CORPAY, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management's expectations. See "Special Cautionary Notice Regarding Forward-Looking Statements". This management's discussion and analysis should also be read in conjunction with the management's discussion and analysis and consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Impact of COVID-19 on Our Business OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The pandemic and these containment and mitigation measures have led to adverse impacts on theU.S. and global economies. The COVID-19 pandemic has impacted our business operations and results of operations for the first quarter of 2020 as described in more detail under "Results of Operations - First Quarter EndedMarch 31, 2020 Compared with First Quarter EndedMarch 30, 2019 " below, due to a significant reduction in the level of business activity across industries worldwide, which reduced the volume of payment services provided to our customers and revenue generated during the second half of the last month of the first quarter. The evolving COVID-19 pandemic could continue to have an adverse impact on our results of operations and liquidity; the operations of our suppliers, vendors and customers; and on our employees as a result of quarantines, facility closures, and travel and logistics restrictions. We expect that our business operations and results of operations, including our net sales, earnings and cash flows, will be negatively impacted by a multitude of factors including, but not limited to: •changes in business confidence and spending habits, including negative trends in our customers' purchasing patterns due to decreased levels of business activity, credit availability, high debt levels and financial distress; •lower fuel prices; •slowdowns in commercial trucking; •strengthening dollar compared to other currencies around the world; •reduction in the level of business travel; •decreased productivity due to travel bans, work-from-home policies or shelter-in-place orders; •slowdown in theU.S. and global economies, and an uncertain global economic outlook or a potential credit crisis; and •customers experiencing financial distress or declaring bankruptcy, including seeking extended payment terms, which would create incremental credit loss expense. If the COVID-19 pandemic continues to impact the world economy and our customers, in particular, by restricting day-to-day operations and depressing operating volumes, our revenues throughout the year will ultimately be adversely impacted. The extent to which the COVID-19 pandemic impacts our business operations, financial results, and liquidity will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the pandemic; our response to the impact of the pandemic; the negative impact it has on global and regional economies and general economic activity, including the duration and magnitude of its impact on unemployment rates and business spending levels; its short- and longer-term impact on the levels of consumer confidence; the ability of our suppliers, vendors and customers to successfully address the impacts of the pandemic; actions governments, businesses and individuals take in response to the pandemic; and how quickly economies recover after the COVID-19 pandemic subsides. We have been taking steps to mitigate the potential risks related to the circumstances and impacts of COVID-19. We are focused on addressing these recent challenges with preemptive actions designed to protect our employees, provide uninterrupted service to our customers, and meet our near term liquidity needs. Such actions include, but are not limited to: •Safety: ensuring the safety of our 8,000 employees worldwide by transitioning the vast majority of our employees to work from home; •Business Continuity: ensuring that our systems and payment products continue to operate efficiently for our customers; •Liquidity: consolidating cash tothe United States from around the world and increasing our credit line under our existing credit facilities; •Expenses: slowing discretionary sales and technology spending, furloughing contractors, and the executive team taking pay cuts; and 27 -------------------------------------------------------------------------------- T able of Contents •Credit: tightening customer credit lines and payment terms, including closing inactive lines, reducing unused capacity, and reducing payment terms in selected distressed verticals. These efforts may not be enough to offset anticipated impact of the COVID-19 pandemic. See "The extent to which the outbreak of the novel strain of the coronavirus (COVID-19) and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict." in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. General BusinessFLEETCOR Technologies, Inc. and its subsidiaries (the Company) is a leading global business payment solutions company that simplifies the way businesses manage and pay their expenses. TheFLEETCOR portfolio of brands help companies automate, secure, digitize and control payments on behalf of their employees and suppliers. The Company serves businesses, partners, merchants and consumers and payment networks inNorth America ,Latin America ,Europe , andAsia Pacific . As previously described in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , we have historically managed and reported our operating results through two reportable segments, defined by geographic region:North America and International. In the first quarter of 2020, we evaluated the identification of our operating and reportable segments based upon changes in business models, management reporting, and how the Chief Operating Decision Maker (CODM) is currently allocating resources, assessing performance and reviewing financial information. We determined that this change caused the composition of our reportable segments to change and thatBrazil represented a third operating and reportable segment, which was previously reported in the International segment. We now manage and report our operating results through three operating and reportable segments defined by geographic region:North America ,Brazil and International, which aligns with how the CODM allocates resources, assesses performance and reviews financial information.FLEETCOR solutions are comprised of payment products, networks and associated services. Our payment products generally function like a charge card, prepaid card, one-time use virtual card and electronic RFID (radio-frequency identification,), etc. While the actual payment mechanisms vary from category to category, they are structured to afford controland reporting to the end customer. We group our payment solutions into five primary categories: Fuel, Lodging, Tolls, Corporate Payments and Gift. Additionally, we provide other complementary payment products including fleet maintenance, employee benefits and long haul transportation-related services. Our payment solutions are used in more than 100 countries around the world, with our primary geographies being theU.S. ,Brazil and theUnited Kingdom , which combined accounted for approximately 87% of the our revenue in 2019. We use both proprietary and third-party networks to deliver our payment solutions.FLEETCOR owns and operates proprietary networks with well-established brands throughout the world, bringing incremental sales and loyalty to affiliated merchants. Third-party networks are used to broaden payment product acceptance and use.FLEETCOR markets its products directly through multiple sales channels, including field sales, telesales and digital marketing, and indirectly through our partners, which include major oil companies, leasing companies, petroleum marketers, value-added resellers (VARs) and referral partners. Executive Overview Our revenue is generally reported net of the cost for underlying products and services purchased through our payment products. In this report, we refer to this net revenue as "revenue". See "Results of Operations" for additional segment information. Revenues, net, by Segment. The presentation of segment information has been recast for prior quarters o align with segment presentation for the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2020 and 2019, ourNorth America ,Brazil and International segments generated the following revenue (in millions).
Three Months Ended
2020 2019
% of % of
total total
(Unaudited) Revenues, net revenues, net Revenues, net revenues, net
North America $ 434.7 65.8 % $ 396.9 63.8 %
Brazil 99.0 15.0 % 105.7 17.0 %
International 127.4 19.3 % 119.2 19.2 %
$ 661.1 100.0 % $ 621.8 100.0 %
Revenues, net, Net Income and Net Income Per Diluted Share. Set forth below are
revenues, net, net income and net income per diluted share for the three months
ended March 31, 2020 and 2019 (in millions, except per share amounts).
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Three Months Ended March 31,
(Unaudited) 2020 2019
Revenues, net $ 661.1 $ 621.8
Net income $ 147.1 $ 172.1
Net income per diluted share $ 1.67 $ 1.93
Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below
are adjusted net income and adjusted net income per diluted share for the three
months ended March 31, 2020 and 2019 (in millions, except per share amounts).
