FleetCor Reports Third Quarter 2016 Financial Results

Source:
FLEETCOR Technologies, Inc.

View source version on businesswire.com: http://www.businesswire.com/news/home/20161101006686/en/

Raises 2016 Guidance

NORCROSS, Ga.--(BUSINESS WIRE)--Nov. 1, 2016-- 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, 2016.

“We delivered a solid quarter, slightly ahead of our expectations. Adjusted net earnings per share grew 15% on a reported basis, and 25% on a macro neutral basis, ahead of our stated target”, said Ron Clarke, Chairman and CEO, FleetCor Technologies, Inc. “We also completed the STP and Travelcard acquisitions during the third quarter, and are beginning our transformation work with both assets.”

Financial Results for Third Quarter 2016:

GAAP Results

  • Total revenues increased 7% to $484.4 million in the third quarter of 2016 compared to $451.5 million in the third quarter of 2015.
  • GAAP net income increased 11% to $129.6 million in the third quarter of 2016 compared to $116.8 million in the third quarter of 2015.
  • GAAP net income per diluted share increased 10% to $1.36 in the third quarter of 2016 compared to $1.24 per diluted share in the third quarter of 2015.

Non-GAAP Results1

  • Adjusted revenues1 (revenues, net less merchant commissions) increased 9% to $456.2 million in the third quarter of 2016 compared to $419.8 million in the third quarter of 2015.
  • Adjusted net income1 increased 16% to $183.3 million in the third quarter of 2016 compared to $157.6 million in the third quarter of 2015.
  • Adjusted net income per diluted share1 increased 15% to $1.92 in the third quarter of 2016 compared to $1.67 in the third quarter of 2015.

“We believe macro-economic headwinds impacted our business in the third quarter by approximately $28 million in revenue or approximately $0.16 in adjusted net income per diluted share on a year over year basis,” said Eric Dey, chief financial officer FleetCor Technologies, Inc. “We are raising our guidance to reflect our third quarter results compared to our expectations.”

Fiscal Year 2016 Outlook:

  • Total revenues between $1,810 million and $1,830 million;
  • GAAP net income1 between $469 million and $477 million;
  • GAAP net income per diluted share1 between $4.94 and $5.02;
  • Adjusted net income1 between $648 million and $654 million; and
  • Adjusted net income per diluted share1 between $6.82 and $6.90.

FleetCor’s fiscal-year guidance assumptions for the fourth quarter of 2016 are as follows:

  • Weighted average fuel price of $2.29 for the fourth quarter of 2016 compared to the $2.31 assumption used in our prior guidance and approximately $2.35 per gallon average in the fourth quarter of 2015.
  • Market spreads lower in the fourth quarter of 2016 compared to the fourth quarter of 2015 and unchanged from assumptions used in the last earnings call.
  • Foreign exchange rates equal to the seven day average ended October 13, 2016. The impact of the pound negatively impacts prior guidance for the fourth quarter by approximately $2 million.
  • Same store sales softness in the fourth quarter of approximately 3%.
  • Continued weakness in the Company’s Brazilian and Russian businesses.
  • Fully diluted shares outstanding of approximately 95.2 million shares.
  • Fourth quarter tax rate of approximately 30.0%.

_____________________

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. A reconciliation of GAAP guidance to non-GAAP guidance is provided in Exhibit 4 .

Conference Call

The company will host a conference call to discuss third quarter 2016 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 13647922. The replay will be available until November 8, 2016. 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 macro- economic conditions and estimated impact of these conditions on our operations and financial results, revenue and earnings guidance and assumptions underlying financial guidance. 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 fuel price and spread volatility; 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; 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, 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, 2015, filed with the Securities and Exchange Commission on February 29, 2016. 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, discounts and intangible assets, (c) amortization of the premium recognized on the purchase of receivables, (d) our proportionate share of amortization of intangible assets at our equity method investment and (e) a non-recurring net gain at our equity method investment. The company uses adjusted revenue’s 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. 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 believe one-time non-recurring gains do not necessarily reflect how our equity method investment and business is performing. Reconciliations of GAAP results to non-GAAP results are provided in the attached exhibit 1. A reconciliation of GAAP to non-GAAP guidance is provided in the attached exhibit 4.

