|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. See “Special Cautionary Notice Regarding Forward-Looking Statements”. All foreign currency amounts that have been converted into U.S. dollars in this discussion are based on the exchange rate as reported by OANDA for the applicable periods.
This management’s discussion and analysis should also be read in conjunction with the management’s discussion and analysis and consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
General Business
Fleetcor is a leading global provider of commercial payment solutions. We primarily go to market with our fuel card payments product solutions, corporate payments products, toll products, lodging cards and gift cards. Our products are used in 53 countries around the world, with our primary geographies in the U.S., Brazil and the U.K., which accounted for approximately 92% of our revenue in 2016. Our core products are primarily sold to businesses, retailers, major oil companies and marketers and government entities. Our payment programs enable our customers to better manage and control their commercial payments, card programs, and employee spending and provide card-accepting merchants with a high volume customer base that can increase their sales and customer loyalty. We also provide a suite of fleet related and workforce payment solution products, including mobile telematics services, fleet maintenance management and employee benefit and transportation related payments. In 2016, we processed approximately 2.2 billion transactions on our proprietary networks and third-party networks (which includes approximately 1.3 billion transactions related to our SVS product, acquired with Comdata). We believe that our size and scale, geographic reach, advanced technology and our expansive suite of products, services, brands and proprietary networks contribute to our leading industry position.
We provide our payment products and services in a variety of combinations to create customized payment solutions for our customers and partners. We collectively refer to our suite of product offerings as workforce productivity enhancement products for commercial businesses. We sell a range of customized fleet and lodging payment programs directly and indirectly to our customers through partners, such as major oil companies, leasing companies and petroleum marketers. We refer to these major oil companies, leasing companies, petroleum marketers, value-added resellers (VARs) and other referral partners with whom we have strategic relationships as our “partners.” We provide our customers with various card products that typically function like a charge card to purchase fuel, lodging, food, toll, transportation and related products and services at participating locations. While we refer to companies with whom we have strategic relationships as "partners", our legal relationships with these companies are contractual, and do not constitute legal partnerships.
We support our products with specialized issuing, processing and information services that enable us to manage card accounts, facilitate the routing, authorization, clearing and settlement of transactions, and provide value-added functionality and data, including customizable card-level controls and productivity analysis tools. In order to deliver our payment programs and services and process transactions, we own and operate proprietary “closed-loop” networks through which we electronically connect to merchants and capture, analyze and report customized information in North America and internationally. We also use third-party networks to deliver our payment programs and services in order to broaden our card acceptance and use. To support our payment products, we also provide a range of services, such as issuing and processing, as well as specialized information services that provide our customers with value-added functionality and data. Our customers can use this data to track important business productivity metrics, combat fraud and employee misuse, streamline expense administration and lower overall workforce and fleet operating costs. Depending on our customers’ and partners’ needs, we provide these services in a variety of outsourced solutions ranging from a comprehensive “end-to-end” solution (encompassing issuing, processing and network services) to limited back office processing services.
Executive Overview
We operate in two segments, which we refer to as our North America and International segments. Our revenue is reported net of the wholesale cost for underlying products and services. In this report, we refer to this net revenue as “revenue.” See “Results of Operations” for additional segment information. We report our results from Cambridge acquired in the third quarter of 2017 in our North America segment for Cambridge's business in the United States and Canada and within our International segment for Cambridge's business in all other countries outside of the United States and Canada. We are continuing to evaluate the
allocation of Cambridge results to our reporting units and segments. As part of our plan to exit the telematics business, on July 27, 2017, we sold NexTraq, a U.S. fleet telematics business, which has historically been included in our North America segment.
For the
three and nine
months ended
September 30, 2017
and
2016
, our North America and International segments generated the following revenue (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
(Unaudited)
|
|
Revenues, net
|
|
% of
total
revenues, net
|
|
Revenues, net
|
|
% of
total
revenues, net
|
|
Revenues, net
|
|
% of
total
revenues, net
|
|
Revenues, net
|
|
% of
total
revenues, net
|
North America
|
|
$
|
364.4
|
|
|
63.1
|
%
|
|
$
|
345.9
|
|
|
71.4
|
%
|
|
$
|
1,037.4
|
|
|
63.3
|
%
|
|
$
|
950.5
|
|
|
72.2
|
%
|
International
|
|
213.4
|
|
|
36.9
|
%
|
|
138.6
|
|
|
28.6
|
%
|
|
602.2
|
|
|
36.7
|
%
|
|
366.1
|
|
|
27.8
|
%
|
|
|
$
|
577.9
|
|
|
100.0
|
%
|
|
$
|
484.4
|
|
|
100.0
|
%
|
|
$
|
1,639.5
|
|
|
100.0
|
%
|
|
$
|
1,316.6
|
|
|
100.0
|
%
|
Revenues, net, Net Income and Net Income Per Diluted Share.
Set forth below are revenues, net, net income and net income per diluted share for the
three and nine
months ended
September 30, 2017
and
2016
(in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues, net
|
|
$
|
577,877
|
|
|
$
|
484,426
|
|
|
$
|
1,639,547
|
|
|
$
|
1,316,593
|
|
Net income
|
|
$
|
202,823
|
|
|
$
|
129,618
|
|
|
$
|
457,503
|
|
|
$
|
356,961
|
|
Net income per diluted share
|
|
$
|
2.18
|
|
|
$
|
1.36
|
|
|
$
|
4.87
|
|
|
$
|
3.75
|
|
Adjusted Revenues, Adjusted Net Income and Adjusted Net Income Per Diluted Share.
Set forth below are adjusted revenues, adjusted net income and adjusted net income per diluted share for the
three and nine
months ended
September 30, 2017
and
2016
(in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Adjusted revenues
|
|
$
|
550,190
|
|
|
$
|
456,212
|
|
|
$
|
1,556,857
|
|
|
$
|
1,237,838
|
|
Adjusted net income
|
|
$
|
202,769
|
|
|
$
|
183,310
|
|
|
$
|
574,795
|
|
|
$
|
478,959
|
|
Adjusted net income per diluted share
|
|
$
|
2.18
|
|
|
$
|
1.92
|
|
|
$
|
6.12
|
|
|
$
|
5.03
|
|
We use adjusted revenues as a basis to evaluate our revenues, net of the commissions that are paid to merchants that participate in certain of our card programs. The commissions paid to merchants can vary when market spreads fluctuate in much the same way as revenues are impacted when market spreads fluctuate. Thus, we believe this is an effective way to evaluate our revenue performance on a consistent basis. 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. Adjusted revenues, 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.”
Sources of Revenue
Transactions.
In both of our segments, we derive revenue from transactions. As illustrated in the diagram below, a transaction is defined as a purchase by a customer. Our customers include holders of our card products and those of our partners, for whom we manage card programs, members of our proprietary networks who are provided access to our products and services and commercial businesses to whom we provide workforce payment productivity solutions. Revenue from transactions is derived from our merchant and network relationships, as well as our customers and partners. Through our merchant and network relationships we primarily offer fuel cards, corporate cards, virtual cards, purchasing cards, T&E cards, gift cards, stored value payroll cards, vehicle maintenance, food, fuel, toll and transportation cards and vouchers and lodging services to our customers.
The following diagram illustrates a typical transaction flow, for our fuel card, vehicle maintenance, lodging and food, toll and transportation card and voucher products. This illustration is not applicable to all of our businesses.
Illustrative Transaction Flow
From our customers and partners, we derive revenue from a variety of program fees, including transaction fees, card fees, network fees and charges, which can be fixed fees, cost plus a mark-up or based on a percentage discount from retail prices. Our programs include other fees and charges associated with late payments and based on customer credit risk.
From our merchant and network relationships, we derive revenue mostly from the difference between the price charged to a customer for a transaction and the price paid to the merchant or network for the same transaction, as well as network fees and charges in certain businesses. As illustrated in the table below, the price paid to a merchant or network may be calculated as (i) the merchant’s wholesale cost of the product plus a markup; (ii) the transaction purchase price less a percentage discount; or (iii) the transaction purchase price less a fixed fee per unit.
The following table presents an illustrative revenue model for transactions with the merchant, which is primarily applicable to fuel based product transactions, but may also be applied to our vehicle maintenance, lodging and food, fuel, toll and transportation card and voucher products, substituting transactions for gallons. This representative model may not include all of our businesses.
Illustrative Revenue Model for Fuel Purchases
(unit of one gallon)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant Payment Methods
|
Retail Price
|
|
$
|
3.00
|
|
|
i) Cost Plus Mark-up:
|
|
ii) Percentage Discount:
|
|
iii) Fixed Fee:
|
Wholesale Cost
|
|
(2.86
|
)
|
|
Wholesale Cost
|
|
$
|
2.86
|
|
|
Retail Price
|
|
$
|
3.00
|
|
|
Retail Price
|
|
$
|
3.00
|
|
|
|
|
|
Mark-up
|
|
0.05
|
|
|
Discount (3%)
|
|
(0.09
|
)
|
|
Fixed Fee
|
|
(0.09
|
)
|
FleetCor Revenue
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant Commission
|
|
$
|
(0.05
|
)
|
|
Price Paid to Merchant
|
|
$
|
2.91
|
|
|
Price Paid to Merchant
|
|
$
|
2.91
|
|
|
Price Paid to Merchant
|
|
$
|
2.91
|
|
Price Paid to Merchant
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geography, product and source.
Set forth below are further breakdowns of revenue by geography, product and source for the
three and nine
months ended
September 30, 2017
and
2016
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
Revenue by Geography*
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
(Unaudited)
|
|
Revenues, net
|
|
% of
total
revenues, net
|
|
Revenues, net
|
|
% of
total
revenues, net
|
|
Revenues, net
|
|
% of
total
revenues, net
|
|
Revenues, net
|
|
% of
total
revenues, net
|
United States
|
|
$
|
358
|
|
|
62
|
%
|
|
$
|
346
|
|
|
71
|
%
|
|
$
|
1,031
|
|
|
63
|
%
|
|
$
|
951
|
|
|
72
|
%
|
United Kingdom
|
|
61
|
|
|
11
|
%
|
|
56
|
|
|
12
|
%
|
|
174
|
|
|
11
|
%
|
|
175
|
|
|
13
|
%
|
Brazil
|
|
101
|
|
|
17
|
%
|
|
43
|
|
|
9
|
%
|
|
287
|
|
|
17
|
%
|
|
78
|
|
|
6
|
%
|
Other
|
|
58
|
|
|
10
|
%
|
|
40
|
|
|
8
|
%
|
|
148
|
|
|
9
|
%
|
|
113
|
|
|
9
|
%
|
Consolidated revenues, net
|
|
$
|
578
|
|
|
100
|
%
|
|
$
|
484
|
|
|
100
|
%
|
|
$
|
1,640
|
|
|
100
|
%
|
|
$
|
1,317
|
|
|
100
|
%
|
*
Columns may not calculate due to impact of rounding.