Three Months Ended March 31,
(Unaudited) 2020 2019
Adjusted net income $ 264.5 $ 238.4
Adjusted net income per diluted share $ 3.00 Adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures" for more information and a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP. We use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis. Sources of RevenueFLEETCOR offers a variety of business payment solutions that help to simplify, automate, secure, digitize and effectively control the way businesses manage and pay their expenses. We provide our payment solutions to our business, merchant, consumer and payment network customers in more than 100 countries around the world, although we operate primarily in 3 geographies, with approximately 87% of our business in theU.S. ,Brazil and theU.K. Our products help our customers pay their suppliers and manage spend related to their employees more efficiently. We have a variety of products that help our customers achieve these goals, primarily in five product categories: fuel, corporate payments, toll, lodging and gift. Our customers may include commercial businesses (obtained through direct and indirect channels), partners for whom we manage payment programs, as well as individual consumers (for tolls). Fuel represents approximately 44% of our revenues. Our fuel cards and products help businesses monitor and control fuel spend across multiple fuel networks, providing online analytical reporting to help customers managing the efficiency of their vehicles and drivers, while offering potential discounts off of the retail price of fuel. We generate revenue in our fuel products through a variety of program fees, including transaction fees, card fees, network fees and charges, as well as from interchange. These fees may be charged as fixed amounts, costs plus a mark-up, or based on a percentage of the transaction purchase amounts, or a combination thereof. Our programs also include other fees and charges associated with late payments and based on customer credit risk. Corporate payments represents approximately 18% of our revenues. Our products help streamline business to business ("B2B") payments for vendors and employees, both domestically and internationally. Our corporate payments products include virtual card solutions for invoice payments, corporate card programs, a fully-outsourced accounts payable solution, as well as a cross-border payments product to facilitate customers making payments across differing currencies. In our corporate payments products, a primarily measure of volume is spend, the dollar amount of payments processed on behalf of customers through our various networks. In corporate payments, we primarily earn revenue from the difference between the amount charged to the customer and the amount paid to the third party for a given transaction as interchange revenue. Our programs may also charge fixed fees for access to the network and ancillary services provided. Tolls represents approximately 13% of our revenues. Our toll product is primarily delivered via an RFID sticker affixed to the windshield of a customer vehicle inBrazil . This RFID enables customers to utilize toll roads, toll parking lots, pay for gas at partner stations and pay for drive-through food, via automated access and payment upon scan while remaining in the vehicle. In our toll product, the relevant measure of volume is average monthly tags active during the period. We primarily earn revenue from fixed fees for access to the network and ancillary services provided. We also earn interchange on certain services provided. Lodging represents approximately 8% of our revenues. Our lodging products provide customers with a proprietary network of hotels with discounted room rates, centralized billing and robust reporting to help customers manage and control costs. In our lodging products, we define a transaction as a hotel room night purchased by a customer. In our lodging products, we primarily earn revenue from the difference between the amount charged to the customer and the amount paid to the hotel for a given transaction. Our products may also charge fees for access to the network and ancillary services provided. 29 -------------------------------------------------------------------------------- T able of Contents Gift represents approximately 6% of our revenues. We provide fully integrated gift card product management and processing services via plastic and digital gift cards to our customers. We primarily earn revenue from the processing of gift card transactions sold by our customers to end users, as well as from the sale of the plastic cards. Our products may also charge fixed fees for ancillary services provided. The remaining 10% of revenues represents other products, which include telematics, maintenance, food, a payroll card solution for employers to distribute wages, and transportation related offerings. The following table presents revenue and revenue per key performance metric by product for the three months endedMarch 31, 2020 and 2019 (in millions).* As Reported Pro Forma and Macro Adjusted3 Three Months Ended March 31, Three Months Ended March 31, (Unaudited) 2020 2019 Change % Change 2020 2019 Change % Change FUEL '- Revenues, net$ 292.1 $ 283.0 $ 9.1 3 %$ 280.6 $ 275.3 $ 5.3 2 % '- Transactions 118.4 121.2 (2.8) (2) % 118.4 118.7 (0.3) - %
'- Revenues, net per transaction
$ 0.13 6 %$ 2.37 $ 2.32 $ 0.05 2 % CORPORATE PAYMENTS '- Revenues, net1$ 119.9 $ 96.4 $ 23.6 24 %$ 120.9 $ 100.7 $ 20.2 20 % '- Spend volume$ 17,917 $ 15,529 $ 2,388 15 %$ 17,917 $ 15,922 $ 1,996 13 % '- Revenue, net per spend $ 0.67 % 0.62 % 0.05 % 8 % 0.67 % 0.63 % 0.04 % 7 % TOLLS '- Revenues, net$ 83.0 $ 88.9 $ (5.9) (7) %$ 97.4 $ 88.9 $ 8.5 10 % '- Tags (average monthly) 5.4 5.0 0.5 12 % 5.4 5.0 0.5 10 % '- Revenues, net per tag$ 15.28 $ 17.94 $ (2.67) (15) %$ 17.94 $ 17.94 $ - - % LODGING '- Revenues, net$ 57.0 $ 41.8 $ 15.2 36 %$ 57.0 $ 54.2 $ 2.8 5 % '- Room nights 5.9 4.0 1.9 48 % 5.9 6.2 (0.3) (5) %
'- Revenues, net per room night
$ (0.80) (8) %$ 9.68 $ 8.76 $ 0.92 10 % GIFT '- Revenues, net$ 42.4 $ 48.4 $ (6.0) (12) %$ 42.4 $ 48.4 $ (6.0) (13) % '- Transactions 281.9 330.8 (48.9) (15) % 281.9 330.8 (48.9) (15) %
'- Revenues, net per transaction
$ - 3 %$ 0.15 $ 0.15 $ - 3 % OTHER2 '- Revenues, net1$ 66.7 $ 63.4 $ 3.3 5 %$ 68.4 $ 68.7 $ (0.3) - % '- Transactions1 12.0 12.4 (0.5) (4) % 12.0 14.4 (2.4) (17) %
'- Revenues, net per transaction
$ 0.48 9 %$ 5.72 $ 4.77 $ 0.95 20 % FLEETCOR CONSOLIDATED REVENUES '- Revenues, net$ 661.1 $ 621.8 $ 39.3 6 %$ 666.8 $ 636.2 $ 30.6 5 % 1 Reflects certain reclassifications of revenue between product categories as the Company realigned its corporate payments business, resulting in reclassification of payroll paycard revenue from corporate payments to other. 2 Other includes telematics, maintenance, food, transportation and payroll card related businesses. 