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, 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 first quarter 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 first quarter 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 endedMarch 31, 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 (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The pandemic and these containment and mitigation measures have created adverse impacts on theU.S. and global economies and it is unclear whether or how long the pandemic and related economic impacts will continue, whether as a result of new strains of the virus or otherwise. 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, 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, in particular, by restricting day-to-day operations and business activity generally. The extent to which the COVID-19 pandemic impacts our business operations, financial results, and liquidity through the remainder of 2021 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; 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. While we believe the COVID-19 pandemic will continue to have an adverse effect on our revenues and earnings in 2021, we expect continued improvement throughout the year as economic activity recovers. 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 months endedMarch 31, 2021 and 2020 (in millions, except per share amounts). 24
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Three Months Ended March 31,
(Unaudited) 2021 2020
Revenues, net $ 608.6 $ 661.1
Net income $ 184.2 $ 147.1
Net income per diluted share $ 2.15 Adjusted Net Income and Adjusted Net Income Per Diluted Share. Set forth below are adjusted net income and adjusted net income per diluted share for the three months endedMarch 31, 2021 and 2020 (in millions, except per share amounts). Three Months Ended March 31, (Unaudited) 2021 2020 Adjusted net income$ 242.1 $ 264.5 Adjusted net income per diluted share $ 2.82$ 3.00 Adjusted net income and adjusted net income per diluted share are supplemental non-GAAP financial measures of operating performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures" for more information and a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP. We use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis. Sources of RevenueFLEETCOR offers a variety of business payment solutions that help to simplify, automate, secure, digitize and effectively control the way businesses manage and pay their expenses. We provide our payment solutions to our business, merchant, consumer and payment network customers in more than 100 countries around the world today, although we operate primarily in 3 geographies, with 86% of our business 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 months ended
Three Months Ended March 31,
2021 2020
% of Total % of Total
(Unaudited)* Revenues, net Revenues, net Revenues, net Revenues, net
North America $ 402 66 % $ 435 66 %
Brazil $ 82 13 % $ 99 15 %
International $ 124 20 % $ 127 19 %
$ 609 100 % $ 661 100 %
*Columns may not calculate due to rounding.
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Revenues, net by Geography and Solution. Revenue by geography and solution
category for the three months ended
Three Months Ended March 31,
Revenues, net by Geography* 2021 2020
% of Total % of Total
(Unaudited) Revenues, net Revenues, net Revenues, net Revenues, net
United States $ 370 61 % $ 398 60 %
Brazil 82 13 % 99 15 %
United Kingdom 76 12 % 74 11 %
Other 81 13 % 91 14 %
Consolidated revenues, net $ 609 100 % 661 100 %
*Columns may not calculate due to rounding.
Three Months Ended March 31,
Revenues, net by Solution
Category* 2021 2020
% of Total
(Unaudited) Revenues, net % of Total Revenues, net Revenues, net Revenues, net
Fuel $ 262 43 % $ 292 44 %
Corporate Payments $ 116 19 % 120 18 %
Tolls $ 69 11 % 83 13 %
Lodging $ 59 10 % 57 9 %
Gift $ 43 7 % 42 6 %
Other $ 59 10 % 67 10 %
Consolidated revenues, net $ 609 100 % $ 661 100 %
