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. 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, 2021 and in Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. 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 three and six months endedJune 30, 2022 and 2021, with period-over-period comparisons between these periods. A detailed discussion of 2021 items and period-over-period comparisons between the three and six month endedJune 30, 2021 and 2020 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 endedJune 30, 2021 .
Executive Overview
FLEETCOR is a leading global business payments company that helps businesses spend less by providing innovative solutions that enable and control expense-related purchasing and payment processes. 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, 2021 , businesses spend an estimated$125 trillion each year with other businesses. 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, and general purpose credit cards, as well as employee pay and reclaim processes. In the second quarter of 2022, in order to align with recent changes in the organizational structure and management reporting, the Company has updated its segment structure into Fleet, Corporate Payments, Lodging,Brazil and Other. The presentation of segment information has been recast for the prior periods to align with this segment presentation for the three and six months endedJune 30, 2022 . We manage and report our operating results through five reportable segments, Fleet, Corporate Payments, Lodging,Brazil and Other, which aligns with how the Chief Operating Decision Maker (CODM) allocates resources, assesses performance and reviews financial information. However, to help facilitate an understanding of our expansive range of solutions around the world, we describe them in two categories: Expense Management solutions, which help control and monitor employee spending, and Corporate Payments solutions, which simplify and automate vendor payments. 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. 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 AP automation, virtual cards, cross-border, and purchasing and T&E cards.FLEETCOR provides several other payments solutions that, due to their immaterial nature or size, are not considered within our Corporate Payments and Expense Management solutions. 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
The novel strain of coronavirus (including variants thereof, "COVID-19") 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
27
--------------------------------------------------------------------------------as a result of quarantines, the effectiveness of vaccines in general and against new variants, 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 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, potential disruptions impacting our suppliers and vendors resulting, directly or indirectly, from new outbreaks of COVID-19, vaccine mandates and/or vaccine hesitancy; our response to the continued impact of the pandemic; the negative impact the COVID-19 pandemic 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 of governments, businesses and individuals take in response to the pandemic, including restrictions or lockdowns resulting from new COVID-19 outbreaks; the inflationary impact of actions taken in connection with government and business responses to the COVID-19 pandemic; and how quickly economies recover after the any new or continuing outbreak of COVID-19 subsides.
Impact of
The current conflict betweenRussia andUkraine is creating substantial uncertainty about the roleRussia will play in the global economy in the future. Although the length, impact and outcome of the ongoing military conflict inUkraine is highly unpredictable, this conflict could lead to significant market and other disruptions. The conflict has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to information systems, heightened risks to employee safety, significant volatility of the Russian ruble, limitations on access to credit markets, increased operating costs (including fuel and other input costs), safety risks, and restrictions on the transfer of funds to and fromRussia . We cannot predict how and the extent to which the conflict will affect our customers, operations or business partners or the demand for our products and our global business. Depending on the actions we take or are required to take, the ongoing conflict could also result in loss of cash, assets or impairment charges. Additionally, we may also face negative publicity and reputational risk based on the actions we take or are required to take as a result of the conflict, which could damage our brand image or corporate reputation. The extent of the impact of these tragic events on our business remains uncertain and will continue to depend on numerous evolving factors that we are not able to accurately predict, including the duration and scope of the conflict. We are actively monitoring the situation and assessing its impact on our business, analyzing options as they develop, and are continuing to refine our business continuity plan and crisis response materials designed to mitigate the impact of disruptions to our business, but it is unclear if our plan will successfully mitigate all disruptions. To date we have not experienced any material interruptions in our infrastructure, technology systems or networks needed to support our operations. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. Any such disruptions may also magnify the impact of other risks described herein and in our Annual Report on Form 10-K. The consolidated net revenues, net income and assets of our business inRussia as a percentage of consolidated Company results are substantially similar to previous disclosures. The net book value of our assets inRussia atJune 30, 2022 was approximately$338 million , of which$223 million is restricted cash. As described in Note 3 to our condensed consolidated financial statements, no impairment has occurred. However, the conflict inUkraine and related sanctions could potentially impact the value of our assets inRussia as the conflict continues. Our Russian business is part of our Fleet segment. See Part II, Item 1A "Risk Factors - Risks Associated with the Conflict betweenRussia andUkraine " for additional discussion regarding the risks associate with the ongoing conflict inUkraine .
Results
Revenues, net, Net Income and Net Income Per Diluted Share. Set forth below are revenues, net, net income and net income per diluted share for the three and six months endedJune 30 , (in millions, except per share amounts). Three Months Ended June 30, Six Months Ended June 30, (Unaudited) 2022 2021 2022 2021 Revenues, net$ 861.3 $ 667.4 $ 1,650.5 $ 1,276.0 Net income$ 262.2 $
196.2
$ 3.35 $
2.30 $ 6.10
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 six months endedJune 30 (in millions, except per share amounts). 28
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Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) 2022 2021 2022 2021
Adjusted net income $ 326.1 $ 268.4 $ 615.8 $ 510.6
Adjusted net income per diluted
share $ 4.17 $
3.15
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 150 countries around the world today, although we operate primarily in three geographies, with 85% 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.
Revenues, net, by Segment. For the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
% 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
Fleet $ 377.4 44 % $ 333.1 50 % $ 729.0 44.2 % $ 628.1 49.2 %
Corporate Payments 189.7 22 % 140.4 21 % 373.5 22.6 % 256.8 20.1 %
Lodging 116.9 14 % 62.2 9 % 211.5 12.8 % 121.3 9.5 %
Brazil 111.8 13 % 85.7 13 % 214.4 13.0 % 167.6 13.1 %
Other 65.5 8 % 46.0 7 % 122.3 7.4 % 102.3 8.0 %
Consolidated revenues, net $ 861.3 100 % $ 667.4 100 % $ 1,650.5 100 % $ 1,276.0 100 %
*Columns may not calculate due to rounding. Other includes our Gift and Paycard businesses.