3 See heading entitled "Managements' Use of Non-GAAP Financial Measures" for a reconciliation of pro forma and macro adjusted revenue by product and metric non-GAAP measures to the comparable financial measure calculated in accordance with GAAP. * Columns may not calculate due to rounding. Revenue per relevant key performance indicator ("KPI"), which may include transaction, spend volume, monthly tags, room nights, etc...) is derived from the various revenue types as discussed above and can vary based on geography, the relevant merchant relationship, the payment product utilized and the types of products or services purchased, the mix of which would be influenced by our acquisitions, organic growth in our business, and the overall macroeconomic environment, including fluctuations in foreign currency exchange rates, fuel prices and fuel spread margins. Revenue per KPI per customer may change as the level of services we provide to a customer increases or decreases, as macroeconomic factors change and as adjustments 30 -------------------------------------------------------------------------------- T able of Contents are made to merchant and customer rates. See "Results of Operations" for further discussion of transaction volumes and revenue per transaction. Sources of Expenses We incur expenses in the following categories: •Processing-Our processing expense consists of expenses related to processing transactions, servicing our customers and merchants, credit loss expense and cost of goods sold related to our hardware sales in certain businesses. •Selling-Our selling expenses consist primarily of wages, benefits, sales commissions (other than merchant commissions) and related expenses for our sales, marketing and account management personnel and activities. •General and administrative-Our general and administrative expenses include compensation and related expenses (including stock-based compensation) for our executives, finance and accounting, information technology, human resources, legal and other administrative personnel. Also included are facilities expenses, third-party professional services fees, travel and entertainment expenses, and other corporate-level expenses. •Depreciation and amortization-Our depreciation expenses include depreciation of property and equipment, consisting of computer hardware and software (including proprietary software development amortization expense), card-reading equipment, furniture, fixtures, vehicles and buildings and leasehold improvements related to office space. Our amortization expenses include amortization of intangible assets related to customer and vendor relationships, trade names and trademarks, software and non-compete agreements. We are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable. •Other operating expense, net-Our other operating, net includes other operating expenses and income items that do not relate to our core operations or that occur infrequently. •Investment loss, net-Our investment results primarily relate to impairment charges related to our investments and unrealized gains and losses related to a minority investment in a marketable security. •Other expense (income), net-Our other expense (income), net includes gains and losses from the sale of assets, foreign currency transaction gains or losses and other miscellaneous costs and revenue. •Interest expense, net-Our interest expense, net includes interest expense on our outstanding debt, interest income on our cash balances and interest on our interest rate swaps. •Provision for income taxes-Our provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and services on a global basis. Factors and Trends Impacting our Business We believe that the following factors and trends are important in understanding our financial performance: •Global economic conditions-Our results of operations are materially affected by conditions in the economy generally, both inNorth America and internationally, including the ultimate impact of the COVID-19 pandemic. Factors affected by the economy include our transaction volumes, the credit risk of our customers and changes in tax laws across the globe. These factors affected our businesses in both ourNorth America and International segments. •Foreign currency changes-Our results of operations are significantly impacted by changes in foreign currency exchange rates; namely, by movements of the Australian dollar, Brazilian real, British pound, Canadian dollar, Czech koruna, Euro, Mexican peso,New Zealand dollar and Russian ruble, relative to theU.S. dollar. Approximately 60% of our revenue in both the three months endedMarch 31, 2020 and 2019, was derived inU.S. dollars and was not affected by foreign currency exchange rates. See "Results of Operations" for information related to foreign currency impacts on our total revenue, net. •Fuel prices-Our fleet customers use our products and services primarily in connection with the purchase of fuel. Accordingly, our revenue is affected by fuel prices, which are subject to significant volatility. A change in retail fuel prices could cause a decrease or increase in our revenue from several sources, including fees paid to us based on a percentage of each customer's total purchase. Changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts. We believe approximately 11% and 13% of revenues, net were directly impacted by changes in fuel price in the three months endedMarch 31, 2020 and 2019, respectively. 31 -------------------------------------------------------------------------------- T able of Contents •Fuel-price spread volatility-A portion of our revenue involves transactions where we derive revenue from fuel-price spreads, which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction. In these transactions, the price paid to the merchant is based on the wholesale cost of fuel. The merchant's wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our customer is dependent on several factors including, among others, the fuel price paid to the merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-price spread contraction when the merchant's wholesale cost of fuel increases at a faster rate than the fuel price we charge to our customers, or the fuel price we charge to our customers decreases at a faster rate than the merchant's wholesale cost of fuel. The inverse of these situations produces fuel-price spread expansion. We believe approximately 8% and 5% of revenues, net were directly impacted by fuel-price spreads in both the three months endedMarch 31, 2020 and 2019, respectively. •Acquisitions-Since 2002, we have completed over 80 acquisitions of companies and commercial account portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. The impact of acquisitions has, and may continue to have, a significant impact on our results of operations and may make it difficult to compare our results between periods. •Interest rates-Our results of operations are affected by interest rates. We are exposed to market risk to changes in interest rates on our cash investments and debt. OnJanuary 22, 2019 , the Company entered into three swap contracts. The objective of these swap contracts is to reduce the variability of cash flows in the previously unhedged interest payments associated with$2.0 billion of variable rate debt, the sole source of which is due to changes in the LIBOR benchmark interest rate. For each of these swap contracts, we will pay a fixed monthly rate and receive one month LIBOR. •Expenses-Over the long term, we expect that our general and administrative expense will decrease as a percentage of revenue as our revenue increases. To support our expected revenue growth, we plan to continue to incur additional sales and marketing expense by investing in our direct marketing, third-party agents, internet marketing, telemarketing and field sales force. •Taxes-We pay taxes in various taxing jurisdictions, including theU.S. , mostU.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are different than theU.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. Acquisitions and Investments During 2019, we completed acquisitions with an aggregate purchase price of approximately$416 million . •OnApril 1, 2019 , we completed the acquisition of NvoicePay, a provider of full accounts payable automation for business in theU.S. The aggregate purchase price of this acquisition was approximately$208 million , net of cash acquired. •OnApril 1, 2019 , we completed the acquisition of r2c, a fleet maintenance, compliance and workshop management software provider in theU.K. •OnJuly 8, 2019 , we completed the acquisition of SOLE Financial, a payroll card provider in theU.S. •OnOctober 1, 2019 , we completed the acquisition of Travelliance, an airline lodging provider in theU.S. The aggregate purchase price of this acquisition was approximately$110 million , net of cash acquired. We report our results from ourU.S. acquisitions in 2019 in our North American segment from the dates of acquisition. We report our results from ourU.K. acquisition in 2019 in our International segment from the date of acquisition.
