Corpay Inc (CPAY) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the Fleetcor Technologies, Inc. first quarter 2011 earnings conference call. (Operator Instructions). At this time I would like to turn the conference over to Mr. Eric Dey, Chief Financial Officer. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us today. My name is Eric Dey and I am the CFO of Fleetcor Technologies. By now everyone should have access to our first quarter 2011 press release. It can also be found at www.fleetcor.com under the Investor Relations section.

Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues and adjusted net income. This information is not calculated in accordance with GAAP and my be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliations, or historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and on our website as described above. Also, we're reviewing 2011 guidance on a non-GAAP basis.

Finally, before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These include forward-looking statements about our 2011 guide. They are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what expect. Some of those risks are mentioned in today's 8-K with the Securities and Exchange Commission. Others are discussed in our form 10-K which is available at www.sec.gov. With that out of the way, I would like to turn the call over to Ron Clark, our Chairman, President and CEO. Ron?

Hi, everyone, and thanks for joining the call today. I'll plan to cover just a couple of subjects in this opening.

First out Q1 results. If you have had the chance to see our earnings release, you'll see that Q1 was a good quarter for us. We reported revenue of $111 million, adjusted net income of $39 million, and adjusted EPS of $0.47 a share. This was in fact a slight beat against our internal plan.

From a growth perspective, we have set and organic growth target of 10% and 20% that is 10% revenue growth and 20% earnings growth. And I'm delighted to report that in Q1 our adjusted revenue grew 11% and our adjusted net income grew 20%. So basically, on our 10% and 20% target.

In terms of drivers of Q1 performance I would say, one, it was a generally positive economic environment. We had better FX rates and higher fuel prices than we expected, but at the same time, market spreads, or what we call market margins, were poor, in fact very low, which negatively impacted a few of our spread-based businesses. So our Q1 results included a mix of both of these positive and negative influences.

Our quarter was also driven by some great performance in a few of our businesses. Our US direct, or what we call our own brand business grew 13%, our hotel card business grew 20% and our Russia business grew over 70% in the quarter, so obviously these three contributed to a pretty good start.

We have also made good progress in Q1 on our strategic initiatives. We migrated a large portion of our US major oil business to our extended network cards. As a reminder, these broader acceptance cards lift both transactions as users enjoy more convenience, as well as increased Fleetcor's revenue per tran.

Secondly, we're making pretty good progress towards implementing our recent Shell/Europe win. The project is now fully staffed, and we're very busy building out enhancements in our global GFN system which will enable Shell to run in 35 countries.

Now let me shift gears and talk a bit about our strategic growth initiatives, and specifically activities relating to new partner signings and due acquisitions. Historically, these two sets of activities have enabled Fleetcor to accelerate our earnings growth beyond our stated 20% organic earnings target. And at the highest level, I characterize our opportunities today as about as rich as we have ever had.

So in terms of new partner deals, we can say that we're very active. We're chasing a number of real and exciting prospects, and we'll hope to have more specific news in the second half as we work to get these opportunities in final form.

Regarding acquisitions, we have got a very full pipeline, some of which are quite material. Many of these potential deals are consistent with our stated objective of expanding beyond North America and Europe. So we'll obviously keep you posted as these opportunities become more concrete.

Lastly, let me cover off on our 2011 guidance. In February we provided full year 2011 guidance of $155 million to $165 million in adjusted net income, and $1.83 to $1.95 in adjusted EPS. And because we're not in the business of adjusting our guidance every couple of months, we're going to stick with this same guidance, but what we can say today is that we're comfortable. Comfortable with this range that we've provided.

And our comforts a function of, one, a slight beat to our internal Q1 plan; two, a generally favorable economic environment; and three, good progress on the initiatives that drive our organic growth. So net/net, I would say we're comfortable with the range. So now with that I would like to turn the call over to Eric, who will provide some additional color on our earnings release.

Thanks, Ron. For the first quarter of 2011 we reported revenue of $111 million, an increase of 6.5% from the prior period. For the first quarter net income increased 18.2% through $32.3 million from $27.3 million in the prior period, or $0.39 per diluted share compared to $0.34 per diluted share in the first quarter of 2010.

The other financial metrics that we routinely use to measure our business are adjusted revenues and adjusted net income. Adjusted revenues equal our GAAP revenues less merchant commissions. We use adjusted revenues as a basis to evaluate the Company's revenues net of the commission that are paid to merchants who participate in certain card programs.

The commissions paid to merchants can vary when market spreads fluctuate in much the same way some of our revenues can vary when market spreads fluctuate. We believe that this financial metric is a more effective way to evaluate the Company's revenue performance.

Adjusted net income is gap income adjusted to eliminate non-cash stock based compensation expense related to share based compensation awards, amortization of deferred financing costs, intangible assets and amortization of the premium recognized on the purchase of receivables.