*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 endedMarch 31, 2021 and 2020 (in millions except revenues, net per key performance metric).* As Reported Pro Forma and Macro Adjusted2 Three Months Ended March 31, Three Months Ended March 31, (Unaudited) 2021 2020 Change % Change 2021 2020 Change % Change FUEL '- Revenues, net$ 261.9 $ 292.1 $ (30.2) (10) %$ 275.3 $ 292.6 $ (17.3) (6) % '- Transactions 110.3 118.4 (8.2) (7) % 110.3 118.7 (8.5) (7) % '- Revenues, net per transaction$ 2.38 $ 2.47 $ (0.09) (4) %$ 2.50 $ 2.46 $ 0.03 1 % CORPORATE PAYMENTS '- Revenues, net$ 116.4 $ 119.9 $ (3.5) (3) %$ 114.1 $ 120.1 $ (6.0) (5) % '- Spend volume$ 18,034 $ 17,916 $ 118 1 %$ 18,032 $ 17,916 $ 115 1 % '- Revenue, net per spend $ 0.65 % 0.67 % (0.02) % (4) % 0.63 % 0.67 % (0.04) % (6) % TOLLS '- Revenues, net$ 69.0 $ 83.0 $ (14.0) (17) %$ 85.2 $ 83.0 $ 2.2 3 % '- Tags (average monthly) 5.8 5.4 0.4 7 % 5.8 5.4 0.4 7 % '- Revenues, net per tag$ 11.85 $ 15.28 $ (3.43) (22) %$ 14.63 $ 15.28 $ (0.65) (4) % LODGING '- Revenues, net$ 59.0 $ 57.0 $ 2.0 4 %$ 59.0 $ 68.5 $ (9.5) (14) % '- Room nights 5.9 5.9 - 1 % 5.9 7.1 (1.2) (16) % '- Revenues, net per room night$ 9.96 $ 9.68 $ 0.28 3 %$ 9.96 $ 9.67 $ 0.29 3 % GIFT '- Revenues, net$ 43.4 $ 42.4 $ 1.0 2 %$ 43.4 $ 42.4 $ 1.0 2 % '- Transactions 291.1 281.9 9.2 3 % 291.1 281.9 9.2 3 % '- Revenues, net per transaction$ 0.15 $ 0.15 $ - (1) %$ 0.15 $ 0.15 $ - (1) % OTHER1 '- Revenues, net$ 58.9 $ 66.7 $ (7.8) (12) %$ 58.9 $ 66.7 $ (7.8) (12) % '- Transactions 9.5 12.0 (2.5) (21) % 9.5 12.0 (2.5) (21) % '- Revenues, net per transaction$ 6.23 $ 5.58 $ 0.65 12 %$ 6.23 $ 5.58 $ 0.65 12 % FLEETCOR CONSOLIDATED REVENUES, NET '- Revenues, net$ 608.6 $ 661.1 $ (52.5) (8) %$ 635.9 $ 673.2 $ (37.3) (6) % 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 spread margins. Revenue per KPI per customer may change as the level of services we provide to a customer increases or decreases, as macroeconomic factors change and as adjustments are made to merchant and customer rates. See "Results of Operations" for further discussion of transaction volumes and revenue per transaction. 27
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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 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 (gain) loss, 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 61% and 60% of our revenue in the three months endedMarch 31, 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 endedMarch 31, 2021 and 2020, respectively. 28
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•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 8% of revenues, net were directly impacted by fuel price spreads in the three months endedMarch 31, 2021 and 2020, respectively. •Acquisitions-Since 2002, we have completed over 80 acquisitions of companies and commercial account portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. The impact of acquisitions has, and may continue to have, a significant impact on our results of operations and may make it difficult to compare our results between periods. •Interest rates-Our results of operations are affected by interest rates. We are exposed to market risk 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 OnJanuary 13, 2021 , we completed the acquisition of Roger, rebranded CorpayOne, a global accounts payable (AP) cloud software platform for small businesses, for approximately$39 million . This acquisition is not expected to be material to the financial results of the Company. OnNovember 30, 2020 , we completed the acquisition of a fuel card provider inNew Zealand for an immaterial amount. OnSeptember 17, 2020 , we signed a definitive agreement to acquire Associated Foreign Exchange (AFEX), aU.S. based, cross-border payment solutions provider, for approximately$450 million . The transaction is expected to close late in the second quarter of 2021, subject to regulatory approval and closing conditions. OnAugust 10, 2020 , we completed the acquisition of a business in the lodging space in theU.S. for an immaterial amount. We report our results from our 2021 and 2020 U.S. acquisitions in ourNorth America segment from the dates of acquisition. We report our results from our 2020 New Zealand acquisition in our International segment from the date of acquisition. 29
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Results of Operations Three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 The following table sets forth selected unaudited consolidated statements of income and selected operational data for the three months endedMarch 31, 2021 and 2020 (in millions, except percentages)*. Three Months Ended % of Total Three Months Ended % of Total
Increase
