Business context and reporting period
Filing identity: The supplied filing is FleetCor Technologies, Inc. (NYSE: FLT), not a filing under the name Corpay, Inc. It is a Form 10-K for the fiscal year ended December 31, 2019, rather than a standalone fourth-quarter filing. The company provides commercial payment solutions, including fuel, corporate payments, tolls, lodging and gift products, across North America and International markets.
Results below are for fiscal 2019 unless noted. The company reported two segments: North America and International. The United States, Brazil and United Kingdom together represented approximately 87% of 2019 revenue.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net revenue | $2.649 billion | $2.433 billion | +8.8% |
| Operating income | $1.231 billion | $1.091 billion | +12.9% |
| Operating margin | 46.5% | 44.8% | +1.7 percentage points |
| Net income | $895.1 million | $811.5 million | +10.3% |
| Diluted EPS | $9.94 | $8.81 | +12.8% |
| Operating cash flow | $1.162 billion | $903.4 million | +$258.7 million |
- Cash and liquidity: Cash and cash equivalents were $1.271 billion; restricted cash was $403.7 million, bringing total cash and restricted cash to $1.675 billion. The company reported approximately $638 million available under its Credit Facility and no additional liquidity under its Securitization Facility. Management believed available liquidity and operating cash generation were sufficient for at least 12 months.
- Debt: Total debt was $5.037 billion, including $4.066 billion under credit agreements and $971.0 million under the receivables Securitization Facility. The securitization facility expires November 14, 2020. The company reported compliance with its debt covenants at year-end.
- Cash uses and investment: Investing cash outflow was $523.7 million, including $448.3 million for acquisitions; capital expenditures were $75.2 million. Financing cash outflow was $310.2 million. The company repurchased $603.8 million of shares during 2019 and committed $500 million to an accelerated repurchase agreement in December.
- Credit costs: Bad-debt expense was $74.3 million versus $64.4 million in 2018; both years were reported as 6 basis points of billings. Approximately 98% of year-end receivables were current.
Material changes versus the prior comparable period
- Reported revenue grew 8.8%; management cited approximately 11% organic growth on a constant fuel-price, fuel-spread, foreign-exchange and pro forma basis. Acquisitions contributed about $40 million of revenue, while the prior-year Chevron portfolio disposition reduced 2019 revenue by about $33 million.
- North America revenue rose 8.7% to $1.709 billion; International revenue rose 9.1% to $940.3 million. Segment operating margins increased to 44.2% from 42.9% in North America and to 50.6% from 48.4% Internationally.
- By product, corporate payments revenue increased 24% to $516.2 million and lodging increased 21% to $212.6 million. Fuel revenue rose 4% to $1.173 billion; gift revenue declined 3% to $180.2 million. Reported toll revenue rose 7% to $357.2 million, but foreign exchange reduced it; the company’s macro-adjusted comparison showed 16% growth.
- Foreign exchange movements reduced consolidated revenue by approximately $61 million. Management estimated total macroeconomic effects reduced 2019 revenue by about $59 million. Fuel prices were a modest headwind, partly offset by favorable fuel spreads.
- Net income comparisons include unusual items: 2018 included a $152.8 million pretax gain on the Chevron portfolio sale. The 2019 effective tax rate was 17.0%, versus 25.9% in 2018; management said the 2019 rate would have been approximately 23.0% excluding discrete items, chiefly a tax benefit associated with the Masternaut investment disposition.
- Acquisitions totaled approximately $416 million, including NvoicePay, r2c, SOLE Financial and Travelliance. The company also sold its Masternaut investment in 2019, after recording an additional impairment; cumulative impairment losses on that investment were $136.3 million.
Fourth-quarter results
In the fourth quarter of 2019, revenue was $698.9 million, operating income $320.8 million, net income $235.5 million and diluted EPS $2.60. Compared with fourth-quarter 2018, revenue increased about 8.6% and operating income about 12.7%, while net income declined about 22.0% and diluted EPS fell from $3.33. Fourth-quarter 2018 net income included the Chevron portfolio sale gain; fourth-quarter 2019 included a $13.0 million gain on a minority investment, $1.8 million of property and equipment write-offs and $2.8 million of restructuring costs.
Outlook, risks and contingencies
- The filing provides no numerical 2020 earnings or revenue guidance. Management described continued organic growth and acquisitions as part of its strategy, but outcomes depend on market conditions and execution.
- Key exposures include fuel prices and spreads, customer credit losses, foreign exchange, variable interest rates, competition, acquisition integration, cybersecurity and operational interruptions, and evolving payment, privacy and financial-services regulation. Approximately 40% of 2019 revenue was denominated in currencies other than the U.S. dollar; a hypothetical 10% currency move would have changed operating income by approximately $47.6 million, according to the company’s sensitivity analysis.
- The company had $4.02 billion of variable-rate debt under its Credit Agreement and used swaps to hedge $2.0 billion of variable-rate exposure. A 100-basis-point rate change on the unhedged amount was estimated to affect interest expense by approximately $20.2 million. The Securitization Facility’s 2020 expiration and the future replacement of LIBOR were disclosed funding and rate risks.
- Legal matters: The FTC sued the company and CEO Ronald Clarke in December 2019 over alleged unfair or deceptive advertising and marketing practices in the North American fuel-card business. The company disputed the claims and said it could not estimate a reasonably possible loss. A shareholder class action had a proposed $50 million settlement, covered by insurance, that had received preliminary court approval; related derivative actions remained pending.
- The filing noted that COVID-19 had caused travel disruption in China in December 2019 and January 2020, but its potential impact on the company was then uncertain. It also disclosed a 2018 unauthorized-access incident involving gift-card systems; the investigation was concluded and the company did not expect a material effect on results.
- The company did not anticipate paying cash dividends in the foreseeable future. Its 2019 financial statements received an unqualified audit opinion; the auditor identified goodwill valuation as a critical audit matter. Management and the auditor reported effective internal controls, with newly acquired businesses excluded from the 2019 control assessment.
Most important facts for investors to verify
- Confirm the company and period: this is FleetCor Technologies’ FY2019 10-K, despite the request metadata naming Corpay and 2019 Q4.
- Review the quality of reported growth, including acquisition contributions, currency effects, fuel-price and spread effects, and the Chevron disposition; distinguish GAAP results from management’s non-GAAP adjusted measures.
- Assess leverage, variable-rate exposure, the $638 million of reported revolver availability, and renewal or refinancing of the Securitization Facility before its November 2020 expiry.
- Track the FTC litigation and related shareholder derivative actions, including any settlement, loss estimate or financial impact subsequent to the filing.
- Evaluate whether the lower 2019 tax rate is repeatable, given the disclosed discrete tax benefits, and monitor credit-loss trends and the impact of the expected-credit-loss accounting standard adopted in 2020.
- Review subsequent filings for developments in the 2020 outlook and COVID-19 effects; the 10-K states that the impact was uncertain as of its filing date.