Business context and reporting period
FleetCor Technologies, Inc. (NYSE: FLT), a global provider of commercial payment solutions, filed this unaudited Form 10-Q for the quarter ended March 31, 2018. The filing is for FleetCor Technologies, Inc.; the request metadata names Corpay, Inc. The company reports North America and International segments.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Net revenue | $585.5 million | $520.4 million |
| Operating income | $260.1 million | $195.1 million |
| Operating margin | 44.4% | 37.5% |
| Net income | $174.9 million | $123.7 million |
| Diluted EPS | $1.88 | $1.31 |
| Adjusted net income (non-GAAP) | $233.5 million | $185.0 million |
| Adjusted diluted EPS (non-GAAP) | $2.50 | $1.96 |
| Operating cash flow | $200.7 million | $73.5 million |
| Capital expenditures | $15.2 million | $14.8 million |
Net revenue increased 12.5% year over year. Management attributed growth to approximately 10% organic growth on a constant fuel price, fuel spread, foreign exchange, acquisition and disposition basis; approximately $36 million of revenue from 2017 acquisitions; and about $18 million of favorable macroeconomic and currency effects. The 2018 result was reduced by roughly $24 million from Topic 606 presentation changes and roughly $12 million from the NexTraq divestiture. Reported prior-period figures were not restated, limiting direct comparability.
Cash provided by operations rose mainly with higher earnings and favorable working-capital timing. Investing cash outflow was $22.7 million; financing cash outflow was $99.0 million, including $88.3 million of share repurchases. Cash and cash equivalents were $979.6 million at quarter-end, plus $242.9 million of restricted cash. Total debt, including the securitization facility, was $4.49 billion, compared with $4.52 billion at December 31, 2017. The $950 million securitization facility was fully utilized; approximately $627 million remained available under the credit facility. The company reported compliance with debt covenants.
Changes, outlook, and risks
- Operating income increased 33.3%; net income increased 41.4%. Segment operating margins rose to 42.8% in North America from 36.7%, and to 47.1% in International from 38.9%.
- Interest expense increased 34.3% to $31.1 million, primarily due to acquisition and share-repurchase borrowing and higher LIBOR. The effective tax rate declined to 23.7% from 26.1%, principally reflecting the lower U.S. federal tax rate under the Tax Act.
- Topic 606 adoption on January 1, 2018 changed revenue and expense presentation and capitalized qualifying contract acquisition costs. As reported, it reduced Q1 revenue by $24.2 million and net income by about $2.0 million versus the estimated pre-adoption presentation. Adoption also increased opening retained earnings by $30.9 million; adoption of separate intra-entity tax guidance increased retained earnings by approximately $17.1 million.
- Management said existing cash, available borrowing capacity, and operating cash generation should meet liquidity needs for at least the next 12 months. No specific earnings or revenue guidance was provided.
- On April 26, 2018, the company identified unauthorized access primarily involving its Stored Value Solutions gift-card systems; it announced the incident on May 3. Gift card and PIN information associated with six customers may have been accessed. The investigation was ongoing; management did not then expect a material adverse effect, but anticipated legal and professional costs. The company reported no evidence of access to fleet-card or other payment systems. Insurance recovery was not recognized as probable.
- The company faces shareholder class-action and derivative litigation alleging misleading statements concerning fees, growth, and business prospects; it could not estimate potential losses. Other key exposures include fuel prices and spread volatility, foreign exchange, interest rates, customer credit losses, acquisition integration, regulation, and cybersecurity.
Important facts for investors to verify
- Confirm the correct issuer: this filing is by FleetCor Technologies, Inc., not an entity identified in the request metadata as Corpay, Inc.
- Assess year-over-year performance on a consistent Topic 606 basis and distinguish organic growth from acquisition, divestiture, fuel-price, spread, and currency effects.
- Track the gift-card system incident investigation, customer remediation, related expenses, potential claims, and any insurance recovery.
- Monitor debt, interest costs, available credit capacity, and the company’s use of cash for repurchases and acquisitions.
- Review the unresolved shareholder litigation and the company’s provisional accounting for Tax Act effects.