(Unaudited) March 31, 2021 Revenues, net March 31, 2020 Revenues, net (decrease) % Change Revenues, net: North America$ 402.2 66.1 %$ 434.7 65.8 %$ (32.5) (7.5) % Brazil 81.9 13.5 % 99.0 15.0 % (17.1) (17.2) % International 124.5 20.5 % 127.4 19.3 % (2.9) (2.3) % Total revenues, net 608.6 100.0 % 661.1 100.0 % (52.5) (7.9) % Consolidated operating expenses: Processing 116.4 19.1 % 233.7 35.4 % (117.3) (50.2) % Selling 52.1 8.6 % 55.9 8.4 % (3.8) (6.8) % General and administrative 108.4 17.8 % 106.1 16.1 % 2.3 2.1 % Depreciation and amortization 65.7 10.8 % 64.5 9.8 % 1.3 1.9 % Other operating, net 0.1 - % - - % (0.1) NM Operating income 266.0 43.7 % 201.0 30.4 % 65.0 32.3 % Investment loss - - % 2.4 0.4 % (2.4) NM Other expense (income), net 1.7 0.3 % (9.4) (1.4) % (11.1) NM Interest expense, net 28.6 4.7 % 35.7 5.4 % (7.1) (20.0) % Provision for income taxes 51.4 8.5 % 25.2 3.8 % 26.2 103.8 % Net income$ 184.2 30.3 %$ 147.1 22.2 %$ 37.2 25.3 % Operating income for segments: North America$ 162.6 $ 85.7 $ 76.8 89.6 % Brazil 32.2 39.4 (7.2) (18.3) % International 71.2 75.8 (4.6) (6.1) % Operating income$ 266.0 $ 201.0 $ 65.0 32.3 %
Operating margin for segments: North America 40.4 % 19.7 % 20.7 % Brazil 39.3 % 39.8 % (0.5) % International 57.2 % 59.5 % (2.3) % Consolidated 43.7 % 30.4 % 13.3 % NM = Not Meaningful *The sum of the columns and rows may not calculate due to rounding. Revenues, net Consolidated revenues were$608.6 million in the three months endedMarch 31, 2021 , a decrease of$52.5 million or 7.9%, from$661.1 million in the three months endedMarch 31, 2020 . Consolidated revenues and organic growth declined primarily due to decreases in transaction volume as a result of the COVID-19 pandemic. Organically, consolidated revenues were down approximately 6%. Consolidated revenues also declined due to the negative impact of the macroeconomic environment. These decreases were partially offset by the impact of acquisitions completed in 2020 of approximately$12 million . Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our consolidated revenues for the three months endedMarch 31, 2021 over the comparable period in 2020 of approximately$27 million . Unfavorable fuel price spreads had a negative impact on revenues of approximately$16 million , and foreign exchange rates had an unfavorable impact on consolidated revenues of approximately$11 million , primarily inBrazil andRussia . These decreases were partially offset by a slightly favorable impact of fuel prices. 30
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North America segment revenues, netNorth America segment revenues were$402.2 million in the three months endedMarch 31, 2021 , a decrease of$32.5 million or 7.5%, from$434.7 million in the three months endedMarch 31, 2020 .North America revenues and organic growth declined primarily due to decreases in transaction volume as a result of the COVID-19 pandemic. Organically,North America segment revenues were down approximately 7%.North America revenues also declined due to the negative impact of the macroeconomic environment. These decreases were partially offset by the impact of acquisitions completed in 2020 of approximately$12 million . 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 three months endedMarch 31, 2021 over the comparable period in 2020 of approximately$13 million , driven primarily by unfavorable fuel price spreads of approximately$16 million . This decrease was partially offset by favorable changes in foreign exchange rates of approximately$2 million in our Canadian business and the favorable impact of fuel prices of approximately$1 million .Brazil segment revenues, netBrazil segment revenues were$81.9 million in the three months endedMarch 31, 2021 , a decrease of$17.1 million or 17.2%, from$99.0 million in three months endedMarch 31, 2020 .Brazil revenues declined primarily due to the unfavorable impact of foreign exchange rates of approximately$19 million for the three months endedMarch 31, 2021 over the comparable period in 2019. These decreases were partially offset by organic growth inBrazil segment revenues of approximately 2%, which continues to be negatively impacted by the COVID-19 pandemic. International segment revenues, net International segment revenues were$124.5 million in the three months endedMarch 31, 2021 , a decrease of$2.9 million or 2.3%, from$127.4 million in the three months endedMarch 31, 2020 . International revenues declined primarily due to decreases in transaction volume as a result of the COVID-19 pandemic. Organically, International segment revenues were down approximately 7%. 