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. Factors that could cause such differences include, but are not limited to, those identified below and those described in Item 1A "Risk Factors" appearing in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . All foreign currency amounts that have been converted intoU.S. dollars in this discussion are based on the exchange rate as reported by Oanda for the applicable periods. The following discussion and analysis of our financial condition and results of operations generally discusses the third quarter and the first nine months of 2021 and 2020, with period-over-period comparisons between these periods. A detailed discussion of 2020 items and period-over-period comparisons between the third quarter and first nine months of 2020 and 2019 that are not included in this Quarterly Report on Form 10-Q can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I, Item 2 of our Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2020 . Executive OverviewFLEETCOR is a leading global provider of digital payment solutions that enables businesses to control purchases and make payments more effectively and efficiently. Since its incorporation in 2000,FLEETCOR has continued to deliver on its mission: to provide businesses with "a better way to pay".FLEETCOR has been a member of the S&P 500 since 2018 and trades on theNew York Stock Exchange under the ticker FLT. As previously described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , businesses spend an estimated$170 trillion each year. In many instances, they lack the proper tools to monitor what is being purchased, and employ manual, paper-based, disparate processes and methods to both approve and make payments for their purchases. This often results in wasted time and money due to unnecessary or unauthorized spending, fraud, receipt collection, data input and consolidation, report generation, reimbursement processing, account reconciliations, employee disciplinary actions, and more.FLEETCOR's vision is that every payment is digital, every purchase is controlled, and every related decision is informed. Digital payments are faster and more secure than paper-based methods such as checks, and provide timely and detailed data which can be utilized to effectively reduce unauthorized purchases and fraud, automate data entry and reporting, and eliminate reimbursement processes. Combining this payment data with analytical tools delivers powerful insights, which managers can use to better run their businesses. Our wide range of modern, digitized solutions generally provides control, reporting, and automation benefits superior to many of the payment methods businesses often used, such as cash, paper checks, general purpose credit cards, as well as employee pay and reclaim processes. Our revenue is generally reported net of the cost for underlying products and services purchased through our payment solutions. In this report, we refer to this net revenue as "revenue". See "Results of Operations" for additional segment information. Impact of COVID-19 on Our Business OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus (including variants thereof, "COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has had, and 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, vaccine mandates, facility closures, travel and logistics restrictions and general decreases in the level of consumer confidence and business activity. The COVID-19 pandemic continues to impact various aspects of the world economy and our customers. The extent to which the COVID-19 pandemic continues to impact our business operations, financial results, and liquidity through the remainder of 2021 and into 2022 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 and the geographies most affected; vaccine availability globally, distribution, efficacy to new strains of the virus and the public's willingness to get vaccinated, including potential disruptions impacting our suppliers and vendors resulting, directly or indirectly, from vaccine mandates and/or vaccine hesitancy; our response to the continued 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 continued impacts of the pandemic; and actions governments, businesses and individuals take in response to the pandemic; and how quickly economies recover after the pandemic subsides. Performance 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 and nine months endedSeptember 30, 2021 and 2020 (in millions, except per share amounts). 26
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Table of Contents Three Months Ended September 30, Nine Months Ended September 30, (Unaudited) 2021 2020 2021 2020 Revenues, net $ 755.5$ 585.3 $ 2,031.5 $ 1,771.5 Net income $ 234.0
$ 2.80
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 and nine months endedSeptember 30, 2021 and 2020 (in millions, except per share amounts). Three Months Ended September 30, Nine Months Ended September 30, (Unaudited) 2021 2020 2021 2020 Adjusted net income $ 294.4$ 241.9 $ 804.9$ 703.9 Adjusted net income per diluted share $ 3.52$ 2.80 $ 9.48$ 8.09 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 today, although we operate primarily in 3 geographies, with 88% of our revenues generated in theU.S. ,Brazil , and theU.K. Our customers may include commercial businesses (obtained through direct and indirect channels), partners for whom we manage payment programs, as well as individual consumers.FLEETCOR has three reportable segments,North America , International, andBrazil . We report these three segments as they reflect how we organize and manage our global employee base, manage operating performance, contemplate the differing regulatory environments across geographies, and help us isolate the impact of foreign exchange fluctuations on our financial results. However, to help facilitate an understanding of our expansive range of solutions around the world, we describe them in two categories: Corporate Payments solutions, which simplify and automate payments, and Expense Management solutions, which help control and monitor employee spending. Our Corporate Payments solutions are designed to help businesses streamline the back-office operations associated with making outgoing payments. Companies save time, cut costs, and manage B2B payment processing more efficiently with our suite of corporate payment solutions, including accounts payable (AP) automation, virtual cards, cross-border, and purchasing and T&E cards. Our Expense Management solutions (Fuel, Tolls, and Lodging) are purpose-built to provide customers with greater control and visibility of employee spending when compared with less specialized payment methods, such as cash or general-purpose credit cards.FLEETCOR provides several other payments solutions that, due to their nature or size, are not considered within our Corporate Payments and Expense Management solutions.
Revenues, net, by Segment. For the three and nine months ended
Three Months EndedSeptember 30 , Nine Months EndedSeptember 30, 2021 2020 2021 2020 % of Total % of Total % of Total % of Total (Unaudited)* Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, netNorth America $ 520.5 68.9 %$ 383.8 65.6 %$ 1,366.2 67.2 %$ 1,176.0 66.4 %Brazil 94.9 12.6 % 79.6 13.6 % 262.5 12.9 % 253.7 14.3 % International 140.1 18.5 % 121.9 20.8 % 402.8 19.8 % 341.9 19.3 %$ 755.5 100 %$ 585.3 100 %$ 2,031.5 100 %$ 1,771.5 100 %
*Columns may not calculate due to rounding.
27 -------------------------------------------------------------------------------- Revenues, net by Geography and Solution. Revenue by geography and solution for the three and nine months endedSeptember 30, 2021 and 2020 (in millions), was as follows: Three Months EndedSeptember 30 , Nine Months EndedSeptember 30 , Revenues, net by Geography* 2021 2020 2021 2020 % of Total % of Total % of Total % of Total (Unaudited) Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, netUnited States $ 488.2 65 %$ 357.1 61 %$ 1,271.5 63 %$ 1,089.9 62 %Brazil 94.9 13 % 79.6 14 % 262.5 13 % 253.7 14 %United Kingdom 81.9 11 % 70.2 12 % 241.0 12 % 192.8 11 % Other 90.5 12 % 78.3 13 % 256.5 13 % 235.1 13 % Consolidated revenues, net$ 755.5 100 %$ 585.3 100 %$ 2,031.5 100 %$ 1,771.5 100 %
*Columns may not calculate due to rounding.