Revenues, net by Geography and Solution. Revenue by geography and solution for
the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) 2022 2021 2022 2021
% of Total % of Total % of Total % of Total
Revenues, net by Geography* Revenues, net Revenues, net Revenues, net Revenues, net Revenues,net Revenues, net Revenues, net Revenues, netUnited States $ 527.7 61 %$ 412.7 62 %$ 999.5 61 %$ 783.3 61 %Brazil 111.8 13 % 85.7 13 % 214.4 13 % 167.6 13 %United Kingdom 93.4 11 % 83.6 13 % 188.0 11 % 159.2 12 % Other 128.4 15 % 85.4 13 % 248.7 15 % 165.9 13 % Consolidated revenues, net$ 861.3 100 %$ 667.4 100 %$ 1,650.5 100 %$ 1,276.0 100 %
*Columns may not calculate due to rounding.
29
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Three Months Ended June 30 , Six Months Ended June 30 ,
(Unaudited) 2022 2021 2022 2020
% of Total % of Total % of Total % of Total
Revenues, net by Solution* Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net Revenues, net
Fuel $ 346.9 40 % $ 295.1 44 % $ 665.4 40 % $ 557.0 44 %
Corporate Payments 189.7 22 % 140.4 21 % 373.5 23 % 256.8 20 %
Tolls 91.2 11 % 71.3 11 % 176.1 11 % 140.3 11 %
Lodging 116.9 14 % 62.2 9 % 211.5 13 % 121.3 10 %
Gift 51.7 6 % 32.3 5 % 95.2 6 % 75.7 6 %
Other 65.0 8 % 66.0 10 % 128.9 8 % 124.9 10 %
Consolidated revenues, net $ 861.3 100 % $ 667.4 100 % $ 1,650.5 100 % $ 1,276.0 100 %
*Columns may not calculate due to rounding. Other includes telematics, maintenance, food, payroll card and transportation related businesses.
We generate revenue in our Fuel solutions 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,
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.
In our Corporate Payments solutions, the primary measure of volume is spend, the
dollar amount of payments processed on behalf of customers through our various
networks. 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 or spread revenue. Our programs may also charge
fixed fees for access to the network and ancillary services provided. In our
cross-border payments business, the majority of revenue is from exchanges of
currency at spot rates, which enables customers to make cross-currency payments.
Our performance obligation in our foreign exchange payment services is providing
a foreign currency payment to a customer's designated recipient and therefore,
we recognize revenue on foreign exchange payment services when the underlying
payment is made. Revenues from foreign exchange payment services are primarily
comprised of the difference between the exchange rate set by the Company to the
customer and the rate available in the wholesale foreign exchange market.
In our Tolls solution, 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 non-toll products.
In our Lodging solutions, 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 and commissions paid by hotels. We may also charge fees for access
to the network and ancillary services provided.
In our Gift solutions, 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. We may also charge fixed fees for ancillary services
provided.
The remaining revenues represent other products that due to their nature or
size, are not considered primary products. These include telematics offerings,
fleet maintenance, food and transportation employee benefits related offerings,
payroll cards and long-haul transportation services.
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The following table presents revenue per key performance metric by solution for the three months endedJune 30 (in millions except revenues, net per key performance metric).* As Reported Pro Forma and Macro Adjusted2 Three Months Ended June 30, Three Months Ended June 30, (Unaudited) 2022 2021 Change % Change 2022 2021 Change % Change FUEL '- Revenues, net$ 346.9 $ 295.1 $ 51.7 18 %$ 317.3 $ 295.2 $ 22.0 7 % '- Transactions 122.5 118.3 4.2 4 % 122.5 119.8 2.7 2 % '- Revenues, net per transaction$ 2.83 $ 2.50 $ 0.34 14 %$ 2.59 $ 2.46 $ 0.13 5 % CORPORATE PAYMENTS '- Revenues, net$ 189.7 $ 140.4 $ 49.3 35 %$ 195.2 $ 164.8 $ 30.5 18 % '- Spend volume$ 28,836 $ 23,002 $ 5,833 25 %$ 28,836 $ 27,549 $ 1,287 5 % '- Revenue, net per spend$ 0.66 % 0.61 % 0.05 % 8 % 0.68 % 0.60 % 0.08 % 13 % TOLLS '- Revenues, net$ 91.2 $ 71.3 $ 19.8 28 %$ 84.5 $ 71.3 $ 13.2 19 % '- Tags (average monthly) 6.1 5.8 0.3 5 % 6.1 5.8 0.3 5 %
'- Revenues, net per tag
22 %$ 13.76 $ 12.20 $ 1.56 13 % LODGING '- Revenues, net$ 116.9 $ 62.2 $ 54.7 88 %$ 117.2 $ 82.7 $ 34.4 42 % '- Room nights 9.5 6.6 2.9 44 % 9.5 8.2 1.3 16 % '- Revenues, net per room night$ 12.30 $ 9.41 $ 2.90 31 %$ 12.33 $ 10.12 $ 2.22 22 % GIFT '- Revenues, net$ 51.7 $ 32.3 $ 19.4 60 %$ 52.5 $ 32.3 $ 20.2 63 % '- Transactions 287.5 259.4 28.1 11 % 287.5 259.4 28.1 11 % '- Revenues, net per transaction$ 0.18 $ 0.12 $ 0.06 44 %$ 0.18 $ 0.12 $ 0.06 47 % OTHER1 '- Revenues, net$ 65.0 $ 66.0 $ (1.0) (2) %$ 66.7 $ 66.0 $ 0.7 1 % '- Transactions 10.2 9.3 1.0 11 % 10.2 9.3 1.0 11 % '- Revenues, net per transaction$ 6.34 $ 7.13 $ (0.79) (11) %$ 6.51 $ 7.13 $ (0.63) (9) % FLEETCOR CONSOLIDATED REVENUES, NET '- Revenues, net$ 861.3 $ 667.4 $ 193.9 29 %$ 833.4 $ 712.3 $ 121.0 17 % 1 Other includes telematics, maintenance, food, payroll card and transportation 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. Organic revenue growth is a supplemental non-GAAP financial measure of operating performance. 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. 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 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 . Revenue per relevant key performance indicator (KPI), which may include transaction, spend volume, monthly average active 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 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 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. 31 --------------------------------------------------------------------------------
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 losses and cost of goods sold related to our hardware and card 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 and bonuses) for our employees, 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, net-Our other operating, net includes other operating expenses and income items that do not relate to our core operations or that occur infrequently.