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 endedMarch 31, 2021 over the comparable period in 2020 of approximately$5 million , driven primarily by favorable foreign exchange rates. Consolidated operating expenses Processing. Processing expenses were$116.4 million in the three months endedMarch 31, 2021 , a decrease of$117.3 million or 50.2%, from$233.7 million in the comparable prior period. Decreases in processing expenses were primarily due to a write-off of a customer receivable in our cross-border payments business of approximately$90 million in the first quarter of 2020, a$6 million bad debt recovery in 2021, the favorable impact of changes in foreign exchange rates of approximately$4 million , lower variable costs due to reduced volumes and expense reductions in response to the COVID-19 pandemic. These decreases were partially offset by expenses related to acquisitions completed in 2020 of approximately$3 million . Selling. Selling expenses were$52.1 million in the three months endedMarch 31, 2021 , a decrease of$3.8 million or 6.8%, from$55.9 million in the comparable prior period. Decreases in selling expenses were primarily due to lower commissions and other variable costs due to reduced sales volumes in prior quarters and the favorable impact of fluctuations in foreign exchange rates of approximately$1 million . These decreases were partially offset by expenses related to acquisitions completed in 2020 of approximately$1 million . General and administrative. General and administrative expenses were$108.4 million in the three months endedMarch 31, 2021 , an increase of$2.3 million or 2.1% from$106.1 million in the comparable prior period. Increases in general and administrative expenses were primarily due to increased professional fees of$4 million , increased stock based compensation expense of$2 million , and the impact of acquisitions completed in 2020 of approximately$2 million . These increases were partially offset by decreased discretionary spending and the favorable impact of fluctuations in foreign exchange rates of approximately$1 million . Depreciation and amortization. Depreciation and amortization expenses were$65.7 million in the three months endedMarch 31, 2021 , an increase of$1.3 million or 1.9%, from$64.5 million . Increases in depreciation and amortization expenses were primarily due to expenses related to acquisitions completed in 2020 of approximately$2 million , partially offset by the favorable impact of fluctuations in foreign exchange rates of approximately$2 million . Investment loss. Investment loss of$2.4 million in the three months endedMarch 31, 2020 relates to market value gains and losses recorded each period on an investment in a trading security, which we sold during the third quarter of 2020. 31
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Other expense (income), net. Other income, net was$9.4 million in the three months endedMarch 31, 2020 , primarily resulting from a$7 million favorable purchase price settlement from ourCambridge acquisition. Interest expense, net. Interest expense, net was$28.6 million in the three months endedMarch 31, 2021 , a decrease of$7.1 million or 20.0%, from$35.7 million in the comparable prior period. The decrease in interest expense was primarily due to decreases in LIBOR and lower borrowings, partially offset by the impact of additional borrowings on our 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 March 31, (Unaudited) 2021 2020 Term loan A 1.63 % 3.00 % Term loan B 1.88 % 3.42 % Revolving line of credit A, B & C USD Borrowings 1.62 % 2.92 % Revolving line of credit B GBP Borrowings 1.52 % 2.00 % Foreign swing line 1.54 % 1.88 % There were no borrowings on the revolving D facility in 2020. The average unused facility fee for the Credit Facility excluding the revolving D facility was 0.30% in the three month period endedMarch 31, 2021 . OnAugust 20, 2020 , we terminated the revolving D facility. 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 endedMarch 31, 2021 , as a result of these swap contracts, we incurred additional interest expense of$12.1 million or 2.43% over the average LIBOR rates on$2 billion of borrowings. Provision for income taxes. The provision for income taxes and effective tax rate were$51.4 million and 21.8%, respectively, in the three months endedMarch 31, 2021 , an increase of$26.2 million from$25.2 million and 19.0%, respectively, in the three months endedMarch 31, 2020 . Excluding the impact of the write-off of a customer receivable in our cross-border payments business in the first quarter of 2020, our effective tax rate was 18.9% for the first quarter of 2020 compared to 21.8% in the first quarter of 2021. The increase in the tax rate was primarily due to less compensation expense booked for tax purposes on employee stock option exercises in the three months endingMarch 31, 2021 over the comparable period in 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. We