FleetCor Technologies, Inc. — Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2012. The filing identifies the registrant as FleetCor Technologies, Inc.; the request metadata names CORPAY, INC. Financial amounts below are in U.S. dollars unless stated otherwise.
Business context and results
FleetCor provides specialized payment products and services, including fuel-payment programs, to businesses, commercial fleets, oil companies and other customers. It reports North America and International segments. International results include several recent acquisitions, notably the 2011 Mexican and Allstar businesses and 2012 Russian and CTF Technologies businesses.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $186.9m | $134.2m | $504.9m | $379.4m |
| Operating income | $85.8m | $61.7m | $231.8m | $172.1m |
| Operating margin | 45.9% | 46.0% | 45.9% | 45.4% |
| Net income | $59.6m | $40.5m | $156.1m | $109.6m |
| Diluted EPS | $0.69 | $0.48 | $1.82 | $1.31 |
| Adjusted net income per diluted share (non-GAAP) | $0.83 | $0.56 | $2.16 | $1.61 |
Financial position, cash flow and liquidity
- At September 30, 2012, cash and cash equivalents were $300.1m, restricted cash was $52.2m, and total assets were $2.84bn. The company said $273.0m of cash held in foreign subsidiaries was considered permanently reinvested; it was available for general corporate purposes abroad.
- Total notes, credit agreements and securitization borrowings were $862.5m, including $355.0m under the receivables securitization facility. The current portion of these borrowings was $583.6m; the long-term portion was $278.9m. The company reported compliance with applicable credit covenants at September 30.
- For the nine months, operating cash flow was $33.1m, down from $70.5m; investing cash outflow was $203.5m, versus $30.3m; and financing cash inflow was $176.2m, versus a $24.0m outflow. Acquisition spending was the main driver of higher investing outflows; working-capital changes, including receivables and other assets, weighed on operating cash flow.
- Capital expenditures were $13.6m for the nine months. Management anticipated approximately $16.0m for full-year 2012, principally for processing systems.
- On November 6, 2012, after quarter-end, FleetCor amended its credit agreement, adding a $250m term loan and increasing revolving capacity from $600m to $850m. The amended facilities provide for a $550m term loan and an $850m revolver. Management cited approximately $900m of total availability under the credit facility after the amendment.
Material changes versus the prior comparable period
- Q3 revenue grew 39.3%; nine-month revenue grew 33.1%. Acquisitions contributed approximately $41m of Q3 and $94m of nine-month revenue growth, according to management; organic growth also contributed.
- International revenue rose 107.3% in Q3 and 74.9% over nine months, while North America revenue rose 9.1% and 13.3%, respectively. International represented 45.7% of Q3 revenue, compared with 30.7% a year earlier.
- Despite higher sales and earnings, consolidated revenue per transaction declined 4.8% in Q3 to $2.36 and 11.1% over nine months to $2.24. Management attributed this largely to the mix of acquired businesses, especially lower-revenue-per-transaction products in the Mexican and Allstar operations.
- Q3 operating margin was essentially flat year over year; nine-month operating margin improved by 0.5 percentage points. International segment margin declined (42.8% versus 45.3% in Q3; 42.6% versus 47.3% for nine months), while North America margin improved.
- Processing expense increased 46.4% in Q3 and 41.9% for nine months; depreciation and amortization increased 50.1% and 40.7%, respectively. Management linked the increases mainly to acquisitions and higher processing costs. The filing also reports $6.9m of equipment-sale-related expenses in processing expenses for the three- and nine-month periods.
Outlook, commentary and risks
- Management stated that current cash, borrowing capacity and expected operating cash generation were expected to cover liquidity needs for at least 12 months, absent major acquisition opportunities. It intended to use the expanded credit facility primarily for acquisitions, working capital and general corporate purposes; potential share repurchases were discussed, but no specific plan was in place.
- Management cited fuel-price and fuel-spread volatility, customer credit risk, economic conditions, competition, foreign exchange movements, interest rates and acquisition integration as factors affecting results. It reported unfavorable currency effects on revenue of $2.9m in Q3 and $7.5m for the nine months versus prior-year periods. Q3 was also affected by lower fuel spreads and soft conditions in the U.K. and Czech Republic.
- The U.K. Office of Fair Trading investigation into exclusivity provisions associated with the Keyfuels product line remained unresolved. An adverse outcome could require contract changes and result in significant fines; the company said it could not reasonably estimate a loss range.
- The company said it believed its other pending legal matters would not materially adversely affect its consolidated financial position, results or liquidity. It did not provide earnings guidance in the supplied filing text.
Important facts for investors to verify
- Confirm the issuer identity: this 2012 filing is for FleetCor Technologies, Inc., not a registrant named CORPAY, INC.
- Assess how much reported growth came from acquisitions versus organic performance, and the effect of acquisition mix on per-transaction revenue and segment margins.
- Review operating cash conversion and receivables growth alongside acquisition spending and increased borrowing; confirm the terms and subsequent use of the November 6 credit amendment.
- Monitor the Office of Fair Trading investigation, including any decision, required contract changes or potential fines.
- Evaluate the fuel-price, spread, foreign-exchange and customer-credit exposures, and the company’s reliance on its receivables securitization facility, which was scheduled to terminate February 4, 2013.
- Compare non-GAAP adjusted measures with GAAP earnings and review the stated adjustments, particularly stock compensation and acquired-intangible amortization.