Adjusted revenues in the first quarter of 2011 increased 10.9% to $102.7 million, compared to $92.6 million in the first quarter of 2010.

Adjusted net income for the first quarter of 2011 increased 20.2% to $39.3 million or $0.47 per diluted share compared to $32.7 million or $0.39 per diluted share in the first quarter of 2010 on a pro forma basis.

2010 on a pro forma basis includes a public company expenses incurred in the first quarter of 2011. Additional non-cash compensation expense related to our new option plan decreased an effective tax rate to equal the effective tax rate in the first quarter of 2011 and fully diluted shares equal to those in the first quarter of 2011 each of which are described in exhibit one to the press release.

For the first quarter of 2011 transaction volumes increased 3.9% to 47.5 million transactions from 45.7 million in the first quarter of 2010. Adjusted revenues per transaction for the first quarter of 2011 increased 6.9% to $2.16 from $2.02 in the first quarter of 2010. Adjusted revenues are defined as reported revenues, less the commissions paid to merchants who participate in certain of our card programs.

I also want to note that the first quarter of 2010 transaction volumes and revenues have been adjusted for the wind down of a partner contract in Europe inherited from acquisition which we chose not to renew. This partner had a high number of transactions and very little revenue. A reconciliation for this contract wind down is contained in exhibit 2 to the press release.

Moving down the income statement. Total operating expenses for the first quarter were $59.1 million compared to $55.2 million in the first quarter of 2010, an increase of 7.1%. Included in operating expenses are merchant commission, processing expenses including bad debt, selling expenses and general and administrative expenses. Increase in operating in the first quarter of 2011 is primarily due to incremental public company related costs and additional non-cash compensation expense related to our new stock option plan.

Credit losses were 21 basis points for the quarter compared to 32 basis points in the first quarter of 2010. The improvement in credit losses was primarily due to the improvement in the economy and a shift in our marketing and sales strategy toward slightly larger fleet prospects.

Depreciation and amortization increased 6.9% to $8.6 million in the first quarter of 2011 from $8.1 million in the first quarter of 2010. The increase was primarily due to the impact of the amortization of intangible assets related to two small acquisitions completed during the first quarter of 2010.

Interest expense decreased 36.1% in the first quarter to $3.4 million from $5.3 million in the first quarter of 2010 due primarily to expiration of an interest rate hedge in November of 2010, resulting in a much lower interest rate and lower principal balances during the quarter.

Our income tax expense decreased to 31.4% of pretax income in the first quarter of 2011 from 34.6% of pretax income in the first quarter of 2010. The decrease in the effective tax rate was primarily due to an unfavorable impact on the prior year rate from the controlled foreign corporation look-through exclusion which expired in December of 2009 and was not extended until December of 2010which was retroactive back to the beginning of 2010.

Now turning to the balance sheet. We ended the quarter with $186 million of total cash, $66 million of which is customer deposits in our Czech Republic business and is restricted. The Company also had $327 million of term debt outstanding and an undrawn $50 million revolver. Our term debt carries an interest rate of LIBOR plus225 basis points.

The Company also has a $500 million accounts receivable securitization facility in place to fund the timing difference between when we receive money from our customers and when we pay our merchants. The facility is a 364-day facility, and currently carries an interest rate of CP plus 90 basis points. We had an outstanding balance of $154 million as of March 31, 2011.

During the first quarter, the Company amended and extended our facility termination date until February 23, 2012. The renewal included a reduction in the facilities interest rate from CP plus 115 basis points to CP plus 90 basis points at that time. The current purchase limit remains at $500 million. The Company intends to use its free cash flow to temporarily pay down the securitization facility balance and maintain liquidity for acquisitions and other corporate purposes.

Now turning to financial guidance. As I mentioned on last quarter's call, we intend to provide guidance on an annual basis for reported revenue, adjusted net income and adjusted earnings per share. And as you heard Ron mention early in the call, given our strong first quarter results, the generally positive economic environment and our progress on our organic growth initiatives, we are reaffirming our financial guidance for 2011. With that said, operator, we'll open it up to questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). And our first question is from the line of Adam Frisch with Morgan Stanley. Please go ahead.

Hi there. It's Glenn Fodor for Adam. Thanks for taking my question. The fuel price spreads. I remember this was an issue last quarter. I was wondering if you could help just put some texture on what the impact was this quarter, maybe perhaps in relation to last quarter which I think was $3 million to $4 million impact for you guys?

Yes, Glenn. Hey, it's Ron. I would say it's a little less. Call it $2 million-negative for the quarter.

Bubba Glen, this is Eric. I just want to remind you guys again that Ron mentioned earlier in the call that obviously higher fuel prices do have a positive impact on some of our businesses. And then the fuel [price] spreads have an impact on some of our businesses as well in the first quarter. Those mostly offset each other.