•Other expense (income), net-Our other expense (income), net includes gains or losses from the sale of assets, foreign currency transactions, loss on extinguishment of debt 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 of corporate income taxes related primarily 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, inNorth America ,Brazil , and internationally, including the current conflict betweenRussia andUkraine , as discussed elsewhere in this Quarterly Report on Form 10-Q, and 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 61% of our revenues in both the six months endedJune 30, 2022 and 2021, 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 estimate approximately 13% of revenues, net were directly impacted by changes in fuel price in both the three months endedJune 30, 2022 and 2021, respectively. We estimate approximately 12% of revenues, net were directly impacted by changes in fuel price in both the six months endedJune 30, 2022 and 2021, 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 32
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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 estimate approximately 5% and 6% of revenues, net were directly impacted by fuel price spreads in the three months endedJune 30, 2022 and 2021, respectively. We estimate approximately 5% of revenues, net were directly impacted by fuel price spreads in both the six months endedJune 30, 2022 and 2021, respectively. •Acquisitions-Since 2002, we have completed over 90 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-From January to July of 2022, theU.S. Federal Open Market Committee has increased the benchmark rate four times for a total rate increase of 2.25 percent. Additional increases are possible in future periods. We are exposed to market risk changes in interest rates on our cash investments and debt, particularly in rising interest rate environments. 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. InJanuary 2022 ,$1.0 billion of our interest rate swaps matured. •Expenses-Over the long term, we expect that our expense will decrease as a percentage of revenue as our revenue increases, except for expenses related to transaction volume processed. To support our expected revenue growth, we plan to continue to incur additional sales and marketing expense by investing in our direct marketing, third-party agents, internet marketing, telemarketing and field sales force. •Taxes-We pay taxes in various taxing jurisdictions, including theU.S. , mostU.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are different than theU.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. Acquisitions and Investments 2022
•In
•On
•In
2021
•On
•On
•On
•On
•During 2021, we made an investment of
Results from our ALE and Levarti acquisitions are included in our Lodging segment, and results from our AFEX and Roger acquisitions are reported in our Corporate Payments segment, from the dates of acquisition. Results from our Russian acquisition are reported in our Fleet segment from the date of acquisition.
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--------------------------------------------------------------------------------Results of Operations
Three months ended
The following tables set forth selected unaudited consolidated statements of income and selected operational data for the three and six months endedJune 30 (in millions, except percentages)*. Three Months Three Months Ended June 30, % of Total Ended June 30, % of Total Increase (Unaudited) 2022 Revenues, net 2021 Revenues, net (decrease) % Change Revenues, net: Fleet$ 377.4 43.8 %$ 333.1 49.9 %$ 44.3 13.3 % Corporate Payments 189.7 22.0 % 140.4 21.0 % 49.3 35.1 % Lodging 116.9 13.6 % 62.2 9.3 % 54.7 87.8 % Brazil 111.8 13.0 % 85.7 12.8 % 26.2 30.5 % Other 65.5 7.6 % 46.0 6.9 % 19.5 42.4 % Total revenues, net 861.3 100.0 % 667.4 100.0 % 193.9 29.1 % Consolidated operating expenses: Processing 185.6 21.5 % 122.3 18.3 % 63.3 51.8 % Selling 79.3 9.2 % 63.2 9.5 % 16.1 25.5 % General and administrative 147.4 17.1 % 115.0 17.2 % 32.4 28.2 % Depreciation and amortization 78.5 9.1 % 69.2 10.4 % 9.3 13.4 % Other operating, net - - % - - % 0.1 NM Operating income 370.5 43.0 % 297.6 44.6 % 72.9 24.5 % Investment gain 0.2 - % - - % 0.2 NM Other expense, net 3.6 0.4 % 0.4 0.1 % 3.2 NM Interest expense, net 23.1 2.7 % 34.7 5.2 % (11.6) (33.5) % Provision for income taxes 81.5 9.5 % 66.3 9.9 % 15.2 23.0 % Net income$ 262.2 30.4 %$ 196.2 29.4 %$ 65.9 33.6 % Operating income by segment: Fleet$ 186.8 $ 172.6 $ 14.2 8.2 % Corporate Payments 65.9 48.6 17.2 35.5 % Lodging 58.6 29.9 28.7 95.8 % Brazil 41.6 33.3 8.3 24.9 % Other 17.7 13.2 4.5 33.9 % Total operating income$ 370.5 $ 297.6 $ 72.9 24.5 % NM = Not Meaningful *The sum of the columns and rows may not calculate due to rounding.
