin was 26.5%, compared with 22.6%. Adjusted net income, a non-GAAP measure, was $144.3 million, or $1.53 per diluted share, versus $135.9 million, or $1.45.
- Transactions rose 12.9% to 487.0 million, while consolidated revenue per transaction fell to $0.85 from $0.96. Adjusted revenue, a non-GAAP measure, was $386.0 million versus $388.8 million.
- North America revenue increased 1.6% to $303.5 million; segment operating margin was 37.5%, up from 36.7%. International revenue decreased 5.7% to $110.7 million; segment operating margin rose to 56.1% from 46.0%.
- At March 31, cash and cash equivalents were $399.3 million and restricted cash was $145.2 million. Total reported cash balances were $544.6 million. Total debt, including the securitization facility, was $2.775 billion; $742.1 million was classified as current and $2.033 billion as long-term. The company reported $945 million available under its credit facility and about $35 million of additional securitization capacity.
- Capital expenditures were $11.7 million, versus $8.1 million. Cash and cash equivalents declined $47.8 million during the quarter to $399.3 million.
Changes and drivers versus prior period
- Revenue declined 0.5%, despite transaction growth. Management estimated that macroeconomic factors reduced revenue by approximately $38 million: about $25 million from lower fuel prices and fuel spreads, and about $13 million from foreign exchange. Management estimated revenue growth of approximately 9% excluding that impact; this is a company estimate, not a reported GAAP result.
- Management attributed North America’s estimated $24 million macroeconomic headwind primarily to lower U.S. fuel prices and spreads. International revenue faced an estimated $14 million headwind, mainly from foreign exchange and slightly lower fuel prices.
- Operating income increased 7.4%. Lower depreciation and amortization, including a $10.2 million foreign-exchange-related decrease, and lower expenses contributed. Net interest expense fell 17.2% to $16.2 million, primarily reflecting deleveraging and lower interest rates.
- The effective tax rate declined to 29.9% from 32.6%, which management attributed mainly to tax-planning initiatives implemented in 2015 and favorable discrete items in Q1 2016.
- Operating cash flow increased, with management citing higher net income and working-capital changes, including movements in receivables, payables, and accrued expenses. The filing notes that receivable and payable fluctuations are substantially affected by timing and volume.
Outlook, risks, and notable items
- No quantified revenue or earnings guidance is provided. Management said cash balances, available borrowing capacity, and expected operating cash generation should fund liquidity needs for at least the next 12 months.
- On March 14, 2016, FleetCor agreed to acquire Brazilian electronic toll-payment company STP for an anticipated approximately R$4.2 billion, or about $1.14 billion at March 31 exchange rates, subject to closing adjustments and regulatory approvals. The company expected closing in Q3 2016 and planned to use existing cash and credit-facility borrowings.
- The board authorized repurchases of up to $500 million of common stock over 18 months; none were made in Q1.
- Key disclosed business sensitivities include fuel prices and spreads, customer credit losses, foreign exchange, interest rates, general economic conditions, regulatory actions, financing availability, key business relationships, and acquisition completion and integration. Management reported compliance with debt covenants and no material legal proceedings or governmental inquiries as of the filing.
- The filing states that Q1 2015 other comprehensive income was revised to correct translation accounting for certain acquired intangibles; management said the revision was not material to prior-period financial statements. Q1 2015 comprehensive loss is presented as $65.8 million.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the STP acquisition closed as expected, its final purchase price and financing, and its subsequent operating contribution.
- Whether transaction growth can translate into revenue growth if fuel prices, spreads, foreign exchange rates, or product mix remain unfavorable.
- The sustainability of margin and EPS improvement, particularly the effects of lower amortization, foreign exchange, tax items, and non-GAAP adjustments.
- Debt repayment, liquidity availability, and any changes in customer deposits, receivables, or securitization-facility usage.
- Subsequent repurchases under the $500 million authorization and any material legal, regulatory, credit, or acquisition developments.