pay taxes in different taxing jurisdictions, including the US, most US states, and many non-US jurisdictions. The tax rates in certain non-US taxing jurisdictions are different than the US 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$184.2 million in the three months endedMarch 31, 2021 , an increase of$37.2 million or 25.3%, from$147.1 million in the three months endedMarch 31, 2020 . Operating income and operating margin Consolidated operating income. Operating income was$266.0 million in the three months endedMarch 31, 2021 , an increase of$65.0 million or 32.3%, from$201.0 million in the comparable prior period. Our operating margin was 43.7% and 30.4% for the three months endedMarch 31, 2021 and 2020, respectively. These increases were driven primarily by the write-off of a customer receivable in our cross-border payments business of approximately$90 million in the first quarter of 2020. These increases were partially offset by incremental legal expenses, including legal settlements, of$10 million , unfavorable movements in the foreign exchange rates of$4 million , unfavorable fuel price spreads of approximately$16 million , and the continued impact of the COVID-19 pandemic 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.
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operating margin was 40.4% and 19.7% for the three months endedMarch 31, 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. These increases were partially offset by incremental legal expenses, including legal settlements, of$10 million , unfavorable fuel price spreads of approximately$16 million , and the continued impact of the COVID-19 pandemic.Brazil segment operating income.Brazil operating income was$32.2 million in the three months endedMarch 31, 2021 , a decrease of$7.2 million or 18.3%, from$39.4 million in the comparable prior period.Brazil operating margin was 39.3% and 39.8% for the three months endedMarch 31, 2021 and 2020, respectively. These decreases were primarily driven by the unfavorable impact of foreign exchange rates of$8 million , partially offset by organic growth inBrazil segment revenues of approximately 2% and the continued impact of the COVID-19 pandemic. International segment operating income. International operating income was$71.2 million in the three months endedMarch 31, 2021 , a decrease of$4.6 million or 6.1%, from$75.8 million in the comparable prior period. International operating margin was 57.2% and 59.5% for the three months endedMarch 31, 2021 and 2020, respectively. These decreases were driven primarily by decreases in volume as a result of the COVID-19 pandemic. These decreases were partially offset by favorable foreign exchange rates of approximately$3 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. AtMarch 31, 2021 , we had approximately$1.96 billion in total liquidity, consisting of approximately$998 million available under our Credit Facility (defined below) and unrestricted cash of$958 million . 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. AtMarch 31, 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. 33
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Cash flows The following table summarizes our cash flows for the three month periods endedMarch 31, 2021 and 2020 (in millions). Three Months Ended March 31, (Unaudited) 2021 2020 Net cash provided by operating activities $ 77.9
Net cash used in investing activities (63.2)
(18.7)
Net cash used in financing activities (16.6)
(314.5)
Operating activities. Net cash provided by operating activities was$77.9 million in the three months endedMarch 31, 2021 , a decrease from$420.0 million 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 three months endedMarch 31, 2021 over the comparable period in 2020. Investing activities. Net cash used in investing activities was$63.2 million in the three months endedMarch 31, 2021 compared to$18.7 million in the three months endedMarch 31, 2020 . The increased use of cash was primarily due to the increase in cash paid for acquisitions in the three months endedMarch 31, 2021 over the comparable period in 2020. Financing activities. Net cash used in financing activities was$16.6 million in the three months endedMarch 31, 2021 , compared to$314.5 million in the three months endedMarch 31, 2020 . The decreased use of cash was primarily due to a decrease in repurchases of our common stock of$368 million and decreased net borrowings on our Credit Facility of$393 million , partially offset by increased net borrowings on our Securitization Facility of$367 million , each in the three months endedMarch 31, 2021 over the comparable period in 2020. Capital spending summary Our capital expenditures were$19.5 million in the three months endedMarch 31, 2021 , an increase of$1.3 million or 7.0%, from$18.3 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$4.86 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$350 million as ofMarch 31, 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 for 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 . As ofMarch 31, 2021 , the maturity date for the term loan B wasAugust 2, 2024 . 