Management uses adjusted revenues and adjusted net income:

  • 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 net income per diluted share 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 high volume customer base that can increase their sales and customer loyalty. FleetCor serves commercial accounts in North America, Latin America, Europe, and Australia/New Zealand. For more information, please visit www.FLEETCOR.com.

                   
FleetCor Technologies, Inc. and subsidiaries
Unaudited Consolidated Statements of Income
(In thousands, except per share amounts)
                                   
                Three Months Ended September 30,     Nine Months Ended September 30,
                 

20161

 

      2015        

20161

 

      2015  
                                   
Revenues, net         $ 484,426       $ 451,493       $ 1,316,593       $ 1,272,264  
                                   
Expenses:                              
Merchant commissions       28,214         31,726         78,755         80,777  
Processing           96,233         90,959         256,738         246,879  
Selling             34,180         27,383         92,680         81,011  
General and administrative       77,904         66,142         209,084         199,252  
Depreciation and amortization       57,084         48,526         141,848         145,435  
Other operating, net       (244 )       (1,703 )       (690 )       (2,475 )
Operating income       191,055         188,460         538,178         521,385  
Equity method investment loss (income)       2,744         6,108         (2,247 )       13,926  
Other expense (income), net       293         (168 )       1,056         2,345  
Interest expense, net       17,814         17,163         49,905         54,818  
Total other expense       20,851         23,103         48,714         71,089  
Income before income taxes       170,204         165,357         489,464         450,296  
Provision for income taxes       40,586         48,587         132,503         140,695  
Net income           $ 129,618       $ 116,770       $ 356,961       $ 309,601  
                                   
Basic earnings per share     $ 1.40       $ 1.27       $ 3.85       $ 3.37  
Diluted earnings per share     $ 1.36       $ 1.24       $ 3.75       $ 3.29  
                                   
Weighted average shares outstanding:                        
Basic shares             92,631         92,110         92,604         91,923  
Diluted shares           95,307         94,157         95,204         94,069  

 

Reflects the impact of the Company's adoption of Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of the accounting for share-based compensation, including the income tax consequences.

             
FleetCor Technologies, Inc. and subsidiaries
Consolidated Balance Sheets
(In thousands, except share and par value amounts)
                       
                September 30, 2016     December 31, 2015
                (Unaudited)      
Assets                  
                       
Current assets:              
Cash and cash equivalents     $ 405,435       $ 447,152  
Restricted cash       199,319         167,492  
Accounts receivable (less allowance for doubtful accounts of $30,072 and $21,903, at September 30, 2016 and December 31, 2015, respectively)       1,354,306         638,954  
Securitized accounts receivable - restricted for securitization investors       656,000         614,000  
Prepaid expenses and other current assets       80,837         68,113  
Deferred income taxes       8,879         8,913  
Total current assets       2,704,776         1,944,624  
                       
Property and equipment       251,394         163,569  
Less accumulated depreciation and amortization       (106,908 )       (82,809 )
Net property and equipment       144,486         80,760  
                       
Goodwill             4,183,981         3,546,034  
Other intangibles, net       2,758,877         2,183,595  
Equity method investment       79,717         76,568  
Other assets           63,837         58,225  
                       
Total assets         $ 9,935,674       $ 7,889,806  
                       
Liabilities and Stockholders’ Equity            
                       
Current liabilities:            
Accounts payable     $ 1,230,339       $ 669,528  
Accrued expenses       226,006         150,677  
Customer deposits       595,405         507,233  
Securitization facility       656,000         614,000  
Current portion of notes payable and other obligations       727,763         261,100  
Other current liabilities       39,080         44,936  
                       
