FleetCor(FLT) - 2019 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Presents the unaudited consolidated financial statements for the three and six months ended June 30, 2019 Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total current assets | $4,386,358 | $3,875,986 | | Total assets | $11,975,592 | $11,202,477 | | Total current liabilities | $4,749,210 | $4,495,213 | | Total liabilities | $8,132,220 | $7,862,297 | | Total stockholders' equity | $3,843,372 | $3,340,180 | Consolidated Statement of Income Highlights (Unaudited) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $647,094 | $584,985 | $1,268,919 | $1,170,484 | | Operating income | $297,317 | $264,783 | $581,493 | $524,870 | | Net income | $261,651 | $176,852 | $433,758 | $351,789 | | Diluted EPS | $2.90 | $1.91 | $4.84 | $3.78 | Consolidated Statement of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $550,021 | $275,089 | | Net cash used in investing activities | ($282,901) | ($49,617) | | Net cash used in financing activities | ($151,546) | ($104,760) | 1. Summary of Significant Accounting Policies Details the basis of presentation, revenue recognition policies, and the adoption of new accounting standards Revenue by Product - Six Months Ended June 30 (in millions) | Product | 2019 | % of Total | 2018 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Fuel | $578 | 46% | $544 | 46% | | Corporate Payments | $237 | 19% | $194 | 17% | | Tolls | $175 | 14% | $170 | 14% | | Lodging | $92 | 7% | $84 | 7% | | Gift | $84 | 7% | $82 | 7% | | Other | $102 | 8% | $97 | 8% | | Total | $1,269 | 100% | $1,170 | 100% | Revenue by Geography - Six Months Ended June 30 (in millions) | Geography | 2019 | % of Total | 2018 | % of Total | | :--- | :--- | :--- | :--- | :--- | | United States | $760 | 60% | $691 | 59% | | Brazil | $209 | 16% | $203 | 17% | | United Kingdom | $137 | 11% | $130 | 11% | | Other | $163 | 13% | $146 | 12% | | Total | $1,269 | 100% | $1,170 | 100% | - The company adopted new accounting standards for Leases (Topic 842) and Derivatives and Hedging (Topic 815) effective January 1, 2019[42][43] 7. Acquisitions Outlines the completion of two acquisitions in Q2 2019 and one subsequent to quarter-end to expand its corporate payments product line - On April 1, 2019, the Company acquired NvoicePay, a provider of full accounts payable automation, for an aggregate purchase price of approximately $219 million, net of cash acquired[89] - Also on April 1, 2019, the Company acquired a small international business for an aggregate purchase price of approximately $32 million[90] - Subsequent to the quarter end, on July 5, 2019, the Company acquired SOLE Financial, a payroll card provider, for approximately $74 million[118] 9. Debt Details the company's debt structure, total outstanding debt of $4.61 billion, and compliance with all debt covenants as of June 30, 2019 Total Debt Outstanding (in thousands) | Facility | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Term Loan A & B, net | $2,795,976 | $2,859,699 | | Revolving lines of credit | $808,278 | $1,035,446 | | Securitization Facility | $974,000 | $886,000 | | Total | $4,608,768 | $4,819,047 | - On August 2, 2019, the company amended its Credit Agreement to include an incremental Term A Loan of $700 million[119] 14. Derivative Financial Instruments and Hedging Activities Describes the use of derivatives to manage interest rate risk on $2.0 billion of debt and to facilitate customer cross-currency payments - On January 22, 2019, the Company entered into three interest rate swap cash flow contracts to hedge interest payments associated with $2.0 billion of variable rate debt[115] - The aggregate notional amount of foreign exchange derivative customer contracts was $12.49 billion at June 30, 2019, up from $10.74 billion at December 31, 2018[112] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial results, highlighting strong organic growth, acquisition impacts, and key macroeconomic factors - FLEETCOR is a global business payments company operating in five main categories: Fuel, Lodging, Tolls, Corporate Payments, and Gift[126] - Key factors impacting the business include global economic conditions, foreign currency changes (notably BRL, GBP), fuel prices, fuel-price spreads, acquisitions, and interest rates[147] - The company completed the acquisition of NvoicePay for ~$219 million and another small international business for ~$32 million on April 1, 2019[151] Results of Operations - Three Months Ended June 30, 2019 vs 2018 Reports 10.6% consolidated revenue growth and a 47.9% surge in net income for Q2 2019, driven by organic growth and a significant tax benefit Q2 2019 vs Q2 2018 Performance | Metric | Q2 2019 (in millions) | Q2 2018 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total revenues, net | $647.1 | $585.0 | 10.6% | | Operating income | $297.3 | $264.8 | 12.3% | | Net income | $261.7 | $176.9 | 47.9% | - Organic revenue growth