Three Months EndedSeptember 30 , Nine Months EndedSeptember 30 , Revenues, net by Solution* 2021 2020 2021 2020 % of Total % of Total % of Total % of Total (Unaudited) Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Fuel$ 306.8 41 %$ 255.1 44 % $ 863.8 43 %$ 797.0 45 % Corporate Payments 168.7 22 % 106.5 18 % 425.5 21 % 319.0 18 % Tolls 79.0 10 % 67.6 12 % 219.4 11 % 215.4 12 % Lodging 85.2 11 % 52.9 9 % 206.5 10 % 150.5 8 % Gift 48.6 6 % 39.1 7 % 124.3 6 % 108.0 6 % Other 67.2 9 % 64.1 11 % 192.1 9 % 181.6 10 % Consolidated revenues, net$ 755.6 100 %$ 585.3 100 %$ 2,031.5 100 %$ 1,771.5 100 %
*Columns may not calculate due to rounding.
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The following table presents revenue per key performance metric by solution for the three months endedSeptember 30, 2021 and 2020 (in millions except revenues, net per key performance metric).* As Reported Pro Forma and Macro Adjusted2 Three Months Ended September 30, Three Months Ended September 30, (Unaudited) 2021 2020 Change % Change 2021 2020 Change % Change FUEL '- Revenues, net$ 306.8 $ 255.1 $ 51.6 20 %$ 288.7 $ 255.6 $ 33.1 13 % '- Transactions 117.7 113.6 4.1 4 % 117.7 113.9 3.8 3 % '- Revenues, net per transaction$ 2.61 $ 2.25 $ 0.36 16 %$ 2.45 $ 2.24 $ 0.21 9 % CORPORATE PAYMENTS '- Revenues, net$ 168.7 $ 106.5 $ 62.2 58 %$ 165.6 $ 135.9 $ 29.7 22 % '- Spend volume$ 25,666 $ 15,567 $ 10,099 65 %$ 25,666 $ 19,617 $ 6,050 31 % '- Revenue, net per spend $ 0.66 % 0.68 % (0.03) % (4) % 0.65 % 0.69 % (0.05) % (7) % TOLLS '- Revenues, net$ 79.0 $ 67.6 $ 11.4 17 %$ 76.9 $ 67.6 $ 9.2 14 % '- Tags (average monthly) 6.0 5.4 0.6 11 % 6.0 5.4 0.6 11 % '- Revenues, net per tag$ 13.25 $ 12.60 $ 0.65 5 %$ 12.89 $ 12.60 $ 0.29 2 % LODGING '- Revenues, net$ 85.2 $ 52.9 $ 32.4 61 %$ 85.2 $ 60.7 $ 24.5 40 % '- Room nights 7.6 5.4 2.2 41 % 7.6 6.1 1.5 25 % '- Revenues, net per room night$ 11.14 $ 9.77 $ 1.37 14 %$ 11.14 $ 9.96 $ 1.18 12 % GIFT '- Revenues, net$ 48.6 $ 39.1 $ 9.6 25 %$ 48.6 $ 39.1 $ 9.6 25 % '- Transactions 256.2 242.7 13.4 6 % 256.2 242.7 13.4 6 % '- Revenues, net per transaction$ 0.19 $ 0.16 $ 0.03 18 %$ 0.19 $ 0.16 $ 0.03 18 % OTHER1 '- Revenues, net$ 67.2 $ 64.1 $ 3.1 5 %$ 65.4 $ 64.1 $ 1.3 2 % '- Transactions 8.9 9.9 (1.0) (10) % 8.9 9.9 (1.0) (10) % '- Revenues, net per transaction$ 7.58 $ 6.48 $ 1.10 17 %$ 7.39 $ 6.48 $ 0.91 14 % FLEETCOR CONSOLIDATED REVENUES, NET '- Revenues, net$ 755.5 $ 585.3 $ 170.2 29 %$ 730.3 $ 623.0 $ 107.3 17 % 1 Other includes telematics, maintenance, food, transportation and payroll card related businesses. 2 See heading entitled "Managements' Use of Non-GAAP Financial Measures" for a reconciliation of pro forma and macro adjusted revenue by solution 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, or other metrics, is derived from the various revenue types as discussed above and can vary based on geography, the relevant merchant relationship, the payment solution 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 price spreads. 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 are made to merchant and customer rates. See "Results of Operations" for further discussion of transaction volumes and revenue per transaction. 29 -------------------------------------------------------------------------------- Sources of Expenses We incur expenses in the following categories: •Processing-Our processing expenses consist of expenses related to processing transactions, servicing our customers and merchants, credit losses 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, 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, 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 (gain), net-Our investment results primarily relate to impairment charges related to our investments and unrealized gains and losses related to a noncontrolling interest in a marketable security, which was disposed in 2020. •Other expense (income), net-Our other expense (income), net includes gains or losses from the sale of assets, foreign currency transactions, and other miscellaneous operating 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 earnings 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, inNorth America ,Brazil , 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 each of our 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 63% and 62% of our revenue in the nine months endedSeptember 30, 2021 and 2020, respectively, 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. Our cross-border foreign currency trading business aggregates foreign exchange exposures arising from customer contracts and economically hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. These contracts are subject to counterparty credit risk. •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 12% and 11% of revenues, net were directly impacted by changes in fuel price in the three months endedSeptember 30, 2021 and 2020, 30
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respectively. We believe approximately 12% and 10% of revenues, net were directly impacted by changes in fuel price in the nine months endedSeptember 30, 2021 and 2020, respectively. •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 5% and 7% of revenues, net were directly impacted by fuel price spreads in the three months endedSeptember 30, 2021 and 2020, respectively. We believe approximately 5% and 8% of revenues, net were directly impacted by fuel price spreads in the nine months endedSeptember 30, 2021 and 2020, respectively. •Acquisitions-Since 2002, we have completed over 85 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 changes in interest rates on our cash investments and debt. OnJanuary 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. For each of these swap contracts, we 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 2021 •OnSeptember 1, 2021 , we completed the acquisition ofALE Solutions, Inc. (ALE), aU.S. based leader in lodging solutions to the insurance industry, for$426.5 million . •OnJune 1, 2021 , we completed the acquisition of AFEX, aU.S. based, cross-border payment solutions provider, for$459.0 million . This includes$210.3 million of cash and cash equivalents and$178.7 million of restricted cash, resulting in a net purchase price of$69.9 million . •OnJanuary 13, 2021 , we completed the acquisition of Roger, which has been rebranded as CorpayOne, a global accounts payable (AP) cloud software platform for small businesses, for$39 million . •During 2021, we made investments in other businesses of$4.4 million . 2020 •OnNovember 30, 2020 , we completed the acquisition of a fuel card provider inNew Zealand for an immaterial amount. •OnAugust 10, 2020 , we completed the acquisition of a business in the lodging space in theU.S. for an immaterial amount. Results from our ALE, AFEX, Roger and lodging acquisitions are reported in ourNorth America segment from the dates of acquisition. Results from ourNew Zealand acquisition are reported in our International segment from the date of acquisition. 