Subsequent to 2016, as we continued to refine the level of detail behind the product category splits, we reclassified certain amounts into "Other" that we believe are more representative of that category. This reclassification has been applied to the 2016 and 2017 comparable data disclosed in the "Revenue by Product Category" table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
8
|
Revenue by Product Category*
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
(Unaudited)
|
|
Revenues,
net
|
|
% of total revenues, net
|
|
Revenues,
net
|
|
% of total
revenues, net
|
|
Revenues,
net
|
|
% of
total
revenues, net
|
|
Revenues,
net
|
|
% of total
revenues, net
|
Fuel cards
|
|
$
|
276
|
|
|
48
|
%
|
|
$
|
259
|
|
|
53
|
%
|
|
$
|
815
|
|
|
50
|
%
|
|
$
|
741
|
|
|
56
|
%
|
Corporate Payments
|
|
72
|
|
|
12
|
%
|
|
46
|
|
|
10
|
%
|
|
169
|
|
|
10
|
%
|
|
132
|
|
|
10
|
%
|
Tolls
|
|
83
|
|
|
14
|
%
|
|
26
|
|
|
5
|
%
|
|
236
|
|
|
14
|
%
|
|
30
|
|
|
2
|
%
|
Lodging
|
|
33
|
|
|
6
|
%
|
|
28
|
|
|
6
|
%
|
|
86
|
|
|
5
|
%
|
|
74
|
|
|
6
|
%
|
Gift
|
|
55
|
|
|
9
|
%
|
|
58
|
|
|
12
|
%
|
|
144
|
|
|
9
|
%
|
|
138
|
|
|
10
|
%
|
Other
|
|
59
|
|
|
10
|
%
|
|
67
|
|
|
14
|
%
|
|
189
|
|
|
12
|
%
|
|
201
|
|
|
15
|
%
|
Consolidated revenues, net
|
|
$
|
578
|
|
|
100
|
%
|
|
$
|
484
|
|
|
100
|
%
|
|
$
|
1,640
|
|
|
100
|
%
|
|
$
|
1,317
|
|
|
100
|
%
|
*
Columns may not calculate due to impact of rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
8
|
Major Sources of Revenue*
|
2017
|
|
2016
|
|
2017
|
|
2016
|
(Unaudited)
|
Revenues,
net
|
|
% of total
revenues, net
|
|
Revenues,
net
|
|
% of total
revenues, net
|
|
Revenues,
net
|
|
% of total
revenues, net
|
|
Revenues,
net
|
|
% of total
revenues, net
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing and program revenue
1
|
$
|
288
|
|
|
50
|
%
|
|
$
|
218
|
|
|
45
|
%
|
|
$
|
781
|
|
|
48
|
%
|
|
$
|
563
|
|
|
43
|
%
|
Late fees and finance charges
2
|
34
|
|
|
6
|
%
|
|
31
|
|
|
6
|
%
|
|
105
|
|
|
6
|
%
|
|
86
|
|
|
7
|
%
|
Miscellaneous fees
3
|
32
|
|
|
5
|
%
|
|
34
|
|
|
7
|
%
|
|
97
|
|
|
6
|
%
|
|
93
|
|
|
7
|
%
|
|
354
|
|
|
61
|
%
|
|
283
|
|
|
58
|
%
|
|
983
|
|
|
60
|
%
|
|
742
|
|
|
56
|
%
|
Merchant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount revenue (fuel)
4
|
77
|
|
|
13
|
%
|
|
68
|
|
|
14
|
%
|
|
223
|
|
|
14
|
%
|
|
194
|
|
|
15
|
%
|
Discount revenue (nonfuel)
5
|
45
|
|
|
8
|
%
|
|
40
|
|
|
8
|
%
|
|
130
|
|
|
8
|
%
|
|
116
|
|
|
9
|
%
|
Tied to fuel-price spreads
6
|
53
|
|
|
9
|
%
|
|
53
|
|
|
11
|
%
|
|
165
|
|
|
10
|
%
|
|
145
|
|
|
11
|
%
|
Program revenue
7
|
49
|
|
|
8
|
%
|
|
41
|
|
|
8
|
%
|
|
139
|
|
|
8
|
%
|
|
119
|
|
|
9
|
%
|
|
224
|
|
|
39
|
%
|
|
202
|
|
|
42
|
%
|
|
657
|
|
|
40
|
%
|
|
574
|
|
|
44
|
%
|
Consolidated revenues, net
|
$
|
578
|
|
|
100
|
%
|
|
$
|
484
|
|
|
100
|
%
|
|
$
|
1,640
|
|
|
100
|
%
|
|
$
|
1,317
|
|
|
100
|
%
|
|
|
1
Includes revenue from customers based on accounts, cards, devices, transactions, load amounts and/or purchase amounts, etc. for participation in our various fleet and workforce related programs; as well as, revenue from partners (e.g., major retailers, leasing companies, oil companies, petroleum marketers, etc.) for processing and network management services. Primarily represents revenue from North American trucking, lodging, prepaid benefits, telematics, gifts cards and toll related businesses.
|
2
Fees for late payment and interest charges for carrying a balance charged to a customer.
|
3
Non-standard fees charged to customers based on customer behavior or optional participation, primarily including high credit risk surcharges, over credit limit charges, minimum processing fees, printing and mailing fees, environmental fees, etc.
|
4
Interchange revenue directly influenced by the absolute price of fuel and other interchange related to fuel products.
|
5
Interchange revenue related to nonfuel products.
|
6
Revenue derived from the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction.
|
7
Revenue derived primarily from the sale of equipment, software and related maintenance to merchants.
|
8
Amounts shown for the nine months ended September 30, 2017 and 2016 reflect immaterial corrections in estimated allocation of revenue by product and sources of revenue from previously disclosed amounts for the prior period.
|
*We may not be able to precisely calculate revenue by source, as certain estimates were made in these allocations. Columns may not calculate due to impact of rounding. This table reflects how management views the sources of revenue and may not be consistent with prior disclosure.
|
Revenue per transaction.
Set forth below is revenue per transaction information for the
three and nine
months ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Transactions (in millions)
|
|
|
|
|
|
|
|
|
North America
|
|
398.4
|
|
|
370.1
|
|
|
1,301.1
|
|
|
1,214.3
|
|
International
|
|
280.7
|
|
|
127.4
|
|
|
823.0
|
|
|
233.3
|
|
Total transactions
|
|
679.1
|
|
|
497.5
|
|
|
2,124.1
|
|
|
1,447.6
|
|
Revenue per transaction
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
0.91
|
|
|
$
|
0.93
|
|
|
$
|
0.80
|
|
|
$
|
0.78
|
|
International
|
|
0.76
|
|
|
1.09
|
|
|
0.73
|
|
|
1.57
|
|
Consolidated revenue per transaction
|
|
0.85
|
|
|
0.97
|
|
|
0.77
|
|
|
0.91
|
|
For the three months ended
September 30, 2017
, total transactions
increased
from
497.5 million
to
679.1 million
,
an increase
of
181.6 million
transactions, or
37%
. For the
nine
months ended
September 30, 2017
, total transactions
increased
from
1,447.6 million
to
2,124.1 million
,
an increase
of
676.4 million
transactions, or
47%
. North American segment transactions increased approximately
8%
and
7%
in the three and
nine
months ended
September 30, 2017
as compared to
2016
, respectively, due primarily to growth in our SVS and fuel card businesses. Transaction volumes in our international segment increased by
120%
and
253%
in the three and
nine
months ended
September 30, 2017
as compared to
2016
, respectively, primarily due to the acquisition of STP and Travelcard during the third quarter of
2016
.
Set forth below is further breakdown of revenue and revenue per transaction, by product category for the three months ended
September 30, 2017
and
2016
(in millions except revenues, net per transaction)*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Pro Forma and Macro Adjusted
2
|
|
|
Three Months Ended September 30,
|
|
Three Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
|
Change
|
|
%
Change
|
|
2017
3
|
|
2016
4
|
|
Change
|
|
%
Change
|
FUEL CARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‑Transactions
5
|
|
119.6
|
|
|
112.5
|
|
|
7.1
|
|
|
6
|
%
|
|
119.6
|
|
|
113.6
|
|
|
6.0
|
|
|
5
|
%
|
‑Revenues, net per transaction
|
|
$
|
2.31
|
|
|
$
|
2.30
|
|
|
$
|
0.01
|
|
|
—
|
%
|
|
$
|
2.29
|
|
|
$
|
2.28
|
|
|
$
|
0.01
|
|
|
—
|
%
|
‑ Revenues, net
|
|
$
|
276.2
|
|
|
$
|
258.8
|
|
|
$
|
17.4
|
|
|
7
|
%
|
|
$
|
274.0
|
|
|
$
|
259.5
|
|
|
$
|
14.5
|
|
|
6
|
%
|
CORPORATE PAYMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‑Transactions
|
|
10.9
|
|
|
10.0
|
|
|
0.9
|
|
|
9
|
%
|
|
10.9
|
|
|
10.2
|
|
|
0.7
|
|
|
7
|
%
|
‑Revenues, net per transaction
|
|
$
|
6.63
|
|
|
$
|
4.61
|
|
|
$
|
2.02
|
|
|
44
|
%
|
|
$
|
6.58
|
|
|
$
|
5.99
|
|
|
$
|
0.58
|
|
|
10
|
%
|
‑ Revenues, net
|
|
$
|
72.2
|
|
|
$
|
46.1
|
|
|
$
|
26.1
|
|
|
57
|
%
|
|
$
|
71.7
|
|
|
$
|
61.3
|
|
|
$
|
10.4
|
|
|
17
|
%
|
TOLLS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‑Transactions
|
|
231.0
|
|
|
81.1
|
|
|
149.8
|
|
|
185
|
%
|
|
231.0
|
|
|
225.0
|
|
|
5.9
|
|
|
3
|
%
|
‑Revenues, net per transaction
|
|
$
|
0.36
|
|
|
$
|
0.32
|
|
|
$
|
0.04
|
|
|
13
|
%
|
|
$
|
0.35
|
|
|
$
|
0.30
|
|
|
$
|
0.05
|
|
|
16
|
%
|
‑ Revenues, net
|
|
$
|
82.9
|
|
|
$
|
25.8
|
|
|
$
|
57.1
|
|
|
221
|
%
|
|
$
|
80.8
|
|
|
$
|
67.8
|
|
|
$
|
13.0
|
|
|
19
|
%
|
LODGING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‑Transactions
|
|
4.1
|
|
|
3.5
|
|
|
0.6
|
|
|
17
|
%
|
|
4.1
|
|
|
3.5
|
|
|
0.6
|
|
|
17
|
%
|
‑Revenues, net per transaction
|
|
$
|
8.14
|
|
|
$
|
8.04
|
|
|
$
|
0.10
|
|
|
1
|
%
|
|
$
|
8.14
|
|
|
$
|
8.04
|
|
|
$
|
0.10
|
|
|
1
|
%
|
‑ Revenues, net
|
|
$
|
33.2
|
|
|
$
|
28.1
|
|
|
$
|
5.2
|
|
|
18
|
%
|
|
$
|
33.2
|
|
|
$
|
28.1
|
|
|
$
|
5.2
|
|
|
18
|
%
|
GIFT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‑Transactions
|
|
294.1
|
|
|
269.5
|
|
|
24.6
|
|
|
9
|
%
|
|
294.1
|
|
|
269.5
|
|
|
24.6
|
|
|
9
|
%
|
‑Revenues, net per transaction
|
|
$
|
0.19
|
|
|
$
|
0.22
|
|
|
$
|
(0.03
|
)
|
|
(14
|
)%
|
|
$
|
0.19
|
|
|
$
|
0.22
|
|
|
$
|
(0.03
|
)
|
|
(14
|
)%
|
‑ Revenues, net
|
|
$
|
54.8
|
|
|
$
|
58.3
|
|
|
$
|
(3.5
|
)
|
|
(6
|
)%
|
|
$
|
54.8
|
|
|
$
|
58.3
|
|
|
$
|
(3.5
|
)
|
|
(6
|
)%
|
OTHER
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‑Transactions
5
|
|
19.4
|
|
|
20.8
|
|
|
(1.4
|
)
|
|
(7
|
)%
|
|
19.4
|
|
|
20.4
|
|
|
(1.0
|
)
|
|
(5
|
)%
|
‑Revenues, net per transaction
|
|
$
|
3.01
|
|
|
$
|
3.24
|
|
|
$
|
(0.22
|
)
|
|
(7
|
)%
|
|
$
|
2.99
|
|
|
$
|
2.80
|
|
|
$
|
0.20
|
|
|
7
|
%
|
‑ Revenues, net
|
|
$
|
58.5
|
|
|
$
|
67.4
|
|
|
$
|
(8.8
|
)
|
|
(13
|
)%
|
|
$
|
58.1
|
|
|
$
|
57.1
|
|
|
$
|
1.0
|
|
|
2
|
%
|
FLEETCOR CONSOLIDATED REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
‑Transactions
5
|
|
679.1
|
|
|
497.5
|
|
|
181.6
|
|
|
37
|
%
|
|
679.1
|
|
|
642.2
|
|
|
36.8
|
|
|
6
|
%
|
‑Revenues, net per transaction
|
|
$
|
0.85
|
|
|
$
|
0.97
|
|
|
$
|
(0.12
|
)
|
|
(13
|
)%
|
|
$
|
0.84
|
|
|
$
|
0.83
|
|
|
$
|
0.01
|
|
|
2
|
%
|
‑ Revenues, net
|
|
$
|
577.9
|
|
|
$
|
484.4
|
|
|
$
|
93.5
|
|
|
19
|
%
|
|
$
|
572.6
|
|
|
$
|
532.1
|
|
|
$
|
40.6
|
|
|
8
|
%
|
|
|
*Columns may not calculate due to impact of rounding.
