FLEETCOR Technologies, Inc. — Q1 2021 Form 10-Q
Issuer identification: The filing is for FLEETCOR Technologies, Inc. (NYSE: FLT), not a registrant named Corpay, Inc. The filing describes CorpayOne as the rebranded name of the acquired Roger accounts-payable software platform.
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021, compared with Q1 2020. FLEETCOR provides business payment solutions across fuel, corporate payments, tolls, lodging, gift and other categories, and reports North America, Brazil and International segments.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue, net | $608.6 million | $661.1 million | Down 7.9% |
| Operating income | $266.0 million | $201.0 million | Up 32.3% |
| Operating margin | 43.7% | 30.4% | Up 13.3 percentage points |
| Net income | $184.2 million | $147.1 million | Up 25.3% |
| Diluted EPS | $2.15 | $1.67 | Up 28.7% |
| Adjusted net income (non-GAAP) | $242.1 million | $264.5 million | Down 8.5% |
| Adjusted diluted EPS (non-GAAP) | $2.82 | $3.00 | Down 6.0% |
| Operating cash flow | $77.9 million | $420.0 million | Down $342.2 million |
| Capital expenditures | $19.5 million | $18.3 million | Up $1.3 million |
Net income margin was 30.3%, compared with 22.2% in the prior-year quarter. Processing expense fell 50.2% to $116.4 million; the comparison reflects a $90.1 million customer receivable write-off in Q1 2020, as well as lower variable costs and a bad-debt recovery in 2021. The income-tax provision was $51.4 million (21.8% effective rate), versus $25.2 million (14.6% reported rate) in Q1 2020.
Revenue declined across North America (down 7.5%), Brazil (down 17.2%) and International (down 2.3%). Fuel revenue fell 10% and toll revenue fell 17%; lodging increased 4% and gift increased 2%. Reported consolidated revenue included estimated negative effects of approximately $16 million from fuel-price spreads and $11 million from foreign exchange, partly offset by about $12 million from 2020 acquisitions. Management estimated organic revenue was down about 6%.
Cash and cash equivalents were $958.3 million at March 31, 2021; restricted cash was $473.2 million. Management reported total liquidity of approximately $1.96 billion, including $958 million unrestricted cash and $998 million available under the Credit Facility. The $1.0 billion Securitization Facility was drawn to $915 million, with no additional availability reported. Total notes, credit agreements and securitization debt were $4.446 billion, versus $4.333 billion at December 31, 2020. The company reported compliance with debt covenants.
Operating cash flow fell substantially, principally due to working-capital timing, including a $468.6 million use of cash from accounts and other receivables. Investing used $63.2 million, including $43.7 million for acquisitions. Financing used $16.6 million; cash and restricted cash together declined $45.1 million during the quarter.
Material changes versus the prior comparable period
- GAAP operating income and net income rose despite lower revenue, chiefly because Q1 2020 included the $90.1 million cross-border customer receivable loss. Operating results also faced $10 million of incremental legal expenses, about $16 million of unfavorable fuel spreads and ongoing pandemic effects.
- Adjusted net income and adjusted diluted EPS declined year over year, contrasting with the increase in GAAP earnings.
- Interest expense declined 20% to $28.6 million, primarily due to lower LIBOR and lower borrowings, partly offset by higher securitization borrowings.
- Operating cash flow was materially lower, driven mainly by working-capital movements; share repurchases were $162.0 million in cash-flow reporting, well below the $530.2 million in Q1 2020.
Outlook, commentary, risks and unusual items
- Management expected COVID-19 to continue adversely affecting 2021 revenue and earnings, while anticipating improvement through the year as economic activity recovered. No numeric earnings or revenue guidance was provided.
- COVID-19 duration and severity, business activity, transaction volumes, fuel prices and spreads, foreign exchange, customer credit and collections, interest rates, and access to receivables securitization remain important uncertainties.
- The company completed its approximately $38.6 million acquisition of Roger, rebranded CorpayOne, on January 13, 2021. Acquisition accounting remained preliminary. It also expected to close the approximately $450 million AFEX cross-border payments acquisition late in Q2 2021, subject to regulatory approval and closing conditions.
- After quarter-end, on April 30, 2021, the company amended its credit agreement to refinance the existing Term Loan B with a new $1.15 billion seven-year Term Loan B due April 30, 2028; interest rates were stated to remain unchanged. The Securitization Facility had been extended to March 29, 2024.
- The FTC lawsuit concerning advertising and marketing practices remained unresolved. The company said it could not estimate a reasonably possible loss range in the financial-statement note. The FTC filed for summary judgment on April 17; on April 22, the Supreme Court ruled that the FTC lacked authority under the relevant provision to seek monetary redress. The company continued to face legal costs and other possible remedies.
- Other risks include pending shareholder derivative litigation and counterparty credit exposure in foreign-exchange derivatives. Management stated that ordinary-course legal proceedings were not expected to materially affect consolidated results, but acknowledged outcomes could adversely affect a particular period.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for FLEETCOR Technologies, Inc. (FLT); “Corpay” appears as the CorpayOne product name, not as the filing registrant.
- Assess underlying performance apart from the prior-year $90.1 million receivable write-off, including the divergence between GAAP and adjusted earnings and the definitions of non-GAAP measures.
- Review cash conversion and working-capital trends, especially receivables, and distinguish unrestricted cash from restricted customer and collateral funds.
- Verify debt availability, maturities and post-quarter refinancing terms, as well as the company’s dependence on the securitization facility for funding receivables.
- Track COVID-19 recovery, fuel-price spreads and foreign-exchange effects, the AFEX closing and integration, and developments and potential costs in the FTC matter.