Consolidated revenues, net
Consolidated revenues were$861.3 million in the three months endedJune 30, 2022 , an increase of$193.9 million or 29.1%, from$667.4 million in the three months endedJune 30, 2021 . Consolidated revenues increased primarily due to organic growth of 17% driven by increases in transaction volumes, the impact of acquisitions completed in 2021 and 2022 of approximately$45 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 endedJune 30, 2022 over the comparable period in 2021 of approximately$28 million , driven primarily by the favorable impact of fuel prices of approximately$33 million and favorable fuel price spreads of approximately$3 million . These increases were partially offset by unfavorable foreign exchange rates of approximately$8 million , mostly in ourU.K. and European businesses. 34
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Consolidated operating expenses
Processing. Processing expenses were$185.6 million in the three months endedJune 30, 2022 , an increase of$63.3 million or 51.8%, from$122.3 million in the comparable prior period. Increases were primarily due to higher variable expenses driven by larger transaction volumes, incremental bad debt of$21 million and approximately$14 million of expenses related to acquisitions completed in 2021 and 2022. Bad debt expense has increased as customer spend increased due to higher fuel prices, and as a result of strong new sales, which tend to have a higher loss rate. Selling. Selling expenses were$79.3 million in the three months endedJune 30, 2022 , an increase of$16.1 million or 25.5%, from$63.2 million in the comparable prior period. Increases in selling expenses were primarily associated with higher commissions and other variable costs due to increased sales volumes in the current period and approximately$6 million of expenses related to acquisitions completed in 2021 and 2022. General and administrative. General and administrative expenses were$147.4 million in the three months endedJune 30, 2022 , an increase of$32.4 million or 28.2% from$115.0 million in the comparable prior period. Increases in general and administrative expenses were primarily due to increased stock based compensation expense of$16 million , the impact of acquisitions completed in 2021 and 2022 of approximately$7 million , and other increases associated with growth of business over comparable prior period. Depreciation and amortization. Depreciation and amortization expenses were$78.5 million in the three months endedJune 30, 2022 , an increase of$9.3 million or 13.4%, from$69.2 million in the comparable prior period. Increases in depreciation and amortization expenses were primarily due to expenses related to acquisitions completed in 2021 and 2022 of approximately$9 million .
Other expense, net. Other expense, net was
Interest expense, net. Interest expense, net was$23.1 million in the three months endedJune 30, 2022 , a decrease of$11.6 million or 33.5%, from$34.7 million in the comparable prior period. The decrease in interest expense was primarily due to higher interest income earned on customer deposits and the benefit of higher cash balances in certain foreign jurisdictions, partially offset by rising interest rates on borrowings. 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 June 30, (Unaudited) 2022 2021 Term loan A 2.31 % 1.60 % Term loan B 2.53 % 1.85 % Revolving line of credit 2.33 % 1.61 % Foreign swing line 2.22 % 1.54 % 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 endedJune 30, 2022 , as a result of these swap contracts, we incurred additional interest expense of$4.5 million or 1.78% over the average LIBOR rates on$1 billion of borrowings. Provision for income taxes. The provision for income taxes and effective tax rate were$81.5 million and 23.7% in the three months endedJune 30, 2022 , an increase of$15.2 million , or a 23.0% change, from$66.3 million and 25.2% in the three months endedJune 30, 2021 . 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. During the three months endedJune 30, 2022 , we determined that certain foreign income was permanently invested, resulting in a tax benefit of$9.0 million . Excluding this discrete item, our tax rate in the second quarter of 2022 would have been 26.3% compared to 25.2% in 2021. The increase in the provision for income taxes and tax rate was driven primarily by an increase in pre-tax earnings and the mix of earnings by jurisdiction. Net income. For the reasons discussed above, our net income increased to$262.2 million in the three months endedJune 30, 2022 , an increase of$65.9 million , or 33.6%, from$196.2 million in the three months endedJune 30, 2021 . Consolidated operating income. Operating income was$370.5 million in the three months endedJune 30, 2022 , an increase of$72.9 million , or 24.5%, from$297.6 million in the comparable prior period. The increase in operating income was primarily due to organic growth driven by increases in transaction volume, acquisitions completed in 2022 and 2021, the favorable impact of fuel prices of$33 million and the favorable fuel price spreads of approximately$3 million . The increase in operating income 35 --------------------------------------------------------------------------------
was partially offset by additional stock compensation of
Segment ResultsFleet Fleet revenues were$377.4 million in the three months endedJune 30, 2022 , an increase of$44.3 million or 13.3%, from$333.1 million in the three months endedJune 30, 2021 . Fleet operating income was$186.8 million in the three months endedJune 30, 2022 , an increase of$14.2 million , or 8.2%, from$172.6 million in the comparable prior period. Fleet revenues and operating income increased primarily due to organic growth driven by increases in transaction volumes and new sales growth, as well as the positive impact of the macroeconomic environment, partially offset by incremental bad debt of$14 million . Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our Fleet revenues and operating income in the three months endedJune 30, 2022 over the comparable period in 2021 of approximately$26 million and$30 million , respectively. This impact was driven primarily by the favorable impact of fuel prices of approximately$32 million and favorable fuel price spreads of approximately$3 million , over the comparable prior period. These increases were partially offset by unfavorable changes in foreign exchange rates on revenues and operating income of approximately$9 million and$6 million , respectively, mostly in ourU.K. and European businesses. Corporate Payments Corporate Payments revenues were$189.7 million in the three months endedJune 30, 2022 , an increase of$49.3 million or 35.1%, from$140.4 million in the three months endedJune 30, 2021 . Corporate Payments operating income was$65.9 million in the three months endedJune 30, 2022 , an increase of$17.2 million , or 35.5%, from$48.6 million in the comparable prior period. Corporate Payments revenues and operating income increased primarily due to organic growth, with strong new sales across products offerings, as well as the impact of the AFEX acquisition, which were 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 our Corporate Payments revenues and operating income in the three months endedJune 30, 2022 over the comparable prior period of approximately$6 million and$2 million , respectively, driven primarily by unfavorable foreign exchange rates.
