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FleetCor Reports Third Quarter 2014 Financial Results

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FleetCor Technologies, Inc. (NYSE:FLT) , a leading global provider of fuel cards and workforce payment products to businesses, today reported financial results for its third quarter ended September 30, 2014.

“We are pleased with our results for the quarter, which included adjusted net income per diluted share growth of 27% and adjusted revenue growth of 30%. North America had very strong organic growth in the quarter and we continue to see the benefits of the acquisitions we closed last year,” said Ron Clarke, chairman and chief executive officer, FleetCor Technologies, Inc. “During the third quarter, we entered Germany with the Shell deal, acquired Pac Pride, and signed definitive documents to acquire Comdata.”

Financial Results for Third Quarter 2014:

GAAP Results

  • Total revenues increased 31% to $295.3 million compared to $225.2 million in the third quarter of 2013;
  • Net income increased 21% to $95.5 million compared to $78.6 million in the third quarter of 2013;
  • Net income per diluted share increased 19% to $1.11 compared to $0.93 in the third quarter of 2013.

Non-GAAP Results

  • Adjusted revenues1 (revenues, net less merchant commissions) increased 30% to $270.3 million compared to $208.2 million in the third quarter of 2013;
  • Adjusted net income1 increased 29% to $117.6 million compared to $91.4 million in the third quarter of 2013;
  • Adjusted net income per diluted share1 increased 27% to $1.37 compared to $1.08 in the third quarter of 2013.

Fiscal Year 2014 Outlook:

“The third quarter was another strong quarter for the Company. While our business momentum remains strong, as we enter the fourth quarter we are experiencing headwinds in foreign exchange rates that will impact our Q4 2014 revenue and net income, assuming exchange rates remain at current levels,” said Eric Dey, chief financial officer FleetCor Technologies, Inc.

For fiscal year 2014 FleetCor Technologies, Inc. is raising its financial guidance for 2014 as follows:

  • Total revenues between $1,100 million and $1,110 million, up from the previous guidance range of $1,082 million and $1,097 million;
  • Adjusted net income between $434 million and $440 million, up from the previous guidance range of $432 million and $438 million;
  • Adjusted net income per diluted share between $5.07 and $5.11, up from the previous guidance range of $5.04 and $5.10.

The Company’s fiscal-year guidance assumptions for 2014 are as follows:

  • Fuel prices equal to current levels for the fourth quarter
  • Market spreads slightly better than average levels
  • Foreign exchange rates equal to current levels
  • Continued weakness in the Company’s Russian business
  • Full year tax rate of 30.4%,excludes any year-end adjusting entries
  • Fully diluted shares outstanding of 86 million shares
  • No impact related to Comdata or other acquisitions or material new partnership agreements not already disclosed

_____________________________

1 Reconciliations of GAAP results to non GAAP results are provided in Exhibit 1 attached. Additional supplemental data is provided in Exhibit 2 and segment information is provided in Exhibit 3.

Conference Call

The Company will host a conference call to discuss third quarter 2014 financial results today at 5:00pm ET. Hosting the call will be Ron Clarke, chief executive officer, and Eric Dey, chief financial officer. The conference call can be accessed live over the phone by dialing (877) 407-0784, or for international callers (201) 689-8560. A replay will be available one hour after the call and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 13593584. The replay will be available until November 6, 2014. The call will be webcast live from the Company’s investor relations website at investor.fleetcor.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about FleetCor’s beliefs, expectations and future performance, are forward-looking statements. Forward-looking statements can be identified by the use of words such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project,” “expect,” “may,” “will,” “would,” “could” or “should,” the negative of these terms or other comparable terminology. Examples of forward-looking statements in this press release include statements relating to revenue and earnings guidance, assumptions underlying financial guidance, and expectations regarding integration of recent deals. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement, such as delays or failures associated with implementation; fuel price and spread volatility; changes in credit risk of customers and associated losses; the actions of regulators relating to payment cards or resulting from investigations; failure to maintain or renew key business relationships; failure to maintain competitive offerings; failure to maintain or renew sources of financing; failure to complete, or delays in completing, anticipated new partnership arrangements or acquisitions and the failure to successfully integrate or otherwise achieve anticipated benefits from such partnerships or acquired businesses; failure to successfully expand business internationally; the impact of foreign exchange rates on operations, revenue and income; the effects of general economic conditions on fueling patterns and the commercial activity of fleets, as well as the other risks and uncertainties identified under the caption “Risk Factors” in FleetCor’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 3, 2014. FleetCor believes these forward-looking statements are reasonable; however, forward-looking statements are not a guarantee of performance, and undue reliance should not be placed on such statements. The forward-looking statements included in this press release are made only as of the date hereof, and FleetCor does not undertake, and specifically disclaims, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.