31 -------------------------------------------------------------------------------- Results of Operations Three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 The following table sets forth selected unaudited consolidated statements of income and selected operational data for the three months endedSeptember 30, 2021 and 2020 (in millions, except percentages)*. Three Months Ended % of Total Three Months Ended % of Total Increase (Unaudited) September 30, 2021 Revenues, net September 30, 2020 Revenues, net (decrease) % Change Revenues, net: North America$ 520.5 68.9 %$ 383.8 65.6 %$ 136.7 35.6 % Brazil 94.9 12.6 % 79.6 13.6 % 15.3 19.2 % International 140.1 18.5 % 121.9 20.8 % 18.2 14.9 % Total revenues, net 755.5 100.0 % 585.3 100.0 % 170.2 29.1 % Consolidated operating expenses: Processing 149.6 19.8 % 119.9 20.5 % 29.7 24.8 % Selling 71.2 9.4 % 46.8 8.0 % 24.4 52.3 % General and administrative 121.8 16.1 % 90.9 15.5 % 30.9 34.0 % Depreciation and amortization 74.2 9.8 % 63.5 10.8 % 10.8 16.9 % Other operating, net - - % (0.2) - % (0.2) NM Operating income 338.7 44.8 % 264.5 45.2 % 74.2 28.0 % Investment gain - - % 1.3 0.2 % (1.3) NM Other expense (income), net 1.5 0.2 % (3.6) (0.6) % 5.1 (142.7) % Interest expense, net 29.0 3.8 % 31.4 5.4 % (2.4) (7.5) % Provision for income taxes 74.1 9.8 % 46.6 8.0 % 27.5 59.1 % Net income$ 234.0 31.0 %$ 188.8 32.3 %$ 45.2 23.9 % Operating income for segments: North America$ 213.4 $ 153.3 $ 60.1 39.2 % Brazil 39.9 35.6 4.3 12.0 % International 85.4 75.6 9.8 13.0 % Operating income$ 338.7 $ 264.5 $ 74.2 28.0 %
Operating margin for segments: North America 41.0 % 39.9 % 1.0 % Brazil 42.0 % 44.7 % (2.7) % International 61.0 % 62.0 % (1.0) % Consolidated 44.8 % 45.2 % (0.4) % NM = Not Meaningful *The sum of the columns and rows may not calculate due to rounding. Revenues, net Consolidated revenues were$755.5 million in the three months endedSeptember 30, 2021 , an increase of$170.2 million or 29.1%, from$585.3 million in the three months endedSeptember 30, 2020 . Organically, consolidated revenues increased by approximately 17%. Consolidated revenues and organic growth increased primarily due to increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic. The increase was also due to the impact of acquisitions completed in 2020 and 2021 of approximately$38 million and the positive impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our consolidated revenues for the three months endedSeptember 30, 2021 over the comparable period in 2020 of approximately$25 million , driven primarily by the favorable impact of fuel prices of approximately$17 million and favorable changes in foreign exchange rates of approximately$12 million , mostly in ourU.K. ,Canada andBrazil businesses. These increases were partially offset by unfavorable fuel price spreads of approximately$4 million . 32
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North America segment revenues, netNorth America segment revenues were$520.5 million in the three months endedSeptember 30, 2021 , an increase of$136.7 million or 35.6%, from$383.8 million in the three months endedSeptember 30, 2020 . Organically,North America segment revenues increased by approximately 20%.North America revenues and organic growth increased primarily due to increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic. The increase inNorth America revenues was also due to the impact of acquisitions completed in 2020 and 2021 of approximately$37 million and by the positive impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on ourNorth America segment revenues in the three months endedSeptember 30, 2021 over the comparable period in 2020 of approximately$14 million , driven primarily by the favorable impact of fuel prices of approximately$15 million and favorable changes in foreign exchange rates of approximately$3 million in our cross-border payments business. These increases were partially offset by unfavorable fuel price spreads of approximately$4 million .Brazil segment revenues, netBrazil segment revenues were$94.9 million in the three months endedSeptember 30, 2021 , an increase of$15.3 million or 19.2%, from$79.6 million in three months endedSeptember 30, 2020 . Organically,Brazil segment revenues increased by approximately 16%.Brazil revenues and organic growth increased primarily due to increases in toll tags sold as the business recovered from the effects of the COVID-19 pandemic. The increase inBrazil revenues was also due to the slightly favorable impact of foreign exchange rates of approximately$3 million for the three months endedSeptember 30, 2021 over the comparable period in 2020. International segment revenues, net International segment revenues were$140.1 million in the three months endedSeptember 30, 2021 , an increase of$18.2 million or 14.9%, from$121.9 million in the three months endedSeptember 30, 2020 . Organically, International segment revenues increased by approximately 8%. International revenues and organic growth increased primarily due to continued recovery from the effects of the COVID-19 pandemic. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our International segment revenues in the three months endedSeptember 30, 2021 over the comparable period in 2020 of approximately$9 million , driven primarily by favorable foreign exchange rates of approximately$7 million primarily in ourU.K. business and the favorable impact of fuel prices of approximately$2 million . Consolidated operating expenses Processing. Processing expenses were$149.6 million in the three months endedSeptember 30, 2021 , an increase of$29.7 million or 24.8%, from$119.9 million in the comparable prior period. Increases were primarily due to expenses related to higher volumes processed of approximately$14 million , expenses related to acquisitions completed in 2020 and 2021 of approximately$13 million , and the unfavorable impact of changes in foreign exchange rates of approximately$2 million . Selling. Selling expenses were$71.2 million in the three months endedSeptember 30, 2021 , an increase of$24.4 million or 52.3%, from$46.8 million in the comparable prior period. Increases in selling expenses were primarily due to higher commissions and other variable costs due to increased sales volumes in the third quarter of 2021, expenses related to acquisitions completed in 2020 and 2021 of approximately$11 million and the unfavorable impact of fluctuations in foreign exchange rates of approximately$1 million . General and administrative. General and administrative expenses were$121.8 million in the three months endedSeptember 30, 2021 , an increase of$30.9 million or 34.0% from$90.9 million in the comparable prior period. Increases in general and administrative expenses were primarily due to the impact of acquisitions completed in 2020 and 2021 of approximately$13 million , increased stock based compensation expense of$4 million , increased professional fees of$4 million and various other increases associated with growth of business over comparable period. Depreciation and amortization. Depreciation and amortization expenses were$74.2 million in the three months endedSeptember 30, 2021 , an increase of$10.8 million or 16.9%, from$63.5 million in the comparable prior period. Increases in depreciation and amortization expenses were primarily due to expenses related to acquisitions completed in 2020 and 2021 of approximately$9 million and the unfavorable impact of fluctuations in foreign exchange rates of approximately$1 million .