Total current liabilities       3,474,593         2,247,474  
                       
Notes payable and other obligations, less current portion       2,552,357         2,059,900  
Deferred income taxes       692,221         713,428  
Other noncurrent liabilities       37,982         38,957  
                       
Total noncurrent liabilities       3,282,560         2,812,285  
                       
Commitments and contingencies            
                       
Stockholders’ equity:            
                     
Common stock, $0.001 par value; 475,000,000 shares authorized, 121,188,761 shares issued and 92,765,739 shares outstanding at September 30, 2016; and 120,539,041 shares issued and 92,376,335 shares outstanding at December 31, 2015       121         121  
Additional paid-in capital       2,057,562         1,988,917  
Retained earnings       2,123,297         1,766,336  
Accumulated other comprehensive loss       (612,150 )       (570,811 )
Less treasury stock, 28,423,022 and 28,162,706 shares at September 30, 2016 and December 31, 2015, respectively       (390,309 )       (354,516 )
                     
Total stockholders’ equity       3,178,521         2,830,047  
                       
Total liabilities and stockholders’ equity     $ 9,935,674       $ 7,889,806  
                     
             
FleetCor Technologies, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(In Thousands)
       
      Nine Months Ended September 30,
        2016         2015  
             
Operating activities            
Net income     $ 356,961       $ 309,601  
             
Adjustments to reconcile net income to net cash provided by operating activities:            
                     
Depreciation       25,706         22,941  
Stock-based compensation       50,025         44,387  
Provision for losses on accounts receivable       24,512         18,287  
Amortization of deferred financing costs and discounts       5,568         5,295  
Amortization of intangible assets       112,455         120,055  
Amortization of premium on receivables       3,687         2,439  
Deferred income taxes       (23,566 )       (27,640 )
Equity method investment (income) loss       (2,247 )       13,926  
Other non-cash operating income       (690 )       (2,476 )
Changes in operating assets and liabilities (net of acquisitions):            
Restricted cash       (28,744 )       5,697  
Accounts receivable       (529,268 )       (71,310 )
Prepaid expenses and other current assets       (1,291 )       2,724  
Other assets       (9,115 )       (3,297 )
Excess tax benefits related to stock-based compensation       -         (24,455 )
Accounts payable, accrued expenses and customer deposits       420,293         108,278  
Net cash provided by operating activities       404,286         524,452  
             
             
Investing activities            
Acquisitions, net of cash acquired       (1,331,079 )       (9,239 )
Purchases of property and equipment       (41,877 )       (29,526 )
Other       1,411         (7,782 )
Net cash used in investing activities       (1,371,545 )       (46,547 )
             
             
Financing activities            
Excess tax benefits related to stock-based compensation       -         24,455  
Proceeds from issuance of common stock       18,620         13,977  
Repurchase of common stock       (35,492 )       -  
Borrowings (payments) on securitization facility, net       42,000         (10,000 )
Deferred financing costs paid       (2,272 )       -  
Borrowings from notes payable       600,000         -  
Principal payments on notes payable       (85,125 )       (77,625 )
Borrowings from revolver- A Facility       1,105,107         -  
Payments on revolver- A Facility       (670,940 )       (411,818 )
Borrowings (payments) on swing line of credit, net       5,188         (601 )
Payment of contingent consideration       -         (40,310 )
Other       (673 )       (342 )
Net cash provided by (used in) financing activities       976,413         (502,264 )
             
Effect of foreign currency exchange rates on cash       (50,871 )       (30,320 )
             
Net decrease in cash and cash equivalents       (41,717 )       (54,679 )
Cash and cash equivalents, beginning of period       447,152         477,069  
Cash and cash equivalents, end of period     $ 405,435       $ 422,390  
             
Supplemental cash flow information            
Cash paid for interest     $ 48,525       $ 55,959  
             
Cash paid for income taxes     $ 79,599       $ 47,339  
                     
                               
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,  
            2016         2015           2016         2015    
                                 