About Non-GAAP Financial Measures

Adjusted revenue is calculated as revenues, net less merchant commissions. Adjusted net income is calculated as net income, adjusted to eliminate (a) non-cash stock-based compensation expense related to share-based compensation awards, (b) amortization of deferred financing costs and intangible assets, (c) amortization of the premium recognized on the purchase of receivables, and (d) loss on the early extinguishment of debt and (e) our proportionate share of amortization of intangible assets at our equity method investment. Adjusted EBITDA is calculated as net income as reflected in our income statement, adjusted to eliminate (a) interest expense, (b) tax expense, (c) depreciation of long-lived assets (d) amortization of intangible assets, (e) other (income) expense, net and (f) gains and losses at equity method investment. The Company uses adjusted revenues as a basis to evaluate the company’s revenues, net of the commissions that are paid to merchants to participate in our card programs. The commissions paid to merchants can vary when market spreads fluctuate in much the same way as revenues are impacted when market spreads fluctuate. The Company believes this is a more effective way to evaluate the company’s revenue performance. The Company uses adjusted EBITDA as a basis to evaluate our operating performance net of the impact of certain items during the period. We believe that adjusted EBITDA may be useful to investors for understanding our operating performance on a consistent basis. We prepare adjusted net income to eliminate the effect of items that we do not consider indicative of our core operating performance. Adjusted revenues and adjusted net income are supplemental measures of operating performance that do not represent and should not be considered as an alternative to revenues, net, net income or cash flow from operations, as determined by U.S. generally accepted accounting principles, or U.S. GAAP, and our calculation thereof may not be comparable to that reported by other companies. We believe it is useful to exclude non-cash stock-based compensation expense from adjusted net income because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time and stock-based compensation expense is not a key measure of our core operating performance. We also believe that amortization expense can vary substantially from company to company and from period to period depending upon their financing and accounting methods, the fair value and average expected life of their acquired intangible assets, their capital structures and the method by which their assets were acquired; therefore, we have excluded amortization expense from our adjusted net income. We also exclude loss on the early extinguishment of debt from adjusted net income, as this expense is non-cash and is one-time in nature and does not reflect the ongoing operations of the business.

Management uses adjusted revenues, adjusted net income, and adjusted EBITDA:

  • as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis;
  • for planning purposes, including the preparation of our internal annual operating budget;
  • to allocate resources to enhance the financial performance of our business; and
  • to evaluate the performance and effectiveness of our operational strategies.

We believe adjusted revenues, adjusted net income and adjusted EBITDA are key measures used by the Company and investors as supplemental measures to evaluate the overall operating performance of companies in our industry. By providing these non-GAAP financial measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives.

About FleetCor

FleetCor is a leading global provider of fuel cards and workforce payment products to businesses. FleetCor’s payment programs enable businesses to better control employee spending and provide card-accepting merchants with a commercial customer base that can increase their sales and customer loyalty. FleetCor serves commercial accounts in North America, Latin America, Europe, Australia and New Zealand. For more information, please visit www.fleetcor.com.