Disposition
As part of the Company's plans to exit the telematics business, we sold our investment in Masternaut toMichelin Group during the second quarter of 2019. We impaired our investment in Masternaut by an additional$15.6 million during 2019, resulting in no gain or loss when the investment was sold. We recorded cumulative impairment losses associated with our former investment in Masternaut of$136.3 million . 32
-------------------------------------------------------------------------------- T able of Contents Results of Operations Three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 The following table sets forth selected consolidated statement of income and selected operational data for the three months endedMarch 31, 2020 and 2019 (in millions, except percentages)*. Three Months Ended % of total Three Months Ended % of total Increase (Unaudited) March 31, 2020 revenue March 31, 2019 revenue (decrease) % Change Revenues, net: North America$ 434.7 65.8 %$ 396.9 63.8 %$ 37.8 9.5 % Brazil 99.0 15.0 % 105.7 17.0 % (6.7) (6.4) % International 127.4 19.3 % 119.2 19.2 % 8.2 6.9 % Total revenues, net 661.1 100.0 % 621.8 100.0 % 39.3 6.3 % Consolidated operating expenses: Processing 233.7 35.4 % 129.1 20.8 % 104.6 81.0 % Selling 55.9 8.4 % 49.3 7.9 % 6.6 13.4 % General and administrative 106.1 16.1 % 92.8 14.9 % 13.3 14.4 % Depreciation and amortization 64.5 9.8 % 67.4 10.8 % (3.0) (4.4) % Other operating, net - - % (1.0) (0.2) % 0.9 NM Operating income 201.0 30.4 % 284.2 45.7 % (83.2) (29.3) % Investment loss 2.4 0.4 % 15.7 2.5 % (13.3) (84.9) % Other (income) expense, net (9.4) (1.4) % 0.2 - % 9.6 NM Interest expense, net 35.7 5.4 % 39.1 6.3 % (3.4) (8.6) % Provision for income taxes 25.2 3.8 % 57.1 9.2 % (31.9) (55.8) % Net income$ 147.1 22.2 %$ 172.1 27.7 %$ (25.0) (14.6) % Operating income for segments: North America$ 85.7 $ 172.4 $ (86.6) (50.3) % Brazil 39.4 42.2 (2.7) (6.4) % International 75.8 69.6 6.2 8.8 % Operating income$ 201.0 $ 284.2 $ (83.2) (29.3) % Operating margin for segments: North America 19.7 % 43.4 % (23.7) % Brazil 39.8 % 39.9 % - % International 59.5 % 58.4 % 1.1 % Total 30.4 % 45.7 % (15.3) % NM = Not Meaningful 1Reflects reclassifications from previously disclosed amounts to conform to current presentation. *The sum of the columns and rows may not calculate due to rounding. Revenues, net Our consolidated revenues were$661.1 million in the three months endedMarch 31, 2020 , an increase of$39.3 million or 6.3%, from$621.8 million in the three months endedMarch 31, 2019 . The increase was primarily due to: •Organic growth of approximately 5% on a constant fuel price, fuel spread margin, foreign currency and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs. •The impact of acquisitions completed in 2019 contributed approximately$22 million in additional revenue. •Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our consolidated revenue for the three months endedMarch 31, 2020 over the comparable period in 2019 of approximately$6 million . Foreign exchange rates had an unfavorable impact on consolidated revenues in the 33 -------------------------------------------------------------------------------- T able of Contents three months endedMarch 31, 2020 over the comparable period in 2019 of approximately$21 million , primarily due to unfavorable changes in foreign exchange rates mostly inBrazil and theU.K , partially offset by favorable fuel spread margins of approximately$15 million . Fuel prices were relatively neutral in the three months endedMarch 31, 2020 over the comparable period in 2019.North America segment revenues, netNorth America revenues, net were$434.7 million in the three months endedMarch 31, 2020 , an increase of$37.8 million or 9.5%, from$396.9 million in the three months endedMarch 31, 2019 . The increase was primarily due to: •Organic growth of approximately 3%, on a constant fuel price, fuel spread margin and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs. •The impact of our acquisitions during 2019 contributed approximately$21 million in additional revenue. •Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on ourNorth America segment revenue in three months endedMarch 31, 2020 over the comparable period in 2019 of approximately$14 million , primarily due to favorable fuel spread margins of approximately$15 million , partially offset by the unfavorable impact of foreign exchange rates inCanada of approximately$1.0 million .Brazil segment revenues, netBrazil revenues, net were$99.0 million in the three months endedMarch 31, 2020 , a decrease of$6.7 million or 6.4%, from$105.7 million in three months endedMarch 31, 2019 .Brazil revenues were driven by: •Organic growth of approximately 10% on a constant macroeconomic environment basis, driven by increases in both volume and revenue per transaction in certain of our payment programs. •Offsetting this growth was the negative impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, we believe unfavorable foreign exchanges rates negatively impactedBrazil segment revenues for the three months endedMarch 31, 2020 over the comparable period in 2019, by approximately$17 million . International segment revenues, net International segment revenues, net were$127.4 million in the three months endedMarch 31, 2020 , an increase of$8.2 million or 6.9%, from$119.2 million in the three months endedMarch 31, 2019 . The increase was primarily due to: •Organic growth of approximately 8% on a constant macroeconomic environment and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs. •The impact of an acquisition completed in 2019 contributed approximately$1 million in additional revenue. •Although we cannot precisely measure the impact of the macroeconomic environment, we believe it had a negative impact on our International segment revenue for the three months endedMarch 31, 2020 over the comparable period in 2019 of approximately$2 million primarily due to unfavorable foreign exchange rates mostly in theU.K. Revenues by geography and product category. Set forth below are further breakdowns of revenues, net by geography and product category for the three months endedMarch 31, 2020 and 2019 (in millions). Three Months Ended March 31, Revenues, net by Geography* 2020 2019 % of total % of total (Unaudited) Revenues, net revenues, net Revenues, net revenues, net United States $ 398 60 % $ 371 60 % Brazil 99 15 % 106 17 % United Kingdom 74 11 % 68 11 % Other 91 14 % 77 12 % Consolidated revenues, net $ 661 100 % $ 622 100 %
* Columns may not calculate due to rounding.
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Three Months Ended March 31,
Revenues, net by Product
Category*1 2020 2019
% of total
(Unaudited) Revenues, net % of total revenues, net Revenues, net revenues, net
Fuel $ 292 43 % $ 283 47 %
Corporate Payments 120 18 % 96 15 %
Tolls 83 13 % 89 14 %
Lodging 57 9 % 42 7 %
Gift 42 6 % 48 8 %
Other 67 10 % 63 10 %
Consolidated revenues, net $ 661 100 % $ 622 100 %
1 Reflects certain reclassifications of revenue between product categories as the Company
realigned its corporate payments business, resulting in reclassification of payroll paycard
revenue from corporate payments to other.
*Columns may not calculate due to rounding.
Consolidated operating expenses
Processing. Processing expenses were $233.7 million in the three months ended
March 31, 2020 , an increase of $104.6 million or 81.0%, from $129.1 million in
the comparable prior period. Increases in processing expenses were primarily due
to a write-off of a significant customer receivable in our foreign currency
trading business of approximately $90 million , organic growth in the business,
acquisitions completed in 2019 of approximately $9 million and an increase in
credit loss expense of approximately $10 million associated with expected
incurred additional credit losses due to the impact of COVID-19, partially
offset by the favorable impact of fluctuations in foreign exchange rates of
approximately $6 million .
Selling. Selling expenses were $55.9 million in the three months ended March 31,
2020 , an increase of $6.6 million or 13.4%, from $49.3 million in the comparable
prior period. Increases in selling expenses are primarily due to expenses
related to acquisitions completed in 2019 of approximately $3 million as well as
additional spending in certain lines of business, partially offset by the
favorable impact of fluctuations in foreign exchange rates of approximately $2
million .
General and administrative. General and administrative expenses were $106.1
million in the three months ended March 31, 2020 , an increase of $13.3 million
or 14.4% from $92.8 million in the comparable prior period. Increases in general
and administrative expenses were primarily due to acquisitions completed in 2019
of approximately $7 million , an increase in stock compensation expense of
approximately $4 million and an increase in other professional fees of
approximately $2 million . These increases were partially offset by the favorable
impact of fluctuations in foreign exchange rates of approximately $2 million .
Depreciation and amortization. Depreciation and amortization expenses were $64.5
million in the three months ended March 31, 2020 , a decrease of $3.0 million or
4.4%, from $67.4 million . Decreases in depreciation and amortization expenses
were primarily due to the favorable impact of fluctuations in foreign exchange
rates of approximately $3 million and assets being fully amortized, partially
offset by expenses related to acquisitions completed in 2019 of approximately $4
million .
Investment loss. Investment loss was $2.4 million in the three months ended
March 31, 2020 , a decrease of $13.3 million or 84.9%, from $16 million in the
comparable prior period. The loss in 2020 was due to the fair value adjustment
of our investment in trading securities. The loss in 2019 was due to a non-cash
impairment charge of $16 million recorded to a cost method investment.
Other (income) expense. Other income, net was $9.4 million in the three months
ended March 31, 2020 , as compared to other expense, net of $0.2 million in the
three months ended March 31, 2019 . Other income, net includes a credit of
approximately $7 million related to a purchase price settlement in our Cambridge
acquisition, as well as other foreign exchange gains and losses in our
international businesses.