|
1
Other includes telematics, maintenance, food, and transportation related businesses.
|
2
Pro forma and macro adjusted revenue is a non-GAAP financial measure defined as revenues, net adjusted for the impact of the macroeconomic environment and acquisitions and dispositions and other one-time items. We use pro forma and macro adjusted revenue as a basis to evaluate our organic growth. See the heading entitled “Management’s Use of Non-GAAP Financial Measures” for a reconciliation of pro forma and macro adjusted revenue by product, non-GAAP measures, to the GAAP equivalent.
|
3
2017 is adjusted to remove the impact of changes in the macroeconomic environment to be consistent with the same period of prior year, using constant fuel prices, fuel price spreads and foreign exchange rates.
|
4
2016 is pro forma to include acquisitions and exclude dispositions consistent with 2017 ownership.
|
5
2016 and YTD 2017 transactions reflect immaterial corrections from previously disclosed amounts for the prior period.
|
________________________________________________________________________________________________________________
Revenue per transaction is derived from the various revenue types as discussed above and can vary based on geography, the relevant merchant relationship, the payment product utilized and the types of products or services purchased, the mix of which would be influenced by our acquisitions, organic growth in our business, and the overall macroeconomic environment, including fluctuations in foreign currency exchange rates, fuel prices and fuel spread margins. Revenue per transaction per customer changes 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.
Sources of Expenses
We incur expenses in the following categories:
|
|
•
|
Merchant commissions
—In certain of our card programs, we incur merchant commissions expense when we reimburse merchants with whom we have direct, contractual relationships for specific transactions where a customer purchases products or services from the merchant. In the card programs where it is paid, merchant commissions equal the difference between the price paid by us to the merchant and the merchant’s wholesale cost of the underlying products or services.
|
|
|
•
|
Processing
—Our processing expense consists of expenses related to processing transactions, servicing our customers and merchants, bad debt expense and cost of goods sold related to our hardware sales in certain businesses.
|
|
|
•
|
Selling
—Our selling expenses consist primarily of wages, benefits, sales commissions (other than merchant commissions) and related expenses for our sales, marketing and account management personnel and activities.
|
|
|
•
|
General and administrative
—Our general and administrative expenses include compensation and related expenses (including stock-based compensation) for our executives, finance and accounting, information technology, human resources, legal and other administrative personnel. Also included are facilities expenses, third-party professional services fees, travel and entertainment expenses, and other corporate-level expenses.
|
|
|
•
|
Depreciation and amortization
—Our depreciation expenses include depreciation of property and equipment, consisting of computer hardware and software (including proprietary software development amortization expense), card-reading equipment, furniture, fixtures, vehicles and buildings and leasehold improvements related to office space. Our amortization expenses include amortization of intangible assets related to customer and vendor relationships, trade names and trademarks, software and non-compete agreements. We are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable.
|
|
|
•
|
Other operating, net
—Our other operating, net includes other operating expenses and income items unusual to the period and presented separately.
|
|
|
•
|
Investment loss (income)
—Our investment results relate to our minority interest in Masternaut, a provider of telematics solutions to commercial fleets in Europe, which we historically accounted for using the equity method. On September 30, 2017, we entered into an amended Masternaut investment agreement that resulted in the loss of significant influence, and we began accounting for the Masternaut investment by applying the cost method.
|
|
|
•
|
Other expense (income), net
—Our other expense (income), net includes foreign currency transaction gains or losses, proceeds/costs from the sale of assets and other miscellaneous operating costs and revenue.
|
|
|
•
|
Interest expense, net
—Our interest expense, net includes interest income on our cash balances and interest expense on our outstanding debt and on our Securitization Facility. We have historically invested our cash primarily in short-term money market funds.
|
|
|
•
|
Loss on extinguishment of debt
—Loss on extinguishment of debt relates to our write-off of debt issuance costs associated with the refinancing of our existing credit facility.
|
|
|
•
|
Provision for income taxes
—Our provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and services in the United States and internationally.
|
Factors and Trends Impacting our Business
We believe that the following factors and trends are important in understanding our financial performance:
|
|
•
|
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. See “Sources of Revenue” above for further information related to the absolute price of fuel.
|
|
|
•
|
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. See “Sources of Revenue” above for further information related to fuel-price spreads.
|
|
|
•
|
Acquisitions
—Since 2002, we have completed over 75 acquisitions of companies and commercial account portfolios. Acquisitions have been an important part of our growth strategy, and it is our intention to continue to seek opportunities to increase our customer base and diversify our service offering through further strategic acquisitions. The impact of acquisitions has, and may continue to have, a significant impact on our results of operations and may make it difficult to compare our results between periods.
|
|
|
•
|
Interest rates
—Our results of operations are affected by interest rates. We are exposed to market risk to changes in interest rates on our cash investments and debt.
|
|
|
•
|
Global economic conditions
—Our results of operations are materially affected by conditions in the economy generally, both in North America and internationally. Factors affected by the economy include our transaction volumes and the credit risk of our customers. These factors affected our businesses in both our North America and International segments.
|
|
|
•
|
Foreign currency changes
—Our results of operations are significantly impacted by changes in foreign currency 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 the U.S. dollar. Approximately
63%
and
72%
of our revenue in the
nine
months ended
September 30, 2017
and
2016
, respectively, was derived in U.S. dollars and was not affected by foreign currency exchange rates. See “Results of Operations” for information related to foreign currency impact on our total revenue, net.
|
|
|
•
|
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.
|
Acquisitions and Investments
On August 9, 2017, we acquired Cambridge Global Payments (“Cambridge”), a leading business to business (B2B) international payments provider, for approximately
$584.1 million
in cash, net of cash acquired of $132.3 million and inclusive of a note payable of
$23.9 million
. Cambridge processes B2B cross-border payments, assisting business clients in making international payments to suppliers and employees. The purpose of this acquisition is to further expand our corporate payments footprint.
On September 26, 2017, we acquired a fuel card provider in Russia. On October 13, 2017, we completed the acquisition of Creative Lodging Solutions ("CLS"), a small lodging tuck-in business.
During 2016, we completed acquisitions with an aggregate purchase price of
$1.30 billion
, net of cash acquired of
$51.3 million
, which includes deferred payments made during the period related to prior year acquisitions of
$6.1 million
.
|
|
•
|
In August 2016, we acquired all of the outstanding stock of STP for
$1.23 billion
, net of cash acquired of
$40.2 million
. STP is an electronic toll payments company in Brazil and provides cardless fuel payments at a number of Shell sites throughout Brazil. The purpose of this acquisition was to expand our presence in the toll market in Brazil. We financed the acquisition using a combination of existing cash and borrowings under our credit facility.
|
|
|
•
|
During 2016, we acquired additional fuel card portfolios in the U.S. and the United Kingdom, additional Shell fuel card markets in Europe and Travelcard in the Netherlands totaling
$76.7 million
, net of cash acquired of
$11.1 million
.
|
|
|
•
|
During 2016, we made additional investments of
$7.9 million
related to our investment in Masternaut. We also received a
$9.2 million
return of our investment in Masternaut.
|
We report our results from Cambridge acquired in the third quarter of 2017 in our North America segment for Cambridge's business in the United States and Canada and within our International segment for Cambridge's business in all other countries outside of the United States and Canada. We are continuing to evaluate the allocation of Cambridge results to our reporting units and segments. The results of operations from the fuel card business in Russia are included within our International segment, from the date of acquisition. The results of operations from the fuel card portfolio acquired in the U.S. are included within our North America segment, from the date of acquisition. The results of operations of STP, the fuel card portfolio in the United Kingdom, the additional Shell markets, the Travelcard business in the Netherlands and the small business in Brazil are included within our International segment, from the date of acquisition.
Asset Dispositions
Telematics Businesses
As part of our plan to exit the telematics business, on July 27, 2017, we sold NexTraq, a U.S. fleet telematics business, to Michelin Group for
$316 million
. We recorded a pre-tax gain on the disposal of NexTraq of
$175.0 million
during the third quarter of 2017, which is net of transaction closing costs. We recorded tax on the gain of disposal of
$65.8 million
. The gain
on the disposal is included in other (income) expense, net in the accompanying Unaudited Consolidated Statements of Income. NexTraq has historically been included in our North America segment.
On September 30, 2017, we entered into an amended Masternaut investment agreement that resulted in the loss of significant influence, and we began accounting for the Masternaut investment by applying the cost method.
We regularly evaluate the carrying value of our Masternaut investment and during the third quarter of 2017, we determined that the fair value of our 44% investment in Masternaut had declined as a result of our loss of significant influence due to the amendment of the Masternaut investment agreement, executed September 30, 2017. As a result, we determined that the carrying value of our investment exceeded its fair value, and concluded that this decline in value was other than temporary. We recorded a
$44.6 million
impairment loss in the Masternaut investment that includes adjustment for
$31.4 million
of currency losses previously recognized in accumulated other comprehensive income, in the three and nine months ended September 30, 2017, in the accompanying Unaudited Consolidated Statements of Income.