Investment gain. Investment gain of
33 -------------------------------------------------------------------------------- Interest expense, net. Interest expense, net was$29.0 million in the three months endedSeptember 30, 2021 , a decrease of$2.4 million or 7.5%, from$31.4 million in the comparable prior period. The decrease in interest expense was primarily due to higher interest income earned on cash balances and lower LIBOR rates, partially offset by incremental borrowings on our Credit Facility and Securitization Facility. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the related unused facility fees and swaps. Three Months Ended September 30, (Unaudited) 2021 2020 Term loan A 1.59 % 1.66 % Term loan B 1.84 % 1.91 % Revolving line of credit A, B & C USD Borrowings 1.59 % 1.67 % Revolving line of credit B GBP Borrowings 1.52 % 1.57 % Foreign swing line 1.54 % 1.55 % The average unused facility fee for the Credit Facility was 0.30% in the three month period endedSeptember 30, 2021 . OnJanuary 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 endedSeptember 30, 2021 , as a result of these swap contracts, we incurred additional interest expense of$12.6 million or 2.46% over the average LIBOR rates on$2 billion of borrowings. Provision for income taxes. The provision for income taxes and effective tax rate were$74.1 million and 24.1% in the three months endedSeptember 30, 2021 , an increase of$27.5 million , or a 59.1% change, from$46.6 million and 19.8% in the three months endedSeptember 30, 2020 . 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 increase in the provision for income taxes was driven primarily by an increase in pre-tax earnings. The increase in the effective tax rate was primarily due to lower excess tax benefit on fewer stock option exercises in 2021 over the comparable period in 2020. We pay taxes in different 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. Net income. For the reasons discussed above, our net income increased to$234.0 million in the three months endedSeptember 30, 2021 , an increase of$45.2 million , or 23.9%, from$188.8 million in the three months endedSeptember 30, 2020 . Operating income and operating margin Consolidated operating income. Operating income was$338.7 million in the three months endedSeptember 30, 2021 , an increase of$74.2 million , or 28.0%, from$264.5 million in the comparable prior period. Our operating margin was 44.8% and 45.2% for the three months endedSeptember 30, 2021 and 2020, respectively. The increase in operating income was driven primarily by the increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic driving organic growth, the favorable impact of fuel prices of$17 million , and favorable movements in the foreign exchange rates of$7 million . These increases were partially offset by unfavorable fuel price spreads of approximately$4 million . The lower operating margin was driven by incremental spending on sales in the third quarter of 2021 over the comparable prior period. 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$213.4 million in the three months endedSeptember 30, 2021 , an increase of$60.1 million , or 39.2%, from$153.3 million in the comparable prior period.North America operating margin was 41.0% and 39.9% for the three months endedSeptember 30, 2021 and 2020, respectively. These increases were primarily driven by increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic driving organic growth, the favorable impact of fuel prices of$15 million and slightly favorable movements in the foreign exchange rates. These increases were partially offset by unfavorable fuel price spreads of approximately$4 million .
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and 44.7% for the three months endedSeptember 30, 2021 and 2020, respectively. The increase in operating income was primarily driven by increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic driving organic growth. The lower operating margin was driven by incremental spending on sales in the third quarter of 2021 over the comparable prior period. International segment operating income. International operating income was$85.4 million in the three months endedSeptember 30, 2021 , an increase of$9.8 million or 13.0%, from$75.6 million in the comparable prior period. International operating margin was 61.0% and 62.0% for the three months endedSeptember 30, 2021 and 2020, respectively. The increase in operating income was driven primarily by increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic driving organic growth, favorable movements in the foreign exchange rates of$5 million and favorable impact of fuel prices of$2 million . The lower operating margin was driven by incremental spending on sales in the third quarter of 2021 over the comparable prior period. Nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 The following table sets forth selected unaudited consolidated statements of income and selected operational data for the nine months endedSeptember 30, 2021 and 2020 (in millions, except percentages)*. Nine Months Nine Months Ended Ended September 30, % of Total September 30, % of Total Increase (Unaudited) 2021 Revenues, net 2020 Revenues, net (decrease) % Change Revenues, net: North America$ 1,366.2 67.2 %$ 1,176.0 66.4 %$ 190.2 16.2 % Brazil 262.5 12.9 % 253.7 14.3 % 8.8 3.5 % International 402.8 19.8 % 341.9 19.3 % 61.0 17.8 % Total revenues, net 2,031.5 100.0 % 1,771.5 100.0 % 260.0 14.7 % Consolidated operating expenses: Processing 388.3 19.1 % 474.8 26.8 % (86.6) (18.2) % Selling 186.5 9.2 % 145.0 8.2 % 41.5 28.6 % General and administrative 345.2 17.0 % 283.7 16.0 % 61.4 21.7 % Depreciation and amortization 209.2 10.3 % 190.1 10.7 % 19.1 10.0 % Other operating, net 0.1 - % (0.5) - % (0.6) NM Operating income 902.3 44.4 % 678.3 38.3 % 223.9 33.0 % Investment gain - - % (30.0) (1.7) % 30.0 (100.0) % Other expense (income), net 3.7 0.2 % (10.5) (0.6) % 14.2 NM Interest expense, net 92.3 4.5 % 99.5 5.6 % (7.2) (7.2) % Provision for income taxes 191.8 9.4 % 125.0 7.1 % 66.9 53.5 % Net income$ 614.5 30.2 %$ 494.4 27.9 %$ 120.1 24.3 % Operating income for segments: North America$ 554.6 $ 372.2 $ 182.4 49.0 % Brazil 105.4 104.5 1.0 0.9 % International 242.2 201.6 40.6 20.1 % Operating income$ 902.3 $ 678.3 $ 223.9 33.0 % Operating margin for segments: North America 40.6 % 31.7 % 8.9 % Brazil 40.2 % 41.2 % (1.0) % International 60.1 % 59.0 % 1.1 % Consolidated 44.4 % 38.3 % 6.1 % NM = Not Meaningful *The sum of the columns and rows may not calculate due to rounding. 