Interest expense, net. Interest expense, net was $35.7 million in the three
months ended March 31, 2020 , a decrease of $3.4 million or 8.6%, from $39.1
million in the comparable prior period. The decrease in interest expense is
primarily due to decreases in LIBOR, partially offset by the impact of
additional borrowings to repurchase our common stock. The following table sets
forth the average interest rates paid on borrowings under our Credit Facility,
excluding the related unused facility fees and swaps.
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Three Months Ended March 31,
(Unaudited) 2020 2019
Term loan A 3.00 % 4.00 %
Term loan B 3.42 % 4.50 %
Revolver A, B & C USD Borrowings 2.92 % 4.00 %
Revolver B GBP Borrowings 2.00 % 2.23 %
Foreign swing line 1.88 % 2.18 %
The average unused facility fee for the Credit Facility was 0.26% and 0.30% in
the three month periods ending March 31, 2020 and 2019, respectively.
On January 22, 2019 , we entered into three interest rate swap cash flow
contracts. The objective of these interest rate swap contracts is to reduce the
variability of cash flows in the previously unhedged interest payments
associated with $2 billion of variable rate debt, tied to the one month LIBOR
benchmark interest rate. During the three months ended March 31, 2020 , as a
result of these swap contracts, we incurred additional interest expense of $4.4
million or 0.88% over the average LIBOR rates on $2 billion of borrowings.
Provision for income taxes. The provision for income taxes in the three months
ended March 31, 2020 was $25.2 million , a decrease of $31.9 million or 55.8%, as
compared to $57.1 million in the three months ended March 31, 2019 . We provide
for income taxes during interim periods based on an estimate of our effective
tax rate for the year. Discrete items and changes in the estimate of the annual
tax rate are recorded in the period they occur. The decrease in the provision
for taxes for the three month period ending March 31, 2020 over the comparable
period in 2019 was primarily due to the decrease in pre-tax earnings.
Our effective tax rate for the three months ended March 31, 2020 was 14.6%
compared to 24.9% for three months ended March 31, 2019 . Excluding the impact of
the significant customer loss in the first quarter of 2020 and the impairment
charge in the first quarter of 2019, our effective tax rate was 18.9% for the
first quarter of 2020 compared to 23.3% in the first quarter of 2019. The
decrease in the tax rate was primarily due to additional compensation expense
booked for tax purposes on employee stock option exercises in the three months
ending March 31, 2020 over the comparable period in 2019.
We pay taxes in different taxing jurisdictions, including the U.S. , most U.S.
states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing
jurisdictions are different than the U.S. tax rate. Consequently, as our
earnings fluctuate between taxing jurisdictions, our effective tax rate
fluctuates.
Net income. For the reasons discussed above, our net income decreased to $147.1
million in the three months ended March 31, 2020 , a decrease of $25.0 million or
14.6%, from $172.1 million in the three months ended March 31, 2019 .
Operating income and operating margin
Consolidated operating income. Operating income was $201.0 million in the three
months ended March 31, 2020 , a decrease of $83.2 million or 29.3%, from $284.2
million in the comparable prior period. Our operating margin was 30.4% and 45.7%
for the three months ended March 31, 2020 and 2019, respectively. These
decreases were driven primarily by the write-off of a significant customer
receivable in our foreign currency trading business of approximately $90 million
and unfavorable movements in the foreign exchange rates of approximately $9
million , partially offset by organic growth, acquisitions completed in 2019 and
the favorable impact of fuel price spreads of approximately $15 million .
For the purpose of segment operating results, we calculate segment operating
income by subtracting segment operating expenses from segment revenues, net.
Segment operating margin is calculated by dividing segment operating income by
segment revenues,net.
North America segment operating income. North America operating income was $85.7
million in the three months ended March 31, 2020 , a decrease of $86.6 million or
50.3%, from $172.4 million in the comparable prior period. North America
operating margin was 19.7% and 43.4% for the three months ended March 31, 2020
and 2019, respectively. These decreases were due primarily to the write-off of a
significant customer receivable in our foreign currency trading business of
approximately $90 million , partially offset by organic growth and acquisitions
completed in 2019 as well as favorable fuel spread margins of approximately $15
million .
Brazil segment operating income. International operating income was $39.4
million in the three months ended March 31, 2020 , a decrease of $2.7 million or
6.4%, from $42.2 million in the comparable prior period. International operating
margin was 39.8% and 39.9% for the three months ended March 31, 2020 and 2019,
respectively. These decreases were due primarily to the negative impact of the
macroeconomic environment of approximately $7 million , driven primarily by
unfavorable movements in foreign exchange rates, partially offset by organic
growth.
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International segment operating income. International operating income was $75.8
million in the three months ended March 31, 2020 , an increase of $6.2 million or
8.8%, from $69.6 million in the comparable prior period. International operating
margin was 59.5% and 58.4% for the three months ended March 31, 2020 and 2019,
respectively. These increases were due primarily to organic growth, partially
offset by the negative impact of the macroeconomic environment of approximately
$1 million .
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Liquidity and capital resources
Our principal liquidity requirements are to service and repay our indebtedness,
make acquisitions of businesses and commercial account portfolios, repurchase
shares of our common stock and meet working capital, tax and capital expenditure
needs.
Sources of liquidity. At March 31, 2020 , our cash balances totaled $1,552.2
million , with approximately $481.6 million restricted. Restricted cash
represents customer deposits in the Czech Republic and in our Comdata business
in the U.S. , as well as collateral received from customers for cross-currency
transactions in our Cambridge business, which are restricted from use other than
to repay customer deposits, as well as secure and settle cross-currency
transactions.
We have immaterial outside basis differences in our investments in foreign
subsidiaries and have not recorded incremental income taxes for any additional
outside basis differences, as these amounts continue to be indefinitely
reinvested in foreign operations.
We believe that our current level of cash and borrowing capacity under our
Credit and Securitization facilities, together with expected future cash flows
from operations, will be sufficient to meet the needs of our existing operations
and planned requirements for the foreseeable future.
We utilize an accounts receivable Securitization Facility (defined below) to
finance a majority of our domestic receivables, to lower our cost of borrowing
and more efficiently use capital. We generate and record accounts receivable
when a customer makes a purchase from a merchant using one of our card products
and generally pay merchants before collecting the receivable. As a result, we
utilize the Securitization Facility as a source of liquidity to provide the cash
flow required to fund merchant payments while we collect customer balances.
These balances are primarily composed of charge balances, which are typically
billed to the customer on a weekly, semimonthly or monthly basis, and are
generally required to be paid within 14 days of billing. We also consider the
undrawn amounts under our Securitization Facility and Credit Facility (defined
below) as funds available for working capital purposes and acquisitions. At
March 31, 2020 , we had no additional liquidity under our Securitization
Facility. At March 31, 2020 , we had approximately $352 million available under
our Credit Facility.
We cannot assure you that our assumptions used to estimate our liquidity
requirements will remain accurate due to the unprecedented nature of the
disruption to our operations and the unpredictability of the COVID-19 global
pandemic. As a consequence, our estimates of the duration of the pandemic and
the severity of the impact on our future earnings and cash flows could change
and have a material impact on our results of operations and financial condition.
The following have impacted or may impact our liquidity:
•The negative impact of the COVID-19 global pandemic on our business as
discussed above under "Impact of COVID-19 on Our Business".