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. 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. 34
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AtMarch 31, 2021 , the interest rate on the term loan A was 1.61%, the interest rate on the term loan B was 1.86% and the interest rate on the revolving A facility was 1.61%. The unused credit facility fee was 0.30% atMarch 31, 2021 . AtMarch 31, 2021 , we had$2.9 billion in borrowings outstanding on the term loan A, net of discounts, and$336.6 million in borrowings outstanding on the term loan B, net of discounts. We have unamortized debt issuance costs of$4.6 million related to the revolving facilities as ofMarch 31, 2021 recorded within other assets in the Unaudited Consolidated Balance Sheet. We have unamortized debt discounts and debt issuance costs related to the term loans of$6.4 million and$0.8 million atMarch 31, 2021 , respectively. During the three months endedMarch 31, 2021 , we made principal payments of$41 million on the term loans,$354 million on the revolving facilities, and$34 million on the swing line revolving facility. As ofMarch 31, 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$12.1 million of losses from accumulated other comprehensive income into interest expense during the three months endedMarch 31, 2021 as a result of these hedging instruments. Securitization Facility We are party to a$1.0 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. OnApril 24, 2020 , we reduced our Securitization Facility commitment from$1.2 billion to$1.0 billion . 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 . 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 ofMarch 31, 2021 . Stock Repurchase Program The Company's Board of Directors has approved a stock repurchase program (as updated from time to time, the "Program"), authorizing the Company to repurchase its common stock from time to time untilFebruary 1, 2023 . OnOctober 22, 2020 , our Board increased the aggregate size of the Program by$1 billion , to$4.1 billion . Since the beginning of the Program, 15,257,675 shares have been repurchased for an aggregate purchase price of$3.3 billion , leaving the Company up to$836.3 million 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. Pending Acquisition OnSeptember 17, 2020 , we signed a definitive agreement to acquire Associated Foreign Exchange (AFEX), aU.S. based, cross-border payment solutions provider, for approximately$450 million . The transaction is expected to close late in the second quarter of 2021, subject to regulatory approval and closing conditions. 35
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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 endedMarch 31, 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 . 36
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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 March 31, Three Months Ended March 31,
(Unaudited) 2021* 2020* 2021* 2020*
FUEL - TRANSACTIONS
Pro forma and macro adjusted $ 275.3 $ 292.6 110.3 118.7
Impact of acquisitions/dispositions - (0.5) - (0.3)
Impact of fuel prices/spread (15.8) - - -
Impact of foreign exchange rates 2.5 - - -
As reported $ 261.9 $ 292.1 110.3 118.4
CORPORATE PAYMENTS - SPEND
Pro forma and macro adjusted $ 114.1 $ 120.1 18,032 17,916
Impact of acquisitions/dispositions - (0.1) - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates 2.2 - 2 -
As reported $ 116.4 $ 119.9 18,034 17,916
TOLLS - TAGS
Pro forma and macro adjusted $ 85.2 $ 83.0 5.8 5.4
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates (16.2) - - -
As reported $ 69.0 $ 83.0 5.8 5.4
LODGING - ROOM NIGHTS
Pro forma and macro adjusted $ 59.0 $ 68.5 5.9 7.1
Impact of acquisitions/dispositions - (11.5) - (1.2)
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates - - - -
As reported $ 59.0 $ 57.0 5.9 5.9
GIFT - TRANSACTIONS
Pro forma and macro adjusted $ 43.4 $ 42.4 291.1 281.9
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates - - - -
As reported $ 43.4 $ 42.4 291.1 281.9
OTHER1- TRANSACTIONS
Pro forma and macro adjusted $ 58.9 $ 66.7 9.5 12.0
Impact of acquisitions/dispositions - - - -
Impact of fuel prices/spread - - - -
Impact of foreign exchange rates - - - -
As reported $ 58.9 $ 66.7 9.5 12.0
FLEETCOR CONSOLIDATED REVENUES
Pro forma and macro adjusted $ 635.9 $ 673.2
Impact of acquisitions/dispositions -
(12.1)
Impact of fuel prices/spread (15.8) - Intentionally Left Blank Impact of foreign exchange rates (11.4)
-
As reported$ 608.6 $
661.1
* Columns may not calculate due to rounding. 1Other includes telematics, maintenance, food, transportation and payroll card related businesses.
Adjusted net income and adjusted net income per diluted share. We have defined
the non-GAAP measure adjusted net income as net income as reflected in our
Statement of Income, adjusted to eliminate (a) non-cash stock based compensation
expense related to share based compensation awards, (b) amortization of deferred
financing costs, discounts and intangible assets, 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 due to COVID-19, the impact of discrete tax items,
impairment charges, asset write-offs, restructuring costs, gains due to
disposition of assets and a business, loss on extinguishment of debt, and legal
settlements.
We have defined the non-GAAP measure adjusted net income per diluted share as
the calculation previously noted divided by the weighted average diluted shares
outstanding as reflected in our statement of income.
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We use adjusted net income to eliminate the effect of items that we do not consider indicative of our core operating performance. We believe it is useful to exclude non-cash stock based compensation expense from adjusted net income because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time and stock based compensation expense is not a key measure of our core operating performance. We also believe that amortization expense can vary substantially from company to company and from period to period depending upon their financing and accounting methods, the fair value and average expected life of their acquired intangible assets, their capital structures and the method by which their assets were acquired; therefore, we have excluded amortization expense from our adjusted net income. We also believe that integration and deal related costs and one-time nonrecurring expenses, gains, losses, 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. 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 flows from operations, as determined byU.S. generally accepted accounting principles, orU.S. GAAP. Adjusted net income and adjusted net income per diluted share are not intended to be a substitute for GAAP financial measures and should not be considered as an alternative to net income or cash flow from operations, as determined byU.S. GAAP, and our calculation thereof may not be comparable to that reported by other companies. 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 comparableU.S. GAAP measure, net income and net income per diluted share (in thousands, except per share amounts)*: Three Months Ended March 31, (Unaudited) 2021 2020 Net income$ 184,239 $ 147,060 Net income per diluted share $ 2.15$ 1.67 Stock based compensation 17,747 14,175 Amortization of intangible assets, premium on receivables, deferred financing costs and discounts 49,576 50,042 Investment (gain) loss (9) 2,371 Integration and deal related costs1 3,670 3,365 Restructuring and related costs (577) - Legal settlements/litigation 3,670 (5,981) Write-off of customer receivable2 - 90,058 Total pre-tax adjustments 74,077 154,030
Income tax impact of pre-tax adjustments at the effective tax rate
(16,169) (36,595)
Adjusted net income $ 242,148 $ 264,495
Adjusted net income per diluted share $ 2.82 $ 3.00
Diluted shares 85,764 88,205
1 Integration and deal related costs represent expenses related to acquisitions incurred
in the reporting period.
2 Represents a bad debt 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.
*Columns may not calculate due to rounding.
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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 the coronavirus (COVID-19); •the impact of macroeconomic conditions and whether expected trends, including 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. 39
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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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