Lodging
Lodging revenues were$116.9 million in the three months endedJune 30, 2022 , an increase of$54.7 million or 87.8%, from$62.2 million in the three months endedJune 30, 2021 . Lodging operating income was$58.6 million in the three months endedJune 30, 2022 , an increase of$28.7 million , or 95.8%, from$29.9 million in the comparable prior period. Lodging revenues and operating income increased primarily due to organic growth driven in our workforce and airline verticals, as well as the impact of the ALE and Levarti acquisitions. Our workforce product has higher new sales and volumes, as our programs are viewed as more valuable as hotel costs are rising. Our airlines product also grew as travel recovery continues from the impact of COVID-19, as domestic travel volumes increased.
Brazil revenues were$111.8 million in the three months endedJune 30, 2022 , an increase of$26.2 million or 30.5%, from$85.7 million in three months endedJune 30, 2021 .Brazil operating income was$41.6 million in the three months endedJune 30, 2022 , an increase of$8.3 million , or 24.9%, from$33.3 million in the comparable prior period.Brazil revenues and operating income increased primarily due to organic growth driven by increases in toll tags sold and expanded product utility, with the differentiated value proposition of our products.Brazil revenues and operating income were also impacted by favorable changes in foreign exchange rates of approximately$8 million and$3 million , respectively, over the comparable prior period. These increases were partially offset by incremental investments in sales and processing expenses over the comparable prior period.
Other
Other revenues were$65.5 million in the three months endedJune 30, 2022 , an increase of$19.5 million or 42.4%, from$46.0 million in three months endedJune 30, 2021 . Other operating income was$17.7 million in the three months endedJune 30, 2022 , an increase of$4.5 million or 33.9%, from$13.2 million in the comparable prior period. Other revenues and operating income increased primarily due to organic growth driven by increases in transaction volumes and early retail ordering of gift cards, as retailers seek to ensure adequate card stock in advance of holiday season. 36
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Six months ended
The following table sets forth selected unaudited consolidated statements of income data for the six months endedJune 30, 2022 and 2021 (in millions, except percentages)*. Six Months Six Months Ended June 30, % of Total Ended June 30, % of Total Increase (Unaudited) 2022 Revenues, net 2021 Revenues, net (decrease) % Change Revenues, net: Fleet$ 729.0 44.2 %$ 628.1 49.2 %$ 100.9 16.1 % Corporate Payments 373.5 22.6 % 256.8 20.1 % 116.7 45.4 % Lodging 211.5 12.8 % 121.3 9.5 % 90.2 74.4 % Brazil 214.4 13.0 % 167.6 13.1 % 46.8 27.9 % Other 122.3 7.4 % 102.3 8.0 % 20.0 19.5 % Total revenues, net 1,650.5 100.0 % 1,276.0 100.0 % 374.5 29.4 % Consolidated operating expenses: Processing 359.8 21.8 % 238.7 18.7 % 121.1 50.7 % Selling 156.2 9.5 % 115.3 9.0 % 40.9 35.5 % General and administrative 291.0 17.6 % 223.4 17.5 % 67.6 30.3 % Depreciation and amortization 155.3 9.4 % 134.9 10.6 % 20.3 15.1 % Other operating, net 0.1 - % 0.1 - % - (2.5) % Operating income 688.2 41.7 % 563.6 44.2 % 124.6 22.1 % Investment loss 0.3 - % - - % 0.4 NM Other expense, net 4.4 0.3 % 2.2 0.2 % 2.3 106.1 % Interest expense, net 45.1 2.7 % 63.2 5.0 % (18.1) (28.7) % Provision for income taxes 158.2 9.6 % 117.7 9.2 % 40.5 34.4 % Net income$ 480.1 29.1 %$ 380.5 29.8 %$ 99.6 26.2 % Operating income by segment: Fleet$ 354.6 $ 319.6 $ 35.0 11.0 % Corporate Payments 124.1 93.0 31.1 33.4 % Lodging 98.3 54.8 43.6 79.5 % Brazil 78.9 65.6 13.4 20.4 % Other 32.2 30.6 1.6 5.2 % Total operating income$ 688.2 $ 563.6 $ 124.6 22.1 % NM = Not Meaningful
*The sum of the columns and rows may not calculate due to rounding.
Consolidated revenues, net
Consolidated revenues were$1,650.5 million , in the six months endedJune 30, 2022 , an increase of$374.5 million , or 29.4%, from$1,276.0 million in the six months ended 2021.Consolidated revenues increased primarily due to organic growth of 16% driven by increases in transaction volumes, the impact of acquisitions completed in 2021 and 2022 of approximately$103 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 six months endedJune 30, 2022 over the comparable period in 2021 of approximately$49 million , driven primarily by the favorable impact of fuel prices of approximately$55 million and favorable fuel price spreads of approximately$8 million . These increases were partially offset by unfavorable foreign exchange rates of approximately$14 million , mostly in ourU.K. and European businesses. 37 --------------------------------------------------------------------------------
Consolidated operating expenses
Processing. Processing expenses were$359.8 million in the six months endedJune 30, 2022 , an increase of$121.1 million , or 50.7%, from$238.7 million in the comparable prior period. Increases were primarily due to higher variable expenses driven by larger transaction volumes, incremental bad debt of approximately$43 million and approximately$32 million of expenses related to acquisitions completed in 2021 and 2022. Bad debt expense has increased as customer spend increased due to fuel prices, and as a result of strong new sales, which tend to have a higher loss rate. Selling. Selling expenses were$156.2 million in the six months endedJune 30, 2022 , an increase of$40.9 million , or 35.5%, from$115.3 million in the comparable prior period. Increases in selling expenses were primarily associated with higher commissions and other variable costs due to increased sales volumes in the first half of 2022 and approximately$14 million of expenses related to acquisitions completed in 2021 and 2022. General and administrative. General and administrative expenses were$291.0 million in the six months endedJune 30, 2022 , an increase of$67.6 million , or 30.3% from$223.4 million in the comparable prior period. The increases were primarily due to increased stock based compensation expense of$31 million , the impact of acquisitions completed in 2021 and 2022 of approximately$18 million , and various other increases associated with growth of business over comparable period.