•In April 2020 , we closed on an additional $250 million bridge loan. As of May
11, 2020 , there are no amounts drawn on this bridge loan. We view this bridge
loan as a precautionary measure to provide us with additional financial
flexibility to manage our business with a safety-first emphasis during the
unknown duration and impact of the COVID-19 global pandemic.
•We have principal and interest obligations under our debt and ongoing financial
covenants under those debt facilities.
•For the quarter ended March 31, 2020 , and prior to the expansion of COVID-19,
we entered into transactions to repurchase approximately 2 million shares of our
common stock at a total cost of $530.2 million . At March 31, 2020 , the remaining
repurchase authorization under our current share repurchase program was
approximately $326.3 million . While we may repurchase additional shares of our
common stock in the future, we do not intend to do so in the medium-term.
•We have never declared or paid any dividends on our common stock and do not
anticipate paying cash dividends to holders of our common stock in the
foreseeable future.
•While we intend to employ a disciplined and highly selective approach, we may
pursue strategic business acquisitions in the future.
Cash flows
The following table summarizes our cash flows for the three month periods ended
March 31, 2020 and 2019 (in millions).
Three Months Ended March 31,
(Unaudited) 2020 2019
Net cash provided by operating activities$ 420.0 $ 297.5 Net cash used in investing activities (18.7)
(14.5)
Net cash used in financing activities (314.5)
(272.9)
Operating activities. Net cash provided by operating activities was
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favorable working capital adjustments primarily due to the timing of cash
receipts and payments in the three months ended March 31, 2020 over the
comparable period in 2019.
Investing activities. Net cash used in investing activities was $18.7 million in
the three months ended March 31, 2020 compared to $14.5 million in the three
months ended March 31, 2019 . The increase was primarily due to the increase in
cash paid for capital expenditures.
Financing activities. Net cash used in financing activities was $314.5 million
in the three months ended March 31, 2020 , compared to $272.9 million in the
three months ended March 31, 2019 . The increased use of cash is primarily due to
an increase in repurchases of our common stock of $527 million and net change in
our Securitization Facility of $208 million in the three months ended March 31,
2020 over the comparable period in 2019. These increases in cash usage were
largely offset by increased net borrowings on our revolving debt.
Capital spending summary
Our capital expenditures were $18.3 million in the three months ended March 31,
2020 , an increase of $3.8 million or 25.9%, from $14.5 million in the comparable
prior period.
Credit Facility
FLEETCOR Technologies Operating Company, LLC , and certain of our domestic and
foreign owned subsidiaries, as designated co-borrowers (the "Borrowers"), are
parties to a $4.86 billion Credit Agreement (the "Credit Agreement"), with Bank
of America, N.A ., as administrative agent, swing line lender and local currency
issuer, and a syndicate of financial institutions (the "Lenders"), which has
been amended multiple times. The Credit Agreement provides for senior secured
credit facilities (collectively, the "Credit Facility") consisting of a
revolving credit facility in the amount of $1.285 billion , a term loan A
facility in the amount of $3.225 billion and a term loan B facility in the
amount of $350.0 million as of March 31, 2020 . The revolving credit facility
consists of (a) a revolving A credit facility in the amount of $800 million with
sublimits for letters of credit and swing line loans, (b) a revolving B facility
in the amount of $450 million for borrowings in U.S. Dollars, Euros, British
Pounds, Japanese Yen or other currency as agreed in advance, and a sublimit for
swing line loans, and (c) a revolving C facility in the amount of $35 million
for borrowings in U.S. Dollars, Australian Dollars or New Zealand Dollars. The
Credit Agreement also includes an accordion feature for borrowing an additional
$750 million in term loan A, term loan B, revolver A or revolver B debt and an
unlimited amount when the leverage ratio on a proforma basis is less than 3.00
to 1.00. Proceeds from the credit Facilities may be used for working capital
purposes, acquisitions, and other general corporate purposes. On August 2, 2019 ,
we entered into the sixth amendment to the Credit Agreement, which included an
incremental term A loan in the amount of $700 million and changes to the
consolidated leverage ratio definition and negative covenant related to
indebtedness. On November 14, 2019 , we entered into the seventh amendment to the
Credit Agreement, to lower the margin for term loan B from 2.00% to 1.75%. On
April 24, 2020 , we entered into the eighth amendment to the Credit Agreement,
which included a revolving D facility in the amount of $250 million . The
revolver D maturity date is April 23, 2021 , the term loan A and revolver A, B
and C maturity date is December 19, 2023 , and the term loan B maturity date is
August 2, 2024 .
Interest on amounts outstanding under the Credit Agreement (other than the term
loan B) accrues based on the British Bankers Association LIBOR Rate (the
"Eurocurrency Rate"), plus a margin based on a leverage ratio, or our option,
the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds
Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A ., or
(c) the Eurocurrency Rate plus 1.00%) plus a margin based on a leverage ratio.
Interest on the term loan B facility accrues based on the Eurocurrency Rate plus
1.75% for Eurocurrency Loans or at the Base Rate plus 0.75% for Base Rate Loans.
In addition, we pay a quarterly commitment fee at a rate per annum ranging from
0.25% to 0.35% of the daily unused portion of the Credit Facility.
At March 31, 2020 , the interest rate on the term loan A was 2.49%, and the
interest rate on the term loan B was 2.74%. The unused credit facility fee was
0.30% for all revolving facilities at March 31, 2020 .
The term loans are payable in quarterly installments and are due on the last
business day of each March, June, September, and December with the final
principal payment due on the respective maturity date. Borrowings on the
revolving line of credit are repayable at our option of one, two, three or six
months after borrowing, depending on the term of the borrowing on the facility.
Borrowings on the foreign swing line of credit are due no later than twenty
business days after such loan is made.
The Credit Facility contains representations, warranties and events of default,
as well as certain affirmative and negative covenants, customary for financings
of this nature. These covenants include limitations on the ability to pay
dividends and make other restricted payments under certain circumstances and
compliance with certain financial ratios. As of March 31, 2020 , we were in
compliance with each of the covenants under the Credit Facility.
Our Credit Agreement contains a number of negative covenants restricting, among
other things, limitations on liens (with exceptions for our Securitization
Facility) and investments, incurrence or guarantees of indebtedness, mergers,
acquisitions, dissolutions, liquidations and consolidations, dispositions,
dividends and other restricted payments and prepayments of other
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indebtedness. In particular, we are not permitted to make any restricted
payments (which includes any dividend or other distribution) except that we may
declare and make dividend payments or other distributions to our stockholders so
long as (i) on a pro forma basis both before and after the distribution the
consolidated leverage ratio is not greater than 3.25:1.00 and we are in
compliance with the financial covenants and (ii) no default or event of default
shall exist or result therefrom. The Credit Agreement also contains customary
events of default. The Credit Agreement includes financial covenants where the
Company is required to maintain a consolidated leverage ratio of less than or
equal to 4.00 to 1.00 as of the end of any fiscal quarter provided that in
connection with any Material Acquisition the leverage ratio may be increased to
4.25 to 1.00 for the quarter in which the Material Acquisition is consummated
and the next three fiscal quarters; and a consolidated interest coverage ratio
of no less than 4.00 to 1.00.
The obligations of the Borrowers under the Credit Agreement are secured by
substantially all of the assets of FLEETCOR and its domestic subsidiaries,
pursuant to a security agreement and includes a pledge of (i) 100% of the issued
and outstanding equity interests owned by us of each Domestic Subsidiary and
(ii) 66% of the voting shares of the first-tier foreign subsidiaries, but
excluding real property, personal property located outside of the U.S. , accounts
receivables and related assets subject to the Securitization Facility and
certain investments required under money transmitter laws to be held free and
clear of liens.