35 -------------------------------------------------------------------------------- Revenues, net Our consolidated revenues were$2,031.5 million , in the nine months endedSeptember 30, 2021 , an increase of$260.0 million , or 14.7%, from$1,771.5 million in the nine months endedSeptember 30, 2020 . Organically, consolidated revenues increased by approximately 10%. Consolidated revenues and organic growth increased primarily due to increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic. The increase was also due to the impact of acquisitions completed in 2020 and 2021 of approximately$64 million and the positive impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our consolidated revenues for the nine months endedSeptember 30, 2021 over the comparable period in 2020 of approximately$3 million , driven primarily by the favorable impact of fuel prices of approximately$33 million and favorable changes in foreign exchange rates of approximately$19 million . These increases were partially offset by unfavorable fuel price spreads of approximately$49 million .North America segment revenues, netNorth America segment revenues were$1,366.2 million in the nine months endedSeptember 30, 2021 , an increase of$190.2 million , or 16.2%, from$1,176.0 million in the nine months endedSeptember 30, 2020 . Organically,North America segment revenues increased by approximately 11%.North America revenues and organic growth increased primarily due to increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic. The increase inNorth America revenues was also due to the impact of acquisitions completed in 2020 and 2021 of approximately$63 million , partially offset by the negative impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on ourNorth America segment revenues in the nine months endedSeptember 30, 2021 over the comparable period in 2020 of approximately$10 million , driven primarily by unfavorable fuel price spreads of approximately$49 million . This decrease was partially offset by the favorable impact of fuel prices of approximately$29 million and favorable changes in foreign exchange rates of approximately$10 million in our cross-border payments business.Brazil segment revenues, netBrazil segment revenues were$262.5 million in the nine months endedSeptember 30, 2021 , an increase of$8.8 million , or 3.5%, from$253.7 million in the nine months endedSeptember 30, 2020 . Organically,Brazil segment revenues increased by approximately 10%.Brazil revenues and organic growth increased primarily due to increases in toll tags sold as the business recovered from the effects of COVID-19 pandemic. Organic growth was partially offset by the unfavorable impact of foreign exchange rates of approximately$16 million for the nine months endedSeptember 30, 2021 over the comparable period in 2020. International segment revenues, net International segment revenues were$402.8 million in the nine months endedSeptember 30, 2021 , an increase of$61.0 million , or 17.8%, from$341.9 million in the nine months endedSeptember 30, 2020 . Organically, International segment revenues increased by approximately 9%. International revenues and organic growth increased primarily due to increases in transaction volume as the business recovered from the effects of the COVID-19 pandemic. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our International segment revenues in the nine months endedSeptember 30, 2021 over the comparable period in 2020 of approximately$29 million , driven primarily by favorable changes in foreign exchange rates of approximately$25 million primarily in ourU.K. business, and the favorable impact of fuel prices of approximately$4 million . Consolidated operating expenses Processing. Processing expenses were$388.3 million in the nine months endedSeptember 30, 2021 , a decrease of$86.6 million , or 18.2%, from$474.8 million in the comparable prior period. Decreases in processing expenses were primarily due to lower bad debt expense of approximately$133 million , which included a write-off of a customer receivable in our cross-border payments business of approximately$90 million in the first quarter of 2020. The remaining change in processing expense was driven by incremental expenses related to higher volumes processed of approximately$23 million and additional expenses related to acquisitions completed in 2020 and 2021 of approximately$22 million . Selling. Selling expenses were$186.5 million in the nine months endedSeptember 30, 2021 , an increase of$41.5 million , or 28.6%, from$145.0 million in the comparable prior period. Increases in selling expenses were primarily due to higher commissions and other variable costs due to increased sales volumes in the nine months endedSeptember 30, 2021 and expenses related to acquisitions completed in 2020 and 2021 of approximately$18 million . 36
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General and administrative. General and administrative expenses were$345.2 million in the nine months endedSeptember 30, 2021 , an increase of$61.4 million , or 21.7% from$283.7 million in the comparable prior period. Increases in general and administrative expenses were primarily due to the impact of acquisitions completed in 2020 and 2021 of approximately$22 million , increased stock based compensation expense of$14 million and increased professional fees of$10 million . Depreciation and amortization. Depreciation and amortization expenses were$209.2 million in the nine months endedSeptember 30, 2021 , an increase of$19.1 million , or 10.0% from$190.1 million in the comparable prior period. Increases in depreciation and amortization expenses were primarily due to expenses related to acquisitions completed in 2020 and 2021 of approximately$16 million .