was approximately 13% on a constant currency, fuel price, and acquisition basis[155] - The effective tax rate was (1.7)% compared to 23.5% in the prior year, primarily due to a $65 million tax benefit related to the carryback of a capital loss from the Masternaut investment[168] Results of Operations - Six Months Ended June 30, 2019 vs 2018 Shows an 8.4% increase in consolidated revenue and a 23.3% growth in net income for H1 2019, driven by 11% organic growth H1 2019 vs H1 2018 Performance | Metric | H1 2019 (in millions) | H1 2018 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total revenues, net | $1,268.9 | $1,170.5 | 8.4% | | Operating income | $581.5 | $524.9 | 10.8% | | Net income | $433.8 | $351.8 | 23.3% | - Organic revenue growth was approximately 11% on a constant currency, fuel price, and acquisition basis[181] - The company recorded a $15.7 million investment loss related to an impairment charge on its telematics investment, which was subsequently sold[195] Liquidity and Capital Resources Details primary liquidity sources from operations and credit facilities, with a cash balance of $1.49 billion as of June 30, 2019 - At June 30, 2019, cash and cash equivalents totaled $1.49 billion, of which $318.3 million was restricted[206] - The company had approximately $478 million available under its Credit Facility and no additional liquidity under its Securitization Facility as of June 30, 2019[208] - Net cash from operating activities increased significantly to $550.0 million for the first six months of 2019, compared to $275.1 million in the prior year period[210] Management's Use of Non-GAAP Financial Measures Explains and reconciles non-GAAP measures like adjusted net income, which was $256.7 million for Q2 2019 Reconciliation of Net Income to Adjusted Net Income (in thousands) | Description | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $261,651 | $176,852 | $433,758 | $351,789 | | Total pre-tax adjustments | $78,403 | $79,664 | $160,122 | $156,441 | | Income tax impact | ($18,435) | ($18,720) | ($33,846) | ($36,927) | | Impact of investment sale on tax | ($64,880) | - | ($64,880) | - | | Adjusted net income | $256,739 | $237,796 | $495,154 | $471,302 | Adjusted Net Income Per Diluted Share | Period | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EPS | $2.85 | $2.57 | $5.52 | $5.07 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Confirms no material changes to market risk from the disclosures in the 2018 Annual Report on Form 10-K - No material changes to market risk were reported as of June 30, 2019, compared to the disclosures in the 2018 Annual Report on Form 10-K[243] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures as of June 30, 2019, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[244] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, internal controls[244] PART II—OTHER INFORMATION Item 1. Legal Proceedings Discloses ongoing legal matters, including a shareholder class action lawsuit for which class certification was granted in July 2019 - A shareholder class action lawsuit alleges the company made false or misleading statements between February 2016 and May 2017; on July 17, 2019, the court granted the plaintiff's motion for class certification[247] - Related shareholder derivative complaints are currently stayed pending rulings in the class action lawsuit[247] - A separate complaint from a customer (Schultz Transfer Systems, Inc) alleging overcharges was compelled to arbitration on July 8, 2019[247] Item 1A. Risk Factors States no material changes to risk factors previously disclosed in the 2018 Annual Report on Form 10-K - There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018[248] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the company's stock repurchase program, with $1.6 billion repurchased to date and $545 million remaining available - The Board of Directors approved a stock repurchase program authorizing up to $2.1 billion; as of January 23, 2019, approximately $545 million remained available for repurchase[251] - The $220 million Accelerated Stock Repurchase (ASR) agreement from December 2018 was completed on January 29, 2019, resulting in the receipt of an additional 117,751 shares[252] - Since the program's inception, a total of 9,054,512 shares have been repurchased for an aggregate price of $1.6 billion[253] Item 3. Defaults Upon Senior Securities Reports this item is not applicable for the period - Not applicable[254] Item 4. Mine Safety Disclosures Reports this item is not applicable for the period - Not applicable[255] Item 5. Other Information Reports this item is not applicable for the period - Not applicable[257] Item 6. Exhibits Lists all exhibits filed with the report, including material contracts and required CEO/CFO certifications - A list of filed exhibits is provided, including corporate governance documents, material contracts, and certifications[259][262][267][268] Signatures