CORPAY, INC. annual report, FY2021

Business context and reporting period

The filing is FleetCor Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2021, filed March 1, 2022. Although the request metadata names Corpay, the filing identifies the registrant as FleetCor Technologies, Inc. The company provides digital business payment solutions, including fuel and fleet payments, corporate payments, lodging, tolls, gift cards and related services. It reports North America, Brazil and International segments.

Financial performance and liquidity

FY 2021 revenue increased 18.6% as reported and approximately 12% organically (company-defined, non-GAAP). Net income rose 19.2%; operating income increased 27.8%. The effective tax rate rose to 24.3% from 20.2%. Processing expense declined 6.1%, largely reflecting lower credit losses, while selling and general and administrative expenses increased 36.0% and 29.7%, respectively.

At December 31, 2021, cash and cash equivalents were $1.52 billion, restricted cash was $730.7 million, and the company reported approximately $2.6 billion of total liquidity, including $1.1 billion of available Credit Facility capacity. It reported no additional liquidity under its Securitization Facility at year-end. Current liabilities were $5.29 billion and current assets were $5.49 billion; customer deposits and securitized receivables are significant components of these balances. Debt includes $4.86 billion under credit agreements and $1.12 billion under the receivables securitization facility.

Fourth-quarter results

In Q4 2021, net revenue was $802.3 million versus $617.3 million in Q4 2020; operating income was $340.3 million versus $293.9 million; net income was $225.0 million versus $209.9 million; and diluted EPS was $2.74 versus $2.44. The filing provides these quarterly figures but does not provide a separate Q4 outlook.

Material changes versus the prior comparable period

• Revenue growth reflected recovering transaction volumes after COVID-19 disruption, incremental sales, approximately $114 million from acquisitions, and a net positive estimated macroeconomic contribution of approximately $26 million. The latter included about $53 million from fuel prices and $18 million from foreign exchange, partly offset by approximately $46 million from unfavorable fuel-price spreads.
• Operating margin expanded 3.1 percentage points. Comparisons benefited from a roughly $90 million cross-border customer receivable write-off in Q1 2020; bad-debt expense fell to $37.9 million from $158.5 million.
• Operating cash flow declined by $275.5 million, primarily due to unfavorable working-capital timing, including changes in receivables. Investing cash use increased to $715.9 million, mainly because of acquisitions. Financing cash flow was positive $343.9 million, compared with negative $1.42 billion in 2020, reflecting higher net borrowings partly offset by increased share repurchases.
• Segment revenue was $1.92 billion in North America (up 21.5%), $368.1 million in Brazil (up 6.9%) and $544.6 million internationally (up 17.6%). Brazil’s reported growth was reduced by unfavorable foreign exchange; organic growth was approximately 13%.
• Corporate Payments revenue grew 38% as reported (17% pro forma and macro-adjusted); Lodging grew 50% as reported (25% adjusted). These comparisons include acquisition and recovery effects.

Outlook, management commentary, risks and unusual items

• The filing gives no specific 2022 revenue, earnings or margin guidance. Management said existing cash, borrowing capacity and expected operating cash flows should meet operating and planned needs for the foreseeable future, subject to assumptions that may change.
• Management described 2021 as a recovery year, with transaction volumes rebounding from COVID-19 effects and incremental new sales contributing to growth. The company cited continued investment in digital experience, technology modernization, data and electric-vehicle payment capabilities.
• Major risks include renewed COVID-19 impacts, economic and transaction-volume weakness, fuel-price and fuel-spread volatility, customer credit losses, competition, cybersecurity and service disruptions, regulation and privacy requirements, foreign exchange and counterparty risk, and international political and sanctions developments.
• The FTC’s suit concerning advertising and marketing practices remained unresolved. The company disputed the claims; the court denied the FTC’s motion to stay or dismiss the federal case in February 2022 and set a tentative June 7, 2022 trial date. The filing states that a reasonably possible loss range could not be estimated. Shareholder derivative litigation also remained pending on appeal.
• 2021 acquisitions included ALE Solutions for approximately $421.8 million, AFEX for stated consideration of $459.8 million (including substantial acquired cash and restricted cash; reported net purchase price was $70.7 million), and Roger/Corpay One for $39.0 million. The company also invested $37.8 million in a Brazil joint venture. Preliminary acquisition valuations involve estimates, including customer attrition assumptions.
• The company repurchased 5.45 million shares for $1.4 billion during 2021 and had $5.98 billion in total debt at year-end. It increased its repurchase authorization after year-end. It does not anticipate paying cash dividends in the foreseeable future.
• Most borrowings carry variable rates. A 100-basis-point rate change was estimated to alter annual interest expense by approximately $29 million on the stated unhedged balance assumption. A $1 billion interest-rate swap matured in January 2022; the company also disclosed the transition away from LIBOR as a risk.
• Goodwill and intangible assets were substantial: goodwill was $5.08 billion and other intangibles were $2.34 billion at year-end. The annual goodwill test found reporting-unit fair values above carrying values, but valuation depends on forecasts and discount-rate assumptions.

Most important facts for investors to verify

• Reconcile reported growth with organic growth and distinguish volume recovery, acquisitions, fuel prices, fuel spreads and foreign exchange effects.
• Assess the sustainability of the 43.8% operating margin, particularly given lower credit losses versus 2020 and higher selling, administrative and acquisition-related costs.
• Review working-capital movements and receivables: operating cash flow fell despite higher earnings, and gross receivables increased materially.
• Confirm debt maturities, facility availability, variable-rate exposure, covenant compliance and the company’s capacity to fund acquisitions and buybacks while servicing debt.
• Monitor the FTC litigation and derivative actions, including any subsequent disclosures on outcomes, costs or loss estimates.
• Evaluate acquisition integration and the sensitivity of goodwill and acquired customer-relationship valuations to attrition and growth assumptions.
• Consider the limits of non-GAAP adjusted earnings and organic-growth measures; GAAP net income and cash flow provide important comparators.