Results of Operations
Three months ended
September 30, 2017
compared to the three months ended
September 30, 2016
The following table sets forth selected consolidated statement of income data for the three months ended
September 30, 2017
and
2016
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Three Months Ended September 30, 2017
|
|
% of total
revenue
|
|
Three Months Ended September 30, 2016
|
|
% of total
revenue
|
|
Increase
(decrease)
|
|
% Change
|
Revenues, net:
|
|
|
|
|
|
|
North America
|
|
$
|
364,443
|
|
|
63.1
|
%
|
|
$
|
345,868
|
|
|
71.4
|
%
|
|
$
|
18,575
|
|
|
5.4
|
%
|
International
|
|
213,434
|
|
|
36.9
|
%
|
|
138,558
|
|
|
28.6
|
%
|
|
74,876
|
|
|
54.0
|
%
|
Total revenues, net
|
|
577,877
|
|
|
100.0
|
%
|
|
484,426
|
|
|
100.0
|
%
|
|
93,451
|
|
|
19.3
|
%
|
Consolidated operating expenses:
|
|
|
|
|
|
|
Merchant commissions
|
|
27,687
|
|
|
4.8
|
%
|
|
28,214
|
|
|
5.8
|
%
|
|
(527
|
)
|
|
(1.9
|
)%
|
Processing
|
|
111,283
|
|
|
19.3
|
%
|
|
96,233
|
|
|
19.9
|
%
|
|
15,050
|
|
|
15.6
|
%
|
Selling
|
|
45,060
|
|
|
7.8
|
%
|
|
34,180
|
|
|
7.1
|
%
|
|
10,880
|
|
|
31.8
|
%
|
General and administrative
|
|
92,043
|
|
|
15.9
|
%
|
|
77,904
|
|
|
16.1
|
%
|
|
14,139
|
|
|
18.1
|
%
|
Depreciation and amortization
|
|
69,156
|
|
|
12.0
|
%
|
|
57,084
|
|
|
11.8
|
%
|
|
12,072
|
|
|
21.1
|
%
|
Other operating, net
|
|
11
|
|
|
—
|
%
|
|
(244
|
)
|
|
(0.1
|
)%
|
|
255
|
|
|
104.5
|
%
|
Operating income
|
|
232,637
|
|
|
40.3
|
%
|
|
191,055
|
|
|
39.4
|
%
|
|
41,582
|
|
|
21.8
|
%
|
Investment loss
|
|
47,766
|
|
|
8.3
|
%
|
|
2,744
|
|
|
0.6
|
%
|
|
45,022
|
|
|
1,640.7
|
%
|
Other (income) expense, net
|
|
(175,271
|
)
|
|
(30.3
|
)%
|
|
293
|
|
|
0.1
|
%
|
|
175,564
|
|
|
NM
|
|
Interest expense, net
|
|
29,344
|
|
|
5.1
|
%
|
|
17,814
|
|
|
3.7
|
%
|
|
11,530
|
|
|
64.7
|
%
|
Loss on extinguishment of debt
|
|
3,296
|
|
|
0.6
|
%
|
|
—
|
|
|
—
|
%
|
|
3,296
|
|
|
—
|
%
|
Provision for income taxes
|
|
124,679
|
|
|
21.6
|
%
|
|
40,586
|
|
|
8.4
|
%
|
|
84,093
|
|
|
207.2
|
%
|
Net income
|
|
$
|
202,823
|
|
|
35.1
|
%
|
|
$
|
129,618
|
|
|
26.8
|
%
|
|
$
|
73,205
|
|
|
56.5
|
%
|
Operating income for segments:
|
|
|
|
|
|
|
North America
|
|
$
|
138,748
|
|
|
|
|
$
|
135,760
|
|
|
|
|
$
|
2,988
|
|
|
2.2
|
%
|
International
|
|
93,889
|
|
|
|
|
55,295
|
|
|
|
|
38,594
|
|
|
69.8
|
%
|
Operating income
|
|
$
|
232,637
|
|
|
|
|
$
|
191,055
|
|
|
|
|
$
|
41,582
|
|
|
21.8
|
%
|
Operating margin for segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
38.1
|
%
|
|
|
|
39.3
|
%
|
|
|
|
(1.2
|
)%
|
|
|
International
|
|
44.0
|
%
|
|
|
|
39.9
|
%
|
|
|
|
4.1
|
%
|
|
|
Consolidated
|
|
40.3
|
%
|
|
|
|
39.4
|
%
|
|
|
|
0.8
|
%
|
|
|
NM = Not Meaningful
The sum of the columns and rows may not calculate due to rounding.
Revenues
Our consolidated revenues
increased
from
$484.4 million
in the three months ended
September 30, 2016
to
$577.9 million
in the three months ended
September 30, 2017
,
an increase
of
$93.5 million
, or
19.3%
. The
increase
in our consolidated revenue was primarily due to:
|
|
•
|
The impact of acquisitions during 2016 and 2017, which contributed approximately $58 million in additional revenue.
|
|
|
•
|
Organic growth of approximately 8% on a constant fuel price, fuel spread margin, foreign currency and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.
|
|
|
•
|
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a favorable impact on our consolidated revenue for the three months ended
September 30, 2017
over the comparable period in
2016
of approximately
$4 million
. This was primarily due to favorable changes in foreign exchange rates in Brazil and the United Kingdom in the three months ended
September 30, 2017
compared to
2016
.
|
These increases were partially offset by the impact of the disposition of the NexTraq business in July 2017 of approximately $10 million.
North America segment revenues
North America revenues
increased
from $
345.9 million
in the three months ended
September 30, 2016
to
$364.4 million
in the three months ended
September 30, 2017
,
an increase
of
$18.6 million
, or
5.4%
. The
increase
in our North America segment revenue was primarily due to:
|
|
•
|
The impact of our Cambridge acquisition during the third quarter of 2017, which contributed approximately $12 million in additional revenue.
|
|
|
•
|
Organic growth of approximately 5%, on a constant fuel price, fuel spread margin and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.
|
|
|
•
|
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our North America segment revenue in three months ended
September 30, 2017
over the comparable period in
2016
of approximately
$2 million
, primarily due to the impact of lower fuel spread margins.
|
These increases were partially offset by the impact of the disposition of the NexTraq business in July 2017 of approximately $10 million.
International segment revenues
International segment revenues
increased
from
$138.6 million
in the three months ended
September 30, 2016
to
$213.4 million
in the three months ended
September 30, 2017
,
an increase
of
$74.9 million
, or
54.0%
. The
increase
in our International segment revenue was primarily due to:
|
|
•
|
The impact of acquisitions during 2016 and 2017, which contributed approximately $
46
million in additional revenue.
|
|
|
•
|
Organic growth of approximately 12% on a constant macroeconomic and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.
|
|
|
•
|
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our International segment revenue for the three months ended
September 30, 2017
over the comparable period in
2016
of approximately
$6 million
. Changes in foreign exchange rates and fuel price had favorable impacts on consolidated revenues of approximately
$4 million
and
$2 million
, respectively.
|
Consolidated operating expenses
Merchant commissions.
Merchant commissions
decreased
from
$28.2 million
in the three months ended
September 30, 2016
to
$27.7 million
in the three months ended
September 30, 2017
,
a decrease
of
$0.5 million
, or
1.9%
. This
decrease
was primarily due to the fluctuation of the margin between the wholesale cost and retail price of fuel.
Processing.
Processing expenses
increased
from
$96.2 million
in the three months ended
September 30, 2016
to
$111.3 million
in the three months ended
September 30, 2017
,
an increase
of
$15.1 million
, or
15.6%
.
Increases
in processing expenses were primarily due to expenses related to acquisitions completed in 2016 and 2017 of approximately $14 million and the impact of foreign exchange rates and incremental spend due to increases in volume. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $3 million and lower bad debt expense of approximately $2 million.
Selling.
Selling expenses
increased
from
$34.2 million
in the three months ended
September 30, 2016
to
$45.1 million
in the three months ended
September 30, 2017
,
an increase
of
$10.9 million
, or
31.8%
. Increases in spending were primarily due to ongoing incremental expenses related to acquisitions completed in 2016 and 2017 of approximately $9 million, additional spending in certain lines of business and the impact of foreign exchange rates. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $1 million.
General and administrative.
General and administrative expenses
increased
from
$77.9 million
in the three months ended
September 30, 2016
to
$92.0 million
in the three months ended
September 30, 2017
,
an increase
of
$14.1 million
, or
18.1%
. The
increase
was primarily due to ongoing expenses related to acquisitions completed in 2016 and 2017 of approximately $10 million, increased stock based compensation expense of approximately $7 million and the impact of foreign exchange rates. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $1 million.
Depreciation and amortization.
Depreciation and amortization
increased
from
$57.1 million
in the three months ended
September 30, 2016
to
$69.2 million
in the three months ended
September 30, 2017
,
an increase
of
$12.1 million
, or
21.1%
. The
increase
was primarily due to amortization of intangible assets related to acquisitions completed in 2016 and 2017 of approximately $13 million, incremental expense related to capitalized development of software and the impact of foreign exchange rates. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $2 million.
Investment loss.
Investment loss was
$47.8 million
in the three months ended
September 30, 2017
, compared to
$2.7 million
in the three months ended
September 30, 2016
. We regularly evaluate the carrying value of our Masternaut investment and during the third quarter of 2017, we determined that the fair value of our 44% investment in Masternaut had declined as a result of our loss of significant influence due to the amendment of the Masternaut investment agreement, executed September 30, 2017. As a result, we determined that the carrying value of our investment exceeded its fair value, and concluded that this decline in value was other than temporary. We recorded a
$44.6 million
impairment loss in the Masternaut investment that includes adjustment for
$31.4 million
of currency losses previously recognized in accumulated other comprehensive income, in the three months ended September 30, 2017, in the accompanying Unaudited Consolidated Statements of Income. There was also a non-recurring net recovery of purchase price of approximately $11 million during the second quarter of 2016.
Other (income) expense, net.
Other income, net was
$175.3 million
in the three months ended
September 30, 2017
, compared to other expense, net of
$0.3 million
in the three months ended
September 30, 2016
. The increase was due primarily to the pre-tax gain on the sale of our Nextraq business of $175 million in the third quarter of
2017
.
Interest expense, net.
Interest expense
increased
from
$17.8 million
in the three months ended
September 30, 2016
to
$29.3 million
in the three months ended
September 30, 2017
,
an increase
of
$11.5 million
, or
64.7%
. The
increase
in interest expense is primarily due to the impact of additional borrowings to finance the acquisitions of STP and Travelcard completed during the third quarter of 2016 and Cambridge completed during the third quarter of 2017, and increases in LIBOR. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the related unused credit facility fees.
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
Term loan A
|
|
2.98
|
%
|
|
1.99
|
%
|
Term loan B
|
|
3.32
|
%
|
|
3.75
|
%
|
Domestic Revolver A
|
|
2.99
|
%
|
|
2.08
|
%
|
Foreign Revolver A
|
|
2.00
|
%
|
|
1.77
|
%
|
Foreign swing line
|
|
1.97
|
%
|
|
1.73
|
%
|
The average unused credit facility fee for Domestic Revolver A was
0.35%
and
0.30%
in the three month period ending
September 30, 2017
and
2016
, respectively.