At March 31, 2020 , we had $3.0 billion in borrowings outstanding on the term
loan A, net of discounts and $339.7 million in borrowings outstanding on the
term loan B, net of discounts. We have unamortized debt issuance costs of $6.2
million related to the revolver as of March 31, 2020 recorded within other
assets in the unaudited consolidated balance sheet. We have unamortized debt
discounts and debt issuance costs related to the term loans of $7.3 million and
$1.1 million at March 31, 2020 , respectively.
During the three months ended March 31, 2020 , we made principal payments of
$41.2 million on the term loans, $204.5 million on the revolving facilities, and
$29.9 million on the swing line revolving facility. In addition, we made
principal payments on a notes payable related to an acquisition of $10.5
million .
Cash Flow Hedges
On January 22, 2019 , we entered into three swap contracts. The objective of
these swap contracts is to reduce the variability of cash flows in the
previously unhedged interest payments associated with $2.0 billion of variable
rate debt, the sole source of which is due to changes in the LIBOR benchmark
interest rate. These swap contracts qualify as hedging instruments and have been
designated as cash flow hedges. For each of these swap contracts, we will pay a
fixed monthly rate and receive one month LIBOR. We reclassified approximately
$4.4 million of losses from accumulated other comprehensive income into interest
expense during the three months ended March 31, 2020 as a result of these
hedging instruments.
Securitization Facility
We are a party to a $1.2 billion receivables purchase agreement among FLEETCOR
Funding LLC , as seller, PNC Bank, National Association as administrator, and
various purchaser agents, conduit purchasers and related committed purchasers
parties thereto, which was amended and restated for the fifth time as of
November 14, 2014 . We refer to this arrangement as the Securitization Facility.
There have been several amendments to the Securitization Facility, with the
latest on April 22, 2019 . The Securitization Facility expires on November 14,
2020 and contains customary financial covenants. On April 24, 2020 , we decreased
our Securitization Facility from $1.2 billion to $1.0 billion .
There is a program fee equal to one month LIBOR plus 0.90% or the Commercial
Paper Rate plus 0.80%. The program fee was 1.65% plus 0.88% and 1.80% plus 0.88%
as of March 31, 2020 and December 31, 2019 , respectively. The unused facility
fee is payable at a rate of 0.40% per annum as of March 31, 2020 and December
31, 2019 , respectively. We have unamortized debt issuance costs of $0.5 million
and $0.7 million related to the Securitization Facility as of March 31, 2020 and
December 31, 2019 , respectively, recorded within other assets in the unaudited
consolidated balance sheet.
The Securitization Facility provides for certain termination events, which
includes nonpayment, upon the occurrence of which the administrator may declare
the facility termination date to have occurred, may exercise certain enforcement
rights with respect to the receivables, and may appoint a successor servicer,
among other things.
We were in compliance with the financial covenant requirements related to our
Securitization Facility as of March 31, 2020 .
Stock Repurchase Program
The Company's Board of Directors has approved a stock repurchase program (as
updated from time to time, the "Program")
authorizing the Company to repurchase its common stock from time to time until
February 1, 2023 . On October 22, 2019 , our
Board increased the aggregate size of the Program by $1 billion , to $3.1
billion . Since the beginning of the Program, 13,308,964 shares have been
repurchased for an aggregate purchase price of $2.8 billion , leaving the Company
up to $326.3 million available under the Program for future repurchases in
shares of its common stock.
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Any stock repurchases may be made at times and in such amounts as deemed
appropriate. The timing and amount of stock repurchases, if any, will depend on
a variety of factors including the stock price, market conditions, corporate and
regulatory requirements, and any additional constraints related to material
inside information the Company may possess. Any repurchases have been and are
expected to be funded by a combination of available cash flow from the business,
working capital and debt.
On December 18, 2019 , the Company entered an accelerated stock repurchase
agreement ("2019 ASR Agreement") with a third-party financial institution to
repurchase $500 million of its common stock. Pursuant to the 2019 ASR Agreement,
the Company delivered $500 million in cash and received 1,431,989 shares based
on a stock price of $285.70 on December 18, 2019 . The 2019 ASR Agreement was
completed on February 20, 2020 , at which time the Company
received 175,340 additional shares based on a final weighted average per share
purchase price during the repurchase period of $306.81 .
We accounted for the 2019 ASR Agreement as two separate transactions: (i) as
shares of reacquired common stock for the shares delivered to the Company upon
effectiveness of each ASR agreement and (ii) as a forward contract indexed to
the Company's common stock for the undelivered shares. The initial delivery of
shares was included in treasury stock at cost and results in an immediate
reduction of the outstanding shares used to calculate the weighted average
common shares outstanding for basic and diluted earnings per share. The forward
contracts indexed to the Company's own common stock met the criteria for equity
classification, and these amounts were initially recorded in additional paid-in
capital.
Critical accounting policies and estimates
In applying the accounting policies that we use to prepare our consolidated
financial statements, we necessarily make accounting estimates that affect our
reported amounts of assets, liabilities, revenue and expenses. Some of these
estimates require us to make assumptions about matters that are highly uncertain
at the time we make the accounting estimates. We base these assumptions and the
resulting estimates on historical information and other factors that we believe
to be reasonable under the circumstances, and we evaluate these assumptions and
estimates on an ongoing basis. In many instances, however, we reasonably could
have used different accounting estimates and, in other instances, changes in our
accounting estimates could occur from period to period, with the result in each
case being a material change in the financial statement presentation of our
financial condition or results of operations. We refer to estimates of this type
as critical accounting estimates.
Accounting estimates necessarily require subjective determinations about future
events and conditions. During the three months ended March 31, 2020 , we have not
adopted any new critical accounting policies that had a significant impact upon
our consolidated financial statements, have not changed any critical accounting
policies and have not changed the application of any critical accounting
policies from the year ended December 31, 2019 . For critical accounting
policies, refer to the Critical Accounting Estimates in Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended December 31, 2019
and our summary of significant accounting policies in footnote 1 of our notes to
the unaudited consolidated financial statements in this Quarterly Report
Form 10-Q.
Management's Use of Non-GAAP Financial Measures
We have included in the discussion above certain financial measures that were
not prepared in accordance with GAAP. Any analysis of non-GAAP financial
measures should be used only in conjunction with results presented in accordance
with GAAP. Below, we define the non-GAAP financial measures, provide a
reconciliation of the non-GAAP financial measure to the most directly comparable
financial measure calculated in accordance with GAAP, and discuss the reasons
that we believe this information is useful to management and may be useful to
investors.