FleetCor Technologies, Inc. and subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Revenues, net $ 295,283 $ 225,150 $ 822,693 $ 639,670
Expenses:
Merchant commissions 25,014 16,944 62,964 50,360
Processing 41,451 33,473 117,152 95,426
Selling 17,950 13,859 52,885 38,949
General and administrative 40,947 31,559 122,304 91,774
Depreciation and amortization 25,714 18,060 74,561 48,579
Operating income 144,207 111,255 392,827 314,582
Other expense (income), net 594 (156 ) 870 130
Interest expense, net 4,859 3,756 15,628 10,960
Equity method investment loss 2,200 3,689
Total other expense 7,653 3,600 20,187 11,090
Income before income taxes 136,554 107,655 372,640 303,492
Provision for income taxes 41,045 29,035 113,473 87,111
Net income $ 95,509 $ 78,620 $ 259,167 $ 216,381
Basic earnings per share $ 1.14 $ 0.96 $ 3.12 $ 2.65
Diluted earnings per share $ 1.11 $ 0.93 $ 3.02 $ 2.56
Weighted average shares outstanding:
Basic shares 83,611 81,974 83,118 81,592
Diluted shares 86,134 84,905 85,688 84,446
FleetCor Technologies, Inc. and subsidiaries
Consolidated Balance Sheets
(In thousands, except share and par value amounts)
September 30, 2014 December 31, 2013
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 304,109 $ 338,105
Restricted cash 42,348 48,244
Accounts receivable (less allowance for doubtful accounts of $23,291 and $22,416, respectively) 715,662 573,351
Securitized accounts receivable – restricted for securitization investors 393,600 349,000
Prepaid expenses and other current assets 45,512 40,062
Deferred income taxes 3,444 4,750
Total current assets 1,504,675 1,353,512
Property and equipment 127,340 111,100
Less accumulated depreciation and amortization (71,156 ) (57,144 )
Net property and equipment 56,184 53,956
Goodwill 1,557,011 1,552,725
Other intangibles, net 865,116 871,263
Equity method investment 147,512
Other assets 93,942 100,779
Total assets $ 4,224,440 $ 3,932,235
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 612,691 $ 467,202
Accrued expenses 109,258 114,870
Customer deposits 180,131 182,541
Securitization facility 393,600 349,000
Current portion of notes payable and other obligations 526,345 662,439
Other current liabilities 106,665 132,846
Total current liabilities 1,928,690 1,908,898
Notes payable and other obligations, less current portion 434,820 474,939
Deferred income taxes 233,695 249,504
Other noncurrent liabilities 68,428 55,001
Total noncurrent liabilities 736,943 779,444
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value; 475,000,000 shares authorized, 119,544,837 shares issued and 83,810,345 shares outstanding at September 30, 2014; and 475,000,000 shares authorized, 118,206,262 shares issued and 82,471,770 shares outstanding at December 31, 2013 120 117
Additional paid-in capital 733,131 631,667
Retained earnings 1,294,365 1,035,198
Accumulated other comprehensive loss (93,146 ) (47,426 )
Less treasury stock, 35,734,492 shares at September 30, 2014 and December 31, 2013 (375,663 ) (375,663 )
Total stockholders’ equity 1,558,807 1,243,893
Total liabilities and stockholders’ equity $ 4,224,440 $ 3,932,235
FleetCor Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended September 30,
2014 2013
Operating activities