Revenues, net       $ 484,426       $ 451,493         $ 1,316,593       $ 1,272,264    
Merchant commissions         28,214         31,726           78,755         80,777    
Total adjusted revenues       $ 456,212       $ 419,767         $ 1,237,838       $ 1,191,487    
                                 
                                 
  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,  
           

20162

 

      2015          

20162

 

      2015    
Net income       $ 129,618       $ 116,770         $ 356,961       $ 309,601    
                                 
Stock based compensation         17,405         13,887           50,025         44,387    
Amortization of intangible assets         46,341         39,869           112,455         120,055    
Amortization of premium on receivables         1,348         812           3,687         2,439    
Amortization of deferred financing costs and discounts         1,917         1,778           5,568         5,295    
Amortization of intangibles at equity method investment       2,406         3,032           7,533         8,404    
Non recurring net gain at equity method investment         -         -           (10,845 )       -    
                                 
Total pre-tax adjustments         69,417         59,378           168,423         180,580    
                                 
Income tax impact of pre-tax adjustments at the effective tax rate*       (15,726 )       (18,579 )

1

 

      (46,705 )       (57,758 )

1

                                 
Adjusted net income       $ 183,310       $ 157,570         $ 478,679       $ 432,424    
Adjusted net income per diluted share       $ 1.92       $ 1.67         $ 5.03       $ 4.60    
                                 
Diluted shares         95,307         94,157           95,204         94,069    
                               

Effective tax rate utilized excludes the impact of a one time tax benefit recognized during the three months ended September 30, 2015 of approximately $7.9 million.

Reflects the impact of the Company's adoption of Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of the accounting for share-based compensation, including the income tax consequences.

* Excludes the results of our equity method investment on our effective tax rate, as results from our equity method investment are reported within the Consolidated Income Statements on a post-tax basis and no tax-over-book outside basis differences related to our equity method investment reversed during 2016.

                                                 
                                                 
                                                 
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,
      2016     2015     Change     % Change     2016     2015     Change     % Change
                                                 

NORTH AMERICA

                                               
- Transactions2       371,198       371,518       (320 )     -0.1 %       1,217,292       1,145,259       72,033       6.3 %
- Revenues, net per transaction     $ 0.93     $ 0.90     $ 0.03       3.4 %     $ 0.78     $ 0.80     $ (0.02 )     -2.6 %
- Revenues, net     $ 345,868     $ 334,944     $ 10,924       3.3 %     $ 950,542     $ 918,333     $ 32,209       3.5 %
                                                 

INTERNATIONAL

                                               
- Transactions       127,390       45,588       81,802       179.4 %       233,340       138,041       95,299       69.0 %
- Revenues, net per transaction     $ 1.09     $ 2.56     $ (1.47 )     -57.5 %     $ 1.57     $ 2.56     $ (1.00 )     -38.8 %
- Revenues, net     $ 138,558     $ 116,549     $ 22,009       18.9 %     $ 366,051     $ 353,931     $ 12,120       3.4 %
                                                 
                                                 

FLEETCOR CONSOLIDATED REVENUES

                                               
- Transactions2       498,588       417,106       81,482       19.5 %       1,450,632       1,283,300       167,332       13.0 %
- Revenues, net per transaction     $ 0.97     $ 1.08     $ (0.11 )     -10.2 %     $ 0.91     $ 0.99     $ (0.08 )     -8.5 %
- Revenues, net     $ 484,426     $ 451,493     $ 32,933       7.3 %     $ 1,316,593     $ 1,272,264     $ 44,329       3.5 %
                                                 
                                                 
                                                 

FLEETCOR CONSOLIDATED ADJUSTED REVENUES1

                                               
- Transactions2       498,588       417,106       81,482       19.5 %       1,450,632       1,283,300       167,332       13.0 %
- Adjusted revenues per transaction     $ 0.92     $ 1.01     $ (0.09 )     -9.1 %     $ 0.85     $ 0.93     $ (0.08 )     -8.1 %
- Adjusted revenues     $ 456,212     $ 419,767     $ 36,445       8.7 %     $ 1,237,838     $ 1,191,487     $ 46,351       3.9 %
                                                                     

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.

