FLEETCOR Technologies, Inc. (now associated with the Corpay name) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The filing is by FLEETCOR Technologies, Inc.; the financial statements are unaudited. The company provides business payment solutions, including fuel, corporate payments, tolls, lodging and gift programs.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $861.3 million (+29.1%) | $667.4 million | $1,650.5 million (+29.4%) | $1,276.0 million |
| Operating income | $370.5 million (+24.5%) | $297.6 million | $688.2 million (+22.1%) | $563.6 million |
| Operating margin | 43.0% | 44.6% | 41.7% | 44.2% |
| Net income | $262.2 million (+33.6%) | $196.2 million | $480.1 million (+26.2%) | $380.5 million |
| Diluted EPS | $3.35 | $2.30 | $6.10 | $4.45 |
| Adjusted net income, non-GAAP | $326.1 million | $268.4 million | $615.8 million | $510.6 million |
| Adjusted diluted EPS, non-GAAP | $4.17 | $3.15 | $7.82 | $5.97 |
Revenue growth reflected organic growth (17% in Q2 and 16% in the first half, as defined by the company), acquisitions, and favorable fuel prices and fuel-price spreads. Management estimated Q2 macroeconomic effects added about $28 million to revenue, including roughly $33 million from fuel prices and $3 million from spreads, partly offset by about $8 million of unfavorable foreign exchange. First-half estimates were about $49 million favorable overall, including $55 million from fuel prices and $8 million from spreads, partly offset by $14 million of unfavorable foreign exchange.
All five reported segments grew revenue in Q2. Lodging revenue rose 87.8%, Corporate Payments 35.1%, Brazil 30.5%, Other 42.4%, and Fleet 13.3%. Growth drivers included transaction volumes and new sales, lodging demand recovery and acquisitions, and higher fuel prices; segment results also reflected acquisition contributions and currency movements.
Cash flow, liquidity and debt
- Operating cash flow: $41.9 million for the first half, versus $356.4 million a year earlier. Management attributed the decline mainly to working-capital movements, including higher fuel prices and volumes and the timing of receipts and payments.
- Investing cash flow: $100.4 million used, versus $163.0 million used. Capital expenditures were $66.6 million, up from $45.8 million.
- Financing cash flow: $122.4 million provided, versus $358.7 million. The period included $795.3 million of share repurchases and net borrowings on the securitization facility.
- Cash: June 30 cash and cash equivalents were $1.423 billion; restricted cash was $933.4 million. Management reported approximately $2.5 billion of total liquidity, including $1.4 billion of unrestricted cash and $1.1 billion available under the credit facility. The securitization facility had no additional availability at quarter-end.
- Debt: Total notes, credit agreements and securitization borrowings were $6.876 billion, up from $5.978 billion at year-end 2021. On June 24, the company amended its credit agreement, refinancing Term Loan A and the revolving facility and extending their maturities to June 2027. The $1.6 billion securitization facility matures in March 2024. The company reported compliance with debt covenants.
- Capital returns: The company repurchased $795.3 million of stock in the first half. Its authorization was increased to $6.1 billion; subsequent to quarter-end, it repurchased a further $200.3 million through August 9.
Changes, outlook and risks
- Processing expense rose 51.8% in Q2, faster than revenue, including approximately $21 million of incremental bad-debt expense. First-half incremental bad debt was approximately $43 million. Stock-based compensation also increased materially. Operating margin narrowed year over year in both Q2 and the first half.
- Interest expense declined year over year in the reported periods, partly due to interest income and cash balances, but management cited rising borrowing rates as an offset and identified rate increases as a risk. Debt is substantially variable-rate; interest-rate swaps provide partial protection.
- Management stated that cash, borrowing capacity and expected operating cash flows should be sufficient for existing operations and planned needs for the foreseeable future, based on current assumptions. The filing gives no specific numerical earnings or revenue guidance.
- Russia-related uncertainty: the company reported approximately $338 million of Russian net assets, including $223 million of restricted cash, and no impairment at June 30. It cautioned that sanctions, currency volatility, restricted fund transfers and other disruptions could affect assets and operations.
- FTC litigation: on August 9, 2022, after quarter-end, the district court granted the FTC summary judgment on liability against the company and its CEO, but granted summary judgment against the FTC’s claim for monetary relief. A hearing on injunctive relief was set for September 1; the company said it intended to appeal after final judgment. The company could not estimate a reasonably possible loss range; potential costs include legal fees, redress, penalties and remediation.
- Other risks discussed include COVID-19 and economic conditions, fuel prices and spreads, foreign exchange, customer credit losses, cybersecurity and data privacy, acquisitions, and regulatory and litigation matters. Management reported effective disclosure controls and no material changes to internal control over financial reporting in the quarter.
Key facts for investors to verify
- Whether working-capital cash outflows and elevated receivables and credit-loss provisions persist; operating cash flow was sharply lower despite higher earnings.
- The outcome and financial or operational consequences of the FTC case, including the scope of any injunction and the appeal.
- Availability and use of liquidity, the status of restricted Russian cash, and the company’s exposure to Russia-related sanctions and disruption.
- Debt levels, variable-rate exposure, refinancing terms and covenant compliance as interest rates change.
- How much reported growth reflects underlying volume and pricing versus fuel-price effects, foreign exchange and acquisitions; assess non-GAAP measures alongside GAAP results.
- The pace of buybacks relative to cash generation, debt and investment needs.