Loss on extinguishment of debt.
Loss on early extinguishment of debt of $3.3 million relates to our write-off of debt issuance costs associated with the refinancing of our existing credit facility during the third quarter of 2017.
Provision for income taxes.
The provision for income taxes
increased
from
$40.6 million
in the three months ended
September 30, 2016
to
$124.7 million
in the three months ended
September 30, 2017
,
an increase
of
$84.1 million
, or
207.2%
. 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. Our effective tax rate increased from
23.9%
for three months ended
September 30, 2016
to
38.1%
for the three months ended
September 30, 2017
. The 2017 tax rate was impacted by the gain on sale of the NexTraq business of $175 million, all at the higher U.S. tax rate, and the Masternaut impairment charge in the quarter, which had no corresponding tax benefit. Our tax rate in the quarter was 29.4%, excluding the impact of the NexTraq sale, investment impairment and loss on extinguishment of debt. The 2016 tax rate was favorably impacted by a one-time nonrecurring net gain at our Masternaut investment that favorably impacted pre-tax earnings, but was not subject to income tax. The 2016 rate was also favorably impacted by higher excess tax benefits on share-based compensation in the third quarter of 2016 versus the third quarter of 2017.
We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lower than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. Also, the excess tax benefit on share based compensation is part
of the effective tax rate. As a result, the tax rate is impacted by the number of stock options exercised or restricted shares vested during the reporting period.
Net income.
For the reasons discussed above, our net income
increased
from
$129.6 million
in the three months ended
September 30, 2016
to
$202.8 million
in the three months ended
September 30, 2017
,
an increase
of
$73.2 million
, or
56.5%
.
Operating income and operating margin
Consolidated operating income.
Operating income
increased
from
$191.1 million
in the three months ended
September 30, 2016
to
$232.6 million
in the three months ended
September 30, 2017
,
an increase
of
$41.6 million
, or
21.8%
. Our operating margin was
39.4%
and
40.3%
for the three months ended
September 30, 2016
and
2017
, respectively. The
increase
in operating income was primarily due to acquisitions completed in 2016 and 2017 and organic growth, as well as the positive impact of the macroeconomic environment of approximately $4 million, driven primarily by favorable fuel prices and fluctuations in foreign exchange rates. These increases were partially offset by the negative impact of higher amortization and depreciation expense related to acquisitions of STP and Travelcard completed in the third quarter of 2016 and Cambridge completed in the third quarter of 2017, additional stock based compensation of approximately $7 million and the disposition of the NexTraq business in July 2017 of approximately $4 million.
For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Segment operating margin is calculated by dividing segment operating income by segment revenue.
North America segment operating income.
North America operating income
increased
from
$135.8 million
in the three months ended
September 30, 2016
to
$138.7 million
in the three months ended
September 30, 2017
,
an increase
of
$3.0 million
, or
2.2%
. North America operating margin was
39.3%
and
38.1%
for the three months ended
September 30, 2016
and
2017
, respectively. The
increase
in operating income was due primarily to organic growth and the positive impact of the macroeconomic environment of approximately $1 million, driven by favorable fuel prices. These increases were partially offset by additional stock based compensation of approximately $6 million, the negative impact of higher amortization and depreciation expense related to our acquisition of Cambridge in the third quarter of 2017 and the disposition of the NexTraq business in July 2017 of approximately $4 million.
International segment operating income.
International operating income
increased
from
$55.3 million
in the three months ended
September 30, 2016
to
$93.9 million
in the three months ended
September 30, 2017
,
an increase
of
$38.6 million
, or
69.8%
. International operating margin was
39.9%
and
44.0%
for the three months ended
September 30, 2016
and
2017
, respectively. The
increase
in operating income was due primarily to the impact of acquisitions completed in 2016 and organic growth, as well as the positive impact of the macroeconomic environment of approximately $3 million, driven primarily by favorable fluctuations in foreign exchange rates. The higher operating margin was driven by the positive impact of process improvements in our recently acquired STP business, offset by higher amortization and depreciation expense related to acquisitions of STP and Travelcard completed in the third quarter of 2016 and additional stock based compensation expense of approximately $1 million.
Nine months ended
September 30, 2017
compared to the
nine
months ended
September 30, 2016
The following table sets forth selected consolidated statement of income data for the
nine
months ended
September 30, 2017
and
2016
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Nine Months Ended September 30, 2017
|
|
% of total
revenue
|
|
Nine Months Ended September 30, 2016
|
|
% of total
revenue
|
|
Increase
(decrease)
|
|
% Change
|
Revenues, net:
|
|
|
|
|
|
|
North America
|
|
$
|
1,037,386
|
|
|
63.3
|
%
|
|
$
|
950,542
|
|
|
72.2
|
%
|
|
$
|
86,844
|
|
|
9.1
|
%
|
International
|
|
602,161
|
|
|
36.7
|
%
|
|
366,051
|
|
|
27.8
|
%
|
|
236,110
|
|
|
64.5
|
%
|
Total revenues, net
|
|
1,639,547
|
|
|
100.0
|
%
|
|
1,316,593
|
|
|
100.0
|
%
|
|
322,954
|
|
|
24.5
|
%
|
Consolidated operating expenses:
|
|
|
|
|
|
|
Merchant commissions
|
|
82,690
|
|
|
5.0
|
%
|
|
78,755
|
|
|
6.0
|
%
|
|
3,935
|
|
|
5.0
|
%
|
Processing
|
|
316,429
|
|
|
19.3
|
%
|
|
256,738
|
|
|
19.5
|
%
|
|
59,691
|
|
|
23.2
|
%
|
Selling
|
|
122,854
|
|
|
7.5
|
%
|
|
92,680
|
|
|
7.0
|
%
|
|
30,174
|
|
|
32.6
|
%
|
General and administrative
|
|
275,046
|
|
|
16.8
|
%
|
|
209,084
|
|
|
15.9
|
%
|
|
65,962
|
|
|
31.5
|
%
|
Depreciation and amortization
|
|
198,731
|
|
|
12.1
|
%
|
|
141,848
|
|
|
10.8
|
%
|
|
56,883
|
|
|
40.1
|
%
|
Other operating, net
|
|
49
|
|
|
—
|
%
|
|
(690
|
)
|
|
(0.1
|
)%
|
|
739
|
|
|
107.1
|
%
|
Operating income
|
|
643,748
|
|
|
39.3
|
%
|
|
538,178
|
|
|
40.9
|
%
|
|
105,570
|
|
|
19.6
|
%
|
Investment loss (income)
|
|
52,497
|
|
|
3.2
|
%
|
|
(2,247
|
)
|
|
(0.2
|
)%
|
|
54,744
|
|
|
(2,436.3
|
)%
|
Other (income) expense, net
|
|
(173,626
|
)
|
|
(10.6
|
)%
|
|
1,056
|
|
|
0.1
|
%
|
|
174,682
|
|
|
NM
|
|
Interest expense, net
|
|
76,322
|
|
|
4.7
|
%
|
|
49,905
|
|
|
3.8
|
%
|
|
26,417
|
|
|
52.9
|
%
|
Loss on extinguishment of debt
|
|
3,296
|
|
|
0.2
|
%
|
|
—
|
|
|
—
|
%
|
|
3,296
|
|
|
—
|
%
|
Provision for income taxes
|
|
227,756
|
|
|
13.9
|
%
|
|
132,503
|
|
|
10.1
|
%
|
|
95,253
|
|
|
71.9
|
%
|
Net income
|
|
$
|
457,503
|
|
|
27.9
|
%
|
|
$
|
356,961
|
|
|
27.1
|
%
|
|
$
|
100,542
|
|
|
28.2
|
%
|
Operating income for segments:
|
|
|
|
|
|
|
North America
|
|
$
|
394,646
|
|
|
|
|
$
|
367,221
|
|
|
|
|
$
|
27,425
|
|
|
7.5
|
%
|
International
|
|
249,102
|
|
|
|
|
170,957
|
|
|
|
|
78,145
|
|
|
45.7
|
%
|
Operating income
|
|
$
|
643,748
|
|
|
|
|
$
|
538,178
|
|
|
|
|
$
|
105,570
|
|
|
19.6
|
%
|
Operating margin for segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
38.0
|
%
|
|
|
|
38.6
|
%
|
|
|
|
(0.6
|
)%
|
|
|
International
|
|
41.4
|
%
|
|
|
|
46.7
|
%
|
|
|
|
(5.3
|
)%
|
|
|
Consolidated
|
|
39.3
|
%
|
|
|
|
40.9
|
%
|
|
|
|
(1.6
|
)%
|
|
|
NM = Not Meaningful
The sum of the columns and rows may not calculate due to rounding.
Revenues
Our consolidated revenues
increased
from
$1,316.6 million
in the
nine
months ended
September 30, 2016
to
$1,639.5 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$323.0 million
, or
24.5%
. The
increase
in our consolidated revenue was primarily due to:
|
|
•
|
The impact of acquisitions during 2016 and 2017, which contributed approximately $175 million in additional revenue.
|
|
|
•
|
Organic growth of approximately 9% on a constant fuel price, fuel spread margin, foreign currency and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.
|
|
|
•
|
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our consolidated revenue for the
nine
months ended
September 30, 2017
over the comparable period
|
in
2016
of approximately
$17 million
. We believe the favorable impact of higher fuel prices and fuel spread margins, primarily in the U.S., had a favorable impact on consolidated revenues of approximately
$22 million
. Conversely, changes in foreign exchange rates had an unfavorable impact on consolidated revenues of approximately
$5 million
due to unfavorable fluctuations in foreign exchange rates primarily in Brazil and the United Kingdom in the
nine
months ended
September 30, 2017
compared to
2016
.
These increases were partially offset by the impact of the disposition of the NexTraq business in July 2017 of approximately $10 million.
North America segment revenues
North America revenues
increased
from
$950.5 million
in the
nine
months ended
September 30, 2016
to
$1,037.4 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$86.8 million
, or
9.1%
. The
increase
in our North America segment revenue was primarily due to:
|
|
•
|
The impact of our Cambridge acquisition during the third quarter of 2017, which contributed approximately $12 million in additional revenue.
|
|
|
•
|
Organic growth of approximately 8%, on a constant fuel price, fuel spread margin and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.
|
|
|
•
|
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a positive impact on our North America segment revenue in
nine
months ended
September 30, 2017
over the comparable period in
2016
of approximately
$19 million
. This was primarily due to the favorable impact of changes in fuel prices and slightly higher fuel spread margins.
|
These increases were partially offset by the impact of the disposition of the NexTraq business in July 2017 of approximately $10 million.
International segment revenues
International segment revenues
increased
from
$366.1 million
in the
nine
months ended
September 30, 2016
to
$602.2 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$236.1 million
, or
64.5%
. The
increase
in our International segment revenue was primarily due to:
|
|
•
|
The impact of acquisitions during 2016 and 2017, which contributed approximately $163 million in additional revenue.
|
|
|
•
|
Organic growth of approximately 10% on a constant macroeconomic and pro forma basis, driven by increases in both volume and revenue per transaction in certain of our payment programs.
|
|
|
•
|
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our International segment revenue for the
nine
months ended
September 30, 2017
over the comparable period in
2016
of approximately
$2 million
. This was primarily due to unfavorable fluctuations in foreign exchange rates, partially offset by the impact of higher fuel prices.
|
Consolidated operating expenses
Merchant commissions.
