Filing summary
Entity and period: The supplied filing is FleetCor Technologies, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2011, not a filing under the name Corpay, Inc. Investors should verify the issuer and the relationship to the company specified in the request. Financial comparisons below are year over year.
Business context
FleetCor describes itself as a provider of commercial payment products and services, including fleet fuel cards, transaction processing and related information services, operating in 18 countries. It reports North America and International segments. Revenue is reported net of the wholesale cost of underlying products and services.
Financial performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $134.2 million, up 20.4% from $111.4 million | $245.2 million, up 13.7% from $215.6 million |
| Operating income / margin | $59.9 million / 44.6%, versus $50.6 million / 45.4% | $110.4 million / 45.0%, versus $97.7 million / 45.3% |
| Net income | $36.7 million, up 23.9% from $29.6 million | $69.0 million, up 21.2% from $57.0 million |
| Diluted EPS | $0.44, versus $0.37 | $0.83, versus $0.71 |
| Operating cash flow | $2.5 million for the six months, versus $52.5 million in 2010 | |
| Capital expenditures | $5.9 million for the six months, versus $5.0 million |
For the six months, North America revenue was $164.4 million (up 13.7%) and International revenue was $80.8 million (up 13.8%). Management attributed growth to organic program growth, higher fuel prices, fuel-price spreads and favorable foreign exchange. It reported 97.8 million transactions for the six months, up 3.3% excluding a non-renewed European partner contract; consolidated revenue per transaction rose to $2.51 from $2.27 on that adjusted comparison.
Operating costs grew more slowly than revenue overall, but general and administrative expense rose 51.1% for the six months to $40.0 million, primarily from stock-based compensation and public-company costs. Operating margin eased to 45.0% from 45.3%. Net income growth also benefited from lower net interest expense; a $2.7 million debt-extinguishment loss partly offset that benefit. Basic EPS comparisons are affected by the 2010 preferred-stock dividends and conversion and by a substantially different weighted-average share count.
Liquidity, debt and balance sheet
At June 30, 2011, cash and cash equivalents were $101.2 million; an additional $63.0 million was restricted and not available for general use. Total assets were $1.619 billion and stockholders’ equity was $713.0 million. Accounts receivable, net, was $387.8 million, compared with $260.2 million at December 31, 2010; securitized receivables were $162.0 million.
Total notes payable and securitization borrowings were $462.5 million, including $300.0 million under a new term loan and $162.0 million under the receivables securitization facility. On June 22, the company replaced its prior credit facilities with a five-year $900 million facility: a $300 million term loan and a $600 million revolver, with no revolver borrowings at quarter-end. The term-loan rate was 1.94%; the company reported compliance with financial covenants at June 30. The securitization facility has a $500 million limit and expires February 23, 2012; $178.1 million of additional liquidity was reported available under it. Management said available cash, borrowing capacity and operating cash generation were expected to meet liquidity needs for at least 12 months, absent a major acquisition.
Operating cash flow fell sharply, primarily because of working-capital investment, including increased receivables. Financing cash flows included refinancing and substantial repayment of the old facilities. Management estimated 2011 capital expenditures of approximately $10 million, compared with $11.2 million in 2010.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management expects to continue investing in processing systems and sales and marketing, and intends to pursue acquisitions.
- Results are exposed to fuel-price and fuel-spread volatility, customer credit losses, economic conditions, interest rates, foreign-exchange movements, and the retention of key partners and financing sources. Management noted that a material portion of revenue is directly influenced by fuel prices or tied to fuel spreads.
- The UK Office of Fair Trading was investigating alleged market dominance and exclusivity provisions in contracts relating to the Keyfuels product. The company said it did not anticipate a material adverse outcome, but an adverse finding could require contract changes and result in significant fines.
- Other notable items include the $2.7 million write-off of deferred financing costs on refinancing, increased stock-based compensation, and favorable currency translation effects on revenue. The filing says ordinary-course litigation was not expected to have a material adverse effect. Disclosure controls were assessed as effective.
Most important facts to verify
- Confirm that this FleetCor filing is the intended issuer and period for the Corpay request.
- Assess whether the receivables increase and low first-half operating cash flow are temporary working-capital effects or a recurring liquidity concern.
- Review the composition and expected persistence of growth, including the contributions from fuel prices, spreads, foreign exchange and organic volume.
- Check the new credit agreement’s covenants, amortization and capacity, and the securitization facility’s February 2012 expiration and renewal risk.
- Monitor the Keyfuels investigation, potential remedies or fines, and the effect of elevated stock-based compensation on margins and per-share results.