Net income $ 259,167 $ 216,381
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 14,780 12,162
Stock-based compensation 26,292 12,441
Provision for losses on accounts receivable 18,109 14,069
Amortization of deferred financing costs 1,599 2,434
Amortization of intangible assets 55,737 31,535
Amortization of premium on receivables 2,445 2,448
Deferred income taxes (1,280 ) (4,524 )
Equity method investment loss 3,689
Changes in operating assets and liabilities (net of acquisitions):
Restricted cash 6,109 3,666
Accounts receivable (137,942 ) (184,367 )
Prepaid expenses and other current assets (3,036 ) (1,774 )
Other assets 460 38,580
Excess tax benefits related to stock-based compensation (53,251 ) (24,319 )
Accounts payable, accrued expenses and customer deposits 124,614 89,279
Net cash provided by operating activities 317,492 208,011
Investing activities
Acquisitions, net of cash acquired (261,919 ) (376,971 )
Purchases of property and equipment (18,279 ) (15,348 )
Net cash used in investing activities (280,198 ) (392,319 )
Financing activities
Excess tax benefits related to stock-based compensation 53,251 24,319
Proceeds from issuance of common stock 21,922 22,800
Borrowings on securitization facility, net 44,600 96,000
Deferred financing costs paid (546 ) (1,970 )
Principal payments on notes payable (20,625 ) (21,250 )
Payments on revolver-A Facility (381,385 ) (155,000 )
Borrowings on revolver-A Facility 182,330 280,000
Payments on foreign revolver-B Facility (7,337 ) (44,533 )
Borrowings on foreign revolver-B Facility 53,494
Borrowings from swing line of credit, net 52,059
Other (462 ) (255 )
Net cash provided by financing activities (56,193 ) 253,605
Effect of foreign currency exchange rates on cash (15,097 ) (7,257 )
Net (decrease) increase in cash and cash equivalents (33,996 ) 62,040
Cash and cash equivalents, beginning of period 338,105 283,649
Cash and cash equivalents, end of period $ 304,109 $ 345,689
Supplemental cash flow information
Cash paid for interest $ 19,238 $ 13,041
Cash paid for income taxes $ 63,553 $ 84,695
Exhibit 1
RECONCILIATION OF NON-GAAP MEASURES AND PRO FORMA INFORMATION
(In thousands, except shares and per share amounts)
(Unaudited)
The following table reconciles revenues, net to adjusted revenues:
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Revenues, net $ 295,283 $ 225,150 $ 822,693 $ 639,670
Merchant commissions 25,014 16,944 62,964 50,360
Total adjusted revenues $ 270,269 $ 208,206 $ 759,729 $ 589,310
The following table reconciles net income to adjusted EBITDA
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Net income $ 95,509 $ 78,620 $ 259,167 $ 216,381
Provision for income taxes 41,045 29,035 113,473 87,111
Interest expense, net 4,859 3,756 15,628 10,960
Depreciation and amortization 25,714 18,060 74,561 48,579
Other (income) expense, net 594 (156 ) 870 130
Equity method investment loss 2,200 3,689
Adjusted EBITDA $ 169,921 $ 129,315 $ 467,388 $ 363,161
The following table reconciles net income to adjusted net income and adjusted net income per diluted share:
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Net income $ 95,509 $ 78,620 $ 259,167 $ 216,381
Stock based compensation 7,993 4,382 26,292