Depreciation and amortization. Depreciation and amortization expenses were
Other expense, net. Other expense, net was$4.4 million in the six months endedJune 30, 2022 , an increase of$2.3 million from$2.2 million in the comparable prior period. Other expense increased due to a loss on the extinguishment of debt of$2 million resulting from our new Credit Facility. Interest expense, net. Interest expense, net was$45.1 million in the six months endedJune 30, 2022 , a decrease of$18.1 million , or 28.7%, from$63.2 million in the comparable prior period. The decrease in interest expense is primarily due to higher interest income earned on customer deposits, the benefit of higher cash balances in certain foreign jurisdictions and the effect of the$1 billion interest rate swap that matured inJanuary 2022 , partially offset by rising interest rates on borrowings. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the related unused facility fees and swaps. Six Months Ended June 30, (Unaudited) 2022 2021 Term loan A 1.98 % 1.62 % Term loan B 2.21 % 1.86 % Revolving line of credit A 1.98 % 1.62 % Revolving line of credit B GBP - % 1.52 % Foreign swing line 2.06 % 1.54 % 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 six months endedJune 30, 2022 , as a result of these swap contracts, we incurred additional interest expense of$13 million or 2.14% over the average LIBOR rates on$2 billion of borrowings fromJanuary 1, 2022 toJanuary 31, 2022 and$1 billion of borrowings fromJanuary 31 through June 30, 2022 . InJanuary 2022 ,$1.0 billion of our interest rate swaps matured. Provision for income taxes. The provision for income taxes and effective tax rate was$158.2 million and 24.8% in the six months endedJune 30, 2022 , an increase of$40.5 million , or 34.4% change, from$117.7 million and 23.6%, respectively, in the comparable prior period. The increase in the provision for income taxes for the six month period endingJune 30, 2022 over the comparable period in 2021 was primarily due to an increase in pre-tax earnings and less excess tax benefit on stock option exercises. The increases were partially offset by the determination that certain foreign income was permanently invested, resulting in a$9 million tax benefit that lowered the tax rate by 1.4%. Net income. For the reasons discussed above, our net income was$480.1 million in the six months endedJune 30, 2022 , an increase of$99.6 million , or 26.2% from$380.5 million in the six months ended 2021. Consolidated operating income. Operating income was$688.2 million in the six months endedJune 30, 2022 , an increase of$124.6 million , or 22.1%, from$563.6 million in the comparable prior period. The increase in operating income was primarily due to organic growth driven by increases in transaction volume, acquisitions completed in 2022 and 2021, the favorable impact of fuel prices of$55 million and the favorable fuel price spreads of approximately$8 million . The increase in operating income was partially offset by additional bad debt of approximately$43 million , stock compensation of$31 million and unfavorable movements in the foreign exchange rates of$9 million . 38
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Table of Contents Segment ResultsFleet Fleet revenues were$729.0 million in the six months endedJune 30, 2022 , an increase of$100.9 million , or 16.1%, from$628.1 million in the six months ended 2021. Fleet operating income was$354.6 million in the six months endedJune 30, 2022 , an increase of$35.0 million , or 11.0%, from$319.6 million in the comparable prior period. Fleet revenues and operating income increased primarily due to organic growth driven by increases in transaction volumes and new sales growth, as well as the positive impact of the macroeconomic environment, partially offset by incremental bad debt of$27 million . Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our Fleet revenues and operating income in the six months endedJune 30, 2022 over the comparable prior period of approximately$45 million and$51 million , respectively. This impact was driven primarily by the favorable impact of fuel prices of approximately$53 million and favorable fuel spread margins of approximately$8 million . These increases were partially offset by unfavorable changes in foreign exchange rates on revenues and operating income of$16 million and$10 million , mostly in ourU.K. and European businesses.
Corporate Payments
Corporate Payments revenues were$373.5 million in the six months endedJune 30, 2022 , an increase of$116.7 million or 45.4%, from$256.8 million in the six months ended 2021. Corporate Payments operating income was$124.1 million in the six months endedJune 30, 2022 , an increase$31.1 million , or 33.4%, from$93.0 million in the comparable prior period. Corporate Payments revenues and operating income increased primarily due to organic growth, with strong new sales across products, as well as the impact of the AFEX acquisition, which were partially offset by the unfavorable 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 our Corporate Payments revenues and operating income in the six months endedJune 30, 2022 over the comparable period in 2021 of approximately$8 million and$1 million , respectively, driven primarily by the unfavorable impact of foreign exchange rates. Lodging Lodging revenues were$211.5 million in the six months endedJune 30, 2022 , an increase of$90.2 million or 74.4%, from$121.3 million in the six months endedJune 30, 2021 . Lodging operating income was$98.3 million in the six months endedJune 30, 2022 , an increase$43.6 million , or 79.5%, from$54.8 million in the comparable prior period. Lodging revenues and operating income increased primarily due to increases in transaction volume driving organic growth, as well as the impact of the ALE and Levarti acquisitions. Organic growth was driven by higher new sales and volumes in our workforce lodging product and continued recovery from the impact of COVID-19 of our airline product, as domestic travel volumes increased.Brazil Brazil revenues were$214.4 million in the six months endedJune 30, 2022 , an increase of$46.8 million or 27.9%, from$167.6 million in six months endedJune 30, 2021 .Brazil operating income was$78.9 million in the six months endedJune 30, 2022 , an increase of$13.4 million , or 20.4%, from$65.6 million in the comparable prior period.Brazil revenues and operating income increased primarily due to organic growth driven by increases in toll tags sold and expanded product utility, with the differentiated value proposition of our products.Brazil revenues and operating income were also impacted by favorable changes in foreign exchange rates of approximately$13 million and$5 million , respectively, over the comparable prior period.