Okay, great. And then just one last one. Thanks for the color on the partnerships, it sounds very promising. On the M&A commentary you said these are material prospects. Is that from a price perspective, or are you just quantifying the opportunity? How would you characterize the size of these versus the historical acquisitions?

Yes, I would say, Glenn, it's a mix, and I would say we use the word material when it would cause us to change guidance. So it's significant enough that we would be back to you with some kind of a change.

Okay. Great. Thank you very much.

Thank you. Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.

Great. Thanks. Nice quarter here. I think you, Ron, mentioned a slight beat against the plan. Maybe can you help us understand what the source is of the upside, where that was coming from, is it coming from fuel, is it coming from higher transactions, better flow-through on some of your [revpar] transaction optimization plans? Just trying to get us some flavor on where the upside came from.

Yes, I would say, Tien-Tsin, it's a little of both. We were a little stronger in volume and in rate, and I think those couple of businesses that I called out performed better than our internal plan, particularly like our Russia business was gangbusters above what we had planned internally. So I would say it was really not one thing, it was really a mix.

Got it. And then I guess on a FX basis, you guys have talked about fuel in the past. I appreciate that. But how does FX -- does that have anything from a demand standpoint? Both on signing new deals as well as on transactions and, of course separate from that, maybe if we could just get an update, Eric, on the FX impact if rates were to hold today, what kind of impact that would have relative to what your earlier assumption was on revenue guidance?

First, Tien-Tsin, to answer your first question. It really doesn't have any impact on our ability to sign new partnership deals at all. It's not really the way we look at it from an FX perspective. In the first quarter, obviously there was favorable foreign exchange rates. It impacted our revenue, approximately $1 million in the quarter, and obviously there was a corresponding negative impact on our expenses to go along with that. So I would say net/net it had a positive impact of around $700,000 or so for the quarter.

Tien-Tsin, it's Ron. Obviously, we quote these businesses in local currency generally.

Yes. Right, I remember that. Okay. Good to know. Last one for me and then I'll jump off. Ron, you talk a little bit about the macro. How does it feel here (inaudible) (technical difficulty) a quarter after since we last spoke on the public call. How would you characterize what you're seeing in the US and overseas just from an organic transaction outlook?

I would say it's probably about the same. I would say we measure economy in two ways. Kind of health of same-store, clients and then we measure in terms of our credit dynamics. And I would say that Q1 is varied, obviously, by geography, but it's trending just a hair better, Tien-Tsin, in Q1 than the prior quarter. But still a hair better, not a hair worse. And our credit, I don't know if we spoke about the credit metrics, but our credit performance quarter-over-quarter has proved quarter for six, seven quarters.

That's correct. Our bed debt in Q1, I think I mentioned it on the call, was 21 basis points in the first quarter versus 32 basis points a year ago, so obviously, a pretty dramatic improvement in the performance there.

But Tien-Tsin, I would still hold out. I think like a lot of companies you guys cover, I don't think we have seen, what we would call any sizeable economic recovery. We had that huge dip, right, a couple of years ago and dropped double-digit volumes in a bunch of our markets. I would say we're nowhere near getting back to those levels with the same-store clients. We're still woefully behind where they were at the peak.

Understood. That's helpful. Nice job,guys, thanks.

Thanks.

Thank you. (Operator Instructions). And our next question is from the line of Wayne Johnson with Raymond James. Please go ahead.

Hi. Yes. Good afternoon. Sticking with the big picture theme here. How should we think about the European business as that seems to be most susceptible, and I could be wrong here, so I am asking for your guidance, most susceptible to variations in oil prices and gasoline prices. And if you had to guess, and I realize I'm asking for you to guess, where do you think demand [destruction] really begins? At what level of gasoline and oil per barrel? If you guys have thought about it in that way.

Yes. Wayne, it's Ron again. I would say on the first question, no. I would say our Europe businesses are no more or less sensitive. We have spread-based models in Europe and fuel sensitive models in Europe, the same as we do in the U.S, and in fact taxes make up a larger portion of fuel price in those markets, so they tend to have less volatility than here. So those two factors, I would say no. Europe is not more sensitive.

And on the second question, I would say we don't have a clue. What we can say is we haven't hit a tipping point because we have seen it in our volumes. We have been -- was it two years ago now, Eric, we've been at these --

It's been two years.

-- these levels kind of, Glenn, not only here, but abroad a couple of years ago, and I would say that it hasn't reached a level where it is today that was see it turning back volume.

And again, I'd just remind you on that one is because we're 100% commercial business, and basically this is what these people do for work. It's just a much less discretionary decision for people that basically drive to earn a living. It has obviously go to go above the levels that we're at, but in terms of where that thing would start to break, we don't know.

Terrific. Good quarter. Thank you.

Thanks.

Thank you. Ladies and gentlemen, this does conclude the Fleetcor Technologies, Inc. first quarter 2011earnings conference call. We'd like to thank you for your participation, and you may now disconnect.