FleetCor Technologies, Inc. — Q2 2012 Form 10-Q
Filing identity: The supplied filing is for FleetCor Technologies, Inc., not a company named Corpay. It covers the quarter and six months ended June 30, 2012; amounts below are in U.S. dollars.
Business context and reporting period
FleetCor provides specialized payment products and services, including fuel cards and transaction processing, to businesses, fleets, oil companies and other customers. It reports North America and International segments. The interim financial statements are unaudited.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net revenue | $171.8 million | $134.2 million | $318.0 million | $245.2 million |
| Operating income | $81.4 million | $59.9 million | $145.9 million | $110.4 million |
| Operating margin | 47.4% | 44.6% | 45.9% | 45.0% |
| Net income | $54.4 million | $36.7 million | $96.5 million | $69.0 million |
| Diluted EPS | $0.63 | $0.44 | $1.13 | $0.83 |
- Q2 revenue rose 28.0%, operating income 36.0% and net income 48.2% year over year. Six-month revenue rose 29.7% and net income 39.7%.
- Q2 North America revenue was $107.3 million, up 15.5%; International revenue was $64.5 million, up 56.1%. Acquisitions contributed materially to International growth.
- Revenue per transaction declined to $2.31 from $2.70 for Q2 and to $2.18 from $2.54 for the six-month period, principally reflecting the mix of acquired businesses. North America revenue per transaction increased; International declined.
- Six-month cash flow from operations was negative $36.8 million, versus positive $2.5 million a year earlier, primarily due to working-capital movements, including receivables and other assets. Investing cash outflow was $43.9 million, including $35.5 million of acquisition spending; financing provided $49.9 million. Cash and equivalents declined $29.6 million to $255.6 million.
- At June 30, cash was $255.6 million, restricted cash $50.1 million, and total debt including the securitization facility $740.8 million. Debt included $325.0 million under the receivables securitization facility. The company reported $487.0 million available on its credit facility and $18.9 million of additional securitization capacity; it was in compliance with credit covenants.
- Q2 effective tax rate was 30.9%; the six-month rate was 30.6%. Cash paid for interest and income taxes in the first half was $7.2 million and $24.2 million, respectively.
Material changes, outlook and risks
- Growth reflected organic expansion and the 2011 Mexican and Allstar acquisitions, plus a Russian fuel-card acquisition completed June 15, 2012. The Russian acquisition was not material to consolidated results.
- On July 3, 2012, after quarter-end, FleetCor acquired CTF Technologies for $180 million to enter Brazil; purchase-price allocation was not yet complete at filing.
- Management expected 2012 capital expenditures of approximately $16 million, versus $13.5 million in 2011, mainly to enhance processing systems. It believed available cash, borrowing capacity and operating cash generation would cover liquidity needs for at least 12 months, absent major acquisitions. No specific revenue or earnings guidance was provided.
- Management cited fuel-price and spread volatility, customer credit risk, competition, foreign-exchange movements, economic conditions, acquisitions and financing availability as uncertainties. The UK Office of Fair Trading was investigating alleged exclusivity in contracts associated with the Keyfuels product. An adverse outcome could require contract changes and significant fines; the company could not reasonably estimate a loss range.
- Management reported disclosure controls were effective as of June 30, 2012, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer and security are the intended subject: this filing identifies FleetCor Technologies, Inc.
- Assess whether acquisition-driven growth, especially International growth, is sustainable and how acquired businesses affect transaction yields and margins.
- Monitor operating cash conversion and working-capital movements given positive earnings but negative first-half operating cash flow.
- Review debt maturities, variable-rate exposure, securitization renewal (then scheduled to terminate February 4, 2013) and remaining borrowing capacity.
- Follow the Keyfuels regulatory investigation and potential financial or contractual consequences.
- Evaluate the post-quarter CTF acquisition’s financing, integration, purchase accounting and subsequent contribution to results.