Other
Other revenues were$122.3 million in the six months endedJune 30, 2022 , an increase of$20.0 or 19.5%, from$102.3 million in six months endedJune 30, 2021 . Other operating income was$32.2 million in the six months endedJune 30, 2022 , an increase of$1.6 million or 5.2%, from$30.6 million in the comparable prior period. Other revenues and operating income increased primarily due to organic growth driven by increases in transaction volumes and early retail ordering of gift cards, as retailers seek to ensure adequate card stock in advance of holiday season.
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. AtJune 30, 2022 , we had approximately$2.5 billion in total liquidity, consisting of approximately$1.1 billion available under our Credit Facility (defined below) and unrestricted cash of$1.4 billion . Based on our assessment of the current capital market conditions and related impact on our access to cash, we have reclassified all cash held at our Russian businesses 39 -------------------------------------------------------------------------------- of$223 million to restricted cash as ofJune 30, 2022 . Restricted cash represents primarily customer deposits in our corporate payments businesses in theU.S. , cash held in our Russian business, 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 portion 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. AtJune 30, 2022 , 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 invested, 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. Furthermore, we cannot predict how and the extent to which the conflict betweenRussia andUkraine will affect our customers, operations or business partners or the demand for our products and our global business. Depending on the actions we take or are required to take, the ongoing conflict could also result in loss of cash flows, assets or impairment charges. The extent of the impact of these tragic events on our business remains uncertain and will continue to depend on numerous evolving factors that we are not able to accurately predict, including the duration and scope of the conflict. We will continue to monitor and assess the situation as circumstances evolve and to identify actions to potentially mitigate any unfavorable impacts on our future results.
Cash flows
The following table summarizes our cash flows for the six month periods endedJune 30 (in millions). Six Months Ended June 30, (Unaudited) 2022 2021 Net cash provided by operating activities$ 41.9 $ 356.4 Net cash used in investing activities$ (100.4) $ (163.0) Net cash provided by financing activities$ 122.4 $ 358.7 Operating activities. Net cash provided by operating activities was$41.9 million in the six months endedJune 30, 2022 , compared to$356.4 million in the comparable prior period. The decrease in operating cash flows was primarily due to unfavorable movements in working capital mostly due to the increase in fuel prices and volumes, as well as the timing of cash receipts and payments in the six months endedJune 30, 2022 over the comparable period in 2021. Investing activities. Net cash used in investing activities was$100.4 million in the six months endedJune 30, 2022 compared to$163.0 million in the six months endedJune 30, 2021 . The decreased use of cash was primarily due to lower cash used to fund acquisitions, partially offset by an increased investment in technology in the six months endedJune 30, 2022 over the comparable period in 2021. Financing activities. Net cash provided by financing activities was$122.4 million in the six months endedJune 30, 2022 , compared to$358.7 million in the six months endedJune 30, 2021 . The decrease in net cash provided by financing activities was primarily due to increased repurchases of common stock of$379 million , which was partially offset by an increase in net borrowings on our Securitization Facility of$182 million in the six months endedJune 30, 2022 over the comparable period in 2021.
Capital spending summary
Our capital expenditures were
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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$6.40 billion Credit Agreement (the "Credit Agreement"), withBank of America, N.A ., as administrative agent, swing line lender and letter of credit 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$1.5 billion , a term loan A facility in the amount of$3.0 billion and a term loan B facility in the amount of$1.9 billion as ofJune 30, 2022 . The revolving credit facility consists of (a) a revolving A credit facility in the amount of$1.0 billion , with sublimits for letters of credit and swing line loans and (b) a revolving B facility in the amount of$500 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. 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 3.75 to 1.00. Proceeds from the credit facilities may be used for working capital purposes, acquisitions, and other general corporate purposes. OnJune 24, 2022 , the Company entered into the twelfth amendment to the Credit Agreement, replacing the prior term loan A and revolving credit facility. The amendment increased the term loan A by$273 million and the revolving credit facility by$215 million . In addition, the amendment replaced LIBOR with Secured Overnight Financing Rate ("SOFR") plus a 10 basis point SOFR adjustment for the term loan A and revolving credit facility, improved margins and extended the maturity date. The maturity date for the term loan A and revolving credit facilities A and B isJune 24, 2027 . The term loan B has a maturity date ofApril 30, 2028 .
At
AtJune 30, 2022 , we had$3.0 billion in borrowings outstanding on the term loan A, net of discounts, and$1.9 billion in borrowings outstanding on the term loan B, net of discounts and debt issuance costs. We have unamortized debt issuance costs of$5.1 million related to the revolving facilities as ofJune 30, 2022 recorded within other assets in the Unaudited Consolidated Balance Sheet. We have unamortized debt discounts and debt issuance costs of$25.9 million related to our term loans atJune 30, 2022 .
During the six months ended
As of
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. The$1.0 billion interest rate swap matured inJanuary 2022 . We reclassified approximately$12.7 million of losses from accumulated other comprehensive income into interest expense during the six months endedJune 30, 2022 as a result of these hedging instruments.