Merchant commissions
increased
from
$78.8 million
in the
nine
months ended
September 30, 2016
to
$82.7 million
in the
nine
months ended
September 30, 2017
, an
an increase
of
$3.9 million
, or
5.0%
. This
increase
was primarily due to the fluctuation of the margin between the wholesale cost and retail price of fuel and the impact of higher volume in certain revenue streams where merchant commissions are paid.
Processing.
Processing expenses
increased
from
$256.7 million
in the
nine
months ended
September 30, 2016
to
$316.4 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$59.7 million
, or
23.2%
.
Increases
in processing expenses were primarily due to expenses related to acquisitions completed in 2016 and 2017 of approximately $45 million, inclusive of incremental bad debt expense of
$11 million
, as well as the impact of changes in foreign exchange rates, partially offset by the impact of negotiated lower vendor processing costs. The
increase
in bad debt was primarily due to bad debt inherent in the acquired STP business. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $3 million.
Selling.
Selling expenses
increased
from
$92.7 million
in the
nine
months ended
September 30, 2016
to
$122.9 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$30.2 million
, or
32.6%
.
Increases
in spending were primarily due to ongoing expenses related to acquisitions completed in 2016 and 2017 of approximately $19 million and additional spending in certain lines of business. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $1 million.
General and administrative.
General and administrative expenses
increased
from
$209.1 million
in the
nine
months ended
September 30, 2016
to
$275.0 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$66.0 million
, or
31.5%
. The
increase
was primarily due to ongoing expenses related to acquisitions completed in 2016 and 2017 of approximately $28 million,
increased
stock based compensation expense of approximately
$19 million
and increases in other professional fees of approximately $7 million. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $1 million.
Depreciation and amortization.
Depreciation and amortization
increased
from
$141.8 million
in the
nine
months ended
September 30, 2016
to
$198.7 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$56.9 million
, or
40.1%
. The
increase
was primarily due to amortization of intangible assets related to acquisitions completed in 2016 and 2017 of approximately $39 million and incremental expense related to capitalized development of software. These increases were partially offset by the impact of disposition of the NexTraq business of approximately $2 million.
Investment loss (income).
Investment loss was
$52.5 million
in the
nine
months ended
September 30, 2017
, compared to investment income of
$2.2 million
in the
nine
months ended
September 30, 2016
. We regularly evaluate the carrying value of our Masternaut investment and during the third quarter of 2017, we determined that the fair value of our 44% investment in Masternaut had declined as a result of our loss of significant influence due to the amendment of the Masternaut investment agreement, executed September 30, 2017. As a result, we determined that the carrying value of our investment exceeded its fair value, and concluded that this decline in value was other than temporary. We recorded a
$44.6 million
impairment loss in the Masternaut investment that includes adjustment for
$31.4 million
of currency losses previously recognized in accumulated other comprehensive income, in the nine months ended September 30, 2017, in the accompanying Unaudited Consolidated Statements of Income.
Other (income) expense, net.
Other income, net was
$173.6 million
in the
nine
months ended
September 30, 2017
, compared to other expense, net of
$1.1 million
in the
nine
months ended
September 30, 2016
. The increase was due primarily to the pre-tax gain on the sale of our Nextraq business of $175 million in the third quarter of
2017
.
Interest expense, net.
Interest expense
increased
from
$49.9 million
in the
nine
months ended
September 30, 2016
to
$76.3 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$26.4 million
, or
52.9%
. The
increase
in interest expense is primarily due to the impact of additional borrowings to finance the acquisitions of STP and Travelcard completed during the third quarter of 2016 and Cambridge completed during the third quarter of 2017, and increases in LIBOR. The following table sets forth the average interest rates paid on borrowings under our Credit Facility, excluding the related unused credit facility fees.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
Term loan A
|
|
2.74
|
%
|
|
1.96
|
%
|
Term loan B
|
|
3.28
|
%
|
|
3.75
|
%
|
Domestic Revolver A
|
|
2.78
|
%
|
|
2.00
|
%
|
Foreign Revolver A
|
|
2.01
|
%
|
|
1.77
|
%
|
Foreign swing line
|
|
1.97
|
%
|
|
1.73
|
%
|
The average unused credit facility fee for Domestic Revolver A was 0.35% and
0.30%
in the
nine
month period ending
September 30, 2017
and
2016
, respectively.
Loss on extinguishment of debt.
Loss on extinguishment of debt of $3.3 million relates to our write-off of debt issuance costs associated with the refinancing of our existing credit facility during the third quarter of 2017.
Provision for income taxes.
The provision for income taxes
increased
from
$132.5 million
in the
nine
months ended
September 30, 2016
to
$227.8 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$95.3 million
, or
71.9%
. 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. Our effective tax rate was 33.2% for the
nine
months ended
September 30, 2017
as compared to 27.1% in the
nine
months ended
September 30, 2016
. The
increase
in the provision for income taxes was due primarily to the pretax gain on sale of the Nextraq business of $175 million at the higher U.S. tax rate, all at the higher U.S. tax rate, and the Masternaut impairment charge in the quarter, which had no corresponding tax benefit. The 2016 tax rate was favorably impacted by a one-time nonrecurring net gain at our Masternaut investment that favorably impacted pre-tax earnings, but was not subject to income tax. The 2016 rate was also favorably impacted by higher excess tax benefits on share-based compensation in 2016 versus 2017.
We pay taxes in many different taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in certain non-U.S. taxing jurisdictions are lower than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates. Also, the excess tax benefit on share based compensation is part of the effective tax rate. As a result, the tax rate is impacted by the number of stock options exercised or restricted shares vested during the reporting period.
Net income.
For the reasons discussed above, our net income
increased
from
$357.0 million
in the
nine
months ended
September 30, 2016
to
$457.5 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$100.5 million
, or
28.2%
.
Operating income and operating margin
Consolidated operating income.
Operating income
increased
from
$538.2 million
in the
nine
months ended
September 30, 2016
to
$643.7 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$105.6 million
, or
19.6%
. Our operating margin was
40.9%
and
39.3%
for the
nine
months ended
September 30, 2016
and
2017
, respectively. The
increase
in operating income was primarily due to acquisitions completed in 2016 and 2017, organic growth, as well as the positive impact of the macroeconomic environment of approximately $14 million, driven primarily by favorable fuel prices, partially offset by the unfavorable impact of fluctuations in foreign exchange rates. These increases were partially offset by the negative impact of higher amortization and depreciation expense related to acquisitions completed in 2016 and 2017, additional bad debt expense of
$11 million
, due to bad debt inherent in the acquired STP business, additional stock based compensation of approximately
$19 million
and the disposition of the NexTraq business in July 2017 of approximately $4 million.
For the purpose of segment operating results, we calculate segment operating income by subtracting segment operating expenses from segment revenue. Segment operating margin is calculated by dividing segment operating income by segment revenue.
North America segment operating income.
North America operating income
increased
from
$367.2 million
in the
nine
months ended
September 30, 2016
to
$394.6 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$27.4 million
, or
7.5%
. North America operating margin was
38.6%
and
38.0%
for the
nine
months ended
September 30, 2016
and
2017
, respectively. The
increase
in operating income was due primarily to organic growth and the positive impact of the macroeconomic environment of approximately $18 million, driven by primarily by higher fuel prices. These increases were partially offset by additional stock based compensation of approximately $14 million, additional bad debt expense of approximately $4 million, the negative impact of higher amortization and depreciation expense related to our acquisition of Cambridge in the third quarter of 2017 and the disposition of the NexTraq business in July 2017 of approximately $4 million.
International segment operating income.
International operating income
increased
from
$171.0 million
in the
nine
months ended
September 30, 2016
to
$249.1 million
in the
nine
months ended
September 30, 2017
,
an increase
of
$78.1 million
, or
45.7%
. International operating margin was
46.7%
and
41.4%
for the
nine
months ended
September 30, 2016
and
2017
, respectively. The
increase
in operating income was due primarily to the impact of acquisitions completed in 2016 and 2017, organic growth. These increases were partially offset by the negative impact of higher amortization and depreciation expense related to acquisitions of STP and Travelcard completed in the third quarter of 2016, additional bad debt expense of $9 million, due to bad debt inherent in the acquired STP business, additional stock based compensation of approximately $5 million and the negative impact of the macroeconomic environment of approximately $4 million, driven primarily by the unfavorable impact of fluctuations in foreign exchange rates.
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 needs, tax and capital expenditure needs.
Sources of liquidity
At
September 30, 2017
, our cash balances totaled
$1,018.3 million
, with approximately
$183.5 million
restricted. Restricted cash represents customer deposits in the Czech Republic and in our Comdata business in the U.S., which we are restricted from using other than to repay customer deposits.
At
September 30, 2017
, cash and cash equivalents held in foreign subsidiaries where we have determined we are permanently reinvested is $509.3 million. All of the cash and cash equivalents held by our foreign subsidiaries, excluding restricted cash, are available for general corporate purposes. Our current intent is to permanently reinvest these funds outside of the U.S. Our current expectation for funds held in our foreign subsidiaries is to use the funds to finance foreign organic growth, to pay for potential future foreign acquisitions and to repay any foreign borrowings that may arise from time to time. We currently believe that funds generated from our U.S. operations, along with available borrowing capacity in the U.S. will be sufficient to fund our
U.S. operations for the foreseeable future, and therefore do not foresee a need to repatriate cash held by our foreign subsidiaries in a taxable transaction to fund our U.S. operations. However, if at a future date or time these funds are needed for our operations in the U.S. or we otherwise believe it is in our best interests to repatriate all or a portion of such funds, we may be required to accrue and pay U.S. taxes to repatriate these funds. No assurances can be provided as to the amount or timing thereof, the tax consequences related thereto or the ultimate impact any such action may have on our results of operations or financial condition.
We utilize an accounts receivable Securitization Facility to finance a majority of our domestic fuel card receivables, to lower our cost of borrowing and more efficiently use capital. We generate and record accounts receivable when a customer makes a purchase from a merchant using one of our card products and generally pay merchants before collecting the receivable. As a result, we utilize the Securitization Facility as a source of liquidity to provide the cash flow required to fund merchant payments while we collect customer balances. These balances are primarily composed of charge balances, which are typically billed to the customer on a weekly, semimonthly or monthly basis, and are generally required to be paid within 14 days of billing. We also consider the undrawn amounts under our Securitization Facility and Credit Facility as funds available for working capital purposes and acquisitions. At
September 30, 2017
, we had no additional liquidity under our Securitization Facility. At
September 30, 2017
, we had approximately $612 million available under our Credit Facility.
Based on our current forecasts and anticipated market conditions, we believe that our current cash balances, our available borrowing capacity and our ability to generate cash from operations, will be sufficient to fund our liquidity needs for at least the next twelve months. However, we regularly evaluate our cash requirements for current operations, commitments, capital requirements and acquisitions, and we may elect to raise additional funds for these purposes in the future, either through the issuance of debt or equity securities. We may not be able to obtain additional financing on terms favorable to us, if at all.
Cash flows
The following table summarizes our cash flows for the
nine
months ended
September 30, 2017
and
2016
(in millions).