12,441
Amortization of intangible assets 19,255 12,296 55,737 31,535
Amortization of premium on receivables 815 816 2,445

2,448
Amortization of deferred financing costs 537 841 1,599 2,434
Amortization of intangibles at equity method investment 3,021 5,158
Total pre-tax adjustments 31,621 18,335 91,231 48,858
Income tax impact of pre-tax adjustments at the effective tax rate (9,505 ) (5,596 ) (27,781 ) (14,639 )
Adjusted net income $ 117,625 $ 91,359 $ 322,617 $ 250,600
Adjusted net income per diluted share $ 1.37 $ 1.08 $ 3.77 $ 2.97
Diluted shares 86,134 84,905 85,688 84,446
Exhibit 2
Transaction Volume, Revenues and Adjusted Revenue, Per Transaction and by Segment
(In thousands except revenues, net per transaction and adjusted revenues per transaction)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 Change % Change 2014 2013 Change % Change

NORTH AMERICA

– Transactions 45,252 43,291 1,961 4.5 % 128,394 122,691 5,703 4.6 %
– Revenues, net per transaction $ 3.45 $ 2.66 $ 0.79 29.8 % $ 3.28 $ 2.73 $ 0.55 20.1 %
– Revenues, net $ 156,343 $ 115,266 $ 41,077 35.6 % $ 421,579 $ 335,346 $ 86,233 25.7 %

INTERNATIONAL

– Transactions 49,150 41,012 8,138 19.8 % 143,866 114,747 29,119 25.4 %
– Revenues, net per transaction $ 2.83 $ 2.68 $ 0.15 5.5 % $ 2.79 $ 2.65 $ 0.14 5.1 %
– Revenues, net $ 138,940 $ 109,884 $ 29,056 26.4 % $ 401,114 $ 304,324 $ 96,790 31.8 %

FLEETCOR CONSOLIDATED REVENUES

– Transactions 94,402 84,303 10,099 12.0 % 272,260 237,438 34,822 14.7 %
– Revenues, net per transaction $ 3.13 $ 2.67 $ 0.46 17.1 % $ 3.02 $ 2.69 $ 0.33 12.2 %
– Revenues, net $ 295,283 $ 225,150 $ 70,133 31.1 % $ 822,693 $ 639,670 $ 183,023 28.6 %

FLEETCOR CONSOLIDATED ADJUSTED REVENUES1

– Transactions 94,402 84,303 10,099 12.0 % 272,260 237,438 34,822 14.7 %
– Adjusted Revenues per transaction $ 2.86 $ 2.47 $ 0.39 15.9 % $ 2.79 $ 2.48 $ 0.31 12.4 %
– Adjusted Revenues $ 270,269 $ 208,206 $ 62,063 29.8 % $ 759,729 $ 589,310 $ 170,419 28.9 %

1 Adjusted revenues is a non-GAAP financial measure defined as revenues, net less merchant commissions. The Company believes this measure is a more effective way to evaluate the Company’s revenue performance. Refer to Exhibit 1 for a reconciliation of revenues, net to adjusted revenues.

Sources of Revenue2

Three Months Ended September 30, Nine Months Ended September 30,

2014

2013 Change % Change 2014 2013 Change % Change
Revenue from customers and partners 53.8 % 54.4 % -0.6 % -1.1 % 54.9 % 52.3 % 2.6 % 5.0 %
Revenue from merchants and networks 46.2 % 45.6 % 0.6 % 1.3 % 45.1 % 47.7 % -2.6 % -5.5 %
Revenue tied to fuel-price spreads 16.7 % 14.8 % 1.9 % 12.8 % 15.1 % 16.5 % -1.4 % -8.5 %
Revenue influenced by absolute price of fuel 17.8 % 20.0 % -2.2 % -11.0 % 18.2 % 20.1 % -1.9 % -9.5 %
Revenue from program fees, late fees, interest and other 65.5 % 65.2 % 0.3 % 0.5 % 66.7 % 63.4 % 3.3 % 5.2 %

2 Expressed as a percentage of consolidated revenue.

Exhibit 3
Segment Results
(In thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Revenues, net:
North America $ 156,343 $ 115,266 $ 421,579 $ 335,346
International 138,940 109,884 401,114 304,324
$ 295,283 $ 225,150 $ 822,693 $ 639,670
Operating income:
North America $ 78,797 $ 59,093 $ 203,311 $ 168,622
International 65,410 52,162 189,516 145,960
$ 144,207 $ 111,255 $ 392,827 $ 314,582
Depreciation and amortization:
North America $ 6,635 $ 5,159 $ 19,647 $ 15,598
International 19,079 12,901 54,914 32,981
$ 25,714 $ 18,060 $ 74,561 $ 48,579
Capital expenditures:
North America $ 1,561 $ 1,942 $ 5,397 $ 4,298
International 5,166 3,298 12,882 11,050
$ 6,727 $ 5,240 $ 18,279 $ 15,348

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