Securitization Facility
We are party to a$1.6 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. OnMarch 23, 2022 , we entered into the tenth amendment to the Securitization Facility. The amendment increased the Securitization Facility commitment from$1.3 billion to$1.6 billion and replaced LIBOR with SOFR plus a SOFR adjustment of 0.10%. 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 of
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 . OnJanuary 25, 2022 , the Board increased the aggregate size of the Program by$1.0 billion , to$6.1 billion . Since the beginning of the Program throughJune 30, 2022 , 23,467,105 shares have been repurchased for an aggregate purchase price of$5.2 billion , leaving the 41 --------------------------------------------------------------------------------
Company up to
Subsequent toJune 30, 2022 , the Company repurchased 931,266 shares for an aggregate purchase price of$200.3 million , pursuant to a 10b5-1 plan. As ofAugust 9, 2022 , the Company has up to$655.3 million available under the Program for future repurchases 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.
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 endedJune 30, 2022 , 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, 2021 . 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, 2021 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 . 42
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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 June 30, Three Months Ended June 30,
(Unaudited) 2022 2021 2022 2021
FUEL - TRANSACTIONS
Pro forma and macro adjusted $ 317.3 $ 295.2 122.5 119.8
Impact of acquisitions/dispositions - (0.1) - (1.5)
Impact of fuel prices/spread 35.2 - - -
Impact of foreign exchange rates (5.7) - - -
As reported $ 346.9 $ 295.1 122.5 118.3
CORPORATE PAYMENTS - SPEND
Pro forma and macro adjusted $ 195.2 $ 164.8 $ 28,836 $ 27,549
Impact of acquisitions/dispositions - (24.4) - (4,546)
Impact of fuel prices/spread 0.7 - - -
Impact of foreign exchange rates (6.2) - - -
As reported $ 189.7 $ 140.4 $ 28,836 $ 23,002
TOLLS - TAGS
Pro forma and macro adjusted $ 84.5 $ 71.3 6.1 5.8
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates 6.7 - - -
As reported $ 91.2 $ 71.3 6.1 5.8
LODGING - ROOM NIGHTS
Pro forma and macro adjusted $ 117.2 $ 82.7 9.5 8.2
Impact of acquisitions/dispositions - (20.5) - (1.6)
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates (0.3) - - -
As reported $ 116.9 $ 62.2 9.5 6.6
GIFT - TRANSACTIONS
Pro forma and macro adjusted $ 52.5 $ 32.3 287.5 259.4
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates (0.8) - - -
As reported $ 51.7 $ 32.3 287.5 259.4
OTHER1- TRANSACTIONS
Pro forma and macro adjusted $ 66.7 $ 66.0 10.2 9.3
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates (1.7) - - -
As reported $ 65.0 $ 66.0 10.2 9.3
FLEETCOR CONSOLIDATED REVENUES, NET
Pro forma and macro adjusted $ 833.4 $ 712.3
Impact of acquisitions/dispositions -
(45.0)
Impact of fuel prices/spread2 35.9 - Intentionally Left Blank Impact of foreign exchange rates2 (8.0)
-
As reported$ 861.3 $
667.4
* Columns may not calculate due to rounding. 1 Other includes telematics, maintenance, food, payroll card and transportation card related businesses. 2 Revenues reflect an estimated$33 million positive impact from fuel prices and approximately$3 million positive impact from fuel price spreads, partially offset by the negative impact of movements in foreign exchange rates of approximately$8 million . 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 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. 43 -------------------------------------------------------------------------------- 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, discrete tax items, 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 using the effective tax rate during the period, exclusive of discrete 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 shares and per
share amounts)*:
Three Months Ended June 30, Six Months Ended June 30,
(Unaudited) 2022 2021 2022 2021
Net income $ 262,171 $ 196,247 $ 480,123 $ 380,486
Net income per diluted share $ 3.35 $ 2.30 $ 6.10 $ 4.45
Stock-based compensation 34,017 17,885 66,648 35,632
Amortization1 57,994 52,525 115,624 102,101
Integration and deal related costs 2,957 7,823 9,210 11,493
Legal settlements/litigation 1,467 1,388 1,902 5,058
Restructuring and related costs 763 (777) 763 (1,363)
Loss on extinguishment of debt 1,934 6,230 1,934 6,230
Total pre-tax adjustments 99,132 85,074 196,081 159,151
Income taxes2 (35,164) (12,910) (60,405) (29,079)
Adjusted net income $
326,139
$ 4.17 $ 3.15 $ 7.82 $ 5.97
Diluted shares 78,239 85,295 78,762 85,528
1 Includes amortization related to intangible assets, premium on receivables, deferred financing costs and debt discounts.
2 Includes$9 million adjustment for tax benefit of certain income determined to be permanently invested in 2Q 2022. *Columns may not calculate due to rounding. 44
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Table of Contents
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, 2021 filed with theSecurities and Exchange Commission onMarch 1, 2022 , 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 the coronavirus (COVID-19) or new outbreaks thereof, including inChina , including the potential impact of vaccination mandates in certain jurisdictions; •the impact of macroeconomic conditions and the current inflationary environment and whether expected trends, including retail fuel prices, fuel price spreads, fuel transaction patterns, electric vehicle, and retail lodging price trends develop as anticipated and we are able to develop successful strategies in light of these trends; •the international operational and political risks and compliance and regulatory risks and costs associated with international operations, including the impact of the conflict betweenRussia andUkraine on our business and operations;
•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 products, 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;
•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 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
45
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•the other factors and information in our Annual Report on Form 10-K and other
filings that we make with the Securities and Exchange Commission (SEC) under the
Exchange Act and Securities Act. See "Risk Factors" in our Annual Report on Form
10-K for the year ended December 31, 2021 filed with the Securities and Exchange
Commission on March 1, 2022 .
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.
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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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