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
Net cash provided by operating activities
|
|
$
|
419.5
|
|
|
$
|
404.3
|
|
Net cash used in investing activities
|
|
(341.6
|
)
|
|
(1,371.5
|
)
|
Net cash provided by financing activities
|
|
250.1
|
|
|
976.4
|
|
Operating activities.
Net cash provided by operating activities
increased
from
$404.3 million
in the
nine
months ended
September 30, 2016
to
$419.5 million
in the
nine
months ended
September 30, 2017
. Included in cash flows from operating activities were favorable non-cash adjustments of $151.7 million in the nine months ended September 30,
2017
. Non-cash adjustments were driven primarily by higher depreciation and amortization and an impairment charge in our Masternaut investment, partially offset by the gain on the sale of our Nextraq business in the third quarter of
2017
. Also included in cash flows from operating activities were unfavorable working capital adjustments of $189.7 million. Working capital adjustments are primarily due to the timing of cash receipts and payments during the
nine
months ended
September 30, 2017
over the comparable period in
2016
.
Investing activities.
Net cash used in investing activities
decreased
from
$1,371.5 million
in the
nine
months ended
September 30, 2016
to
$341.6 million
in the
nine
months ended
September 30, 2017
. The
decrease
was primarily due to the reduction in cash outlay for acquisitions and the proceeds received from the sale of our Nextraq business during the third quarter of
2017
.
Financing activities.
Net cash provided by financing activities
decreased
from
$976.4 million
in the
nine
months ended
September 30, 2016
to
$250.1 million
in the
nine
months ended
September 30, 2017
. The
decrease
in cash provided by financing activities is primarily due to an increase in debt repayments of $437.4 million on our credit facility in the
nine
months ended
September 30, 2017
as compared to
2016
, increased spending to repurchase our common stock of
$367 million
and a decrease in borrowings of $76.8 million on our credit facility, partially offset by an increase in borrowings of
$161 million
on our Securitization Facility.
Capital spending summary
Our capital expenditures
increased
from
$41.9 million
in the
nine
months ended
September 30, 2016
to
$49.5 million
in the
nine
months ended
September 30, 2017
, an increase of $
7.6 million
, or
18.1%
. This increase is primarily due to increased spending on strategic projects, including continued investment in our operating systems, as well as incremental spending related to acquisitions in 2016 and 2017.
Credit Facility
FleetCor Technologies Operating Company, LLC, and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers (the “Borrowers”), has a $4.33 billion Credit Agreement (the "Credit Agreement"), with Bank of America, N.A., as administrative agent, swing line lender and local currency issuer, and a syndicate of financial institutions (the “Lenders”), which has been amended multiple times. The Credit Agreement provides for senior secured credit facilities consisting of a revolving A credit facility in the amount of $1.285 billion, a term loan A facility in the amount of $2.69 billion and a term loan B facility in the amount of $350.0 million as of September 30, 2017. 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 swing line loans and multi-currency borrowings and, (c) a revolving C facility in the amount of $35 million for multi-currency borrowings in Australian Dollars or New Zealand Dollars. On
January 20, 2017
, we entered into the second amendment to the Credit Agreement, which established a new term B loan. On August 2, 2017, we entered into the third amendment to the Credit Agreement, which increased the total facility by
$708.7 million
and extended the terms of the credit facilities. The term A and revolver maturity dates are August 2, 2022 and the term B maturity date is August 2,2024. The term A and revolver pricing remains the same and the term B pricing was reduced by 25 basis points to LIBOR plus 200 basis points. In addition, we pay a quarterly commitment fee at a rate per annum ranging from
0.20%
to
0.40%
of the daily unused portion of the credit facility.
The Credit Agreement also contains an accordion feature for borrowing an additional $750 million in term A or revolver A and term B. Proceeds from the Credit Facility may be used for working capital purposes, acquisitions, and other general corporate purposes.
The term loans are payable in quarterly installments and are due on the last business day of each March, June, September, and December with the final principal payment due on the respective maturity date. Borrowings on the revolving line of credit are repayable at our option of one, two, three or nine months after borrowing, depending on the term of the borrowing on the facility. Borrowings on the foreign swing line of credit are due no later than ten business days after such loan is made.
The Credit Facility contains representations, warranties and events of default, as well as certain affirmative and negative covenants, customary for financings of this nature. These covenants include limitations on the ability to pay dividends and make other restricted payments under certain circumstances and compliance with certain financial ratios. As of
September 30, 2017
, we were in compliance with each of the covenants under the Credit Facility.
At
September 30, 2017
, we had $2,690 million in borrowings outstanding on the term A loan, excluding the related debt discount, $350 million in borrowings outstanding on Term B loan, excluding the related debt discount,
$595 million
in borrowings outstanding on the domestic revolving A facility,
$38 million
in borrowings outstanding on the foreign revolving A facility and
$40.2 million
in borrowings outstanding on the swing line revolving A facility. We have unamortized debt discounts of
$6.4 million
related to the term A facility and
$0.7 million
related to the term B facility at
September 30, 2017
.
During the
nine
months ended
September 30, 2017
, we made principal payments of $388.7 million on the term loans, $715.0 million on the domestic revolving A facility, $89.8 million on the foreign revolving A facility and $52.7 million on the swing line revolving A facility.
Securitization Facility
We are a party to a receivables purchase agreement among FleetCor Funding LLC, as seller, PNC Bank, National Association as administrator, and various purchaser agents, conduit purchasers and related committed purchasers parties thereto, which was amended and restated for the fifth time as of November 14, 2014. We refer to this arrangement as the Securitization Facility. There have been several amendments to the Securitization Facility. The current purchase limit under the Securitization Facility is
$950 million
and the Securitization Facility expires on November 14, 2017. The Securitization Facility contains certain customary financial covenants. There is a program fee equal to one month LIBOR or the Commercial Paper Rate of
1.27%
plus
0.90%
and
0.85%
plus
0.90%
as of
September 30, 2017
and
December 31, 2016
, respectively. The unused facility fee is payable at a rate of
0.40%
as of
September 30, 2017
and
December 31, 2016
, respectively.
The Securitization Facility provides for certain termination events, which includes nonpayment, upon the occurrence of which the administrator may declare the facility termination date to have occurred, may exercise certain enforcement rights with respect to the receivables, and may appoint a successor servicer, among other things.
We were in compliance with the financial covenant requirements related to our Securitization Facility as of
September 30, 2017
.
Stock Repurchase Program
On February 4, 2016, our Board of Directors approved a stock repurchase program (the "Program") under which we may purchase up to an aggregate of
$500 million
of our common stock over the following
18
month period. On July 27, 2017, our Board of Directors authorized an increase in the size of the Program by an additional
$250 million
and an extension of the Program by an additional
18 months
. On
November 1, 2017
, we announced that our Board of Directors had authorized an increase in the size of the Program by an additional $350 million, resulting in total aggregate repurchases authorized under the Program of $1.1 billion. With the increase and giving effect to our
$590 million
of previous repurchases, we may repurchase up to
$510 million
in shares of our common stock at any time prior to February 1, 2019.
Any stock repurchases may be made at times and in such amounts as deemed appropriate. The timing and amount of stock repurchases, if any, will depend on a variety of factors including the stock price, market conditions, corporate and regulatory requirements, and any additional constraints related to material inside information the Company may possess. Any repurchases have been and are expected to be funded by a combination of available cash flow from the business, working capital and debt. .
On August 3, 2017, as part of the Program, we entered an Accelerated Share Repurchase agreement ("ASR Agreement") with a third-party financial institution to repurchase
$250 million
of its common stock. Pursuant to the ASR Agreement, we delivered
$250 million
in cash and received
1,491,647
shares based on a stock price of
$142.46
on August 7, 2017. The ASR Agreement completed on September 7, 2017, at which time we received
263,012
additional shares based on a final weighted average per share purchase price during the repurchase period of
$142.48
.
We accounted for the ASR Agreement as
two
separate transactions: (i) as shares of reacquired common stock for the shares delivered to us upon effectiveness of the ASR Agreement and (ii) as a forward contract indexed to our common stock for the undelivered shares. The initial delivery of shares was included in treasury stock at cost and results in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. The forward contracts indexed to our own common stock met the criteria for equity classification, were initially recorded in additional paid-in capital and then reclassified to treasury stock upon completion of the ASR agreement.
Since the beginning of the Program, 4,114,104 shares for an aggregate purchase price of $590 million have been repurchased. There were 2,854,959 shares totaling
$402.4 million
repurchased under the Program during the
nine
months ended
September 30, 2017
.
Sale of NexTraq
As part of our plan to exit the telematics business, on July 27, 2017, we sold NexTraq, a U.S. fleet telematics business, to Michelin Group for
$316 million
. We recorded a pre-tax gain on the disposal of NexTraq of
$175 million
during the third quarter of 2017, which is net of transaction closing costs.We recorded tax on the gain of disposal of
$65.8 million
. The gain on the disposal is included in other (income) expense, net in the accompanying Unaudited Consolidated Statements of Income. NexTraq has historically been included in the Company's North America segment.
Critical accounting policies and estimates
In applying the accounting policies that we use to prepare our consolidated financial statements, we necessarily make accounting estimates that affect our reported amounts of assets, liabilities, revenue and expenses. Some of these estimates require us to make assumptions about matters that are highly uncertain at the time we make the accounting estimates. We base these assumptions and the resulting estimates on historical information and other factors that we believe to be reasonable under the circumstances, and we evaluate these assumptions and estimates on an ongoing basis. In many instances, however, we reasonably could have used different accounting estimates and, in other instances, changes in our accounting estimates could occur from period to period, with the result in each case being a material change in the financial statement presentation of our financial condition or results of operations. We refer to estimates of this type as critical accounting estimates.
Accounting estimates necessarily require subjective determinations about future events and conditions. During the nine months ended
September 30, 2017
, other than noted in footnote 1, "Summary of Significant Accounting Policies", we have not adopted any new critical accounting policies that had a significant impact upon our consolidated financial statements, have not changed any critical accounting policies and have not changed the application of any critical accounting policies from the year ended
December 31, 2016
. For critical accounting policies, refer to the Critical Accounting Estimates in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended
December 31, 2016
and our summary of significant accounting policies in Note 1 of our notes to the unaudited consolidated financial statements in this Form 10-Q.
Management’s Use of Non-GAAP Financial Measures
We have included in the discussion above certain financial measures that were not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.
Below, we define the non-GAAP financial measures, provide a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors.
Adjusted revenues
We have defined the non-GAAP measure adjusted revenues as revenues, net less merchant commissions as reflected in our income statement.
We use adjusted revenues as a basis to evaluate our revenues, net of the commissions that are paid to merchants to participate in our card programs. The commissions paid to merchants can vary when market spreads fluctuate in much the same way as revenues are impacted when market spreads fluctuate. We believe that adjusted revenue is an appropriate supplemental measure of financial performance and may be useful to investors to understanding our revenue performance on a consistent basis. Adjusted revenues are not intended to be a substitute for GAAP financial measures and should not be used as such.