Includes approximately 270 million and 274 million transactions for the three months ended September 30, 2016 and 2015, respectively, and 924 million and 872 million for the nine months ended September 30, 2016 and 2015, respectively, related to our SVS business acquired with Comdata in the fourth quarter of 2014.

             

Sources of Revenue3

    Three Months Ended September 30,     Nine Months Ended September 30,
      2016     2015     Change     % Change     2016     2015     Change     % Change
Revenue from customers and partners     57.0 %     53.3 %     3.7 %     6.9 %     55.3 %     52.5 %     2.8 %     5.3 %
Revenue from merchants and networks     43.0 %     46.7 %     -3.7 %     -7.9 %     44.7 %     47.5 %     -2.8 %     -5.9 %
                                                 
Revenue tied to fuel-price spreads     11.2 %     13.0 %     -1.8 %     -13.8 %     11.2 %     12.4 %     -1.2 %     -9.7 %
Revenue influenced by absolute price of fuel     14.0 %     15.3 %     -1.3 %     -8.5 %     14.3 %     15.5 %     -1.2 %     -7.7 %
Revenue from program fees, late fees, interest and other     74.8 %     71.7 %     3.1 %     4.3 %     74.5 %     72.1 %     2.4 %     3.3 %
                                                 

Expressed as a percentage of consolidated revenue.

 
                         
Exhibit 3
Segment Results
(In thousands)
(Unaudited)
                         
      Three Months Ended September 30,     Nine Months Ended September 30,
      2016     2015     2016     2015
Revenues, net:                        
North America     $ 345,868     $ 334,944     $ 950,542     $ 918,333
International       138,558       116,549       366,051       353,931
      $ 484,426     $ 451,493     $ 1,316,593     $ 1,272,264
                         
Operating income:                        
North America     $ 135,760     $ 132,428     $ 367,221     $ 351,778
International       55,295       56,032       170,957       169,607
      $ 191,055     $ 188,460     $ 538,178     $ 521,385
                         
Depreciation and amortization:                        
North America     $ 32,739     $ 32,257     $ 96,351     $ 96,200
International       24,345       16,269       45,497       49,235
      $ 57,084     $ 48,526     $ 141,848     $ 145,435
                         
Capital expenditures:                        
North America     $ 11,980     $ 6,493     $ 28,501     $ 14,510
International       5,140       6,799       13,376       15,016
      $ 17,120     $ 13,292     $ 41,877     $ 29,526
                                 
                                 

Exhibit 4
RECONCILIATION OF NON-GAAP GUIDANCE MEASURES
(In millions, except per share amounts)
(Unaudited)

The following table reconciles 2016 financial guidance for net income to adjusted net income and adjusted net income per diluted share, at both ends of the range:

        2016 GUIDANCE
        Low*     High*
Net income     $ 469       $ 477  
Net income per diluted share     $ 4.94       $ 5.02  
               
Stock based compensation       66         66  
Amortization of intangible assets, premium on receivables, deferred financing costs and discounts       186         186  
Amortization of intangibles at equity method investment       10         10  
Non recurring net gain at equity method investment       (11 )       (11 )
               
Total pre-tax adjustments       252         252  
               
Income tax impact of pre-tax adjustments at the effective tax rate**       (74 )       (74 )
               
Adjusted net income     $ 648       $ 654  
Adjusted net income per diluted share     $ 6.82       $ 6.90  
               
Diluted shares       95         95  
                     

* Columns may not calculate due to impact of rounding.

** Excludes the results of our equity method investment on our effective tax rate, as results from our equity method investment are reported within the Consolidated Income Statements on a post-tax basis and no tax-over-book outside basis differences related to our equity method investment reversed during 2016.

FLEETCOR Technologies, Inc.

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