Investment gain. Investment gain of
Other expense (income), net. Other expense, net was$3.7 million in the nine months endedSeptember 30, 2021 , compared to other income, net of$10.5 million in the nine months endedSeptember 30, 2020 . Other income in the nine months endedSeptember 30, 2020 includes a$7 million favorable purchase price settlement from ourCambridge acquisition. Interest expense, net. Interest expense, net was$92.3 million in the nine months endedSeptember 30, 2021 , a decrease of$7.2 million , or 7.2%, from$99.5 million in the comparable prior period. The decrease in interest expense is primarily due to decreases in LIBOR, partially offset by increased borrowings on our Credit Facility. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the related unused facility fees and swaps. Nine Months Ended September 30, (Unaudited) 2021 2020 Term loan A 1.61 % 2.23 % Term loan B 1.85 % 2.53 % Revolving line of credit A, B & C USD Borrowings 1.60 % 2.27 % Revolving line of credit B GBP Borrowings 1.52 % 1.79 % Foreign swing line 1.54 % 1.73 % The average unused facility fee for the Credit Facility was 0.30% in the in the nine months endedSeptember 30, 2021 . OnJanuary 22, 2019 , we entered into three interest rate swap 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$2.0 billion of variable rate debt, tied to the one month LIBOR benchmark interest rate. During the nine months endedSeptember 30, 2021 , as a result of these swaps, we incurred additional interest expense of approximately$37.1 million or 2.45% over the average LIBOR rates on$2 billion of borrowings. Provision for income taxes. The provision for income taxes and effective tax rate was$191.8 million and 23.8% in the nine months endedSeptember 30, 2021 , an increase of$66.9 million , or 53.5% change, from$125.0 million and 20.2%, respectively, in the comparable prior period. The increase in the provision for income taxes was driven primarily by an increase in pre-tax earnings. The increase in the effective tax rate was primarily due to less excess tax benefit on stock option exercises in 2021 over the comparable period in 2020. Net income. For the reasons discussed above, our net income was$614.5 million in the nine months endedSeptember 30, 2021 , an increase of$120.1 million , or 24.3% from$494.4 million in the nine months ended 2020. Operating income and operating margin Consolidated operating income. Operating income was$902.3 million in the nine months endedSeptember 30, 2021 , an increase of$223.9 million , or 33.0%, from$678.3 million in the comparable prior period. Our operating margin was 44.4% and 38.3% for the nine months endedSeptember 30, 2021 and 2020, respectively. These increases were primarily driven by the write-off of a customer receivable in our cross-border payments business of approximately$90 million in the first quarter of 2020, increases in volume as the business recovered from the effects of the COVID-19 pandemic driving organic growth, the impact of favorable fuel prices of approximately$33 million and favorable movements in foreign exchange rates of approximately$13 million These increases were partially offset by the unfavorable impact of fuel spread margins of$49 million . 37 -------------------------------------------------------------------------------- For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Segment operating margin is calculated by dividing segment operating income by segment revenue.North America segment operating income.North America operating income was$554.6 million in the nine months endedSeptember 30, 2021 , an increase of$182.4 million , or 49.0%, from$372.2 million in the comparable prior period.North America operating margin was 40.6% and 31.7% for the nine months endedSeptember 30, 2021 and 2020, respectively. These increases were due primarily to the write-off of a customer receivable in our cross-border payments business of approximately$90 million in the first quarter of 2020, increases in volume as the business recovered from the effects of the COVID-19 pandemic driving organic growth, the impact of favorable fuel prices of approximately$29 million and favorable movements in the foreign exchange rates of$4 million . These increases were partially offset by the unfavorable impact of fuel spread margins of$49 million .Brazil segment operating income.Brazil operating income was$105.4 million in the nine months endedSeptember 30, 2021 , an increase of$1.0 million , or 0.9%, from$104.5 million in the comparable prior period.Brazil operating margin was 40.2% and 41.2% for the nine months endedSeptember 30, 2021 and 2020, respectively.Brazil operating income benefited from the favorable impact of organic growth. These increases were offset by the unfavorable impact of foreign exchange rates of$6 million . International segment operating income. International operating income was$242.2 million in the nine months endedSeptember 30, 2021 , an increase of$40.6 million , or 20.1%, from$201.6 million in the comparable prior period. International operating margin was 60.1% and 59.0% for the nine months endedSeptember 30, 2021 and 2020, respectively. These increases were primarily due to an increase in transaction volume as the business recovered from the effects of the COVID-19 pandemic driving organic growth, the favorable impact of foreign exchange rates of$16 million and the favorable impact of fuel prices of$4 million . 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. We believe that our current level of cash and borrowing capacity under our Credit Facility and Securitization Facility (each defined below), 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, based on our current assumptions. AtSeptember 30, 2021 , we had approximately$1.9 billion in total liquidity, consisting of approximately$650 million available under our Credit Facility (defined below) and unrestricted cash of$1.3 billion . Restricted cash represents primarily customer deposits in our Comdata business in theU.S. , as well as collateral received from customers for cross-currency transactions in our cross-border payments business, which are restricted from use other than to repay customer deposits, as well as to secure and settle cross-currency transactions. We also utilize an accounts receivable Securitization Facility 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 solutions 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 as funds available for working capital purposes and acquisitions. AtSeptember 30, 2021 , we had no additional liquidity under our Securitization Facility. The Company has determined that outside basis differences associated with our investment in foreign subsidiaries would not result in a material deferred tax liability, and consistent with our assertion that these amounts continue to be indefinitely reinvested, have not recorded incremental income taxes for the additional outside basis differences. 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 ongoing 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. 38
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Cash flows The following table summarizes our cash flows for the nine month periods endedSeptember 30, 2021 and 2020 (in millions). Nine Months Ended September 30, (Unaudited) 2021 2020 Net cash provided by operating activities $ 599.5$ 1,214.7 Net cash used in investing activities (621.8) (74.6) Net cash provided by (used in) financing activities 579.2 (1,221.9) Operating activities. Net cash provided by operating activities was$599.5 million in the nine months endedSeptember 30, 2021 , a decrease from$1.2 billion in the comparable prior period. The decrease in operating cash flows was primarily due to unfavorable working capital movements primarily due to the timing of cash receipts and payments in the nine months endedSeptember 30, 2021 over the comparable period in 2020. Investing activities. Net cash used in investing activities was$621.8 million in the nine months endedSeptember 30, 2021 compared to$74.6 million in the nine months endedSeptember 30, 2020 . The increased use of cash was primarily due to incremental cash paid for acquisitions in the nine months endedSeptember 30, 2021 over the comparable period in 2020. Financing activities. Net cash provided by financing activities was$579.2 million in the nine months endedSeptember 30, 2021 , compared to net cash used in financing activities of$1,221.9 million in the nine months endedSeptember 30, 2020 . The increase in net cash provided by financing activities was primarily due to increased net borrowings on our Credit Facility of$1,221 million and increased net borrowings on our Securitization Facility of$681 million , which were partially offset by an increase in cash used to repurchase common stock of$34 million in the nine months endedSeptember 30, 2021 over the comparable period in 2020. Capital spending summary Our capital expenditures were$74.5 million in the nine months endedSeptember 30, 2021 , an increase of$19.4 million or 35.3%, from$55.0 million in the comparable prior period due to the impact of acquisitions and continued investments in technology. Credit FacilityFLEETCOR Technologies Operating Company, LLC , and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers (the "Borrowers"), are parties to a$5.66 billion Credit Agreement (the "Credit Agreement"), withBank 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$1.150 billion as ofSeptember 30, 2021 . 