Set forth below is a reconciliation of adjusted revenues to the most directly comparable GAAP measure, revenues, net (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenues, net
|
|
$
|
577,877
|
|
|
$
|
484,426
|
|
|
$
|
1,639,547
|
|
|
$
|
1,316,593
|
|
Merchant commissions
|
|
(27,687
|
)
|
|
(28,214
|
)
|
|
(82,690
|
)
|
|
(78,755
|
)
|
Total adjusted revenues
|
|
$
|
550,190
|
|
|
$
|
456,212
|
|
|
$
|
1,556,857
|
|
|
$
|
1,237,838
|
|
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, (c) amortization of the premium recognized on the purchase of receivables, (d) our proportionate share of amortization of intangible assets at our Masternaut investment, (e) a non-recurring net gain at our Masternaut investment (f) impairment of our Masternaut investment, (g) net gain on disposition of business, (h) loss on extinguishment of debt, and (i) a non-recurring loss due to merger of entities.
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.
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 one-time non-recurring gains, losses, and impairment charges do not necessarily reflect how our investment and business is performing.We believe that adjusted net income and adjusted net income per diluted share are appropriate supplemental measures of financial performance and may be useful to investors to understanding our operating performance on a consistent basis. Adjusted net income and adjusted net income per diluted share are not intended to be a substitute for GAAP financial measures and should not be used as such.
Set forth below is a reconciliation of adjusted net income and adjusted net income per diluted share to the most directly comparable GAAP measure, net income and net income per diluted share (in thousands, except shares and per share amounts):*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
|
|
$
|
202,823
|
|
|
$
|
129,618
|
|
|
$
|
457,503
|
|
|
$
|
356,961
|
|
Net income per diluted share
|
|
2.18
|
|
|
1.36
|
|
|
4.87
|
|
|
3.75
|
|
Stock based compensation
|
|
24,654
|
|
|
17,405
|
|
|
68,897
|
|
|
50,025
|
|
Amortization of intangible assets
|
|
54,003
|
|
|
46,341
|
|
|
158,897
|
|
|
112,455
|
|
Amortization of premium on receivables
|
|
1,650
|
|
|
1,348
|
|
|
4,738
|
|
|
3,687
|
|
Amortization of deferred financing costs and discounts
|
|
1,611
|
|
|
1,917
|
|
|
5,411
|
|
|
5,568
|
|
Amortization of intangibles at Masternaut investment
|
|
2,965
|
|
|
2,406
|
|
|
8,341
|
|
|
7,533
|
|
Impairment of Masternaut investment
|
|
44,600
|
|
|
—
|
|
|
44,600
|
|
|
—
|
|
Net gain on disposition of business
|
|
(109,205
|
)
|
|
—
|
|
|
(109,205
|
)
|
|
—
|
|
Loss on extinguishment of debt
|
|
3,296
|
|
|
—
|
|
|
3,296
|
|
|
—
|
|
Non recurring loss due to merger of entities
|
|
2,028
|
|
|
—
|
|
|
2,028
|
|
|
—
|
|
Non-recurring net gain at Masternaut investment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,845
|
)
|
Total pre-tax adjustments
|
|
25,602
|
|
|
69,417
|
|
|
187,003
|
|
|
168,423
|
|
Income tax impact of pre-tax adjustments at the effective tax rate
1
|
|
(25,656
|
)
|
|
(15,726
|
)
|
|
(69,711
|
)
|
|
(46,425
|
)
|
Adjusted net income
|
|
$
|
202,769
|
|
|
$
|
183,310
|
|
|
$
|
574,795
|
|
|
$
|
478,959
|
|
Adjusted net income per diluted share
|
|
$
|
2.18
|
|
|
$
|
1.92
|
|
|
$
|
6.12
|
|
|
$
|
5.03
|
|
Diluted shares
|
|
93,001
|
|
|
95,307
|
|
|
93,923
|
|
|
95,204
|
|
|
|
*Columns may not calculate due to impact of rounding.
|
1
Excludes the results of our Masternaut investment on our effective tax rate, as results from our Masternaut investment are reported within the Consolidated Income Statements on a post-tax basis and no tax-over-book outside basis differences related to our investment reversed during 2016 or are expected to reverse in 2017. Also excludes the net gain realized upon our disposition of NexTraq, representing a pretax gain of $175.0 and tax on gain of $65.8. The tax on the gain is included in "Net gain on disposition of business".
|
Pro Forma and Macro Adjusted Revenue and Transactions by Product
We define pro forma and macro adjusted revenue as revenue, net as reflected in our statement of income, adjusted to eliminate the impact of the macroeconomic environment and the impact of acquisitions and dispositions. The macroeconomic environment includes the impact that market fuel spread margins, fuel prices and foreign exchange rates have on our business. We use pro forma and macro adjusted revenue and transactions to evaluate the organic growth in our revenue and the associated transactions. Set forth below is a reconciliation of pro forma and macro adjusted revenue and transactions to the most directly comparable GAAP measure, revenue, net and transactions (in millions):*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
Transactions
|
|
|
Three Months Ended September 30,
|
Three Months Ended September 30,
|
(Unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
4
|
FUEL CARDS
|
|
|
|
|
|
|
|
|
Pro forma and macro adjusted
2,3
|
|
$
|
274.0
|
|
|
$
|
259.5
|
|
|
$
|
119.6
|
|
|
$
|
113.6
|
|
Impact of acquisitions/dispositions
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(1.0
|
)
|
Impact of fuel prices/spread
|
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of foreign exchange rates
|
|
2.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported
|
|
$
|
276.3
|
|
|
$
|
258.8
|
|
|
$
|
119.6
|
|
|
$
|
112.5
|
|
CORPORATE PAYMENTS
|
|
|
|
|
|
|
|
|
Pro forma and macro adjusted
2,3
|
|
$
|
71.7
|
|
|
$
|
61.3
|
|
|
$
|
10.9
|
|
|
$
|
10.2
|
|
Impact of acquisitions/dispositions
|
|
—
|
|
|
(15.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
Impact of fuel prices/spread
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of foreign exchange rates
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported
|
|
$
|
72.2
|
|
|
$
|
46.1
|
|
|
$
|
10.9
|
|
|
$
|
10.0
|
|
TOLLS
|
|
|
|
|
|
|
|
|
Pro forma and macro adjusted
2,3
|
|
$
|
80.8
|
|
|
$
|
67.8
|
|
|
$
|
231.0
|
|
|
$
|
225.0
|
|
Impact of acquisitions/dispositions
|
|
—
|
|
|
(42.0
|
)
|
|
—
|
|
|
(143.9
|
)
|
Impact of fuel prices/spread
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of foreign exchange rates
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported
|
|
$
|
82.9
|
|
|
$
|
25.8
|
|
|
$
|
231.0
|
|
|
$
|
81.1
|
|
LODGING
|
|
|
|
|
|
|
|
|
Pro forma and macro adjusted
2,3
|
|
$
|
33.2
|
|
|
$
|
28.1
|
|
|
$
|
4.1
|
|
|
$
|
3.5
|
|
Impact of acquisitions/dispositions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of fuel prices/spread
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of foreign exchange rates
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported
|
|
$
|
33.2
|
|
|
$
|
28.1
|
|
|
$
|
4.1
|
|
|
$
|
3.5
|
|
GIFT
|
|
|
|
|
|
|
|
|
Pro forma and macro adjusted
2,3
|
|
$
|
54.8
|
|
|
$
|
58.3
|
|
|
$
|
294.1
|
|
|
$
|
269.5
|
|
Impact of acquisitions/dispositions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of fuel prices/spread
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of foreign exchange rates
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported
|
|
$
|
54.8
|
|
|
$
|
58.3
|
|
|
$
|
294.1
|
|
|
$
|
269.5
|
|
OTHER
1
|
|
|
|
|
|
|
|
|
Pro forma and macro adjusted
2,3
|
|
$
|
58.1
|
|
|
$
|
57.1
|
|
|
$
|
19.4
|
|
|
$
|
20.4
|
|
Impact of acquisitions/dispositions
|
|
—
|
|
|
10.3
|
|
|
—
|
|
|
0.4
|
|
Impact of fuel prices/spread
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of foreign exchange rates
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported
|
|
$
|
58.5
|
|
|
$
|
67.4
|
|
|
$
|
19.4
|
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
FLEETCOR CONSOLIDATED REVENUES
|
|
|
|
|
|
|
|
|
Pro forma and macro adjusted
2,3
|
|
$
|
572.6
|
|
|
$
|
532.1
|
|
|
$
|
679.1
|
|
|
$
|
642.2
|
|
Impact of acquisitions/dispositions
|
|
—
|
|
|
(47.6
|
)
|
|
—
|
|
|
(144.7
|
)
|
Impact of fuel prices/spread
|
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Impact of foreign exchange rates
|
|
5.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
As reported
|
|
$
|
577.9
|
|
|
$
|
484.4
|
|
|
$
|
679.1
|
|
|
$
|
497.5
|
|
|
|
|
|
|
|
|
|
|
* Columns may not calculate due to impact of rounding.
|
|
|
1
Other includes telematics, maintenance, food and transportation related businesses.
|
|
|
2
2016 is pro forma to include acquisitions and exclude dispositions, consistent with 2017 ownership.
|
3
2017 is adjusted to remove the impact of changes in the macroeconomic environment to be consistent with the same period of prior year, using constant fuel prices, fuel price spreads and foreign exchange rates.
|
4
2016 transactions reflect immaterial corrections from previously disclosed amounts for the prior period.
|
Special Cautionary Notice Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about FleetCor'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, such as delays or failures associated with implementation; fuel price and spread volatility; changes in credit risk of customers and associated losses; the actions of regulators relating to payment cards or investigations; failure to maintain or renew key business relationships; failure to maintain competitive offerings; failure to maintain or renew sources of financing; failure to complete, or delays in completing, anticipated new partnership arrangements or acquisitions and the failure to successfully integrate or otherwise achieve anticipated benefits from such partnerships or acquired businesses; failure to successfully expand business internationally; other risks related to our international operations, including the potential impact to our business as a result of the United Kingdom's referendum to leave the European Union; the impact of foreign exchange rates on operations, revenue and income; the effects of general economic and political conditions on fueling patterns and the commercial activity of fleets, risks related to litigation; our ability to complete an accelerated share repurchase, as well as the other risks and uncertainties identified under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, and 10-Q for the quarter ended June 30, 2017 filed with the Securities and Exchange Commission on March 1, 2017 and August 8, 2017, respectively. These factors could cause our actual results and experience to differ materially from any forward-looking statement. 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.
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
With the acquisition of Cambridge in August 2017, we have additional foreign exchange risk and associated foreign exchange risk management requirements due to the nature of our international payments provider business. The majority of this business' revenue is from exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, this business also writes foreign currency forward and option contracts for our customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. Cambridge aggregates its foreign exchange exposures arising from customer contracts, including the derivative contracts described above, and hedges (economic hedge) the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties.
A hypothetical uniform 10% strengthening or weakening in the value of the U.S. dollar relative to all other currencies in which our net income is generated would have resulted in a decrease/increase to pre-tax income of approximately $1.5 million based on our unhedged exposure to foreign currency at
September 30, 2017
.
As of
September 30, 2017
, other than noted above, there have been no material changes to our market risk from that disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2016
.
|
|
|
Item 4.
|
Controls and Procedures
|
As of
September 30, 2017
, management carried out, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2017
, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the quarter ended
September 30, 2017
, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.