Q2 2016: U.S. Fleet Card Issuer Performance Snapshot

Navigator Edition: October 2016
By: Ben Wills

To provide a lens into fleet card performance, First Annapolis Consulting regularly tracks key fleet card issuer performance metrics and also conducts forward-looking assessments of key strategic dynamics. FleetCor and WEX are the only U.S. publicly traded fleet card issuers; and their financials provide benchmarks with which to gauge the fleet card segment. Broadly, both issuers have performed well from a year-on-year perspective, despite declining fuel prices.

Both companies have recently completed major acquisitions – FleetCor of Brazilian electronic toll payments company Serviços e Tecnologia de Pagamentos S.A. (STP) for the equivalent of approximately $1.1 billion and WEX of Electronic Funds Source (EFS), the largest acquisition in the company’s history with total consideration of approximately $1.1 billion. While each of these acquisitions has contributed to increased debt service, both issuers have successful records of managing capital and acquisition-oriented growth.

FleetCor: Bolstered by an increase in transactional volume attributable to the Mastercard Universal product, FleetCor’s North America revenues, excluding SVS, increased 4% year-on-year to $263 million in the three months ended June 30, 2016, despite a 1% decrease in revenue per transaction from the previous quarter in 2015 to $2.67. This decrease in per transaction revenue primarily reflects lower fuel prices during the quarter versus the prior year quarter and unfavorable fuel spread margins.

FleetCor’s operating margin remained relatively flat in 2Q16 compared to 2Q15, increasing slightly due to lower depreciation and amortization expense caused by fluctuations in the foreign exchange market.

On its Q2 earnings call, FleetCor highlighted future opportunities in North America and International with major oil portfolio sales and outsourcing, other types of customer partnerships (such as the Uber relationship), and product cross-selling.

WEX: WEX’s Fleet Payment Solutions’ revenues increased 6% year-on-year to $144 million in the three months ended June 30, 2016. Contributing to this increase were continued pricing modernization efforts, an increase in small fleet customer fees to better align with the broader market, and the reclassification of certain Health Services revenue to Fleet. The year-on-year increase was partially offset by fuel prices.

WEX’s operating margin decreased significantly year-on-year, driven by increased operating expenses such as $9.5 million more in acquisition related service fees associated with the EFS acquisition and the outsourcing of particular back office technology, both of which are anticipated to continue to impact financials throughout the year.

WEX, on its Q2 earnings call, highlighted several growth initiatives including the continued roll-out of new products, expanded pricing modernization, and scaling its programs in Europe and Asia.

Figure 1: Fleet Card Issuer Performance Q2 2016

figure-1_-fleet-card-issuer-performance-q2-20161 FleetCor revenues and transactions are for the North America segment only, and exclude the SVS business from the Comdata acquisition. Revenue is calculated using North American revenue per transaction excluding SVS ($2.67).
2 WEX revenues are for the Fleet Payment Solutions segment only.
3 Charge-off values are annualized, and represent the entire business. FleetCor Charge-offs include international business. FleetCor Charge-off calculation is Write-offs / the sum of Gross Domestic AR,Gross Domestic Securitized AR, and Gross Foreign AR. WEX Charge-off calculation is Charge-offs / AR.
Note: growth rates may differ from those in filings due to rounding and categorization.
Source: FleetCor and WEX public filings.

For more information, please contact Ben Wills, Analyst, ben.wills@firstannapolis.com, specializing in Commercial Payments.

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