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 with borrowings inU.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 inU.S. dollars, Australian dollars orNew Zealand dollars. The Credit Agreement also includes an accordion feature for borrowing an additional$750 million in term loan A, term loan B, revolving A or revolving B facility debt and an unlimited amount when the leverage ratio on a pro-forma 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. OnApril 24, 2020 , we entered into the eighth amendment to the Credit Agreement to add a$250 million revolving D facility. OnAugust 20, 2020 , we determined that, due to a recovery in our business operations and other safeguards being in place, the revolving D facility was no longer necessary and the facility was terminated. The maturity date for the term loan A and revolving credit facilities A, B and C isDecember 19, 2023 . OnApril 30, 2021 , we entered into the ninth amendment to the Credit Agreement. The amendment provided for a new seven-year$1.150 billion term loan B. The existing term loan B was paid off with proceeds from the new term loan B. The new term loan B has a maturity date ofApril 30, 2028 , and interest rates remain unchanged. 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 at 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 byBank 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 the Base Rate plus 0.75% for Base Rate Loans. The Eurocurrency rate has a 0% floor. 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. 39 -------------------------------------------------------------------------------- AtSeptember 30, 2021 , the interest rate on the term loan A was 1.58%, the interest rate on the term loan B was 1.83% and the interest rate on the revolving A facility and revolving B facility was 1.58%. The unused credit facility fee was 0.30% atSeptember 30, 2021 . AtSeptember 30, 2021 , we had$2.8 billion in borrowings outstanding on the term loan A, net of discounts, and$1.1 billion in borrowings outstanding on the term loan B, net of discounts. We have unamortized debt issuance costs of$3.7 million related to the revolving facilities as ofSeptember 30, 2021 recorded within other assets in the Unaudited Consolidated Balance Sheet. We have unamortized debt discounts of$12.2 million and debt issuance costs of$6.1 million related to our term loans atSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , we made principal payments of$462 million on the term loans,$799 million on the revolving facilities, and$52 million on the swing line revolving facility. As ofSeptember 30, 2021 , we were in compliance with each of the covenants under the Credit Agreement. Cash Flow Hedges OnJanuary 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 pay a fixed monthly rate and receive one month LIBOR. We reclassified approximately$37.1 million of losses from accumulated other comprehensive income into interest expense during the nine months endedSeptember 30, 2021 as a result of these hedging instruments. Securitization Facility We are party to a$1.3 billion receivables purchase agreement amongFLEETCOR Funding LLC , as seller,PNC Bank, National Association as administrator, and various purchaser agents, conduit purchasers and related committed purchasers parties thereto. We refer to this arrangement as the Securitization Facility. There have been several amendments to the Securitization Facility. OnNovember 13, 2020 , we extended the Securitization Facility termination date toNovember 12, 2021 , added an uncommitted accordion to increase the purchase limit by up to$500 million , revised obligor concentration limits and reserve calculations, added a 0.375% LIBOR floor and modified certain swing line terms. In addition, the program fee for LIBOR borrowings increased from 0.90% to 1.25% and the program fee for Commercial Paper Rate borrowings increased from 0.80% to 1.15%. OnMarch 29, 2021 , we amended the Securitization Facility to include a new three year maturity date, reduced the LIBOR floor to 0 bps, improved margins, and increased the swing line from$100 million to$250 million . OnSeptember 15, 2021 , the Company entered into the ninth amendment to the Securitization Facility. The amendment increased the Securitization Facility commitment from$1.0 billion to$1.3 billion . The maturity date for our Securitization Facility isMarch 29, 2024 . We were in compliance with the financial covenant requirements related to our Securitization Facility as ofSeptember 30, 2021 . Stock Repurchase Program The Company's Board of Directors (the "Board") 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 untilFebruary 1, 2023 . OnJuly 27, 2021 , the Board increased the aggregate size of the Program by$1.0 billion , to$5.1 billion . Since the beginning of the Program throughSeptember 30, 2021 , 17,742,577 shares have been repurchased for an aggregate purchase price of$3.9 billion , leaving the Company up to$1.2 billion available under the Program for future repurchases in shares of its common stock. 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. 40
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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, revenues 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 endedSeptember 30, 2021 , 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 endedDecember 31, 2020 . 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 endedDecember 31, 2020 and our summary of significant accounting policies in Note 1 of our Notes to the Unaudited Consolidated Financial Statements in this Quarterly Report on 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 each 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 transactions by solution. 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 price spreads, 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. Organic revenue growth is calculated as revenue growth in the current period adjusted for the impact of changes in the macroeconomic environment (to include fuel price, fuel price spreads and changes in foreign exchange rates) over revenue in the comparable prior period adjusted to include or remove the impact of acquisitions and/or divestitures and non-recurring items that have occurred subsequent to that period. We believe that organic revenue growth on a macro-neutral, one-time item, and consistent acquisition/divestiture/non-recurring item basis is useful to investors for understanding the performance ofFLEETCOR . 41 -------------------------------------------------------------------------------- Set forth below is a reconciliation of pro forma and macro adjusted revenue and key performance metric by solution to the most directly comparable GAAP measure, revenue, net and key performance metric (in millions): Revenues, net Key Performance Metric Three Months Ended September 30, Three Months Ended September 30, (Unaudited) 2021* 2020* 2021* 2020* FUEL - TRANSACTIONS Pro forma and macro adjusted $ 288.7$ 255.6 117.7 113.9 Impact of acquisitions/dispositions - (0.5) - (0.3) Impact of fuel prices/spread 12.7 - - - Impact of foreign exchange rates 5.3 - - - As reported $ 306.8$ 255.1 117.7 113.6 CORPORATE PAYMENTS - SPEND Pro forma and macro adjusted $ 165.6$ 135.9 25,666 19,617 Impact of acquisitions/dispositions - (29.4) - (4,049) Impact of fuel prices/spread 0.4 - - - Impact of foreign exchange rates 2.8 - - - As reported $ 168.7$ 106.5 25,666 15,567 TOLLS - TAGS Pro forma and macro adjusted $ 76.9$ 67.6 6.0 5.4 Impact of acquisitions/dispositions - - - - Impact of fuel prices/spread - - - - Impact of foreign exchange rates 2.2 - - - As reported $ 79.0$ 67.6 6.0 5.4 LODGING - ROOM NIGHTS Pro forma and macro adjusted $ 85.2$ 60.7 7.6 6.1 Impact of acquisitions/dispositions - (7.9) - (0.7) Impact of fuel prices/spread - - - - Impact of foreign exchange rates - - - - As reported $ 85.2$ 52.9 7.6 5.4 GIFT - TRANSACTIONS Pro forma and macro adjusted $ 48.6$ 39.1 256.2 242.7 Impact of acquisitions/dispositions - - - - Impact of fuel prices/spread - - - - Impact of foreign exchange rates - - - - As reported $ 48.6$ 39.1 256.2 242.7 OTHER1- TRANSACTIONS Pro forma and macro adjusted $ 65.4$ 64.1 8.9 9.9 Impact of acquisitions/dispositions - - - - Impact of fuel prices/spread - - - - Impact of foreign exchange rates 1.8 - - - As reported $ 67.2$ 64.1 8.9 9.9 FLEETCOR CONSOLIDATED REVENUES Pro forma and macro adjusted $ 730.3$ 623.0 Impact of acquisitions/dispositions -
