Business context and reporting period
This is FleetCor Technologies, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015—not a filing under the name Corpay, Inc. FleetCor provides fuel cards, commercial payment processing, stored-value and workforce payment products. Its reportable segments are North America and International. The November 2014 Comdata acquisition materially affects comparison with 2014.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $451.5 million | $295.3 million | $1,272.3 million | $822.7 million |
| Operating income | $188.5 million | $144.2 million | $521.4 million | $392.8 million |
| Operating margin | 41.7% | 48.8% | 41.0% | 47.7% |
| Net income | $116.8 million | $95.5 million | $309.6 million | $259.2 million |
| Diluted EPS | $1.24 | $1.11 | $3.29 | $3.02 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $524.5 million | $317.5 million |
At September 30, cash and cash equivalents were $422.4 million, restricted cash $129.4 million, and total debt including the securitization facility $3.088 billion, versus $3.594 billion at December 31, 2014. The company reported $800 million available under its Credit Facility and approximately $66 million of additional capacity under its receivables securitization facility. Capital expenditures for the first nine months were $29.5 million.
Material changes versus comparable periods
- Q3 revenue rose 52.9% and nine-month revenue rose 54.6%; 2014 acquisitions contributed approximately $167 million and $455 million, respectively. Comdata contributed substantial transaction volume, including 274 million Q3 and 872 million year-to-date SVS transactions.
- Net income increased 22.3% in Q3 and 19.5% year to date, slower than revenue growth. Operating margins declined, primarily reflecting Comdata-related operating costs and acquired-asset amortization. Depreciation and amortization rose 88.7% in Q3 and 95.1% for the nine-month period.
- International revenue declined 16.1% in Q3 and 11.8% year to date, with foreign exchange weakness and market softness contributing. International transaction volumes were down 7.2% in Q3 and 4.0% year to date.
- Interest expense increased to $17.2 million in Q3 and $54.8 million year to date, largely because of debt incurred to finance Comdata. Foreign-currency translation losses were $175.7 million for the first nine months, reducing comprehensive income.
Outlook, commentary, risks and unusual items
- No specific earnings or revenue guidance is provided. Management said cash, borrowing capacity and operating cash generation were expected to meet liquidity needs for at least the next 12 months.
- Management attributed pressure on results to lower fuel prices and unfavorable foreign exchange, partly offset by higher fuel-spread margins. It estimated these factors reduced adjusted revenue by approximately $47 million in Q3 and $123 million year to date; these are management estimates using a non-GAAP measure.
- A favorable tax adjustment of approximately $7.9 million from U.S. tax-planning initiatives benefited Q3 results; management expected the initiative to favorably affect future tax rates.
- Key disclosed risks include fuel-price and spread volatility, customer credit losses, foreign exchange, interest rates, economic conditions, regulatory action, key partner relationships, and successful integration of acquisitions. Management reported compliance with debt covenants and no material legal proceedings; ordinary-course litigation remains possible.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It said there were no material changes in market risk from its 2014 Form 10-K.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing names FleetCor Technologies, Inc.; the request metadata names Corpay, Inc.
- Assess how much growth was acquired versus organic, and the continuing contribution and integration costs of Comdata and SVS.
- Evaluate margin compression, especially the effect of amortization, stock-based compensation and other Comdata-related expenses.
- Review debt maturities, variable-rate exposure, available facility capacity and the company’s ability to maintain liquidity as receivables and customer activity change.
- Distinguish recurring earnings from the $7.9 million tax benefit and from management’s non-GAAP adjusted results.
- Monitor foreign-exchange exposure and international market conditions, which materially affected reported revenue, operating income and comprehensive income.