Business context and reporting period
This is FleetCor Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed February 29, 2016. The request metadata names Corpay, Inc.; the filing itself is for FleetCor. It is an annual report, not a standalone fourth-quarter filing. FleetCor provides fuel cards, commercial payment processing, stored-value and workforce-payment products, and related fleet services across North America and international markets. Its 2015 transaction volume was approximately 1.85 billion, including about 1.3 billion SVS transactions added with Comdata.
Financial and operating highlights
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net revenue | $1.703 billion | $1.199 billion | +42.0% |
| Operating income | $667.5 million | $565.4 million | +18.1% |
| Operating margin | 39.2% | 47.1% | Down 7.9 percentage points |
| Net income | $362.4 million | $368.7 million | −1.7% |
| Diluted EPS | $3.85 | $4.24 | −9.2% |
| Operating cash flow | $754.6 million | $608.3 million | +24.0% |
| Capital expenditures | $41.9 million | $27.1 million | +54.7% |
- Adjusted revenue, a non-GAAP measure (net revenue less merchant commissions), was $1.595 billion versus $1.103 billion. Adjusted net income was $592.6 million versus $447.7 million, and adjusted diluted EPS was $6.30 versus $5.15. These measures exclude specified items and should not be treated as GAAP results.
- At year-end, cash and cash equivalents were $447.2 million; restricted cash was $167.5 million and is not generally available for corporate use. Total debt, including the securitization facility, was $2.937 billion, down from $3.594 billion. The filing reports approximately $875 million available under the Credit Facility and only about $4 million of additional capacity under the receivables securitization facility.
- Current assets were $1.945 billion and current liabilities were $2.248 billion. Cash held by foreign subsidiaries considered permanently reinvested was $258.7 million; repatriation could create U.S. tax costs.
- North America generated $1.232 billion of revenue, up 84.3%, and $442.1 million of operating income. International revenue fell 11.3% to $470.9 million, with operating income down 18.9% to $225.5 million.
Material changes versus prior period
- Comdata, acquired in November 2014 for approximately $3.4 billion, contributed about $528 million of incremental 2015 revenue versus 2014. The acquisition materially expanded North America and added virtual payment and stored-value products; it also increased expenses, depreciation and amortization, and debt.
- Transaction volume rose 183.8%, largely because of Comdata’s SVS business. Since SVS has low revenue per transaction, consolidated revenue per transaction fell 50.0% to $0.92. Excluding SVS, management reported a 10.2% decrease in consolidated revenue per transaction.
- Management estimated adverse 2015 impacts on adjusted revenue of approximately $90 million from foreign-exchange movements and $89 million from lower fuel prices, partly offset by higher fuel-spread margins. Approximately 15.1% of 2015 revenue was directly influenced by absolute fuel prices and 12.4% was tied to fuel-price spreads.
- Operating costs rose substantially, including processing expense (+91.0%) and depreciation and amortization (+72.2%). Comdata integration and acquired intangibles were important contributors. Operating margin contracted, and higher interest expense, equity-investment losses, and taxes contributed to lower GAAP net income despite revenue and operating-income growth.
Outlook, risks, contingencies and unusual items
- Management gave no specific revenue, earnings or cash-flow guidance. It stated that cash, borrowing capacity and operating cash generation were expected to cover liquidity needs for at least the next 12 months, while noting that future financing may be needed.
- The board approved, on February 4, 2016, a share-repurchase program of up to $500 million over 18 months. Purchases are discretionary and subject to market, legal and other constraints; dividends are not expected in the foreseeable future.
- Fourth-quarter 2015 included $74.4 million of unusual unfavorable items: a $40 million non-cash impairment of the 44%-owned Masternaut investment and a $34.4 million increase in non-cash stock-based compensation expense. Fourth-quarter net income was $52.8 million, versus $109.5 million in fourth-quarter 2014.
- Goodwill and intangible assets represented approximately 73% of total assets. The annual goodwill test found reporting-unit fair values above carrying values, but management identified impairment estimates as sensitive to forecasts and discount rates. The Masternaut impairment reflects delayed expected performance improvements.
- Key risks include fuel-price and spread volatility, customer credit losses, intense competition and pricing pressure, dependence on merchant, oil-company and payment-network relationships, acquisition integration, foreign-exchange and geopolitical exposure, variable-rate debt, and renewal or capacity risk in the securitization facility. Regulatory, privacy, fraud, cybersecurity and data-service interruptions also pose risks. No material legal proceeding or governmental investigation was reported as of filing.
- The company revised certain prior-period balance-sheet and comprehensive-income amounts for foreign-currency translation and revised a 2014 cash-flow presentation. It said the revisions were not material and did not affect prior-period income or cash flows from operations. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of revenue and adjusted earnings growth reflects sustainable organic performance versus Comdata and other acquisitions, and how comparable transaction and revenue-per-transaction measures are defined.
- The reconciliation and assumptions behind adjusted net income and adjusted EPS, particularly exclusions for stock compensation, amortization and impairment.
- Debt maturities, variable-rate exposure, covenant headroom, and the availability and renewal terms of the securitization facility; also distinguish unrestricted cash from restricted and foreign-held cash.
- Whether fuel-price, foreign-exchange and international-market pressures persist, and whether the International segment can stabilize revenue and operating income.
- Progress in Masternaut and acquisition integration, the potential for further impairments, and the effect of stock-based compensation on GAAP earnings and dilution.
- The execution and funding of the announced share-repurchase program, alongside the company’s stated cash, acquisition and debt-service priorities.