(37.7)
Impact of fuel prices/spread2 13.1 - Intentionally Left Blank Impact of foreign exchange rates2 12.1 - As reported $ 755.5
* Columns may not calculate due to rounding. 1 Other includes telematics, maintenance, food, transportation and payroll card related businesses. 2 Revenues reflect an estimated$17 million positive impact from fuel prices and approximately$12 million positive impact due to movements in foreign exchange rates, partially offset by$4 million negative impact from fuel price spreads. 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, intangible assets, and amortization of the premium recognized on the purchase of receivables, (c) integration and deal related costs, and (d) other non-recurring items, including unusual credit losses occurring largely, but not necessarily exclusively, due to the COVID-19 pandemic, the impact of discrete tax items, impairment charges, asset write-offs, restructuring costs, gains due to disposition of assets/businesses, loss on extinguishment of debt, and legal settlements. 42
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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. Adjusted net income and adjusted net income per diluted share are supplemental measures of operating performance that do not represent and should not be considered as an alternative to net income, net income per diluted share or cash flow from operations. as determined by GAAP. We believe it is useful to exclude non-cash share-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 share-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 our adjusted net income. Integration and deal related costs represent business acquisition transaction costs, professional services fees, short-term retention bonuses and system migration costs, etc., that are not indicative of the performance of the underlying business. We also believe that certain expenses and recoveries (e.g. legal settlements, write-off of customer receivable, etc.), gains and losses on investments, and impairment charges do not necessarily reflect how our investments and business are performing. We adjust net income for the tax effect of each of these non-tax items. Management uses adjusted net income, adjusted net income per diluted share and organic revenue growth: •as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis; •for planning purposes, including the preparation of our internal annual operating budget; •to allocate resources to enhance the financial performance of our business; and •to evaluate the performance and effectiveness of our operational strategies. 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 September 30, Nine Months Ended September 30, (Unaudited) 2021 2020 2021 2020 Net income$ 234,007
$ 2.80 $ 2.19 $ 7.24 $ 5.68 Stock-based compensation 16,453 11,905 52,085 35,069 Amortization1 56,381 49,078 158,482 146,995 Investment loss (gain) - 1,330 (9) (30,008) Loss on extinguishment of debt - - 6,230 - Integration and deal related costs 6,638 1,768 18,132 11,035 Restructuring and related (subsidies) costs (568) 185 (1,922) 4,912 Legal settlements/litigation 561 2,048 5,619 (2,989) Write-off of customer receivable2 - - - 90,058 Total pre-tax adjustments 79,465 66,313 238,617 255,072 Income taxes3 (19,114) (13,196) (48,193) (45,581) Adjusted net income$ 294,358
$ 3.52 $ 2.80 $ 9.48 $ 8.09 Diluted shares 83,716 86,273 84,917 87,006 1 Includes amortization related to intangible assets, premium on receivables, deferred financing costs and debt discounts. 2 Represents a loss in the first quarter of 2020 from a large client in our cross-border payments business entering voluntary bankruptcy due to the impact of the COVID-19 pandemic. 3 Represents provision for income taxes of pre-tax adjustments. 2021 includes measurement of deferreds due to the increase inUK corporate tax rate from 19% to 25% of$6.5 million . 2020 includes a tax reserve adjustment related to prior year tax positions of$9.8 million . *Columns may not calculate due to rounding. 43
-------------------------------------------------------------------------------- Special Cautionary Notice Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q 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 our current expectations and projections about future events. Forward-looking statements are subject to many uncertainties and other variable circumstances, including those discussed in "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSecurities and Exchange Commission onFebruary 26, 2021 , many of which are outside of our control, that could cause our actual results and experience to differ materially from any forward-looking statement.
These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
•regulatory measures, voluntary actions, or changes in consumer preferences, that impact our transaction volume, including social distancing, shelter-in-place, shutdowns of nonessential businesses and similar measures imposed or undertaken in an effort to contain and mitigate the spread of COVID-19 and the impact of vaccine mandates on our workforce and our suppliers and vendors; •the impact of macroeconomic conditions and whether expected trends, including foreign currency exchange rates, retail fuel prices, fuel price spreads, and fuel transaction patterns, develop as anticipated; •our ability to successfully execute our strategic plan, manage our growth and achieve our performance targets; •our ability to attract new and retain existing partners, fuel merchants, and lodging providers, their promotion and support of our solutions, and their financial performance; •the failure of management assumptions and estimates, as well as differences in, and changes to, economic, market, interest rate, interchange fees, foreign exchange rates, and credit conditions, including changes in borrowers' credit risks and payment behaviors; •the risk of higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; •our ability to successfully manage our credit risks and the sufficiency of our allowance for expected credit losses; •our ability to securitize our trade receivables; •the occurrence of fraudulent activity, data breaches or failures of our information security controls or cybersecurity-related incidents that may compromise our systems or customers' information; •any disruptions in the operations of our computer systems and data centers; •the international operational and political risks and compliance and regulatory risks and costs associated with international operations; •our ability to develop and implement new technology, products, and services; •any alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; •the regulation, supervision, and examination of our business by foreign and domestic governmental authorities, as well as litigation and regulatory actions, including the lawsuit recently filed by theFederal Trade Commission (FTC); •the impact of regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering (AML) and anti-terrorism financing laws; •changes in our senior management team and our ability to attract, motivate and retain qualified personnel consistent with our strategic plan; •tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; •the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; and •the other factors and information in our Annual Report on Form 10-K and other filings that we make with theSEC under the Exchange Act and Securities Act. See "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSecurities and Exchange Commission onFebruary 26, 2021 . Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. We do not undertake, and specifically disclaim, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. 44
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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 Form 10-Q for additional information regarding these GAAP financial measures and a reconciliation to the nearest corresponding GAAP measure.
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