Corpay, Inc.(CPAY) - 2019 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the period Financial Statements The unaudited consolidated financial statements for the three and six months ended June 30, 2019, show an increase in total assets to $11.98 billion from $11.20 billion at year-end 2018, driven by growth in receivables and goodwill Consolidated Balance Sheets As of June 30, 2019, total assets increased to $11.98 billion from $11.20 billion at December 31, 2018, primarily due to growth in accounts receivable and goodwill Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $11,975,592 | $11,202,477 | | Cash and cash equivalents | $1,170,339 | $1,031,145 | | Accounts and other receivables, net | $1,727,183 | $1,425,815 | | Goodwill | $4,720,471 | $4,542,074 | | Total Liabilities | $8,132,220 | $7,862,297 | | Accounts payable | $1,523,862 | $1,117,649 | | Notes payable and other obligations | $3,634,768 | $3,933,047 | | Total Stockholders' Equity | $3,843,372 | $3,340,180 | Unaudited Consolidated Statements of Income For Q2 2019, revenues increased 10.6% to $647.1 million, and net income grew significantly to $261.7 million, while for the six months ended June 30, 2019, revenues rose 8.4% to $1.27 billion and net income increased to $433.8 million Financial Performance (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 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 | Unaudited Consolidated Statements of Cash Flows For the six months ended June 30, 2019, net cash from operating activities significantly increased to $550.0 million, while cash used in investing activities grew to $282.9 million primarily due to acquisitions Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | 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) | | Net increase in cash | $123,733 | $54,568 | - Acquisitions were the primary driver of investing cash outflows, totaling $250.9 million in the first half of 2019[24] - Financing activities included net repayments on the company's revolver totaling $261.8 million, compared to net borrowings of $173.9 million in the prior year period. Common stock repurchases decreased significantly from $380.7 million in H1 2018 to $4.0 million in H1 2019[24] Notes to Unaudited Consolidated Financial Statements Key notes detail the adoption of the new lease accounting standard, the acquisition of NvoicePay for $219 million, the use of interest rate swaps to hedge $2.0 billion in debt, and ongoing legal proceedings - The company adopted the new lease accounting standard (Topic 842) on January 1, 2019, recognizing right-of-use assets of $55.9 million and lease liabilities of $65.5 million[52] - On April 1, 2019, the company acquired NvoicePay, a provider of accounts payable automation, for an aggregate purchase price of approximately $219 million[88] - The company is involved in a shareholder class action lawsuit alleging false or misleading statements between February 2016 and May 2017. The company disputes the allegations and cannot estimate a possible loss[110] - In January 2019, the company entered into interest rate swap contracts to hedge the variability of cash flows on $2.0 billion of its variable rate debt[119] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2019 revenue growth to strong organic performance and acquisitions, partially offset by foreign exchange impacts, while maintaining strong liquidity with $1.49 billion in cash Results of Operations For Q2 2019, consolidated revenues grew 10.6% to $647.1 million, driven by 13% organic growth, and net income increased 47.9% to $261.7 million, boosted by a $65 million tax benefit Q2 2019 vs Q2 2018 Performance (in millions) | Metric | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues, net | $647.1 | $585.0 | 10.6% | | North America Revenue | $417.9 | $370.9 | 12.7% | | International Revenue | $229.2 | $214.0 | 7.1% | | Operating Income | $297.3 | $264.8 | 12.3% | | Net Income | $261.7 | $176.9 | 47.9% | - Q2 revenue growth was driven by approximately 13% organic growth and an $8 million contribution from 2019 acquisitions, offset by a negative macroeconomic impact of about $10 million, primarily from unfavorable foreign exchange rates[159] - The Q2 2019 tax provision was a benefit of $4.4 million, compared to an expense of $54.3 million in Q2 2018, primarily due to a $65 million tax benefit from the disposition of the Masternaut investment[171] Liquidity and Capital Resources As of June 30, 2019, the company had $1.49 billion in cash, with $478 million available under its credit facility, supported by strong operating cash flow and strategic acquisitions - Total cash at June 30, 2019 was $1.49 billion, with $478 million available under the Credit Facility[208][211] - The company completed the acquisition of NvoicePay for ~$219 million and another small international business for ~$32 million in Q2 2019[153] - The stock repurchase program has an authorized size of $2.1 billion, with $545 million remaining available for repurchase as of the end of Q2 2019[233] - On August 2, 2019, subsequent to the quarter end, the company amended its Credit Agreement to include an incremental Term A Loan of $700 million[228] Quantitative and Qualitative Disclosures About Market Risk As of June 30, 2019, there have been no material changes to the company's market risk profile from the disclosures in its 2018 Annual Report on Form 10-K - There have been no material changes to the company's market risk profile since the 2018 year-end report[254] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019[255] - No material changes were made to the company's internal control over financial reporting during the second quarter of 2019[256] PART II—OTHER INFORMATION This section details legal proceedings, risk factors, equity security sales, and a list of filed exhibits Legal Proceedings The company is involved in a shareholder class action lawsuit, with class certification granted in July 2019, and related derivative complaints, for which the ultimate outcome and possible losses cannot be estimated - A shareholder class action lawsuit alleges the company made false or misleading statements between February 2016 and May 2017. The court granted class certification on July 17, 2019[258] - Related shareholder derivative complaints have also been filed. The company disputes all allegations and intends to defend against the claims vigorously[259] - The company is currently unable to predict the outcome or reasonably estimate possible losses from these legal matters[261] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes have occurred in the company's risk factors since the filing of the 2018 Form 10-K[262] Unregistered Sales of Equity Securities and Use of Proceeds The company has a $2.1 billion stock repurchase program, with $545 million remaining, and completed a $220 million Accelerated Stock Repurchase (ASR) agreement in January 2019 - The Board has authorized a $2.1 billion stock repurchase program, with $545 million remaining as of June 30, 2019[264] - The $220 million Accelerated Stock Repurchase (ASR) agreement from December 2018 was completed on January 29, 2019[265] Q2 2019 Share Repurchases | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2019 | 2,086 | $252.50 | | May 2019 | 0 | N/A | | June 2019 | 263 | $253.65 | Exhibits The report lists several exhibits filed with the SEC, including amendments to the Credit Agreement and certifications by the CEO and CFO - Key exhibits filed include the Sixth Amendment to the Credit Agreement, dated August 2, 2019[271] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2001 are included as exhibits[271]