Pro forma and macro adjusted revenue and key performance metric by product. We
define the pro forma and macro adjusted revenue as revenue, net as reflected in
our statement of income, adjusted to eliminate the impact of the macroeconomic
environment and the impact of acquisitions and dispositions. The macroeconomic
environment includes the impact that market fuel spread margins, fuel prices and
foreign exchange rates have on our business. We use pro forma and macro adjusted
revenue and transactions to evaluate the organic growth in our revenue and the
associated transactions. Set forth below is a reconciliation of pro forma and
macro adjusted revenue and transactions to the most directly comparable GAAP
measure, revenue, net and transactions (in millions):
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Revenue Key Performance Metric
Three Months Ended March 31, Three Months Ended March 31,
(Unaudited) 2020* 2019* 2020* 2019*
FUEL - TRANSACTIONS
Pro forma and macro adjusted $ 280.6 $ 275.3 118.4 118.7
Impact of acquisitions/dispositions/Uber - 7.7 - 2.5
Impact of fuel prices/spread 15.4 - - -
Impact of foreign exchange rates (3.9) - - -
As reported $ 292.1 $ 283.0 118.4 121.2
CORPORATE PAYMENTS - SPEND
Pro forma and macro adjusted $ 120.9 $ 100.7 17,917 15,922
Impact of acquisitions/dispositions - (4.3) - (392)
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates (1.0) - - -
As reported $ 119.9 $ 96.4 17,917 15,529
TOLLS - TAGS
Pro forma and macro adjusted $ 97.4 $ 88.9 5.4 5.0
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates (14.5) - - -
As reported $ 83.0 $ 88.9 5.4 5.0
LODGING - ROOM NIGHTS
Pro forma and macro adjusted $ 57.0 $ 54.2 5.9 6.2
Impact of acquisitions/dispositions - (12.4) - (2.2)
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates - - - -
As reported $ 57.0 $ 41.8 5.9 4.0
GIFT - TRANSACTIONS
Pro forma and macro adjusted $ 42.4 $ 48.4 281.9 330.8
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates - - - -
As reported $ 42.4 $ 48.4 281.9 330.8
OTHER1- TRANSACTIONS
Pro forma and macro adjusted $ 68.4 $ 68.7 12.0 14.4
Impact of acquisitions/dispositions - (5.3) - (2.0)
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates (1.7) - - -
As reported $ 66.7 $ 63.4 12.0 12.4
FLEETCOR CONSOLIDATED REVENUES
Pro forma and macro adjusted $ 666.8 $ 636.2
Impact of acquisitions/dispositions - (14.4)
Impact of fuel prices/spread 15.4 - Intentionally Left Blank
Impact of foreign exchange rates (21.1) -
As reported $ 661.1 * Columns may not calculate due to rounding. 1Other includes telematics, maintenance, food, transportation and payroll card related businesses.
Adjusted net income and adjusted net income per diluted share. We have defined
the non-GAAP measure adjusted net income as net income as reflected in our
statement of 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, amortization of the premium
recognized on the purchase of receivables, and our proportionate share of
amortization of intangible assets at our equity method investment, (c)
integration and deal related costs, and (d) other non-recurring items, including
unusual losses occurring due largely to COVID-19, the impact of impairment
charges, asset write-offs, restructuring costs, gains due to disposition of
assets and a business, loss on extinguishment of debt, legal
settlements/litigation, and the unauthorized access impact.
We have defined the non-GAAP measure adjusted net income per diluted share as
the calculation previously noted divided by the weighted average diluted shares
outstanding as reflected in our statement of income.
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We use adjusted net income to eliminate the effect of items that we do not
consider indicative of our core operating performance. 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 adjusted net income. We also believe non-recurring expenses, gains, losses,
and impairment charges do not necessarily reflect how our investments and
business are performing. We have also excluded a write-off of a customer
receivable due to their liquidation as a result of the impact of COVID-19 to
their business. We believe that adjusted net income and adjusted net income per
diluted share are appropriate supplemental measures of financial performance and
may be useful to investors to understanding our operating performance on a
consistent basis. Adjusted net income and adjusted net income per diluted share
are not intended to be a substitute for GAAP financial measures and should not
be used as such.
Set forth below is a reconciliation of adjusted net income and adjusted net
income per diluted share to the most directly comparable GAAP measure, net
income and net income per diluted share (in thousands, except per share
amounts)*:
Three Months Ended March 31,
(Unaudited) 2020 2019
Net income $ 147,060 $ 172,107
Stock based compensation 14,175 12,541Amortization of intangible assets, premium on receivables, deferred financing costs and discounts
50,042 53,518
Investment loss 2,371 15,660
Integration and deal related costs2 3,365 -
Legal settlements/litigation (5,981) -
Write-off of customer receivable 90,058 -
Total pre-tax adjustments 154,030 81,719
Income tax impact of pre-tax adjustments at the effective tax rate1
(36,595) (15,411)
Adjusted net income $ 264,495 $ 238,415
Adjusted net income per diluted share $ 3.00 $ 2.67
Diluted shares 88,205 89,244
1 Excludes the results of the Company's investment in 2019 on our effective tax rate, as
results from Masternaut investment are reported within the consolidated statements of
income on a post-tax basis and there is no tax-over-book outside basis difference.
2 Beginning in the first quarter of 2020, the Company included integration and deal
related costs in its definition to calculate adjusted net income and adjusted net income
per diluted share. Prior period amounts were approximately $1.6 million , which we consider
immaterial.
*Columns may not calculate due to rounding.
43--------------------------------------------------------------------------------
T able of Contents Special Cautionary Notice Regarding Forward-Looking Statements This report contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements aboutFleetCor'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" or "expect," "may," "will," "would," "could" or "should," the negative of these terms or other comparable terminology. These forward-looking statements are not a guarantee of performance, and you should not place undue reliance on such statements. We have based these forward-looking statements largely on preliminary information, internal estimates and management assumptions, expectations and plans about future conditions, events and results. Forward-looking statements are subject to many uncertainties and other variable circumstances, such as the impact of global, political, market, health and other conditions, including the impact of the coronavirus (COVID-19); regulatory measures or voluntary actions, including social distancing, shelter-in-place, shutdowns of nonessential businesses and similar measures imposed or undertaken in an effort to combat the spread of the coronavirus (COVID-19); adverse outcomes with respect to current and future legal proceedings, including, without limitation, theFTC lawsuit, or actions of governmental or quasi-governmental bodies or standards or industry organizations with respect to our payment cards; delays or failures associated with implementation of, or adaption to, new technology; fuel price and spread volatility; 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 product offerings; failure to maintain or renew sources of financing; failure to complete, or delays in completing, anticipated new partnership and customer arrangements or acquisitions and to successfully integrate or otherwise achieve anticipated benefits from such partnership and customer arrangements or acquired businesses; failure to successfully expand business internationally; other risks related to our international operations, including the potential impact to our business as a result of theUnited Kingdom's referendum to leave theEuropean Union ; the impact of foreign exchange rates on operations, revenue and income; the effects of general economic and political conditions on fueling patterns and the commercial activity of fleets; risks related to litigation; the impact of new tax regulations and the resolution of tax contingencies resulting in additional tax liabilities; as well as the other risks and uncertainties identified under the caption "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSecurities and Exchange Commission onMarch 2, 2020 and this Quarterly Report. These factors could cause our actual results and experience to differ materially from any forward-looking statement. The forward-looking statements included in this presentation are made only as of the date hereof. We do not undertake, and specifically disclaim, any obligation to update any such statements as a result of new information, future events or developments, except as specifically stated or to the extent required by law. You may getFLEETCOR's Securities and Exchange Commission ("SEC") filings for free by visiting theSEC web site at www.sec.gov. This report includes non-GAAP financial measures, which are 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. See "Management's Use of Non-GAAP Financial Measures" elsewhere in this Quarterly Report on on Form 10-Q for additional information regarding these GAAP financial measures and a reconciliation to the nearest corresponding GAAP measure.
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